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WEEKLY NEWSLETTER VOL 3 ISSUE 34
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Sunday, August 30, 2009. VOL 3 ISSUE 34.
--BRAZIL TO INJECT UP TO $53 BILLION INTO PETROBRAS.
--BRAZIL: PARANA BASIN MAY CONTAIN OIL AND GAS.
--PEMEX LOWERS 2010 PRODUCTION GOALS.
--REPSOL-YPF REACHES NATURAL GAS SALES AGREEMENT WITH PERU.
--PERU: PLUSPETROL TO INVEST $200 MILLION IN CAMISEA.
--REPSOL-YPF TO PAY $203 MILLION FOR VENEZUELAN FIELD.
--COLOMBIA: ECOPETROL FINDS NATURAL GAS.
--ECUADOR EXTENDS PETRORIENTAL CONTRACT.
--MEXICO TO INCREASE ETHANOL PRODUCTION.
--PETROBRAS CONSIDERS ETHANOL ALLIANCE.
--BRAZIL: SUGAR CANE HARVEST REACHES NEW RECORD IN AUGUST.
--BRAZIL: SALES OF FLEX-FUEL VEHICLES UP BY 5% SO FAR THIS YEAR.
--JUST BECAUSE IT IS GROWING, IT IS NOT NECESSARILY BETTER (My opinion)
BRAZIL TO INJECT UP TO $53 BILLION INTO PETROBRAS
BRAZIL: PARANA BASIN MAY CONTAIN OIL AND GAS
The government of Brazil is considering injecting up to an additional $53 billion into partially
state owned Petrobras, in order to increase the company's ability to make investments,
according to Valor Economico.
The injection will come at a time in which Brazil's president, Lula, wants to increase the
country's control of gigantic pre-salt petroleum reserves, discovered in recent years.
Legislation to change the petroleum rules in the country will modify the present concession
system, to one of production sharing.
According to a high level government source, the government will issue bonds backed by
petroleum to raise funds for a R$ 100 billion capital injection into Petrobras, according to
Valor.
The minimum amount being considered is R$ 40 billion, according to the source.
This plan, which would increase the government's participation in Petrobras to 70%, from
the present 55.7%, would also more than double the company's capitalization to R$ 700
billion, from R$ 300 billion today, according to Valor.
Lula is about to send to Congress a proposal for the new pre-salt petroleum law. The
proposal includes giving Petrobras a preferential position in exploration block auctions.
BRAZIL: PARANA BASIN MAY CONTAIN OIL AND GAS
A study performed by Brazil's Agencia Nacional de Petroleo, Natural Gas e Biocombustiveis
(ANP), in the Parana basin, showed propitious results for possible petroleum and natural gas
prospects between the cities of Ribeirao Preto, in the state of Sao Paulo, and Rio Verde, in
the state of Goias. At this location the agency found "a layer of basalt," whose rock structure
is associated with hydrocarbon deposits.
"We found very positive signs for this region with regards to petroleum and natural gas,"
said ANP's director, Allan Kardec Duailibe, according to Estado.
The basalt layer was discovered using an aero-gravimetric analysis, which evaluates the
soil's internal structure, using airplanes and an instrument which measures the gravity
differences under the soil.
"There are indications of basalt, which is tied to the possibility of petroleum and natural gas
in the Parana basin, and in the Ribeirao Preto region the results are very promising," said
Duailibe.
Now ANP will perform field studies, and then, depending upon results, will conduct
exploratory drilling. At the same time, the agency will prepare for next year an auction of
blocks in this region. "We hope that next year we will be able to conduct the auction, after
technical studies are completed," said the director.
With 1.1 million square KM, the Parana basin is in South-Southwest Brazil, and its potential
is practically unknown.
Among some blocks in the region, natural gas was discovered in the Barra Bonita field, in
Parana, however another ten attempts by ANP failed. Last year Argentinean company STR
won block PAR-T-323, but did not pay the $646.1 million asked, due to the world financial
crisis.
PEMEX LOWERS 2010 PRODUCTION GOALS
Mexico's petroleum production will drop next year to 2.5 million bpd, with the gigantic
Cantarell field continuing to decline, said Pemex last week.
Pemex's director of E & P, Carlos Morales, confirmed a report by Reforma. "This is a
preliminary estimate," said Morales.
Mexico's petroleum production dropped 7.8% this July, to an annual rate of 2.561 million
bpd, while Pemex is trying to make up Cantarell's decline elsewhere. Analysts were skeptical
of Pemex's plans to increase production to 2.65 million bpd by the end of this year.
Mexico's petroleum production has dropped by almost one quarter since 2004, due to
declining production at Cantarell. Pemex is investing heavily in its Chicontepec development,
to compensate for production declines elsewhere. The lower crude oil production is causing
stress in the country's finances.
Revenues from petroleum make up 40% of the country's national budget, and two debt
rating agencies have said that Mexico's debt rating would be downgraded, if it does not
reduce its dependency on petroleum revenues.
REPSOL-YPF REACHES NATURAL GAS SALES AGREEMENT WITH PERU
Spanish petroleum company Repsol-YPF, announced that it has reached an agreement with
Peru to sell its production from block 57 to the local market, at a time when Peru wants to
assure domestic natural gas supplies due to fears of a shortage in the near future.
Faced with a possible domestic shortage, Peru and the Camisea joint venture group
composed of Pluspetrol, Repsol-YPF, Hunt Oil and SK of Korea, began to negotiate a revision
to the natural gas development agreement last May.
According to Reuters and a source familiar with the situation, during the negotiations the
joint venture proposed to dedicate the production from block 57 to the domestic market,
which Repsol-YPF discovered more than one year ago, and which has 2 TCF in reserves.
"The consortium's proposal is to use Repsol's block 57 to supply the local market," said the
source to Reuters. Peru's president, Alan Garcia, will back this proposal, according to
sources.
The Camisea consortium operates natural gas blocks 88 and 56, located in Cusco, and it has
contracted 40% of its gas production to Peru LNG, operated by Hunt Oil, for export.
According to some experts, exports of LNG to Mexico beginning in 2011 will cause a shortage
of natural gas in the country, which expects increased gas usage for industrial, mining and
energy activities, in the next few years.
"The proposal also maintains the export contracts intact, otherwise the companies would
incur serious economic damages," added the source.
President Garcia assured the country that domestic natural gas consumption "would not be
sacrificed" for exports.
The consortium has booked 14.1 TCF of natural gas reserves in Camisea. However, Gaffney,
Cline & Associates only certified 8.79 TCF in Camisea.
PERU: PLUSPETROL TO INVEST $200 MILLION IN CAMISEA
A consortium operated by Argentinean company Pluspetrol will invest $200 million to
increase natural gas reserves at its gigantic Camisea development in Peru, said Peru's
Minister of Energy and Mines, Pedro Sanchez.
The new investment is part of an agreement between the government and the consortium,
to guarantee domestic natural gas supplies.
"The consortium is going to invest $200 million to develop new reserves in block 56," said
Sanchez to reporters, who added that investments will be made between 2010 and 2015.
REPSOL-YPF TO PAY $203 MILLION FOR VENEZUELAN FIELD
Spanish petroleum company Repsol-YPF announced last week that it would pay Venezuela
$203 million for 40% of the rights to produce the Barua-Motatan field, which could produce
about 40,000 bpd during its first phase.
At least 20 petroleum companies are waiting for the assignment or extension of crude and
natural gas fields, which will increase foreign participation in Venezuela's energy industry.
"We are about to make payment. The amount is $203 million, of which $173.5 million is in
vouchers and the rest is in cash," said a Repsol Venezuela spokesman, Antonieta La Marca,
to Reuters.
The vouchers are participation certificates given by the state to Repsol, as compensation for
the nationalization of petroleum fields, and other projects which the company had in the
country.
Representative Angel Rodriguez said that the field's assignment was approved by the
Commission of Energy and Mines in the National Assembly, and that it will be ratified shortly.
The Barua-Motatan field, located in the state of Zulia, is operated by Petroquiriquire, in which
PDVSA has a 60% interest and Repsol 40%. The investment announced in the new area is of
$1 billion, with the objective of increasing production by 65,000 bpd in five years.
Repsol has rights on four crude and natural gas projects in Venezuela, after selling to the
country last month the Barrancas natural gas field, and an electricity generating plant, foe
$188.5 million.
Petroquiriquire also operates the Quiriquire and Mene Grande fields, the later being adjacent
to Barua-Motatan, and whose activities may be merged in a rationalization.
Repsol also is participating in an auction of heavy crude fields in the Orinoco belt.
COLOMBIA: ECOPETROL FINDS NATURAL GAS
A subsidiary of Colombia's state petroleum company Ecopetrol, discovered natural gas and
condensate while drilling near some of the largest producing fields in the country, informed
the company.
Hocol S.A., recently acquired by Ecopetrol from France's Maurel & Prom, announced that the
Huron 1 well, in the Niscota block, in Casanare, discovered natural gas condensate which
flowed naturally at a rate of 3,500 bpd, with 43 API.
"Drilling will continue to the end, said Hocol in a press release, and added that "in the next
few months Hocol will analyze the data and will conduct a production test to better evaluate
the potential of the reservoir."
The Niscota formation is close to the Cusiana-Cupiagua fields, the largest producers of
petroleum and natural gas in the country, operated by BP. Besides Niscota, Hocol operates in
adjacent blocks such as Tangara and Nuevo Mundo, at the foot of the Andes Mountains in
Colombia.
ECUADOR EXTENDS PETRORIENTAL CONTRACT
Petroecuador's Special Auctions Committee (CEL) decided to extend by one year the
temporary E & P contracts that the country signed with the Chinese company last August and
September (2008).
The decision of the committee was based on the fact that a new contract model does not yet
exist. The contract covers blocks 17 and 14.
The DNH expects the company to invest $221.83 million by December, according to the
investment budget presented by the company at the beginning of the year.
Germanico Pinto, Minister of Mines and Petroleum, said last week that the petroleum
companies will receive the new contract model this September.
MEXICO TO INCREASE ETHANOL PRODUCTION
The government of Mexico announced last Tuesday that in September it will propose an
increase in ethanol production for vehicle use in the country, to 176 million liters per year.
The initiative aims to reduce pollution as well as diversify the country's energy matrix,
according to the Latin America edition of the Herald Tribune.
According to Mexico's Energy Secretary, Georgina Kessel, Pemex will initiate a round of
auctions for this proposal, which will have a deadline of December 2009. "This project will
help to reduce emissions of polluting gases and will guarantee development of Mexico's food
industry," said Kessel.
PETROBRAS CONSIDERS ETHANOL ALLIANCE
Petrobras announced that it is having discussions with Brenco, a local ethanol producer
backed by Vinod Khosla and Steve Case, the founder of AOL, to explore possible
opportunities in ethanol.
The partially state owned Brazilian petroleum company announced in a press release that it
is "talking with the objective of identifying possible synergies in the area of biofuel
production."
Local newspaper Valor Economico reported that Brenco is considering selling part of the
company to Petrobras, or to others, to recapitalize and re-structure its debt. According to
Valor, Brenco might sell a controlling interest to Petrobras, or seek to merge with ETH
Bioenergia, an ethanol producer controlled by Brazilian construction group Odebrecht.
Acquisitions and mergers have increased in the sugar and ethanol sector in Brazil since the
credit crisis reached producers, which are heavily in debt due to previous expansion.
Valor reported that Brenco hired local consulting firm Angra Partners to help with the
financial re-structuring. The company was planning to invest R$ 5.5 billion (U.S. $3 billion)
and became one of the largest ethanol producers in the country, with annual capacity of 1
billion gallons.
"Hitherto the conversations are in a preliminary phase and there are no agreements," said
Petrobras, adding that there is no deadline for the negotiations.
Petrobras announced this year its intention to invest in ethanol production, through minority
ownership interests in producers, however it has not yet advanced with its intention of
having participations in 40 different producers, in order to concentrate on exports to the
Japanese market.
In June the company said that it would acquire an existing facility or producer by the end of
2009, and it is building one facility in partnership with Mitsui.
BRAZIL: SUGAR CANE HARVEST REACHES NEW RECORD IN AUGUST
By processing 40 million tonnes of sugar cane during the first 15 days of August, Brazilian
producers processed 5.3 million tonnes more than during the second half of July, when 35.7
million tonnes were processed. Since the beginning of the harvest, the Center-South region
processed 286.6 million tonnes, which is a 17.28% increase in production when compared to
last year's harvest.
Despite the record production, producers expect heavy rains during the second half of
August , which may hurt these record results. Overall they expect a reduction of 10 million
tonnes of sugar cane during the second half of August.
Of the total sugar cane processed since the beginning of the harvest, 43.33% was used for
sugar production, resulting in 15.3 million tonnes of sugar, which is 23.44% more than in the
previous year. Just during the first 15 days of August, 2.5 million tonnes of sugar were
produced. Units that can produce both sugar and ethanol are continuing to give priority to
sugar production, due to higher sugar prices.
Total ethanol production for this harvest through August 15 is 12.3 billion liters, which is
8.4% more than last year. The production during the first 15 days of August reached 1.8
billion liters, 14.47% more than during the same period last year, which was greatly affected
by rains.
Of the 23 new units scheduled to commence production during this harvest in the CenterSouth region, 12 were expected to be operating by the end of August.
The amount of sugar obtained per tonne of sugar cane continues to be low when compared
to previous years. During the first half of August 142.28 KG of Total Recuperated Sugars
(ATR) was obtained, a decrease of 4.6% from the previous year. Since the beginning of the
harvest, the yield averaged 129.63 KG of ATR per tonne, which is 2.65% less than last year.
Rains during the second half of August may further decrease the yield.
BRAZIL: SALES OF FLEX-FUEL VEHICLES UP BY 5% SO FAR THIS YEAR
During the first seven months of this year, sales of flex-fuel vehicles in Brazil increased by
5% when compared to the same period last year. When only the month of July is compared
to the month of June, however, sales dropped by 6.56%. This data was released by Anfavea,
the Brazilian Association of Motorcycle Manufacturers and UNICA.
During the January through July period, 1.474 million cars were sold, more than 63 thousand
units more than in the previous year, when 1.411 million vehicles were sold.
"Flex-fuel vehicle sales in July dropped as expected, but the important thing is that the
vehicle fleet is increasing with the consumer preference. The July drop was due to
anticipated sales in June for tax reasons," according to UNICA.
When compared to last year, motorcycle sales dropped by 21% during the first seven
months of this year. The only flex-fuel motorcycle in the market -- the CG Titan Mix with 150
cc launched by Honda last March -- showed increasing sales. During the first six months of
sales of this new model, more than 79 thousand units were sold, according to Abraciclo, the
motorcycle manufacturers association.
Brazil is the only country in the world that has a flex-fuel motorcycle.
JUST BECAUSE IT IS GROWING, IT IS NOT NECESSARILY BETTER (My opinion).
I was tickled to hear last week that 8 out of the 10 best-selling stimulus cars were foreignmade. We were thus able to subsidize the repatriated profits of Toyota (best sellers #1, #4,
#6), Honda (bestsellers #2, #9, #10), Hyundai (#5) and Nissan (#7)... making sure the
governments of Japan and South Korea were beefing up their tax revenues.
The Post Office says it is cutting 30,000 jobs. USA Today says more and more people can't
pay their utility bills. And one out of three workers has only enough savings to last a week or
less.
In 14 states plus the District of Columbia, the unemployment rate has now reached doubledigit levels. Three of those states (including California) have hit all-time highs in the jobless
rate. Michigan leads the pack with 15% unemployment. Nevada comes in third at 12.7%.
According to an organization called the National Employment Law Project, the U.S. lost
roughly 2.7 million jobs between March and July 2009. NELP also reports that a whopping 31
states have three-month average unemployment rates over 8%.
To make matters worse, some 540,000 Americans will "exhaust" their unemployment
benefits by the end of September. That number is projected to swell to 1.5 million by the
end of 2009.
Mortgage defaults are skyrocketing. "The proportion of homeowners delinquent on their
mortgage or in foreclosure rose to its highest levels in at least four decades," The
Washington Post reported on Friday. A record 1 out of 8 mortgage loans are now either
delinquent or in foreclosure, according to a recent survey from the Mortgage Bankers'
Association.
As the NYT reported last week, "Jim Wigand, the F.D.I.C.'s deputy director of resolutions and
receiverships, says banks that are failing now are in worse shape — in terms of the amount
of losses relative to the size of the banks — than the ones that collapsed during the last big
wave of failures..."
The overall mortgage delinquency rate jumped to 9.24 percent in the second quarter of this
year from 6.41 percent in the same period of 2008. That's the highest delinquency rate ever
recorded (the MBA data goes back to 1972).
More than one in four subprime borrowers is now at least 30 days behind on payments. But
it's not just the crummy mortgages that are going bad. More than 6.4 percent of prime
borrowers are also falling into delinquency.
Another 4.3 percent of U.S. mortgages were in some stage of foreclosure. In plain English,
that means more than 13 percent of U.S. loans are in some stage of distress (either being
paid late or already defaulted on).
Dennis Lockhart, the head of the Atlanta Fed, admitted in a Chamber of Commerce speech
this past week that the real unemployment rate is actually 16% (as opposed to the official
July jobless rate of 9.4%).
Yet another Fed head, James Bullard of the St. Louis branch, further admitted last week that
the Fed plans to keep interest rates "exceptionally low for an extended period of time,"
according to Reuters. "I don't think markets have really digested what that means," Bullard
added. If anything it means the Fed is more concerned with pumping up paper assets, than
protecting consumers and businesses from nominal price hikes.
The Federal Deposit Insurance Corp.'s fund that protects more than $4.5 trillion in U.S. bank
deposits fell to just $10.4 billion at the end of June, as the banking industry continues to
struggle with souring loans and regulators brace for pain in trying to clean up the mess.
The level of the FDIC's fund, the lowest since the savings and loan crisis, almost guarantees
that the government will have to hit the banking industry with another special fee to
recapitalize its reserves. The agency said it had 416 banks on its "problem" list at the end of
the second quarter, up from 305 at the end of March.
Federal Reserve Bank of New York purchased nearly $6.1 billion in Treasurys last Monday,
bringing its total U.S. debt purchases to $262 billion of the pledged $300 billion.
Why are they purchasing these Treasurys? Figures released by the Treasury Department this
week indicated that China reduced its holdings of Treasury securities by $25 billion in June;
the most China had ever sold in a month. That might give you a clue!
Japan, which was replaced by China as the largest foreign holder of Treasuries last year, has
been a larger buyer this year, taking up 11 percent of the new supply of Treasuries.
However, with a new government taking over in Japan soon, the country is expected to
become a seller of Treasurys, not a buyer. Can you see where this is going?
The U.S. Commerce Department said last week (Wednesday) that new home sales surged
9.6% to a seasonally adjusted annual rate of 433,000 in July over the previous month,
demonstrating the housing market is slowly making progress. The median sales price was
$210,000, down slightly from June's $210,400 and a decline of 11.5% from year-ago levels.
Since the market's bottom in January, sales have gained 30%. Still, sales were down 13.4%
from July 2008, showing the market is still not back to actual growth. Builders and real
estate agents are lobbying Congress to extend an $8,000 tax credit for first-time
homebuyers, which expires at the end of November. "The real estate market is really a
fragile thing," Tucson, Ariz.-based A.F. Sterling Homes Vice President Randy Agron told The
Associated Press. "It's not the right time to take [the tax credit] away."
After selling off billions in raw land and writing down the value of properties during the last
three years, homebuilders are searching bubble markets like Sacramento, Phoenix, Las
Vegas and Orlando for deals on ready-to-build lots as they prepare for a rebound. According
to the S&P/Case-Shiller Home Indices, prices declined in 20 U.S. cities in June at a slower
pace than forecast. The group said the home-price index declined 15.4% from a year earlier,
the smallest drop since April 2008. The gauge rose from the prior month by the most in four
years. "It's a good time to acquire properties, because you can often find distressed
properties at low prices," Bernie Markstein, senior economist for the Washington-based
National Association of Home Builders told Bloomberg News.
The government's Office of Thrift Supervision (OTS) last week (Wednesday) said the U.S.
thrift industry booked its first profit since 2007, earning a meager $4 million in the second
quarter, compared with a revised first-quarter loss of $1.62 billion. But the agency also said
the number of "problem" thrifts grew to 40 from 31. The regulatory agency said the small
profit, the industry's first in two years, was from higher net interest margins, lower
provisions for loan losses and higher income from fees. The agency, which largely oversees
mortgage lenders, said the numbers reflect the nation's weak job market and a generally
weak economic environment. "Despite some encouraging signs, the industry's performance
remained uneven," John Bowman, acting director of the OTS told Reuters, "The bottom line
is the industry is not out of the woods yet."
The Conference Board Consumer Confidence Index has rebounded to 54.1 in August after
last month's decline to 47.4. "Consumers were more upbeat in their short-term outlook for
both the economy and the job market in August, but only slightly more upbeat in their
income expectations," said Lynn Franco, director of The Conference Board Consumer
Research Center. "And, as long as earnings continue to weigh heavily on consumers' minds,
spending is likely to remain constrained."
Home prices saw a 2.9% increase in the second quarter from the previous quarter, according
to the Standard & Poor's/Case Shiller index. "For the second month in a row, we're seeing
some positive signs," said David M. Blitzer, chairman of the Index Committee at S&P. "This is
the first time we have seen a positive quarter-over-quarter print in three years." Still, prices
compared to the second quarter last year fell 14.9%. "It's noteworthy that all indicators are
pointing in the same direction," Weiss Research housing analyst Mike Larson told The
Washington Post. "But it's not 'Happy days are here again.' We're going to see continued
deterioration, but at a slower pace."
Temp Firms Say Demand Up in August
Demand for temporary and contract employees increased "markedly" this month, according
to the American Staffing Association, a potential augur of improvement in the overall jobs
picture.
The group's Staffing Index rose to 75 in the two weeks ending Aug. 16, from 71 in early July,
outpacing gains in the same period last year. The index, which measures demand for
temporary workers among ASA member firms on a 100-point scale, has been hovering
between 71 and 73 since hitting an all-time low of 69 at the end of December. The ASA says
its members generate 85% of sales in the U.S. temporary-staffing industry.
A sustained rebound in temporary staffing levels could bode well for the overall labor market.
Temp staffing is often a leading indicator of overall employment because cautious employers
are more likely to add temporary workers before hiring full-time staff following a recession.
The rebound hasn't shown up in data from the Labor Department's Bureau of Labor
Statistics, which lags the Staffing Index. Employment in temporary help services edged down
by less than 1% to 1.74 million jobs in July, according to the BLS. The industry has shed
844,000 jobs since the recession began, but "the declines have lessened substantially over
the past 3 months," the BLS said in its latest employment report. Overall job loss in the U.S.
slowed in July as the economy shed 247,000 jobs, and the unemployment rate fell slightly to
9.4 percent.
"There is something wrong with the entire recovery tale, which ignores the fact that excess
plant capacity is still at the highest level since the Great Depression," wrote the Telegraph's
Ambrose Pritchard last week.
"Capacity use is 70% in Europe, 68% in the U.S., 65% in Japan, and as low as 50% in some
countries, according to the World Bank's Justin Lin. Companies will have to cut jobs and
investment. Soaring 'confidence' indicators have decoupled from reality. The world economy
is still prostrate. GDP has shrunk 4%, 6%, 8%, even 12% or more in a large group of
countries. There it more or less sits, like a deflated soufflé."
While the U.S. was shrinking at an annual pace of 6.4 percent in the first quarter of 2009,
China's GDP was growing at an annual pace of 6.1 percent.
In the second quarter, while the U.S. was shrinking at an annual pace of 1.1 percent, China
was expanding at an annual rate of 7.9 percent.
New loans made by China's banks are exploding higher, up 201 percent for the first half of
'09, while capital investment in both the urban and rural areas is also soaring, up over 33
percent.
Through June of this year, auto sales in China increased a record 17.7 percent to 6.1 million
vehicles, compared to only 4.8 million in the U.S.
China's retail sales continue to rapidly grow, with July showing a 15.2 percent year-on-year
rise over last year. And despite a slump in exports ...
China's industrial production has risen for five straight months, rising 10.8 percent yearover-year.
Meanwhile, of the four large emerging Asian economies that have reported GDP figures for
the second quarter — China, Indonesia, South Korea, and Singapore — GDP is growing by an
average of more than 10 percent, while western economies are contracting by an average of
3.5 percent!
India's industrial production jumped a seasonally adjusted rate of 14 percent in the second
quarter.
South Korea's GDP grew an astonishing 10 percent in the second quarter.
Taiwan's industrial output jumped by an amazing annualized rate of 89 percent.
In Singapore, second-quarter gross domestic product jumped an annualized, seasonally
adjusted 20.7 percent, on the back of a gigantic 49.5 percent surge in manufacturing
activity.
New loans made by China's banks are exploding higher, up 201 percent for the first half of
'09, while capital investment in both the urban and rural areas is also soaring, up over 33
percent.
Through July of this year, auto sales increased a record 23.4 percent to 7.2 million vehicles,
compared to only 5.8 million in the U.S.
China's retail sales continue to rapidly grow, with July showing a 15.2 percent year-on-year
rise over last year. And despite a slump in exports ...
China's industrial production has risen for five straight months, rising 10.8 percent yearover-year.
Among India's 1 billion people, a rapidly growing segment is now modernizing, with a GDP
growth rate of 6 percent.
India's GDP is now surging to more than $1 trillion. And after adjusting for its lower
purchasing power, India's once-backward economy has become the world's third-largest
economy, in terms of purchasing power parity.
India's retail market is exploding, now at $330 billion.
India's purchases of passenger vehicles are expected to double to 2 million a year by 2010.
China has overtaken Japan as the world's No. 2 buyer of crude oil, importing 4.62 million
barrels a day in July, up 14 percent from June.
Longer-term, China's oil demand has grown from 4.8 million barrels of oil a day in 2000 to 8
million barrels today, a whopping 67 percent growth.
Driving this growth is China's booming auto sales. In July, China's auto sales jumped an
astonishing 70 percent higher than a year earlier. China's automobile market may post
higher sales than the U.S. auto market for a full year for the first time ever.
China's not the only one. India's car sales were up 31 percent year over year. In fact, this
may be the first year that emerging markets (combined) use more oil than the United
States.
A confidence index that measures sentiment among German business executives rose for a
fifth straight month in August, increasing to 90.5 from 87.4 in July, exceeding the median
forecast of 89 in a Bloomberg News survey. The index reached a 26-year low of 82.2 in
March. The survey of 7,000 executives in Munich was the highest since September last year,
suggesting Europe's largest economy will gather strength after stumbling through its worst
recession since World War II. Germany's economy expanded by 0.3% in the second quarter
as improving global trade boosted demand for exports and the government's $122 billion (85
billion Euros) package to stimulate domestic spending started to take effect. "The third
quarter has all ingredients for another growth surprise," said Carsten Brzeski, an economist
at ING Group N.V. (NYSE ADR: ING) in Brussels.
According to the US Department of Energy, liquid fuel demand in the developed nations
peaked in August 2005 at 41.89 million barrels per day. Since then, it has plunged by 3.6
million barrels per day to 38.27 million barrels per day. However, you may want to note that
despite these tough economic conditions, consumption has been extremely resilient in the
emerging world. For instance, demand in the developing countries peaked in October 2008
at 46.33 million barrels per day and it is down by only 0.36 million barrels per day. This
clearly means that as soon as we have any kind of recovery, petroleum prices will skyrocket!
QUOTES OF THE WEEK
"After many students go through a dozen years in the public schools, at a total cost of
$100,000 or more per student -- and emerge semi-literate and with little understanding of
the society in which they live, much less the larger world and its history -- most discussions
of what is wrong leave out the fact that many such students may have chosen to use school
as a place to fool around, act up, organize gangs or even peddle drugs."
Thomas Sowell, Creators.com
"The difficulty at the moment is finding enough healthy banks to buy the failing banks."
Richard Bove, Rochdale Securities analyst
"Credit fuels housing. It fuels consumer durable goods. It fuels business investment. It's in
every part of the economy..."
Carmen Reinhart, University of Maryland economist
"When the leader of the free world is complaining about a posting on the former governor of
Alaska's Facebook page, he's got problems."
Chris Stirewalt, WashingtonExaminer.com
"There are no good choices. Nouriel [Roubini], optimist that he is (note sarcasm), suggests
that there is a possibility that the government can manage expectations by showing a clear
path to fiscal responsibility that can be believed. And thus the bond markets do not force
rates higher, thereby thwarting recovery.
And technically he is right. If there were adults supervising the party, it might be possible.
But there are not. . Instead of fiscal discipline, we are hearing increased demands for more
spending. Please note that the very rosy future-deficit assumptions assume the end of the
Bush tax cuts at the close of 2010. But raising taxes back to the level of 2000 does not make
the projected future budget deficits go away.
…It is the proverbial rock and the hard place. Cut the stimulus too soon and we slide back
into a deeper recession. Let the budget spin out of control for a few years and we will see
inflation return, with higher rates and a recession. Raise taxes by 1.5-2% of GDP in 2010
and we are shoved back into recession.
There are no good choices. If we do the right thing and cut the deficit, it means very hard
choices. Can we keep our commitments to two wars and our massive defense budget?
Medicare and Social Security reform are not painless. Education? Research? The "stimulus"?
But cutting the deficit by hundreds of billions while raising taxes by even more than is
already in the works, is not the formula for sustainable recovery.
Have we grown up? Are there adults in the room? Sadly, I don't think there are enough. We
are still a nation of teenagers. We will do whatever we can to avoid the pain today. We will
kick the can down the road, hoping for a miracle. Will we grow up? Yes, but the lessons
learned will be hard.
There are no statistical signs of an impending recession. We are not going to get an inverted
yield curve this time, which made it relatively easy for me to predict recessions in 2000 and
2006. We are in a deflationary, deleveraging world. A far different world than in the past.
I see little room for us to avoid a double-dip recession."
John Mauldin
It should be obvious to everyone that just because the GDP is growing doesn't mean people
are really any better off. In fact, GDP growth during the latest Bubble was really a measure
of how fast people were ruining themselves. Seventy percent of the GDP was consumer
spending; as consumer spending went up, so did debt. The result was a paradox and a
shame - at the end of one of the longest periods of uninterrupted GDP growth in history, the
typical householder was poorer than he was when it began.
Frankly speaking, as usual, I don't think that there is an enemy that could have done as
much damage to us, as we have done to ourselves. Regrettably, it is not over yet and the
ramifications will continue for a long time. All we can do at this point is to save ourselves, for
in my opinion, the ship cannot be saved. Let's leave it at that.
Jose Cavaliere
[email protected]
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