The U.S. Economy: Stand by for more worse news

[Billy T]

"When," not "if?"

Chavez isn't going to do any such thing, at least on purpose. He might well mismanage Venezuela's production to the point where they aren't producing any oil to sent to any refineries (oil production in Venezuela is down 25% since Chavez took over, fired all the technicians at the state oil company, and started using it as a piggy-bank instead of investing in production). But more likely he'll be dead and/or out of office by the end of next year anyway. Anyway he's been blustering about this for years now - if he were seriously going to do it, he'd already have.

It really does not matter much if Chavez is dead or alive. China has or soon will have invested nearly 100 billion in development of the world's largest shale oil deposit and the construction of two new heavy oil refineries (Brazil's PetroBras is building one there too - will get 40% of its out put for ever. That refinery is idential to one being built in Brazil which only produced heavy oil. Venezuela gets 40% of its out put "for ever." Cost of these two refineries is 50/50 split between the two countries, but each would pay more for one if separately designed.)

China is to be repaid in Venezuelan oil. - Then Venezuela's heavy crude will not be coming to the US Gulf coast refineries. That is why the DoE is so desperate to get the Keystone extension pipeline built. - It will bring Canadian heavy shale oil to these Gulf Coast refineries when they don't have crude from Venezuela.

Look at post163 of this thread to get better informed. There you can read following quotes from DoE:
“…The US Dept of Energy (DoE) concluded that these pipelines to BC would open the Canadian oil sands to Asian markets and result in a substantial increase in US reliance on oil sourced from unstable and/or hostile Middle Eastern and African regimes.
The DoE report found that “the same slate of crude oils would have to be refined even if reallocated geographically.” "In other words, Canadian oil sands crude is going to find its way to market. …”

See in post 163 map of the keystone pipeline, even the pipes waiting for funding / final approval to go into the ground. …

"According to a 2011 study by the Canadian Energy Research Institute (CERI), new oil sands investments are expected to create 444,000 new US jobs by 2035. As for right now, TransCanada’s Robert Jones, the executive in charge of the project, recently noted that Keystone XL is indeed “shovel ready” and that construction would involve hiring as many as 10,000 Americans immediately and up 34,000 by 2014.…”

Quoted text from: http://money.cnn.com/2010/12/23/news/economy/oil_sands_pipeline/index.htm?a=4
Read more on this here: http://www.sciforums.com/showpost.php?p=2667151&postcount=62

and for China’s role in leaving the US “high and dry”, oil wise, read last half of post here: http://www.sciforums.com/showpost.php?p=2742509&postcount=395

 

[quadraphonics]

Then Venezuela's heavy crude will not be coming to the US Gulf coast refineries.

You overestimate the scale of the other refineries coming online - the ones in Brazil would not be able to handle even 10% of Venezuela's current output (let alone, the output they had before Chavez began mismnaging PDVSA). Moreover, that deal isn't even finalized, and it remains unclear whether PDVSA will actually go through with it:

http://online.wsj.com/article/BT-CO-20110913-708865.html

The Chinese refineries are likewise still on the drawing boards, and the planned capacities would account for less than a quarter of Venezuela's oil output. Even if all of these refinery projects go through (which is doubtful, especially if Chavez dies or leaves office in the next year), there would still be more than enough Venezuelan production to continue the supply of US refineries.

Another aspect you neglect is that the US/Carribean refineries that process Venezuelan oil are themselves owned by PDVSA. If they cut off the supply of oil to those, they'll be shooting themselves in the foot.

Furthermore, there is a flipside to these investment-for-future-oil contracts that you mention: PDVSA provides pretty much the entire operating budget for the Venezuelan state. They need cash flow. And the USA is just about their only paying customer - most of the others are getting steep discounts for political reasons, or getting free shipments of oil to repay earlier investments. So, paradoxically, every time Chavez inks one of these deals and trumpets how it's making Venezuela less dependent on the USA, it's actually making Venezuela more dependent on the USA. Venezuelans can't eat oil refineries, so there's a hard limit on what percentage of Venezuela's oil output Chavez can dedicate to political ententes or infrastructure development trades. The rest he needs to actually sell at market price - and he hasn't got any other paying customers, besides the USA.

 

[Billy T]

You overestimate the scale of the other refineries coming online - the ones in Brazil would not be able to handle even 10% of Venezuela's current output (let alone, the output they had before Chavez began mismnaging PDVSA).

I agree and never suggested even a barrel of Venezuela's oil would be coming to Brazil. The new refinery in Brazil will process Brazil's heavy crude, which is now exported, in greater volume than the light oil Brazil imports to meet internal needs. Because of the value difference even though Brazil is a net exporter of oil it has a net bill for oil.

I must go to bed now but also did not say the refineries were done - Brazil expects they will be. Perhaps more reply tomorrow.

 

[Billy T]

... Even if all of these refinery projects go through (which is doubtful, especially if Chavez dies or leaves office in the next year), there would still be more than enough Venezuelan production to continue the supply of US refineries.

Another aspect you neglect is that the US/Carribean refineries that process Venezuelan oil are themselves owned by PDVSA. If they cut off the supply of oil to those, they'll be shooting themselves in the foot.

Furthermore, there is a flipside to these investment-for-future-oil contracts that you mention: PDVSA provides pretty much the entire operating budget for the Venezuelan state. They need cash flow. And the USA is just about their only paying customer - most of the others are getting steep discounts for political reasons, or getting free shipments of oil to repay earlier investments. ...

One cannot know what happens after Chavez is gone. He has done a lot of damage to Venezuelan economically, while greatly improving the lot of the masses by confiscating land for the former serf's new villages. Each has a Cuban staffed clinic, clean water & sanitation system, local schools, and its assigned production products, (like an Israeli Kibbutz), plus a radio station for promoting "socialism of the 21 century" and for regional coordination of the well armed local guards in weekly drills. Before Chavez, the serfs had none of this - they love him and with massive demonstrations filling the streets, put him back in power in only three days after CIA's right wing locals drove him from power.

I suspect that "socialism of the 21 century" will die with Chavez - giving oil and funds to Morals etc. is expensive for Venezuela. The refineries will be built for same reason that Brazil's will be. There is great savings by converting your own crude into gasoline instead of importing it for cash. With three new ones Venezuela should be able to export refined product instead of just crude and earn much more for it oil than it does now.

Once a less idealistic and more efficient PDVSA is functioning with more valuable products to sell, probably Venezuela’s terrible inflation will end. Under Chavez Venezuela's natural wealth has been mismanaged, and used mainly to promote "socialism of the 21 century." Post-Chavez, Venezuela will become the rich oil state that it should be and like others, when China can pay higher prices than the US, that is where their oil products will go. In any case, as DoE fears, there will be little, if any, Venezuelan crude going to the US's gulf coast refineries.

As far as your comments that only the US can buy - that is silly. China has plenty of dollars it does not want to hold so will gladly give them up (more per barrel than US with weak dollar can) for oil or refined product.

 

[Captain Kremmen]

Stocks slumping today. FTSE Down to 5050.
A good time to buy, or not?


Look at this graph. 1 yr FTSE

See a pattern recently?
Up and down within broad limits of 5400 and 5000, but the trend is rising I think.
Do you think this oscillation will continue?
The trend is also clear. Do you believe in this kind of analysis?

 

[Captain Kremmen]

One cannot know what happens after Chavez is gone. He has done a lot of damage to Venezuelan economically, while greatly improving the lot of the masses...........

This is from the Venezuela Embassy in Washington. 13th June this year.
You may wish to challenge the figures, and I am open to correction as always.

Bolivarian Republic of Venezuela has the world’s third-highest capacity to establish public credit, which means that the debt-to-GDP ratio is one of the healthiest of the world, after only China and Russia, according to figures by the World Bank.


Can the UK have some of this economic damage please?

 

[Saint]

has US housing industry recovered?

 

[Captain Kremmen]

Everything is falling.
Every damn thing.
Chicken Little, come back, we misjudged you.

In answer to my post #165, below, it was not the best time to buy as the FTSE went down another 100, before rising.
That 5,000 mark seems to be holding at present.

 

[Billy T]

This is from the Venezuela Embassy in Washington. 13th June this year. You may wish to challenge the figures, and I am open to correction as always.

Bolivarian Republic of Venezuela has the world’s third-highest capacity to establish public credit, which means that the debt-to-GDP ratio is one of the healthiest of the world, after only China and Russia, according to figures by the World Bank.
...

Yes, Venezuel's debt to GDP is surprisingly low (less than half of Brazil's and 97 other countries have worse ratio). Perhaps that is because few are willing to lend to them. Chavez has long history of simply confiscating assets like oil drilling rigs etc. and not paying. If that is the case, it is false to conclude Venezuel has the: "world’s third-highest capacity to establish public credit" - they may instead have one of the lowest capacities to borrow.*

Rank Country % of GDP (CIA) Date % of GDP (IMF) Date Continent

98 Venezuela 26.9 2010 est. 34.8 2010 South America
32 Brazil 60.8 2010 est. 66.8 2010 South America
37 United States 62.3a 2010 est. 92.7 2010 North America

From: http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt

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* Normally, a country that has huge oil reserves, would borrow to develop them, but Venezuela is trading them away (mainly to China) for the assistance they need in development of their shale oil. Probably a major reason why China is developing a global "blue water navy" including 6 aircraft carriers is to assure that the promised deliveries of oil and minerals many countries have given will be honored. This past summer, China for the first time ever sent a very capable destroyer /frigate into the Med. Sea.** They did a very good job of evacuating Chinese from the chaos that was happening in Libya. (Much better and faster than the Brits did.)

** Here it is:

For better picture and video of it in operation in the Med, go here: http://zoomscanner.blogspot.com/2011/03/chinese-warship-spotted-in.html (Page down for CNN's video link)

 

[Captain Kremmen]

* Normally, a country that has huge oil reserves, would borrow to develop them, but Venezuela is trading them away (mainly to China) for the assistance they need in development of their shale oil.

To be fair, that is a not always a bad way to develop resources.

People in Ireland criticise their Government for "giving away" rights to explore for oil and gas.
But those people don't realise the cost of exploration, and the degree of know how involved.

The country then taxes the earnings, or takes money in some other way.
It's better than not using the resource at all.

 

[Billy T]

"... Commercial Aircraft Corp. of China announced its first 100 orders for the 166-seat C919 plane at the show as China strives to challenge Boeing Co. and Airbus SAS in the $70 billion-a-year global aircraft market. The nation is also developing high-speed trains, supercomputers and mobile-phone systems to create better-paying jobs and reduce its reliance on imports. ..."*
From: http://www.bloomberg.com/news/2010-...er-plane-stokes-pride-wins-initial-sales.html

To be fair, that is a not always a bad way to develop resources. ... The country then taxes the earnings, or takes money in some other way. It's better than not using the resource at all.

Agreed.

I just said it was not the normal way if country can borrow, hire the needed expertise, and keep all the profits themselves.** If rich, (or with lots of borrowing power) they can do what China does. - Buy up companies with the needed expertise or invite them in and steal the expertise as a starting point.

The second approach is how China became world leader in High Speed trains - Asked Germany companies who were to build some in China, then improved them. China trains so many engineers and has the money for research and testing that they can become the world leader in anything they want to.

If I were Boeing, I'd be concerned - never sell them a "dreamliner." They now make their own larger airplane (learned how by "reverse engineering" some they bought) and will get the technology for the newer carbon fiber ones, etc. if they can. If they do, in couple of decades China will be global supplier of the cheapest high-efficiency airbuses.

---------------
* China now is no longer the world's cheap labor maker of low value added toys and plastic junk, because China has such rapidly increasing salaries (in purchasing power ~10% per year) as they switch to the domestic economy dominating their exports in their GDP. Most of their exports soon will be going to other nations who supply them, either with food and raw materials like Brazil*** or Australia OR to other Asian nations making the cheaper, low value added, low technology items, like fans and resistors, China builds into their higher valued added exports)

** If project will be productive for decades, the cost of learning how to exploit it is not of much importance so paying for state of the art technology is quickly recovered cost.

*** For more than a year now Brazil has imported more Chinese made cars than US made cars - China is eating the West's lunch and the West does not yet realize it. - Wonders why with dollar and Euro falling in value its exports are not soaring!

PS - Chinese have a long memories and a deep desire to get revenge for what the West did to them near the end of the 1800s. (Dumping Indian opium by daily boat loads on them, stealing parts of China like Hong Kong and several other ports /islands). When they are ready - no longer needing to export to the west, they will rejoice with Westerner hungry and rioting in the streets. If you don't believe that, read this post: http://www.sciforums.com/showpost.php?p=2668027&postcount=358

 

[Captain Kremmen]

There has been a great advantage for China in that they are supplying a consumerist market, while not being consumerists themselves.
It's rather like supplying Opium to a country, while not using it yourself.

Perfect revenge I would say.

 

[Billy T]

There has been a great advantage for China in that they are supplying a consumerist market, while not being consumerists themselves. It's rather like supplying Opium to a country, while not using it yourself. Perfect revenge I would say.

That is an interesting and reveling POV. If I may extend your idea, China's filling the US for a couple of decades with cheap plastic toys, and poorly made, but cheap clothes, etc. while collecting a trillion plus dollars is much like giving free ice cream to an ice-cream addicted diabetic, who years ago stepped on the Chinese toe. - Sweet and easy revenge.*

I.e. for being hopelessly in debt to China, the Americans have only themselves to blame. For some years, I have expressed this same idea as:

"For decades the US has been loading the Chinese economic canon, with which China at the time of its choosing, can destroy the dollar and the US economy."

------------
* To understand why China craves revenge, read this post: http://www.sciforums.com/showpost.php?p=2668027&postcount=358

 

[Captain Kremmen]

Within the USA, it is difficult for the people of that country to understand why anyone would want revenge upon them.

Take for example the self examination that took place after 9/11.
For a very short period of time, Americans turned their gaze upon themselves.
"Why", they thought, "would anyone want to hurt us in this terrible way".
" We are charitable. Try to give everyone a hand. We are the good guys.
How could anyone hate us enough to do something as terrible as this"

That might have been a point at which America looked at its foreign policy, its continual meddling with other countries for its own purposes, the loss of of life resulting from that blind craving for oil and stuff, and the delivery of other lands into servitude under a variety of wicked dictators, should those dictators be friendly to America and its bloated needs.

Instead, what was the consensus explanation of this dastardly act of murder that was the Twin Towers attack?

"They do it because they hate our Freedom"

The rest of the world bangs its head upon the table in frustration, or at least anyone with a thinking brain does so.
And those who make their fortunes hanging on to America's coat tails, our Corporatists who measure life with calculators and our corrupt Politician's, they just nod their heads, and tell you that you are right.

 

[Billy T]

Few Americans, but most literate South Americans know that 9/11 (1973 I think from memory) was the day the CIA's local right-wing goons killed the democratically elected* president of Chile, Salvador Allende, an openly declared communist. This was the start of the CIA's destruction of every democratic government in South American as part of the "cold war" effort to keep the USSR from gaining influence in "left leaning" South America.

This effort also killed ~50,000 left leaning students before it ended. They wanted a return to democracy and an end of the dictators to whom the CIA gave old military equipment, tear gas and water canons etc. for crowd control.

In South America, 9/11 has a very different meaning as 50,000 is much greater than less than 3000 dead and they lost control of their governments for about two decades. These facts conflict with the "We're the good guys" image the US educational system tries to maintain so are little known in the USA.

---------------
* He was a major labor leader and elected president on his fourth try and then only because the conservatives were bitterly divided with two equally strong candidates.

 

[Captain Kremmen]

America.
How can such a big Island still have such a blinkered Island mentality?

All we can do Billy, is keep explaining how we think.
If it wasn't for the internet , we would have no voice at all.
But little drops can wear away rock if they continue long enough.

 

[Captain Kremmen]

Getting back to the OP.
This slump in bank share prices is extremely ominous.

 

[Billy T]

Open Letter to Congress Regarding Wages By Robert Williams, Publisher, WallStreetDaily.com

"... This past decade was absolutely unique because it represented the very first time in history that the economy expanded for six consecutive years (2001-2007), yet, during that very same period, household incomes declined and poverty levels rose! …
Between 2002 and 2007, the very top tier of American earners saw their incomes rise by 10%. Between 2001 and 2006, over 53% of national income was going to the top 1%:

{Billy T notes: Whenever ~25% goes to 1%, depression follows – Their spending cannot support a mass production, consumer-based, economy – That is simple and obvious.}

The top 0.01% of Americans now individually earns more than $35 million a year. They earn $1 out of every $17 - the group's highest amount since data collection began in 1913. For example, in 2007, Kenneth Lewis earned around $100 million as the CEO of Bank of America. To spend it all, he'd have to buy $273,972.60 worth of goods and services every day, including weekends or spend $22,831 every hour... or $380.52 every minute. Don't expect it to ever happen. ...
{Billy T notes: Instead, expect the world’s worst depression in US & EU, as I predicted when GWB reduced Joe American's purchasing power, made only 4 new million jobs when 22 million were needed just to match the growth of the labor force in his 8 years.}

Rather, the vast majority {of income now} goes to CEOs of public companies or other high-level executives, with a growing number of them coming from finance and banking. They're getting fabulously richer while the rest of us hold steady or get worse.
{Billy T notes: They are investing, creating lots of jobs, IN CHINA’s new more efficicient fctories so non-competive US factories are closing or outsourcing jobs to stay open – At least take back the tax reduction GWB gave those SOBs who are destroying US jobs.}

From 1979 to 2006, the average American household income increased from $47,900 to $71,900 - a modest 50% increase in 30 years. Over the same period, America's top-tier of earners saw their income increase from just over $4 million per year to nearly $24.3 million - a 507% increase! The hidden cost to us all is that the super-rich don't spend their money at a rate fast enough to keep the economy humming along. …”
{Billy T notes – Joe American's 50% salary gain is nominal, if inflation corrected there is essentially no gain.}



Billy T notes:– Than stagnation of Joe's salary and wealth concentration grantees a depression is coming with most out of work and government debt soaring (little revenues & more than a trillion dollar annual deficits) to feed them, contain riots with Marshal Law, etc. That depression will promptly follow the run on the dollar I forecast years ago to occur by Halloween 2014, or sooner. Soon investors will realize it is insane to buy 10 Year Treasury bonds yielding 1.8% and stop doing that. As the “twist” will not reduce unemployment or boost home prices, stop foreclosures, etc. QE3 is coming and with it inflation > 5% , and very probably > 10% before those bonds mature.

 

[Captain Kremmen]

Very interesting letter Billy.
If the country paid the top people a cap of 1 million dollars a year they could afford to double wages.
A million a year should be enough reward for anyone, shouldn't it?

The FTSE has done the same damn thing today.
Bounced up to 5,300.
It will rise a little bit more and then it will go down sharply towards 5,000 again. It's done it four times now.

But they say once you notice a pattern on the stock exchange, that's the end of the pattern.

 

[Billy T]

Some critical times (7Oct11 is last "public" hearing*) are now here for the Keystone Extension pipeline (Bring Canada's oil sand oil to the Gulf State refiners designed for that heavy oil, which may not be coming from Venezuela for much longer) See post 180 thru 184 for my exchange with Quadraphonics on this question and:

http://www.investingdaily.com/id/19...gx=d.kac,stid.12075,sid.250664,lid.6,mid.5673

* I put "public" in quotes as the hearing is in DC and room will be packed by lobists wanting approval and few of the people of seven mid west states that are strongly opposed for valid concern, such as:

"... The most vocal opposition occurred in Nebraska because the pipeline will run through the environmentally-sensitive sandhills region of the state that is the home of the Ogallala Aquifer, which provides drinking water for more than two million people, including 78% of Nebraska residents. According to environmentalists, the sandhills are very vulnerable to oil spills because their sandy soil is porous and the water table lies close to the land surface. Public confidence has been shaken by reports that TransCanada’s first pipeline – Keystone 1 – has already suffered 12 oil spills since opening in June 2010, the most spills for any first-year pipeline in U.S. history. Opponents include Nebraska governor Dave Heineman and nine Noble Peace Prize winners -- including Tibet’s Dalai Lama and South African Archbishop Desmond Tutu. ..."

This quote from the above link.

PS the "worse news" is that money, not the people, will win this "public hearing" but why should this case be different?