I have a theory of why FGI is at such a low price. It is because of the poor earnings report of Halter Marine. Many investors seem to have only a superficial knowledge of the companies and industries they move in and out of. Many of the folks here, who work in the industry know a heck of a lot more. I think the shorts believe that FGI's earnings will follow Halter's earnings. They do not realize that they are comparing apples and oranges. Halter's main business was in jackups, and supply boats, FGI builds almost exclusively deepwater rigs. These rigs are not ordered by drilling companies unless they have firm contracts coming out of construction, and take 1-2 years to build. Halter's contracts included some built on speculation, and are of much shorter duration. They can be turned on or off very quickly. I think the short interest in FGI was created by the anticipation that FGI would act like Halter. I don't think there is any insider info about contract cancelations or backlog loss, because there would be law suits all over the place. It appears to me that FGI contracts work like this: X oil company goes to Y drilling company for a deepwater project. They enter an agreement for 3-5 years using a rig that hasn't been built yet. Y drilling company goes to FGI, with the drilling contract in hand, and orders the rig, which will be delivered in 1-2 years. In order for the build to be cancelled, X oil company has to cancel it's agreement with Y drilling company, which then has to cancel with Halter. You can see that this process would result in half the oil industry winding up in court, and we would definitely hear about it. The other problem Halter had was cost overruns on fixed price contracts. They bid too low and ate the difference. FGI has an excellent reputation for "on schedule and at cost." They don't have the sloppiness that Halter has had in their bidding and contract performance. But this is all too much for the shorts to absorb, they just figure that Halter and FGI both build oil stuff, so what happens to Halter will happen to FGI. The shorting of the stock is what drove down FGI's price, but when they need to cover, the shorts will drive the price in the opposite direction. My guess is that FGI's earnings are going to be much stronger than these guys are expecting, since they expect it to follow Halter's, and there will be a good recovery of FGI stock price.
I'll speculate on another area. OPEC is so weak right now because there is no leadership. The Mideast countries are so embroiled in internal and external politics and all sorts of back stabbing that no one is in control, although the economic destruction they are experiencing makes them all desperately want improvements. I think Chavez is going to emerge as a very powerful figure. He is not even in office yet and is being visited by big shots from Mexico, Saudi Arabia, Iran etc. Quiz; who is the president of Costa Rica? of Ecuador, of Argentina, Brazil, even Mexico? some will know the answers, but most won't. Who is the next president of Venezuela? Almost all will know it's Chavez. That's remarkable. Who has taken control of OPEC's decision as to cut production more or not? Chavez. He is the one who controls the process. He is organizing a South American oil alliance with Peru and Columbia, and he is working with Mexico, all non-OPEC. And he's not even in office yet.
His oil policies are going to dictate the price of oil and will be the headline for OPEC, and he appears to have the charisma to take over leadership. His leftist inclinations are going to put him at odds with the US, but will make him a hero to the world's less privileged, the same population that the leftest politics of Communism and forms of socialism appealed to, not just in South and Central America, but world wide. With the fall of Russia, no one represents this philosophy, but there is a huge potential mass of people who still believe in it, but who have no focus, no one to speak for it. This is what got Chavez elected by a landslide, that same mass of people in Venezuela. They got tired of watching Government and oil company workers live like royalty, while they barely survive.
This is way out speculation, but Chavez and General Lebed of Russia have a lot in common. If Lebed comes to power in Russia, they may find they are kindred spirits. There is a vast difference between the philosophies of someone who rises to power through the military and popular support vs those who come to power because they have the money to buy it. Russia is not going to move to pure US style economics, but some kind of mix. The stability promised by some form of Socialism is too ingrained for the population to buy into a small wealthy class of rulers, while the population starves. But no country can compete in the world without the incentives of capitalism. The US has all but lost any influence over Russia's direction. Oil is Russia's only immediate hope, but not at these prices and it can't win by fighting OPEC. It has huge reserves, and it is steadily forming closer relationships with key OPEC countries. It will be very significant if Chavez has a trip to Russia, or they come to him. The next election in Russia will be of incredible importance. As Russia, and OPEC are learning, if you don't have money, you don't have influence, whether you are a country or an individual. Oil wealth still has the potential to be the most potent power in the world. Nuke missiles don't really cut it, because the other side will retaliate. Mutually assured destruction is a bummer.
Right now the world is without real leadership. Leadership requires ideals that stimulate and energize people. Neither religious models that require force and punishments, nor pure money making greed ultimately succeed because both result in the loss of basic human rights and freedoms. Chavez has the potential to fill that gap, but he won't be pleasing to a lot of people. That will make some folks happy, and some very unhappy. So, that's life. One of the oldest, yet most often forgotten laws of politics is to spread the wealth. Don't let the gap between the haves and the have nots get too extreme. Don't get greedy. Otherwise the growing numbers of the underprivledged eventually make their move and take power. There's so damn many of them, and so few wealthy. That's why revolutions happen. Chavez knows this. He used it to win the election and I think he will continue to use it to expand his base. I'm not taking sides, I'm just saying the opportunity exists because no one is filling the gap and the need is there.
The US has lost it's leadership role because it is divided, it has no center of strength, no unity of purpose, and there is no way the political divisions that are growing here are going to heal soon. Witness the number of high level politicos weakening the US effort against Iraq by claiming it was all done for political purposes by the President, instead of because of strategic necessity. This type of thing will continue, because the US politicians are completely concentrating on the destruction of the opposing party. There is no figure rising who is above the mire, who can be a unifying force. I don't even see any who are trying to be a national leader. Instead they attack the enemy, who are other Americans who don't see things their way. All US politicians do is claim the other side is evil, crooked, and at fault for whatever. Real problems are being ignored in favor of playing to extremist constituencies. The US foreign policy is reduced to trying to hold on to what influence it still has; a long term losing battle. It does not have the necessary elements to advance it's positions or expand it's influence. It has no ideals that stimulate and energize. Even Americans are preoccupied with how degenerate, sinful, and terrible we are. Why would someone in another country want to be like us, when we think we suck? The US is not making friends, it is not gaining. You cannot win with only defense. Slowly but surely it is losing ground and even now has only one or two real allies it can really count on. The rest of the world is looking elsewhere for direction.
There is a huge vacuum in world leadership, and nature hates a vacuum. It takes economic clout, plus great personal and political skill to rise to the top. Chavez, if he creates economic clout by unifying the oil producing countries, and if his strong sympathy for the people translates into action on their behalf, he will gain widespread support and admiration. We'll have to wait and see.
His rise, if it happens, plus the spread of religious fanaticism in the Mideast are the two most significant trends going on now, particularly for investors in the energy industry. I can hardly wait to see it unfold. Not because I have any particular political leanings, I learned the uselessness of that a long time ago, but because it is going to be so damn interesting. Watch what happens when Chavez goes to bat for Cuba, which I think will be high on his agenda. Or he starts doing and saying things that appear "anti-democratic" and un-American. He is neither afraid of, nor beholding to, the US. He is not going to be concerned with how his message plays in Washington because he has a much larger audience. Watch the US politicians carry on like it's the end of the world. But they won't be able to do a thing about the president of the leading US supplier of oil. That's what economic power is all about. If it goes that way, international support for Chavez will rise, mainly because of his ability to thumb his nose at the US and get away with it. The world loves that.
My main interest is in the pivotal factor in all this, oil. Anyone who is blindly complacent by believing that the governments who control the single most essential commodity for civilization to exist will not figure out how to use it to their advantage, will be in for a shock. The only thing lacking to make it happen now is for someone to lead. The next few months will give us a strong clue as to whether Chavez will be that person. If he successfully moves in that direction, it will be a whole new ball game for oil. The US has become much too complacent about oil, content with the notion that the oil producers are never going to be anything but a Three Stooges movie. That our economic expansion based on cheap oil will go on forever. But things can change fast. The next two months are going to tell a lot. If Chavez pulls OPEC and other producing countries together, there will be some changes. That possibility seems to have been almost totally dismissed by the pundits and oil price predictors. The punch that knocks you out is not the one you see coming, it's the one you didn't see.
None of this rises to the level of prediction, just observations and conjecture. I've been following Chavez, and Gen Lebed, for quite a while, and I'm not surprised by their present positions, and I've long been impressed by their potentials. Even so, don't anyone take these ramblings too seriously. My mind gets to wandering when the stock market's closed, and I'm not occupied watching my investments cave in. Just something to pass the time during the debate over just exactly where the bottom is.
Mike from La. |
