Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Douglas V. Fant who wrote (90026)	4/15/2001 12:35:29 AM
From: isopatch	Read Replies (1) \| Respond to of 95453

Stagflation Coming? Got Gold??<G> asiawise.com "IS STAGFLATION COMING TO AMERICA? By Paul Schulte, AsiaWise 11 Apr 2001 14:30 (GMT +08:00) This is where it gets really weird. Fixed investment spending growth is now in negative territory in the U.S. Real GDP growth is hovering at about 1-1.5%. Savings rates are still in negative territory. PG&E, California's main power utility, declared bankruptcy last week. It is the largest utility bankruptcy in American history and the third largest of all time. According to Moody's, the largest of any kind occurred a few weeks ago when Finova declared bankruptcy. On the day of PG&E's bankruptcy, it was (shockingly) rated one notch below investment grade. Credit quality within the U.S. economy continues to worsen. A major strike in Hollywood in four weeks threatens one of the country's largest exports -- movies! The manufacturing sector is on its knees. The equity markets are gasping and it looks like many indices are starting to break down. Given these circumstances, it is bizarre that consumption is still buoyant. The inventory of single-family homes is near a 30-year low. Oil inventories are near multi-year lows. Oil imports are surging. Unemployment is still near record lows. California has raised its energy prices 46% with another 30-40% in the cards. (The state is about 11% of U.S. GDP). Housing prices in New York and L.A. are still near record highs and rents are still very expensive. Most important, first quarter wage growth in the U.S. was an astonishing 6.1% -- to $14.17 an hour. Total hours actually rose in March even with the biggest job cuts since 1991. Is this weird or what? In the midst of a serious economic slowdown, there are several dynamics that are inflationary. I hate to say it, but this smells like stagflation -- here and now. This is made even more contradictory when Japan and a few of its neighbors have a persistent problem with deflation. As we all know, there is nothing worse for a stock market than rising costs and falling revenues. The impact on the bottom line is quick and insidious. Corporate and government bond markets are also casualties. There are four dynamics that seem to be creating this problem. The first is energy. Everything I touch in L.A. has gone up in price -- at a time when a strike by both actors and writers looms large in Southern California and when Silicon Valley in Northern California is ground zero of the Nasdaq implosion. The energy price hikes in California are being passed through to consumers who appear not to mind -- for now. There is growing fear that the energy problems in California are spreading to the Rocky Mountain states. In the East, Florida and New York appear to be candidates for energy problems come summer. This is inflationary as growth slows. Watch this space. The second issue is options. They have, for millions of employees, become a worthless currency. Companies who were able to control payroll costs now cannot afford the luxury and are being forced to pay hard cash to keep good people. This is inflationary as growth slows. The third is rents. It usually takes four to five quarters for rents to adjust to a downturn. As the U.S. moves from 4% growth to somewhere in the area of 1-1.5%, it will take some time for retail, commercial and residential rents to adjust. This is inflationary as growth slows. The fourth dynamic is the strange resilience of the service sector to an outright recession in the manufacturing sector. Labor conditions in services remain tight and wage pressures continue even as the U.S. moves into a lower growth trajectory largely due to a collapse in investment growth. As base money growth in the U.S. remains in double-digit territory and credit quality in corporate America deteriorates, there is a deep unspoken anxiety that a fall in the dollar will turn mild stagflation into a major problem. The dollar's strength, for the moment, imports deflation. If it reverses, the problem will likely get out of hand and seriously damage the equity and bond markets. The problem is that it appears that Germany and Japan are forcing down the euro and the yen to trade their way out of their problems. Competitive devaluations among developed nations are squeezing the dollar higher -- for now. Let's hope it stays that way. People who have seen my writing over the years will be surprised by these comments, as I have been an inveterate believer in dis-inflation. The dynamic described above may or may not be a passing trend. I welcome comments -- this debate needs to get started. No one is talking about the possibility of stagflation, the worst of all possible worlds." Well, we have been on this thread(g)

To: Douglas V. Fant who wrote (90026)	4/15/2001 5:38:08 PM
From: isopatch	Read Replies (4) \| Respond to of 95453

Continued tight summer gasoline & winter HO The basic equation? "A newly built refinery takes around five years to get up and running and expansions only a year less, Slaughter said." biz.yahoo.com "Sunday April 15, 1:37 pm Eastern Time Refineries Unlikely to Rescue Fuel Prices By Bernie Woodall NEW YORK (Reuters) - High prices for gasoline in summer and heating oil in winter will become annual events unless the strained U.S. refining system adds some capacity, but there is next to no chance of any new plants being built, industry experts say. Not since Marathon Oil Co. (NYSE:MRO - news)opened its Garyville, Louisiana plant in 1976 has there been a completely new -- grassroots -- oil refinery in the United States. Tight government regulations on refinery locations, environmental opposition to new plants, and years of poor returns in the refining industry have left the U.S. oil business straining to provide enough of the high-tech fuels demanded by new green regulations. Even with an oilman in the White House, there is next to no chance for a new U.S. refinery in the foreseeable future, said Bob Slaughter, general counsel for the National Petroleum Refiners Association (NPRA). The NPRA is among a stable of oil industry groups hopeful that President Bush will make it easier to expand refineries, cut down on demanding new fuel specifications and offer tax incentives to companies to foster increased petroleum product production. With new stringent specifications for gasoline and diesel fuel due to take effect in 2006, plans to expand refineries must start now, he said. A newly built refinery takes around five years to get up and running and expansions only a year less, Slaughter said. ``If we are going to come anywhere close to keeping pace with increased demand for petroleum products in the next decade we're going to have to add capacity to existing sites,'' Slaughter said. The Bush administration is not ready to say how a national energy policy to be announced this spring will deal with the issue, said Juleanna Glover Weiss, spokeswoman for Vice President Dick Cheney. ``We will be looking at ways to increase the refining of crude,'' Glover Weiss said, offering no details. DEMAND, FEWER REFINERIES The U.S. uses around a quarter of all world oil, consuming about 19.5 million barrels of refined products -- mainly gasoline, diesel fuel, jet fuel and heating oil -- each day, according to the U.S. Energy Information Administration. By 2010, U.S. consumers will demand 22.5 million barrels of refined products a day and 25.5 million barrels daily by 2020, making the country increasingly reliant on imported oil, the EIA projects. The number of U.S. refineries has dwindled in recent years as expensive plant upgrades needed to meet new environmental rules shrunk refining returns, forcing smaller and older plants out of business. The return on investment for oil refineries from 1981 to 1998 was about four to five percent, roughly the same as the interest on a passbook savings account. In the same span, S&P companies averaged returns around 12 percent. Big oil firms such as BP Amoco Plc (quote from Yahoo! UK & Ireland: BP.L) and Exxon Mobil Corp. (NYSE:XOM - news) have had to sell refineries and concentrate on the more profitable exploration and production part of their business. In the mid-1980s, around 200 U.S. oil refineries had a total production capacity of 14.3 million barrels per day. By last year, upgrades at existing refineries nudged total production up to 16.3 million barrels each day, but the number of plants decreased to 155. ``We've used up the excess capacity. There is no excess capacity anymore,'' said Edward H. Murphy downstream general manager for the industry group American Petroleum Institute (API). ``The Department of Energy is saying petroleum product demand is going up by a third in the next 20 years. We're going to have to increase refining capacity by that much,'' Murphy said. Tight supplies now mean that refiners' profits are booming again, but there are major obstacles before this will translate into building new plants. Federal rules make it construction permits for almost any construction for new or existing oil refinery hard to come by, while the Clean Air Act puts a host of other hurdles in the way, says the NPRA's Slaughter. ``The most important thing for the industry is to get a more reasonable and streamlined permitting process,'' Slaughter said. Public reluctance to live near heavy industrial plants like oil refineries also thwarts the building of new plants. The public comment phase of any refinery construction is perhaps the most feared aspect of the process for an oil firm, and can last 18 months or more, says Slaughter. If the public and government allowed a grassroots refinery running 200,000 barrels daily, the cost of it would be $2.5 billion to $3 billion, said Joseph Loftus of Turner, Mason & Co., consulting engineers in Dallas. Oil companies last year made record profits and refining profit margins are now near an all-time high. But refiners aren't rushing to build plants because they fear the recent trend won't hold in a cyclical industry, said Carlton Adams, spokesman for U.S. oil firm Conoco Inc. (NYSE:COCa - news)."