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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: lh56 who wrote (3086)	10/22/2001 2:26:59 PM
From: SliderOnTheBlack	Respond to of 36161

The Coming Inflationary Storm gold-eagle.com Now all you readers know there is no inflation, don't you? It must be so because the government and our friend Easy Al, Lord Greenspan of Moral Hazard, has told you so. And they would never tell you a lie, would they? The heck they wouldn't! It is true that the consumer price indices and the Gross Domestic Product price deflator do not show any real pressure at this time. Inflation appears to remain in the 2.5 percent to 3 percent range, higher than we might like, and higher than in other OECD countries, but something we can live with. But that is the past, what about the future? As we have pointed out in the past, Greenspan has studied the bursting of the Japanese bubble and is determined that the bursting of the US bubble will not have the same deflationary impact it has had in the Japan. As Yogi Berra said, he aint gonna make da wrong mistake. No, he has decided to flood the system with money and hope that does the trick. It might happen, although we very much doubt it. We believe the result will be inflation sooner than later. We cannot be sure when the inflation will manifest itself since unemployment is rising and there is plenty of unused industrial capacity. But now we have a war on. It is likely to take longer than generally expected. Fiscal policy is now becoming similarly irresponsible and we doubt that much of the capacity built in recent years, shopping malls, dotcoms, jillion dollar mansions financed with nothing down courtesy of the legalised Government hedge funds Fannie Mae and Freddie Mac, are suitable for a war economy. Just look at the problems in California last year because there had been insufficient investment in electrical generation. That goes across the board. You do not fight a war with an Internet auction company and the accompanying fripperies of the nineties. But what has Greenspan been doing with the money supply? In a word, pumping like a fireman at a six-alarm blaze. Let us look at how the monetary base (bank reserves etc.), the high powered money that the Fed directly controls, and M1 (cash and checking accounts) have grown over the past five years. Monetary Base ($ Billions) M1 ($ Bill) Sept.2001 June 2001 Mar 2001 Dec 2000 Sept 2000 Sept 1999 Sept 1998 Sept 1997 Sept 1996 637.87 601.69 591.4 590.2 576.8 548.5 501.1 468.3 445.52 1137.3 1122.1 1107.5 1112.4 1090.5 1086.3 1070.0 1059.1 1091.2 Now let us see how the monetary base and M1have accelerated their growth over the past five years. Growth rates Monetary Base ($ Billions) M1 ($ Bill) Sept.2001 26.3% 16.4% 11.0% 10.5% 7.7% 8.4% 8.0% 7.4 % 19.5% 12.2% 11.2% 7.6% 3.9% 3.1% 2.6 % 1.5 % 3 months annualised 6 months annualised 9 months annualised 1 year annualised 2 years annualised 3 years annualised 4 years annualised 5 years annualised So it is clear that since last December when the Fed began its aggressive easing the monetary base which had been growing at a steady 7-8 percent suddenly accelerated to 10.5 percent over the past year and further to a 16 percent annual rate over the past half year. In the past 3 months, which includes the immediate post 11 September period, the base has been growing at a 26 percent annualised rate. M1 and all the other Ms have similarly accelerated off the charts in the last few months. Now these growth rates are far higher than occurred in the super inflationary seventies, so what does this mean for inflation? The leads and lags of an expansion of the money supply in terms of inflation are uncertain, variable and disputed, but it normally takes 12- 18 months for an acceleration of the base to feed itself into the price indices. Inflation may have been delayed somewhat this time because money from mortgage refinancing are simply being held in money funds until confidence to spend or invest returns. But the raw fuel for an inflationary upsurge is there if there is an outside stimulus such as increased oil prices. What inflation does this expansion portend? A growth of the monetary base of 7-8 percent is consistent with an inflation rate of about 2-3 percent after allowance for population and productivity growth. Therefore growth in the monetary base of 10 percent probably means higher inflation, say, 5-6 percent inflation down the road, and if the expansion of the last 6 months (16 percent per annum) is maintained much longer we are looking for inflation eventually reaching double-digits. Investment implications In this case, our advice to hold U.S. Treasury inflation indexed bonds, French Government Euro inflation indexed bonds (OATs) and gold remains unchanged. The OATs are a play on the eventual decline in the US dollar. The dollar index is presently around 114 just beneath its 200 days moving average that is turning down. We look for the index to move to around 109 and later to around 100. That would place the Euro (presently at US 0.90 first back to US 0.96 and then above parity. Gold has retreated from the $ 292 level to $ 280. It continues to build its base and an eventual breakthrough the $ 292 level will lead to the long awaited move higher. In addition to the Durban Roodeport Deep (DROOY) and Harmony (HGMCY) that we have mentioned in earlier letters, we wish to add Gold Fields of South Africa (GOLD) at US 4.6 on the NASDAQ. It is a high quality long life gold producer (the old Driefontein) and its production is unhedged. An interesting share we would like to mention is Freeport McMoran Copper and Gold Preferred B shares. They presently sell for US 22 a share. In August 2003 they are redeemable for one-tenth an ounce of gold (presently $ 28) and pay a quarterly dividend of .001 an ounce (presently valued at US 0.28). That means the stock pays an annual dividend of almost 5 percent with expected capital gain of 20 percent in less than 2 years at present gold prices. With respect to stocks, some cyclicals offer good value. Wars require copper. Some copper shares (e.g. Phelps Dodge) are at 10 years lows and off 75 percent from their peaks of eighteen months ago. They would seem to be good speculations. William R. Thomson Wt@momentum-asia.com.hk 23 October 2001 Bill Thomson is Chairman of Momentum Asia Ltd., a Hong Kong based distributor of Momentum's alternative investment products and of the Siam Recovery Fund, a Thai investment fund managed by Lloyd George Management. He is also an advisor to investment management companies, Governments and Central Banks in the Asia Pacific region and writes extensively on Asia and emerging markets. He writes the Confidential Inside Asia Report, some of which is published at www.newsgurus.com

To: lh56 who wrote (3086)	10/22/2001 2:46:27 PM
From: Frank Pembleton	Read Replies (3) \| Respond to of 36161

Larry, So far, most the known terrorist in this campaign have been from Arabia...I'm speculating that we will see lower prices in the short term as a political assurance from certain ME countries, - they want to be seen...on board with the U.S. this will certainly lower the cost of restocking the SPR. Bombing Iraq on the other hand, will remove approximately 9% of the 54% of crude supplies that are imported by the U.S. I don't believe Arabia can swing enough production to maintain adequate supplies simply because of the logistics of the Strait of Hormuz. But if oil starts acting anything like gold, you might be better off holding cash -- or looking into natural gas weighted companies. quotes.ino.com NG up 8% Friday, up another 4% today... Regards Frank P.

To: lh56 who wrote (3086)	10/22/2001 5:35:47 PM
From: lh56	Respond to of 36161

stolen w/pride from latest online issue of forbes: "Indigestion Daniel Fisher, Forbes Magazine, 10.29.01 All those new natural gas-fired electric plants mean more gas demand, right? Maybe not. For natural gas bulls, there was never a surer sign of good times to come than the order book at General Electric Corp. Backlogs in GE's Power Systems group almost tripled to $25 billion in the late 1990s as scores of utilities and freestanding power producers ordered natural gas turbines to supply the nation's growing appetite for electricity. Gas demand had to go up as all those shiny new turbines were connected to the grid. Ah, but there was a flaw in that argument--one that is becoming glaringly clear as the price of gas plunges below $2 per million Btu at the wellhead from as high as $10 last year. (A million Btu of gas equals just about 1,000 cubic feet.) Those new gas plants were supposed to steal business from pollution-spewing coal units, which still supply half the nation's electricity. But in a painstaking study of 788 power plants that supply the bulk of U.S. electricity, Charles Studness, president of Studness Research, found quite the opposite could happen. Studness determined that 79% of the "new" electricity supplied to the grid over the past five years came from existing plants, mostly coal-fired units. And there's plenty more where that came from. Studness figures existing coal plants have the potential to increase output by 50 million megawatt-hours a year for the next five years, representing about half the expected 2.5%-a-year increase in demand. Coal's advantage over gas: It's cheap. Utilities paid an average of $1.20 per million Btu for coal last year, compared with $4.30 for gas (delivered). Even with depressed gas prices, many coal plants are still cheaper to operate. So while those new turbines being installed by Calpine (nyse: CPN - news - people) and other independent power producers, (see table, below) will burn a lot of gas, they will do it mostly at the expense of older gas plants that burn half again as much. Addressing a Burning Issue If natural gas prices stay down or merely remain volatile it will help companies that burn, trade or store gas and hurt those that sell it or provide equipment to the industry. Overleveraged gas producers and service companies could have trouble making it through the downturn. WINNERS: Sales($bil) Remarks Calpine* $4.6 Its gas power plants won't compete with coal for years Chesapeake Energy 0.9 Hedged gas production through December 2003 Dynegy 43.4 Owns gas, coal power plants; stores, trades gas. Peabody Energy 2.7 World's largest coal company LOSERS: Devon Energy 3.3 Gas-heavy; $8 billion in debt General Electric 129.5 Sells gas turbines Pioneer Natural Resources 1.0 $1.5 billion in debt; 53% of production is gas Transocean SedcoForex 1.9 $4 billion in debt; heavy gas-drilling exposure *Latest 12 months. Source: Market Guide via FactSet Research Systems. "It's not our game to compete with coal or nuclear," says Ron A. Walter, senior vice president of San Jose, Calif.-based Calpine, which plans over the next few years to build gas-fired plants totaling 31,500 megawatts. "It's our game to displace older gas." Combined-cycle gas turbines, which use hot exhaust gases from one turbine to generate steam to turn a second one, can transform 6,800 Btu of gas into a kilowatt-hour of electricity, enough to light one lightbulb for ten hours. The oldest gas plants burn as much as 13,000 Btu, and the national average is 10,500. Substitute enough new plants for old, and U.S. gas consumption, currently 62 billion cubic feet a day, could drop by as much as 1 billion cubic feet a day. That scenario sounds unlikely to Stephen Bergstrom, president of Houston-based Dynegy, an energy-trading firm that also owns both coal- and gas-fired power plants. Dynegy's 35-year-old coal plants are "huge capital hogs," Bergstrom says, that cost ten times as much to maintain as modern gas units. Throw in the cost of scrubbers and other required pollution controls, and many smaller coal plants will have to be shut down, Bergstrom says. But coal-plant owners can be ingenious. Witness Midwest Generation, a nonregulated subsidiary of Edison International that bought six coal plants from troubled Commonwealth Edison of Chicago in 1999. By changing operating procedures and burning a higher grade of coal, Midwest boosted output from the 40-year-old plants 12% last year--while reducing emissions. John Long, vice president and chief technical officer of the Midwest Generation unit, thinks he can coax another 15% increase out of those aging boilers over the next five years without running afoul of environmental rules. Long term, the bullish scenario still holds: Gas will displace coal. In the meantime, gas producers have a lot of bonds to retire" >>end of article<< well, it all sounds plausible, but who knows what plausible really means any more? i sure don't. regards, larry