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To: Gameboy who wrote (26204)	7/22/1998 12:34:00 PM
From: RealMuLan	Respond to of 95453

Greenspan Q&A: Agriculture and energy -- Part III Wednesday July 22, 12:02 pm Eastern Time NEW YORK, July 22 (Reuters) - Following are excerpts from the question-and-answer session after the second leg of Federal Reserve Chairman Alan Greenspan's semiannual Humphrey-Hawkins testimony before a House banking panel on Wednesday: REP. LUCAS, (R-OKLA.): ''The United States ... both in agriculture and energy, because of financial problems in the Western Pacific, Eastern Asia and the effect it's had on demand, we have had declining cash prices for both grain and energy. Could I get you to share some of your insight into what the potential impact is on the economy as a whole, with what I would describe as vulnerability in both industries coming to the top? I would add my constituents have done their part to provide price stability, by having declining energy and agricultural prices.'' GREENSPAN: "Most price stability is not voluntary. ''You can observe the emergence of the crisis last fall with the dramatic weakening in all sorts of commodities prices, from oil, through materials, to agricultural products, pretty much across the board. ''In oil, it's fairly apparent what has happened is you've taken a chunk of the expected increased demand in East Asia, which had been a very large part of the expected world demand for crude oil, and you take it out, and in fact it's working in reverse. And what happens is that it doesn't take very long for all storage facilities both at the crude level and at the product level to fill up very dramatically, and we've even seen examples of inventories now being held in tankers, which is not an efficient way of doing it. So we've effectively glutted the market and the price effect has been pretty pronounced. ''There has been an endeavor on the part of producing countries to cut back, and that has evidently firmed the price somewhat from its June nadirs, but it's still obviously quite low, and it's having significant impact incidently on growing rate activity, much the same as occurred in agriculture. The weakening of prices has been fairly pronounced, and we also see it in our export performance, which is in part being hurt by the fact that a number of the grain exporters like Canada and Australia, because they're also commodity producers, have seen their currencies weaken vis-a-vis the American dollar, which meant that their competitive positions have marginally improved relative to ours. So, all-in-all, the Asian crisis, while, as I indicated in my prepared remarks and others of your collegues have commented on it, has had a positive effect because it's lowered interest rates and a number of other things in the overall economy, it's clearly not been the case in both agriculture and energy in the United States.'' LUCAS: ''The local impression is that since both industries are capital intensive, if we continue in the direction we're going, and the optimism that seems to permeate the whole economy starts to drive in those two areas, that by not making the long-term capital investments that we will come to a point where we will start downing different trails. ... I would assume you would agree that the best solution there is to, in some form or fashion, help our consumer and customer recover their vitality.'' GREENSPAN: "Indeed."

To: Gameboy who wrote (26204)	7/22/1998 12:38:00 PM
From: Richard D	Read Replies (1) \| Respond to of 95453

Gameboy, Yes, the refineries are working at over 100% capacity because they know that prices won't be this low again. They know it's a fluke based on El Nino and a miscalculation by OPEC, with a side order of Asian Flu. They are grabbing all they can to lower their cost and increase their margins. Push will come to shove, and the question isn't when it happens, but when do people start fearing that they will miss this tremendous opportunity to buy low. For instance, memory DRAM prices never really bottomed out, yet at some point there was a tremendous rally in semiconductor stocks based on this fear and the realization that it is possible to oversell a stock beyond the fundamental change in the underlying commodity. It's penny wise and pound foolish to wait for another 10% drop when a stock like PTEN could easily double in a month. Richard