According to the Asahi Shimbun, six of Japan’s utilities will release their largest net losses on record. The one utility which does not operate nuclear power will post a net proft.
The ten regional electric utilities in Japan are projecting a combined net loss of 1.5 trillion yen (about US 18 billion, in the fiscal year ending March 31.
Those of you who read with interest my article about Brunei and thought it was about Brunei, better read it again.
In the meantime, oil prices continue to barrel forward, on signs of a strengthening Chinese economy, according to Bloomberg, as the Chinese Purchasing Managers index rose to a one year high of 53.1 in March.
Oil prices have climbed over four percent in the three months ended March 30th, and May delivery was up 43 cents to 103/56 a barrel on the NY Merc electronic trading, and close to that at 8:35 AM Sydney time.
Brent for May settlement rose 51 cents, to $123.39 a barrel on the ICE Futures in London.
None of this is good news for Japan.
Qatar is scrambling to hurl all the LNG it has towards Japan.
They are basically telling all their clients in Europe: you know that contract about us delivering you X Bcm per year? You know, if you don't need all of the X, we could take it away for a while...right?
I disagree. I think oil prices are up on worries about Iran. Especially when you look at the futures market, we're looking at backwardation meaning it's cheaper to deliver oil 2-3 years from now rather than today. Back in 2004-2007, we were looking at contango- the markets expecting prices to rise and production/delivery to become more difficult. If high oil prices were a long-term thing driven by Chinese demand, we would expect contango to resume in the markets.
Ex-Iran, OPEC has 3 million barrels of spare capacity. Chinese demand growth is expected to eat up only 1 million barrels this year and about ten over the next fifteen. Meanwhile, we have millions more potential barrels offline but being restored in Libya, and being brought to market in Athabasca and North Dakota. And that's just assuming nothing gets done about Iran.
Oil investing is for people who are scared to death about the future of modern civilization. And the fact is that with $4/gallon gas, there's a lot of places to drill. More importantly, with $4/gallon gas, a post-oil economy that runs on the electric grid starts to look cheaper.
Japan gets to be part of that experiment. The silver lining in an earthquake is that you get to rebuild a lot of your infrastructure from scratch. If you lose all of your oil refineries and power plants, you get to experiment and see if it's actually cheaper to power cars off of a greener mix of fuels- plant a bunch of wind turbines off Japan's coast in the Pacific, power 20% of the country off of wind, and get the rest from natgas, earthquake-free nuclear, and coal.
I think oil stocks have some room to run on cheap valuations, but we are not going to see a repeat of 2002-2008. Brent is priced pretty fairly at $110-$120; we do not need $140/barrel to feed China. We only need $140/barrel to supply the world with oil if Iran closes the strait of Hormuz.
Japan will recover. The trick to buying after earthquakes- both physical and financial- is to pick up the monopoly portfolio after the dust settles- utilities, railroads, and real estate. Obviously it's smart to avoid TEPCO, but the other utilities- particularly the ones with conservative balance sheets and nuclear plants in areas with fewer faults- might make for smart buys.
Anyone know how we can quantify (approximate) the US monetary policy impact on oil prices?
^^^ Pretty tough. My first instinct would be the riyal, but they peg their currency to the dollar.
And the dollar has been pretty strong lately. Against the Euro. Against the CCI. Even against gold.
A Keynesian will argue that since the velocity of money is slowing down, we're seeing a strong dollar despite all of the printing that's going on. I agree that we're due for inflation over the next ten years, but by the time it hits, we will be blaming a Republican.
So the question we really need to be asking is how much inflation we're due for and when it's going to hit. And I think the place to look to try and quantify that is to look to dollar printing to fund the vietnam war and what that did to the purchasing power of the dollar. It will give a sense of the time lag and that an increase of X% in the US money supply back in the late '60s and early '70s translated into a decrease of Y% in the dollar's purchasing power over the next fifteen years.
Abdel, this might not be the presidential election to win yet. Give it four more years. Wait for inflation to hit 7%, interest rates to hit 7%, and for the federal government to be paying $1 trillion/year on debt service. That's going to happen whether we have a Democrat or Republican in office. Better to let a Democrat take credit for the 5-10 years of second and third consequences of their actions.
^^ Thanks for your response IP.
A quick note regarding inflation: if we use the same methodology used before (static basket of goods), the current rate of inflation is around 9% (in the US).
Before the "homes get too expensive, people buy tents" change in 1994, we also made changes in 1983 to replace homeownership costs with renting costs.
I'm not sure this takes away from the long-term statistical authenticity of the CPI calculation, however. The assumption is just that people aren't getting poorer on a permanent basis. It's not like we're Argentina with 25% inflation but the government is subsidizing the cost of Big Macs (included in the CPI study while quarter pounders are excluded) to keep the inflation rates down to 5%.
Romney is a RINO, and IMHO, not much different from Obama, but you do not win elections by making charges from the land of looney tunes. The Democrats tried that in 2004 and failed miserably. And the fact is that Republicans have lost a lot of edge over the past 20 years trying to fight science on global warming, evolution, and civil liberties. Now we also find ourselves fighting long-term trends in GINIs and Herfindahl indices on deregulation and small government. Libertarians believe in small government BECAUSE they believe in brick walls.
If Obama is reelected for four years, but we retain control of one of the houses, it is not going to be the end of the world. Better to stay a largely capitalist democracy for the next hundred years than to face a socialist revolution in eight.
In 2006, when Bernanke was appointed, one ounce of silver could you buy 4 gallons of gas. Today, the same oz can buy you 11 gallons.
Which shows that the price of oil is actually coming down when measured with real money. This means that most of the price 'increases' in oil in recent years are due to inflation.
Where am I going wrong?
[quote=IlliniProgrammer][quote=Abdel]^^ Thanks for your response IP.
A It's not like we're Argentina with 25% inflation but the government is subsidizing the cost of Big Macs (included in the CPI study while quarter pounders are excluded) to keep the inflation rates down to 5%.
FYI prices in Argentina are rising at 2% per month, as reported today in local papers. The numbers are put together by private analysts, based on a basket of goods.
Oil prices are destined to keep climbing. The demand for oil comes not only from China but from oil producing nations as well. Even if all the spare capacity of the world is maxed out, there will still be demand for oil.
Egypt, the largest county in the Middle East, has 83 million people.
More importantly, the US will be transitioning off of oil in the next fifteen- twenty years. $0.10/kwh at 90% efficiency in the conversion from electricity to the axle is a lot cheaper than $4.00/gallon at ~20% efficiency. We have a huge electricity glut in most parts of the country right now, China will probably have one too, and eventually India will run into the same problem.
The US economy ran out of workers in the 1920s and ran out of domestic demand for energy in the 1970s. Today, we consume less energy per capita than we did 30 years ago, yet we live happier and healthier lives. There is no reason to think China won't hit the same point we did. And once China gets over the hump, we will have more of the world's population in developed countries than developing countries.
Six years ago, I was scared. I would look at the supply/demand curves and the Gregorian Chants of Carmina Burana would start playing for me. Paul Ehrlich looked at a similar problem in 1968 and was also scared to death. But the same thing that happened in the late '70s seems to be happening now. People are starting to conserve, demand growth is starting to peter out, and we're running out of demand growth.
I'm not calling for a glut like we saw in the '80s, and I think the XOI is cheap when some of the majors are trading at 7x earnings, but it's time to start thinking about cleaner alternatives to oil.
Global warming beats trying to run an oil-dependent economy without oil, but if wind and nuclear can be done almost as cheaply as oil, policy-makers are going to start favoring that. AGW may be real or it may be an exaggeration, but with humans likely being the cause of increasing CO2 levels in the atmosphere, why not deal with the problem if there's a cheap alternative?
^^ Thanks again for your reply.
Are you suggesting that gold is in a bubble?
I expect gold to peak at around $2500- its 1981 inflation-adjusted highs- in four or five years. But be forewarned- it will be tough to sell at $2500, just like it was tough to sell the Nasdaq when it hit 4000 in 2000. People will be claiming that the USD is going to become worthless, bread will either cost a quarter ounce of silver or $1000, or that we are heading for a fascist takeover, and you will have to ignore all of that to just sell and pick up treasuries. Most people won't be able to do it. The equity bear and commodity bull are best friends just like the equity bull and commodity bear.
The equity bull dies on euphoria after a 17-year run; the equity bear dies on doom after a 17-year run. And we're about 12 years in.
^^
During the housing bubble, alot of people were flipping houses. During the nasdaq bubble, alot of people were flipping tech stocks.
I do not see alot of people playing in the gold market. The institutional clients in general hold maybe 2% in gold related products. So, IMO, we're far, very far from a gold bubble (not even close).
The only way you can you put a cap on gold prices is if you assume that the FED chairman will have the courage to raise rates to almost 20% as Volcker did back in the 80's.
To get back on the topic, I think that the japanese stock market will outperform all of the markets in 2012. The BoJ will print, print and print. .
I would think a strengthening Chinese economy would help Japan as China imports more Japanese goods and in term boosting Japan's economy.
Inventore et optio beatae et saepe. Laborum corporis voluptas neque velit sint. Et omnis modi velit et.
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