 | | The Daily Reckoning | Friday, July 1, 2011 |
- A tale of two cities and a closer look at the Athens of South America,
- The wonderful world of energy...twenty and fifty years from now,
- Plus, Bill Bonner on "crisis solved," a trap for the unwary and plenty more...
-------------------------------------------------------
Is this America's Last Gasp?
A terrible question. But it must be asked - and answered.
This urgent broadcast will do just that.
Tune in now for urgent news on our banks, agencies, retirement accounts - and even our trash collection!
|  | | | The Other Athens | | An Up-Close Look at One of the World’s Most Remarkable Comeback Stories | |  | | Joel Bowman |
Reporting from Bogotá, Colombia...
For dark, light. For conformity, courage. For apathy, love. To each and all things, an equal and opposing force.
We arrived at our hotel here in Colombia's capital city on Thursday morning. A copy of El Tiempo, one of the national newspapers, sat on the reception desk, apparently unread. On the front page, under the headline, "Grecia se incendia ante el sí al plan de austeridad," was a rather shocking photo of a bloodied protester struggling to free himself from a state trooper's clutches. The trooper, seen over the man's shoulder with an arm around his throat, was wearing a gas mask. His face was hidden. His baton and shield were not.
According to the paper (and our admittedly questionable translation skills), the photo was captured during "violent shocks between police and those who reject cuts, taxes and privatizations."
You can read the story for yourself in a newspaper of your choosing, Fellow Reckoner. Long story short, Athens is burning. Again. And with her demise comes the far graver concern that the entire economic fabric and political infrastructure of the European continent will ignite with it in a fiery, debt-fueled hellball, soon to implode in spectacular fashion, dragging the world into a New Dark Ages and snuffing out any and all hopes of recovery.
Ok, so that's a worst case scenario...
But, we repeat, to each and all things, an equal and opposing force. Destruction and creation...coercion and voluntarism...slavery and liberty. And oh yeah, let us not forget...north and south.
Far from the carnage in Athens, from the burning madness of its crowds and flogging batons of its police, there is another Athens, one moving, with almost equal force, in the opposite direction. Owing to its many libraries and universities, Bogotá, the former capital of the New Kingdom of Granada and current capital of Colombia, is sometimes referred to as "The Athens of South America."
A little over a decade ago, the same year (1999) the euro was inflicted on that continent, to much applause and celebration, Colombia was moving in quite the opposite direction. The nation was plagued with drug wars, a homicide rate that would make today's Washington D.C. blush and, to top it all off, was about to lose its primary access to foreign credit. The insurgent violence and a banking crisis here had helped trigger six straight quarters of economic contraction between 1998 and 1999. Moody's and S&P cut her sovereign credit rating to "junk." The outlook was, at best, grim and few investors wanted anything to do with the place.
During the years that followed, while the Spartans were happily exchanging their drachmas for euros and basking in the fiduciary warmth of their newly acquired trustworthiness-by-association, the Colombians underwent a kind of non-voluntary "austerity program" of their own. Forced to live without the kindness of strangers, the nation's general government debt level actually fell 10 percentage points of GDP from 2003 to 2007. A leaner, stronger Colombian economy grew at its fastest pace in three decades in 2007 and attracted a record US$10.6 billion in foreign direct investment the following year. Even its homicide rate, long a sore point for foreign investors, has registered dramatic improvement over the last decade, having been reduced by half since 2002.
All this, it must be observed, while the Club Med nations along Europe's periphery were frolicking in the sun and awarding themselves welfare packages and assorted benefit programs for work they hadn't then, and probably still haven't, even done.
As Bill Bonner likes to remind us, individuals and nations rarely get what they want...but they almost always get what they deserve. Today, the two nations are reaping what they sowed.
Currently, Greece is the lowest-rated sovereign in the world, below Ecuador, Jamaica, Pakistan and Grenada. Said Standard & Poor's after slashing their credit rating by three notches - to triple-C - last month: "In our view, Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece's official creditors, would result in one or more defaults under our criteria."
Meanwhile, both Standard & Poor's and Moody's recently restated Colombia's investment-grade credit rating to one that puts the former South American basket case on par with Brazil, Peru and Panama. Additionally, its "stable" outlook should help grease the wheels for future growth and provide an opportunity for real capital formation. Hernando Jose Gomez, the head of Colombia's National Planning Department, recently told the press that he expects the upgrade will boost foreign direct investment to $14 billion by 2014.
While the Athens of the Mediterranean continues to grab headlines for all the wrong reasons, investors might do well to keep in mind her financial and economic opposite: the Athens of South America.
We've been compiling notes from our research trip here this week and hope to have more for you when we get back to Buenos Aires. Stay tuned...
In today's column, Byron King takes a look at another set of opposites. This time it's past and future with an eye to the energy-related investment opportunities of tomorrow. More below...
| | | | Byron King's Energy & Scarcity Investor Presents... |
Israel Gives Money-Grubbing OPEC the Middle Finger
Israel just discovered what could be the 2nd largest oil basin in the world today. This could spell the beginning of the end for OPEC - and huge gains for you. Details here.
|
| |
| | The Daily Reckoning Presents | | The Future of Energy | |  | | Byron King |
An Interview with Byron King
Dan Rodricks, Host, Midday: I'm Dan Rodricks, and you're listening to a special edition of Midday we call Power Ahead, The Energy Future. We finish our discussion about energy with a look into the coming decades, the innovations ahead, and the power sources that are probably going to be with us for a while. Our guests include Byron King, resident energy expert with Baltimore-based Agora Financial. He's the editor of Outstanding Investments and Energy & Scarcity Investor. Byron King is a Harvard-trained geologist, a self-described old rock hound who keeps an eye on energy, mining, and precious metals for his readers. Byron King, thank you for joining us on Midday at WYPR in Baltimore.
Byron King, Agora Financial: It is a pleasure to be with you. Thank you.
Rodricks: Byron King, please draw a picture of the year 2031 in terms of energy. What does the world look like? What sort of power-related technologies will be in wide use that are not in wide use now? Could you draw that picture for us?
King: Well, it's a great question because twenty years is a long time. Twenty years ago, people didn't know what cell phones were. Now they're ubiquitous around the world. Twenty years from now, it's going to look a lot the same, and there's going to be some things that are different. Much of the world is powered by coal today. Much of the world will still be powered by coal in future years. We might burn it differently or what have you, but when people build coal plants, they're built for 50 years, and the Chinese have been building hundreds of them, so they're not going to go away. Natural gas is going to take a much bigger share.
We're starting to figure out how much more natural gas there is out there than people estimated. An absolute revolution in technology in the past few years has been in this shale gas development... Nuclear has taken it on the chin in the last month or two, but nuclear isn't going anywhere.
I think the long-term view is that we've had problems with the [nuclear] technology from the '50s, '60s, and '70s. There's different technology today, and I think it's going to be around. And don't count out oil. There is a lot of oil out there. There is a lot of oil yet to be found. And there's a lot of oil that's going to stay in the system for many decades to come. And when you look at it in the year 2031, I think that you'll see perhaps up to 10% of the world running on what we consider alternative energy, alternative fuels, things like that. But I think that the main base of energy and of power to run things is going to be what we have today, natural gas, oil, and coal, with nuclear.
And lots and lots and lots of different technology in how it's produced, how it's distributed, how people use it, efficiency, conservation, things like that.
Rodricks: I think everyone agrees that a post-carbon world is not possible in 20 years, but Byron King, what about 50 or 60 years? You say many, many decades. There are a lot of people listening who are probably a little disappointed to hear that because they're hoping that with renewable energy sources and more innovation, we'll be able to get away from king coal and big oil.
King: Well, you can take your renewables, and you can double them, double them again, double them again, maybe even double them again. And in terms of running the world, you might get to 10% of the total world power system. I'm sorry to break the news to you.
Rodricks: You mean in 20 years.
King: In 20 years. In 50 years, what will things be like? That's a good question. When the Wright brothers flew an airplane in 1903, did anybody know that in 1953, people would have broken the sound barrier? So a lot of things can happen in terms of technology. Much of how people use energy is not - it's obviously technical, but a lot of it is sociological. I mean, 50 years from now, that's two or three generations down the road. People might have different attitudes towards what they do, how they do it...
Rodricks: Byron, you touched on nuclear just for a moment. What is your take on nuclear? Could there still be a nuclear renaissance in the United States and Europe and Asia post Fukushima?
King: Post Fukushima, yeah. There could be actually. Right after Fukushima, I was thinking this is the nail in the coffin for nuclear. Just kiss it good-bye. But really, in terms of the world reaction to it, and I follow these kind of things in Europe, in China, in Russia, in parts of the developing world, Brazil, South Africa. I mean, people were remarkably sanguine about it. And among the policymakers globally, there is this idea that Fukushima was a 1950s and 1960s siting...
I mean, I don't think people understood the seismic hazards in the '60s the way they do now. If it's '60s technology in terms of nuclear, what the nuclear guys are telling me is that today, with passive nuclear systems, you wouldn't have that issue of the meltdown in Fukushima. And really, it was the failure of 1960s era diesel generators to cool the reactor that brought the resulting meltdown. So there's a lot of thinking that goes into this, a lot of systems thinking that goes into this. I don't think people are giving up on nuclear, certainly not globally. Here in the US, we have to fight about everything, so the jury is still out on that one...
Rodricks: How about this on policy? How about we say to big oil companies, you're getting some subsidies from us, some tax breaks. We'll continue those if you develop more renewable energy.
King: Actually, you don't really have to say that. All you have to do is buy shares in companies like Chevron or Exxon. The biggest geothermal power producer in the world is Chevron Oil Company...[Also] Chevron has a huge effort going with Weyerhaeuser, the big tree-growing company to use tree mulch and turn it into biofuels. I mean, one of these days, you might buy biofuels for your car. You're not going to buy them from Biofuels, Inc. You're going to buy them from Shell and Exxon and Chevron, the usual suspects. They're already doing that.
Rodricks: Yeah. At Exxon Mobile just a couple of years ago at a shareholders meeting, they laughed down these ideas of investing in green energy.
King: I'm not sure about that one. All I know is that they put their money where their mouth is. And Exxon has a very aggressive development program with a California biotech company in terms of algae. It's third-generation stuff. If you want to talk about biofuels, one of the worst subsidies, one of the ones that we ought to do away with tomorrow is the ethanol subsidy. I mean, the idea that 40% of the US corn crop is going to turn into ethanol to run cars is doing nothing but driving up food prices across the world. And in terms of net energy, it's almost a loss really in terms of the energy that goes in versus the energy you get out...
One of the things that you have to keep in mind as well, is understanding the concept of the grid. And it's transmission wires, it's pipelines, it's everything because it's one thing to create electricity or create a thermodynamics, but it's another thing to get it to where you need it.
You've got your production, but...you need transmission, and transmission is your market enabler. And that is another of the great bugaboos. It's a huge technological challenge... Power distribution, power transmission is a massive problem in this country, especially rebuilding the old grid that we have. Rebuilding it with new, modern stuff. When you see just the kinds of cabling and wiring that it requires, these are not your father's or your grandfather's little copper wires with some plastic wrapping or something.
These new cables that bring the power in from offshore or that take the power out to an offshore platform or that bring the power from the windmill farm up in the mountains down to the city, these are incredibly technologically complex wires. These are works of art. They are engineering marvels just the wiring alone.
Rodricks: Okay, so if you had $1,000 to invest in any facet of energy what would you do?
King: If I had $1,000.00 to invest in the future of energy, I would...buy one stock and it would be a company that mines and manufactures graphite because I think that graphite is one of the unseen, under-the-radar products that everybody is going to need no matter what they do in terms of the future of electricity. If you have an electric car, it's not going to be run by lithium batteries. You might as well call it graphite batteries. There's more graphite than lithium in those batteries.
Rodricks: Thanks, Byron!
Regards,
Byron King,
for The Daily Reckoning
| | | | Act Before Midnight Monday, July 4 - See How a Small Grubstake Could Turn into HUGE Wealth |
New presentation reveals shocking wealth-building secret. See how just a tiny amount could explode into a vast sum for your retirement - all in just 30 days!
Next play goes live Tues. July 5 - you must act on this presentation by midnight Monday.
Details here...
|
| | | | Bill Bonner | | When Lenders Stop Lending | |  | | Bill Bonner |
Reckoning from Delray Beach, Florida...
The Dow shot up 152 points yesterday...following an announcement that Greek voters had approved more austerity measures.
So, the Greek crisis has been solved...Dominique Strauss-Kahn may not have raped that hotel maid, after all...and the Chinese are buying euros.
Whew... A close call! But now the Greek crisis is behind us. We can get back to work...and all get rich.
The French and Germans will pretend to fix the problem. The Greeks will pretend to cut spending. And lenders can pretend to get their money back.
But what happened to all that debt that Greece couldn't pay?
Wait a minute... We know what you're thinking. You're thinking that now that the crisis is behind us, interest rates can return to normal. And at normal interest rates there isn't any problem. After all, it was just a temporary problem caused by jittery and greedy lenders, right? And as long as the full weight and credit of the European financial authorities - with some help from their colleagues East and West - is behind the Greeks, everything should be all right. The Greeks can borrow money to plug holes in their budget and pay the interest on past loans.
And you're right - sort of.
Well, you would be right if lenders were born yesterday. They would just lend more and more so the Greeks could borrow more and more, forever and ever, amen.
And don't forget the rest of Europe's debtors - Ireland, Spain, and Portugal, for example. They're in the same boat, more or less. They need to borrow money now, largely to service the debt they borrowed before. And as long as interest rates don't rise, this can go on for a long time.
But what if lenders had been around the block once or twice? It's often said that the stock market is about the future. The bond market is about the here and now. But what if bond buyers suddenly recalled how they got mugged the last time they went around the corner? What if they remembered what happens when debtors borrow so much that they could never pay it back?
Wouldn't that lead them to think that...
1.) Lending more would be a mistake
2.) Or, at least ask for higher interest rates...? Well, you can imagine as well as we can.
The Greeks owe too much. So do a number of European countries...and so does the United States of America.
What do we mean by "too much?" Well, nothing precise. But if you add up all the debt, it comes to over 100% of GDP. Which means, you 'normally' would need to devote something like 5% of GDP or more to pay the interest on it. And if a government can collect 20% or 30% of GDP in taxes, it means it has to devote as much as a quarter of all tax receipts just to cover the interest on money it already spent.
Imagine that you were in that position. Theoretically, you could still be okay. You could stop spending beyond your means...and then 'grow your way out of debt.' But that's not what happens. Crowds of zombies take to the streets. Political pressures force governments to keep spending. And if your deficit is greater than your growth rate, you're going deeper into debt.
Let's see...the US has a GDP growth rate (taking the feds at their word) of less than 2%. What's the deficit? About 10%? Hmmm...not good.
But this math is obvious, isn't it? Even to the people who buy bonds, right?
So how come US bonds have generally been going up, not down?
That's the real question, isn't it?
NB: the Chinese are buying euros.
And more thoughts...
"The stock market is way overrated," said a friend last night. "People think they are going to make a lot of money by being 'in the market.' They think that if they just choose the right stocks...or stay in the market long enough...they will get rich.
"They're dreaming. When you buy a stock, what are you really doing? You're buying a piece of a business that used to belong to someone else. It's like buying a used car. And the person who used to own it...especially if he was the original entrepreneur or founder...knew it better than you did. And he didn't want it. At least, he thought it was worth less than the money you were offering him for it. He's moving on to something better.
"So, you're buying a bit of a business that he wanted to get rid of... You're also buying it after it has been puffed up by venture capitalists and IPO firms...embellished by stockbrokers and analysts...and advertised by copywriters and salesmen. Of course, as you say, investors are ready to believe anything.
"And in a bull market, nobody cares. Even the rubbish flies up in the air. But when the wind dies down, you find the stuff back on the ground where it was when it started out. You get a good look at it. And you see that it's trash.
"According to the theorists, stocks give you a 'risk premium.' That is, when you give your money to someone else, you're supposed to get something in return. That's the going interest rate. It's supposed to be more or less risk-free. You earn more from stocks because you take additional risk - the risk that the value of the stocks will go down.
"But you only earn a risk premium if you buy the stocks at the right price. That is, if you buy when they're cheap. As soon as everyone thinks he can earn more money from stocks than from bonds - because he believes the 'risk premium' concept is immutable - the price of stocks rises. Whatever premium was available is gone. So you end up getting a 'risk discount.' I mean, you pay more than you should for the stocks; you're paying just to add more risk to your life.
"It's a crazy bargain. But it's worse than that. Because the nature of the public markets distorts company behavior. They do things that increase the risk even more...and generally undermine the long-term results. Like GE going into the finance business. Or like that deal for Skype.
"The corporate guys are only worried about the quarterly announcements. They need to show growth. They need to have new deals. They need to have something they can tell investors to keep them excited. They need numbers that convince investors that they're going to make more and more money.
"So they do stupid things...just to keep the kettle boiling. Things they would never do with their own money. And the average investor doesn't have any idea of what is really going on.
"I like to stay in the real world of real businesses...owned by private investors and businessmen. The conversation you can have with them is much more sensible. Down to earth. Everyone talks the same language. There's much less nonsense and showmanship involved.
"Forget the stock market. It's a trap for the unwary."
Regards,
Bill Bonner,
for The Daily Reckoning |
|
|
|
The Daily Reckoning U.S. Edition
Posts
