China & Big Oil Bet on Natural Gas, An Emerging Economy Off the Beaten Path Surprise Rate Hike Rumors and More!

Posted by Eric LeRiche | March 9, 2010 .

5 Min. Forecast -

From Agora

Many “signs of the times” in one story: China & Big Oil team up to buy out Aussie LNG
Frank Holmes explores an emerging economy hidden from mainstream highlight reels
Fed reportedly preparing surprise rate hike… as soon as next week!
Chris Mayer on a U.S. boomtown — maybe boomtowns — in the most unlikely of places
Plus, readers chime in on Census Bureau employment and pannin’ for gold

Big news: Arrow Energy, a modest foreign producer, received a $3 billion takeover bid yesterday. Why is this bench warmer story the leadoff hitter in today’s 5 Min. Forecast? Ahh, the drama’s in the details…some big trends in the making here:

First, Arrow is in the Australian natural gas business. Chris Mayer specifically gave you a heads-up on Aussie LNG just a few weeks ago. It’s the real deal.

Second, the bidders: Royal Dutch Shell and state-owned PetroChina have teamed up for the buyout. Royal, one of the biggest companies in the world, wants the bottomless bank account and political swagger of the world’s most powerful government — that’s China.

And the Chinese, as evidenced by their failed deals with Rio Tinto and Woodside Petroleum, want access to Aussie resources — badly. Those two failed ventures — both with a fair share of controversy — explain the collaboration with Shell. Lord knows China doesn’t need the money.

Heh, and last: America can still export something. Citigroup was the main financial adviser.
“Asia’s rapid growth hogs the emerging-markets spotlight,” writes Frank Holmes, a mainstay at our annual Investment Symposium, “but Russia and the other countries of Emerging Europe (EE) also deserve some attention.

“For starters, EE economies have tight fiscal policies and are carrying far less debt than many developed economies, both positives for sustained economic growth.

“In the chart above, the best place to be is in the southeast quadrant, and that’s where EE nations are clumped. Russia’s debt position is minimal and there is ample strength in the consumer sector going forward. In January 2010, wages were up 11% from a year ago, to 19,000 rubles per month. This has kept domestic consumption levels around 65% — on par with Brazil and above both China (30%) and India (57%).

“In addition, Russia’s oil production — the country’s main profit center — came through the crisis more robust than many expected, even surpassing Saudi Arabia in terms of production.

“But Russia is looking beyond oil and gas. In February, Time magazine reported that President Dmitry Medvedev has ambitious plans to create a high-tech haven where geniuses can think up world-changing inventions.

“The intellectual capital is there. Despite years of exodus of scientists and engineers from the Soviet bloc during the 1990s, the combined number of researchers in Russia and its former satellite states in Emerging Europe is not far behind the United States and China and is many times ahead of Brazil and India.”
Back in the States, “The Federal Reserve is set to raise its key overnight interbank rate by a surprise 25bps next Tuesday,” our friend Peter Cooper wrote for araibianmoney.net, citing an “impeccable source from a top global bank.” This modern world is a trip, isn’t it? We’ve got news of a Sino/Aussie resource grab, details on Eastern European debt from our fund manager friend in Texas, Addison’s in Tampa shooting a documentary and now Peter — a brit expat living in Dubai — is scooping us on a U.S. interest rate rumor.

“By raising interest rates at this point in the cycle, the Fed will be both proving its confidence in the tentative economy recovery that chairman Ben Bernanke has proclaimed and underlining its commitment to preserving the value of the U.S. dollar at a time of mounting deficits and bond issuance programs…

“There will also be an inevitable revaluation of financial markets to reflect the higher cost of money. Again there is a risk that if confidence is not as strong as generally held, then financial markets will crash, rather than undergo a healthy correction…

“Reflationists will throw their arms up in horror at this action as imperiling a very fragile recovery. But it is a very fine judgment call, and a lot will depend on how much credibility the markets give the accompanying statements from the Fed about the likely speed of additional rate rises.

“However, the Fed has to keep its street cred and being a part of the gradual global tightening of interest rates — after a long period of loose monetary policy — should actually be better for the long-run health of the economy.”

We’ll keep an eye on the FOMC when they meet next Tuesday. Stay tuned…

A sudden rate hike could cause quite a stir in American stocks, which are celebrating the one-year anniversary of the crisis bottom today. No signs of stress yet… markets opened flat this morning.
Four more banks failed over the weekend, bringing the annual tally to 26. That’s already more than all the 2008 failures, and just a little off the pace of 2009, which saw 140 banks bite the dust. The FDIC currently has 702 lenders on its infamous “problem list.”

For the weekend’s failures, chalk up another $300 million in IOUs for the FDIC’s bankrupt deposit insurance fund.
The dollar rally continues today, thanks largely to this: “Greece’s debt problems could soon spread to the rest of Europe and mean a weaker euro,” said Greece’s PM George Papandreou overnight. Heh, this guy must be SO popular in Germany. The dollar index is up half a point from yesterday, to 80.7.
More drama still in the euro-space: A stunning 93% of voting Icelanders elected to not pay back Dutch and British creditors that lost their shirts during Iceland’s monetary collapse in 2008. “They do not want to give their own money to rich investors who took the risk of depositing their funds in Iceland for higher interest rates,” The Epoch Times reports.

Did we miss this vote here in I.O.U.S.A.?
Today’s dollar strength is bad news for gold. The spot price is $20 off yesterday’s high, at $1,115 as we write. Oil is down too, about a buck, to just under $81 a barrel.
“This is a boomtown, or boomtowns,” Chris Mayer reports from an “exotic” location of his own. We’ll keep you in suspense here… see if you can guess which region has caught Mr. Mayer’s attention.

“You know the labor market is tight when the local McDonald’s starts handing out $300 signing bonuses. Workers are coming in from all over, making it tough to find housing. They might sleep in their trucks or pitch tents, but it can get 50 degrees below zero, which makes such a move dangerous.

“There is also a chronic shortage of hotel rooms. I browsed the Web to see if I could find a room. I checked the Super 8 motel — no rooms available. I checked a few others — no rooms there either. I used Priceline to search, and there were no rooms available. What’s going on here?

“Local ranchers are becoming millionaires overnight. The 4 Bears Casino reported a 60% increase in sales last year. This is a boomtown. Or boomtowns. Even the state government is in surplus.

“The above is a composite of what’s going in North Dakota, around the Bakken Shale formation. As The Wall Street Journal put it: ‘A massive oil reserve buried two miles underground has put North Dakota at the center of a revolution in the U.S. oil industry, a shift that has radically altered the fortunes of this remote area.’

“The Bakken Shale could hold more than 4 billion barrels of oil and stretches under North Dakota and Montana (and Canada, but I’m only talking about the U.S. piece here). If that number is correct — it comes from the U.S. Geological Survey — then it would be the biggest oil field discovered in the contiguous U.S. in more than 40 years…

“In February 2008, we picked up shares of Kodiak Oil & Gas, a small Bakken player, for $1.94 per share. By June, they traded for over $4 per share. So you can make good money speculating on the Bakken.

Share and Enjoy: