• China will increase its annual oil refining volume by 18% over the next two years to meet expected long-term demand. China’s State Council also said that it would boost stockpiles and encourage petro companies to merge operations, Bloomberg reported.

• Lowe’s Cos. Inc. (NYSE: LOW) reported an analyst-beating quarterly profit and raised its full-year forecast. The No. 2 home improvement retailer cited improving consumer confidence and signs the housing market may be bottoming, Reuters reported.

• Toshiba Corp. has begun a $3 billion stock sale to raise capital after posting a record loss last year. Japan’s biggest semiconductor maker plans to offer 870 million new shares priced at a 3% to 5% discount to the stock’s closing price the day the sale ends, which may be as early as next week, Bloomberg reported.

• Seeking to pay back government loans, American International Group Ltd. (NYSE: AIG) is speeding up plans to list its Asian subsidiary, American International Assurance Co. Ltd., through an initial public offering, Reuters reported. AIG hopes the IPO will raise more than $4 billion, a small number considering the insurer has racked up a $180 billion debt to the U.S. government.

• President Barack Obama will announce today (Tuesday) a federal standard for greenhouse-gas emissions from vehicles, the first nationwide limit on pollution scientists say is triggering global climate change.  The emissions limit will be coordinated with new national fuel economy standards for cars and trucks, Bloomberg reported, citing people familiar with the matter.

• U.S. homebuilders confidence rose in May to the highest level since September, providing further evidence that the housing slump that started in 2006 may be closer to a floor. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 16 from 14 the prior month, the Washington-based agency said yesterday (Monday), capping the first back-to-back gain since February 2008. A reading below 50 means most respondents view conditions as poor, Bloomberg reported.

• State Street Corp (NYSE: STT), the Boston-based custodial bank and asset manager, said it plans to sell $1.5 billion of stock and will also sell notes to help repay government bailout funds. The bank said it took a $3.7 billion charge to move some assets onto its balance sheet at a loss, and will said it will use proceeds from the securities sales to help repay a $2 billion infusion from the Troubled Asset Relief Program, Reuters reported.

• Oil prices rose sharply yesterday (Monday), as violence in Africa’s top crude exporter Nigeria and a fire at a key U.S. East Coast refinery revived concern about supplies.  U.S. crude for June jumped $1.98 to $58.32, while London Brent for July rose $2.51 to $58.49.  The gains came after Nigerian militants said they had blown up two oil and gas pipelines in the Niger Delta and would blockade waterways in the region in an effort to disrupt energy exports from the Organization of Petroleum Exporting Countries (OPEC) member, Reuters reported.

• An earnings surprise and a buy recommendation on a major U.S. bank sent U.S stocks skyward yesterday (Monday). The Dow Jones Industrial Average had its best day since April 9, zooming 235.44 points, or 2.85%, to close at 8,504.08 – as 29 of the 30 stocks that make up that closely watched blue-chip index rose. The Standard & Poor’s 500 Index recouped  more than half of last week’s losses, advancing 26.83 points, or 3%, to close at 909.71. Home-improvement retailer The Lowe’s Cos. (NYSE: LOW) topped earnings estimates – sending its shares up more than 8% — while one analyst recommended buying shares of Bank of America Corp. (NYSE: BAC), and set a $15 price target. BofA’s shares closed yesterday at $11.72, up 9.84% each. The Nasdaq Composite Index surged 52.22 points, or 3.1%, to end the day at 1,732.36.

Investment News Briefs Tuesday, May 19, 2009

In fact, water shortages are erupting around the world, from San Diego to Riyadh.

Hundreds of farm workers and locals from all parts of California took to the streets last Thursday as part of a four-day march to protest federal cutbacks in water supplies.

“This is ground zero,” Mario Santoyo, an adviser to the California Latino Water Coalition, told the New York Times. “There’s a human tragedy going on here, and we need water.”

The state of California projected in March that, because of a drought in the state’s Central Valley, as many as 23,700 full-time workers would lose their jobs, and farmers would lose up to $477 million in revenue, The Times reported.

California Governor Arnold Schwarzenegger has declared the drought a state of emergency and – not for the first time – threatened statewide water rationing.

Yet, the scene in California is just a small glimpse of the kind of dissatisfaction and unrest that many experts believe will become frequent occurrences if the world’s evolving thirst isn’t quenched.

Today, 2.8 billion people, or 44% of the world’s population, live in areas of high water stress, according to the Organization for Economic Co-operation and Development. This will rise to almost four billion by 2030 based on present trends. The livelihoods of one in three people on the planet will be threatened by water scarcity within 15 years.

And the situation is showing signs of spiraling out of control as populations around the world continue to grow.

The world’s population has more than doubled in the past 50 years, soaring to about 6.5 billion from 3 billion (The combined population of China and India is about 2.5 billion). In that time the use of water has tripled, according a recent article in The Economist. Analysts anticipate that the world’s population will increase by about 2 billion by 2025 and 3 billion by 2050.

And it’s not just the volume of people that has analysts worried. It’s where those people will be living and what they’ll be eating. The vast majority of masses joining the world’s population in the coming decades will be city-dwellers, who consume more water than their rural counterparts.

That’s largely because urban populations, particularly populations with higher standards of living – such as those blossoming in developing countries like China and India – consume more meat, and therefore more water.

According to The Economist’s article, it takes about 1,000 liters (264 gallons) of water to produce one kilogram (2.2lbs) of wheat. But it takes as much as 15,000 liters (3,963 gallons) to produce a kilo of beef.  The meatier diets of Americans and Europeans requires about 5,000 liters (1,321 gallons) of water a day versus the 2,000 liters (528 gallons) of water needed to sustain the vegetarian diets of Africa and Asia.

The world will need as much as 60% more water just for agriculture for the 2 billion people expected to join the urbanite ranks over the next decade and a half, according to the Food and Agriculture Organization.
And it’s not just developing countries that need to worry. A report by the World Wildlife Federation, entitled “Rich Countries, Poor Water,” pointed out that water crises are increasingly affecting many wealthy nations, due to climate change, drought and water resource “mismanagement.”

“In Europe, countries on the Atlantic are suffering recurring droughts,” the report notes, “While water-intensive tourism and irrigated agriculture are endangering water resources in the Mediterranean.”

The Murray-Darling basin, an area of southeast Australia as large as France and Spain combined, recorded its lowest level of inflows in 117 years during the first three months of 2009.  Farmers have been restricted to as little as 16% of their annual water allocation. Authorities warn that water supplies for the two million Australians who live in the basin cannot be guaranteed beyond next year.

United Nations Secretary-General Ban Ki-Moon has warned that “time is running out,” as estimates suggest that almost a third of the world’s population will be living in regions facing severe water scarcity by 2025.

Money Down the Drain

The United States and other countries around the world are already being forced to confront their water supply shortages. And they’re having to do it with cash.

California will receive $260 million in federal economic stimulus funds to fix dams, restore fisheries and habitat and help the state cope with drought conditions, Interior Secretary Ken Salazar said last week. In addition to that, the state is likely to qualify for much of the $135 million in federal grants set aside for water reuse and recycling projects.

“I think a new reality is forming here … that water is scarce and we are going to have to change the way we use water,” Frank Royer, general manager of the Camrosa Water District in Camarillo, told the Ventura County Star.

Saudi Arabia – a desert country that is swimming in oil but desperately lacking fresh water – is putting $800 million into a new public company that will invest in overseas agricultural products, the Financial Times reported.

The reason: The Saudi government is discontinuing domestic wheat production to conserve its water resources. The country has been producing about 2.5 million tons of wheat each year since it began its wheat program in the late 1970s.

China is another country hoping it can spend its way out of a water dilemma.

About 15.3 million hectares, or 13%, of Chinese farmland are lost to droughts every year, according to a recent article in BusinessWeek. Roughly 300 million people living in rural areas still don’t have access to drinking water. And of China’s 600 cities 400 are facing water shortages.

That’s because, on top of water scarcity, China has horrible pollution, which has rendered much of the nation’s fresh water undrinkable.

More than 200,000 people in Yancheng, Jiangsu were recently cut off from clean water for three days when a chemical factory dumped carbolic acid into a river, BusinessWeek reported. A similar incident occurred in November 2005 when a chemical plant in Jilin spilled massive amounts of toxic benzene into the Yangtze and Songhua rivers.

About 1 billion tons of untreated sewage is dumped into the Yangtze River each year. And half of China’s population – 600 million to 700 million people – drinks water contaminated by human and animal waste.

As of September 2008, China had poured $7.46 billion into 2,712 water treatment projects, according to the nation’s Ministry of Environmental Protection. Beijing also has launched a multibillion-dollar effort to transport water from southern regions. But that project has been delayed because of environmental concerns and resistance from the estimated 300,000 farmers who would have to be relocated to accommodate water pumping and cleaning stations as well a canal., BusinessWeek reported.

The Asia Society argues that water – not oil – will evolve into the key regional security in the 21st century, and Asia in particular is desperately lacking.

“This is a fundamental resource that we need to survive,” Suzanne DiMaggio, director of the Asia Society’s Social Issues Program told TIME magazine. “The emerging picture is very worrisome.”

Source: Developed and Emerging Nations Forced to Ante Up to Stem a Worldwide Water Shortage

Except it’s not global warming anymore. Now it’s called “climate change.” Y’see, the cold winter wasn’t a sign of warming. It was a sign of global climate change. Got that? Mankind is burning too much fossil fuel, goes the thesis. So the cold gets colder. The hot gets hotter. The wet gets wetter. The dry gets dryer. And the confusion gets what? More confusing?

So is this game rigged? No matter what the evidence is, goes the argument, just pay no attention to the man behind the curtain. It’s all climate change. And that, of course, means that the government knows best. Especially when a certain class of people — with the right policy credentials — are running the government. As in the expression, “Trust us. We’re experts from the government. We’re going to help you.” Or as the narrator used to say at the beginning of the show The Outer Limits, “There is nothing wrong with your television set.” Or as the cops say as you drive past a crash scene today, “Move along, folks. There’s nothing to see here.” Yep. No looky-loo. Just climb aboard the Climate Change Railway Express. No peeking while we raise your taxes.

Decades of Malinvestment Become Apparent

Meanwhile, over the past winter, the economy was in the tank. The deep troubles got deeper. It makes me recall many of those hard times stories I used to hear from family and friends about the Great Depression. It makes me glad I listened.

This past winter, it seemed like all those decades of what the Austrian economists call malinvestment finally found a place in the light of day. But it’s not as if the whole tale were some sort of state secret, like the Venona files at the National Security Agency or something. Really, the nation’s industrial and productive decline was fairly clear all along if you knew what you were seeing. The problem has been hiding in plain sight since August 1971, when President Nixon killed any semblance of a gold-backed dollar.

Or it’s kind of like Peak Oil. M. King Hubbert drew the fundamental Peak Oil graph back in the 1950s. Heck, I heard Hubbert give his speech in fall 1977. I saw Peak Oil in action back when I was working at Gulf Oil Co. in the late 1970s. It was no shock to me, at least, when the world’s crude oil output curve finally maxed out in 2006.

What? Nobody told you that the crude curve maxed out? Hey, the world’s marginal oil output is now mostly natural gas liquids. It means that we’re blowing down the gas caps.

It’s why I like resource and energy companies, companies that bring real stuff to the surface. It’s why I’ll keep writing about energy and resources in a publication like ESI.

Obama’s Economic Policy

I try to avoid getting too “political” in these pages, aside from my rants about issues affecting energy policy, resource policy and the like. So today I’m just going to quote my friend James Howard Kunstler, a longtime Democrat and supporter of Barack Obama in the recent election.

Kunstler just published his comments on the Obama appearance on the CBS News show 60 Minutes on Sunday, March 22. According to Kunstler, Obama “may perfectly represent the majority who elected him… because he also appears to be in full-commanding denial of the realities overtaking our American experience. Those realities include the fact that we can’t possibly return to the easy-credit and no-money-down ‘consumer’ economy, no matter how many nominal dollars get shoveled into the fiery furnaces of banks too big to fail.”

After describing the economic policies coming out of Congress and the new presidential administration, Kunstler continues: “Lending on the scale that became normal over the last decade is, for sure, the one thing that we will not recover. We turn around in 2009 to find ourselves a much poorer nation than we thought we were a year ago, especially among that broad range of formerly middle-class wage-earners who lived so luxuriously until yesterday. The public can’t process this reality, and the president, for all his relaxed charm, is either not ready to articulate it, or can’t process it himself.”

Kunstler describes the process of the Fed releasing new currency — created out of thin air — to buy up Treasury debt. He comments: “It would be sententious to explain how this destroys currencies, but wherever ‘monetizing debt’ has been tried before in history, that is the outcome. The result would be ruinous at every level and would lead straight to the second terrible force: social upheaval brought on by the conversion of economic problems into political turbulence.”

In my view, Jim Kunstler is exactly on target with his comments. I’m watching the shenanigans in Washington with something approaching utter fear. It’s why I’m recommending investments in gold and energy plays.

Spend, Borrow, Tax, Inflate

I’m truly worried about our future. The things that are going on in the U.S. economy are not sustainable, and I don’t just mean “happy motoring” into the Peak Oil future. The whole economy is on the edge. I don’t see anything on the political or policy horizon that offers any semblance of hope. Nothing. It’s just spend, spend, spend. Borrow, borrow, borrow. And tax, tax, tax.

What’s in all of this for you? What’s in it for me? A lot of inflation, most likely. That’s why you need to buy gold with 5-10% of your portfolio. And have more of your portfolio in good, solid mining firms.

Building on Kunstler’s comments just a bit more, the Obama economic policy assumes that someone out there will still buy U.S. Treasury paper. But will that happen? The best customers for U.S. debt are distinctly unenthusiastic about adding to their holdings.

The Chinese already own a trillion dollars or so in Treasury bills that are depreciating in value. Besides, China needs a continent full of new infrastructure, plus social spending for 1.3 billion people. And don’t forget the new navy China is planning, with which to police its interests from Africa to the central Pacific Ocean and onto South America. All of this will sop up funds China once used to buy U.S. securities.

Another large traditional customer for U.S. debt is Japan. But Japan is running a current account deficit. It lacks the large numbers of dollars to recycle.

In the Middle East, the petro states are no longer receiving a flood of dollars from high-priced oil ($147 per barrel last July). Don’t count on them to buy up U.S. Treasuries.

The bottom line is I don’t know — and I don’t know anyone else who knows — where the buyers will come from to absorb all the new debt that the Obama and congressional spending plans are going to generate. Something has to give. It’s going to be the long-term value of the dollar. I expect to see a lot of fuel poured onto the fires of inflation.

Source: An Unsustainable Way of Life