Chavez’s government and seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA).

PDVSA accumulated the debt as oil prices took a dramatic slide from over $147 a barrel last July to less than $35 a barrel in February.

PDVSA has attempted to slash expenditures 60% by reducing salaries for managers by 20% and imposing a wage freeze on the majority of its employees. But the company still owed contractors and suppliers $13.9 billion by the end of last year, according to The Wall Street Journal. The majority of that total remains unpaid and some of the debt dates back to last August.
Irate over a growing backlog of invoices, many of the companies threatened to halt operations – something PDVSA and Chavez can ill-afford. The company is accounts for about half of Venezuela’s revenue, and is largely responsible for funding and administering the social programs that Chavez has employed to court popular support.

PDVSA brought in more than $120 billion in revenue in 2008, but this year, it will likely make just $50 billion.

With its back against the wall, PDVSA is demanding that service companies accept a 40% cut in their bills.

“We will not pay contractors that have tried to speculate and don’t care about our company,” PDVSA President Rafael Ramirez said in April. “We have to renegotiate what we pay them.”

Last Friday, the government began expropriating equipment and projects from foreign oil service firms that refused to renegotiate their debt. At least 12 drilling rigs, more than 30 oil terminals, and about 300 boats were seized, the according to The Financial Times.

“To God what is God’s, and to Caesar what is Caesar’s,” Chavez told a throng of supporters, the FT reported. “Today we also say: To the people what is the people’s.”

Tulsa, Okla.-based Williams Cos. (NYSE: WMB) was among the firms that saw its assets taken. The firm said last week that it would write down a $241 million payment default by PDVSA. Drilling contractor Helmerich & Payne Inc. (NYSE: HP) is due $116 million from PDVSA, and is idling seven of its 11 operating rigs in the Andean country while it negotiates payment.

“Chavez has sent a shot across the bow for the entire oil service sector,” Patrick Esteruelas, an analyst with political risk consulting firm Eurasia Group, told the Journal.  “This is a very strong message for oil rig companies playing hardball and reluctant to agree on a write-down of their bills.”

But the brash gesture will also bring negative consequences that could significantly jeopardize the nation’s oil production, which is already in decline.

Venezuela’s oil production fell to 2.36 million barrels per day (bpd) in 2008, after climbing as high as 3.18 million bpd in 1997, according to the International Energy Agency (IEA). The Organization of Petroleum Exporting Countries (OPEC) estimated the country’s output was about 2.24 million bpd in December.

The expropriation of the oil service companies “increases the risk of additional declines in oil production since PDVSA is not likely to be as efficient an operator of these businesses and assets as the private sector contractors,” Goldman Sachs Group Inc. (NYSE: GS) said in a report.

The seizures “might turn into an expedient and quick political solution to the current large payment arrears to suppliers, they might also entail large medium-term costs in terms of foregone production and overall economic efficiency,” the report said.

The expropriations will also crimp badly needed investment, which in Venezuela is declining almost as quickly as output. Private investment in the nation’s oil sector fell to $500 million last year from twice that level in 2007, BusinessWeek reported.

“Venezuela’s aggressive fiscal terms and the country’s persistent trend toward nationalization of oil industry activities will make it more and more difficult to attract foreign investment and competitive bids from qualified operators,” David Voght, a director at IPD Latin America, which advises several international oil companies operating in Venezuela, told the FT.

PDVSA has slashed investment in new energy projects by $10 billion. And now the company, which is already overburdened by Chavez’s political and social agendas, will have to absorb 8,000 new workers into a permanent payroll that already exceeds 75,500 employees – nearly twice the number employed when Chavez took office a decade ago, according to the Journal.

And without adequate investment, there’s little hope that Venezuela’s output will reverse course anytime soon.

“PDVSA has to invest in the business,” James L. Williams, heads of oil consultancy WTRG Economics told BusinessWeek. “You have to feed a cow if you expect it to give milk.”

Source: Venezuela’s Oil Production Squeezed by Chavez’s Heavy Hand

• A team of economists estimate that China’s January exports likely fell 14% from a year earlier, which would be the biggest monthly decline in a decade, Bloomberg reported. With demand from the United States and Europe waning, “the implications for China’s industrial sector are severe because exports account for close to 20 percent of industrial output,” Isaac Meng, a senior economist at BNP Paribas SA in Beijing, told Bloomberg.

• Sales for appliance maker Whirlpool Corp. (WHR) fell 76% for the quarter, and the company said earnings would continue falling in 2009. Its debt ratings have also been downgraded to a notch about “junk” status, Reuters reported.

• Coffee giant Starbucks Corp. (SBUX) will begin an all-day value meal, pairing its beverages with two new sandwiches starting March 3, MarketWatch reported. “Our customers need to know that we are listening to them by making Starbucks an affordable everyday option,” Michelle Gass, executive vice president of marketing, said in a release.

• Venezuelan President Hugo Chavez said his country’s economy hasn’t been touched by the global economic crisis, despite the country’s second-biggest bank said GDP will expand 0.4% in 2009, down from 4.9% last year. Chavez is campaigning to amend the constitution so that he can seek another presidential term in 2012, Bloomberg reported.

• Defaults on prime-jumbo hybrid adjustable-rate mortgages could double in coming months according to JP Morgan Chase & Co. (JPM) analysts. The share of prime-jumbo mortgages at least 60 days late climbed 0.71% to 5.29% in the month covered by January bond reports.  Losses on so-called hybrid adjustable-rate mortgages backing 2006 and 2007 prime-jumbo securities will reach 8 to 10%, the analysts told Bloomberg.

• Satyam Computer Services Ltd. (ADR: SAY) will decide on a long-term action plan by next week, including a possible sale of the company, its chairman said, as the fraud-marred outsourcer struggles for survival.  Satyam was hit by massive fraud in India’s biggest corporate scandal as it disclosed that profits had been overstated for years.  Its founder and former chairman Ramalinga Raju resigned last month, Reuters reported.

Source: Global Investment News Briefs Tuesday, February 10th, 2009

As prices have recently touched lows of $33.20 per barrel, inexpensive oil has caused severe problems for Venezuela’s Hugo Chavez and Iran’s President Mahmoud Ahmadinejad. Chavez just invited oil companies Chevron (NYSE: CVX), Royal Dutch Shell (NYSE: RDS.A) and Total S.A. (NYSE: TOT) back into the country. And Ahmadinejad is fighting re-election troubles caused by a government used to surpluses and excess cash.

Apparently inefficient state-run energy companies can’t squeeze out profits like the professionals. And when they aren’t screwing production up, Russia has proven that it can simultaneously show the world it’s a bully – in addition to cutting off it’s income stream.

And things certainly don’t seem to be getting any better for these three. OPEC just released its 2009 demand forecast that spells out a dismal outlook for the coming year. But it’s not just low demand.

Oil inventories are at all time highs, “contango” opportunities abound, and OPEC hasn’t cut production anywhere near to where it needs to be to level out prices. And even if it did, the “bad boys,” mentioned above, would still be pumping it out at full speed to meet their obligations.

Lets fact it, oil could be down for much longer than they expect.

Source: Oil – U.S. State Department’s Newest Ally

More from Money Morning:

Four months ago, it appeared that three economic “bad actors” were triumphant in their disregard of economic laws and contempt for the United States: Russia, Venezuela and Argentina. Today, while the iron laws of economics have taken a bite out of all of us, they have taken an especially big chunk out of the economies of these bad actors. Unlike most of us, they will not be quick to recover.

That is good news – for U.S. foreign policy, and for those of us who hope that the more befuddled emerging markets will figure out how to run their economies before Malthusian population pressures overwhelm them.

The world does not need to see bad behavior – political or economic – rewarded.

Let’s consider a few of the worst players.

Russia’s Tactics Backfire

Russia, first, invaded Georgia in August and appeared ready to use its oil-and-gas wealth to rebuild the Soviet military machine, as well as making Western Europe entirely dependent on the whims of its state controlled energy company OAO Gazprombank.

Gazprom’s attempts to control energy supplies to Europe included blocking the Nabucco gas pipeline and striking a deal with Libya, Europe’s main non-Russian potential supplier. Russian defense spending, too, has quadrupled since 2001 and was continuing to increase rapidly – by 26% in 2009, to more than $50 billion (bear in mind that Russia gets more bang for its ruble because its soldiers are both cheaper and require less maintenance than pampered US and EU forces).

Not any more. The decline in oil prices, halving in three months, has thoroughly destabilized the Russian economy and wrecked its budget picture. Russia has been forced to promise $100 billion to its banking system, without any certainty that this capital injection will solve its problems. Inflation is running at 16%, and will rise further as Russia’s foreign exchange reserves are used to prop up the banks. Oleg Deripaska, Russia’s richest oligarch, has been forced to sell assets to meet market calls.

Most pathetically, Belarus, previously Russia’s most reliable poodle ruled by a wholly unreconstructed autocrat, is making promises of “reform” – if it can get access to International Monetary Fund (IMF) cash.  The RTS stock index is down by around 75% from its peak in June – that makes the roughly 30% decline in the Standard & Poor’s 500 Index seem no more than a gentle correction.

Chavez Feels the Pinch

Russia’s the most dangerous of the bad actors, because of its nuclear weapons and belligerent foreign policy attitudes, but it’s not the only one to face hard times. Venezuela is also facing the pinch – although this Latin American player found the benefits of $147 oil were so fleeting that even President Hugo Chavez had failed to spend up to his income (though a 26% increase in dollar spending in the 2009 budget shows he means to try). Inflation is 36%, around the level at which it becomes an overwhelming problem, while oil output has been falling since Chavez replaced the senior management of the oil company Petróleos de Venezuela S.A. (PDVSA).

The cash crunch has not yet hit home – Chavez is desperately trying to postpone any hardship until after the Nov. 23 local elections. The stock market is down only 40% from its January 2007 high – although the nationalization of electricity, telecoms and cement has removed a number of stocks from active trading.

Nationalization also hasn’t helped electricity service – the country has suffered three nationwide power blackouts this year. You can expect further bad economic news from Venezuela in early December, after the local elections.

Cry For Argentina

Finally, Argentina, which is dependent on a broad range of commodities, has also run into trouble. Argentina defaulted on its international debt in 2002, before forcing bondholders to accept new bonds worth about 30% of face value. It also seized most of its residents’ dollar savings: This country seems to succumb to that particular kind of bad-actor behavior about every 10 years.

However, vice had appeared to be rewarded, with 8% annual growth for Argentina in 2003-2007. Inflation is currently running about 25%, but the government solved that problem by forcing out the head of its statistics bureau and making up new inflation numbers, thereby ripping off holders of its inflation-linked bonds.  With the decline in commodity prices, however, the government of Cristina de Kirchner was running into trouble, since it had $20 billion of debt to repay by the end of 2009, even on its written-down schedule.

The government’s solution was simple – it nationalized the $30 billion private pension scheme, set up in 1994 by the previous government – to much IMF and economic reformist applause. So much for pensions privatization – in Argentina, it simply gives the government an additional pot of money to steal. With an additional $30 billion available, the Argentine government can carry on spending for at least another year – at the cost of condemning its middle classes to a penurious old age, since few of us have the foresight to save in more than one pension scheme.

Russia is probably the most seriously affected by the oil-price decline, because its ambitions were most expensive. In Venezuela, trouble hasn’t really hit yet – or Chavez is keeping it hidden until after the local elections. In Argentina, meanwhile, the bad-acting government has found yet another way to make the middle class pay for the leadership’s misdeeds.

However, if oil prices stay below $70 for the next few months, and commodity prices are likewise subdued, we can be confident that even Russian Prime Minister Vladimir Putin, Hugo Chavez and Cristina Kirchner will suffer a very cold winter indeed.

PS. At the other end of the scale, some foreign markets have great recovery potential. Martin Hutchinson picks four markets most likely to “bounce big” after this financial storm.

Source: Trouble Comes Home to Roost for the “Bad Actors” of the Global Economy

But they were wrong. The Datastream Internet Index reached its peak on January 3, 2000, and then collapsed, falling 93.8% over the next 34 months.

In 2005, investors thought the real estate market was “different.” Homeowners were buying houses more expensive than they could afford because they thought inflation would protect them. While home prices could stagnate, they wouldn’t go down.

But, as you know, they were wrong. Beginning July 2006, real estate has fallen 16.2%.

Investors will come up with any excuse to continue pumping money into a sector that’s produced amazing returns for them in the past. And when the money starts piling in, it’s time for you to get out.

Today, the sector is oil. In inflation-adjusted terms, the price of oil is up 140% in the last 18 months. At first glance, the logic seems plausible…

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Global demand for oil is surging. Most of this increase comes from emerging economies like China and India. And global oil supply is on the decline. A large cause is poor reserve management by nationalized oil companies.

Venezuela’s oil production, for example, decreased by at least 1 million barrels per day (bpd) since President Hugo Chavez nationalized the country’s oil fields between mid-2006 and 2007. And Iran’s leaders can’t attract private capital and technology, so production is down 3 million bpd to half of what it used to be under the Shah.

Russia and Nigeria are in the same boat… The problem is, high oil prices make governments greedy. They take over oil fields and mismanage them, decreasing supply growth… and leading to even higher oil prices.

This imbalance has catapulted the price of oil to stratospheric levels. Even when adjusted for inflation, the price of crude oil is now far above its 1980 peak.

In the long run, simple economics tells us the price of a barrel of oil should equal the cost of producing the most expensive barrel of oil needed to meet global demand.

According to the Energy Information Administration (EIA), the oil market has a small surplus of existing production. And according to a Dallas Federal Reserve economist, the most expensive barrel of oil needed to meet global demand is being produced at just $50. With oil currently priced at $137 a barrel, the incentive to find and produce more oil is enormous.

This process takes time… But there are already signs supply is climbing. Shale oil in the Dakotas and in the Canadian tar sands – which costs about $70 a barrel to produce in both places – is attracting enormous amounts of investment capital.

In addition, research into the process of converting coal to oil might yield a more environmentally friendly process sometime in the near future, which would overcome one of the major hurdles facing coal-to-oil production now. The supply of coal in the U.S., if you were wondering, is plentiful.

From the demand side, the EIA reports consumption in 30 developed countries has fallen 460,000 bpd since last year. Most of that decline comes from plummeting U.S. demand.

This commodity rally – and the oil boom in particular – is not any different than previous booms. The market will find a new equilibrium, and the price of oil will undergo a nasty correction.

Good investing,

Ian

P.S. As my colleague Matt Badiali explained in a recent DailyWealth essay, don’t confuse brains with a bull market. If you own oil and gas stocks, now’s the time to keep an eye on your stops. On the other hand, the market has mauled refiners. But I think right now, refining stocks are perfectly positioned for the coming oil rout.

Source:  Why Oil May Be Headed for $50

The high and rising price of oil is causing real pain in the heartland… and yet the view looks quite different from the Middle East.

Chakib Khelil, the Algerian oil minister and president of OPEC, has flatly stated that “there is no shortage.”

The oil minister of Qatar is even more blunt. “The market doesn’t need more oil,” he says.

Hussain al-Sharistani, the oil minister of Iraq, takes the strangeness even step further. “There is more oil in the market than consumers want,” he argues. (Which begs the question: Which consumers exactly?)

There is obviously plenty of bad news in crude oil’s meteoric rise. But the bright side is, real pain means the U.S.A. — and much of the world — is finally on the cusp of real change. That means profit opportunity on a major scale.

Nosebleed Oil Prices — Whose Fault?

A few weeks ago, OPEC members seemed to shrug their collective shoulders at the thought of $200 a barrel oil. President Khelil points out that much of the price rise is due to a weak dollar. (Every one percent decline in the dollar’s value, OPEC estimates, increases the price of crude by $4 a barrel.)

So the dollar is one major culprit. But there are many other small factors that add up.

For example, China, after suffering through its worst earthquake in decades, has had to shut down mines and wells for safety reasons. Apart from the terrible human tragedy of more than 34,000 lives lost, this can only add upward pressure to oil prices.

In South America, Venezuelan oil exports recently dropped to a five-year low, and evidence is mounting that the country has become a state sponsor of terrorism under Hugo Chavez.

In Nigeria, rebels continue to keep oil and gas production on a knife edge. In places like Russia and Mexico, oil and gas output is declining at an eye-opening rate.

The little things pile up; if it’s not one thing, it’s another. This is generally the case when supply and demand are so tightly matched there is almost no margin for error. That’s where we stand now in terms of global oil demand vs. available daily supply.

It’s not rocket science to see how all these factors add up to $127 a barrel oil. For years, naysayers have been telling us that the price of oil was about to collapse and head back to ‘cheap’ any day now.

Of course, what was cheap just kept edging higher and higher. First it was $25 a barrel. Then it was $35. Then $45, $55, $65. And now we’re at the point where $85 or $90 a barrel oil would probably seem ‘cheap’ relative to today.

Growth and More Growth

The supply side of the equation is tough and getting tougher. And when we look to emerging markets, it becomes clear that the demand train isn’t slowing down.

The U.S. consumer might be spent, but consumers in other countries are just rolling up their sleeves.

For example, Bloomberg reported last week, “China’s retail sales climbed at the fastest pace since at least 1999, signaling that domestic consumption may help to buffer the world’s fourth-biggest economy against an export slowdown.”

At the same time, Thailand reportedly booked its fastest growth in two years in the first quarter of 2008.

A key debate these past few years has been whether or not domestic demand growth would kick in strong enough, allowing export-heavy regions of the world like Asia to become captains of their own economic fate. The evidence suggests this is happening.

Then add to that mix the fact that shopping malls are spreading like wildfire in Russia, cheap cars are conquering India, Southeast Asians are doubling and tripling the amount of meat in their diets, and so on.

For much of the 20th century, the Western world threw a party that the rest of the world missed out on. Now that the West is miring itself in economic slowdown, ROW (a common Wall Street acronym for “rest of the world”) seems to be saying, “No thanks. We’re not much interested in your pity party, either… but we do intend to get our fair share of those resources you’ve been hogging.”

The Good News

Again, there is plenty of good news, too.

High oil prices may be here to stay, but the reasoning behind this phenomenon is not all bad. It’s a good thing for ROW to be coming on line… to see new wealth being created, new economic breakthroughs, new dreams of escaping poverty and hardship on a grand scale.

And here in the land of plenty (the United States), it’s good to see habits truly changing for the first time. It was a phenomenon itself these past few years how stubborn the American consumer seemed to be in the face of rising gas prices.

No matter how much pain was felt at the pump, we just kept driving. The gas-guzzler culture seemed to be bulletproof. Ford Excursions and Chevy Suburbans just kept rolling off the lots.

In pretty short order, all the charge-card companies boost his credit limits, cut the interest rates he’s paying on his outstanding balances, offer him new credit lines – and even make him eligible for various “rewards” programs that give him all sorts of freebies for spending money.

Brazil finds itself in that situation because uber-debt-rater Standard & Poor’s just boosted the country’s credit rating to “investment grade” in recent weeks, moving its rating from BB+ to BBB-. Why should we care? After all, isn’t Brazilian debt bought mostly by institutional investors? That’s true. But with the increased debt rating, Brazilian shares also should benefit – provided the government doesn’t embark on a big spending binge.

Brazil was included in the “BRIC” (Brazil, Russia, India, China) group of rapidly growing emerging economies that was created by Goldman Sachs Group Inc. (GS) back in 2003. At that time, it really didn’t deserve the distinction. Long-term growth since the 1970s had averaged less than 2% per capita, and the country had narrowly avoided bankruptcy only the year before. Long-term interest rates were above 20% (around 15% in real terms), which hardly encouraged companies to make capital-spending commitments that might grow the economy. Most alarming, a left wing socialist named Luis Inacio Lula da Silva had just been elected president.

Brazil got lucky. First, Lula proved to be surprisingly moderate, not much to the left economically of previous Brazilian governments, perfectly willing to welcome foreign investment, generally friendly to the United States and not at all like his socialist neighbor, Venezuelan President Hugo Chavez. Second – and probably even more importantly – 2003 was the year in which energy and commodity prices began the long climb that has brought them to their current (astronomical) record levels. Third, since Brazil was not an oil exporter, there was no single source of new wealth that the government could just seize. Instead, revenue flowed to mining companies, the oil company Petroleo Brasileiro SA (usually referred to as just Petrobras) (ADR: PBR), and numerous agri-business operations that benefited from the rise in agricultural prices.

Most startlingly, Brazil’s ethanol program, which had been a hopeless boondoggle for a generation since it started during the oil crisis of 1979-82, suddenly became the envy of the world. Rising oil prices made Brazilian sugarcane the world’s cheapest and most economically and ecologically efficient source of newly fashionable ethanol. At a $20 per barrel oil price, the ethanol-from-sugar program was a typical example of misguided Third World government planning; at $120, it is a bonanza.

Brazil’s debt position has improved in three ways:

• The amount of outstanding debt has been reduced through modest repayments.
• Its ratio of debt to gross domestic product (GDP) has dropped sharply, as GDP in dollar terms has shot up with the revaluation of the Brazilian real against the dollar.
• And Brazil’s interest costs have dropped along with the country’s improving creditworthiness and with the generally low level of global interest rates.

With more income, a stronger currency and lower debt, it’s not surprising that Brazil’s credit rating has improved. As with an individual consumer on whom the credit card gods suddenly smile, what happens next depends on what use is made of the improved position. If a person reverts to their earlier spendthrift ways, they will quickly max out the new credit limits, actually making their position even worse than before.

Fortunately, the Brazilian government appears to have learned the difficult lessons of the last 25 years, and is remaining both careful in its spending and welcoming to foreign investment. That will bring down Brazil’s debt costs further, as will recent favorable developments like the discovery by Petrobras of about 36 billion barrels of oil in an offshore Brazilian oilfield.

Now, don’t get carried away. This isn’t China – with its 10% annual growth rate, apparently repeatable ad infinitum. Brazil had such growth rates for a brief period in the 1970s, but they disappeared around 1980 in a blizzard of unpaid debt. Brazil’s growth rate is currently around 5% – but it looks far more balanced and stable than it did in the 1970s. Brazil’s improving credit position is likely to make growth persist, and future political risk appears minimal. When Lula goes, a politician of the center-right could well replace him.

Another good sign for Brazil – there are more than 30 Brazilian companies with full American Depository Receipt (ADR) listings on the New York Stock Exchange, plus 40-50 more that are traded in the over-the-counter market. Here are a few attractive examples to consider:

Banco Itau Holding Financeira SA, referred to usually as Banco Itau (ADR: ITU), has a Price/Earnings ratio of 14 and dividend yield of 2.4%.  Brazilian banks earn very high returns, primarily from domestic market lending in reals. Including Banco Itau, there are three large ones listed on the Big Board in New York; the other two are Banco Bradesco SA (ADR: BBD) and Uniao Bancos Brasile SA (Unibanco) (ADR: UBB). However, Itau is the cheapest of the three, though only slightly.

Companhia Vale do Rio Doce, now referred to only as Vale (ADR: RIO), is one of the true global blue chips, with a market capitalization of almost $200 billion. An iron-ore company with ancillary operations in gold, nickel, copper and other metals, its shares trade at a reasonably valued 13 times earnings, though its dividend yield is only 1.2%.

Petrobras (ADR: PBR) is one of the few emerging market oil companies with access to modern technology – and the willingness to work with the oil majors. Its shares are up 168% in the past year, but the stock’s P/E still is only 16. It has a 1.3% yield. The possible upside: It finds another gigantic offshore oilfield. The possible downside: Oil drops back to $50 a barrel. If the world’s monetary authorities get serious about imposing higher interest rates to fight inflation, PBR and RIO would probably suffer as commodities prices fall back to earth.

Companhia de Saneamento Basico (Sabesp) (ADR: SBS) is the water and sewage system provider for Sao Paulo. Now that’s a growth business, and not dependent on commodity prices. With a P/E of only 9.2 and a yield of 2.7%, this is one stock I have to say I love.

TNE (ADR: TNE) There are a bunch of Brazilian cell phone companies, but TNE appears to be the cheapest. It’s concentrated in the populous southeast and northeast regions of Brazil, with a P/E ratio of only 7 and yield of 4.25%.

Telecomunicacoes de Sao Paulo SA, or Telesp (ADR: TSP) provides the fixed line telephone system for Sao Paulo. Before you sneer, consider this: the company has a dividend yield of 9.8% and a P/E ratio of 10 (which means the dividend is only just covered). And it’s majority owned by Spain’s Telefonica.

Voturantim Cellulose (ADR: VCP) is a pulp and paper company, with a P/E ratio of 14 and a dividend yield of 2.8%. Trees grow fast in the tropics and VCP definitely benefits from that!

Source: Is Brazil ‘Investment Grade’ for Investor’s Money, Too?

The official, Hojjatollah Ghanimifard, told Iranian state-run television today that “the dollar has totally been removed from Iran’s oil transactions,” and that the country has “agreed with all of our crude oil customers to do our transactions in non-dollar currencies.”

The dollar’s spending power, like it or not, is at the mercy of Iranian president President Mahmoud Ahmadinejad, says Addison Wiggan in the 5-Minute Forecast.

“At a November 2007 meeting of the OPEC’s 13-member cartel, , whose country already receives payment for 85% of its oil exports in nondollar currencies, urged other countries to follow suit and ‘designate a single hard currency aside from the U.S. dollar…to form the basis of our oil trade. ‘The empire of the dollar has to end,’ chimed in Venezuela’s Hugo Chavez; his state oil company changed its dollar investments to euros at his order — er, request.

“Rumors are circulating that the Bank of Korea, after selling off $ 100 million worth of U.S. bonds in August 2007, is getting ready to sell $1 billion more, and if Washington forces trade sanctions, China, which threatened recently to cash in $900 billion of U.S. bonds, will probably follow suit.

“In Russia, Vladimir Putin’s dream of a stock market to trade the country’s natural resources in rubles is not so far-fetched; in 2005, Russia, the world’s second-largest exporter of oil, followed South Korea’s lead and ended the dollar peg. And once again, Sudan is hinting that it will impose trade or financial sanctions against companies that do business with the United States — only this time, the words just might have teeth. As other countries follow suit, the dollar — and your spending power — drops. What does this mean? You will need more dollars to buy things than it takes today.”

You can hardly find a seat at the best restaurants in the capital, Caracas, these days. They’re always packed… the art galleries are rammed … and the whisky importers have never had it so good. ..

Out on the streets there are so many luxury 4×4s on the road you could almost be in Chelsea! No doubt about it, Venezuela’s economy is booming.

And I’d like to show you how to position yourself to profit from it!

My next Profit Hunter recommendation is a clever way serious investors could profit from this boom.

More on that in a moment. First, let me explain why Venezuela is the fastest growing major economy in Latin America…

Why I believe the boom has a long, long way to go

It grew by 8% last year and 10.3% in each of the two years before… and by 18.4% the year before that…

That’s the kind of growth you can expect when you are the world’s sixth biggest oil exporter and the price of oil just keeps hitting new highs.

Here at Profit Hunter, I’ve long emphasised we are now in the era of $100 oil. And in fact, by some measures, Venezuela is sitting on top of more oil than Saudi Arabia.

It’s just one reason why the boom in Venezuela still has a long, way to go.

You see, it isn’t just a small group of people who are benefiting from all this new money. According to the IMF, the average Venezuelan should have an income of $10,169 this year. That’s up from $5,427 just three years ago. And it makes them richer than the Brazilians, the Argentineans, the Chileans and the Mexicans – the countries that get all the attention from international investors.

Venezuela ’s share market offers good value as well…

The Venezuela Stock Exchange Index is trading at a price to earnings ratio of less than five and it’s yielding about 9%. Yet most of the big international investors have been afraid of going in!

Of course you can’t blame them. The international media has been focussed on Chavez’s nationalisation of some of the big foreign-owned companies’ assets in the country.

But the truth is Chavez hasn’t been as bad for business as he sounds. The signs of new money that you see everywhere don’t quite gel with Chavez’s socialist rhetoric.

Just listen to his former chief of staff, retired general Alberto Rojas…

In an interview with The Economist last year Rojas explained that “some of Chávez’s speeches are for the gallery… and I’ll give you an example: the attack on the bourgeoisie.”

Chavez may have declared that being rich is bad, but Rojas pointed out that banks, “the most extreme expression of the bourgeoisie”, have actually been “the most favoured sector” of the economy since Chávez swept into power in 1999.

So much for all his bombast about the need for “petroleum socialism”!

A real undervalued gem

Don’t get me wrong though…

Venezuela isn’t some paragon of capitalism waiting to be discovered by intrepid investors. A lot of the new money has ended up with people with close political connections to the regime. They call them the “boligarchs” after Chavez’s “Bolivarian Revolution”, which named for the country’s independence hero .

But there IS good money to be made in Venezuela if you know what you’re doing.

And the exclusive report I’m preparing for Profit Hunter members reveals a groundbreaking company that knows EXACTLY what it’s doing.

It’s a real undervalued gem that’s slipped under-the-radar of the wider investment community.

If you’d like to take trial membership to my service you’ll see that this company hasn’t put all its eggs in one basket. It has big operations in Venezuela and its profiting from its growing wealth. But it operates in other fast growing markets as well.

I’m working on this report right now, but all the details will be with members very soon. So if you’d like to sign-up, click here now. You’ll get another great opportunity to act on right away on doing.

The money really is flowing east. Now’s the time to act!

Regards,

Manraaj Singh
Editor Profit Hunter

According to the press, the world’s prettiest face, Gisele Bundchen, wants to be paid in euros for U.S. modeling gigs, and in his new video, the rapper Jay-Z triumphantly holds euros – not dollars – in his upraised fist. The day after Thanksgiving 2007, anxious retailers started opening their doors before dawn to draw shoppers. Overseas visitors, meanwhile, are packing the streets of New York City, scooping up bargains. “I just saved $2,000 on this Rolex,” said one shopper from Great Britain, waving her new watch at a reporter’s camera. And no one’s laughing now at the Canadian loonie, which reached parity with the U.S. dollar in September 2007 – for the first time since 1976.

Pretty faces, angry rappers, desperate U.S. retailers, happy shopaholic tourists, and Canadians who have finally turned the tables on us…we wondered what on earth is happening, as 2007 drew to a close and this new edition of The Demise of the Dollar goes to press.

Although Gisele has denied making any such claim about her payment currency of preference (and has stated that she is happy to earn salaries in a variety of currencies), the fact that this story spread like wildfire through media outlets from Bloomberg and CNBC to E! News and People speaks volumes. The dollar has little credibility on the streets of New York – or pretty much on any street around the world. The twilight of the Great Dollar Standard Era is upon us. The euro is now worth almost 50 percent more than the U.S. dollar, and in Great Britain, you can get two U.S. dollars for every British pound.

In 2007, the famous refrain in the poem by Emma Lazarus describing the flood of foreigners streaming to U.S. shores needs to be updated to “Give me your tired, your rich, your huddled masses yearning to shop free.” Seven out of every $10 that fuels our gross domestic product (GDP), the measure of a nation’s productivity and hence security, comes – not from goods and services that we produce and sell – but from shopping. We’re addicted to cheap credit.

American consumers face the spectre of losing value in their retirement savings, finding out they cannot live on a fixed income, and suffering from chronic hyperinflation. These changes are unavoidable. Today, the problem is compounded because the U.S. dollar’s value is falling. It all involves productivity changes in the United States. We have not competed with the manufacturing economies in other countries, and that is why our credit (i.e., our dollar) is suffering.

Any number of things could create a sudden, wrenching drop in the dollar’s value. Consider the following three possibilities:

1. Foreign countries drop their U.S. dollar reserves. We depend on foreign investment in our currency to bolster its value or, at least, to slow down its fall. When that thinly held balance changes, our dollar loses its spending power.

At a November 2007 meeting of the Organization of Petroleum Exporting Countries (OPEC)’s 13-member cartel, Iranian President Mahmoud Ahmadinejad, whose country already receives payment for 85 percent of its oil exports in nondollar currencies, urged other countries to follow suit and “designate a single hard currency aside from the U.S. dollar…to form the basis of our oil trade.” “The empire of the dollar has to end,” chimed in Venezuela’s Hugo Chavez; his state oil company changed its dollar investments to euros at his order – er, request.

Rumors are circulating that the Bank of Korea, after selling off $ 100 million worth of U.S. bonds in August 2007, is getting ready to sell $1 billion more, and if Washington forces trade sanctions, China, which threatened recently to cash in $900 billion of U.S. bonds, will probably follow suit.

In Russia, Vladimir Putin’s dream of a stock market to trade the country’s natural resources in rubles is not so far-fetched; in 2005, Russia, the world’s second-largest exporter of oil, followed South Korea’s lead and ended the dollar peg. And once again, Sudan is hinting that it will impose trade or financial sanctions against companies that do business with the United States – only this time, the words just might have teeth. As other countries follow suit, the dollar – and your spending power – drops. What does this mean? You will need more dollars to buy things than it takes today.

2. Oil prices increase catastrophically. We – and our real inflation rate – are at the mercy of Middle East oil. In 2005, we couldn’t imagine what would happen if the price of oil were to double – or triple; but that’s exactly what has happened in 2007 as oil kept flirting with $100-a-barrel prices. Our vulnerability is not imaginary. For example, if terrorists were to contaminate large reserves with nuclear radiation, the supply of oil would drop and prices would rise. We are all aware of our vulnerability and dependence on oil, but we don’t like to think about it. Rising oil prices affect not only what you pay at the pump, but many other prices as well: nonautomotive modes of travel, the cost of utilities, and local tax rates, for example. It all adds up to unquestioned “pain at the pump” for American consumers. By September 2007, gasoline averaged $ 2.78 a gallon – double 2002’s price. “Pain at the pump” leads to “pain in the pocketbook,” as consumers know. You’re not seeing double in the checkout line at the grocery store – costs really are double. There was a 5.6 percent increase in 2007, compared with 2.1 percent for all of 2006.

3. The double whammy of trade and budget deficits. We’re living beyond our means. It’s as simple as that, and something is going to give. The federal budget deficit – annual government spending that is higher than tax revenues – adds to the national debt at a dizzying rate, making our future interest burden higher and higher every day. Our trade deficit – bringing more things in from foreign countries than we sell to the same countries – has turned us into a nation of spendaholics.

We’ve given up making things to sell elsewhere, closed the store, and gone shopping. But we’re not spending money we have; we’re borrowing money to spend it. In 2006, the trade and budget deficits doubled the deficits of 2001. Any head of a family knows that this cannot go on forever without the whole thing falling apart – and yet, that is precisely what we are doing on a national scale.

Even as our economy burns, our political leaders fiddle. They point to economic indicators to prove that our economy is strong and getting stronger. This information would be valuable…if only it were true.

Politicians like to measure the economy with esoteric indicators. For example, we are told that consumer confidence is up. Well, confidence is all well and good, but what if it isn’t accurate? Yankee optimism has achieved a lot in the past 200 years, but it alone is not going to prevent the current dollar crisis from getting worse and worse.

Does this mean that the United States is finished? No, but it does mean that our long history of economic power and wealth is being eroded from within. For most people, the real state of our economy is measured in one way: jobs. Sure, the number of jobs rises every month, but the complete truth is not as reassuring. We are losing high-paying jobs in manufacturing and replacing them with low – paying jobs in health care, retail, and other menial job markets. Our mantra of “Yankee ingenuity can accomplish anything” is gradually being replaced with a new mantra: “Would you like fries with that?”

Regards,

Addison Wiggin
The Daily Reckoning Australia

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