Short-term, the picture is even brighter. Colombian “real” gross domestic product (GDP) growth was 7.0% in 2007, or about 5.6% per capita. In 2008 and 2009, The Economist expects growth of about 4.0% to 5.0% in each year, but that’s still enough for a smart improvement in living standards.

Inflation is currently running at 6.7%, perfectly acceptable in a global commodity price boom, while short-term interest rates are almost 10.0%, well above the inflation rate, showing that Colombian monetary policy is sufficiently tight to bring inflation down – rather than pushing it along, as most other countries are currently doing.

Its payments balance is minus 2.5% of GDP and its budget deficit is 1.0% of GDP, both perfectly acceptable figures. Finally, Colombia ranked 68th on Transparency International’s 2007 Corruption Perceptions Index – not wonderful, but above all four BRIC economies (Brazil, Russia, India and China).

In terms of products, Colombia’s principal exports are oil, coffee, apparel, flowers and minerals. Its oil exports are double its imports and – unlike its neighbor, Venezuela – it is welcoming foreign oil companies, which are investing heavily and are now finding more reserves than are being depleted annually.

Colombia is friendly to the United States, also. Indeed, the United States is its largest trading partner, and the two countries currently have Free Trade Agreement pending Congressional approval.

The bottom line is this: While Colombia’s growth rate is only moderate, it has under President Uribe been the best-run country in Latin America and has benefited economically from this. Uribe’s second presidential term expires in 2010, but he remains popular, and the betting is that he will pass the baton to a like-minded successor.

The bad news for investors is that not many Colombian companies are quoted in New York, and the market represents too small a part of the global total to have an exchange-traded fund (ETF) all to itself.

The IGBC General Index of Colombian shares is down 20% from its 2006 high but is up 350% over the last five years. The SPDR S&P Emerging Latin America ETF (AMEX:GML) invests in Colombia, but that country represents only around 10% of the fund’s overall holdings, and it also has holdings in other far less attractive countries.

The only Colombian company with a full American Depository Receipt (ADR) listing is Bancolombia SA (ADR: CIB), the country’s largest bank-holding company. The stock is attractively priced, with a forward Price/Earnings (P/E) ratio of around 9.0 and a dividend yield of 3.7%.

Other Colombian companies whose shares trade as pink sheet stocks include Corporacion Financiera Colombiana SA (Pink Sheets: CRPFY), a bank stock that seems to be a reasonable value with a P/E of 11 and a dividend yield of 8.0%.

Then there’s also Interconexion Electrica SP (Pink Sheets: IESFY:PK), an electric utility that seems a bit expensive at 30 times earnings. However, Interconexion is expected to undergo a privatization sale by the government in 2009, which may make it both more liquid and a better value.

Both Financiera and Interconexion trade infrequently in the United States, but they are fairly liquid if you can get your broker to buy the shares on the Bogota Stock Exchange.

More one to watch than one to pile into immediately, but a modest investment in CIB (Bancolombia) would seem a good safe bet.

Source: Colombia: Latin America’s Hidden Gem for Investors

Oil dropped over 11% during a volatile week of trading, as reduced consumer demand put downward pressure on the once hot commodity. Crude oil for August delivery ended the week at $128.88, its lowest level since June 5 and well off its July 11 peak of over $147 a barrel.

“If this is not the [crude oil] bubble’s implosion, than it’s a reasonable facsimile,” analyst and trader Stephen Schork said in his daily market commentary, the Associated Press reported. “Perhaps all we have witnessed was a replay of last August’s subprime induced sell-off. Time will tell. Nevertheless, for the time being we no longer care to hold a bullish view.”

Mid-week, the Energy Information Administration reported that U.S. consumer demand for gasoline had fallen 2.1% from the same period last year due to high oil prices. And while that certainly had an effect on the price of crude, some unusual buying from Mexico might also be to blame.

A handful of analysts told CNNMoney.com that Mexico’s state-owned Petroleos Mexicanos, or PEMEX, the fifth largest global oil producer, was signing contracts at current prices for years into the future. Some say it’s a sign that Mexico is betting oil prices have peaked.

“This is a smart move,” Phil Flynn, senior market analyst at Alaron Trading in Chicago, who also thinks there’s a good chance prices have peaked, told CNN. “If I were an oil producer, I’d want to lock in these prices.”

Others have written the contracts off as just an attempt by the Mexican government to do some long-term budget planning. And while that could be true, if other large oil producers follow Mexico’s lead and start to put similar long-term future contracts in place, it’s going to push down the price of oil.

“I don’t know who else is doing it,” said Nauman Barakat, an energy trader at Macquarie Futures, and one of the traders who mentioned the Mexico news in a research note. “There’s been a lot of talk, but it’s kept very confidential.”

When asked if such moves could cause oil prices to sink lower, Neal Dingmann, senior energy analyst at Dahlman Rose & Co., didn’t equivocate.

“Absolutely,” Neal Dingmann. “It could create a top in [oil prices] in the near term.” Analyst Olivier Jakob of Petromatrix in Switzerland told the AP that Nymex futures were “getting into deeper trouble,” based on his technical analysis of how oil prices were developing.

“Buying here is an opportunity if you are a deep believer in $200 (a barrel), otherwise we think that caution would be better applied,” Jakob said in a research note.

But not everyone is trying to lock in today’s prices for tomorrow’s sales. Industry giants like Exxon Mobil Corp. (XOM) don’t even play the futures game according to Fadel Gheit, a senior energy analyst at Oppenheimer & Co. (OPY).

“Exxon produces 1.2 billion barrels of oil a year,” Gheit told CNN. If Exxon Mobil locked in all that production for five years out at today’s prices, and crude fell 20%, “it would be a disaster,” he said.

And you won’t see a member of the Organization of Petroleum Exporting Countries doing deals similar to Mexico’s. OPEC members like to have the flexibility to produce less to drive up oil prices. Those nations won’t give up any potential price control by locking themselves into contracts too far out into the future.

“You get stuck with this extra production that’s out there,” John Kilduff, an energy analyst at MF Global Ltd. (MF) in New York, told CNN. “Then OPEC has to reduce market share just to maintain price.”

Source: Oil’s Double-Digit Slide Shouts “Sell!” to Some

Mexico’s Cantarell oil field is entering a period of catastrophic decline.

The country’s energy ministry has just fessed up that Cantarell’s output has plunged by one-third in just the last year — from 1.6 million barrels a day to just over 1 million. That annual decline rate is more than double the previous figure of 14%. Soon it will no longer be possible to label Cantarell of the “Big Four” world oil fields. (The others are Saudi Arabia’s Ghawar, Kuwait’s Burgan, and China’s Daqing.)

To try to boost production from other Mexican reserves, President Felipe Calderon is trying to convince lawmakers to loosen the limits on the role of foreign oil-services companies. It’s a tough sell — state control of the oil sector via the national oil company Pemex is tantamount to a secular faith in Mexico — but something’s gotta give, and soon.

Based on the account of the Financial Times, there seems to be a strange debate going on in Mexico that sort of parallels the one in this country. Here, it’s the question of more drilling versus alternative energy. (How about both? We’re gonna need whatever we can get.) While in Mexico…

Many opposition leaders argue the problems stem mainly from the government’s rising dependence on oil income, which has starved Pemex of cash it could use for exploration.

But the government maintains the vast bulk of the country’s [remaining] reserves lie in deep waters and require technology and knowhow to develop that Pemex does not possess.

There is nothing about these two arguments that’s mutually exclusive. Both of them are true. Pemex is starved of cash for exploration, but even with that cash it’s going to need outside help. And the new head of Pemex recognizes that reality.

In the latest issue of Outstanding Investments, Byron King clues his subscribers in to a company uniquely positioned to provide that help.

Source: Dying Giant

The Complaining Fisherman

In March 1971, a Mexican fisherman named Rudesindo Cantarell appeared at the offices of the state-owned oil company Petróleos Mexicanos (Pemex) in southern Mexico. Cantarell had a complaint. He believed that Pemex had spilled oil near his favorite fishing spot in the Bay of Campeche. The oil had ruined several of his nets.

The Pemex officials were polite. They listened to Cantarell and checked their maps and logs. The Pemex representatives assured Cantarell that he was mistaken. There was no record of any oil spill coming from a Pemex ship or facility. They sent Cantarell away.

But Cantarell would not give up. He returned with the ruined nets and showed them to the Pemex officials. Sure enough, the nets were fouled with raw crude oil. So the Pemex officials asked Cantarell to take them to the place where his nets were damaged.

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Cantarell took several Pemex representatives to a spot about 50 miles offshore. Despite the distance from land, the depth was relatively shallow — about 150 feet or so. One of Cantarell’s guests noticed an oil slick on the surface. The Pemex men realized that Cantarell had stumbled upon a naturally occurring oil seep.

Natural oil and gas seeps have long provided invaluable information to oil explorers. The seeps are evidence of active petroleum systems nearby. For example, Col. Drake’s famous well at Titusville, Pa., in 1859, was nothing but a hole pounded down near a known seep in the muddy bed of a body of water called — appropriately enough — Oil Creek.

But in the early 1970s, Señor Cantarell found something the likes of which Col. Drake could not have dreamed. The offshore seeps that Cantarell located were evidence of a massive hydrocarbon system deep within the rocks below. Oil was migrating upward from a highly charged reservoir. And, oh, what a reservoir!

This reservoir set a chain of events into motion that should lead you to some great profits. Here’s how it happened…

Pemex Drills the Oil Seeps — And Finds a Freak of Geology

The offshore waters and seabed of Mexico belong to the Mexican government. So Pemex began a program to investigate Cantarell’s find.

In 1976, Pemex drilled the first exploration well in the area. The results were beyond anyone’s wildest expectations. The Cantarell oil field (named in honor of the fisherman) was simply gigantic. Today, we know that the Cantarell discovery may have held nearly 20 billion barrels of oil. Much of that oil has been extracted over the past 30 years, but Cantarell easily ranks as one of the largest oil fields in the world.

And the Cantarell oil field is also a freak of geology.

The productivity of the oil-bearing zones at Cantarell — that is, the microscopic system of pores and permeability within the rock — apparently resulted from an impact with a rock from outer space about 65 million years ago.

Many geologists believe that this impact came from an asteroid with a diameter of about six miles — the size of lower Manhattan. The asteroid hit the Earth with the power of 50,000 hydrogen bombs. The force of the collision penetrated the Earth’s crust down to the mantle. The blast dug out what is called the Chicxulub crater — more than 110 miles in diameter — underneath the Yucatán Peninsula. And this impact may have been the “extinction event” that killed off the dinosaurs.

Whatever happened to the dinosaurs 65 million years ago, in more modern geologic time, the Chicxulub crater developed into an oil-bearing region of the Earth’s crust. So there was a massive oil field to exploit in modern times.

In the late 1970s, Pemex invested heavily in drilling Cantarell. And Cantarell began to yield its oil in 1979. When the oil started flowing, there was a national celebration in Mexico. The president of Mexico declared that the future role of the government would be to “administer abundance” flowing from Cantarell. We’ll address that notion shortly.

A Giant Oil Field — Cantarell

From the early 1980s to about 1995, Cantarell produced over one million barrels of oil per day (bpd). Output was steady. One of the best customers for Pemex oil has been the U.S., which has long imported well over one million bpd from Mexico.

~~~~~~~~~~~~~Special~~~~~~~~~~~~~

The Myth of Abundant Oil

We’ve been told for years that oil would last forever. We especially here this from the governments of many oil producing countries.

Unfortunately, this is not the case. The many lies we’ve been told are finally being exposed, and we’re paying the price. What’s really going on here? Find out by clicking here…

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And then, in the 1990s, Pemex began a systematic program to increase oil output. Mexico’s government wanted to raise more revenues from oil sales. The government wanted more of that “abundance” to administer. So Pemex built the world’s largest nitrogen injection project right on top of Cantarell.

That is, a large system of air pumps strips nitrogen gas from the atmosphere to inject it into the upper parts of the Cantarell reservoir. This maintains reservoir pressure, and thus increases (at least in the beginning it increased) the oil production. Oil output from Cantarell rapidly increased to nearly two million bpd.

New world record, for both longest well bore and extended reach.

As the Senators insulted the oil executives, I was wondering if the politicians would prefer to trade managements with the National Oil Companies of other countries. Would you trade the guys who run Exxon for the guys who run Pemex? How about trading the Chevron leadership for the fine people at Petroleos de Venezuela (PdVSA)?

BWK

Source: Oil Service Companies Doing Well…

How does one control the inflationary trends that are happening worldwide? Surely, this is not a simple question to answer, even for specialists. Every time my colleagues and I meet, we cannot reach an agreement regarding how to control inflation, particularly in a context where international energy and food prices keep increasing.

One of the conclusions we can reach without much discussion is that strong food and energy price increases are striking all world economies, and that net commodities exporters are benefiting from these price spikes.

The second conclusion that we are able to gather from this situation is that countries having great natural resources, that are not yet net commodities exporters, now have a great opportunity to gain from the current economic situation.

This is exactly the circumstance that Brazil finds itself in currently. For two decades now they have had an effective policy regarding oil (fossil fuels), but now they are looking to expand their interests in biofuels and in developing policies to promote the cultivation of grains. In this way, Brazil is demonstrating a way not only to limit dependence on imported commodities, but also how to benefit from the current high international prices of commodities.

Thinking now of Mexico, the first thing I ask myself is: to which extent are these high energy and food prices affecting the Mexican economy?

Due to inflationary concerns, on the 16th of May, the Bank of Mexico decided not to modify interest rates. Inflationary pressures keep mounting along with concerns regarding a potential recession in the US: “Inflationary pressures in the world and in Mexico keep increasing and it is a growing concern.”

The Bank of Mexico’s governor, Guillermo Ortiz Martínez, noted a few days later: “There are still inflationary pressures because processed food prices could still go up, even though there is a more stable grain price.”

Inflation is worrying Mexico and there are concerns about a potential economic slowdown there as well… But there is also another situation that worries Mexico and this one is related to the development of energy reform there.

Reform within Pemex, the nation’s oil company, is at the center of this debate. Pemex plays a vital role in Mexico’s economy due to the huge profits that it generates. These profits, in turn, are used to fund areas within the infrastructure of Mexico such as education, security and other social programs.

For the first quarter of the year, 45% of the country’s income came from Pemex. This contribution by Pemex to the state treasury is particularly significant because oil production is decreasing and the known reserves have diminished significantly in recent years.

Pemex’s production peaked back in 2004, but ever since then it has consistently declined. Its oil production has fallen 1.3% in 2006, another 5.3% in 2007, and during the first quarter of this year it fell 7.8% below production levels during the same period last year.

However, it is most worrisome that between 2000 and 2007 the proven oil reserves in Mexico fell 54%, according to data from Pemex’s own annual stock report.

And while oil prices keep on skyrocketing (breaking the $130 barrier) Mexico is losing a great opportunity. With these high prices, now is the time for Mexico to begin looking towards investing in its future. However, the bad economic policies of the Mexican government are leading to a lack of any such investments at the current time.

But there is still time to change history by changing these policies; and to accomplish this Mexico needs massive amounts of capital for investing in its future. Thus the key issue for Mexico to resolve, and quickly, is how to find this necessary funding.

And one cannot forget that Mexico is not the only country in the region that is squandering its future growth opportunities. Argentina is as well and I will talk to you more in depth about this matter tomorrow. Today I have an opportunity to hear several renowned Argentine economists speak at an interesting conference at the Sheraton Hotel. Tomorrow I will specify their ideas and forecasts regarding Argentina, for you, our Latinforme readers.

We will meet again tomorrow,

Horacio Pozzo

Editor’s note: With oil prices climbing to higher than $133, to what extent does Mexico benefit from this? Is it taking advantage of this special time? Enjoy the following article and send your comments to: paola@latinforme.com or on our website at www.latinforme.com

In Russia, they elect the former president of Gazprom as president of the country.

Hmmm… Russia or the USA… Which country does not have an “energy crisis?”

“People we represent are hurting,” says Sen. Leahy of Vermont to the oil company executives. “The companies you represent are profiting.”

Yeah? So what? Oil companies make about 4-cents per gallon gas. The federal govt makes at least 18-cents, and state govts make much more than that. Besides, most oil companies are actually “losing” money on downstream operations. The refining margins just plain suck right now.

And whose fault is it that people “are hurting?” People in the US have made several generations of bad choices in energy policy, to include electing guys like Patrick Leahy to the US Senate. The Patrick Leahys of the world have never done a darn thing to increase the energy supply of this country. They just sit back, pass legislation to lock up areas the size of Maine — as well as 85% of the US Outer Continental Shelf — and then take potshots at the people who put gas into the fuel tanks of America.

Really, Senator… Would you trade the management team of Chevron or Exxon for the mangers of Pemex? You want gas lines? Try that, genius.

Here is the scoop, if you missed the story.

Until we meet again

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: Congress Beats Up On Oil Execs…

Pemex pumps out more oil each year than Exxon Mobil. It pays for 40% of Mexico’s federal spending. And thanks to lack of investment, high taxes, corruption, anti-competition laws, Pemex is headed for collapse.

The bottom line, says Justice Litle in Taipan Daily, is that Mexico’s oil fields are running dry.

“Take the Cantarell field, for example. Cantarell is Mexico’s biggest field. In fact, it’s the second-largest oil field on the planet, behind only Ghawar in Saudi Arabia. In 2005, it came to light that Cantarell production had declined rapidly. ‘Fallen off a cliff’ is how some might put it, in terms of the speed and suddenness of the drop.

“If Cantarell production spirals downward into collapse, then Pemex — and, by extension, the entire Mexican economy — will be.”

To find out why the Mexican crisis could mean $200 oil becoming a reality read on here.

They sang the national anthem and raised their fists in victory. Senator Carlos Navarrete, leftist leader of the Mexican senate, was especially joyful. “We triumphed! We triumphed!”he said.

What the victors did not realize — or refused to recognize — is that their “triumph”merely took Mexico one step closer to the brink, to a deep, dark chasm into which the entire economy could fall…

Monday was Cinco de Mayo, the “Fifth of May,” so it’s fitting to touch on Mexico this week. Many believe Cinco de Mayo is to Mexico as July 4th is to the United States, but that isn’t quite true. It’s actually a regional holiday for the state of Puebla. (Mexican independence day falls in September.)

In other news, crude oil hit new record highs above $120 a barrel this week. Arjun Murti, the Goldman Sachs analyst who first called for a $105 oil “super-spike” three years ago, now sees the possibility of $200 crude in the next 12-24 months.

You might not see the connection between Mexico and the price of crude at first glance. But believe me, the connection is there — and it’s frightening.

Let me explain…

Bigger Than Exxon

Though not a member of OPEC, Mexico is the seventh-largest oil producer in the world. Petroleos Mexicanos, or “Pemex,” is the country’s state-owned oil company. Pemex pumps out more oil each year than Exxon.

Needless to say, oil is a key driver for the Mexican economy. The cash flow from Pemex alone pays for 40% of Mexico’s federal spending.

Imagine if the U.S. government drew nearly half its funding from the revenues of just one company. That would be one heck of an important company. You would think the powers that be would do everything in their power to keep the cash flowing in.

You would think… and yet, Mexico’s oil giant is headed for collapse.

According to Bloomberg, Pemex is plagued by “too little investment, high taxes, laws that forbid competition, corruption, and corroding and exploding pipelines.” That’s just for starters.

A Budding Crisis

It’s not as if the Pemex crisis is new. Observers have been sounding the alarm with ever-heightening concern for at least the past decade. In the past few years, though, things have taken a serious turn for the worse. The company’s 110,000 union workers are poorly trained and hard to control. Fatal accidents are increasing.

Worse still, Mexico’s oil fields are running dry.

Take the Cantarell field, for example. Cantarell is Mexico’s biggest field. In fact, it’s the second-largest oil field on the planet, behind only Ghawar in Saudi Arabia. In 2005, it came to light that Cantarell production had declined rapidly. “Fallen off a cliff” is how some might put it, in terms of the speed and suddenness of the drop.

If Cantarell production spirals downward into collapse, then Pemex — and, by extension, the entire Mexican economy — will be in deep, deep trouble. Mexico’s finances have been boosted in recent years by the sky-high price of crude, and those extra dollars have hidden Pemex’s behind-the-scenes problems. But fewer barrels from the ground means fewer dollars in the bank. Eventually the dropoff becomes too big — and too painful — to ignore.

Mexico’s Energy Minister predicts that, without new production, the country could be forced to import light crude for gasoline by 2011. (Most of Mexico’s oil is of the heavy, sour variety.) By the year 2016, Mexican oil exports could plummet from 1.67 million barrels per day, last year’s levels, to a shockingly low 289,000 barrels per day. That’s quite a dropoff.

Think how much the world’s oil thirst has grown these past eight years. Now think how much it will grow in the next eight years. Now consider how tight the supply-demand situation has already become — and imagine pulling another 1.4 million barrels or so off the market.

Too Deep to Contemplate

The funny thing is, Mexico has more oil that hasn’t been tapped yet — maybe a lot more.

Bloomberg again has the details: “The Mexican Energy Ministry estimates 30 billion barrels of oil and gas are sitting below deep water on the Mexican side of the Gulf of Mexico. Yet it’s unclear whether Pemex, which hasn’t been permitted to form partnerships with foreign oil companies, has the technology, money or competence to drill successfully.”

The problem comes down to technology and experience. To conquer the deep water and drill for oil 10,000 feet down, you need a heaping helping of both. Pemex has neither. The company’s engineers are not savvy enough, its technology not nearly cutting-edge enough, to handle the challenge of deep-water drilling in the Gulf.

This is where politics comes in.

Almost all Pemex profit — and as much as 60% of sales revenues — goes straight to the government. At the end of the day, the company is little more than a cash cow for the state. And because the Mexican presidency can only be held for a single six-year term, the holder of that office typically cares little about long-term planning. The focus is on spending for the here and now instead.

The nature of the beast explains why Pemex is poorly outfitted and poorly run. Political promises are expensive and Pemex cash is there for the spending; only scraps are left over for upgrades and maintenance. Can you imagine running a company whose masters have no regard for the future? I can’t. Perhaps that’s why Pemex has had four different CEOs and five chairmen in the past eight years. Most of them threw up their hands and quit in disgust.

–Yet central banks faced with deflating asset prices bubbles and illiquidity in inter-bank lending markets can’t just sit around and do nothing, now can they? But when lowering short term interest rates no longer has the effect of adding liquidity to the system, what can you do? That’s where quantitative easing comes in.

–The Bank of Japan engaged in quantitative easing to try and inflate Japan out of its decade-long deflationary spiral. It worked, sort of (although the results aren’t really in yet.) Could the Fed do the same thing and what would the consequences be?

–First off, the Fed funds target rate is 2.25% and the discount rate 2.50%. So we still have 225 basis points to until zero. But trouble in the credit market persists.

–Remember that Primary Dealer Credit Facility (PDCF) the Fed set up for Wall Street investment banks to borrow from? Who could forget it really? In the week ended April 23, borrowing from that cash take-out window averaged $US10.73 billion…per day. No wonder financial stocks had a good week on Wall Street

–And what about the Term Securities Lending Facility? Remember that one? That’s where primary dealers can exchange dodgy mortgage-backed debt for the Fed’s not-so-inexhaustible supply of U.S. Treasuries for fixed periods determined at an auction. Total borrowings from that Facility are just under $US160 billion. The Fed offered another $75billion in Treasuries this week. $59 billion worth were scooped up.

–How is the Fed’s supply of Treasuries holding out? It’s got about $548 billion to go. Will this be enough to sustain financial institutions that keep reporting surprise losses? Hmmn.

–In quantitative easing, the Fed would target longer-term interest rates by abandoning its clever pretence and simply printing brand new money to buy bonds and bank assets. This is a bare-knuckled banking attempt to restore “liquidity” to the financial system. Despite the Fed’s best efforts, this is still evidence that the credit markets aren’t quite right. There was a spike in the over-night rate banks charge each other to borrow (LIBOR) late last week.

–Our point? The credit crisis is still very much alive and unwell. It’s just going on behind closed doors. This gives the stock market the cover to behave as if everything is okay. We report. You decide.

–By the way, it’s obvious that further rate cuts by the Fed and quantitative easing would be unwelcome by central bankers in Europe, who rightly fear inflation more than deflating asset prices. Dollar rallies should be viewed with deep scepticism. But even the greenback will get a break every now and then. Traders in gold are taking profits…and probably waiting for the next wave of the crisis to break. It will.

–Speaking of which, new home sales fell to 17-year lows in America. The decline of 8.7% from the month before was worse than expected. But the truly disappointing news is that median prices for new homes fell 13.3%, the biggest decline in 40 years. And get this, sales were 36% lower than March of last year.

–Ouch. The lower price is good news in the sense that we’re closer to a “clearing price” at which some new buyers would begin thinking of getting back in the market (if they can get a mortgage from the newly-stingy banks). But with inventories of homes sufficient to last 11 months at the current rate of sales, sellers still outweigh buyers by a lot.

–The worry now is that declining median prices for new and existing homes drag more mortgage holders under water. That is, folks who are making their mortgage payments just fine right now may nevertheless see the value of their asset dipping below the value of the mortgage. What will they do then?

–While America’s housing-based economy slowly dis-integrates, we have the strange spectacle of Chinese students being bussed to Canberra to drown out and obscure pro-Tibet protestors at the Olympic torch relay. One Empire falls away into disrepair. Another one rises.

–This whole torch relay has become a bit of farce, hasn’t it? But we admit it’s an entertaining one. Did anyone really think that Chinese people would enjoy having their government and their games bashed by the foreign press in a systematic fashion as the torch makes its way around the globe? They are reacting in exactly the way you would expect of a nation whose pride has been insulted, with anger.

–This offended national pride is irrational and thus very common. When we trotted around the globe in 2003 doing research for our book the Bull Hunter, we found that every where they went, people were proud of where they came from. Most thought that there country was the greatest country in the world. France, England, Japan, India, China and of course America…every one of them has a myth of national greatness that makes people stubbornly and stupidly defensive of their moronic national politicians. What a fraud.

–Just why people confuse the goodness of a people with the greatness of national government is a mystery. Perhaps it’s simply a tribal pride thing. Governments shamelessly manipulate this sense of wanting to belong to something greater. And so the Chinese are notifying the world that not only are the Olympics the achievement of a great nation and a great people, but you had better respect that. There’s no “or else,” at least not yet.

–Australians, to their great credit, do not seem to engage in this national greatness kind of chest thumping. Even today, on ANZAC day, we note as an outsider that it’s seems less like a celebration of abstract patriotic national values and more like a celebration of the sacrifices people make for one another when they are swept up in events over which they have no control. At least that’s how are choosing to interpret it.

–”China told to shelve mine deals,” reports Jennifer Hewitt in today’s Australian. That’s interesting. “At least 10 Chinese companies have withdrawn foreign investment applications to buy into Australian resources companies after pressure from the Rudd Government. The Government has in recent weeks made it plain privately that it wants more time to consider the issue of the national interest in terms of ownership of the Australian resources industry.”

–Resource nationalisation happens, even in free markets. Will it happen in Australia? Well, the resources aren’t much good to the national economy if you don’t create jobs to mine and produce them so you can sell them for export income. But perhaps the Rudd government has a point it would like to make about the emerging character of the Chinese-Australian relationship. We have no idea what that point would be. But, “back off” would appear to be part of it.