Russian Oil and the Pacific

I remember in the early 1990s after the opening of Russia having many conversations in DC with both Government officials and Halliburton folks, specifically Brown and Root, about developing strategic relationships with Russia to get the oil pipelines to the Pacific coast and having the US and Russia being in a position to strategically control key elements of the global oil markets, the US with production and distribution, Russia with extraction and distribution. Of course the answer was that Russian oil has no value and if they want anything from the US they will pay us.

Thus I was interested in the article from the Moscow Times today which states:

"Russia expanded its foothold on the Asian energy market with the click of a mouse Monday.

Prime Minister Vladimir Putin pressed a button to get Siberian oil flowing into the first tanker for delivery to an Asian customer, in Hong Kong, from Russia’s Pacific coast. In addition to China, supplies will also target Japan and South Korea.

The ceremony completed four years of work to construct the East Siberia-Pacific Ocean pipeline and the Kozmino port, worth a combined 420 billion rubles ($14 billion) to ease the industry’s reliance on the European market.

“It’s a strategic project because it allows us to enter the completely new, growing and promising markets of the Asian-Pacific region,” Putin said at the launch. “It’s a great present to Russia for the New Year.”

The foray into the Asian oil market follows Russia’s arrival as a major supplier of liquefied natural gas, or LNG, for its eastern neighbors earlier this year. The Gazprom-led Sakhalin-2 project — with Shell, Mitsui and Mitsubishi as partners — started shipping the gas, chilled to a liquid for loading into tankers, from Russia’s offshore fields in the Pacific in February.

As it expands into new markets, Russia is keeping abreast of the global trend of diversification among both energy buyers and sellers, which will make the business more competitive worldwide, said Elena Shadrina, a visiting energy researcher at the Norwegian Institute for Defense Studies.

“No supplier or consumer will have a dominant position,” she said by telephone from Oslo.

Europe is trying to offset its dependence on gas imports from Russia by looking to buy more from Africa, while Turkmenistan began exporting its gas to China earlier this month, ending Russia’s role as its only major buyer. Asia, in turn, has been seeking alternatives to supplies from the Middle East.

Russia’s progress in eastward expansion has been spectacular, defying doubts that the country has sufficient oil reserves and investment, Shadrina said."

Russia clearly has no further use for the US and the great window of opportunity was lost. Strange that both Government and industry here in the US were clueless. Putin is a shrewd and perceptive action driven leader whose return is most likely to occur soon. The expansion of these resources will further strengthen his position.

Japan: And We Think We Are in Trouble

Yesterday we reported on the progress of China's growth. They are seeing a GDP growth rate almost at 10%. And that is with their currency pegged to the dollar. Whereas Japan seems to be faltering.

The Japan Times reports:

"The Cabinet approved a ¥92.30 trillion initial budget Friday for fiscal 2010 — the largest ever — allowing Prime Minister Yukio Hatoyama to fulfill his goal of winding down the drafting process by year's end. But the size of the general-account budget is larger than Hatoyama was hoping for, stoking long-simmering worries about Japan's fiscal health. By comparison, the initial budget for fiscal 2009 was ¥88.55 trillion and relied on unprecedented levels of fresh debt issuance and nontax receipts. The economic slump is projected to bring tax revenues down to ¥37.40 trillion, the lowest since fiscal 1984. As a result, the Cabinet will have to issue ¥44.30 trillion in new government bonds — an alarming increase of 33.1 percent on the previous initial budget. The latest amount equals the sum of the bond issuance planned by the previous government for the initial budget, and the first extra budget for fiscal 2009."

Japan seems to be rapidly sinking in its own debt. That is a harbinger for the US. Also if Japan in 2010 falls behind China in GDP, which we expect, then the US is next. We anticipate a GDP for China in 2010 of well in excess of $5.5 trillion whereas the US is at best to hist $14.5 trillion. If China continues to grow at almost 10% rate then we see the passing of the US by 2020.

China is stressing entrepreneurial growth whereas the US is destroying it under the current Administration. the coming year should prove interesting.

Seeing Out of Different Glasses

I recently reviewed the book by Cassidy on How Markets Fail. I thought it was well written but clearly biased against capitalism and rant with misconceptions of reality. Apparently many of those who read the review agreed.

Today in the NY Times the author states:

"John Cassidy, a writer for The New Yorker, knows his Minsky and he knows financial markets too. The result is a lengthy book, “How Markets Fail: The Logic of Economic Calamities,” that brilliantly dissects much of what has passed for economic wisdom, and decries the lack of humility from those whose theories helped cause the disaster."

Well, not really so brilliant. Again see the review. Cassidy is in my opinion an anti capitalist and his book takes certain events and in my opinion twists them to his purpose. Reading some of the comments on my review will also be helpful here. The Times article ends with:

"Mr. Cassidy asks, “What do you suppose that refers to? Builders constructing homes for which there is no demand? Mortgage lenders foisting costly subprime loans on little old ladies of limited education?” Nothing so specific, says Mr. Cassidy. Textbook economics overlooks such inconvenient realities. “In the world of Utopian economics, the latest crisis of capitalism is always a blip.”"

Well, as I note it is not capitalism, but it is the clumsy heavy handedness of Washington. A current excellent example is in Zero Hedge today recounting a Barney Frank and Maxine Walters play on our money which goes to their benefit. Cassidy clearly has is axe to grind but I all too often wonder where reason and the truth are to be found.

China and Its Economy

China continues to move forward despite the world's economic woes. Bloomberg reports:

"Gross domestic product was 31.405 trillion yuan ($4.6 trillion) last year, the statistics bureau said at a briefing in Beijing today. That compares with a previous 30.067 trillion yuan and the World Bank’s estimate of $4.9 trillion for Japan."

The People's Daily also states:

"China has revised its gross domestic product (GDP) growth rate for 2008 to 9.6 percent from 9 percent, the National Bureau of Statistics (NBS) said today. That raised GDP for 2008 to 31.4045 trillion yuan from the previous figure of 30.067 trillion yuan, NBS director Ma Jiantang told a press conference. The new figure amounted to about 4.59 trillion U.S. dollars, at the exchange rate on Dec. 31 of 2008. The revised volume for the agriculture sector was 3.3702 trillion yuan, accounting for 10.7 percent of GDP, down from 3.4 trillion yuan. The figure for the industrial sector was put at 14.9003 trillion yuan, accounting for 47.5 percent of GDP, was larger than the earlier figure of 14.6183 trillion yuan. The service sector figure was 13.1340 trillion yuan, accounting for 41.8 percent of GDP. It was up from 12.0487 trillion yuan.


The GDP for the US as of 1-1-2008 was $14.44 trillion. However China also seems to be making great strides in energy efficiency. As reported by the National Bureau of Statistics of China they state:

"In 2008, the total output of primary energy was 2.65 billion tons of standard coal equivalent, of which, the output of coal was 2.8 billion tons (in kind); that of crude oil, 195.05 million tons; natural gas, 80.3 billion cubic meters. The total energy consumption was 2.91 billion tons of standard coal equivalent. By the end of 2008, of the total industrial enterprises above designated size, 48,637 enterprises conducted science and technology activities, accounting for 11.6 percent; 27,278 enterprises conducted R&D activities, accounting for 6.5 percent; there were 3,092 thousand people engaged in science and technology activities, up by 68.2 percent over that in 2004.

The total input in science and technology activities reached 594.17 billion yuan, up by 147.4 percent over that in 2004; of this total, the input in research and development (R&D) activities which represent the independent innovative capacity of enterprises totaled 307.31 billion yuan, up by 178.2 percent over that in 2004. The intensity of the input in R&D was 0.61 percent, and it was higher than that in 2004, which stood at 0.56 percent.

Among the large and medium-sized enterprises, 37.1 percent of them were engaged in science and technology activities, and 24.9 percent were engaged in R&D activities. The total input in R&D reached 268.13 billion yuan, the intensity of input was 0.84 percent, and it was higher than that in 2004, which was 0.71 percent.

The information such as: water consumption, status of informationization, education attainments, technical titles, and skill degrees of employees, and share-holding status, jurisdiction and business birth record of enterprises were all covered by the census.

Meanwhile, according to the accounting system of and the results from the Second National Economic Census, as well as in line with international convention, the preliminary estimates of 2008 GDP have been revised. The main results are: The total GDP was 31,404.5 billion yuan in 2008, of this total, the value added of the primary industry was 3,370.2 billion yuan, accounting for 10.7 percent of the total GDP; that of the secondary industry was 14,900.3 billion yuan, accounting for 47.5 percent of total GDP; that of the tertiary industry was 13,134.0 billion yuan, accounting for 41.8 percent of total GDP.

In addition, according to the results from the economic census, the total energy consumption in the year 2008 has been revised to 2.91 billion tons of standard coal equivalent, which was 2.12 percent higher than the originally released preliminary data. Revisions have also been made accordingly to total energy consumption figures for the period of 2005 to 2007. Basing on the revised energy consumption data from 2006 to 2008 and GDP estimate of 2008, the unit energy consumption of GDP for the year of 2008 was down by 5.2 percent over that in the previous year, or 12.45 percent lower than that in the year 2005."

China stands to make great progress in the next ten years. If they continue to grow at this rate and if the US manages to destroy its entrepreneurial base, by 2020 we expect the Chinese GDP to exceed that of the US.

Merry Christmas

From Luke 2

2:1 εγενετο δε εν ταισ ημεραισ εκειναισ εξηλθεν δογμα παρα καισαροσ αυγουστου απογραφεσθαι πασαν την οικουμενην
2:2 αυτη απογραφη πρωτη εγενετο ηγεμονευοντοσ τησ συριασ κυρηνιου
2:3 και επορευοντο παντεσ απογραφεσθαι εκαστοσ εισ την εαυτου πολιν
2:4 ανεβη δε και ιωσηφ απο τησ γαλιλαιασ εκ πολεωσ ναζαρεθ εισ την ιουδαιαν εισ πολιν δαυιδ ητισ καλειται βηθλεεμ δια το ειναι αυτον εξ οικου και πατριασ δαυιδ
2:5 απογραψασθαι συν μαριαμ τη εμνηστευμενη αυτω ουση εγκυω
2:6 εγενετο δε εν τω ειναι αυτουσ εκει επλησθησαν αι ημεραι του τεκειν αυτην
2:7 και ετεκεν τον υιον αυτησ τον πρωτοτοκον και εσπαργανωσεν αυτον και ανεκλινεν αυτον εν φατνη διοτι ουκ ην αυτοισ τοποσ εν τω καταλυματι


1. FACTUM EST AUTEM IN DIEBUS ILLIS EXIIT EDICTUM A CAESARE AUGUSTO UT DESCRIBERETUR UNIVERSUS ORBIS
2. HAEC DESCRIPTIO PRIMA FACTA EST PRAESIDE SYRIAE CYRINO
3. ET IBANT OMNES UT PROFITERENTUR SINGULI IN SUAM CIVITATEM
4. ASCENDIT AUTEM ET IOSEPH A GALILAEA DE CIVITATE NAZARETH IN IUDAEAM CIVITATEM DAVID QUAE VOCATUR BETHLEEM EO QUOD ESSET DE DOMO ET FAMILIA DAVID
5. UT PROFITERETUR CUM MARIA DESPONSATA SIBI UXORE PRAEGNATE
6. FACTUM EST AUTEM CUM ESSENT IBI IMPLETI SUNT DIES UT PARERET
7. ET PEPERIT FILIUM SUUM PRIMOGENITUM ET PANNIS EUM INVOLVIT ET RECLINAVIT EUM IN PRAESEPIO QUIA NON ERAT EIS LOCUS IN DIVERSORIO

1 And it came to pass in those days that a decree went out from Caesar Augustus that all the world should be registered.
2 This census first took place while Quirinius was governing Syria.
3 So all went to be registered, everyone to his own city.
4 Joseph also went up from Galilee, out of the city of Nazareth, into Judea, to the city of David, which is called Bethlehem, because he was of the house and lineage of David,
5 to be registered with Mary, his betrothed wife, who was with child.
6 So it was, that while they were there, the days were completed for her to be delivered.
7 And she brought forth her firstborn Son, and wrapped Him in swaddling cloths, and laid Him in a manger, because there was no room for them in the inn.

The Health Care Bill and a Thought

We now have the Christmas Eve Cecil B DeMille event of the passing of health care in the Senate. There is the high drama of ever DeMille film with the exception of the elephants. The problem I still have is a logical one.

Let me lay out some facts:

1. Let us assume for simplicity that health care costs us $2.5 trillion in 2010. Close so one should not quibble.

2. Let us look at the laws and note that anyone going to an emergency room must not be denied service, expensive as it may be.

3. ER service is very expensive, so if they went to a local physician then it should cost less.

4. We are now requiring all to have health care, and to some degree pay for it. That means that more money comes into the system to get cheaper care, going to a local physician, and also having the patient pay something for it. Somehow this means that the costs are lower and the inflow of funds from the patient are higher.

5. Thus why do we need to spend a single penny more than what we are now spending, in fact it should be less. So if this logic holds any water. just using the facts, then where is the money going?

Good question. Think about it. Then look at Nebraska, Florida, Michigan and the list goes on. The only sensible step was Bernie Sanders and Public Health Clinics, a low cost proven way to deliver health care. It's a shame, they are destroying one of the prime engines of economic growth for the 21st century. Wonder what the history books will say a hundred years from now?

Update on the Yield Curve

The yield curve as of today is shown above as compared to October. Note the increase at the top end and the decrease at the bottom. It is the steepest yet.



















The data above depicts the key elements over the past nine months. The yield for the long term debt is increasing at the top end. The low end is still dominated by easy money from the FED.




















The curve above depicts the rapid decline at the low end while sustaining the high end or long term growth.



















The spread of the 10 year and 3 month rates is shown above. We see that spread peaking again.

We anticipate continued growth in the top rates as inflationary pressure grows.