Looking Forward

New leadership in the US, same worries.

The following is only a portion of the challenges facing all of us going into the future. These areas of concern are simply those which have a more immediate likelihood of impact.

1) Failure to force Banks into full disclosure of level 3 (off balance sheet) holdings. With no way to accurately determine who is solvent, and who is not, investment will shun, and destroy, any equity left, even in good companies.

If you are a market groupie and follow the charts, the DOW seems almost certain to break below 6000 very soon. Beyond that, there is little support down to 2200. 401k = 201k = 101k = 50.5k.

The only way this changes is to tell the politicians they must force the big banks into bankruptcy, now. It really appears we do not have the luxury of a few months any longer.

As Karl Denninger in Market Ticker puts it:

"I have it on good authority that there is very strong support of stock prices at zero, and if you look at charts of Bank of America (closed under $4 today), Citibank (closed under $2.50), Wells Fargo (closed at $12.01), Fifth-Third ($1.21), SunTrust ($6.70) along with dozens more you will find that all of them are in fact racing directly towards that very heavy support right at that zero boundary. Many of these stocks have been cut in half or more in the last two weeks."

The failure of regulating (or deregulation, if you prefer) of the financial industry during the first six years of this decade will lead to a financial meltdown unless confidence in every corporations' balance sheet is restored, very soon. The way it is right now, the big money knows the banks are lying. They will take their money and go home. That leaves the average, uninformed investor with no support from the sharks that are the market makers. These sharks will suck every penny out of good companies as they ride the market down, and make your principal theirs.

2) Instability among major powers. I, for the sake of being realistic, will include all countries that have nuclear weapons. Even the smaller members of the nuclear club, for they can start an unstoppable chain reaction.

Russia is at the breaking point. With tens of thousands of old USSR warheads still undismantled, Russia, Ukraine and Kazakhstan can easily sell a few for cash with no one but the buyer knowing.

Pakistan. The military coup that ruled, and brought stability, to Pakistan for almost a decade is gone. Their centuries old anger with the Hindus, and their equal yet new anger at the US, give little hope that they won't lob a bomb at one or the other, or both, in the very near future. The US really screwed up by focusing on Iraq.

Israel and Iran. Unless these two lead the Middle East into a new peaceful era, they will ignite the great conflict of Mohammedanism and Christianity. Never have the religious divides been overcome. It can be argued, successfully, that the Roman Empire was brought down, in part, because of resources diverted to the Middle East. Funny how history repeats itself.

It is unclear if Syria, Libya, Algeria or any of the Arab States has bought a bomb from the North Koreans or one of the USSR satellites, yet the likelihood is great. Be certain they will jump in when they feel it necessary.

3) The competition for natural resources. Oil being the largest concern. Unless the US leads an immediate revolution into green technologies, the competition only gets stronger. China, India and the EU need vast amounts of oil, as does the US.

For more than four decades, the US has had only 4% of the world's population, yet consumed 25% of the world's resources. One of the unintended consequences of US corporations championing globalization for profit is this - As those economies grow, they will need increasing amounts of resources. Doing the math presents a large dilemma;
Only 16% of the world's population can have the same lifestyle as the average US citizen, and for that to occur, the remaining 84% must survive on 0% resources.

With Swipe at US, Iraq Builds Ties to French

“The time for putting pressure on Iraq is over,” Mr. Maliki said in answer to a reporter’s question about Mr. Biden’s remarks. “The Iraqi government knows what its responsibilities are. We are carrying out reform, and we are in the last step of reconciliation.”

"According to political advisers, Mr. Maliki is intent on changing the nature of Baghdad’s relationship with Washington, shifting Iraq’s role from a client state to a more equal partner.'

"The French overture came at a time of intense jockeying among the world’s leading oil companies for contracts in Iraq, with France’s Total among the major competitors."

China Lends Russia $25 bln to get 20 years of oil

"We agreed on supplies of 15 million tonnes of oil every year over a period of 20 years," Russian Deputy Prime Minister Igor Sechin told state news channel Vesti 24. He said a separate loan deal was signed but gave no further details."

China to lend Petrobras $10 bln for oil

"The financing is in line with China's policy of attempting to shore up future supplies in natural resources such as petroleum, agricultural goods and minerals for its voracious economy."

China Buying Oil Stake

"A Chinese public fund has been building a stake in the French oil major Total since the end of 2007, the company confirmed on Thursday."China Rushes Toward Oil Pact With Iran

"The completion of the agreement would advance China's global quest for new stocks of energy. It could also undermine U.S. and European initiatives to halt Iran's nuclear plans, possibly generating friction in China's relations with outside powers."

China Looks to Increase Oil Imports from Africa 40%.

"The IAGS reports that China has provided "economic grants, interest free loans and preferential loans" to 53 African nations in an effort to establish the foundation for future collaborations that would allow for the much needed oil imports for China's expanding economy. IAGS stated that by 202 China will have 120 million private vehicles traveling its roads, and the country will be importing 60% of its oil."

China-Iran tango threatens US leverage

"Iranian Petroleum Minister Bijan Zandaneh told China Business Weekly recently that Tehran wants China to replace Japan as the biggest importer of its oil and gas. "Japan is our No 1 energy importer due to historical reasons, but we would like to give preference to exports to China," Zanganeh commented during his visit to Beijing in late October.'

"Earlier this month, Chinese Foreign Minister Li Zhaoxing, who has just crowned a year of negotiations between the two countries, paid a rare visit to Tehran. In a meeting with Iranian President Mohammad Khatami, Li said Beijing would oppose US efforts to refer Iran to the UN Security Council over its nuclear program."

Since China will dominate our future foreign relations efforts, the majority of articles I provide are about their quest to secure more oil. The EU needs oil. Brazil, India, Russia and every other economy must have oil. Even as their economies contract due to the current financial malaise, their populations are increasing. Demand for limited oil supplies, over the longer term, will only increase.

The US must accept that China will now compete for needed resources. Bad news for the US with its current economic structure - China has 1.3 Billion people, the US 300 Million. For just 1/4 of China's population to live as the average American, they must have access to the same amount of resources as the US.

If the US does not immediately become the leader in new energy technologies, the consequences will be unpleasant, at best. It was a fallacy to think we could pour enough money into China that they would, or could, adopt our financial model. The just aren't enough resources for that to happen.