I don't know how many of you read Barron's, but there were some very important issues raised in the roundtable discussion, most notably, oil.
Marc Faber brought to light the geopolitical risks facing our nation, as China and Russian have formed alliances to gain access to more Middle East oil. In the process, this alliance has asked the U.S. to begin setting a timetable to close its military bases in Asia. They are basically telling our political and corporate leaders, to stop trying to gain control of middle east oil.
So, if you are wondering why the price of oil, and oil related companies have been steadily rising, look no further than the geopolitical firestorm that is brewing between the two biggest bullies on the block.
The big U.S. oil barons, who have controlled the world痴 oil and profits, are now running into major resistance from some very powerful foes.
As an example, the members of the Shanghai Cooperation Organization (consisting of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) held a joint eight-day military exercise involving 10,000 Russian and Chinese troops. U.S. political leaders asked the SCO to reduce the magnitude of the exercise, and both Russia and China said "no".
The leaders of the Shanghai Cooperation Organization (SCO) include notable names like Russia痴 Vladimir Putin, China痴 Hu Jintao and Iran痴 Mahmoud Ahmadinejad.
To counteract the SCO's show of muscle, the U.S. held a week long 笛oint Air Sea Exercise 2005� in Okinawa and Guam which included 10,000 troops and 100 warplanes from the USS Kitty Hawk strike group. Included in the exercise were troops from South Korea.
Like a group of kids picking sides for a game of dodge ball, the SCO
announced plans to hold additional joint exercises in 2006 that would include India and Pakistan.
With the U.S. demanding that Iran halt its nuclear program, the SCO is considering letting Iran join its organization as a permanent member.
So, if you thought that the oil crisis was nothing more than a repeat of the oil crisis in the 1970's, think again. The SCO alliance is not just a "show" of muscle, it is muscle.
Another tidbit to consider is this. China is looking to sell a large amount of their U.S. denominated holdings. This includes U.S. Treasuries as well as dollars.
If this happens, (And I have been saying this all along) the dollar will plunge, and interest rates will go higher than most experts had ever imagined.
You can probably use the argument, "this would hurt the Chinese economy; why would they do something that would hurt their economy".
Its very simple. The Chinese are very patient people, and the have much longer time horizons than Americans. American's want instant gratification, the Chinese do not. If it hurts their economy for 5, 10, or even 15 years, it痴 no big deal. American's on the other hand would begin jumping out windows in a few years.
The above examples are reasons why I have been saying that you cannot listen to the people who say "it痴 different this time". It痴 never different this time. Events have a way of repeating themselves, regardless if its real estate, interest rates, or the stock market. Eventually, everything reverts back to the mean.
Comments (2)
The Chinese and Russians already have our advanced technology which was transferred to them free by the greedy CEO's of America's corporations by reason of a "global economy". That technology belonged to the people of this country because the corporations received tax credits in developing that technology through research. Now the middle class is gone because we no longer make anything. It was two and one-half years ago, in heated testimony before Congress, that Greenspan said that he does not care if we continue to lose our manufacturing "as long as we had a reliable source of manufactured goods AND IT DIDN'T JEOPARDIZE OUR NATIONAL SECURITY". These words will live in infamy.
Posted by alan | January 20, 2006 7:40 AM
Posted on January 20, 2006 07:40
john, re the China tidbit. i believe that china plans to diversify its reserves away from the dollar and treasuries in the future rather than selling exisiting positions. obviously that lies behind as a possible weapon in their armoury but not only are the chinese leadership patient they are very practical ,and the last thing they would want to do is to destabilise their domestic economy ,which is already stressed by the social disruptions the pace of economic growth is causing.surely they can see that the US , with all its self-inflicted problems,is doing enough anyway,and that a slowdown in consumer spending ,and a fall in the dollar is just about a given.
Posted by robin | January 20, 2006 5:32 PM
Posted on January 20, 2006 17:32