Dear rss free blog,


NYU Economics Professor Nouriel Roubini, AKA super-bear, wrote today a note about oil and natural resources which I have permission to share with you. Prof. Roubini famously predicted the economic crisis we are now in:

Last week’s announcement of new rules governing deep-sea oil deposits off the Brazil coast reignited debate over resource nationalism. Deposits in the pre-salt layer deep beneath Brazil’s seabed are one of the more promising, if expensive, sources of new supply globally. Pres. Lula unveiled the new rules on what he called an ‘Independence Day for Brazil.’ Among other things, they suggest that Petrobras, the publicly traded but state-run oil company, have a majority stake in any new developments of deep-sea oil. The move, which marks a change to the country’s profit-sharing agreement, would not apply retroactively. Brazil also wants to create a new social fund, channeling some of the profits into social and infrastructure spending—-potentially narrowing extreme income divides.

While the new regulations are significant-—and their process of wending their way through congress could prove disruptive to Petrobras’ stock and investment decisions-—it remains to what degree this should be seen [sic] as a cause for great concern. The country is committed to boosting output and increasing refining capability at home and has made it clear that joining OPEC is off the table-–doing so would constrain output. Unlike “nationalizations” in the past, previously existing contracts will remain valid and Petrobras already had the largest stake in most of these deep-sea contracts. The planned capital increase will dilute existing shares and political risks to Brazilian oil sector could rise after elections next year, especially if Lula gains a larger majority.

PBR could turn to other national oil companies in joint ventures as it seeks new funding. Already, PBR turned to China to meet some investment shortfall. China pledged US$10 bn earlier this year, helping fund some of the $174 bn of investments [PBR] planned for the next 5 years.

Brazil seems unlikely to mimic some Latin American counterparts several of whom have long treated national oil companies as a fiscal cash cow. Mexico’s government relies on Pemex for the bulk of its revenue, but production at Mexico’s lead oil field, Cantarell, has been falling since the mid-2000s, and restrictions on foreign investment have left Mexico behind in exploration of Gulf of Mexico waters. Despite gains from oil hedging, Mexico’s fiscal accounts remain vulnerable and divided politics make more significant energy reform unlikely, deferring any major output increase.

Venezuela, site of a series of nationalizations ranging from banks [and] cement, to oil, actually showed signs of a truce after having forced foreign oil companies to take smaller stakes in the Orinoco. However, most partnerships have been with other state-owned oil companies.

It’s not just emerging markets. More from Prof. Roubini:

The US and Canada have been tweaking their fiscal regimes concerning oil production. In 2008, the province of Alberta brought in new regulations recalibrating oil sands royalties depending on the oil price [to] provide funds for needed infrastructure to maintain development. However, at current oil prices, the provincial take is very limited and mostly stems from conventional oil and natural gas production. Given the fall in gas prices and output, the province’s fiscal accounts are quite strained. The [US] is tweaking its fiscal regime concerning oil producers, as higher taxes on resource extraction are one of the ways to limit the future fiscal deterioration. However, the increase in the excise tax on Gulf of Mexico oil production has been deferred. Further development of these reserves, including the ‘giant’ find BP announced in early September, will rely on clarity about these regulations.

Most OPEC members, especially those in the Middle East, have long been dominated by the national oil companies with proceeds saved or spent by governments. This state influence is long-standing. Some, especially in North Africa have tried to lure new expertise for harder-to-extract resources. Some state-owned oil companies sought to increase production capacity, even if current production cuts constrain near term output. Saudi Arabia, the oil market’s stabilizer as it absorbed the bulk of OPEC production cuts, was one of few countries to actually add new production capacity in 2008 and 2009.

As the oil price has increased, so too have some investments. The energy companies of the UAE, including Abu Dhabi’s IPIC and Dubai’s TAQA, have continued and increased investments in oil and petrochemicals in 2009, taking advantage of cheaper prices. Chinese oil joint ventures and loans to oil producers have been on the rise in 2009. Last week, PetroChina continued its international spree. The joint venture with the Athabasca oil sands company provides capital, but also indicates the continuing Chinese interest in this expensive oil source (oil sands production require[s] an oil price above $60 a barrel to profit]. The investment will also be one of the first test cases for the new Canadian investment regulations formalized earlier this year. Though a government block of the purchase seems unlikely, some parties in the U.S. have expressed concerns about Chinese investment in Canada’s oil patch.

Resource control is not limited to oil and energy. Last week, China, producer of over 90% of the world’s rare metals, suggested it might restrict exports of these key inputs for batteries and other new technology. [Moreover] its companies have suggested strategic alliances to develop supplies in other countries. Although Chinese officials have backtracked from the proposed cuts, export polices are still a risk.

In oil and rare earths, it is okay for governments to meddle with or tax exploration, production, or export of raw material wealth of the nation. Nobody yells ‘socialism’ when this occurs. But when a program to try to extend medical coverage to 50 mn uninsured Americans is proposed, the hollering begins.

Back when I lived in France (which has socialized medicine limited by something called a moderating ticket, or ticket moderateur, which requires some co-payment by the patient for treatment and drugs) they used to talk about acquired privileges being the hardest to take away from people. Medical care is not supposed to be a privilege, but getting it easily and cheaply clearly is a privilege in the eyes of US recipients. Like me.

I am old enough for Medicare so I am not grousing about the opposition to Obama-Care because it will pay off for me. As a free-lance journalist, when we lived in the USA (except in Washington), I was covered only because my husband was covered by his employers. The cost of insuring myself individually was way too high. Thanks to getting older, I have graduated from that and can now divorce my husband whenever he gets too demanding as I could not then without risk to my health.

But I remember the problem and I think it outrageous that this situation applies to certain supposed self-employment jobs, like free-lance journalism, to students, to people between jobs, or if employers do not offer health insurance to part-timers or interns or whatever. For people to be denied health insurance after losing their jobs because of pre-existing conditions seems to me to be an outrage. Of course if they can insure only the healthy, the insurance industry would limit coverage to them.

Having lived in France for 15 years and in England for one, I have benefitted from socialized medicine during these intervals in my life. When I was in my own country, except when I worked on Capitol Hill, my personal non-spousal medical coverage disappeared.

Yesterday saw every non-U.S. investment outside the dog pound up, as the dollar fell. Where now? Here is word from Paul Renaud from Thailand, quoting, self-servingly, Bank Credit Analyst of Canada. (BCA Sept. 4.) These days mostly Paul writes about how Americans are seeking to impose their tax code and securities regulations on the rest of the world, notably his native Switzerland, out of populism, imperialism, and overweening ambition. Then too he thinks most of us, your editor included, are too fat, which feeds the health care crisis here.

I have a couple of issues with that thesis. First, the imperial America line was taken well before Barack Obama sought ways to cover our deficits. The opposition line also goes back to the turn of the 20th century. Moreover, our tax code from the start has featured extra-territorial claims. The whole U.S. legal code assumes that American law holds sway over the world. And certainly over Americans wherever they may reside. So while Uncle Sam was happy to let me get my medical insurance from the United Kingdom National Health Service or the French Secu, Uncle also claimed taxes on my earnings as a non-resident American in Europe.

That’s the way America is. The Alps will not stop the IRS.

And it is no good the Swiss saying they will stop investing in the U.S. or boycott us. Other financial centers, notably London, are also trying to squeeze out more taxes while other countries, like France and Germany, want to put a ceiling on certain kinds of bonus. Finally, Swiss banking secrecy is not exclusively being attacked by the USA. Its neighbors in the EU and Britain also want to end the sham of bank secrecy being used to avoid or evade taxes.

Boycott the lot, and the Swiss will have to invest their own money and that entrusted to them exclusively into Swiss shares. There are few regular ADRs but we do follow two of them.

Jim Rogers, like my husband and Balliol man, wrote after my comment yesterday about how even Jim, as a round-eye, cannot buy renminbi, the Chinese currency. I guess there are things you can do in Singapore but not in NYC from which Jim loved..

Reader DG expressed annoyance at our selling subscriptions to Global Investing using the free newsletter while not sharing investment ideas with pre-subscribers. Frankly, that is why the free newsletter exists. Our business is to sell investment advice, and that is what we sell with subscriptions. The rest is commentary, to quote Rabbi Hillel. (Hillel, who lived under the Roman Occupation of Judaea, was asked to sum up Judaism while standing on one foot. He said: ‘)

Because I am attending two conferences and coping with a breakdown in our order-taking software today there are relatively few bits of news. Our order-taking system is accessible from our website, which is supposed to link to our corporate bank, JP Morgan-Chase vis Chase Paymentech, another software program.

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*For subscribers, our Swiss stocks are X and Y, both recommended by Frida Ghitis, a free-lance reporter whom Global Investing pays for articles. I have no idea what her health care insurance situation is. I suspect it is worse than mine ever was because she is not married and in her 40s. I do not ask because if I do she may ask for more money. Rabbi Hillel would not approve.