* * * * * * * * * * * * REMINDER * * * * * * * * * * * * *
On the days that I don't publish, like today, you will
receive Bill Bonner's DAILY RECKONING. This will help you
to keep pace with the changes in the markets. Bonner and
I agree on most things in the field of economics, so the
two letters will reinforce each other.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
FROM ARABIE TO THE SANDS OF CANADA
THE DAILY RECKONING
PARIS, FRANCE
WEDNESDAY, 31 OCTOBER 2001
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*** From mezzanine to asinine...America's best and
brightest getting spooky...
*** Plunge Protection Team - asleep at the wheel...
*** GDP in Q3 - how bad will it be?...North America's
largest gas company tanks...
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*** America's best and brightest.
*** There was a time when the best and brightest would
line up, fresh out of college, resumes in hand...
visions of startups and IPOs dancing in their heads...
at the pearly gates of Wall Street.
*** Now they just want to be spooks.
*** "Last week," Maureen Dowd tells us in a NY Times op-
ed, "Georgetown University held a job fair. At the
booths of the big Wall Street companies and banks,
students had little wait. But to talk to a CIA
recruiter, the line stretched for over half an hour."
*** Dowd quotes Ed Friedman, 21, a senior at the School
for Foreign affairs. "Two years ago," says young Ed,
"Goldman Sachs was the place to be - even people from
the School for Foreign Affairs lined up there. People
were interested in six-figure salaries and they viewed
the CIA as not having much of a purpose."
*** Alas, this "War on Terrorism" is "not just war, but
a just war," Dowd chides. And "everyone wants to be a
part of it, to help," says Ed.
*** "In wars of choice, [such as Viet Nam]," writes
Charles Krauthammer, "losing is an option. The war on
terrorism, like World War II, is a war of necessity.
Losing is fatal. This is no time for restraint and other
niceties. This is the time for righteous might."
*** Might be righteous. Then again, might not.
*** The Daily Reckoning's best and brightest, by the by,
are MIA. Eric Fry is on his way to the Agora Wealth
Symposium in Las Vegas, where he will no doubt mingle
with some of you bright DR readers. And Bill...poor
Bill...is still lost among the wilds of Bordeaux wine
country. (Although, I'm told he too will be finding his
way to Vegas very soon.)
*** Thus...the Daily Reckoning is brought to you by
Addison and the World's Greatest Intern, Becky Kramer,
fortifying the front line in Paris. Special thanks, too,
to John "Jack" Forde.
*** We have a question: If America's best and brightest
are descending from the mezzanine level to covert ops,
who's going to direct the efforts of the Plunge
Protection team? Assuming of course, one exists.
*** "...while Lyndon LaRouche and his ilk evidently
think the CIA and Trilateralist Commission run the
world," writes Rick Ackerman. "I seriously doubt whether
those two institutions combined possess the operational
savvy to run a back-alley crap game. Even so, there is
reason to believe that the U.S. government may be
loosely in cahoots with some top Wall Street firms to
ensure that the stock market does not spook investors
too badly, or too often.
*** "Now this does not necessarily mean, as some market-
watchers now assert matter-of-factly, that there is a
Plunge Protection Team which snaps into action whenever
some crisis manager monitoring the market's vital signs
on CNBC lifts a red phone at the White House.
*** "To begin with, who could run an operation like
that? With the possible exception of former Treasury
Secretary Robert Rubin, no Cabinet-level honcho comes to
mind who could conceivably be entrusted with such a
difficult job. And who actually believes that even Rubin
could second-guess the markets any more successfully
than, say, last month's top-rated guru in Hulbert's
Digest?" Who indeed...?
See: Does The Plunge Protection Team Exist?
http://www.dailyreckoning.com/body_headline.cfm?id=1532
*** Apparently no one...the Dow got trounced for 147
yesterday on the heels of Monday's 275 rout...
constituting more than a 4% drop since Friday's close.
*** And "the fall is not over yet," according to the
Prudent Bear's Lance Lewis. "I find it extremely
unlikely and bordering on the impossible that we can
unwind the biggest bubble in history and not have some
sort of panic, at some point, along the way."
*** The Dow is now down 15% for the year. The S&P is
down 19% and the Nasdaq...while these indexes may not
have plunged exactly...they are certainly suffering a
slow-motion defeat.
*** The market, say the talking heads, was reacting to a
host of bad news - CVS, Enron and MacDonald's all
reporting dastardly details of deeds undone. Just one
feature in the latest installment of "The Bad News
Review". Here's more...
...The Conference Board's index of consumer confidence
plunged to its lowest level since 1994. And "the world's
premier consumer of global output," Richard Daughty
reports, "those stupidly heroic American consumers, have
finally charged their credit cards to the max that they
can carry. And ta-da! set a new, all-time record of one
trillion, six hundred billion dollars."
...Meanwhile, stock funds recorded the biggest net cash
outflow in history in September. Cash outflow totaled
over $29 billion, outpacing the previous record of $20
billion set this past March.
...The telecom industry may never repay almost 80% of
the $900 billion in debt, "a failure exceeding the
savings industry loan collapse," says Global Crossing
CEO Leo Hinery, by way of Bloomberg.
...As reported here yesterday, Argentina's restructuring
of $38 billion in debt is inducing visions of the Thai
Baht and the Russian Ruble circa 1998. "In the coming
months," economist David Malpass told Money.com, "we
expect broad debt crisis for developing countries with
negative impact on global growth and corporate earnings.
[We expect] a drown-out global recession extending
through 2002."
... Merrill Lynch's Lauren Rich Fine also told Money:
"Believe me, September ad revenue decline was one of the
worst ever, and October unfortunately will bring more of
the same."
..."Enron dropped 19% to their lowest level since 1992
on Tuesday," reports Reuters...itself a victim of
profligacy, bandwidth gambling and the machinations of a
"New Era" chief financial officer. North America's
biggest trader of natural gas and power - and a favorite
with the New Era energy crowd - has suffered 10 straight
day of losses and shed more than $17 billion in market
cap in the past two weeks. Rumor has it, suggests
Money.com's Bethany Maclean, that Enron "might make
tasty prey for a major oil company."
*** "We're seeing, and will continue to see,
consolidation in the petroleum industry," says John
Myers, "as the war on terrorism and increasing strife in
the Middle East make things interesting for Canadian and
American purveyors of the world's most widely used
energy source." (More below...)
*** Tomorrow, GDP numbers for Q3 come out. How bad will
it be? The world awaits the net result of 9 Fed rate
cuts and a fiscal stimulus package worthy of an Arabian
prince. "Congress is simultaneously chipping at taxes
and spending big money on fiscal stimulus, thus insuring
that deficits start to spiral out of control," writes
the Mogambo Guru.
"The economy, absent a genuine miracle of Biblical
proportions, will continue to spiral down to a well-
deserved depression, brought down by the same force that
produced one in the 30's. Debt. There is no stopping it,
because all that humongous debt accrued from forty years
of government profligacy is still there."
Guest essay from "Son of Goldbug" below...
Addison Wiggin
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The Daily Reckoning Presents: A DR Guest Essay from
resource man John Myers, on the scene in the Athabasca
oil fields in way north Canada...
FROM ARABIE TO THE SANDS OF CANADA
by John Myers
Northern Alberta, Canada. A security gate. And a
construction site that looks like any other.
Workers stand around wearing hard hats and steel-toed
boots. On their breaks, they smoke cigarettes and watch
the steam rise from their coffee mugs.
But if things turn ugly for America's oil-rich allies in
the Middle East, it may turn out to be one of the most
valuable locations in the world.
On a cloudy Canadian afternoon two weeks ago, I paid
this site a visit. It sits just outside Fort McMurray, a
small and remote Canadian mining town. It doesn't look
like much. But this is the epicenter of the Athabasca
Oil Sands, the largest oil shale resource in the world.
In case you're not familiar with the term, oil shale is
essentially a piece of surface rock and sand saturated
with oil. Unlike pockets of raw crude that used to shoot
up from Texas oil wells, there is no pressure building
in a field of oil shale. The oil has already seeped to
the surface and collected in pools of molasses-like
bitumen.
The Athabasca's Oil Sands contain an estimated 1.7
trillion to 2.5 trillion barrels of bitumen. From that,
an estimated 300-plus billion barrels of oil are
recoverable with current technology.
That's no small cache. The U.S. and Russia combined have
less. Even Saudi Arabia reports "only" 200 billion
barrels in reserve.
But harvesting processed oil from a shale deposit is
dirty work. It requires massive equipment. And up until
recently, it's been too expensive to be considered an
alternative to the cheaper, more volatile oil resources
we get from the Middle East.
But all that has changed. As we were about to find out:
"Each wheel on these trucks has its own electric motor,"
said Howard, our tour guide and a retired engineer,
"...And wait until you see the shovels. They cost $19
million each."
He pointed to a 400-ton monstrosity, riding on tires
that were each bigger than our full-sized tour van. We
couldn't see the shovels yet. They were busy on site at
the Steepbank Mine, where they could rip 100-ton chunks
of shale from the earth, to send off for processing.
It only takes a few hours to transform each load into
oil. The shovel loads are dumped into the massive
trucks. The trucks, in turn, dump everything into
crushers. The result is delivered to a primary
extraction plant where separation begins.
The bitumen that results is injected with steam. Then
it's diluted with naphtha and piped into a refinery.
There, it's purified and sent off yet again to be
processed into diesel, light sweet or sour crude.
One 100-ton load of shale yields about 50 barrels of
oil, which is ultimately shipped to markets all over
North America via pipelines.
This may be a long way from the days of Dallas and oil-
rich Americans. But with pressure mounting in the Middle
East - and domestic oil production in America at its
lowest level in 40 years - the shale-oil industry could
hand resource investors their biggest profit since the
1970s. Especially now that extraction technology has
forced processing costs to plummet.
When Suncor began operations in 1967, the cost of
producing oil from oil shale stood at more than $30 a
barrel. Even at the height of the Yom Kippur War, oil on
the open market fetched only $12, making shale oil
irrelevant. In 1984, it cost $25 to get a barrel of oil
from shale. But the market price per barrel was $15.
Now, however, the metrics have changed. Suncor's per-
barrel extraction costs are down to $10.67 a barrel,
thanks entirely to new technology and economies of
scale.
With $3.25 billion Canadian in new investment, costs
could plunge still further - as low as $9 a barrel.
That's on par with what it already costs America to tap
dwindling resources of conventional crude. It's also
well below the current cost of oil on the open market -
at $21.85 as of this writing. And Suncor is prepared.
In 1999, their oil-sands project produced 85,000 b/d in
1999. By the end of 2002, they expect to produce 225,000
to 250,000 b/d - or $5.5 million worth per day - even if
oil prices don't rise a penny.
With Middle East volatility spreading and pressure
increasing, oil prices will head upward. Fast. And
Suncor's profit margin will only get wider.
Shell and Syncrude already invest heavily in adjacent
properties. In fact, by 2015, Athabasca's Oil Sands will
produce 2.5 million b/d, or 60% of Canada's total oil
production. This creates huge opportunity for shrewd
resource investors. How so?
First, unlike oil trapped in underground deposits, oil
shale reserves are easily discovered. They seep to the
surface. Costly exploration budgets carried by
conventional oil producers aren't part of the equation.
Second, the U.S. market is locked in. George W. Bush has
made it clear that the U.S. reliance on Middle East oil
will shift to reliance on Athabasca's Oil Sands.
And third, new technology and economies of scale
continue to reduce production costs, making shale-oil
recovery more viable by the day.
A mining town as remote as Fort McMurray isn't the first
place you'd expect to see a cameraman from CNN. But is
this Canadian hinterland worth watching? From where I
stood just two weeks ago - amid massive machinery, the
rumbling hum of diesel engines, and towering refinery
smokestacks - it certainly seemed so.
John Myers,
for The Daily Reckoning
John Myers - son of the great goldbug C.V. Myers - is
the editor of Outstanding Investments. Our man on the
scene in Calgary, John has his fingers on the pulse of
oil and gas industry profits.
To help readers Daily Reckoning readers understand and
take advantage of quickly arising opportunities in the
natural resource sector, John has prepared a free
special report. You'll find your copy here:
Maniacs In The Desert
http://www.agora-inc.com/reports/RASS/edmention
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