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The Dollar's Inability To Rise Even With Rates Rising Is Not A Good Sign For The Dollar
By Monty Guild
The continued rise in the currencies and a
continued decline in the U.S. dollar even in the
months after a big rally in foreign currencies,
normally even an extremely unattractive
investment gets some rally after a big decline.
So far, the U.S. dollar has not had much of a
rally.
We have been bearish on the U.S. dollar for years.
That has been a correct approach, and we remain
bearish on the U.S. dollar for the long term. We
are however surprised at how friendless the
dollar is these days. We had not expected it to
be so obviously friendless at this juncture.
Even the worst stock or currency usually rallies
up after a decline. Maybe the dollar will, but
the time for it to do so is running out.
INDIA GROWING AT ABOUT AS FAST AS CHINA......WE
CONTINUE TO LIKE INDIA
India has always had the potential to grow as
fast as China, but the poor infrastructure and
the government filled with many corrupt civil
servants had slowed the growth rate.
Now corporate organizations have gone ahead and
built much of their own infrastructure, and Prime
Minister Singh has shown himself to be a wise and
honest leader. Let us hope that the huge
potential that the subcontinent has will be
realized in the coming decades. We believe that
it will. Like oil and foreign currencies India
has provided good profits for us and we see more
in the future. We have been bullish on India and
remain bullish on India for the long term.
INVESTMENT THEMES REVISITED
Our investment themes remain the same. To
refresh your memory they are as follows:
• Growth of China, India and the Asian region
creates investment opportunity in these markets.
• Energy demand will continue to grow. Supply is
not growing, hence energy prices will rise.
• Non U.S. dollar based currencies will continue
to appreciate.
• Demand for global financial services will grow
rapidly.
• Industrial metals and precious metals will be
needed to further global growth. Supply is
stagnant and demand is rising, hence prices will
rise.
• Transportation equipment is important for this
growth to continue.
They have been the same for some time, and this
sameness would be boring except for the fact that
all of the themes are producing profits, and
profits tend to decrease boredom. So, we are
enjoying the lack of boredom from the same themes.
GLOBAL ENERGY DEMAND
Last week, the Wall Street Journal had a good
article about some of the arguments that we have
been belaboring for several years.
1. Global energy demand is strong even at prices
approaching $70 per barrel.
2. Global energy demand is accelerating. It is
growing at twice the rate of 2006.
3. Global GDP is expected to grow at about 5 a year. How do you grow your
economy without growing energy consumption? It
is hard to do. 2
increases in energy demand is a problem.
GLOBAL ENERGY SUPPLY
Many, many people have now joined us in our once
controversial thesis that new energy will be
found, but that THE COST OFTHE NEW ENERGY WILL BE
MUCH HIGHER PER BARREL THAN HAS BEEN THE CASE
HISTORICALLY.
People used to think we could find a lot of new
energy as cheaply as we have historically. New
energy sources are being found, but they are
proving to be harder to access and more expensive
to produce.
Sure, we can make oil from coal, we can make
gasoline from ethanol, we can develop the oil
sands in northern Canada, and we can drill for
oil deep under the sea all over the globe. These
are some relatively recent approaches for solving
the world’s oil and gasoline needs.
All of these approaches will produce oil but at
what price? The answer: a lot higher than the
current price of $70 dollars a barrel.
Several years ago, we predicted that oil would
hit $50 per barrel in 2005. People scoffed at
that ludicrous notion. It turned out that we
were too conservative; oil exceeded $50 per
barrel in 2004. Then we predicted that oil would
go to $100 per barrel by 2008.........We continue
to believe that that prediction may well turn out
to be correct.
ENERGY SUMMARY
Oil started 2002 at about $20 a barrel. Then, in
less than three years it went to over $50 per
barrel. This created a psychological shock for
governments and consumers and they began to
conserve. Gradually, they got used to $50 plus
oil and began to consume more. At the same time,
the world economy was accelerating and creating
more demand for energy. Now at close to $70 per
barrel demand is increasing at above 2% per year
and supply is increasing by less. LET’S GET USED
TO HIGHER OIL PRICES.....THEY’RE HERE TO STAY.
DEMAND FOR SEISMIC STUDIES THAT ARE USED TO
DETERMINE THE AVAILABILITY OF HYDROCARBONS WILL
GROW FAST FOR ANOTHER DECADE
In the 1980's, as a reaction to the rapid
increases in energy prices during the 1970's,
major oil companies spent a lot of money on
seismic studies. This is a system of using
technology to estimate and evaluate the pools of
energy beneath the Earth’s surface to determine
which pools of energy could be produced
economically. Seismic studies helped evaluate
the finding and drilling costs and minimized the
cost associated with finding failed wells or dry
holes.
After
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oil prices stopped rising, major oil
companies continued to spend on seismic for a few
years, but they stopped when the oil price began
to fall. It has been about twenty five years
since this major spending on gathering seismic
data ended. Since then the seismic industry has
improved their technology, and they now have very
good product generically known as 3D seismic.
Today, there is a huge pent up demand caused by
the lack of data gathered in the last two decades.
Main Points
• Offshore, not much seismic has been shot in
quite a while.
• Most new oil and gas fields of major size will
be found offshore.
• Offshore wells, especially in water over 300
feet, are very expensive to drill.
• Thus, the need for seismic is great. The
industry is ready to move into a new growth phase
for both onshore and offshore wells.
We have taken a good look at the seismic industry,
especially the offshore seismic contractors, and
equipment suppliers. We will be gradually adding
some of these stocks to our portfolios with a
view that their earnings will grow steadily for
years to come.
For more information on global investing visit
http//:www.howtoinvestglobally.com
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consent of Guild. Article Directory: http://www.articlecube.com Mr. Guild founded Guild Investment Management in 1971. Prior to founding the company he was an analyst at a bank and a hedge fund. Mr. Guild is a recognized expert in the areas of international investing and economics.
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