Worldwide Addiction

The Daily Reckoning – Weekend Edition
June 10-11, 2006
Baltimore, Maryland
by Kate "Short Fuse" Incontrera

VIEWS FROM THE FUSE: WORLDWIDE ADDICTION

It’s no secret that China’s economy is booming – possibly to the point of overheating – right now. Car sales are soaring, and money is being dumped into everything, from real estate to factory equipment. The Shanghai Securities News recently reported that Chinese banks "extended 209.4 billion yuan in loans during May alone, nearly double that of the same month in 2005."

Of course, to build up an economy to that point, it takes a lot of energy – and China’s growing dependence on imported oil has raised more than a few eyebrows.

"The global demand for oil has been rising faster than supply because there’s new economies that are beginning to gin up, new economies growing, like China and India," President Bush said recently.

China’s role as the world’s manufacturer of pretty much everything – from geegaws to gadgets – has ensured that their demand for oil will continue to grow in the future. Right now, China is the world’s third-lading consumer of foreign oil and has just secured deals totaling $7 billion for stakes in oil and gas fields in Kazakhstan, Nigeria and Syria. And, in an effort to diversify its energy sources, China is clinching exploration and production deals to limit its dependence on Middle Eastern oil, reports the AP.

You can bet that the Bush administration does not like that one bit. A few months ago, our friends in Washington published a revised National Security Strategy that accused leaders in China of "acting as if they can somehow ‘lock up’ energy supplies around the world or seek to direct markets rather than opening them up."

"Oil – the dependence upon oil is a national security problem, and an economic security problem," Bush said.

A major concern to the United States, says William Overholt, director of the Center for Asia Pacific Policy at RAND Corp. in Santa Monica, California, is that "China is buying into oil in places where those purchases support abusive regimes, such as Sudan and Iran, undermining U.S. diplomacy in other areas such as nuclear proliferation."

Looks like things might start to get ugly…especially if we don’t step up our energy cooperation with China – or seriously look into energy alternatives. It’s no wonder Jim Rogers is teaching his daughter how to speak Chinese!

Short Fuse
The Daily Reckoning

P.S. Chinese demand for oil is set to double by 2025, according to the U.S. government’s Energy Information Agency. Interestingly, President Bush announced an initiative to invest in technology that will cut Middle Eastern oil imports by 75% by that same year.

But a full 50 years before new energy technology jumped to the forefront of the nation’s agenda, one company was already developing an advanced oil-saving production process. Today, the product this company sells uses 68% less oil than the competition.

— The Daily Reckoning Book of the Week —

The Bull Hunter: Tracking Today’s Hottest Investments
by Dan Denning

Investors who limit themselves to U.S.-based stocks and bonds routinely miss out on global opportunities – because right now, somewhere on earth, a bull market in a little-publicized region is providing savvy insiders with double- and triple-digit returns.

In The Bull Hunter, global investing authority Dan Denning shows ground-floor investors how to zero in on such regions so they can snag safe, outsized profit opportunities in countries, industries, and sectors where huge bull markets are just taking off.

THIS WEEK in THE DAILY RECKONING: Feeling like commodities is too "risky" of a sector to get involved in? Think again…in "Black Sheep in the Marketplace" Jim Rogers explains why this could be the most profitable area to put your money into right now…

Bubble Kings     06/09/06
by Bill Bonner

"Every era has its clowns, its heroes, its fools…and its winners and its losers. Often, the honorable among them are sent to the scaffold; the dishonorable go to Congress."

Black Sheep in the Marketplace  06/08/06
by Jim Rogers

"A new commodity bull market is under way and will continue for years. I have been convinced of this since August 1, 1998, when I started my fund, and have been making my case for commodities ever since."

The Nightmare Carry Trade Scenario  06/07/06
by Mike "Mish" Shedlock

"It looks closer than anyone might have thought. Perhaps that is the message of a 100-point plunge in gold; copper going down lock limit several times; silver ramping to the moon, just to fall off a cliff."

The Greater Depression   06/06/06
by Doug Casey

"Wrap this economic environment around the so-called War on Terror, which is rapidly morphing into the War on Islam, which could easily turn into World War III, and you’re looking at the perfect storm."

Regarding the Resurgent Bubble  06/05/06
by The Mogambo Guru

"This Russian ruble thing is ‘the second most significant step in removing the U.S.$ from the throne of sole global reserve and trading currency! Should any more oil producers take this step, it will precede a U.S.$ crisis.’"

FLOTSAM AND JETSAM: Stories like this are too good to be true – like a Cinderella story of the energy markets. Kevin Kerr explains…

How Ethanol Led an Addicted Country to Recovery
by Kevin Kerr

The tiny country that now proudly claims oil independence is Brazil. As President Luiz Inácio Lula da Silva recently threw a switch, the country’s largest offshore oilrig signaled the oil independence of Brazil.

At one time, Brazil was 83% dependent on foreign oil – a major crisis for such a poor country in South America, whose major crop was sugar. So as the old story goes, when life gives you lemons, make lemonade. Only, in this case, the saying was when life gives you sugar, make ethanol. And Brazil did.

Ethanol, the additive oil refiners are scrambling for here in the United States, is easily derived from sugar. It’s basically a one-step process to turn sugar into ethanol. The Brazilians spent tons of money on research and development of stronger sugar crops and genetically modified sugar beet in order to increase production. The nation began an aggressive campaign encouraging people not only to conserve, but also to participate in the country’s goal of energy independence.

The result of a combination of offshore deepwater drilling, conservation and widespread ethanol use has now put Brazil in the driver’s seat of its own energy destiny. Ironically, Brazil could now become a net exporter of oil. With the new oil rig, the country will produce more than the 1.9 million barrels of oil per day it needs to function. In addition, Brazil exports the much-needed ethanol. Is it any wonder that ethanol is all over the news and that it’s considered by some of us to be one of the most viable immediate sources of energy?

True, with current technology, the cost of converting ethanol from corn – the primary crop used for ethanol in the United States – is more expensive. I believe that is due in large part to the lack of research and development that has gone into ethanol in America.