July 23rd, 2008
09:18 AM GMT
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If there one certainty in the markets, nothing is certain. Take the price of oil. It hit a $147 a barrel on July 11. Now it's trading at a $126 a barrel. Several factors have helped push the price down.

Will the price of oil continue to fall?
First is the weak U.S. economy - an inventory report last Wednesday showed a larger than expected rise in crude stocks. Also there was a sharp fall in U.S. natural gas prices which also undermined the rally in oil. Another factor is forecasters expect Hurricane Dolly to bypass fields in the Gulf of Mexico. A stronger dollar is also an important factor.

Consumer behavior is also playing a role. High oil prices have forced some consumers to rethink their driving habits. In short, when oil prices approached a $150 a barrel, consumers said enough is enough.

Now instead of talking about how high oil prices can go, the bears are talking about how quickly oil prices could fall.

For instance, High Frequency Economics, a respected economics firm out of the U.S. Wednesday wrote that oil prices could hit $95 by the end of the summer, and Lehman Brothers expects crude to average $90 a barrel in the first quarter of 2009. If they are right that would be good for consumers, the economy, and inflation.

We know what happens if oil hits $200 a barrel, we also know what happens when oil falls sharply. Last week it fell more than 11 percent and that along with some better than expected earnings helped the broader market rally 1.7 percent, having fallen to its lowest level since November 2005 on that Tuesday.

If oil prices continue to fall that would further help market psychology, but it wouldn't mean the end of the bear market - there are still a lot of problems in the financial sector and economy, and those will take considerably longer to unwind. I still think the long-term fundamentals favor oil prices remaining firm.

I'm not alone - T. Boone Pickens, the legendary oil man, has predicted this week that prices will hit $300 a barrel in 10 years unless the United States reduces its dependence on foreign oil.

What do you think? Do you think that the fall in oil prices is temporary? Do you think the reason oil prices have fallen sharply is because consumers aren't willing to pay higher pump prices, or is it other factors?

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July 14th, 2008
08:04 AM GMT
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LONDON, England – Could oil hit $200 a barrel by year end?   

Given the sharp rise already, what once seemed fanciful thinking now has to be taken more seriously. After all, oil prices have doubled in the past year. More frightening, if you take the crude oil inflation rate of the past five years (which has seen prices quadruple) prices would rise to $580 by 2013, according to analysis by ING.

We already know the pain being felt at $145 oil - what happens if it jumps to even $200 a barrel by year end?

According to ING, U.S. inflation would hit 7 percent. The impact on Europe would be more muted with inflation around 4.5 percent. That rise in inflation would prompt the U.S. Federal Reserve to raise its funds rate from the current level of 2.5 percent to 3.5 percent by year end, and the European Central Bank would raise its rate from 4.25 percent to 4.75 percent.

"In turn this would compound the downward pressure on economic growth. The combination of a squeeze on consumers' purchasing power from rising oil prices and higher interest rates would likely lead to a full blown recession in the U.S. with the contraction of output deepening in early 2009. Output in the Eurozone would also be badly hit, although growth might narrowly escape slipping into negative territory.

"This environment would surely intensify the credit crunch. With activity slowing markedly, asset prices would tumble and default rates would climb. On top of this, rising short-term rates would add to the banks' problems by squeezing their margins further. This is clearly a recipe for a vicious cycle in which financial sector woes and real economy weakness feed off one another," ING adds.

ING isn't predicting that oil will hit $200 a barrel by year end, and even it it did, it says it wouldn't be sustainable.

That's because the damage to economic activity would be enough to drive oil demand down sharply and with it prices, plunging back to $100 a barrel by the end of 2009, leading to deflation and a sharp fall in interest rates.

Of course, mainsteam forecasts don't have oil at $200 a barrel by year end. But given how wrong economists have been about the rise in oil prices, neither can we dismiss the possibility. One thing we know for sure, if it happens, it's going to be ugly.

Tell me what you think: Do you think oil can go to $200 a barrel, and what do you think the impact would be. Is there anything policymakers could do to prevent it happening, and whose fault is it if it does reach $200 a barrel? Can you can even imagine oil trading at close to $600 a barrel five years from now? I look forward to hearing your thoughts.  

July 11th, 2008
08:18 AM GMT
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TOKYO, Japan – The scene is uniquely Japan: Techno-freaks dressed up like cartoon characters, young women dressed like maids and superheroes, and even a dancing storm trooper.

Me interviewing our stormtrooper.
Me interviewing our stormtrooper.

They'd gathered early this Friday morning for the latest tech event: The release of the new Apple iPhone 3G in Japan.

Some 1,500 people camped out overnight through a hot and humid Tokyo summer, but that's hardly a sacrifice, to finally get their hands on the iPhone.

But here's what's unique about this latest tech gathering: The device is American. Made in Japan? Where did that familiar stamp on the back of your electronics go?

While these techies lost one night of sleep camping out for the device that promises portable device nirvana, Tokyo's corporate executives have been losing sleep for months wondering why they didn't invent it first.

In a recent lunch with the Ministry of Foreign Affairs, a good source moaned to me about the state of Japan's electronics market and how it was falling behind.

Why? Items like the iPhone represent, in many ways to the Japanese boardroom, the symbol of the new era of doing business.

Apple and Google are taking not small steps, but leaps and bounds in innovative technology. Japan, once the unchallenged ruler of the world's consumer electronics market, now watches as the Western world schools the East. Remember Sony's Walkman? Neither does anyone who wants an iPhone.

The debate is raging in Japan's government halls and in its corporate pikes. Bloggers are suggesting a coup of Tokyo's grey haired boardrooms so Japan can break from its rigid business rules. Others suggest that slow and steady, like Toyota's model of "kaizen," incremental improvements, wins the game.

There are no such debates on the streets outside of the virgin sales of the new iPhone in Tokyo.These weirdly dressed consumers are merely punching the air with joy, pronouncing a new digital era has finally arrived in their hands. The excitement here is being repeated all over the globe and celebrated in an American company. It's a party Japanese companies know all about. They're just not leading this one.

July 11th, 2008
06:29 AM GMT
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HONG KONG - For Yin Ho, fame was instantaneous.

The first in line, Ho was mobbed Friday by the hordes of press covering the launch of the iPhone 3G here in Hong Kong. And he was enjoying the glory, posing with an enormous grin for the camera, first with a sample phone, then with his own precious handset.

Hong Kong did not have the queues of Japan or the United States. Carrier Hutchison Telecom had an online lottery to pick the first 500 customers to receive the iPhone. More than 60,000 applied. New iPhones were also given to select friends and loyal customers of the company.  

Officially, the new iPhone 3G is the first to be released in Hong Kong. In reality, the original iPhone is everywhere, brought over from the United States or Western Europe and unlocked to run on networks other than Apple's approved service providers. Many of the customers in line for the new phone on Friday proudly showed me their original models. The taxi driver who took us to the launch this morning even had one on his dash.

Critics might complain about the new iPhone's price plans, battery life or features that don't measure up against existing phones on the market in Asia. For the die-hard iPhone fans online this morning in Hong Kong, none of that mattered. They wanted the new phone, for status, for the new features, for its style. And they wanted to tell all their friends they had it first.

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July 9th, 2008
08:29 AM GMT
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NEW YORK – For most of his career, Jamie Dimon was known as the whiz kid who, alongside Sandy Weill, built Citigroup into a global powerhouse.

More recently, as CEO of JP Morgan Chase, he became the buyer of last resort of Bear Stearns. The man who, at least temporarily, helped halt the global financial meltdown.

Tuesday he stepped out even further, offering some very frank criticism of the lack of long-term leadership in the U.S.

In a rare public speech, Dimon said: "We knew 40 years ago we had an oil problem and we did nothing. We need long-term policy that transcends two-year Congresses."

He said it is time for Americans to be "mature." "You can't run a trade deficit for eight years and not expect a weak dollar. You can't have no energy policy and then talk about energy volatility."

Dimon dismissed the excuse. "It is not politically feasible." He argued tough decisions need to be made to improve the medical and pension systems, education and energy.

A frequent contributor to Democrats, his frustration with the political process may not be a big surprise.

But Dimon was equally blunt when discussing the problems facing the financial sector. He said that while the market was working through some of the credit problems, it was possible things could get "far worse" and if the economy turns down it will hurt the commercial banks.

Consider that official notice of where to look for the next shoe to drop. Dimon said it was his job to make sure JP Morgan Chase was in a position to ride out the storm. He also warned that "financial institutions are not too big to fail."

He ended by saying the future of America is very, very bright and that he was optimistic, but investors had to walk away feeling skittish. Jamie Dimon seems worried about the economic outlook.

This got me thinking. When everyone is bearish and things feel awful ... isn't that exactly the time to think about buying? Some technicians say yes.

One study of 10 bear markets where the S&P 500 plunged 20 percent from its high showed that stocks went on to gain an average of 9.6 percent six months out and 19.3 percent 12 months out.

There were exceptions, including the bear markets of 1973 and 2001, but it is worth thinking about.

I know what our resident bear Todd Benjamin will say to that, but what about you? Could this be a good buying opportunity or do you think the global economy and stocks are headed for more trouble?

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July 7th, 2008
08:02 AM GMT
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LONDON, England – The G-8 summit is meeting once again, and it's once again a reminder of how absurd the gathering is in the new world order.

We in the media slavishly follow and report on it, despite the fact that usually little if anything of substance is accomplished. It's time to have a rethink of its relevance or how it could make itself relevant.

For starters, let's acknowledge that the G-8 accounts for almost half the world's economic output, but it is developing countries and emerging economies that account for 70 percent of the economic growth. China isn't a a member of the G-8, but given its importance in the world economy it certainly should be, so should India and Brazil.

The G-8 will discuss climate change, and China is the world's biggest emitter of carbon. It's been invited to an outreach group at the summit to discuss climate change, but it should be at the center of the table.

High oil prices will also be high on the agenda. The United States, Canada, Russia, and Britain (all members of the G-8 produce 29 percent of the world's oil. But the G-8 plus China consume two thirds of the world's oil output.

Of course, the G-8 will express its concern, and possibly blame speculators for part of the reason for high prices. They'll also undoubtedly ask OPEC to pump more oil. How convienent to look outside their own borders for solutions. Instead, they should be strongly urging conservation in their own countries and giving business massive incentives to come up with cleaner fuel supplies and cars.

Also, if you were going to have a serious discussion about oil prices, wouldn't it make sense to have Saudi Arabia, the world's biggest oil producer at the center of the table.

They'll also acknowledge the need to do something about high food prices. But here are the facts thanks to economist Carl Weinberg of High Frequency Economics. The G-8 countries produce 41 percent of the world's wheat, 58 percent if you add in China,and consume the most of it.

The G-8 produces 48 percent of the world's corn, or 68 percent if China is included. As Weinberg points out, "You would think that the assembled majority of world suppliers and buyers of foodstuffs could cook up an answer to falling global grain inventories, which are already at the lowest levels seen in the 60 years that the USDA has produced estimates.

"You might think that the right places to start addressing global food shortages would be in the United States and Euroland – the world's biggest producers of corn and wheat respectively – where farmers are offered subsidies not to plant crops. However, the U.S. and Euroland hold on to their agricultural support programs tenaciously. The Heads are unlikely even to consider tinkering with these entrenched systems," Weinberg concludes. I couldn't agree more.

So the G-8 will address the major issues affecting the global economy, but if it wanted to really be relevant it would take bold measures instead of making vacuous statements. But that would take political courage, something in short supply.

It would also expand membership in the club. The outcome might not be any different, but it would at least be more reflective of the new world order, and that alone might give the summit gathering more relevance.

Tell me what you think, should the G-8 be expanded, does it have any relevance, or do you agree with me that these summits are pretty much a waste of time, and that if they are going to become more relevant, they need to reflect the new world economic order?

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