• Spanish unemployment rose for a 12th consecutive quarter to 20.09%, its highest level since the end of 1997 and up from 20.05% in Q1.

• The U.S. Commerce Department said gross domestic product expanded at a 2.4% annual rate, less than the 2.5% analysts expected.

• Japan’s unemployment rate rose to 5.3% in June from 5.2% in May.
• Japan’s household spending rose 0.5% in June on a yearly basis
• Japan’s inflation was flat MoM and down 0.7% YoY•
• Japan’s industrial production fell 1.5%.

• EU CPI rose to 1.7% in July
• EU unemployment at 10% in June.

• Italy’s PPI rose 3.4% YoY.
• Italy’s CPI rose 1.7% YoY

• UK’s consumer confidence index fell to -22 in July

• German import price of iron ore increased by 38.9% YoY and was up 18.1 MoM.

• Germany’s wheat harvest, Europe’s second-largest, may fall as much as 8.7% on dry weather and “extremely high” temperatures, Alfred C. Toepfer International GmbH said

Chris Joye comments in his release of the recent RP Data-Rismark index that the news of a 0.7% fall in one month will be “manna from heaven for the housing market bears”. Far be it from me to disappoint him, so thanks for the manna. But what adds spice to the manna is the way that Chris has attempted to rationalize the outcome:

It’s sobering to remember here that we have had 17 consecutive monthly increases in Australian capital city home values. If the sharemarket rose for 17 months straight and then tapered, people would not think twice about. It might be wise to apply the same logic to our housing market.

That comment evinced the following comment on Chris Zappone’s report in the Fairfax Press from the reader “Dave”:

If the share market had risen for 17 consecutive months, people would be screaming BUBBLE. Somehow this logic seems to defy Chris Joye … Oh dear.

Oh dear indeed. In a speculative market like the stock market, much of the buying is driven by the belief that prices will continue to rise; as soon as that belief evaporates, buyers become sellers and the price doesn’t “taper”, but plunge. A certain Irving Fisher once commented that “stock prices have reached a permanently high plateau”, only to see them (and his reputation and wealth) evaporate in the ensuing 3 years.

So the hope for Chris Joye is not that house prices will behave like stock market prices, but precisely the opposite. Bears like myself argue that the housing market has indeed become just like the stock market—a place where leveraged speculation in the belief that house prices always rise does far more to explain house price movements than any appeals to “fundamentals”—and this is the main reason that house prices have risen so much in the last two decades.

There is however one important way in which house prices do differ from shares: the first sign of trouble is not a sudden drop in prices, but a fall in the number of sales and an increase in the length of time it takes for properties to sell. That sign was evident in the data from the last year or so, which is why I argued that a fall in house prices was imminent in a previous article on Business Spectator. Now that the data is unequivocal, the following processes are likely.

Firstly, with an increased stock of unsold houses on the market, buyers are likely to take yet more time to make a decision—which will add further to the backlog. If prices are falling, why hurry? The urgency will leave the buy side.

Secondly, so-called investors—whom I prefer to call speculators, since 90% of them have bought existing properties rather than built new ones—will start to consider whether they should swap from the buy side to the sell side. After all, no-one in their right mind buys an investment property in Australia for the rental returns: it’s capital gains or nothing DownUnder. Do you capitalize on gains to date, or hang on hoping that the upward trend will re-assert itself once more?

Given the skewing of our market away from owner-occupiers and towards speculators in the last two decades, this second effect could cause a sudden increase in the number of properties on the market—at just the same time that buyers have become more relaxed about closing a sale. It’s this sort of process in an asset market that is why asset prices don’t “taper”—or “plateau”, to use a word from an earlier time.

I expect these two processes to lead to an accelerating rate of decline in house prices now, as they did in the USA when “Flip That House” ceased being a winning trade.

by Calvtob14:    The fight to preserve the liberty of all citizens in this nation is a fight that should be actively and prudently fought.

by Jake Towne, the Champion of the Constitution:    And John Callahan too.

by Jim Quinn:    Here is the message from the ruling elite to you ignorant masses: Debt got us into this mess and it sure as hell is going to get us out. They have convinced the mainstream media that the reason the economy is sputtering is because the average Joe is not doing their part. This crazy concept of saving for a rainy day seems to be catching on. This is very dangerous.

by Mark Vogl:    The Court decision to blunt Arizona's attempt to defend itself from foreign invasion has caused Americans to ask, where do we go from here?

by Paul Benedict:    Righteous indignation is a satisfactory beginning to a political movement that seeks to control its own government, but it is only a beginning. Despite all the ad hominem attacks on the Tea Party that are based on false allegations of racism, on the issue of illegal immigration small government activists ought to be careful to direct their anger constructively.

The RPData-Rismark index has just been released, and it has fallen 0.7% in the month of June 2010.

I’ll have more to say on this shortly, but for now I can do no better than to direct you to the Business Spectator news report of the fall:

House prices fall 0.7% in June, flat in quarter

and Christopher Joye’s press release on this topic:

House prices on ice – for now

I also recommend Rob Burgess’s election blog perspective here:

POLL POSITION: Will Labor fall with house prices?

And I thank Rob for referring in his article to my last post in Business Spectator in June:

Housing nears the precipice

Here’s the latest from The Telegraph:

Drip after drip of deflation data… Today’s release on manufacturing activity by the Richmond Fed is pretty ghastly, as you would expect given that the effects of fiscal stimulus are now wearing off at an accelerating pace – before the happy handover to the private sector is safely consummated – and given that the structural East-West imbalances that lay behind the global crisis are getting worse again… This follows yesterday’s horrendous fall in the Texas business activity index from the Dallas Fed, which fell from -4 in June to -21 in July. “Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June,” said the bank. Texas New Orders were -9.6 in July, -8.2 in June, and +15.8 in May. Capacity Utilization was -0.6 in July, +2.7 in June, and +18.7 in May. This of course is why Fed chair Ben Bernanke has been giving strong hints of QE2 (helicopters again) if necessary.

Here is where it gets so interesting we can barely sit still. Ben Bernanke is threatening to drop money from helicopters (quantitative easing). In a better world, a banker who threatened to inflate the currency would be punished immediately. People would take him at his word. They would dump his paper money immediately. The price of it would drop. He’d be forced to protect it.

But this time it really is different. As Ben Bernanke himself put it, even the “credible threat” of monetary inflation by the central bank should be enough to cause people to want to spend paper money rather than save it. Thus, Bernanke promised, he can always speed up the velocity of money and thereby bring about a boom, of sorts, simply by threatening to drop money from helicopters.

But lately he threatens. And still the dollar holds firm. Why? Because the threat is not credible.

Oh what a wicked twist of fate. What has this world come to when a central banker cannot roll the currency markets and whack speculators?

Usually, central bankers are careful to give the impression that they will protect their currencies. Even while they are actually undermining them with monetary inflation. Investors catch on after they’ve been shellacked a couple times. Then, the central banker loses credibility and the currency falls.

But this time, Ben Bernanke actually wants investors to believe he WILL undermine the dollar. He wants to stimulate spending and investing by encouraging people to get rid of greenbacks rather than save them. But people don’t believe him.

Inflation is only really a threat, we conclude, when central bankers are pretending to prevent it…not when they’re trying to cause it.

But why won’t Ben Bernanke drop money from helicopters? Because he’s got a rope around his neck…and it’s getting tighter. As long the US can finance its deficits at low interest rates, he can’t move. It’s uncomfortable, but it’s a damned sight better than hanging. More on this as we figure it out.

Regards,

Bill Bonner
for The Daily Reckoning

How the Threat of Monetary Inflation Keeps a Currency Strong originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

U.S. stocks shuttled between gains and losses finally settling down in negative territory. Stocks climbed in early trading on better-than-estimated earnings coming from Southwest Airlines Co., ExxonMobil Corp., Avon Products Inc. among many others. However, early gains were reversed as a 11,000 drop in initial jobless claims failed to calm investors’ nerves who remained cautious ahead of tomorrow’s  release of a first estimate for Q2 GDP.

U.S. stocks shuttled between gains and losses finally settling down in negative territory. Stocks climbed in early trading on better-than-estimated earnings coming from Southwest Airlines Co., ExxonMobil Corp., Avon Products Inc. among many others. However, early gains were reversed as a 11,000 drop in initial jobless claims failed to calm investors’ nerves who remained cautious ahead of tomorrow’s  release of a first estimate for Q2 GDP.

Unemployment is a favorite topic of conversation of late, especially among those who are unemployed. I assume it gives them something to do other than watch their lives going down the toilet as the federal government continues with unbelievable levels of deficit-spending and the Federal Reserve continues to create staggeringly more money so that it can be borrowed by the government and then spent, all of which makes prices rise.

Rising prices is Bad News Enough (BNE) when you have a job and your biggest fear is asking for a raise and the boss says “no” which means that you will have to tell your wife, who will think that you are a big, stupid loser, just like her father and mother and all her friends thought, but it is Doubly Bad News (DBN) when you have no income with which to pay the higher prices, and there are no jobs with which to earn some income with which to pay the higher prices, either!

I wish I could help them, and especially help family members, to get good jobs, if only to stave off their pathetic begging for food and wanting to live in my car, but I am too pessimistic to even hope for that, mostly because I know that the root of their unemployment is the result of them being replaced by software or industrial technology, or soon will be, because there is someone out there, right now, working on a computer program and/or a machine that will replace you, too.

And if you don’t believe me, tell me what it is that you do that cannot be done by a computer program or a robot? Hahaha! I thought so! Me, too!

In fact, I am sure that the only reason that most of us, especially me, have not yet been replaced is that nobody has gotten around to economically assembling the necessary machinery, or train a monkey, to do our jobs.

Perhaps that dismal jobs outlook – necessary as jobs are for consumption, necessary as consumption is to production, necessary as consumption and production are to the economy – is part of the reason why I spent most of the last week in Mogambo Emergency Mode (MEM).

But mostly, things are getting to be Too, Too Weird (TTW) for me to handle.

Most of the time, I am sitting alone in my Secondary Mogambo Bunker (SMB) in the closet under the stairs, wedged in between a stupid stepladder and a vacuum cleaner poking me in the ribs, thus darkening my already gloomy mood.

And now everyone, including the third of the population that still has not been replaced by robots and can still support the other two-thirds of the population, is in Big, Big Trouble (BBT), just like the Austrian school of economics has been perfectly predicting and which, as it turns out, is now happening.

That alone should send you screaming (“Gaaaahhhh!”) to the exits to buy more gold, silver and oil, but if you are one of those people who wants to know all the little nit-picky details, like the reason for my latest attack of “we’re freaking doomed!” paranoia and panicky fear, it is a speech by Jean-Claude Trichet, the president of the European Central Bank, titled “Stimulate No More – It Is Time For All To Tighten.”

My initial response was to ask, incredulously, “Is this guy serious?” since I have long regarded him as a hopeless leftist/socialist/commie/moron who would end up doing exactly as he did, and ruin everything just like he has, because he thinks that government is supposed to spend its time finding more and more ways to help more and more people by giving them more and more money and more and more benefits.

My second response, thinking that he may actually be serious, is, “Gaaaahhh! We’re Freaking Doomed (WFD)!”

And the reason that We’re Freaking Doomed (WFD) is simplicity itself: once you start down the road of a highly-leveraged fractional-reserve banking system that creates fiat money from debt, you can’t easily stop, mostly because if you try to stop, then you will Die A Horrible Death (DAHD), which is why it is not popular.

And the horrible death will be from deflation, which is when money literally disappears the instant that the underlying debt, which created the money in the first place, is defaulted upon. The debt goes away and the money goes away! It’s just that simple!

This means, in practical terms, that there is less money to support the prices of the remaining pool of assets, so prices of assets go down

For your edification, the exact point at which “it ain’t easy to stop creating too much money” is easy to pinpoint: it’s soon after you start. Very soon after you start, in fact. Practically simultaneously.

In our case, the point at which it was “easy to stop” creating more money and credit was a Long, Long Time Ago (LLTA), a calculation made obvious beyond the need for precision when you realize it was a Half Freaking Century (HFC) ago! Hahaha!

Therefore, we must abandon all hope of ever, ever, EVER stopping the wholesale “stimulating” of economies with fiscal and monetary insanities, which means that since we will not stop creating more money, we will not stop creating more inflation in prices, which is the Big Freaking Problem (BFP) that everyone is trying to avoid, as preventing inflation in prices is the whole purpose of macroeconomics!

I am sure that you were, like me, enjoying a good laugh at the sheer absurdity of trying to tighten monetary policy in the Eurozone, and you were probably thinking that if the president of the ECB has the time to make stupid wisecracks like this, then things are not as bad as you feared.

Suddenly, you are wondering if you have had a stroke, or have been transported to some weird, stranger-in-a-strange-land alternate universe where the laws of physics and logic no longer exist!

You wonder these things, your brain whirling in a panic, because a sudden excursion into La-La Land would explain why you see Mr. Trichet’s words, “We have to avoid an asymmetry between bold, if justified, loosening and unduly hesitant retrenchment,” but no matter how many times you read it, over and over, you do not understand it! Huh? What?

And the more you mull over the sentence, “We have to avoid an asymmetry between bold, if justified, loosening and unduly hesitant retrenchment,” the more you are enlightened to one more reason why, as if you needed any more reasons why, I am always saying to buy gold, silver and oil, and why I say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

No Stopping the Money Creation Machine originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

While there have been many comparisons of how the US’ current descent from its solitary superpower status bears an uncanny resemblance to the crumbling Roman Empire, Jim Rickards, in an interview with King World News, explains how the US is actually in a far worse situation.

From Zero Hedge:

“…alas, the similarities are just far too many, starting with the debasement of the currencies, whereby Rome’s silver dinarius started out pure and eventually barely had a 5% content, and the ever increasing taxation of the population, and especially the most productive segment – the farmers, by the emperors, to the point where the downfall of empire was actually greeted by the bulk of the people as the barbarians were welcomed at the gate with open arms.

“The one key difference highlighted by Rickards: that Rome was not as indebted to the gills as is the US. Accordingly, the US is in fact in a far worse shape than Rome, as the ever increasing cost of funding the debt can only come from further currency debasement, which in turn merely stimulates greater taxation, and more printing of debt, accelerating the downward loop of social disintegration.

“Furthermore, Rickards points out that unlike the Romans, we are way beyond the point of diminishing marginal utility, and the amount of money that must be printed, borrowed, taxed and spent for marginal improvements in the way of life, from a sociological standpoint, is exponentially greater than those during Roman times. As such, once the collapse begins it will feed on itself until America is no more. Rickards believes that this particular moment may not be too far off…

“In this context, Rickards presumes, it is not at all surprising that both individual Americans and domestic corporations have set off on a massive deleveraging and cash conservation wave: the subliminal sense that something very bad is coming, is becoming more palpable with each passing day.”

As we’ve discussed in the past, when it comes to currency debasement the US hasn’t even been able to maintain the zinc standard, much less the gold or silver backing the US dollar once had. Taxes are destined to increase, debt will continue to balloon, and the printing press will whirl away day and night. How this will lead to “social disintegration” is less of a straight line but, as Ron Paul has already predicted, there could very well be riots in the streets.

As Tyler Durden concludes his post:

“If Jim Rickards is correct, however, the realization [of just how much of a destructive influence central banking truly is] will be America’s last, just before US society disintegrates.”

You can read more of the interview commentary in a Zero Hedge post on how Jim Rickards compares the collapse of the Roman Empire to the US. The actual interview is available here and here.

Best,

Rocky Vega,
The Daily Reckoning

How Washington is Far Worse off Than Rome originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

I think it is time that we revisit the West Side of Los Angeles.  This area receives probably the most coverage in real estate circles even though 529,000 of the 10 million people in Los Angeles County live there.  Glamour attracts attention.  But within the Westside, there are many overpriced homes and areas.  It is hard to convince people that there 700 square foot box isn’t worth $700,000 but that is due to years of HGTV and other housing love programming that has slanted perspectives on the actual value of real estate.  You can’t blame the sellers, because who wouldn’t want to squeeze every penny out of their sale?  You can blame the banks and government backed loans since we are all now shouldering the horrible bets made from years ago.  If the banks were lending their own money, then who could begrudge them?  Yet banks are the middlemen in lending out FHA insured loans, Fannie Mae, and Freddie Mac paper that we now carry through a taxpayer bailout.    

Let us bring our attention to the Westside of Los Angeles.  Today we salute Palms, Santa Monica, and Culver City with our Real City of Genius Award:

Source:  Wikipedia

Even within this niche area, there is a wide variance of properties.  The halo effect permeates to other cities from the big movers.  Maybe breathing in the Beverly Hills air gets to other surrounding cities at least when it comes to valuing real estate.  These mid-tier markets within a prime area are the next, I believe, place that will face price adjustments.  Even with all evidence pointing to this with massive amounts of shadow inventory building because people can’t afford to pay their mortgage, there is still a lot of doubt as to the extent of the price correction.  There is definitely a trend of more short sales making it to market.  Everyone by now has an understanding of a short sale (the lender agrees to sell a home for less than the mortgage balance) and the impact it has on the market.  Yet short sales are now part of the SoCal real estate market especially in prime locations.

I was meeting with a colleague, good guy but definitely a perma-bull on housing so you can imagine the conversation, but he is actually looking to jump back into Westside real estate.  His impression is that since prices haven’t fallen drastically in this disastrous climate, then nothing will jolt values later on.  However, the collapse of prices at the higher end is merely in the first stages.  The process is sequential and fluid; just because it hasn’t corrected doesn’t mean it won’t.

Let us look at our first short sale example.

Short Sale #1 – Palms, Mar Vista

12844 GREENE AVE, Palms – Mar Vista, CA 90066

Listing Details

Listing price:                      $495,000

Last sold (6/1/2007):       $655,000

Current difference:        -$160,000

Beds:                                     2

Baths:                                   1

Square feet:                       972

Built:                                      1952

On market for:                  90 days

The above property is located in the Palms, Mar Vista area of Los Angeles.  A nice area and certainly a good place for a starter home for a young professional family.  But prices are very much disconnected from fundamentals.  Look at the above home.  It is listed at 972 square feet and supposedly has a sale pending.  However, we are still talking about close to $500,000 for 972 square feet.  Now this is a big discount from the $655,000 peak sales price back in 2007.  So we are definitely seeing more movement with banks being more aggressive on certain homes in terms of taking lower offers.  But again, these are typically the lower priced homes in each area.  There are many higher priced homes with missed payments that are simply sitting in the shadow inventory.

Short Sale #2 – Santa Monica

2712 6TH ST, Santa Monica, CA 90405

Listing Details

Listing price:                      $850,000

Last sold (12/6/2006):    $1,155,000

Current difference:        -$305,000

Beds:                                     3

Baths:                                   2

Square feet:                       1,064

Built:                                      1914

On market for:                  27 days

It’s easy to be a millionaire when you don’t count your liabilities.  Just because you “own” a million dollar home doesn’t make you a millionaire.  The above Santa Monica home is listed for sale at $850,000.  It is 1,064 feet with 3 bedrooms and 2 baths.  At one point, it did sell for $1,155,000 in 2006.  Can prices fall in prime locations?  Absolutely.  And to most, a $300,000 haircut in 4 years is a significant deal.  Still think the Westside is immune to the correction?

Short Sale #3– Culver City

4178 CENTER STREET, Culver City, CA 90232

Listing Details

Listing price:                      $600,000

Last sold (12/2/2005):    $850,000

Current difference:        -$250,000

Beds:                                     3

Baths:                                   2

Square feet:                       1,918

Built:                                      1950

I’ve covered Culver City many times before and the above is a typical short sale in the area.  This home was bought back in 2005, half a decade ago, for $850,000 and is now listed for sale at $600,000.  It is listed at 1,918 square feet with 3 bedrooms and 2 baths.  We still have people willing to pay at these levels but only with the right lending.  For this home, let us run the numbers assuming a 10% down payment:

Sale price:                           $600,000

Down payment:               $60,000

Mortgage PITI:                  $3,606

Is this a good deal?  At the lower end you will need a household income of $175,000 to $200,000 a year to purchase this place.  The Westside is already showing major cracks in housing values.  $100k to $300k discounts are large for most people, even those in the Westside.

On a side note, I’ve added a new forum where people can discuss the specifics of certain areas so make sure to check it out.

Today we salute the Westside of Los Angeles with our Real City of Genius Award.

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It would be quite an achievement to take an ugly photo of this little slice of the world. From the blue skies overhead, the bottle green water lapping at the shores, to the bronzed bodies thronging the white, sandy beaches, Southern California presents an astonishing vista. Cosmetically, at least, the place is a nip n tucker’s dream come true.

Your temporarily homeless editor is spending a few quiet days in the paradisiacal Laguna Beach before embarking on a month-long, coast-to-coast road trip. We want to get a first-hand look at how the real America is dealing with what Bill calls “The Great Correction.” Our trip begins this weekend and will see us arrive in Miami, Florida, sometime in early September. Call it our “Coast-to-Coast Correction Tour.” We’ll visit farms and factories, talk to locals and bring you our thoughts from the road. We may even have the chance to catch up with some Fellow Reckoners along the way. More on our little jaunt in the weekend edition, but first…

Having spent the past month or so wandering around the Far East, the first thing we notice about the West, Southern California in particular, is the pace of activity here…or, more precisely, the lack of it. Compared to the frenetic bustle in China’s megatropolises, where hawkers and hustlers jostle for position in an increasingly chaotic marketplace, the atmosphere here in the West is positively somnambulistic. People walk and talk almost with their eyes shut, never in a hurry to get from A to B, nary a care in the world. They lounge on deckchairs, soaking in the mid-afternoon sun. Locals stop and chat along the boardwalk. People call each other by their first name…or “man”…or “dude.” They indulge in concepts that have no literal translation back in the East; concepts like “free time” or “disposable income.”

Yesterday we saw a shuttle bus with a sign on the side: “Free Ride to Work Program.” According to the program’s website, “People who are employed within the City limits of Laguna Beach, resident or non-resident, are eligible for free transport to and from work.” Similar initiatives are in operation up and down the state. Unfortunately, however, many people seem to interpret the slogan as an either/or option. Unsurprisingly, an increasing number of the potential workforce opts for the “Free Ride” component over the decidedly less-attractive “Work” option.

At 12.7% unemployment, only Michigan and Nevada outperform California in the non-work ranks. This shrinking tax revenue base, combined with a slew of union-won benefits, bogus entitlements, one of the nation’s highest minimum wages ($8) and a meddlesome, spendthrift state government, has resulted in California’s crippling $19 billion budget gap.

One might suppose that such a distressing situation would inspire some budget tightening. Incredibly, however, California does not even HAVE a budget. Since the fiscal year ended a month ago, lawmakers have been squabbling over details of what can and can’t be cut from the state’s onerous structural expenses. In the meantime, Gov. Schwarzenegger has declared a “state of fiscal emergency,” and ordered government workers to stay at home for three unpaid days per month as part of a “worker furlough” act. Only 3 days? A pay cut equivalent to only 14% hardly seems enough to inspire public employees to seek work in the private sector, where they might actually contribute to the productivity of the state rather than detract from it.

Of course, there are plenty of exceptions to the rule. Fellow Reckoners can already guess who was spared from the budget knife. The AP provides the details:

The new order exempts employees who work for departments that collect revenue, such as the Franchise Tax Board, and public safety agencies, including the California Highway Patrol… It also exempts about 37,000 workers in six unions that recently reached tentative labor agreements with the administration.

The sun is shining here in California, and the people are relaxed and easy going. If you’re looking for a place to spend your next vacation, the Golden State is a prime destination. Just don’t forget your wallet; the government needs the cash.

Joel Bowman
for The Daily Reckoning

California Dreaming of a Stable Economy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

While BP has been busy spewing oil into the Gulf of Mexico, many other oil companies have been busy finding oil under the waters of other gulfs, seas and oceans. In fact, Brazil’s state-controlled energy giant, Petrobras (NYSE:PBR), just announced a major oil discovery in offshore Angolan waters. Water depth is about 1,500 feet. The “net pay” zone is almost 1,500 feet of oil-bearing reservoir, far below the seabed. The preliminary estimate is that there are over 500 million barrels or recoverable oil in place. That’ll likely grow, as additional wells go down over time. It’s always nice to strike oil.

The offshore block, where the discovery is located, is operated by Italian oil company Eni, which holds a 35% stake. Petrobras and Statoil each hold 5% stakes. Angola’s national oil company (NOC), Sonangol, holds 15%. The balance is held by SSI Fifteen Ltd. (20%), France’s Total (15%) and Falcon Oil Holdings (5%).

It may not seem like a big deal that Petrobras and Statoil are 5% owners in this discovery. Except this is just the tip of the iceberg for these two oil companies. Petrobras and Statoil each hold many other Angolan blocks, with much larger interests. What’s going on is that they’re drilling, exploring and proving up their acreage, but spreading the risk among numerous firms and using other people’s money.

Notice the truly international nature of this one large discovery. You’ve got Brazil’s Petrobras and Norway’s Statoil. Then there’s Angola’s home team NOC, Sonangol, which seems a very competent firm from my dealings with them. You’ve got French and Italian companies. Plus, a large US independent. This kind of risk sharing is the nature of things these days, particularly with super-expensive deep-water exploration.

The moratorium on drilling in the Gulf of Mexico will only accelerate the “internationalization” of oil exploration. With the moratorium, deep-water drilling rigs will leave the Gulf. The newest, most modern, most capable rigs (and the “safest,” if you REALLY care about safety) will be the first to go. They’re in demand from firms like Petrobras and Statoil to drill in places like Angola and Namibia.

Then the US-based offshore work force will migrate to other things. The vendor base and supply chain will contract. Wells that don’t get drilled in the next six months in the GOM won’t be around in 18 months to supply oil. It’s going to come back around and hurt the US very badly as time goes by.

Not to put too fine a point on it, but this moratorium on deep-water development in the Gulf of Mexico is national energy suicide. It’s pure folly. It’s political theater, from pathetic, energy-ignorant politicians who want to give the appearance of doing something.

So you’re reading it here. The US is sowing the seeds for its next major energy crisis by screwing up its domestic deep-water oil industry. But meanwhile, the moratorium will create new urgency to explore and develop deepwater projects elsewhere in the world. I recently told the subscribers of Energy and Scarcity Investor about a small Canadian oil developer with BIG acreage offshore Namibia. Out of deference to my Energy and Scarcity subscribers, I can’t divulge the name of Company “X”. But I’ll share a few details about it, just to give you a flavor of the terrific investment opportunities that are now emerging.

Company “X” holds astonishingly large acreage in oil prospective waters in the southerly regions of Namibia’s offshore. We’re talking about HUGE amounts of prospective oil resource – in the billions of barrels. Yes, billions.

How good is the acreage? Well, let’s look at the neighbors. You’re known by the company you keep. Petrobras holds the Namibian blocks to the north. Shell holds the South African blocks to the south. Company “X’s” acreage also surrounds a multi-trillion cubic foot natural gas discovery. This natural gas field also contains oil. The oil comes from an “oil kitchen” that the seismic indicates is deep, and to the west, of the gas field. And that’s EXACTLY where Company “X” holds prime acreage.

What else? Well, if you do the plate tectonic reconstructions, you can see that Namibia used to be right next to what’s now Brazil, in South America. And what part of Brazil did Namibia used to be close to? Why, the pre-salt areas off Brazil which hold oil resources in the range of 100 to 200 billion barrels – although the Brazilians hate it when people like me use such large numbers. “We really have not found all that oil, not officially,” one Brazilian told me. No, not yet. But it’s just a matter of time.

To be perfectly accurate, most of the Namibian offshore doesn’t have the miles-thick salt layers that we see in Brazil. But that’s just an issue of the “seal” over the oil-bearing structures. The Namibian waters, instead, have miles-thick shale formations acting as a seal over the oil-bearing strictures.

In many respects, the shale cap makes for better seismic and better drilling conditions. Shale tends to be more transparent to seismic energy, which makes for better resolution of the deep structures. That makes for more accurate drill-hole placement.

Plus, those Brazilian salt-beds are a pain, as the Halliburton people have explained to me. When you drill in deep, thick salt the salt tends to move in a “plastic” manner. It squeezes the hole thinner. Sometimes, the salt-squeeze even sort of “grabs” the drill pipe. Bottom line is that it makes for tricky down-hole operations.

Despite these challenges, exploration activity is heating up on both sides of the southern Atlantic Ocean. On the eastern side, the “Namibian Oil Rush” is still in the early stages. Opportunity abounds.

Byron King
for The Daily Reckoning

The Namibian Oil Rush originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

European stocks erased their earlier gains to close lower on concerns that the U.S. GDP report due tomorrow may show a slowdown in the world’s largest economy. A Fed report yesterday indicated the U.S. economy slowed in the past two months. (See RGE Critical Issue: U.S. GDP Growth: Beige Book Consistent With H2 Slowdown). The European Commission (EC) index of consumer and executive sentiment rose to 101.3 in July, its highest in two years, up from 99 in the prior month.Economists expected an increase to 99.1. The EC Business climate indicator also jumped to 0.66 in July from 0.37 in June, beating the expectation of 0.39. 

The continuing saga of the City of Bell — and it’s wildly overpaid public officials — today revealed that pensions for three of the former administrators will be withheld… at least until the state attorney general figures out whether or not the crooks are actual law-breaking criminals.

Nonetheless, bureaucrats all over may be looking wide-eyed at the enormous salaries of these public “servants” and wondering if a similar “servitude” would be right for them. Hopefully, the state AG will cut that thought short with a punishment fitting the crime… unless the daydreamers would like to also “serve” a criminal sentence.

A Lucky Pot of “City of Bell Manager” Gold originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Of ten people who hear the same story or speech, each one might understand it differently. Perhaps, only one of them will understand it correctly. On July 21st, Federal Reserve chief Ben Bernanke was speaking in riddles, as central bankers are apt to do, while delivering his testimony before Congress. Each word that’s uttered by the Fed chief is scrutinized by anxious speculators, who try to interpret the message correctly, before quickly placing bets in the marketplace.