Thursday, May 11, 2006

The nice economy we've got...

A couple of articles on Marketwatch really give a good sense of the zeitgeist...

First, about all that nationalization of Bolivia stuff.

The price citizens of Venezuela and Bolivia are paying for having elected Hugo Chavez and Evo Morales will only steepen, "as it appears likely that both leftist leaders will expand state interference in the energy sector into the mining industry," said Brien Lundin, editor of Gold Newsletter. "Production, as well as economic growth, will decline as a result."
Peru may even enter the picture with the 2006 presidential candidate Ollanta Humala already saying he would force foreign-mining companies to renegotiate contracts and candidate Alan Garcia saying mining companies could face higher taxes and royalty payments, according to CNN.
The prospect of nationalization could further feed a rally in metals that's already lifted gold futures to more than 26-year highs above $700 an ounce. Silver prices have climbed above $14 an ounce to their highest levels since 1983, and copper's reached record levels above $3.60 per pound...

In Bolivia, the biggest concerns are for silver, tin and zinc production; in Peru -- it's copper and gold; and in Venezuela it's gold, aluminum, copper, nickel and zinc...

"The greater concern is potential spillover to Peru," which is a major producer of gold and copper, said Hill, pegging 2005 gold output at 207.8 metric tons, or 8.2% of global production, and last year's copper output at 510,000 metric tons, or 3% of global production.
Miners with exposure in Peru include Newmont Mining, Barrick Gold, Phelps Dodge and "potentially Inco
should its acquisition of Falconbridge proceed," he said.

Looks to me like it's the shareholders of those companies that would pay the price, if the nations tried to keep the mines open.

One other quote from the article bears repeating:

John Stafford, editor of Stafford's Investment Strategy Letter, said that "political incompetence ... always restricts production [and] these Socialists represent the debtor class -- so they will hyper-inflate away the small remaining value of their worthless paper currencies to pay off debts in cheaper paper currency units."

Sounds like George Bush's folks, not "soicalists." Brazil's done very well with a "socialist"in power.

Meanwhile, with the global economy balanced on a knife edge, the Treasury department wasn't going to shake things up by branding China a currency manipulator.

Of course, reading the Treaury's report, there's kind of a subtext that the Chinese don't like the situation they're in, and would love to detach themselves from the dollar, particularly if the US economy is going to decline anyway. They don't want to run away from it all at once though.

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