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SAUDI ARABIA AND RUSSIA FLEX THEIR MUSCLE

SAUDI ARABIA AND RUSSIA FLEX THEIR MUSCLE

Hey gang. It’s time for some new input.

SAUDI ARABIA FINALLY GETS SERIOUS

The Saudis are finally getting serious about expanding their reserves. They are doubling the number of active drill rigs in Saudi Arabia from 34 to 70. I guess they have finally, and belatedly become aware of the fact that the events that have driven oil prices higher for the last few years are going to continue. These being the expansion of demand from China and India, and the decrease of exports from Russia, as Russia tries to build an economic base using their energy and adding value within the country.

This is long overdue. Now we will see if they can really replace their reserves as fast as they sell them. The optimists say Saudi Arabia has big, easy to develop oil reserves that will make replacement easy. However, many well informed observers who are independent of big oil disagree. Big oil is famous for inaccurate oil reserve prognostications. Is this due to bad forecasting or is it conscious disinformation? The pessimists say Saudi Arabia has problems with its gas cap, problems with its new field development, and problems with inaccurate engineering, which has led to a gross overstatement of the recoverable reserves. We will see who is correct within the next few years.

RUSSIA TAKES CONTROL OF STRATEGIC ASSETS

As was reported in the world press last week, Russia has told western oil firms to forget about owning part of Russian oil fields. Putin says Russian oil reserves are for Russia only. How should we interpret this announcement?

Interpretation #1: This is a naive and unwise approach. If Russia wants to become a world economic power and control their economic destiny by growing economically and bringing prosperity to their people, this is not the way to achieve that goal. Trade and an influx of foreign capital are required for economic growth.

Interpretation #2: Russia has once again fallen into a traditional, fear based worldview, where they see their only hope for self-defense and economic determinism is in being a military power. Thus, they want their strategic assets because they intend to once again assert themselves as a military power to be reckoned with. In this case, it makes some sense to gain control of strategic assets. My early intuition is that they want to raise their military profile as they see themselves surrounded by more powerful enemies, those being the U.S. and China especially, and potentially Europe and several other groups. Their strategic assets can be used as weapons to control their destiny in world politics.

JIM SINCLAIR; MOST KNOWLEDGEABLE FINANCIAL VISIONARY

Jim’s wonderful web site, www.jsmineset.com, is changing its approach and those who desire to hear Jim’s ideas will now receive his thoughts by email. I suggest that you go on his website and enter your email address so that you can receive his flash emails. Make sure your firewalls and spam blockers don’t block his missives.

Many of you have already been checking in with his website. Here is a chance to continue to get wisdom from the man I believe to be wisest about world financial events and the way global financial economics work. Jim does not charge a fee to share his wisdom.

Jim is sometimes reclusive. I do not want him to disappear from public life and stop sharing his wisdom with his readers. I do not want to lose his insight and wisdom. I want to make sure he knows he is appreciated by having a big list of addresses to email. I am signed up for his emails and have been telling all of my friends to do so.

In my opinion, no one knows how global macro and micro economic policy is managed better than Jim. He points out how daily news events are telling the story of the problems and opportunities that the world is experiencing. He is like no other writer, and I view his daily postings as nothing less than a treasure.

Further, Jim along with Harry Schultz, who I have mentioned in these pages in the past, is a strong voice for the factual truth, not the fanatical half-truth. They tell the truth about world economics and the politics, which dominate and dictate world financial policy.

Jim Sinclair focuses on gold, currencies, monetary, fiscal and political affairs. Using his voluminous reading in the world media, he goes into detail about how daily events will unfold to create opportunities for investors and traders in precious metals and currencies. He goes even further and explains how options, and derivatives work. He throws light on the confusing and complex operations of the Federal Reserve and other governing economic bodies. He points out where these bodies make mistakes, and where they behave rationally. His knowledge and experience make him an invaluable resource.

WORLD STOCKS O.K. SO FAR IN 2005

Several world markets have done well so far in 2005. Few have done very well in U.S. dollar terms, as the dollar has been the world’s strongest major currency. The Korean market and one or two European markets have done well in U.S. dollar terms, but most of the world’s established markets are about even.

We like U.S. small capitalization growth stocks, Canadian and international gold stocks and gold bullion. We continue to favor energy stocks, especially European energy stocks with big discoveries in the African and South Asian spheres. Finally, we also hold Canadian and U.S. energy stocks, and energy utilities. In summary, our stock picks are about the same as they were in early January, and we have seen appreciation in client portfolios with this strategy.

CURRENCIES

The dollar is strong thus far in 2005. It would not be unexpected for the dollar to fall a bit as President Bush pushes for permanent tax cuts. We expect the dollar to fall over the next year or so, but it may have periodic rallies, like the one we have just recently witnessed. If the dollar starts to fall again, we look for the Euro to quickly rally by 5% or 10% versus the dollar.

CHINA

Some of you probably think I have been writing too much about China for the last two years, but to me it is the primary world economic story. As goes China, so goes the global demand for raw materials, and so goes the demand for energy. Even more importantly, so goes the prospect for world peace.

We must remember that China is in the middle of a huge transformation that we have discussed often in the past. They are transitioning from an agrarian to an urban nation. China is a huge country with 1.3 billion inhabitants. She must continue to grow and create jobs in order to complete this transformation. Economic failure, could lead to civil unrest, and the rise of a new dictator from the masses. If this prospective outcome sounds overly dramatic, we should remember that this has happened many times before in Chinese history.

Fortunately, recent economic statistics seem to confirm our long held view that China would not slow down in 2004 or 2005. Economic growth is rising and the pessimists are once again proven wrong. China is continuing to develop strategic partners who will provide China with potential military support and with raw materials. When you consider the fact that Russia is also lining up strategic partners, this does not paint a pretty picture for the world’s strategic future. But it is too early to worry about that currently.

That’s about it for today. I’ll keep in touch.