This week I am in Europe and have been closely following the popular news here along with keeping an eye on the currency markets.
While the focus of attention back in the U.S. is on the debt crisis of Greece, surprisingly enough, the Europeans seem to care less about the issue. They are more concerned about Russia maintaining its ceasefire than the Greek drama that is unfolding.
Sometimes I wonder if this is an act or not.
The nonchalance and swagger that you see in the walk and speeches of the Greece finance minister is nothing short of a spectacle. He almost seems to enjoy this game of brinksmanship. His partner in cahoots, the prime minister of Greece is also shooting off his mouth making enemies faster than melting ice under a tropical sun. Yet the markets have shrugged off this serious contagion threat expecting a last-minute rescue of sorts.
I am not sure if the markets have fully priced in the fact that what can only save this debacle is a very creative solution, such as a parallel currency debt issuance from Greece. This is bound to create ripples and see a further decline in euro in the short term. This will surprise the market.
While the EU is enjoying the devaluation and surging exports, the U.S. is struggling with the strong dollar. The number one trade these days would be to short the companies that have large foreign currency sales exposures. The strong dollar is crushing their financial results, making them ideal targets for put options.
My mind also wanders back home and to the oil-related challenges that the U.S. is about to face.
The rather innocuous news release that President Obama announced that he will use his executive authority to designate 12 million acres in Alaska's Arctic National Wildlife Refuge (ANWR) as wilderness is nothing but a huge impending disaster for the U.S.
Why that is bad news?
You see, what is not being disclosed is that the president is not only against the Keystone XL Pipeline, but he is also aspiring to shut down the Trans-Alaska pipeline. By declaring the area around ANWR as wilderness, it not only preserves the area, but also bans drilling in that region. In 2010, he had already effectively shut down the west side of the pipeline from drilling and now he is shutting down the east side. As a result, the pipeline will be starved of oil flowing through it. In the heydays it used to transport 2 million barrels a day, which is about 11 percent of the nation's needs.
A not-so-well-known fact is that the pipeline will have to be dismantled if oil is not flowing through it. Not shut down, but dismantled. At a flow rate below 300,000 barrels per day, the pipeline will have to stop flow and then before you know it, the pipeline may be dismantled.
At that stage a real oil crisis will start in the U.S. While I am not sure why we would endure this self-inflicted wound, I am sure we will see retail prices surge in the U.S.
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