Winnipeg Free Press

Winnipeg Free Press (Newspaper) - April 27, 1981, Winnipeg, Manitoba 12 Winnipeg free press. Monday. April v late 81 before oils rebound 1 y Barnaby j. Feder 5 y. Service new a Cue from Consumers investment portfolio managers have been cutting their demand for Oil the Broad sell off of Oil stocks by Money managers which began in Early december has already reduced the Market value of such stocks by 30 per cent and according to some analysts May produce a further 15 per cent decline before a bottoming out late this year. The decline has occurred in a period when the rest of the Stock Market has been erratic but relatively Quick to recover from setbacks. Is no question that oils have been in a Steep Bear Market All their said Eugene l. Nowak a domes tic Oil Industry analyst at Dean Witter Reynolds inc. Analysts say it is easy to see Why major investors became disenchanted a glut in Supply and declining demand for Petroleum products have sliced both product Ion and refining profits and saddled Many companies with Large expensive stockpiles. Even companies reporting exploration successes or profiting from Strong positions in natural Gas for which prices have continued to Rise have found it difficult to discs Sci 4te themselves entirely from the psychological Impact of what Onte analyst called the death warmed Over atmosphere covering the Industry s near term performance pros is not a function of an Over All earnings said Ariel Haltem the portfolio manager for the Energy fund a Mutual fund run by Neuberger Herman. It s a function of earnings appearing level with 1980. It All relates to demand fell analysts say investors were surprised to find that demand which had been weakened by slow economic growth conservation efforts and consumer resistance to higher prices could actually fall to the Point that refiners would be forced to Cut prices on some Oil products and hold the line on others. The attraction of the Oil stocks to Many investors was a function of the ability of the Oil companies to pass on to Consumers the Price increases of said Frank Davis vice president in charge of Petroleum investments at the Crocker Bank in san Francisco. The squeeze of refining operations is the main reason analysts expect the Inte grated Oil companies those that produce refine and Market Oil report lower earnings next week for the first Quarter compared with 1980. Their difficulties were highlighted for investors in the weeks follow ing president Reagan s decontrol of domes tic crude Oil prices Jan. 28 As it became evident they were unable to pass along the full Price increase. The squeeze is being aggravated by Over production analysts say. While production outside the organization of Petroleum exporting countries has risen the driving Force behind the output surplus is saudi Arabia. The saudis Are said to be producing As much As 10.3 million barrels a Day about million to two million barrels More than they would prefer to create a surplus that will Force other members of open to. Accept the saudi views on the need for unified and moderate Oil pricing policies within the Cartel. If saudis do recently the glut has reached such pro portions that prices for certain grades of crude Oil have been falling. Analysts say that these declines which could be quickly re versed if the saudis Cut production Are particularly unsettling for investors because margins on crude Oil sales traditionally play a larger role than those in refining in the profits of the major Oil companies. Some investors relied heavily on the widely prevailing View last fall that the War Between Iran and Iraq would take so much Oil off the Market that crude Oil prices would jump to a barrel this year. Some of these investors had under invested in Oil stocks during the run of 1979 and Early 1980, Accord ing to Davis. Determined not to be Overly again they bought heavily last fall. By december the prediction did not look so Good and they began to feel Davis said. A lot of the investment managers who came to Oil As a defensive measure have gotten analysts doubt that the attrition is Over but Many feel it should be. The correction has gone further than i Ever would have said Rosario Llla qua an analyst at l. F. Rothschild Unterberg Towbin. It s All emotion but such views take a longer term perspective than Many investment managers according to George Baker a partner at the economic consulting firm of Petroleum anal Ysis Ltd., who believes Oil stocks could lose 13 per cent to 19 per cent of their current value before leveling off later this year. Institutional investors such As pension fund managers Are under pressure to show Short term gains in Baker said. He added that it could be late this year before the Oil companies could Muster All of the ingredients for improved margins that such managers would want to see. Profit taking analysts cite a number of special situations affecting certain Oil stocks. Standard Oil which had fallen to 47 at the close of trading on the new York Stock Exchange thursday from 9iy2 last november is said to have suffered from profit taking on the heels of its rapid run up last year and from disappointment with its proposed acquisition of the Kennicott corp. And investors have doubts about the Exxon corp., the Mobil corp., Texaco inc. And the Standard Oil co. Of California the four Oil companies with a stake in the arabian american Oil co., the saudi con trolled Oil producer because the saudis negotiations with the rest of open Over pricing policy could bring an end to the four partners competitive advantage of Access to saudi Oil. Anus know his futures by John the Canadian wheat Board offers Farmers the Security of an initial Price and the guarantee he will get the same Price As other Farmers for the same kind and Grade of wheat 6ats and Barley delivered within the crop year. J Many wheat Board permit holders also grow open Market Grams rapeseed flax Rye and other feed must work out their own Price goals and strategies when developing a marketing plan. To secure the average Price if the year the marketing plan for open Market grains May be As simple As Selling four times a year in Hopes of getting the season s average Price. Z. Forward pricing through a deferred railway contract or through a futures Market broker is however popular. In the Case of a deferred railway contract the Farmer simply contacts his elevator manager and asks him for Bash Price quotas for Distant months. These Cash quotas Are a based on futures prices. A having accepted a certain Price the Farmer signs a contract to deliver a certain amount of Grain before a cer Jain Date. In effect the elevator manager and the Grain do All the futures Market dealings. The Only risk in this Case is if a Farmer Over extends Lum self and Forward prices More Grain or oilseed than he liar vests in which Case he will be penalized when the contract is cancelled. Generally Farmers avoid this by Forward pricing Only part of their acreage say one half and therefore have a hedge against All but a disaster. Buy Back futures with Grain Cash t a Farmer can also work through a broker and actually Forward Price with futures by Selling futures to cover part of the crop he is growing and buying the futures Back when he Cash grata. With this program a Fanner has to be Well acquainted with How a futures Market operates and his responsibility concerning margin Calls his banker s attitude and the like. Generally marketing experts suggest a Farmer have a plan that s been worked out on paper and talked Over with his wife. That plan should outline both the Farmer s objectives and his finances. One futures broker said i encourage my hang their marketing plan by their Telephone so they May have a look at it every time they phone a Farmer should also work with his banker or credit Union and make a commitment with his Lender to follow the plan. He should also get in the Case of working with a broker a commitment from the Lender to Back the plan financially if margin Money May be needed. In some cases this May involve finding a Lender who understands Forward pricing through buying and Selling of futures. Must be aware of risk a broker and vice president of Blunt Ellis and Loewi of Milwaukee Wisconsin recently told a farm marketing meeting that Farmers should size up their risk bearing capacity and decision making ability before Forward pricing with futures. I a Farmer who an take a Little More risk and can devote time to following tie Market can become a creative Hedger. He can use the option that futures offer that Cash Forward Sale can change his James Heiligenstei said some people this is an advantage. If i had sold Grain Early last year i would certainly have wanted the option to change my mind when the Short crop became apparent he pointed out. However Yetf. You re a person who can t make up your mind being Able to buy your contracts Back is Heiligenstei that s Why to plan what you re going to do How you re going to approach marketing and especially How and on what basis you re going to make your marketing he claimed Good hedging brokers Are few and far Between and Youh have to work hard to find one. If you Don t find a Good hedging broker you la be one of the 85 per cent of traders who lose hot by hedging but by speculate Here Are some tips he suggested for finding a Good broker 0 define your position when you open your account. D make sure your broker knows you will be hedging g outline specifically what you want your broker to accomplish for you. A d most important make him understand you and your family s operation. John Clark is with United Grain growers. Vacancies High Toronto up Job vacancies for engineers a coun units scientists and other professionals remain at record High Levels despite the continuing Slack econ omy says a report by the technical service Council. Council s latest quarterly Survey of companies showed vacancies for professionals have increased 15.8 per cent in the last year. Snake sight at first glance it appears that either alien space monsters or overgrown Worms have invaded the Windsor ont. Area. Actually these winding steel pipe Are part of a sewage line being installed along Highway 18 just outside the City. When finished next month it will be metres feet Long. Mining sector lag seen As Chance for investors by the Canadian press anticipated weakness in the mining sector May soon provide an attractive buying Opportunity the serious investor can t afford to miss says a Vancouver analyst. In a recent report Tom Douglas of odium Brown and t. B. Read Ltd., said poor first Quarter earnings reports Are Likely to cause a pullback in prices of metals shares which have escalated recently because of takeover bids for several Canadian and United states mining companies. Douglas said he expects Metal producers first Quarter earnings to encompass the worst earnings compari sons for several but he said several factors including a Likely turnaround in the . Economy and further strengthening of worldwide business activity Point towards Good mining share performance in the Sec Ond half of this year and into 1982. Commodity prices appear to have bottomed out on a cyclical basis he said and accordingly we Are taking the stance that investors can t afford to be under invested in the mining sector beyond the first half of this Chance with juniors Douglas recommends investors use any Market weakness As an Opportunity to aggressively Purchase shares of Junior Metal producers such As Gibraltar mines Ltd. And Lomax mining corp. Ltd. He s particularly bullish on Copper producers for several reasons interest rates now Are being allowed to fall simultaneously in the major metals consuming countries including the ., Germany Japan and England in order to stimulate renewed growth in credit sensitive sectors. Proposed tax cuts in the . Can also be expected to add further impetus to the rebound in durables spending. These economic sectors he said Are key metals Consumers particularly of Copper. Douglas said increased defence spending in the . Will mean real gains in demand for metals in the military sector. Use of Copper in electrical electronic machinery and transportation applications is noteworthy he said. Growth anticipated furthermore he said the need for a decade of High capital spending by North american industries in order to remain competitive in world markets is widely recognized. Tax policies aimed at achieving business expansion and improved productivity is Likely to Lead to improved growth in Plant and equip ment spending which augurs Well for metals finally he said a turnaround in . Economic growth should Lead to re bounding business conditions and activity in other Western economies in 1982. Douglas said he expects average . Dollar Copper prices to increase to 90 cents a Pound in 1981 from the current 85 cents rising to next year and possibly to in 1983. I i . Power in banking dwindling by Leonard Curry Newhouse news service Washington american Banks which dominated world finance Only 25 years ago now Are getting a smaller share of International business and even face increasing Competition from foreign Banks on United states soil. The trend could weaken the Dollar boost . Prices and erode the average american s Standard of living All because deposits Loans and profits that once went to american Banks thus strengthening the . Economy now instead Are benefiting the Home countries of the foreign Banks. Moreover a continued decline in the Power of . Banking could make it More difficult for prospective borrowers in the . To obtain credit. One result May be the replacement of american Banks with foreign Banks or subsidiaries of foreign Banks that Are less interested in extending credit to certain potential american borrowers particularly Consumers or Small according to a study financed by the american Bankers association. There is reason to believe that a principal interest of foreign Banks in the United states is to obtain Dollar deposits which May be loaned the surge in foreign banking activity in the United states occurred Between 1972 and 1980, during which the number of foreign Banks Here tripled to 339 and deposits soared 600 per cent to billion. Congress general accounting office estimates that for eign Banks and american Banks controlled by foreigners now hold More than 15 per cent of All . Banking assets this dynamic growth is a direct result of the penetration of . Markets by foreign manufacturers of cars steel televisions computers and clothing. When foreign companies made their first sales ., the Money was deposited in american Banks indirectly helping the american people. The Money is now being deposited in . Offices of foreign Banks which Are Export ing the benefits to the Home country. In addition to making Loans to and receiving deposits from foreign corporations doing business in the ., european and japanese Banks have been courting american compan ies. Meanwhile american Banks have been seeking business in the far less lucrative financial markets of the third world. Foreign Banks made 14 per cent of All new commercial Loans in the United states in the fiscal year ending june 30, 1980, compared with 8 per cent the year before. Billion to foreign Banks foreign Banks captured 74 per cent of tie new growth in . Commercial Loans in a single year according to the american Bankers association. In 1979, foreign Banks made billion of the total billion in new Commer Cial Loans. In 1980, foreign Banks made billion of . Loans billion. American Banks now Are fourth rate in a global says Willard Butcher who is succeeding David Rockefeller As chairman of Chase Manhattan Bank in new York. Banks in Japan Dennany and the United kingdom All rank ahead of american in 1957, the United states accounted for 270 of the world s top 500 Banks according to the american Bankers association. The number dropped to 187 by 1967, and to 95 in 1979, the last year for which such figures Are available. Of the world s 25 largest Banks in terms of deposits at the beginning of 1980 Japan and West Germany each had seven France four and the .three. Paris National Bank and farm credit Mutual of Paris Are threatening to overtake California s Bank of America As the world s largest. As Citibank of hew York slipped a rung to seventh and Chase Manhattan fell four notches to 14th, British German japanese and French Banks climbed. The erosion of american banking Power is a signal that the nation s balance of Trade woes of the 1970s May be supplanted by a balanced payments crisis in the 1980s, says a senior economist at the state department. Of the two International economic issues payments deficits Are the More difficult to Correct the balance of Trade is the relative Worth of a nation s imports and exports of merchandise such As the steel the . Buys from Japan and tie Grain it Sells to Europe. The Ideal is a perfect balance in the Dollar values of the transactions value of exports trailing in recent the . Has been spending More dollars on imports from abroad then it is taking in on Export sales an imbalance of billion to billion annually. The balance of payments is the relative value of both Trade and International service transactions including business profits from overseas investments and the International income of insurance companies shippers airlines and Banks. A National government can Correct a Trade imbalance by say imposing quotas on imported cars and using its regulatory Powers to help Domestic automakers make sales that would have gone to the foreigners. A balance of payments deficit is a larger problem because it involves private investment. It is More difficult for a government to Tell a company that has built a factory to leave the country although the late Gen. Charles Degaulle did put a ceiling on investment in. France in the 1950s. Foreign Banks in the . Hurt the . Balance of payments because they attract deposits that would have gone to american Banks and Send the profits from Loans Back to their Home countries. Many of third world s less developed countries to which . Banks have made major Loans Are struggling with enormous Oil Bills. The american Banks now Are trying to withdraw from the developing world and focus attention on rebuilding Domestic business. The major International Banks which shouldered the initial Burden of recycling open surplus funds now find their loan portfolios heavily Laden with credits to Oil import ing Chase Manhattan says in its annual report. Prudence must limit further despite the growth of foreign Banks in the United states Federal Bank regulators foresee no threat to the stability of the banking system. Their presence adds an extra competitive vigor to our banking says . Controller of the currency John Heimann. In order to propel american Banks Back into world leadership officials of the largest Banks say . Laws prohibiting Banks from operating offices in More than one slate domestically ought to be abolished. The fastest Way to build deposits the Lifeblood of the banking system is to be Able to operate in More than one state says Chase manhat Tan s Butcher. In the final Days of his administration former president Carter issued a policy statement in favor of interstate banking. But president Reagan and the new Congress have taken no such position. Big Banks in California Illinois and new York Are the primary proponents of interstate banking ;