Friday, April 4, 2003 07:54 PM ET  Printer-friendly version <a href=www.quicken.com>A Wall Street Journal Online News Roundup

Americas markets closed mostly higher Friday, with Toronto stocks flat as investors exercised caution ahead of the weekend, which could see U.S. troops drive into the heart of Iraq's capital.

Even as coalition forces captured Baghdad's airport, a purported appearance by Saddam Hussein on Iraqi television stirred debate about the leader's fate. In addition, Iraq's information minister warned his troops were preparing to launch an "unconventional" counterattack that wouldn't involve chemical or other weapons of mass destruction.

War worries, along with negative U.S. employment data, left Canadian investors reluctant to assume large equity positions ahead of the weekend.

Venezuelan shares also ended mostly unchanged, with the market's biggest stock, CA Nacional Telefonos de Venezuela, up one bolivar to 2,426 bolivars.

Argentine stocks rose, with much of the attention focused on market-leader Perez Companc and its local holdings, after the government went public with its doubts about aspects of the energy giant's sale to Brazilian oil company Petrobras. On Thursday, presidential spokesman Luis Verdi said President Eduardo Duhalde was unhappy about Petrobras's gaining a large stake in Perez Companc's electricity holding Transener, as part of the sale.

Despite the uncertainties surrounding the deal, Perez Companc closed 0.5% higher at 2.06 Argentine pesos. Meanwhile, Transener rose 10% to 73.8 centavos. Another Perez Companc holding -- natural gas distributor TGS -- also proved immune to the government's doubts -- lifting 4.6% to 1.36 pesos.

Analysts said investors were discounting that Argentina's antitrust body would eventually give the thumbs up to the sale of Perez Companc -- even if that requires some compromise over Transener's fate.

Further gains in the Brazilian real as global equity markets traded sideways ahead of a war-filled weekend helped to boost the country's Bovespa Index. Brazil's real gained 1.1% Friday to 3.22 reals. The currency gained about 5% this week, which is helping ease the inflation outlook and reduce the chances of a central bank interest-rate increase.

Mexican stocks rallied to their highest level since Jan. 20 as the market played catch-up on gains in blue-chip shares. Leading the rally, Walmex's Class V shares rose 3.7% to 28 Mexican pesos, while its Class C shares added 4.3% to 25.02 pesos.

<a href=www.mortgage101.com>Source Friday, April 04, 2003 By Lou Barnes Inman News Features

In a shoving match between awful economic reports pushing interest rates down and good news from Iraq pushing them up, Iraq won.

Mortgages have settled today just under six percent, above Freddie Mac's early-week survey finding of "5.79 percent plus .6 percent origination fee" released yesterday.

One week ago (seems like a month), war-watchers here and elsewhere thought our blitz to Baghdad had stalled, and the bond market reversed from wild optimism to fear that war would stretch for months. Rates fell on Monday, looking like they might break below 5.75 percent, needing only a push from some poor economic news.

We got the poor news, and then some. The ISM manufacturing index (a survey of purchasing managers) for March dropped to 46.2 from the 50.5 break-even economy in February, and the companion index for the service sector collapsed to its worst reading in two years, down to 47.7 from 53.9. New claims for unemployment insurance soared last week to a post-9/11 level, and this morning the Labor Department reported the loss of 108,000 jobs in March, double the forecast contraction -- triple, including downward-revised numbers for February.

The ISM reports and job data are the best indicators available each month. Were it not for Iraq, financial headlines everywhere would today be shouting, "New Recession!!!"

But there is Iraq. The news there has been nothing short of splendid. Those of us who worried about the war plan and the size of the force deployed need not have bothered, as the brilliant race to Baghdad International has made the force issue a historical curiosity. Pre-war dread of pitched battles with the Republican Guard and widespread destruction of Iraq's infrastructure are behind us. Last week's worry about a guerilla war is dwindling with the Fedayeen, who seem to have had little civilian support, and there is no evidence of large-scale humanitarian crisis anywhere in the country. Even in extremis, Saddam (like Hitler) has not (yet) used WMD. The Iraqi failure to detonate explosives in place in oil fields, terminals, dams and bridges says Saddam's subordinates are less dedicated to scorched earth than he.

Baghdad and Basra remain, but it looks less and less as though there is a Republican Guard trap waiting in either place. The zoomies said they have "degraded" those forces, and it looks as though they have. Winning the peace also lies ahead, including relations with allies current and former, and dealing with other dangerous places. But -- incredibly to many -- the Iraq adventure may have some of the greater benefits claimed by its proponents. One can't prove cause and effect, but news this morning says that China last week cut off North Korea's oil spigot for three days, and that that action has had a clarifying effect on Pyongyang.

When the financial markets awarded victory to Iraq over economic data, they told us all we need to know about interest rates in the near term. The overwhelming bet placed in the markets: the sinking economy in March was not a new recession, it was a national intake of breath, held for three weeks in front of CNN, Fox, CNBC -- war 24/7. Once the country exhales, gets the anxiety level down to tolerable, and begins normal respiration, then the economy will return to the recovery track it was on in January, and rates will begin to rise.

That's the bet. I don't believe it, but I'm just a typical, bond market worrywart. Oil has trouble beyond Iraq (Venezuela and Nigeria); Japan and Europe are sinking to recession; and corporate America and Wall Street still have post-bubble trouble.

If the deep breathers are right, we should get quick news of tension relief: some hiring, and increased consumer confidence and spending. If we don't get something real, and quick, then it's just a stock-market crazy on the phone again.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colorado. He can be reached at lbarnes@boulderwest.com.

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<a href=www.vheadline.com>Venezuela's Electronic News Posted: Friday, April 04, 2003 By: Gustavo Coronel

VHeadline.com commentarist Gustavo Coronel writes: 2003 looks like a very difficult year for Venezuela and Venezuelans. A workshop organized by VenAmCham (the Venezuelan American Chamber), brought together several experts on the financial, economic, political, labor and petroleum areas, who presented their views to over 100 businessmen and women as well as top managers from both the public and the private sectors.

The chief economist of VenAmCham, Jose Gregorio Pineda, presented the key financial indicators for the year, as follows:

1. An external debt payment of some $4 billion,
2. A government moratorium on the payment of the internal debt,
3. A decline of about 15 points in the GDP, some $15 billion,
4. An inflation rate at year's end of about 40%,
5. Devaluation of 100%,
6. A GDP per capita only comparable to the level of 1960,
7. Total Investments representing only 12% of the GDP, as compared to 30% in the 1970´s,
8. Exchange and price controls probably resulting in pronounced economic recession.

Economist Maxim Ross predicted a fiscal deficit of between $12 to $22 billion, depending on the performance of PDVSA during the year, most probably closer to the last figure. He made emphasis on the close relation between economic performance and the evolution f the political process. He claimed that, unless the government changes this year, the economy would collapse, leading to violent social upheaval.

Manuel Diaz and Arelis Diaz predicted an unemployment rate of about 27%. This would be the largest ever recorded in the country. Minimum salary would remain at about $120 per month, lower than in Colombia and Ecuador, the other Andean countries.

I, myself, participated in the event giving the petroleum outlook ... I forecast a daily average production of some 2.3 million barrels for the year, about one million barrels less than during a normal year. The exports of hydrocarbons would be at around 1.5 million barrels per day, of which one million barrels would be crude oils and the rest products. These export volumes would be about one million barrels per day lower than normal. As a result, fiscal participation of the government would only be of about $6 to $7 billion, as compared to the $12 billion obtained last year.

Worse still, the reliability of Venezuela as a reliable oil supplier to international clients has been severely eroded. Our main client, the US, no longer considers us reliable and has had to resort to Mexico and Saudi Arabia to fill the temporary gaps of supply from PDVSA.

These predictions could, of course, be off the mark ... they represent the educated guesses of the speakers concerned. It's interesting to note, however, that a survey taken among the participants did not show significant variations. At any rate this information should be compared to that obtained from other sources.

This outlook is closely dependent on the political process. If Chavez leaves the Presidency before the end of the year, there will be a transition period, with a new government in charge, which would last until 2006. This government would find the country in social, economic and spiritual ruin and would face a very hard task of national reconstruction, one for which very few people will give them credit. The new government can only offer Venezuelans "blood, sweat and tears," giving the sorry conditions existing in the country. An immediate program of reconstruction would have to put in place including, among other items:

The immediate return of the professional managers and technicians to PDVSA ... an opening to private investment ... the end of the romance with Cuba and the Colombian guerrillas ... the end of the hostile attitude towards the US ... the implementation of a large construction program in the public sector ... intensive tourism promotion ... the disarmament of the Bolivarian circles and the dismantling of the corrupt bureaucracy installed by Chavez ... the rapid shift from "buhonerismo" to organized employment ... a deep cleaning of Venezuelan cities ... in short, a major shift of direction in the life of the Nation, which has been in a tragic course for disaster.

Yes, 2003 is going to be a very difficult year for us.

Gustavo Coronel is the founder and president of Agrupacion Pro Calidad de Vida (The Pro-Quality of Life Alliance), a Caracas-based organization devoted to fighting corruption and the promotion of civic education in Latin America, primarily Venezuela. A member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), following nationalization of Venezuela's oil industry, Coronel has worked in the oil industry for 28 years in the United States, Holland, Indonesia, Algiers and in Venezuela. He is a Distinguished alumnus of the University of Tulsa (USA) where he was a Trustee from 1987 to 1999. Coronel led the Hydrocarbons Division of the Inter-American Development Bank (IADB) in Washington DC for 5 years. The author of three books and many articles on Venezuela ("Curbing Corruption in Venezuela." Journal of Democracy, Vol. 7, No. 3, July, 1996, pp. 157-163), he is a fellow of Harvard University and a member of the Harvard faculty from 1981 to 1983.  In 1998, he was presidential election campaign manager for Henrique Salas Romer and now lives in retirement on the Caribbean island of Margarita where he runs a leading Hotel-Resort.  You may contact Gustavo Coronel at email gustavo@vheadline.com

,a href=www.vheadline.com>Venezuela Electronic News Posted: Friday, April 04, 2003 By: PETROLEUMWORLD

There was hardly a consensus of opinion among fund managers attending the Howard Weil Energy Conference in New Orleans about what is keeping energy stock prices down and discouraging capital spending on new projects. But most agreed that geopolitical uncertainty is buoying commodity prices, which in turn continues to take a toll on the stock prices.

At breakfast Wednesday, Fred Sturm, who manages a natural resources fund at Mackenzie Financial Corp. in Toronto, said he's trying to understand the lack of will to increase investments in drilling, given how high prices are.

"If you had told me a year ago that we'd have oil at $30 (a barrel) and gas at $5 (per thousand cubic feet) for the next year, and I'd be at the biggest energy conference and there would be no buzz, I'd have said no way," he said.

He believes preoccupation with the news from Iraq has made people lose sight of the longer-term scenario - that the US may well be digging itself into a severe supply shortage in natural gas by next winter. If producers were willing to pay more attention to the longer-term, they would make reserve replacement a priority, he said.

"If you really believe there's going to be a need for gas, why aren't you at the bank borrowing" to finance drilling more wells, he asked.

John Slavik, on the other hand, says he thinks it's just a matter of time before oil and gas prices fall, which will justify an exit from energy stocks by investors who have hung on this long.

"Everyone's overweight energy stocks but hesitant to get out because the (alternative) equities are weak," said Slavik, one of a team of managers who oversees a small-cap institutional pension fund at Westfield Capital Management in Boston.

Although he sees the persistence of high commodity prices as an overhang weighing on the market, he said a case can be made for oil and gas prices bottoming at higher levels than they have in the past.

Patrick Rowles, a portfolio manager at Kempner Capital Management in Galveston, Texas, took a different view on the widespread hesitation to commit dollars to drilling.

Many of the producers have hedged as much as 50% of their gas production, he said. That means they are only partly benefiting from the price spike in gas, earning something in the range of $3.50-$4.50 per thousand cubic feet rather than the full price.

"I expect to see a gradual improvement in the rig count as the hedges come off and they can capture more of the (higher price trend) in natural gas," he said.

Once a higher base price for natural gas between $3.50 and $4.00 has been established, Rowles said he believes the multiples at which E&P stocks are trading will start to improve. He predicts that will happen during the summer.

Another reason for the delay in drilling is the passing of the baton to a younger generation of chief executives, who are in their 40's and are more inclined to capital discipline than "drilling until they die," he said.

Even if commodity prices are due for a tumble, the option of selling production forward at current prices should be enough to quell producers' trepidation about spending money on drilling, according to a hedge fund manager who asked not to be named.

"You can hedge (gas) two years ahead at $5, so what's the problem?" he said.

Other people said two years' worth of production sold forward at current prices wouldn't generate enough profit to cover the cost of putting in new infrastructure and starting some operations from scratch.

Apparently, it is enough for Apache Corp. (APA), however, which said this week it would grow production by 29% in 2003 by developing organic reserves and recent acquisitions. It could be the independent E&P firm sees itself as being able to afford the investment, having hedged 200 million cubic feet of gas per day at a New York Mercantile Exchange price of $5.18 for 2003 and another 140 mcf/d at $4.52 for 2004.

Apache is one of the exceptions among independent producers, many of which are talking more about future development plays than how they plan to meet near-term production growth targets.

It's been more efficient for producers to replace declining reserves through mergers and acquisitions than through the drilling new wells, said Slavick, the fund manager at Westfield Capital Management. He expects to see a lot more consolidation among E&P players.

But the ones who remain in the game will have to start drilling at some point if they are going to replace their declining reserves, he said. He predicts drilling will pick up significantly within the next six months, once the bottleneck in natural gas supply kicks in.

And if it doesn't, Fred Sturm at Mackenzie Financial Corp. said he has another piece of advice for US consumers: they should do themselves a favor by buying an electric heater this summer, because he doubts there will be any to be found next winter.

By David Bogoslaw, Dow Jones Newswires; 201-938-5289;david.bogoslaw@dowjones.com

<a href=www.sfgate.com>SFGate.com Friday, April 4, 2003
(04-04) 11:07 PST CARACAS, Venezuela (AP) --

Venezuela's Central Bank rejected President Hugo Chavez's demand that it impose fixed interest rates for private banks.

The Central Bank won't accept "pressure from anyone" to impose rates, director Domingo Maza Zavala said in comments published in Friday's El Universal newspaper.

On Wednesday, Chavez demanded the Central Bank force private banks to lower their borrowing rates, which range from 25 percent to 40 percent. Chavez argued the high rates were hurting small businesses and the government, which faces $4.6 billion in domestic debt payments this year. Venezuela's domestic debt totals $9 billion.

The Central Bank "has the legal right to set a ceiling for interests rates when it considers it convenient, not because of pressure," Maza Zavala said.

Venezuela hasn't had fixed interests rates since 1992.

Maza Zavala said the Central Bank would issue short-term loans to lower interests rates.

Private economists expect Venezuela's economy to shrink more than 20 percent this year, partly because of an unsuccessful strike to demand early elections. The two-month strike, which fizzled in February, paralyzed the world's fifth largest oil exporting industry and cost Venezuela $6 billion.