kiplinger connection
Energy • Financial Services • World Business

Energy: The oil-price spike will settle well before year end.
Financial Services: Congress to fix broken ARMs, renew terrorism insurance backstop.
World Business: Developing nations looking to invest in the U.S.

Energy
Oil prices will calm back down. The $80 a barrel price spike was caused by skittish investors fearing a supply shortage. Higher OPEC production and reduced demand will bring oil to the low $60s by Dec. Gasoline, on average, will climb only about a nickel in Sept., to $2.85 or so. By Dec., it will run about $2.75 a gallon. Diesel, $2.85. We expect heating oil to average $2.80 a gallon from Oct. through March.

Financial Services
A green light for mortgage legislation in Congress. Lawmakers will help low-income homeowners refinance adjustable mortgages that they can no longer afford. A revamped Federal Housing Administration will gain more flexibility and the authority to facilitate new loans.

Congress will renew the federal backstop for terrorism insurance, which is currently set to expire on Dec. 31. Bush will sign the bill, even though he thinks private industry should handle this on its own. The GOP doesn’t want taxpayers to be on the hook if a bailout is needed.
Look for a 10- to 15-year extension, rather than the two years that has been the norm. The law will require that Washington step in and help if combined losses from a terrorist act exceed $100 million.

World Business
For a vote of confidence in the U.S. economy ... look abroad.
Foreign companies show few signs of doubt about the capacity of capital invested here to reap nice rewards, despite the economy's currently sluggish pace.
Foreign investors are long-term bulls, enamored with the size of the U.S. market and American consumers’ willingness to buy the latest hot fashions, electronics, etc.
And the pool of investors is growing. It includes firms from the developing world eyeing new markets. For example, note the bid by Taiwanese computer firm Acer for Gateway. And an IT firm from India, Wipro Technologies, is buying Infocrossing of Leonia, N.J.
Government-run funds will add to demand as countries with huge dollar reserves look beyond the usual Treasuries. The United Arab Emirates, Saudi Arabia, China, Singapore, and others have trillions of dollars combined and are looking for assets to buy.

Will product safety fears hurt China’s economy? Not anytime soon. Why? Because U.S. consumers continue to press American manufacturers and retailers for the lowest prices possible on just about everything.
U.S. firms holding down costs have few alternatives to China for product sourcing. In fact, the only countries that can compete with China on price are ones with similar quality control problems: Vietnam, Indonesia, and Cambodia. And all three of them combined lack the capacity to match China’s ability to meet the huge U.S. demand for clothing, furniture, electronics, machinery, and other items.
Odds are China will eventually get a grip on quality issues, though it will take years and raise production costs in the process. Remember that Japan, Taiwan, and South Korea went through similar episodes before they were able to establish their own reputations for reliability.

The U.S. will soon have more say on international undersea issues. The Senate is poised to OK the UN Law of the Sea treaty, giving the U.S. a voice on international panels adjudicating disputes over mineral rights within 200 nautical miles of the U.S. coastline. Bush will sign the bill. With Russia claiming mineral rights under the North Pole and Canada moving to stake claims, U.S. oil and mining interests want in on the action.