Thursday, March 10, 2011

Irish Stocks Present Possible Value Play : AIB, CRH, EBAY, EIRL, ELN, ICLR, INTC, IRL, MRK, PG, VGK, WCRX

As the world continues to grapple with the turmoil facing the Middle East, several other major economic issues have been pushed to the back burner. The potential for sovereign debt defaults, riots and austerity measures are still a real threat plaguing the Eurozone. These worries do have the capability to unhinge the already fragile Eurozone recovery, and many investors are steering clear of the continent altogether by avoiding funds like the Vanguard MSCI European ETF (NYSE:VGK). However, despite the contagion fears that affect the PIIGS nations, there is still some value there for long-term investors. One such PIIG nation, may just be transformed back into the "Celtic Tiger" it once was. Here we take a look at investment opportunities in Ireland. (For background reading on this country's economy, see The Story Behind The Irish Meltdown.)

Open for Business
Ireland's economic rebirth and transformation into a major economic player produced some nasty side effects similar to those recently seen in the United States. Major problems with the Irish financial system created a hyper-lending scenario that ultimately went bust as the global recession took hold, and Ireland's real estate prices have dropped by 40-50% since 2008. Last fall, the country had to accept an 85 billion euro bailout by the European Union and the International Monetary Fund. More recently, the Central Bank of Ireland slashed its forecast for economic growth to only 1% in 2011, down from a previous estimate of 2.4%.

In spite of the fiscal negativity, Ireland does have one thing that makes it the envy of Europe: It's an emerging technology and biotech powerhouse. Akin to Israel, Ireland has built its economic growth on becoming a technological and biomedical leader. Many foreign companies have taken advantage of the nation's educated work force and lower corporate taxes. Ireland's corporate tax rate in 2010 was 12.5% - compare that to the 39.1% rate in the United States. As the hallmark of its tech growth strategy, Ireland's leaders have pledged that that rate will not significantly increase and the country's Investment and Development Agency's strategy for the next 10 years, dubbed "Horizon 2020", continues to focus on attracting employment-intensive services and R&D firms. In fact, a diverse group of tech and medical companies, including Merck (NYSE:MRK), eBay (Nasdaq:EBAY) and Intel (Nasdaq:INTC) have already built plants and opened new research and development centers there.

And Ireland's technology leadership play might already be paying off for Ireland. Overall, manufacturing output and employment rose in February and new orders increased at the quickest pace in 11 years. This marks the fifth consecutive month of increases. Just as the lower euro has benefited German exports, Ireland is seeing comparable rewards as its exports rise.

Regaining Its Former Glory
While Ireland still has some financial growing pains to undergo and the outlook of the country's banks, such as Allied Irish (NYSE:AIB), seem poor, the nation's tech story is interesting. Investors with long-term time lines and strong stomachs may want to consider adding this Celtic Tiger to their portfolios. The iShares MSCI Ireland (NYSE:EIRL) follows 23 different Irish firms and only has about 9% of its holdings in financial stocks. However, the fund is thinly traded and only holds about $7 million in assets. A better broad bet on Ireland is the actively managed New Ireland Fund (NYSE:IRL), which currently trades at 17% discount to its NAV.

For investors who prefer individual choices, Ireland has plenty of picks there as well.
Functioning as a contract researcher for other pharmaceutical companies, ICON (Nasdaq:ICLR) runs the boring and tedious clinical trials and various development functions needed to bring key drugs to market. The company has
seen sales more than triple since 2005 and will be a major beneficiary of increased biotech spending in the country.

Similarly, a
fter buying Procter & Gamble's (NYSE:PG) pharmaceutical business, including the heavily prescribed Actonel, Warner Chilcott (Nasdaq:WCRX) has moved into the more lucrative businesses of gastroenterology, women's health, dermatology and urology. The drug company expects to earn revenues of nearly $2.8 billion in 2011. Cement maker CRH (NYSE:CRH) or biotech firm Elan (NYSE:ELN) are also strong stocks that could stand to benefit from an improved Irish economy.

The Bottom Line
Despite its fiscal woes, Ireland's tech story could ultimately be its saving grace. Increasing foreign direct investment along with an educated workforce and low corporate taxes make the nation a potential value buy. Investors with long time lines may want to consider adding some of Ireland's companies to their portfolios.


7immutablelaws -

Top precious metals analyst: Be careful buying silver today

Silver has been red hot lately and the silver shares have joined in the fun. Yet, we haven’t seen a corresponding breakout in Gold or in the gold shares (as evidenced by GDXJ and GDX). In the chart below we show SIL (large silver stocks), Silver, Gold, GDXJ (gold juniors) and GDX (large cap golds).

Silver has been the clear winner as it broke out first while the large and junior silver shares would breakout later. Note how Gold has yet to breakout and how GDXJ and GDX have yet to test recent highs. We believe the lack of a breakout in Gold and the gold shares is a warning sign for Silver. Rather than a breakout that initiates an impulsive advance that lasts for months, this breakout in Silver could be potentially dangerous for those jumping in at these levels.

Take a look at the historical chart of Silver. The advance past $22 and $25/oz was obviously a major breakout. There is some supply at $35-$40. A break past $40 would lead to a blowoff top. Silver closed near $36 on Monday.

Though we are cautious in the short-term we note the very bullish cup pattern that dates back to 1980. Yet, the cup often includes a consolidation (the handle). Silver is overbought and will need time to digest the recent gains. Moreover, the inability of Gold and gold shares to breakout lends questions to the sustainability of recent gains in the Silver complex. The last time we had this bifurcation was in early 2004. Gold and Silver would consolidate for more than a year before breaking to new highs in late 2005. Are we saying that will happen again? Not necessarily.

Chasing Silver Stocks Becomes A Dangerous Game: CDE, EXK, GPL, SLV

Silver prices have gone parabolic over the past few weeks as the price of the metal has risen over 30% in just the past six weeks. Not only has the metal entered a near vertical rise, but its performance when compared to gold has been phenomenal. I took a look at a ratio chart comparing the two back in April 2009 as the markets were starting to regain their footing and mentioned how silver would likely begin to catch up to gold as the markets normalized. Well, “catching up” has ended up being quite an understatement as this ratio has also gone parabolic. In fact, the ratio is now sitting above 20-year highs.
In Pictures: 5 Metals That May Be Brighter Than Gold


Many have speculated that the next bubble would be in gold, but could it be in silver instead? Many retail investors have recently begun flocking to silver and it is starting to become a water cooler discussion piece for even novice investors. While it’s possible that this move is still in the early stages of a primary bull market, the recent move is most likely unsustainable in the near term. The silver/gold ratio has not sustained this move for any length of time and silver is very stretched from its mean price right now. (For more, see Trading The Gold-Silver Ratio.)

In looking at a chart for silver, as represented by the iShares Silver Trust (NYSE: SLV) ETF, one can see how far SLV is from its 20- and 50-day moving averages. SLV had been bouncing along its 20-day moving average late in 2010 as it rallied to near $30 per share. It then settled into a consolidation before the recent breakout. Overall, the strength in SLV is not in doubt. The chart looks fantastic and SLV is at new highs. However, nothing goes up in a straight line and silver could easily retrace by more than 15% and still look quite healthy. That said, caution is definitely warranted for shorter term traders.


With silver so stretched from its moving averages, it’s no surprise to find many silver mining stocks in a similar situation. Coeur d'Alene Mines Corporation (NYSE:CDE) also recently cleared a consolidation and skyrocketed higher. Much like SLV, CDE is very vulnerable to a pullback of 15% or more in even a normal retracement. A stock will often pull back to test its breakout area and if that were to happen here it would mean a pullback from prices near $35 to near $28. (For more, see 5 Silver Stocks For 2011.)


Endeavour Silver Corporation (AMEX:EXK) is another silver miner that has experienced a spectacular breakout. EXK had been basing just under $8 per share from late 2010 through the end of February. It has since surged to more than $10 per share. While the move over the past two weeks has brought the most attention, it really is more amazing when you realize EXK has almost doubled from its February lows.


While it’s a lower-priced issue, Great Panther Silver Limited (AMEX:GPL) has more than doubled from its February lows. Volume has expanded on the breakout, which is a healthy sign, but once again, this move may be very difficult to sustain in the near term. The ideal scenario would have GPL slowly drifting sideways in a tight consolidation pattern before a second impulse move higher. While the markets rarely present the ideal setup, traders should realize that GPL is still very extended.


The Bottom Line
While silver mining stocks won’t necessarily correct all the way to their prior bases or even pull back in the immediate future; the point I’m trying to make is that chasing silver stocks at this point is a dangerous game. These stocks have already experienced huge gains over the past few weeks, and are vulnerable to steep declines with even just a mild pullback. If this is the beginning of a much stronger long-term trend, then there will be plenty of safer opportunities to jump on board.

CNBC: why fears over how oil prices will derail the rally are overblown

Analysis: Think $100 U.S. oil is bad? It's really much worse

(Reuters) – Americans worried about the pain of $100 U.S. oil should worry a lot more.

Although $100 oil is the headline in U.S. newspapers, most refineries that supply fuel to service stations are paying the equivalent of a much higher price -- and those costs are already being felt when consumers fill up their vehicles.

The cause is an unprecedented disconnect between the most visible price of oil -- crude oil futures contracts on the New York Mercantile Exchange (NYMEX) -- and the real cost of physical barrels pumped from the Gulf of Mexico, Saudi Arabia and elsewhere.

This gap is caused by oil traders' growing realization that inventories at the small Oklahoma town of Cushing -- the delivery point for the NYMEX contract -- will likely be awash with crude for months to come due to booming production from Canada and shale oil producing states such as North Dakota.

Because the U.S. pipeline system was designed to import oil from the coast to the interior, not vice versa, there's no way to move the extra northern crude to the southern refiners, in places such as Houston and Port Arthur, Texas, which are paying much higher rates for crude from far abroad.

Refiners on the West, Gulf and East coasts -- who produce or import nearly 85 percent of America's fuel -- are therefore forced to pay a premium of $15 to $20 relative to the current futures price of $100 a barrel to keep their plants fed, and pump prices are reflecting that premium.

U.S. oil futures, also called West Texas Intermediate (WTI) after a kind of oil produced in Texas, are no longer the reliable yardstick for the world price and a clear signal of demand for high quality oil from the world's biggest consumer that they once were. They have instead become more of an indicator of the degree of oversupply in the heart of the North American continent.

The most visible evidence of this disparity can be seen in the price of ICE Brent crude futures, the European benchmark; it has risen 21 percent this year, while WTI futures have gained only 15 percent. Normally trading at parity to WTI, Brent surged last week to a record premium of $17.

Although that spread has contracted sharply over the past few days, trading on Wednesday at about $10, the correction has brought its own set of problems. On Monday, for example, the two contracts moved sharply in opposite directions, sowing confusion about whether oil costs had gone up or down.

The result is that WTI, the light sweet crude that Americans have long associated with "the" price of oil, has become a dangerously inaccurate indicator.

And that has major implications for consumers and companies given that at $100 a barrel many economists see limited risk to the U.S. economy but at $120 serious headwinds become evident.

"The hike to something which is between $110 and $120 a barrel is something which may affect (growth) if it lasts too long," said International Monetary Fund chief Dominique Strauss-Kahn, during a visit to Panama last week.

It was, though, unclear whether he was talking Brent or WTI.


The massive gap in prices is caused by a major shift in the way the United States imports crude. There's simply too much oil landlocked in the middle of the country -- not a bad thing for a nation eager for more supply security.

While still dependent upon imports to meet more than half its oil consumption, the U.S. market is struggling to absorb the fast-growing share arriving by pipeline instead of by sea.

In addition to the well-documented boom in Canadian oil sands output, domestic production is also finally growing anew -- not in the traditional oil patches of Texas and the Gulf of Mexico, but from North Dakota shale formations that were once written off as too costly to tap.

Instead of flowing all the way to the Gulf or East Coast, where it is needed most, that new oil is increasingly piling up in Cushing, Oklahoma, a small town of less than 10,000 famous for little apart from being America's pipeline crossroads.

That means that despite the tantalizing prospect of cut-price crude, most U.S. refineries cannot buy WTI or other Midwestern crudes -- there aren't enough railcars, road tankers or barges to get around the bottleneck today, and a permanent solution depends on building new high-capacity pipelines.

Instead on the coasts, refiners are paying the going international price of oil -- even if that means paying $10 more for types of oil, such as Brent, that are almost identical in quality to the WTI equivalents that are filling storage tanks in Cushing.

"They are both light sweet crudes and both yield lots of gasoline and diesel. If you were to take it strictly from the (refined product) yield, the price difference would be a dollar or $1.50 tops," said Peter Beutel, president of Cameron Hanover, a firm in New Canaan, Connecticut, that provides energy hedging advice.


The same logistical and benchmark issues don't affect gasoline, however, and prices have risen more swiftly as one glance at the pump can tell you.

When U.S. West Texas Intermediate crude oil futures broke $100 a barrel in February 2008, the national average retail price rose to $3.18 per gallon by the end of the month.

Three years later WTI futures are again just above $100 a barrel but retail prices are now topping $3.50 a gallon.

Indeed, gasoline prices in the United States posted their second-biggest increase ever in a two-week period, according to the Lundberg Survey of about 2,500 gas stations released on Sunday.

The benchmark NYMEX gasoline price is set in New York Harbor, linking it more closely with the globally traded market than WTI crude, which is set in Cushing.

The few refiners that have access to the cheaper crude oil in the U.S. Midwest are under no obligation to pass on those savings to customers. Instead they are reaping windfall profits because the market price for gasoline and diesel is being set by the more costly crude most refiners have to use.

Gasoline in New York or Houston isn't much cheaper than it is in Illinois and other parts of the Midwest as it is much more easily transportable than crude.

For consumers, there may be worse to come even if crude oil prices start to stabilize. There's often a lag time of weeks or months before oil contracts reach the global spot market price.

If The Gold/Copper Ratio Is Truly A Harbinger Of Market Weakness, Here Are Some Pair Trade Ideas

Two days ago we pointed out the dramatic change in the ratio of copper to gold, which moved at the highest rate of change since June of 2010. Today, the rate of change is even higher at 4.3%. And with copper starting to seriously take on water, a curious observation emerges: is the gold-copper ratio, which on an inverted basis was virtually a tick for tick correlation conjugate for the S&P, now simply a harbinger of where the stock market is headed. All else equal, once the Chinese exuberance dynamics which appear to have stalled out in copper, move to equities (which as Finisair demonstrated yesterday is only a matter of time) we believe, as the attached chart shows, that the fair value of the stock market is about 120 points lower. Since this is a relative comparison, those who do not wish to trade a single series, can put on a pair trade of short the Gold/Copper ratio (predicting it will decline from the current 3.4 - it is shown inverted on the chart below) and short the S&P in expectation of a compression.

And for those who wish to have nothing to do with the Fed's third mandate in the form of the stock market (which is all), another even more convoluted way to play the current multi-asset mispricing, is to go long the Gold-Copper ratio (expect gold to stay flat while copper declines), while shorting the Gold Miner/Copper Miner ETFs (GDX, COPX).

Lastly, those who just want to play with gold, an interesting observation is that Gold has marginally outperformed Gold Miner stocks. An appropriate and simple compression trade here would be short gold and long gold miners for a few basis points compression.

McAlvany Weekly Commentary

An Interview with Tom Hudson from the Nightly Business Report with PBS

About the Guest:
Hudson has reported on topics such as Federal Reserve interest rate policy, corporate governance and shareholder activism. Prior to co-anchoring NBR, he was host and managing editor of the nationally syndicated financial television program “First Business.” Tom also reported and anchored market coverage for the groundbreaking web-based financial news service, WebFN. There he reported regularly from the Chicago Board Options Exchange, Chicago Board of Trade and the CME. He also created original business news and information programming for the investor channel of a large e-brokerage firm. Tom Hudson’s Full Bio

Big Fertilizer Names Hit By Citi Downgrades

Citigroup is out with some comments on a pair of big fertilizer names today and the news is not bullish. That may be what's behind a glum performance for the Agricultural Chemical and Fertilizer Stocks Index, which is down 1.1%. The Index is down about 5% in the past month.

Citigroup pared its ratings on Potash Corp of Saskatchew (NYSE: POT - News), the world's largest fertilizer producer, and Mosaic Company (NYSE: MOS - News), North America's second-largest producer of crop nutrients, to "hold" from "buy," citing valuation and a lack of near-term catalysts. Citi lowered its price target on Potash to $60 from $67 and reduced its price target on Mosaic to $84 from $92. Shares of Mosaic are down 2% while Potash is lower by 3%.

CF Industries Holdings (NYSE: CF - News) is down 1% despite analyst Gleacher saying the stock's valuation is "compelling." The research firm has a "buy" rating and $165 price target on CF Industries.

Agrium (NYSE: AGU - News) is also down 1% while Intrepid Potash (NYSE: IPI - News) and Monsanto Company (NYSE: MON - News) are both down 3%.

BUY OR SELL-Oil on the boil: a two-edged sword for crude carriers

(Reuters) - Shares of companies that own oil tankers have perked up as crude oil prices have jumped to 2-1/2-year highs on fears that unrest in North Africa and the Middle East could disrupt supplies.

Trading sources say Libya's oil trade -- the country is Africa's No.3 producer -- has virtually been paralysed as banks decline to clear payments.

The S&P 1500 Oil & Gas Storage & Transportation index , which rose by a fifth last year, has already gained 17 percent so far this year. Shares in Frontline Ltd , the world's No.1 independent oil tanker company, are up 13 percent in the last 7 weeks, after losing 7 percent in 2010.

To reflect a tighter oil market, BofA Merrill Lynch has raised its second-quarter forecast for Brent crude to $122 a barrel, from $86 previously.

Some analysts say higher oil prices will help offset an over-supply of tankers -- as buyers secure supplies against further price hikes -- but others reckon geopolitical issues cannot compensate for weak fundamentals.


Too many tankers and a weak global economy have in recent years squeezed the pricing power of tanker firms such as Frontline, Teekay , Crude Carriers , Nordic American Tanker Shipping and 2nd-ranked independent Overseas Shipholding .

Michael Webber at Wells Fargo Securities said tanker stocks' multi-year lows and a gradually improving demand-supply scenario make a 'buy' case.

"We've actually seen a lot of (tanker) supply discipline in the past 6-9 months, so the long-term supply side is getting better. I'm optimistic and bullish that it's more of a longer-term call," he said, adding his preferred stocks are Overseas Shipholding, Frontline, Crude Carriers and Nordic American.

Webber noted that volatility related to Egypt's recent popular uprising could also be key to determining tankers' daily rates.

"The names we'd favour would be firms that have significant spot market exposure that would benefit from an improving rate environment," said Douglas Mavrinac, analyst at Jefferies.


"We're negative on tankers, lower than consensus," said RS Platou Markets analyst Dag Kilen, predicting VLCCs (Very Large Crude Carriers) would earn $23,000 a day on average this year and $19,000 next year.

VLCCs, which are among the biggest tankers and can ship up to 2 million barrels of oil, commanded average day rates of close to $200,000 as recently as 2008.

Taking a contrarian stance, Kilen said civil unrest in the Middle East and North Africa could actually hit demand for oil -- and shipments.

"Our main concern earlier was the supply of vessels," he said. "The turmoil has increased the risk for demand destruction ... shipping is a volume game and news of output shortfall is thereby considered a negative."

CEO Rex Tillerson said on Wednesday that Exxon Mobil was not seeing any demand destruction as a result of higher oil prices.

Kilen was also negative on Frontline, given the company's high dividend expectations, "as it has both missing funding for capex and refinancing needs through 2012".

High spot market exposure makes Kilen negative on Overseas Shipholding and Denmark's Torm A/S .

Cantor Fitzgerald's Natasha Boyden, a 5-star StarMine marine sector analyst, said she would avoid General Maritime , and Overseas Shipholding, because of that exposure.

"Our outlook remains fairly bearish in the short term (6-12 months) due to (tanker) supply concerns ..." she added.

Gross Eliminates Government Debt From Pimco's Flagship Total Return Fund

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.

Pimco’s $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to 12 percent of assets in January, according to the Newport Beach, California-based company’s website. The fund’s net cash-and-equivalent position surged from 5 percent to 23 percent in February, the highest since May 2008.

Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco’s website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.

Treasury yields are about 150 basis points too low when viewed on a historical context and when compared with expected nominal gross domestic product growth of 5 percent, he wrote in the commentary. The Fed is scheduled to complete purchases of $600 billion of Treasuries in June.

Gross in his February commentary urged investors to reduce holdings of Treasuries and U.K. gilts and buy higher-returning securities such as debt from emerging-market nations. “Old- fashioned gilts and Treasury bonds may need to be ‘exorcised’ from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint,” Gross wrote.

Emerging-Market Debt

Gross last month increased holdings of emerging-market debt to 10 percent, the highest since October, from 9 percent in January. He cut holdings of mortgage securities to 34 percent from 42 percent in January.

The Zero Hedge website first reported the change in assets today. Pimco doesn’t comment on changes in holdings.

Treasuries returned 5.9 percent in 2010, according to Bank of America Merrill Lynch Indexes. The securities lost 0.6 percent so far this year.

Ten-year Treasury yields have risen for each of the past six months, according to data compiled by Bloomberg, the longest run since June 2006, as the economy showed signs of improvement and prices of commodities climbed. The 10-year yield fell six basis points to 3.48 percent today.

Gross kept the holdings of non-U.S. developed debt at 5 percent in February.

Inflation Outlook

Gross’ fund has returned 7.23 percent in the past year, beating 85 percent of its peers, according to data compiled by Bloomberg. It gained 1.39 percent over the past month.

As the Fed maintains its target rate at a record low range of zero to 0.25 percent and has made an increase in inflation a cornerstone of its monetary policy, Gross noted that inflation may be a bigger factor than many suggest.

Gains in so-called headline inflation matter more for the U.S. economy than Fed Chairman Ben S. Bernanke suggests and rising oil prices may cut U.S. gross domestic product by a quarter to half a percentage point, Gross said March 4 in a radio interview on “Bloomberg Surveillance” with Tom Keene.

“Bernanke tends to think this doesn’t matter -- at least in terms of headline versus the core -- we do,” Gross said.

Pimco’s U.S. government-related debt category can include conventional and inflation-linked Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the company’s website. The fund can have a so-called negative position by using derivatives, futures or by shorting.

Derivatives are financial obligations whose value is derived from an underlying asset. Futures are agreements to buy or sell assets at a later specific price and date. Shorting is borrowing and selling an asset in anticipation of making a profit by buying it back after its price has fallen.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.24 trillion of assets as of December.

Is The House of Saud Next?

By Jeff Rubin,

As Libya descends into a bloody and protracted civil war, both the White House and International Energy Agency are considering tapping strategic oil reserves.

Normally, no one would care what’s happening in a remote desert country that has been a pariah state for decades. But when you produce 1.6 million barrels a day of oil in a market in which global supply and demand was already balanced on a knife –edge, all of a sudden everybody cares.

European motorists are already feeling the pinch at the pumps as the flow of Libyan oil slows to a trickle. Estimates of how much of Libya’s production has been shut down grow all the time. The latest estimate from the International Energy Agency pegs the loss at a million barrels a day. On top of that, 10% of Libya’s natural gas production has been shut down as ENI closed its Greenstream pipeline to Sicily.

Moammar Gadhafi, Libya’s dictator for the past 42 years, does not have many options at this point. Gadhafi has only to look to neighboring Egypt to see what happened to fellow ex-strongman Hosni Mubarark, potentially facing state prosecution on corruption charges, to quickly realize he and his millions have nowhere to go.

The days of catching a waiting plane to Saudi Arabia and living off the avails of your foreign bank accounts seem to be over for fleeing Arab dictators. Saudi’s King Abdullah has his own problems without inciting more by providing safe havens to the likes of despised despots like Gadhafi or Mubarak.

Meanwhile, unrest continues to spread throughout the Middle East like wild fire, putting more of the region’s 29 million barrel a day oil production at risk. Hundreds of thousands of protestors were in the streets of Yemen last week, while protestors clashed violently with authorities in Oman and Bahrain.

Most disconcerting to oil markets has been repeated reports of Shiite protests in the oil-rich Eastern province of Saudi Arabia. Despite King Abdullah’s attempt to buy off the potential protesters with $36 billion of new spending in the kingdom, authorities are bracing themselves for two “days of rage” planned for March 11 and March 20 to protest double digit unemployment and the lack of political freedom in the country.

Is the Royal House of Saud next on the growing list of deposed Middle East despots?

Certainly, their political right to rule isn’t any more legitimate, and perhaps no more sustainable, than Mubarak’s or Gadhafi’s.

If so, the path to $200 a barrel oil is a lot shorter than you think. Not only is Saudi Arabia’s limited spare capacity of heavy sour crude incapable of replacing what has been lost from Libya, but the kingdom’s own nine million barrels a day output may also be soon at risk.