Wednesday, October 31, 2007
This Chart Will Scare You
This Chart Will Scare You by Sean Brodrick - October 31, 2007, 7:15 AMSean Brodrick just got back from a Gulf of Mexico oil rig. Here's why U.S. oil production is so important …
Read the rest at ...
Tuesday, October 30, 2007
The Other Trouble With OPEC
I wrote a rather lengthy Money and Markets column for tomorrow. Here's one section that was cut out by my editor ...
A potential currency un-pegging is not the only problem with OPEC, nor even the most bullish for oil prices. The other problem is that the cartel is supposed to have spare production capacity of 2.3 million barrels per day, if you believe everything the Saudis and Kuwaitis tell you. It may be less than that … potentially a lot less.
In September, OPEC bowed to Saudi pressure and announced a production increase of 500,000 barrels a day, which takes effect Nov. 1. But the Wall Street Journal recently reported on a weekly report from Oil Movements, a British company that monitors oil-tanker traffic in an effort to get around the secrecy of major oil exporters such as Saudi Arabia and Kuwait. According to the report, OPEC shipments for the first 10 days of November appeared to be “well below the October equivalents.”
The Saudis and the Kuwaitis are the only OPEC members with any real spare capacity (and most of that is with the Saudis). You’d think with oil over $90 per barrel, they’d want to ship as much oil as possible, not less. And it sure doesn’t look like they’re gearing up for the new production quotas.
Is The Well Running Dry?
The bad news is that discovery of new fields peaked in 1965 and production has outpaced new discoveries every year since the mid 1980s. Production is falling hard in the North Sea, Mexico … and Saudi Arabia. While there is potential in Canada’s oil sands, it is longer-term and may not be nearly enough to make up the difference.
Now, the Saudis say they’re cutting back by choice. Sure, there are some who will tell you that the Saudis’ claims to “spare capacity” is just a sham to prop up the wobbly House of Saud. I’m not one of the people making those claims, because I don’t want you, dear readers, to start mailing me tin-foil hats.
And it’s true that while existing Saudi oil fields are depleting at an average rate of between 4% and 5% per year, down the road, the Saudis will be bringing new production online – big fields including Khursaniyah in the fourth quarter, Nuayyim and Shaybah next year and Khurais in 2009. Still, it’s something to think about.
Kuwait Takes The Plunge Into Heavy Oil
And while you’re at it, think about Kuwait.
Kuwait is known for the medium- to light-crude it pumps from its giant Burgan oil field. But two weeks ago, Kuwait announced plans to start production of heavy oil to meet its 2020 target of producing 4 million bpd.
Producing heavy oil is very different from light or medium oil. But Kuwait might be running out of options.
We already know that Burgan has peaked. In November 2005, Farouk Al Zanki, Chairman of state-owned Kuwait Oil, reported that the Burgan oil field production levels are running down. Burgan will now produce 1.7 million bpd for the rest of its 30 to 40 years, rather than previous estimates of 2 million bpd. In total, Kuwait currently producing around 2.6 million bpd, down from almost 3 million bpd in 1972.
And then there’s Kuwait’s reserves, which are reportedly depleting at over 5% per year. Last year, Petroleum Intelligence Weekly reported that Kuwait's oil reserves were about half what was officially reported, or 48 billion barrels, based on internal leaked reports. Kuwait denies the reports, but won’t disclose the size of its reserves for “national security reasons.”
If the Saudis and Kuwaitis can’t supply more oil, who can? Well, production is ramping up in Russia and some other suppliers. OPEC forecasts non-OPEC supply of oil (all liquids) to increase from 49.85 million bpd in the third quarter of 2007 to 52.12 million barrels per day in by the fourth quarter of next year.
In my opinion, that is unlikely to happen. Here are just SOME of the geopolitical brushfires flaring up across the oil patch …
- Russia is increasing is oil production by 2.6% per year, but is dogged production problems.
- Production is falling off a cliff in the North Sea – 8% or 9% a year. Britain’s oil output last year was the lowest since 1979, the first big year of North Sea production.
- Mexico’s oil production is down 3.9% year over year. In addition, Mexico’s state-owned oil company, PEMEX, briefly shut in 600,000 barrels per day of crude due to storms. This came after one of its oil rigs lurched over in high seas, collided with another rig, and left at least 19 dead.
- Endless unrest is disrupting supplies from Nigeria, and Sudanese rebels are attacking Chinese oil workers in that country.
Now, all these troubles sound far away, and not a real problem for Americans. The problem is it hits you every time you fill up your gas tank. But the much bigger problems are right here at home …
US Problem #1: For Want of an Energy Policy …
Clarence Cazalot Jr., president and CEO of Marathon Oil Corp., recently made a plea for a comprehensive US energy policy. He said that as worldwide demand for fossil fuels rises, the country's biggest challenge is dealing with these and other related issues underlying U.S. "energy security." Other top CEOs have spoken out on the same issue – the US needs a comprehensive energy policy.
The White House did roll out a sort-of energy policy in 2001 – designed by Vice President Dick Cheney’s secret energy task force. Even before he revealed his energy policy, he said that “conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy.” So, it’s not surprising that the White House plan was piece-meal and seemed more focused on handing out goodies to friends in high places rather than coming up with a comprehensive plan.
That’s a shame, because no country on Earth is more vulnerable to higher oil prices than the US. We import over half our oil. More importantly, the US uses 25 barrels of oil per person per year, compared to 12 in Western Europe, two in China and one in India. Of these 25, about nine are produced domestically and 16 imported.
Conservation led to increased efficiency after the 1979 oil shock, and that’s how Americans cut oil use 15% in six years while the economy grew 16%. I think it’s something we have to try and soon.
Energy conservation is also called “negawatts,” and it’s a fact that the cheapest energy in the world is energy you don’t use. If Americans want to see oil on the down side of $50 per barrel ever again, we might want to consider making energy conservation our next national project. If we keep using energy the way we are now, all the drilling in the world won’t save us.
US Problem #2: The Falling US Dollar
We at Weiss Research have been pounding the table about the weakening US dollar for quite some time, but the decline so far may be just a bump compared to the plunge around the corner. Saying that our elected windbags in Washington spend money like drunken sailors is an insult to drunken sailors. Runway consumer debt, credit inflation and the bursting real estate bubble are compounding the problem. And now, the US economy is slowing down even as the rest of the world bustles along.
The International Monetary Fund has targeted global economic growth at over 5%, led by powerhouses including India and China. Even Europe is expected to grow at about 2.5%. But in its latest World Economic Outlook, the IMF put the US’ 2007 economic growth rate at 1.9%, and said 2008 would see the same sluggish growth.
It’s pretty bad when “old man” Europe is outpacing you. In practical terms, this means international investors are more likely to steer their funds away from the US toward other countries. And that will send oil prices higher, because oil has a negative correlation to the US dollar of over 80%.
We’re already seeing this effect on oil and the dollar. And if OPEC does move to pricing oil in a basket of currencies, as I talked about earlier, that could turn the dollar’s slide into a free-fall.
Could anything drive the price of oil lower? Well, if the US dollar bounces, that would help. Or if the US economy goes into recession, that might lower oil demand around the world enough to send prices lower. But don’t count on that for two reasons …
#1) A recession in the US would send the value of the US dollar lower as well
#2) During the first eight months of the year, China's net imports of crude oil rose 18.1% over the same period last year. In other words, if we don’t buy the oil, someone else will.
There are many other things that could affect the price of oil – a clash on the Turkey-Iraqi border, a sudden spurt in supply or more storms in the Gulf of Mexico to name three. We should see corrections to the big trend. But the big trend should remain oil prices up and the US dollar down, so those corrections should be bought.
Labels: crude oil
Groping for Alternatives to the Housing Mess
I find his plan interesting, though I don't like the part about giving renters leases "forever." That's restraint of trade for one thing, along with making people permanent landlords when they never wanted to do such a thing AND potentially prolonging a new kind of housing crisis. Still, Mr. Baker's plan has some interesting ideas -- maybe it could be fixed with long-term (as opposed to "permanent") leases. And that's my point -- I think we should be exploring alternatives, because cutting interest rates isn't the panacea it's supposed to be.
Meanwhile, some parts of the world are still having massive real estate booms.
If It's Tuesday ...
Oil Falls as Mexico Resumes Pumping; US Stockpiles May Rise Petroleos Mexicanos will today pump 600,000 barrels a day of output that was halted two days ago by storms in the Gulf of Mexico, spokesman Carlos Rameriez said.
Australia's Wheat Harvest Forecast Slashed 22 Percent as Drought Hits Crop Australia cut its wheat harvest forecast for the third time as the nation's worst drought damaged crops, adding pressure to shrinking world supplies that drove up prices to a record last month.
Gold Falls in London on Speculation Rally Was Overdone; Silver Also Drops Gold fell in London on speculation a three-week rally to within 0.7 percent of $800 an ounce didn't reflect expectations that mining companies are expanding production. Silver also dropped.
Qatar Says Natural Gas Is `Very, Very Undervalued' Compared With Crude Oil Qatar, the world's largest shipper of natural gas, said natural gas is ``very, very undervalued'' compared with oil.
Monday, October 29, 2007
Venezuela: OPEC to Study Currency Basket for Pricing
CARACAS (Reuters) - OPEC is likely to discuss creating a basket of currencies for oil pricing at its next summit due to the steady decline in the dollar, Venezuela's Energy Minister Rafael Ramirez said on Friday.
"The need to establish a basket of currencies ... will probably be a point of discussion in the next OPEC summit," Ramirez told reporters during an evening event in the presidential palace.
"The dollar as a benchmark currency has been weakening quite a lot and it creates distortions in oil markets."Read the rest by CLICKING HERE.
The only upside to this is that Venezuela is known to lie through its teeth when it comes to matters of oil, OPEC, and tweaking George W. Bush. But that's not much to hang your hat on.
Monday Is Chart Day
I'm focused on oil after my trip last week, but let's look at gold as well ...
This chart comes from OPEC’s Monthly Oil Market Report for October 2007, and shows how crude oil prices tapered off in September of 2005 and 2006 (the green and black lines) along with seasonal demand. Not this year. The red line shows that global demand this September was strong and getting stronger . As the report says: “In recent years, oil prices have tended to ease with the end of the driving season and the start of the autumn refinery maintenance. This year, however, prices have exhibited unusual strength and high volatility even beyond the end of the driving season.”
The OPEC report goes on to say: “Over the last few years, product markets experienced a sharp downward correction in September, adversely affecting the entire petroleum complex. However, this trend has been significantly diminished this year … With the approaching winter season, the momentum of the product markets may improve further, providing support for refinery economics and crude prices. However, the major wild cards continue to be weather conditions, particularly in
In other words, OPEC says prices are strong and getting stronger. That sure sounds like a recipe for triple-digit oil to me.Discovery of new fields peaked in 1965 and production has outpaced new discoveries every year since the mid 1980s. Production is falling hard in the North Sea,
Oil has a negative correlation to the US dollar of over 80%. We’re already seeing this effect on oil and the dollar. You can see it when you look at oil in other currencies. While
Gold is also negatively correlated to the US dollar. I'm more bullish on gold than I am on oil right now (my target on gold remains $872), but Tropical Storm Noel could change that in a hurry. Strap on your safety belts, it's going to be a wild ride!
What the Hell Is Wrong With CNBC?
And all last week, whenever I would turn on CNBC (admittedly, I was busy, so it wasn't a lot) it was one idolizing, star-struck interview after another with this or that retired CEO. For Pete's sake, CNBC, give me some news!
I have basic cable in my office, but I may have to pony up for a box so I can watch Bloomberg or the new Fox financial channel. On the other hand, Rick Santelli is not only the best thing about CNBC, he's one of the best financial journalists, period.
Friday, October 26, 2007
Site Visit to Oil & Gas Platforms
But here are some photos from the site inspection we did yesterday.
Here is my ride -- a Sikorsky 76, the Cadillac of the skies.
Well, maybe not a Cadillac -- there are bigger helicopters -- but this seats 12. We took off from the helipad next to the Superdome ...
Here's where I say "bye-bye, N'awlins -- we're off to the swamps." First, though ...We flew and flew and flew to refuel at a busy heliport where there were enough birds landing and taking off to cause a bit of a traffic jam. These guys are playing chicken with us (not really, LOL). But that's awfully close for comfort, eh? Finally ...
Hello, swampland. By my figuring, it's not so much land as a less-wet part of the ocean, lol.
This is the first site -- a barge rig that is drilling a good prospect. You can see it's been parked next to a busy canal intersection and that's barge traffic coming in from the right side. This part of Louisiana is crawling with barges, fishing boats, you name it.
Then we flew offshore, over a nature preserve, to the actual Gulf of Mexico to our second site ...
This one is a working production platform with three wells. You can see a helipad over one of the wells, but it was too small for comfort for our helicopter (you can see our helicopter's shadow). At least, that's what they told me. I think they were more worried about losing their CEO and more all in one shot if we messed up our landing. Har-har!
Anyway, it was a busy day, and very informative.
So what company was it? You'll have to tune in to Money and Markets next week to find out.
Tuesday, October 23, 2007
Leaving on a Jet Plane
Here are some stories you might want to read ...
Weak Mexican Peso Shows Oil Monopoly Undermining Growth, Reducing Surplus Mexican President Felipe Calderon is delivering a grim message: The largest oil producer in Latin America is running out of crude.
Crash of Frontline, Overseas Shipholding, Teekay Nears on Freight-Oil Gap The record increase in oil prices and the unprecedented number of new tankers transporting crude is a stock market crash waiting to happen.
China Economy May Grow 11.5 Percent With 4.3 Percent Inflation, NDRC Says China's economy may expand 11.5 percent and the inflation rate will be 4.3 percent this year, said Wang Xiaoguang, an economist at the National Development and Reform Commission.
Monday, October 22, 2007
Strap in for a Wild Monday
If the US dollar continues to weaken, gold stocks should continue to do well -- just remember there could be lower prices in the short term as panicked investors throw the baby out with the bathwater. For those with a longer-term view -- me, and hopefully you -- that means we'll get better prices on great stocks in a bit.
Since the US is such a big consumer of oil, it may be tougher for oil stocks. And uranium stocks, which have only recently started to turn up again, still look pretty good. Maybe partly due to news like this ....
Paladin Says Uranium May Rise to $110 a Pound in First Quarter Paladin Resources Ltd., which runs a uranium mine in Namibia, expects the price of the metal to rise to as much as $110 a pound in the first quarter of next year, a gain of about 40 percent. ``Availability is the issue,'' Paladin Chief Executive Officer John Borshoff said at a BMO Capital Markets meeting in London today. He forecast first-quarter prices at $105 to $110. The spot price of the metal that's processed as fuel for nuclear reactors rebounded to $78 a pound last week, halting a decline from a record $138 a pound in June, according to TradeTech LLC, a Denver-based pricing service.
``I heard a utility participated'' in the transaction, Borschoff said. ``It wasn't just some hedge fund.''Is there any good news in the world? Well, if, like me, you're from New England, there is THIS and THIS. But I live in Florida, so Sunday's victory by the Patriots was a bittersweet one for me.
And the market action this week may be bittersweet as well -- it may hurt to see the markets pull back, but remember that we'll get good prices on great stocks down the road.
One last note on the US dollar -- Boris Schlossberg, the crackerjack currency analyst at FXCM, has this to say: "The absence of any clear indication of support from the G-7 suggests that monetary officials will not intervene either verbally or physically to stem the dollar's decline. This leaves the greenback at the mercy of the speculators who will likely push it further down especially if they become convinced that the Fed will be forced to lower rates another 25bp in October with perhaps yet another 25bp cut in December yet to follow. The prospect of additional rate cuts and the lack of any political support leaves the greenback wide open to further momentum selling. The G-7 monetary officials may have miscalculated when they assumed that the US currency will continue its decline in a measured fashion. If the EURUSD hits 1.4500 this week, expect far more aggressive rhetoric from the G-7 authorities as fears of dollar dumping will begin to sweep the market."
Be careful this week. Good luck and good trades.
Saturday, October 20, 2007
Contestant #1 ...
Contestant #3 ...
Contestant #4 ...
The first one is mine; I was going for kind of a harvest theme. The second one belongs to my 5-year-old son. He wanted wings on his mask -- he thinks he's a superhero. His is actually pretty good, as he's very artistic for a little dude. The third belongs to my 8-year-old daughter, and pretty much represents the attention-deficit disorder you associate with that age. The fourth is my wife's -- very "girly." Notice we all chose "bats" -- I guess that describes my family, LOL.
Are Your Car's Precious Metals in Danger?
At garages all over the city people are having their cars repaired after being victimized by the fast-as-lightning thieves. Mechanic Scott Anderson has seen "about three [cars] in the last week" with their catalytic converters missing.It doesn't take long to get the converters out a car, he says, and the part is worth anywhere from a couple of hundred dollars to a couple of thousand, because catalytic converters contain precious metals like platinum, palladium and rhodium.
Friday, October 19, 2007
Good Trade for a Bad Week
MACD, the momentum indicator on the bottom of the chart, gave me a good "sell" signal at the end of last week, and the IYF fell below its 20-day moving average, which is why I entered the trade on Tuesday. It has since closed below the 50-day moving average, confirming a bearish trend.
I'm still long an energy stock in RHR. We banked half gains and moved the stop up close. Why did I let the rest ride? Because we've been bagging gain after gain in energy, and oil ran up a lot higher, faster, than I thought it would. Maybe, despite Friday's pullback, oil will resume its bull run.
However, oil stocks, as tracked by the XLE, are pulling back sharply. Commodity stocks can often lead the underlying lower. I think this is signalling that crude is going to pull back.
Another indicator -- the tighter and tighter crack spread of gasoline over oil. The fact that gasoline prices aren't rising with oil tells me that consumer demand for gasoline is probably weakening. This is another indicator of recession.
As for gold, the jury is still out. We might get another interest rate cut out of the Fed, which would be bullish for gold prices, but only some gold stocks are participating in the latest rally -- maybe indicating consolidation to come in precious metals as well.
Natural resources have had a great run lately, so it's not surprising there is profit-grabbing, as Red-Hot Canadian Small-Caps subs did a couple days ago. It's all part of the ebb and flow of the market.
Let's look at a daily chart of the S&P/TSX Composite ...You can see that the S&P/TSX Composite is dropping below its 20-day moving average (the red line) today. Many "black box" technical trading systems take that as a sell signal. The TSX has enjoyed a great run since its low in August, so it is due for some consolidation before the next leg up.
My target for a pullback would be the Bollinger Band -- right around 13922. It's not written in stone -- there is other support at 13663. And, of course, the TSX could rally this afternoon to close back above the 20-day moving average.
The Green line on the bottom is the longer-term uptrend. Will the TSX pull back that far? It's scary to think about, but just think of the opportunities.
I'm glad we took some gains. One of those didn't work out as planned, because the stock pulled back too quickly for you to get filled on the order. Hold it -- a pullback should lead to another rally.
Labels: Red-Hot Canadian Small-Caps
News for Friday
Wachovia Earnings Miss Estimates on Trading Losses, Home-Loan Writedowns Wachovia Corp., the bank that's spending more on acquisitions than its biggest U.S. rivals, said earnings dropped for the first time in six years after trading losses and writedowns for home loans.
XX Sean's note -- it looks like we added the UltraShort Financials (SKF) in Red-Hot Resources at the right time on Tuesday. On the other hand, we're still waiting for the UltraShort QQQ to work out.
Canada's Dollar Rises to a 33-Year High as September Inflation Accelerates Canada's dollar rose to the highest since June 1974 after a government report showed higher-than- forecast consumer prices last month, increasing speculation that the Bank of Canada may increase interest rates.
Paulson, Lagarde, Divided on Dollar, Unite to Seek Higher Yuan From China China is facing broader pressure to let the yuan strengthen as finance ministers and central bankers from the Group of Seven nations meet today.
Crude Oil Tops $90 for First Time After Dollar Extends Decline Versus Euro Crude oil surpassed $90 a barrel for the first time and is set for the biggest weekly gain since March after the dollar traded near a record low against the euro, enhancing the appeal of commodities as an investment.
Aluminum Will Rise 30 Percent by 2009 on Chinese Imports, Bernstein Says Aluminum will rise 30 percent by 2009 because China, the world's largest consumer and producer of the metal, will become a net importer of the commodity, Sanford C. Bernstein Ltd. said.
Baosteel Says Iron Miners Can't Keep Pace With Demand as Steel Output Rose Baosteel Group Corp., China's biggest steelmaker, said iron ore supplies are lagging behind demand from the country's mills, indicating it may struggle to hold down prices in talks with mining companies led by BHP Billiton Ltd.
Wheat Gains in Chicago as U.S. Says Crop Area May Rise Less Than Expected Wheat futures in Chicago rose for a second day after U.S. government forecasts raised concerns that farmers may plant less of the crop than expected. Corn and soybean futures were little changed.
Wednesday, October 17, 2007
Ethanol Glut Shutters Another Plant
Corn-based ethanol just can’t win. Even Biotown USA — a town renamed for biofuels a couple years ago — couldn’t make the economics of an ethanol plant built by VeraSun (VSE) work in this current market. Now another ethanol producer, BioFuel Energy Corp. (BIOF), has said it’s halting work on its third planned plant due to a production glut and dropping ethanol prices.
An ethanol surplus created by market subsidies combined with a lack of infrastructure for its delivery and use has pushed down the average price of ethanol some 30 percent since May. Add in the rising cost of corn, and some ethanol plants have been pushed to the brink of bankruptcy in recent months. It’s a dangerous time for ethanol investing.
Here's my analysis (that I just sent to Bloomberg)
The September consumer price index numbers are in, and while we can argue whether they really effectively measure inflation, the numbers do move the market. The Cliff’s Notes version: Inflation is heating up.
The September headline CPI number was up 0.3%, compared to a 0.1% decline in August. A lot of people watch the energy component of the headline CPI. Well, the index for energy, which declined in each of the preceding three months, rose 0.3% in September – remember, it declined in June, July and August.
The big mover in September wasn’t energy – it was food. Food and beverages climbed 4.4% in September. The food index rose at a 5.7% seasonally adjusted annual rate (
I wrote about food inflation in a MoneyandMarkets.com column that was published today. You can find it here: http://moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1106
Food and energy are excluded from core CPI, making it effectively useless. Still, for those keeping track, September core CPI rose 0.2%. Rents came down a bit, clothing was up a bit. If you’re not measuring food and energy, it’s easy to get a low number.
Year over year, the headline CPI number was up 2.8%, and core was up 2.1%. Year-to-date, inflation is running at a 3.6% rate. Compare that to a 2.5% rate for all of 2006. Again, energy is leading the way – up 11.7% so far, year to date, compared with 2.9% in all of 2006.
I believe that inflation is going to heat up going forward, led by energy and food. Keep your eye on food. As I say in my MoneyandMarkets.com column, American consumers now spend about 8.5% on food at home. That's way down from an average of 19% of the total budget in 1960. Historically, food takes up a much larger part of our budget, and I think it’s going to do that again.
Dropping the A-Bomb!
USDA Drops an Agricultural Bombshell!
by Sean Brodrick - October 17, 2007, 7:15 AM
U.S. wheat supplies are reaching multi-decade lows, and corn is getting gobbled up by a hungry world.
And the latest on the portfolio's performance ...
Remember, it's not too late to get this report and climb aboard the gain train before it leaves the station. To get this report, CLICK HERE.
Tuesday, October 16, 2007
Spot Uranium Price Goes HIGHER!
Uranium price climbs for first time in 17 weeks Uranium has shown its first sign of strength in quite some time. After falling or remaining flat for 16 weeks, the spot price for uranium climbed US$3 to US$78 per pound last week. "Buyers have begun re-entering the market," TradeTech said in its Nuclear Market Review.
... snip ...
It looks like the price for uranium has bottomed and a “moderate and more orderly appreciation in price is about to begin,” according to Blackmont Capital analyst George Topping.
“Although we do not know the volume associated with the TradeTech price, we note that for the past 2 weeks we have seen stable prices, but with much higher volume,” he wrote in a note to clients.So, I DID call the bottom on uranium in my October 3 MoneyandMarkets.com story, "A Distant Metal Thunder." Hoody-hoo! I was sweating that one, I don't mind telling you.
I would give you a link, but the technical geniuses at Weiss Research have redesigned the website so we can no longer give direct links to back issues. What will they think of next? Maybe they can go to all-black type on a black background, or something equally as useful.
And yes, that was sarcasm.
UPDATE: Wait! I can give you a link to that story at The MarketOracle.co.uk in the UK. Here you go: http://www.marketoracle.co.uk/Article2343.html
Funny that I have to send you to a non-Weiss site to show you the story I wrote, but again ... we're dealing with GENIUS!
Short-Term Market Outlook
OIL AND GOLD
Oil hit $88. It may have gone up too far, too fast, $92 is my line in the sand short-term, and I expect some consolidation before the next real run higher begins.
Gasoline should go higher due to supply squeeze, but it may follow oil if oil turns lower.
Gold hit $772 then reversed. (UPDATE: Now it's up again! Holy cow!) Looks technically poised for a pullback, but it really depends on what happens with the US dollar, which is managing a pathetic bounce.
So many investors saw tech as a refuge and piled in long after it became overpriced. Nasdaq is richly valued and bad news could burst the bubble of great expectations.
LM Ericsson's stock, which is listed on the Nasdaq, is getting hammered after the company softened its third quarter outlook "due to a shortfall in sales in mobile network upgrades and expansions which resulted in an unfavorable business mix.”
ValueClick shares tumbled Tuesday after the online-advertising firm lowered its outlook. This is a harbinger of doom for online and some tech stocks. Amazon and Overstock were both downgraded. IBM, Intel and Yahoo all report earnings after Tuesday's market close. I expect disappointment, though number-fudging can always come to the rescue.FINANCIALS
Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. are starting an $80 billion to help revive the asset-backed commercial paper market.
The new company will buy assets from structured investment vehicles (SIVs), units set up to purchase securities such as bank bonds and subprime mortgage debt. Problem is, The SIVs have about $320 billion in holdings, which is now, according to some accounts, so much worthless paper.
Wall Street breathed a sigh of relief in recent weeks when one big bank after another reported “all the bad news” in earnings. They thought that this kitchen-sink approach meant earnings could only go up in future quarters. Now it looks like it’s not only the kitchen sink, but the entire plumbing that is rotten.
I think the big financials think $80 billion will be getting off cheap. And that is a scary thought for anyone who is long the financials.
The news this morning isn’t good, either.
Exports running way ahead of expectations. Droughts around the world are heating up foreign demand.
Sky-high wheat prices are grabbing the headlines, but keep your eye on corn. Demand for corn is rising. Corn usage will jump 5.3% to 763.7 million tons, the USDA said. Corn is used to make sweeteners and ethanol as well as animal feed. Farmers are substituting corn for sky-high wheat. The real growth in demand is overseas. US exporters just reported sales of 242,000 metric tonnes of corn to
And the Koreans aren’t alone. Customers are lining as a killer drought withers the
This all puts a lot of money in farmers’ pockets, so they’ll be buying lots of fertilizer and seeds to plant from fence to fence. Equipment makers should have a bumper year.
News You Can Use for Tuesday
Treasury Chief Aims to Steady Credit Markets Two months ago, when credit markets around the world were freezing up in panic over failed mortgages, Treasury Secretary Henry M. Paulson Jr. said that he was confident investors would work things out for themselves. ... But in a sign that administration officials are more worried about underlying problems in the markets than they had previously let on, Mr. Paulson and other top Treasury officials are prodding and pushing Wall Street firms and the mortgage industry to come up with solutions — and helping devise some of them as well.
Paulson Pressured by G-7 Demands to Shore Up Dollar, Ailing Credit Markets A former Master of the Universe like Henry Paulson doesn't often find himself on the defensive. At international meetings this week in Washington, he will be.
Hong Kong Stocks' `Obscene' Discount to China Shares Lures Mobius, Baring Hong Kong's most expensive stock market in three years looks cheap to investors at Templeton Asset Management Ltd. and Baring Asset Management Inc.
China's $200 Billion Fund May Get More Currency Reserves for Investments China Investment Corp., which manages the $200 billion sovereign wealth fund, said it may get more of the nation's record currency reserves to invest based on returns.'
ICICI Venture to Raise $2 Billion For India's Biggest Real Estate Fund ICICI Venture Funds Management Co., a unit of India's most valuable lender, plans to raise about $2 billion for the nation's biggest real estate fund, tapping a market that's estimated to grow fivefold in a decade.
India's Economy Is at `Take-Off' Stage, Poised to Accelerate, Lehman Says India's economy is at a ``take-off'' stage and is poised to grow as much as 10 percent a year for the next decade, Lehman Brothers Asia Ltd. said.
Monday, October 15, 2007
China's "Crisis = danger + opportunity" is a lie
Turns out that's a lie. Listen to someone who actually speaks Chinese ...
From Pinyin.info ...
A whole industry of pundits and therapists has grown up around this one grossly inaccurate formulation. A casual search of the Web turns up more than a million references to this spurious proverb. It appears, often complete with Chinese characters, on the covers of books, on advertisements for seminars, on expensive courses for "thinking outside of the box," and practically everywhere one turns in the world of quick-buck business, pop psychology, and orientalist hocus-pocus.
The explication of the Chinese word for crisis as made up of two components signifying danger and opportunity is due partly to wishful thinking, but mainly to a fundamental misunderstanding about how terms are formed in Mandarin and other Sinitic languages.
Read the rest of this fascinating piece at http://www.pinyin.info/chinese/crisis.html
Rock, Lock and Load for Monday
Copper Leads Advances on London Exchange as Dollar Weakens; Nickel Gains Copper snapped two days of declines, leading gains on the London Metal Exchange, with dollar weakness against the euro attracting buyers using other currencies. Nickel and lead also rose.
Gold Rises to a 27-Year High in London Trading, Platinum Jumps to a Record Precious metals extended gains, with platinum climbing to a record and gold rising to the highest since 1980 as a decline in the dollar spurred demand for alternative investments.Keep your eye on the action in the US dollar, it could be the key to everything. The euro surged through overhead resistance against the US dollar today. While it looks like the Fed is not going to cut interest rates again, signs are that the ECB Central Bank may raise rates sooner rather than later, despite the record high exchange rate of the EURUSD.
Why? Because inflation is heating up in euro-land, and unlike our central bank, the ECB takes inflation seriously. Also, their economy is firing on all cylinders, with internal demand more than making up for falling exports (exports are falling because the euro is already so high). So, the ECB probably figures that the euro economy can absorb the hit of another rate hike.
More Charts of Interest ...
Overnight, there was bullish action in Paladin on the Australian Stock Exchange overnight. Paladin and Uranium One have been lagging the rebound in some other uranium stocks. I think Uranium one has the potential for a surge to its recent downtrend.
Sunday, October 14, 2007
Sunday Morning Reading
Here is the opening ...
You don't see the paperwork. You won't see the panic. But behind doors in Palm Beach County and along the Treasure Coast, from the meanest fixer-upper to the glitziest gated community, thousands of homeowners are struggling to make the mortgage.
You don't see the paperwork. You won't see the panic.
But behind doors in Palm Beach County and along the Treasure Coast, from the meanest fixer-upper to the glitziest gated community, thousands of homeowners are struggling to make the mortgage.They are failing.
Between Jan. 1 and July 1, homeowners in Palm Beach, Martin and St. Lucie counties defaulted on 4,318 mortgages worth $1.05 billion. That's a 311 percent increase in defaults from the 1,051 recorded during the same period in 2006.
Loans in tony new communities crashed just as disastrously as homes in Counterpoint Estates, the aging middle-income subdivision just down the road from Versailles' golden gates. Condos that once generated traffic jams of eager buyers went dark.
Along some streets, next-door neighbors defaulted like dominoes: Waterway Cove in Wellington; Gazetta and Cresta Way in the Terracina subdivision in West Palm Beach; Strawberry Lakes Circle west of Lake Worth; Gull Road in Palm Beach Gardens.
Dry-as-dust court filings and bumper crops of rent-to-own yard signs merely hint at how deep the problems run. The $1.05 billion would buy the net assets of Florida Atlantic University — twice. And the number of soured mortgages adds up to one for every man, woman and child in Juno Beach.
Millions of dollars in mortgages collapsed before a single payment was made. Borrowers holding pre-construction loans defaulted on dirt before homes could come out of the ground.
The whole thing is worth reading. Point your browser to http://tinyurl.com/2o62ye
More good Sunday reading ...
1)A Universe Without Time? a paper by a group of astrophysicists in Spain has been making the rounds on the web since it suggests the Universe might be losing the dimension we call time. What we call existence, or as "Doc Brown" would call the Space-Time Continuum, is composed of 3 dimensions of space (X, Y and Z) and 1 dimension of time (T).
But what if the time dimension changed? What if the dimension of time became space-like?2) If all this talk of Branes and alternate universes is over your head, you might want to check out the BBC's great introduction to string theory and parallel universes. What, you thought the universe ran on quantum mechanics? Dude, that is so 20th Century! Did you know, for example, that the latest (and highly regarded) theory posits that gravity does not originate in our universe, but "leaks in" from another universe? Freaky-deaky!
3) Paging Mad Max! Atlanta could run out of water in three months. Seriously, as little as three months to the Apocalypse in Atlanta, as Lake Lanier runs dry. If you think people freak out waiting in line to buy a Wii, just wait until they try and turn on the water tap in their kitchen sink and nothing comes out but air.
4) Treasury Debt Sales May Rise 50 Percent as Budget Deficit Suddenly Swells Sales of Treasuries may increase for the first time since 2004 as the U.S. federal budget deficit expands, jeopardizing the biggest bond rally in five years.
5) IMF Said to Cut 2008 Growth OutlookThe Washington-based group now expects global economic growth of 4.8% for next year ... The new global forecast was down by 0.4 percentage point from the 5.2% predicted in July, before global financial markets were shaken by the fallout from the subprime mortgage lending crisis in the United States. The crisis has sparked a credit squeeze, raising the cost of borrowing.The IMF will also cut its growth forecast for the U.S. to 1.9% from 2.8% previously, and for Canada to 2.3% from the earlier 2.8%
Friday, October 12, 2007
So How's That Agriculture Boom Report Doing?
Not too bad for one month!
NOTE: I've fixed the google spreadsheet so it should update automatically.
And it's not too late to get onboard these picks. To climb aboard this profit train before it leaves the station, CLICK HERE.
First of all, core PPI is useless. It excludes food and energy, the most inflationary forces at work in the global marketplace right now.
Secondly, the 1.1% increase in wholesale prices was the largest increase since February. Leading the was energy, up a huge 4.1% in September. And that was the biggest increase since last November. It was also a huge swing from the 6.6% drop in August.
Food prices are also heating up – up 1.5%. Compare that to a drop in food prices of 0.2% in August.
The fact is, fundamental forces are lining up that should drive both food and energy much higher.
For energy, some of those forces include …
* Net crude oil imports for China -- which is already the world’s second largest oil importer -- totaled 108 million tonnes for the first eight months of 2007, according to China’s General Administration of Customs (GAC).
That’s up a stunning 18.1% compared to the same period last year and sends a clear message that China’s energy demand continues to explode higher. Bullish for oil and energy-related shares? No doubt about it.
* Stockpiles are dangerously thin. Inventory started to drop in October of 2006, due to a lack of more pumping by OPEC, a lack of new supply from non-OPEC producers, and rising extraction costs that make every barrel of oil more expensive than the last .
* $100 a barrel oil could hit the market by 2008 -- just a few months away, according to the latest report from investment bank CIBC World Markets
For food, some of the things to watch going forward include …
* Global grain supplies hit their lowest level in 26 years! Worldwide, grain production fell short of production in 8 of the last 9 years. This has lowered grain supplies to the lowest level in 26 years, and they continue to fall, and should drop to 114.8 million tons by May 31, 2008. That would be only 67.5 days of supply -- the tightest in modern history. And it’s only going to get worse – global grain demand is growing by 31 million tons per year.
* Demand for grains isn’t slowing down ... it’s rising by 31 million tons a year!
* Demand for ethanol is through the roof, driving up the price of corn, sugar cane, and related products.
* China’s hunger for grain and meats is soaring. China’s grain demand is rising above its output. It fell short by 10 million tonnes last year, and despite bumper crops, the problem should get worse going forward. Arable land is shrinking in China – dwindling by 8 million hectares between 1999 and 2005 – and China’s use of corn-based ethanol is pressing on tight supplies.
* Crops are being hurt by both droughts and floods. Droughts in Europe will lower harvests in Germany and France by 10% and a drought in Canada means the smallest wheat crop in five years … in Australia, lack of rain is dropping the wheat harvest by 29% … and in the Ukraine, the world’s seventh-largest wheat producer, drought is turning 58% of its exports to dust. Meanwhile both droughts and floods have hammered China and cut its wheat output by a tenth. Hurricane Dean trampled Mexico’s corn harvest. In the US, we may be having the largest corn crop ever, but our customers are lining up around the globe to buy it. And rising energy prices should support corn prices too, as more corn is turned into ethanol.
* Global Warming is making things worse. A recent study shows that global temperatures increased enough between 1981 and 2002 to reduce major grain crop yields by an annual average of 40 million metric tons.
Add it all up and we should see continued upward pressure on prices. If the Fed continues to cut, that is going to open the door wide for inflation. Investors should buy gold and silver, and select miners that are leveraged to the metal, to hedge!
Thursday, October 11, 2007
Home Foreclosures Doubled in September on Loan Rates U.S. home foreclosures doubled in September from a year earlier as subprime borrowers struggled to make payments on their adjustable-rate mortgages, RealtyTrac Inc. said.
Also, interesting analysis of it HERE.
BP Says Job Cuts Are Inevitable After `Dreadful' Third-Quarter Performance BP Plc, Europe's second-largest oil company, said job cuts are ``inevitable'' as part of a shake-up following a ``dreadful'' performance in the third quarter.
XX My take -- oil over $60 and BP has a dreadful quarter? Sounds like some jobs should be cut at the top as well.
Wheat Rises on Speculation of Less Output in Australia, and Rising Demand Wheat futures in Chicago gained for a second day after a forecaster lowered its production estimate of the grain in Australia and as importers sought supplies after prices fell from a record last month.
Gold Advances to 27-Year High in London on Dollar's Decline; Silver Rises Gold rose to a 27-year high in London on speculation that a decline in the dollar will prompt investors to buy the precious metal as an alternative investment. Silver also rose.
Crude Oil Rises a Third Day in New York on Concern Fuel Supplies Declined Crude oil rose for a third day on speculation a U.S. Energy Department report will show fuel supplies fell before the peak winter demand season.
Aluminum Gains for Third Day as China to End Power Discounts for Producers Aluminum rose for a third day after China, the largest producer of the metal, said it would halt electricity discounts for the industry. Copper and nickel gained.
XX Let's see, wheat ... up. Gold ... up. Oil ... up. Aluminum ... up. But the folks in Washington don't see any inflation, no sir.
Wednesday, October 10, 2007
Charts for Red-Hot Global Small Caps
Our production supervisor wisely decided to send the issue out, sans charts. Here, in all their glory, are the charts that would have looked SO much better in the issue.
Many uranium stocks are rising off their lows, so it’s no big surprise that Paladin may be joining the party. The only news is that Paladin may be one of the potential buyers of Rio Tinto Group's Kintyre uranium deposit in
Syngenta was upgraded by Morgan Stanley yesterday – better late than never, I guess. The good news is the higher price target from the big broker was rocket fuel for Syngenta’s share price.
First, my latest MoneyandMarkets.com column, "Fading Green, Brighter Gold."
Second, my colleague Mike Larson's take on yesterday's release of the Fed minutes.
More news ...
Iron Ore Price to Gain 25 Percent in 2008 on China Demand, Sinosteel Says Sinosteel Corp., China's second- biggest iron-ore trading company, expects the contract price for the steelmaking ingredient to gain 25 percent next year, driven by increased demand, a company executive said.
Suzuki Sells More Cars in India Than Japan for First Time on Rising Wages Suzuki Motor Corp., Japan's second- largest minicar maker, sold more vehicles in India than its home market for the first time, twenty-five years after it entered the country.
S&P/ASX 200 Index Extends Record High; BHP Billiton, James Hardie Advance Australian stocks rose, extending the benchmark's record high, led by BHP Billiton Ltd. and Rio Tinto Group after prices for metals and oil climbed.
Lead Rises to Record in London as New Supply Fails to Keep Up With Demand Lead rose to a record for a second straight day in London on speculation new supply won't keep up with rising demand. Copper reversed a decline and aluminum rose.
Tuesday, October 09, 2007
News and Charts for Tuesday
XX My view -- a blind alley cat could see the US is slowing, and odds of "less than 50 percent" is slightly better than coin toss. Considering that the man prides himself on speaking in circles, that he sowed the seeds for the housing bubble, and that he told homeowners it was "smart" to use ARMs-ageddon-type loans, maybe Greenspan should just STFU.
Recycled Petrodollars Fuel Treasury Rally as OPEC Revenue Rises 9 Percent The biggest quarterly rally for U.S. government securities in five years is getting an extraordinary boost from the burgeoning reinvestment of petrodollars by the Organization of Petroleum Exporting Countries. OPEC members increased their holdings of Treasuries 12 percent this year through July to $123.8 billion, Treasury Department data show. The prospect that OPEC's share of U.S. debt is growing is based on the 31 percent rise in oil since December, which will raise OPEC revenue 4 percent to $630 billion this year and 9 percent to $688 billion in 2008, according to estimates by the U.S. Department of Energy.Australian Dollar Falls From 23-Year High as Prices of Metals Exports Slip The Australian dollar fell from a 23- year high after a slump in metals prices reduced the value of commodity exports from the Asia-Pacific's fifth-biggest economy.Market correction for grains this week? Last Monday we thought the market was showing signs of being overbought, and the cycle counts were suggesting weakness into the October Supply/Demand report. We have not been disappointed by the market action. Many private advisory services are coming out with increased corn yield projections. We would not be surprised to see an average corn yield come in around 158. We continue to believe most of the bearish fundamentals will be factored in prior to the Supply/Demand report on Friday. While the market may trade lower after the report, we believe the odds will be better than 60/40 we could have a bearish report and bullish reaction, especially for the deferred price contracts.
Monday, October 08, 2007
Why US Investors Should Be Putting Money in Canada, and Not Visa Versa
As of Oct. 3, the year-to-date returns on the S&P 500 in the United States are 8.6 per cent.
However, when we factor for the 17-per-cent increase in the loonie, the positive 8.6-per-cent gain turns into a 7.2-per-cent loss.
The same is true for the Dow and Nasdaq, up 12.3 per cent and 13.2 per cent respectively, but off four per cent and 3.2 per cent in Canadian dollar terms.
Read the rest by CLICKING HERE.
Happy Thanksgiving, Canada
Some things you may not know about Canada ...
Stephen Colbert tells us that Canada was founded by a duck, a moose and a beaver
The reality may be even more discomforting for some Canadians: Canada (as we know it) was founded by the Frenchies. The French established the first permanent settlement at Port Royal (now Annapolis Royal) in 1605. The First Nations may dispute when Canada was actually founded, and "Canada" is actually an Iroquois word meaning "village" or "settlement".
The French handed Canada over to the English in 1763 at the conclusion of the French and Indian Wars (as we in the US call it), or the 7 Years' War (as the Canadians call it). No one asked the Iroquois what they thought of the deal.
Nunavut became Canada's third territory in 1999. Carved entirely out of the Northwest Territories, Nunavut covers 2 million sq km, or approximately one-fifth of Canada’s surface. Of the 30,000 residents, 85% are Inuit. “Nunavut” is an Inuktitut word meaning “Our Land.”
One of America's 10 most beautiful beaches is in Canada -- Grand Beach in Manitoba.
Canada has some of the lowest population density in the world -- 9.1 people per square mile.
Famous Canadians include Jim Carrey, William Shatner, Pamela Anderson, and Margaret Atwood.
News and Charts for Monday …
The Columbus Day holiday will make for light trading, but here are some things on my radar.
Australia Dollar Reaches 23-Year High, New Zealand Gains on Carry Trades The Australian dollar rose to the strongest in 23 years and its New Zealand counterpart gained for a third day as U.S. and Asian equity markets rose to records, giving investors confidence to buy higher-yielding bonds.
Aussie Poised to Follow Loonie to U.S. Parity as Rates Rise, Coal Rallies Anyone who likes the Canadian dollar for its resource-rich and balanced-budget economy should be embracing the Australian dollar for the same reasons and the additional prospect of rising interest rates, according to the bond market's biggest international investors.
Canadian Dollar Strengthens to 31-Year High After Job Growth Accelerates Canada's dollar rose to a 31-year high on speculation the Bank of Canada will refrain from cutting interest rates amid signs of economic strength.
U.S. credit card pitches surge Mintel International Group, a Chicago-based consumer, media and market research firm, said in a recent survey that direct mail credit card offers to subprime customers in the United States soared 41% in the first six months of this year compared to the same period in 2006.
According to the Federal Reserve's Flow of Funds total household mortage debt outstanding has increased from $5.325 trillion in the fourth quarter of 2001 to $10.143 trillion in the second quarter of 2007. In other words, US households have almost doubled their mortgage debt outstanding during this expansion.
Oil Poised to Drop for First Time in Year as Price Gap to Gasoline Widens The widening gap between crude oil and the relatively low price of gasoline is signaling the first quarterly decline in oil prices in a year.
Oil prices barrel ahead toward 100 dollars: analysts Oil traders appear to have cast aside concerns that high prices will lead to a global recession, and some analysts say the Organization of the Petroleum Exporting Countries has done little to bring prices down. "It seems like the world is willing to pay more money for oil, it does not seem like it is slowing down growth," Tsocanos said. "OPEC does not have really a lot of capacities and so they could not increase production if they wanted to."
China’s net oil imports up 18 percent China’s net imports of crude oil rose 18.1 percent in the first eight months of the year as the booming country’s voracious energy demands continued to grow, state media reported on Sunday.