Like the illusion of Wall Street, with its vast and powerful investment banks, now shuttered, China too is an illusion perpetuated by the Globalists that gave us the 15,000 mile Caesar salad, poisoned cat food and lead based paint on babies' pacifiers. Like the illusion that money would come from thin air to always push housing prices higher, China has spent a generation pursuing its illusion. Pursuing an unattainable dream to be like the West, while 6000 years of its carefully shepherded top soil blows into the sea.
What will be the best performing asset-class in 2008?
crude oil?
10%
[ 8 ]
natural gas?
5%
[ 4 ]
metals?
5%
[ 4 ]
precious metals?
28%
[ 21 ]
agricultural commodities?
40%
[ 30 ]
emerging market equity?
1%
[ 1 ]
bonds?
1%
[ 1 ]
other (please specify)?
8%
[ 6 ]
Total Votes : 75
Author
Message
cube Fusion
Joined: Mar 12, 2005 Posts: 3823
Posted: Fri May 30, 2008 2:33 pm Post subject: Re: Trader's Corner 2008
threadbear wrote:
Mr. Bill I respectfully (that's a change! ) disagree with your analysis for gold. The vanishing purchasing power of the middle class is beside the point. They have never been big purchasers of precious metals and are less likely to buy in the future as they join the poverty class.
I guess it's my turn to respectfully disagree with you threadbear. If you mean the American middle class then I think you've just hit the bull's eye.
however.....
The world gold market does NOT revolve around the American consumer. Other nations have a vastly different cultural view towards gold. In many parts of the world, gold is money and also a status symbol. In India it would be perfectly normal for a man to wear more gold or silver then say the average American women believe it or not. Indians consume much more gold then Americans and they do NOT make their decisions based on future US interest rates or US laws regarding commodity speculation.
Posted: Sat May 31, 2008 12:12 pm Post subject: Re: Trader's Corner 2008
Mr Bill, do you think there is a chance oil futures could be regulated in future? It would be interesting to get your opinion.
It seems speculation is getting blamed for the latest spike. What realisticly could be done? Increasing margin requirements, stopping retail investors? Any other thoughts?
Posted: Sun Jun 01, 2008 2:20 am Post subject: Re: Trader's Corner 2008
Quote:
Mr Bill, do you think there is a chance oil futures could be regulated in future? It would be interesting to get your opinion.
It seems speculation is getting blamed for the latest spike. What realisticly could be done? Increasing margin requirements, stopping retail investors? Any other thoughts?
I personally think Congress will attempt to "regulate" commodities trade. But I liken the commodities trade to a rave, if you close down one location everyone will move somewhere else, i.e. the Caymans.
The question is how will the markets react. If you read Vandal's Crown you'll find that the Japaense attempted to restrict trading but all the traders just moved to Singapore.
If these people are dumb enough to do such a thing I think this would definitely mean the collapse of the dollar.
2/3's of the world's commodities trade is denominated in dollars. If the United States in effect puts capital controls commodities it would probably result in a disasterous overnight collapse in the dollar.
After all if you can't play the trading game in dollars then you simply move to some other currency, Unfortunately Congress isn;t too bright so its a real possibility.
Once non dollar commodity contracts start to go into frequent use then the US is going to have serious problems.
Its really the equivalent of cutting your nose to spite your face.
Posted: Mon Jun 02, 2008 2:08 am Post subject: Re: Trader's Corner 2008
The CFTC in the USA and the FSA in the UK already monitor futures and options trading on the CME/NYMEX and ICE. In Dubai it is the DIFC for the DBX. Like all organized exchanges this results in better liquidity; superior transparency; central clearing that reduces costs and counterpart risk; and makes the regulator's job quite a bit easier than over the counter (OTC) contracts that are not standardized in any manner.
As suggested any attempt to ban speculation will just drive up the cost of hedging, while driving the intent to further speculate in a then fragmented market with increased volatility (both up and down) offshore. The euromoney market took off in London when the US implemented capital controls. This helped London to become a larger money market centre than New York.
As the US is already sending approximately $700 billion per year offshore to pay for imported energy that represents a wealth transfer from consumers to producers that money could seed new exchanges offshore and/or further undermine the roll of the US dollar as a reserve currency. While destroying thousands of well-paid jobs in banking, trading, backoffice, accounting, etc. in the USA (mainly in Chicago and New York I assume). Oops!
Is Congress capable of such stupidity? Yes, see the effect of capital controls on the euromoney market as well as the drop of new listings on the NYSE since Sarbox was implemented.
Quote:
A survey of 42 developing countries by the International Monetary Fund showed that as much as three-fifths of the extra cost of 2007 was absorbed by governments and refiners. Only eight nations fully passed on last year's 48 percent increase in gasoline prices to the retail consumers in their countries.
(continued)
As Francisco Blanch, head of commodities research at Merrill Lynch & Co., puts it, ``the oil market is trying to find a demand destruction point.'' And it can't find such a point partly because of ``a complex web of subsidies and price caps.''
A report last year by McKinsey & Co. estimated that ending subsidies would prune demand for transportation fuels by 3 million barrels a day. Contrast this with the increase in crude- oil production promised by Saudi Arabia: 300,000 barrels a day.
To be fair to our American cousins it is not just them. German politicians have also called for a ban on speculation. Equally forgeting that for each willing buyer there is a willing seller? Duh! And emerging economies have not done themselves or the world a favor by shielding their consumers from higher energy prices. In fact they have certainly made the problem much worse. Curbing subsidies for energy now would only fuel more food inflation and social unrest as per the article I linked to above.
Quote:
As suggested any attempt to ban speculation will just drive up the cost of hedging, while driving the intent to further speculate in a then fragmented market with increased volatility (both up and down) offshore.
That increased volatility up and down, of course, makes planning for increased production and new infrastructure even harder as policy makers and individual farmers or producers do not know whether the price spikes are temporary or permanent. A balkanized market in which there are export bans and bans on speculation reduces overall supply and encourages hoarding. Importing nations therefore have no choice but to protect their consumers as well by implementing costly subsidies for their own farmers that could ironically once again lead to over-production and an eventual fall in prices that hurts farmers in the developing world.
Meanwhile, some of that increased production will most certainly come at the expense of rain forests and other environmentally sensitive areas. Just as an example the civil war in Lebanon devastated the Cypress forests that were protected previously as law and order broke down at the same time that energy imports became unreliable and beyond the means of an economy embroiled in a three way civil war. So the ancient Cypress trees were cut down for firewood.
People are going to do what people are going to do when they have no choice. No amount of hand wringing is going to change that. However, the environmental destruction may have longer lasting consequences than the short-term need or economic benefit. So governments should pause before they unleash these short-sighted policies that treat the symptoms of higher food and energy prices, while their own behavior - such as excess money supply creation and currency manipulation as well as import subsidies - contributes directly to the underlying problem of run away demand.
Threadbear, thanks for your comments. I tend to agree with Cube. But you are right that governments can and do cause a shift into such hedges against currency devaluation and inflation as gold and silver through their mismanagement of fiscal and monetary policy. However, at the end the day, and it will be a long one, the demand for precious metals will be predicated on consumers' ability to pay that rely on the strength of the global economy and its ability to generate profits. Potential demand is unlimited. Price depends on the ability to pay. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Mon Jun 02, 2008 5:24 am Post subject: Re: Trader's Corner 2008
Quote:
And emerging economies have not done themselves or the world a favor by shielding their consumers from higher energy prices. In fact they have certainly made the problem much worse.
Mr. Bill how much can governments continue to subsidize their people in the face of increasing oil prices? Despite the riots and protests I think its obvious that governments simply can't continue subsidizing oil. Of course the flip side is are we going to see European countries starting to cut fuel taxes, since the price of oil is already so high?
Are we going to see an explosion of mass transit development in the world with these high fuel prices?
Posted: Mon Jun 02, 2008 6:43 am Post subject: Re: Trader's Corner 2008
mefistofeles wrote:
Quote:
And emerging economies have not done themselves or the world a favor by shielding their consumers from higher energy prices. In fact they have certainly made the problem much worse.
Mr. Bill how much can governments continue to subsidize their people in the face of increasing oil prices? Despite the riots and protests I think its obvious that governments simply can't continue subsidizing oil. Of course the flip side is are we going to see European countries starting to cut fuel taxes, since the price of oil is already so high?
Are we going to see an explosion of mass transit development in the world with these high fuel prices?
Well, I think these questions in a nutshell are the whole reason that we are here at peak oil dot com, and in depletion economics specifically, in the first place?
Not only are we headed into an economic crisis caused by resource depletion, but we are headed into these uncharted waters in a vacuum of political, ideological and social cohesion internationally whereby we (collectively) cannot decide which economic and environmental problems we should address first?
In the meantime the physical reality, and social consequences of these challenges, have their own agenda, and are unfolding within a time frame that does not respect our own slow and disjointed ability to (again collectively) address these changes. Like aging Generals we are still trying to fight the last war.
Physical Reality > Economic Consequences > Social Reaction > Political Response > Feedback Loop > New Reality > Etc.
Unfortunately, we will waste many resources, and much valuable time, either squabbling or treating the symptoms of the underlying problems (or both) rather than address the real reasons we find ourselves over a cliff on a 50 metre rope 500 metres above safe ground. We are still playing the blame game - east-west, north-south, left-right - instead of looking for solutions.
So, in answer to your question, yes, I think a lot of mass public transport and other stop gap measures will be undertaken at a tremendous cost by those that can afford it. In other parts of the world they will try administering band-aid solutions to their gaping fiscal wounds that will achieve less than nothing other than to buy time, while they hope a solution to their malady is magically found (by someone else).
Quote:
Food,fuel shock can "wreck the exchequer" in Africa
Africa's cocoa makes the world's chocolate, its fish, fruit and vegetables reach tables around the globe and its oil powers vehicles and factories from China to the United States.
Yet far from benefiting from soaring commodity prices,
African states are being squeezed as hard as any by the costs of
fuel and food imports.
Their desperate moves to cushion the impact for potentially
restive populations threaten to wreck already stretched budgets,
slashing receipts and swelling state spending.
"Net importers of oil and food are being hit very hard by
this shock ... the budget impact is very negative," Alex Segura,
International Monetary Fund (IMF) resident representative for
Senegal, told Reuters. "It's not sustainable," he added.
The rocketing cost of living is stoking social tensions,
protests, strikes and violence from Morocco, Guinea and Kenya to
South Africa.
Among the worst affected are poor states with big food and
fuel import bills, many in West Africa, one of the least
developed regions of the world's poorest continent.
Alarmed by protests and riots, governments have rushed to
suppress or cut taxes, customs duties and VAT on food imports
and sales in a bid to bring down prices.
In a matter of months, they have also upped food and fuel
subsidies to ease the impact of the price hikes on consumers who
already spend most of their meagre income on food to feed often
large, extended families.
The unplanned contingency measures, on top of global food
and oil prices far above what most imagined a year ago, are
wreaking havoc with governments' finances.
"This trend is throwing the budget out of gear," Ghana's
President John Kufuor lamented last month when he unveiled a
package of actions to mitigate the price rises.
Mirroring measures taken by many other African states, Ghana
removed import duties on rice, wheat, yellow corn and vegetable
oil, suppressed or reduced duties and levies on a host of fuel
products and raised subisdy support for electricity and farmers.
Ghana, the world's No. 2 cocoa grower and Africa's second
biggest gold producer is seen as one of the brightest economic
prospects on a continent drawing increasing investor interest.
But this has not shielded it from feeling the double punch
of the food and fuel price shocks.
HUGE COST, SMALL EFFECT
Although Ghana expects to start its own crude oil production
within two years, Kufuor said the oil import bill had leaped
from $500 million in 2005 to $2.1 billion at the end of last
year and was now moving to $2.5 billion, as prices kept rising.
The food and fuel price pressures are also rattling the
macro-economic stability of North African states like Tunisia,
Morocco and Algeria, whose economies are traditionally far more
sturdy than those of many poorer sub-Saharan African neighbours.
All three have been forced to hike subsidies for essential
food items to maintain social peace and avoid unrest.
"There is a risk such a situation would cause a debt and
deficit spiral," said Ahmed Lahlimi, the head of Morocco's High
Planning Commission, the leading government think tank.
The IMF's Segura warned that many of the hurried measures
taken by African governments not only risk unbalancing budgets,
but may also fail to achieve their objective of lowering prices
for consumers.
Except for cases where prices are government-fixed, for
example for fuel products, Segura says "it's basically almost
impossible to make sure that the lower burden in taxes gets
effectively translated into lower prices for consumers".
"For a very small price effect, you are destabilising the
budget to a colossal degree," Segura said. This was the problem
in Senegal, where the estimated cost of the government measures,
without correction, would be close to $400 million and the state
now had a large backlog of unpaid bills to private suppliers.
Consumers in Senegal and other West African states have been
complaining they have not felt any real easing of prices.
This may be in part because food importers and traders
themselves say they have had their margins squeezed by the
government measures and so cannot reduce prices further.
"I'd filled my stores before the decision to lift duties on
the products we'd imported. So I can't sell them at lower prices
as the government demands," said Sophiath Massou Yessoufou, a
rice seller at Cotonou's Dantokpa market in Benin.
POOREST DON'T BENEFIT
Segura argues that indiscriminate fuel and food subsidies
may not in fact help the poorest Africans, but rather the more
well-to-do, who drive cars and have air conditioning at home.
"The poor do not really use gasoline, they don't even have
cars. If you subsidise electricity in Senegal .... over 2/3 of
the population don't have access to electricity," Segura said.
Alex Evans, a non-resident fellow at the Center on
International Cooperation, at New York University, believes
there are other ways to tackle the food/fuel crisis "without
wrecking your exchequer".
"The better way to do this is through targeted social
protection systems," Evans told Reuters, saying these could take
the form of food or cash distributions to the most needy.
He said such focused initiatives could also reduce the
inflationary impact on economies. Countries across Africa,
including Kenya, Ghana and Nigeria, have reported inflation
swelling alarmingly under the food and fuel price pressures.
Some countries, such as Ghana, have moved to raise interest
rates to try to control inflation. Others, in Burkina Faso,
Guinea and Mauritania, face strike threats from unions pressing
for salary increases to compensate the price hikes.
"If these salary increases are incorporated into the system,
then you really have a danger of a spiralling inflation and that
would require a tightening of monetary policy," Segura said.
"That could also have an impact on growth, you would have
higher interest rates, then credit would decline and there would
be a negative impact on the economy," he added.
Evans said the best solution would be an integrated
combination of short-term palliative measures, such as the
social protection initiatives, combined with longer-term
development solutions, among them boosting farm output.
"We have to get so many parts of this puzzle right to feed
everybody," he said, noting that international bodies were
starting to swing into action. "Policy-makers have picked up
pretty fast ... this is the roll-up-your-sleeves moment."
Posted: Mon Jun 02, 2008 7:08 am Post subject: Re: Trader's Corner 2008
One reliable argument in favor of raising margin requirements to make trading on the margin and other speculation more expensive. I try to present both sides of the argument.
Quote:
Good morning and thank you, Mr. Chairman and Members of the Committee, for the invitation to speak to you today. This is a topic that I care deeply about, and I appreciate the chance to share what I have discovered.
I have been successfully managing a long-short equity hedge fund for over 12 years and I have extensive contacts on Wall Street and within the hedge fund community. It's important that you know that I am not currently involved in trading the commodities futures markets. I am not representing any corporate, financial, or lobby organizations. I am speaking with you today as a concerned citizen whose professional background has given me insight into a situation that I believe is negatively affecting the U.S. economy. While some in my profession might be disappointed that I am presenting this testimony to Congress, I feel that it is the right thing to do.
You have asked the question “Are Institutional Investors contributing to food and energy price inflation?” And my unequivocal answer is “YES.”
In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action.
Commodities prices have increased more in the aggregate over the last five years than at any other time in U.S. history.1 We have seen commodity price spikes occur in the past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today, unlike previous episodes, supply is ample: there are no lines at the gas pump and there is plenty of food on the shelves.
If supply is adequate - as has been shown by others who have testified before this committee2 - and prices are still rising, then demand must be increasing. But how do you explain a continuing increase in demand when commodity prices have doubled or
tripled in the last 5 years?
What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.3
These parties, who I call Index Speculators, allocate a portion of their portfolios to “investments” in the commodities futures market, and behave very differently from the traditional speculators that have always existed in this marketplace. I refer to them as “Index” Speculators because of their investing strategy: they distribute their allocation of dollars across the 25 key commodities futures according to the popular indices – the Standard & Poors - Goldman Sachs Commodity Index and the Dow Jones - AIG Commodity Index.4
I’d like to provide a little background on how this new category of “investors” came to exist. In the early part of this decade, some institutional investors who suffered as a result of the severe equity bear market of 2000-2002, began to look to the commodity futures
market as a potential new “asset class” suitable for institutional investment. While the commodities markets have always had some speculators, never before had major investment institutions seriously considered the commodities futures markets as viable
for larger scale investment programs. Commodities looked attractive because they have historically been “uncorrelated,” meaning they trade inversely to fixed income and equity portfolios. Mainline financial industry consultants, who advised large institutions on portfolio allocations, suggested for the first time that investors could “buy and hold” commodities futures, just like investors previously had done with stocks and bonds.
Index Speculator Demand Is Driving Prices Higher Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase. Chart One shows Assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260 billion as of March 2008,5 and the prices of the 25 commodities that compose these indices have risen by an average of 183% in those five years!6
Source: Testimony of Michael W. Masters
Managing Member / Portfolio Manager
Masters Capital Management, LLC
before the Permanent Subcommittee on Investigations
Committee on Homeland Security and Governmental Affairs
United States Senate
May 20, 2008
I think it is the combination of speculative money on the long-side along with governments shielding their consumers from higher food and energy prices as well as printing excess money supply and manipulating their currencies that are working in tandem to create these price increases and not an either/or phenomenon as some would suggest.
Quote:
According to the CFTC and spot market participants, commodities futures prices are the benchmark for the prices of actual physical commodities, so when Index Speculators drive futures prices higher, the effects are felt immediately in spot prices and the real economy.7 So there is a direct link between commodities futures prices and the prices your constituents are paying for essential goods.
The next table looks at the commodity purchases that Index Speculators have made via the futures markets. These are huge numbers and they need to be put in perspective to be fully grasped.
In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels.8 Over the same five-year period, Index Speculators' demand for petroleum futures has increased by 848 million barrels.9 The increase in demand from Index Speculators is almost equal to the increase in demand from China!
In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.10
Let’s turn our attention to food prices, which have skyrocketed in the last six months. When asked to explain this dramatic increase, economists’ replies typically focus on the diversion of a significant portion of the U.S. corn crop to ethanol production.11 What they overlook is the fact that Institutional Investors have purchased over 2 billion bushels of corn futures in the last five years. Right now, Index Speculators have stockpiled enough corn futures to potentially fuel the entire United States ethanol industry at full capacity for a year.12 That’s equivalent to producing 5.3 billion gallons of ethanol, which would make America the world’s largest ethanol producer.13
Turning to Wheat, in 2007 Americans consumed 2.22 bushels of Wheat per capita.14 At 1.3 billion bushels, the current Wheat futures stockpile of Index Speculators is enough to supply every American citizen with all the bread, pasta and baked goods they can eat for the next two years!
I have recently posted many graphs and charts showing that money supply as well as foreign exchange reserve growth from currency sterilization result in higher asset prices. Natural increases in demand from a growing world with an expanding population go hand in hand with excessive money supply creation if governments behave irresponsibly with their monetary, fiscal and trade policies.
Quote:
Demand for futures contracts can only come from two sources: Physical Commodity Consumers and Speculators. Speculators include the Traditional Speculators who have always existed in the market, as well as Index Speculators. Five years ago, Index Speculators were a tiny fraction of the commodities futures markets. Today, in many commodities futures markets, they are the single largest force.15 The huge growth in their demand has gone virtually undetected by classically-trained economists who
almost never analyze demand in futures markets.
Index Speculator demand is distinctly different from Traditional Speculator demand; it arises purely from portfolio allocation decisions. When an Institutional Investor decides to allocate 2% to commodities futures, for example, they come to the market with a set amount of money. They are not concerned with the price per unit; they will buy as many futures contracts as they need, at whatever price is necessary, until all of their money has been “put to work.” Their insensitivity to price multiplies their impact on commodity markets.
Furthermore, commodities futures markets are much smaller than the capital markets, so multi-billion-dollar allocations to commodities markets will have a far greater impact on prices. In 2004, the total value of futures contracts outstanding for all 25 index commodities amounted to only about $180 billion.16 Compare that with worldwide equity markets which totaled $44 trillion17, or over 240 times bigger. That year, Index Speculators poured $25 billion into these markets, an amount equivalent to 14% of the total market.18
Chart Two shows this dynamic at work. As money pours into the markets, two things happen concurrently: the markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing. Rising prices attract more Index Speculators, whose tendency is to increase their allocation as prices rise. So their profit-motivated demand for futures is the inverse of what you would expect from price-sensitive consumer behavior. (Edit: i.e. they create a bubble. MrBill)
You can see from Chart Two that prices have increased the most dramatically in the first quarter of 2008. We calculate that Index Speculators flooded the markets with $55 billion in just the first 52 trading days of this year.19 That’s an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day. Doesn’t it seem likely that an increase in demand of this magnitude in the commodities futures markets could go a long way in explaining the extraordinary commodities price increases in the beginning of 2008?
There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets.20
.... M.Master's testimony continues, but you get the point.
But it is important to listen to other arguments as well. For instance should those speculative longs be forced to unwind what effect that would have not only on futures, but cash markets and producers as well.
Quote:
Scrutiny of the oil market increased as Congress held hearings May 22 and oil soared to a record $135.09 a barrel the same day, threatening the U.S. economy and spurring inflation. OPEC President Chakib Khelil on May 31 blamed record prices on speculation and the declining U.S. dollar, saying there's no shortage of crude.
Prices fell the most since March last week, when crude oil for July delivery declined 3.7 percent to close at $127.35 a barrel on the New York Mercantile Exchange.
`Driven by Fundamentals'
Some investors said the decline shows the market isn't being manipulated. Total speculative long positions in New York futures fell to 215,999 contracts in the week ended May 27, down 18 percent from a record 264,395 on July 31, according to CFTC data.
``There is good reason why prices are high, and it's driven by fundamentals,'' said Paul Tossetti, director of oil market analysis at consultants PFC Energy in Dallas. ``When you look at the number of players, the number of open positions, I don't know how anybody can manipulate anything.''
Global oil demand, forecast to increase 1.2 percent this year, may outpace supply growth as energy consumption increases, especially in China and India, the Paris-based International Energy Agency said in a May 13 report.
The CFTC has been investigating the transportation, storage and trading of crude oil in the U.S. since December. The probe includes oil futures contracts.
Posted: Tue Jun 03, 2008 4:15 am Post subject: Re: Trader's Corner 2008
Food and energy issues dominate the headlines as less pressing problems take the backburner
Quote:
Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading, government data show.
Fuel Consumption
``What you're trying to do is trying to find a scapegoat and place blame for it when what you have is demand that is greater than supply,'' Pickens said.
U.S. fuel consumption averaged 20.5 million barrels a day in the four weeks ended May 23, down 0.7 percent from a year earlier, the Energy Department said last week. Gasoline demand dropped 5.5 percent in the week ended May 23, as prices at the pump reached records, according to MasterCard Inc., the second- biggest credit card company.
``We're using 400,000 barrels of oil less today than we did a year ago, but the Chinese are now using 500,000 barrels greater than they did last year,'' Pickens said. ``So whatever we kill in the way of demand, they pick up in their demand. You're gong to bid for the oil, and the highest bidder's going to get the oil until you finally kill demand with price.''
Oil prices should stay above $100 a barrel through 2009 and potentially longer as supply struggles to keep up with demand, the government's top energy forecaster said on Monday.
"You've got this global market still operating at very low spare (oil production) capacity, all of which is in Saudi Arabia," Guy Caruso, head of the Energy Information Administration, told reporters at the Reuters Global Energy Summit in New York.
Crude oil prices have risen six-fold since 2002 to around $130 a barrel as rising demand from China and other developing countries strains supply -- a spike that has added pressure to a U.S. economy already hobbled by a housing crisis.
Caruso said the oil price surge will likely spell further hikes in U.S. gasoline prices this summer.
An "energy revolution" to cut demand is necessary to combat the world's third energy crisis in 35 years, the head of the International Energy Agency (IEA) said on Monday.
IEA Executive Director Nobuo Tanaka said the current oil price shock was unique because demand has remained robust despite prices climbing to $135 a barrel two weeks ago.
In contrast, global consumption fell after the 1973 Arab oil embargo and the Iranian revolution of 1979 as countries turned to more energy efficient transportation and power plants.
"We are in a third energy crisis," he said during the Reuters Energy Summit.
The United Nations' Food and Agriculture Organization (FAO) initially called the summit at the end of last year to discuss the risks posed to food security by climate change.
But soaring food prices have shifted the focus of the Rome summit.
The cost of major food commodities has doubled over the last couple of years, with rice, corn and wheat at record highs. Some prices have hit their highest levels in 30 years in real terms -- provoking protests and riots in some developing countries, where people may spend more than half their income on food.
Delegates will discuss a range of issues such as aid, trade and technology to improve farm yields, but hunger campaigners have singled out biofuels -- often made by converting food crops into fuel -- as a prime culprit.
In 2001, the S&P rallied from the third week in March to May 18th (the week
before Labor Day) and touched the 200-day exponential moving average. It
subsequently declined 26% into September.
This year, the S&P rallied the third week of March and touched its 200-day
moving average on May 19th (the week before Labor Day). If a similar decline
unfolds, the S&P will settle near 1080.
As Mark Twain once said, history doesn’t always repeat but it often
rhymes.
If the tape follows suit, we could be in for a bumpy ride in the months ahead.
“The greatest trick the devil ever pulled was convincing the world he didn’t exist.”
--Usual Suspects _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Tue Jun 03, 2008 8:38 am Post subject: Re: Trader's Corner 2008
Going back to previous posts (in Trader's Corner) about self-reinforcing capital structures for sovereign nations based on corporate finance models by Michael Pettis in his book The Volatility Machine, Emerging Economies and the Threat of Financial Collapse, we see that many Asian (and other) developing countries are being hit with 'a triple whammy' of slower export growth; tighter credit conditions and higher interest rates; as well as rising food and energy costs.
Quote:
Inflation rates in South Korea, Hong Kong, Thailand, Singapore and the Philippines -- where ``fuel prices are freely set'' -- could increase as much as 2 percentage points if crude oil remains at about $130 per barrel, Credit Suisse Group AG said in a report.
``Asia is more reliant on imports of commodities, particularly fuel, than Eastern Europe or Latin America,'' the report said. Policy responses ``will be a function of the strength of domestic demand, perceived sovereign creditworthiness, central bank credibility and exchange-rate trends,'' Credit Suisse said.
This is the definition of a self-reinforcing capital structure. As that financial position starts to deteriorate due to external conditions such as the subprime credit crisis in America, or higher food and energy prices due to strong growth in Chindia, these countries find their own fiscal position come under strain as they are hit with the increasing costs of subsidizing imports; slower export growth; higher unemployment; and a flight to safety in international capital markets.
Quote:
The chart of the day compares monthly inflation rates in Thailand, South Korea, the Philippines and Indonesia the past five years, and projects price levels if oil prices remain at $130 per barrel for several months.
``Korea, Malaysia and Singapore are likely to maintain their current monetary policy stances,'' Credit Suisse said. ``In Thailand, the central bank is caught between the difficult task of balancing the still fragile recovery in sentiment, domestic demand and rapidly rising inflation,'' Credit Suisse said in the May 29 report, which didn't include Japan.
Indonesia and the Philippines, ``where central bank credibility and fiscal flexibility are lower,'' will probably raise interest rates more than other countries, the report said, adding that inflation and bond yields in Indonesia will be ``near or at double-digits'' into 2009 without a decline in oil.
Indonesia last week reduced fuel subsidies and raised gasoline prices for the first time since 2005. Still, some fuel prices are less than a third of ``international levels,'' Credit Suisse said.
China, where many fuels are subsidized to half global levels, has the most policy flexibility in Asia because of its economic growth and current account surplus, the report said. Currency appreciation is one tool likely to be used to manage inflation. The yuan could appreciate as much as 12 percent this year against the U.S. dollar, Credit Suisse said.
Morgan Stanley, in a separate report, said governments in Indonesia and India face the highest ``political cost'' of rising inflation because elections are due in 2009.
Source: Credit Suisse Says Add '2 Points' in Asia for Oil: Chart of Day
2008-06-01 23:19 (New York)
In essence, not a repeat of the Asian crisis, but a mutation of such a currency crisis. Except at the moment banks are less able and less willing to lend into the gap left by capital markets. These countries end up paying more for food and energy as well as for foreign capital when they can least afford it.
While the social-political cost of dealing with these problems rise as all measures to deal with the underlying budget shortfalls or imported inflation are bound to exacerbate the pain in the short-term. Especially for the poorest who spend a greater proportion of their wages on food and to a lesser extent energy. Good public policy matters. When the sun is shining and especially when the storm clouds are directly overhead. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Wed Jun 04, 2008 3:41 am Post subject: Re: Trader's Corner 2008
"Hello self." "Oh, hello there. How are you?" "Well, you know, same old, same old. I cannot complain. And you? Speak to any other posters lately?" "Fine thanks. No. You?" "No." "Well, okay, nice to speak to you again." "You too. See you later." "Yep. Till then. Cheers."
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Energy Weekly
Impact of fuel price hikes in Asia on demand growth likely limited
Demand erosion under way
Oil prices remain above $125/bbl amid extremely volatile daily moves. As we emphasized in our May 16 Energy Watch, we believe that long-dated oil prices will continue to rise, bringing front prices up with them, in order to push demand growth down to match supply. In our view, reductions in subsidies to fuel prices by several Asian countries are a step towards slowing demand growth, but are not yet a solution, as these economies represent only a small fraction of global demand. India and China, the main contributors to global demand growth in Asia, have not recently increased their prices.
Those that have raised fuel prices are small relative to the rest of the market
Recently, Indonesia, Sri Lanka, Taiwan, Egypt, Pakistan, Russia, Jordan and Syria have cut fuel subsidies, while Malaysia, Bangladesh and India are likely to follow suit in the coming weeks. However, as the countries that have raised prices the most represent only a small fraction of the global market, we believe the impact of such price increases on demand growth will likely be limited to less than 20 kb/d below previous growth expectations.
More significant impact likely to come from China
While many believe China is unlikely to cut subsidies prior to the 2008 Olympic Games, historical data on Chinese fuel prices suggest that they have periodically readjusted to market price levels. We therefore expect fuel price increases in China in the medium term, potentially impacting demand growth by an incremental 30 kb/d over the course of the year following the price increase.
Source: Goldman Sachs Commodities Research
June 3, 2008 _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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) disagree with your analysis for gold. The vanishing purchasing power of the middle class is beside the point. They have never been big purchasers of precious metals and are less likely to buy in the future as they join the poverty class.
