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Timing & trends

A New Bull Market & Economic Upturn

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Posted by James Dines Interviewed by Michael Campbell

on Wednesday, 26 September 2012 09:59

With some of the "Mind Boggling" numbers coming out of the United States, the mess in Europe and a Sovereign Debt Crisis on the horizon, Michael Campbell decided to ask what the legendary James Dines had to say about current conditions. Ed Note: You can also listen to the 43 minute exclusive interview between James& Mike right below if you prefer:

Mike Campbell: Despite those "mind boggling" financial numbers coming out of the US, falling wages, European debt problems, an economic slowdown in China, the US Stock Market keeps going up. What is your perspective on that?
 
James Dines: Climbing a wall of worry is a stock market saying that describes a rising market in the teeth of bad news. The current situation is one of ghastly economic news from Europe, especially the financial insolvency of one country after another. You've got soaring unemployment anywhere from 25% and a horrifying 50% that's not only in Europe but also in America amongst African American youths, and the so-called China slowdown certainly describes a wall of worry. Its cause is a function of the stock market being a discounting mechanism, in other words you get no reward and you make no money in capital gains from knowing the past. Far sighted investors spend a great deal of time energy and resources trying to figure out what's coming next, and then the stock market begins to adjust to that upwards.

Therefore the market is probably telling us an economic upturn is in its purview, believe it or not. However on this show, and every single year this last decade I have predicted the coming great deflation, and what's going on now has definitely been a deflation. When I first made that prediction nobody was talking about deflation, all were worried about inflation and how to guard against it. But in a deflation wages decline, as do the prices of real estate and commodities. Virtually everything declines, which is why resource stocks were hit so hard early in 2012.
 
Another one of the long standing predictions on your show has been the coming debt liquidating depression. The function of a deflation is the liquidating of the excessive debt, as for example in Greece they are writing off huge chunks, billions of dollars in unwise loans made during inflationary times.
 
What I make of it that's different from the mainstream economic thinking, is this World wide malaise is fundamentally a currency crisis. Which is why I was able to predict this coming second Great Depression would be international in scope. Why? Because every Government on the planet is printing too much paper money and liquidation of that fake paper is being corrected by drops in various currencies. Currencies shouldn't even fluctuate at all as we need a stable standard of value to measure prices and a store of value for savers. Tthat is why we predicted one year ago in  Sept 2011 a bear market for China. That prediction was a shock given I became the original China Bull after returning from a long visit to China shortly after Mao died. Personally, even though everybody is talking about a slowdown in China I am looking for an economic crash there based on the nations internal debts. Also a real estate crash there due to overprinting of money especially in 2008.
 
The majority view is China is merely experiencing a slowdown of historic growth and is still a powerhouse. That Germany is the growth engine of Europe.That looks wrong. Both of them are exporting nations whose customers are experiencing economic hardships. Whether either are being forthcoming or are "even lying" about their economic status, either way I expect both to join the international economic decline.
 
Despite all this, all is not pessimism actually. Indeed I can think of a number of reasons to take a positive view of the world economic situation. For example:
 
1. The rampant pessimism of many investors. Understandable due to the loss of money in the last year with the plunges in stock values, like in mining for example. The result is unusually low volume on world stock markets, a phenomenon I have noted in previous bottom formations. Its not just investors who are discouraged, hedge funds have been running losses the last two years so even the most professional investors have gotten hurt. But new bull markets are born amidst that kind of pessimism. The key question is whether or not these drops are a sign of a huge market top or merely a group rotation typical of new bull markets. I think the odds favor group rotation, which means mining shares should have more upside soon. Those mining shares could have a short term pullback after the pretty sharp rise they've recently had while the former favorites like Facebook and Groupon plunged. In short I think we are getting a Group Rotation instead of a unified top.
 
2. Another positive sign is that despite the bad news, America's leading market averages like the S&P 500 and the Dow are actually up 16% and 11% respectively this year.
 
3. Aside from the classic ingredients of a bull market, the prices of commodities (except for some agriculturals due to weather) have been coming down. Labour has been cowed as they realize that there are no jobs available at all, and far to many applicants for any jobs that do come up. Real estate is cheap, interest rates are low, housing is depressed and even turning up. This is a formula I've seen spawning new bull markets in the past.
 
4. Corporate sales are flat but profits are up. Which suggests to me that costs are under control so in any upturn profits would flower big-time.
 
5. There is lots of cash available in corporate treasuries. People have been hoarding cash because they are afraid, which is typical of deflations. It drives the Keynesian economist's crazy that money is not being put to risk, but people are afraid of debt.
 
6. Finally, stocks are depressed, undervalued, underpriced, oversold, and debts are getting paid. Even paid off and  liquidated.
 
Mike Campbell: I'm glad to get that perspective which is in variance to the news. Bad news that is government dominated bad news. What do you think of the interference by Central Banks and Governments?
 
James Dines: I have never lived through anything like this, but as a student of history I pulled together all of the details of the last time this happened in the 1920's. What's happening right now is just a re-run of that. As George Santayana said, "Those who cannot remember the past are condemned to repeat it."

Fathers of Keynesian economics would not agree that it was a currency crisis that cause the 1929 crash. But I think that when events like the European money supply being doubled at the Genoa conference in 1922 to pay for WW1, that that bloated currency caused the roaring 20's, and the deflation that followed in the 1930's was natural to eliminate all that paper. Its  all happening again only in slow motion and less visible.
 
This is what is happening. The whole world is suffering because they have printed too much paper money. Their cure for that is to print even more paper money which is nothing more than pouring gasoline on the fire instead of solving it. Typically at this stage of a deflation what's going to happen when the government continues to add money to the system first there is what looks like a recovery. Then it kicks in to something much worse. When they poured money into the system in 2008 what followed was a couple of years of recovery in 2010- 11, which was just that extra money flushing through the economy. Now what's happening again is that we are going through another round of money printing so we will have something that looks like growth again as money sluices through the system, but then its going to come down even harder.
 
Mike Campbell:  On August 22nd/ 2012 with Gold in the low $1,600's and Silver just over $29 you flashed a signal to your subscribers that you where back on the buy side of Gold & Silver. Now that Gold is $130 higher and silver is $5 higher what do you  think?
 

James Dines: Q3 and the declaration that they are going to print money without limit primed the pump in my opinion and I'm now looking for a resumption of the Super Major Bull Market that I've been looking for since my major buy signal 11 years ago on September 25th, 2001. Gold has been up every single year for the last 11 years and there has been no other investment area that's done as well. It is important to understand that with all this money being printed,  Gold has no price. Gold is money. In each country it will sell for a different number of pieces of paper based on the amount that they print. In my interim bulletin of August 22nd/ 2012, I said I was looking for Gold and Silver to challenge their all-time highs, which means at least $1,900 for Gold and $50 for Silver. My initial target on Silver is $120 an ounce if they continue to print all that paper.

The problem is that there is no safety in this environment and its Delusionary to think that there is. When the currency itself is corrupt were can you hide. Maybe the only really safe place would be Gold and Silver on pullbacks because a coin of them made back even in Caesars time is still good anywhere in the World today. I think everyone should put a small amount of money into some Gold coins and put them, never on your person or near your residence, but in a bank or safety deposit box and preferably in more than one country. If you have more money than a small amount you can buy stocks also on pullbacks. They've had a big jump here and I am looking for a bit of a pullback before the next upwave.

About James Dines:

jimdines1

James Dines has become legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community.

In an industry where it takes courage and conviction to go against the crowd, Mr Dines defiantly warned investors of the "invisible crash" that would bring down stocks in 1966, the unexpected gold boom of 1974, the Internet revolution of 1996, and the market top in 2000, a 2001 call for a Super Major Bull Market in Gold.  Now he warns of "The Coming Uranium Boom" that is steadily approaching.

His subscribers to The Dines Letter have profited so much that subscriptions are handed down to second generations. - read more HERE

 

 

 



Timing & trends

Investor Gold Buying to Resume & Fed Doubling Their Balance Sheet AGAIN!

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Posted by Chris Vermulen - GoldandOilGuy.com

on Monday, 24 September 2012 08:32

A leading precious metals consultancy, Thomson Reuters GFMS, has forecast that investors will buy record amounts of gold in the remainder of 2012. GFMS produces the benchmark supply and demand statistics for the gold market. GFMS forecasts that investors will purchase 973 tons of gold in the second half of 2012, more than during the wild gold market of the summer of 2011. This surge in demand for the yellow metal, GFMS says, will move gold above the $1850 an ounce level, not far from the record high of $1920 hit in September 2011.

GFMS may be right. This past week, gold hit its high for this year at $1790 an ounce on the back of the various global stimulus plans launched by a number of countries around the globe. Primary among the recently announced stimulus plans was the Federal Reserve’s QE3 or as some in the market have called it, QE infinity. Philip Klapwijk of GFMS said that, for the gold market, “QE3 has become talismanic”.

The Federal Reserve said it would purchase $40 billion a month in mortgage-backed securities indefinitely. In addition, the Fed will continue Operation Twist – the buying of longer-dated U.S. treasury notes and bonds. When all is totaled, the market is looking at about $85 billion a month in government bond purchases for an unlimited period of time.

The main characteristic of QE3 that drives the gold market is the fact that the open-ended purchases of all of these Treasuries will be financed by money that does not yet exist! And it’s not just about a fear of future inflation being ignited by all this money creation. It’s a very logical move higher by gold based on recent history of Fed actions and gold prices.

Even ignoring Operation Twist, the Fed will add $40 billion a month, or $480 billion a year, to its balance sheet. If one looks at the Fed’s own website, you will see that it shows current assets of $2.8 trillion. Add $480 billion annually to that and in about five years the Fed’s assets (the foundation of the money supply) will have nearly doubled.

That is exactly what happened in the last five years too…the Fed’s assets doubled. And in what should not be a surprise to gold investors, the price of gold also doubled! For the past decade or so, gold has tracked the increase in Federal Reserve’s assets. Do not be shocked if that pattern continues over the next five or ten years too.

Get my Trading Alerts and Pre-Market Analysis Videos EVERY DAY –www.TheGoldAndOilGuy.com

Chris Vermeulen



Timing & trends

Bob Hoye: Current Risk Analysis - Perspective

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Posted by Bob Hoye - Institutional Advisors

on Friday, 21 September 2012 01:21

perspective

INSTITUTIONAL ADVISORS

THURSDAY, SEPTEMBER 20, 2012 

BOB HOYE

PUBLISHED BY INSTITUTIONAL ADVISORS

The following is part of Pivotal Events that was

published for our subscribers September 13, 2012.

SIGNS OF THE TIMES:

"Organic Food Not Healthier Than Non-Organic: Study"

– Yahoo News, September 3

It's about time, and we are looking forward to a study from high places that a gold standard is very much healthier than fiat money.

"China Iron Ore Prices Dropped 24% last month...to the lowest since October 2009."

– Bloomberg, September 4

"Honduras Signs Deal to Create Private Cities"

– AP, September 5

"Investors face an 'Age of Inflation', which typically provides a headwind, not a tailwind, to securities prices – both in stocks and bonds."

– Bill Gross, Bloomberg, September 5

 Apparently, the term "Financial Asset Inflation" has yet to make to be fully understood by the chattering classes.

"French Unemployment Rose to a 13-Year High"

– Bloomberg, September 6

*   *   *   *   *

PERSPECTIVE

Now let's think about the in-your-face announcement that the ECB is going to aggressively buy bonds out of the market.  And then today's Fed announcement to buy mortgage bonds added to the prospects of salvation through inflation.  How will a deliberate short squeeze improve the condition of insolvent European countries?

But, it did take the dollar index down to 79.2 earlier today. This is below our target of 80.2 and is adding to the oversold. This has prompted rallies in a number of markets that are likely to be brief.

Why brief?

It's that time of year and the action has become very compulsive.

COMMODITIES

First of all, the big drought-driven grain rally is over.  For the season and likely for this business cycle.  Last week's "Sequentially yours" theme noted that wheat was the first to complete its topping pattern. That was in July and the next was corn in August and then last week soybeans needed to hold a certain price to record another "Sequential Sell" pattern. It did and the next step will be taking out 1700.

The overall index (GKX) set its price-high at 533 and this compares to 570 reached with our Momentum Peak Forecaster in March 2011. The Forecaster signal suggested most commodities were then setting a cyclical high.

Recently, the momentum-high was accomplished at 82 on the RSI in the middle of July. This was at the level that had ended a number of rallies over the past decade.

At 512, the index was up only 3 points today.  Taking out 495 would turn the drought-rally into a downtrend.

Base metals (GYX) set their cyclical high at 502 in the spring of 2011. This was confirmed earlier this year when last fall's panic low of 350 was taken out on the way to 346 in August.

Last week, we noted the "saucer" bottom and thought that the rebound could find resistance at as high as 389. So far the high has been today's 393. Possibly important – the RSI reached 79 which has turned back all the rallies of the past two years.

Late in August, crude oil's action completed a Sequential Sell and as Ross noted on August 30 the run could extend for a few more bars. This has been the case, and we are looking at some heavy crude oil action.

The couple of "more bars" has helped the CRB in reaching a good overbought at 74. This is close to the level that can end the move.

It is interesting that different commodity sectors are becoming overbought at the same time as the USD is becoming oversold.

CURRENCIES

The ECB policy short squeeze was given extra thrust by a court approval – and is being called the "Bazooka". The term has been used in financial context for a while, but with the German court's approval the term should be "Panzerfaust", resulting in a jump in "wolatility".

But it is volatility in the direction the market wanted to go, and now with the Fed's announcement extended enough for a reversal. The USD slipped to 79.2 and to an RSI low of 23, which is close to the limiting level. But, when looking at the RSI 82 reached on the rally the action has accomplished a huge transit from overbought to oversold. In so many words, the Fed's "elastic" currency is being stretched to the limit.

Going the other way, the Canadian dollar popped to today's 103. This is a few "bars" beyond overhead resistance at 102 and the action is eligible for reversal.

STOCK MARKETS

Last week, we reviewed the negative divergence of declining A/Ds against the uptrend in the S&P. Mainly it records that fewer and fewer individual stocks are capable of keeping up to the leaders, which is typical of an important top.

The following chart shows that the timing is becoming somewhat late for the top in the index. The secondary high on the A/D was set on August 17 and has not been surpassed. Continuing negative divergence suggests the ultimate high on the S&P is pending.

Ross's work on the VIX also shows a negative divergence typical of an important top. This indicator has yet to complete the signal.

Last week's review noted that more of a spike up would fit the pattern, and thanks to today's Fed announcement this is happening. The promise to buy $40 billion of mortgage-backed securities (MBS) a month reminds of central bank pledges to sell so many tons of gold per year into the lengthy bear market for bullion. That pathetic policy ended at 253 in July and August of 1999.

It is interesting that the sub-prime mortgage bond rallied to new high for the move this week before the news.

It is uncertain how long the speculative spike will last, but often such spikes are brief.

AMPERSAND

Bernanke's remarks included the boast that Fed policy had created stable inflation over the past decade. That would mean CPI inflation, which calculation has been suspect since the Clinton revision. But financial asset inflation and volatility has become dangerous.

This cannot work out well, despite the belief that massive stimulus will revive the failing global economy. The 24 percent plunge the price of China's iron ore price is a voice of opposition to Fed and ECB wishful thinking.

We can't help but wonder about Romney's statement that as president he would retire Bernanke from the Fed.  Perhaps the MBS buying program is an attempt to help Obama, which would likely insure that Bernanke's career as the great inflator continues.

*   *   *   *   *

"[The] 1901 [Bull market] was . . . speculative demonstration based . . . on the assumption that we were living in a new era; that the old rules and principles and precedent of finance were obsolete; that things could safely be done today which had been dangerous or impossible in the past.  The illusion seized on the public mind in 1901 quite as firmly as it did in 1929.  It differed only in the fact that there were no college professors in 1901 who preached the popular illusion as their new political economy."

– Alexander Dana Noyes (1930)

 

Link to September 14, 2012 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:

 HYPERLINK "http://talkdigitalnetwork.com/2012/09/a-world-of-easing/" http://talkdigitalnetwork.com/2012/09/a-world-of-easing/ 

 

 

 BOB HOYE,   INSTITUTIONAL ADVISORS

E-MAIL   HYPERLINK "mailto:bhoye.institutionaladvisors@telus.net" bhoye.institutionaladvisors@telus.net 

WEBSITE:    HYPERLINK "http://www.institutionaladvisors.com" www.institutionaladvisors.com 

 

 

STOCK MARKET NEGATIVE DIVERGENCE

This model worked well going into the top of 2007.

It will likely be effective in seeing through current excitement.

 

 

 

 



Timing & trends

Life, The Markets & Gold by The 88 Yr Old Legend Richard Russell

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Posted by Richard Russell - Dow Theory Letters

on Wednesday, 19 September 2012 07:28

Ed Note: The Godfather of newsletter writers, Richard Russell, had some absolutely extraordinary thoughts about life, the markets and gold.  Here is what Russell had to say: “Most of the people in the world suffer from fear, anxiety, anger, guilt, bitterness, resentment, sorrow, depression, and various other emotions which can mar their lives.  The majority of these emotions are holdovers from damaged or traumatic infancies.”

“I was brought up in the early 1920s.  In those days parents were taught by doctors to feed infants by the clock, not when the infant was famished and screaming with hunger.  In those days, infants were not tended and comforted when they needed warmth and attention.  They were often tended by nurses and allowed to “cry themselves out,” thus leaving parents with plenty of free time of their own.  

I had damaged parents, which affected me very negatively.  My mother's mother died in childbirth when my mom was two years old.  So my mom grew up without a mother, and as a result, she knew nothing about mothering.  My father's father (my grandfather) committed suicide when my dad was 8 years old.  As a result, my poor father was anxious, fearful, and nervous all his life. 

Unfortunately, I absorbed the fears and anxieties of my parents, who had done the best they could, based on what they knew at the time.  I grew up during the Depression, believing or feeling that the world was a harsh and unsafe place.  As a result, I think I developed an extreme sensitivity to danger in the world and in the stock market.  Interestingly, I think I kept my subscribers OUT of every bear market since the 1950s.  

Let me go a bit further into my family history. My grandfather owned the biggest jewelry store in Charleston.  He killed himself when he lost all his money in the awful panic of late 1902.  

My dad's half-brother (my uncle Irving) jumped out of the window of a New York hotel when the stock market crashed in 1929.  Irving had a lot of stock in the family-owned City Stores.  Irv was a playboy, and he lived entirely off his dividends.  When City Stores cut its dividend in 1929, it was too much for Irving -- so he killed himself.

With that sordid history, it's kind of ironic that I ended up writing about the stock market.  Strange, indeed, or is it?

December gold closed yesterday at 1770.60.  If I was in GLD, I'd be fretting.  But if I was solely in bullion coins, I wouldn't give gold's action a second thought.  The reason I say this is because buying GLD is a trade, and holding gold coins is a move that theoretically is forever.  For instance, if I had GLD, at some point I'd sell it, and hopefully show a profit. 

But I don't know when I'd ever sell the bullion coins.  Sell them for what?  For Fed-created fiat paper?  Actually, I'd probably gift the coins to my kids, on the basis that it would be an easy transfer of wealth, much as some women gift their diamond engagement rings to their daughters.

Below is the US dollar as per yesterday's close.  The dollar has broken below both MAs, and is sitting on support, which is around 78 3/4.  RSI shows the dollar over-sold, but MACD allows for a further decline.  Thank the Fed's massive money-creation project for this chart, but what the heck, a cheaper dollar helps our exports.  

But a cheaper dollar is also inflationary.  Marc Faber states that the Fed is destroying the world with its wild printing, and I can tell you that Mr. Faber is really angry.

KWN RR 56

Awhile back, the “surest” way to make money was to short the Euro.  When too many traders get on one side of an item (in this case, the short side), this is what can happen.  A strong Euro means a weak dollar, and a weak dollar translates into higher gold.  But we must be careful, because the Euro is in the overbought zone of RSI, and a lot of its strength may be coming from short covering.

 

INTERESTED IN SUBSCRIBING? GO HERE

Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

The Letters, published every three weeks, cover the US stock market, foreign markets, bonds, precious metals, commodities, economics --plus Russell's widely-followed comments and observations and stock market philosophy.

In 1989 Russell took over Julian Snyder's well-known advisory service, "International Moneyline", a service which Mr. Synder ran from Switzerland. Then, in 1998 Russell took over the Zweig Forecast from famed market analyst, Martin Zweig. Russell has written articles and been quoted in such publications as Bloomberg magazine, Barron's, Time, Newsweek, Money Magazine, the Wall Street Journal, the New York Times, Reuters, and others. Subscribers to Dow Theory Letters number over 12,000, hailing from all 50 states and dozens of overseas counties.

A native New Yorker (born in 1924) Russell has lived through depressions and booms, through good times and bad, through war and peace. He was educated at Rutgers and received his BA at NYU. Russell flew as a combat bombardier on B-25 Mitchell Bombers with the 12th Air Force during World War II.

One of the favorite features of the Letter is Russell's daily Primary Trend Index (PTI), which is a proprietary index which has been included in the Letters since 1971. The PTI has been an amazingly accurate and useful guide to the trend of the market, and it often actually differs with Russell's opinions. But Russell always defers to his PTI. Says Russell, "The PTI is a lot smarter than I am. It's a great ego-deflator, as far as I'm concerned, and I've learned never to fight it."

Letters are published and mailed every three weeks. We offer a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).

IMPORTANT: As an added plus for subscribers, the latest Primary Trend Index (PTI) figure for the day will be posted on our web site -- posting will take place a few hours after the close of the market. Also included will be Russell's comments and observations on the day's action along with critical market data. Each subscriber will be issued a private user name and password for entrance to the members area of the website.

Investors Intelligence is the organization that monitors almost ALL market letters and then releases their widely-followed "percentage of bullish or bearish advisory services." This is what Investors Intelligence says about Richard Russell's Dow Theory Letters: "Richard Russell is by far the most interesting writer of all the services we get." Feb. 19, 1999.

Below are two of the most widely read articles published by Dow Theory Letters over the past 40 years. Request for these pieces have been received from dozens of organizations. Click on the titles to read the articles.

"Rich Man, Poor Man (The Power of Compounding)"

"The Perfect Business"

 


Timing & trends

Oil Prices Gone Wild

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Posted by Chris Vermulen - GoldandOilGuy.com

on Tuesday, 18 September 2012 11:30

sc

 

Crude oil prices hit a four-month high this week on the back of rising tensions in the Middle East and North Africa and the unfortunate murder of the U.S. ambassador to Libya. Added impetus on the upside was given to oil by the announcement of more money printing (QE3) by the Federal Reserve which said it would launch an open-ended  commitment to purchase $40 billion of mortgage-backed securities monthly. The global benchmark for oil, Brent crude oil, jumped to about $117 a barrel. It maintained its roughly $18 premium to U.S.-based WTI crude oil which was trading at $100 a barrel on a couple days ago. Non-futures investors can easily participate in the oil market through the use of exchange traded funds. The ETF which tracks Brent crude oil futures is the United States Brent Oil Fund (NYSE: BNO) and the ETF which tracks WTI crude oil futures is the United States Oil Fund(NYSE: USO). The real story behind the story in the oil market, however, is the ongoing Arab Spring which is sweeping throughout the Middle East and North Africa, pushing aside some regimes and threatening others. The countries whose governments, such as Saudi Arabia and the other Gulf states, feel threatened by popular uprisings are where investors should put their focus. Saudi Arabia in particular is key because it accounts for more three-quarters of the world’s spare oil production capacity. So it is very important to note that the kingdom is no longer a price ‘dove’ in OPEC as it has been for decades. It has joined Iran, Venezuela and others in being a price ‘hawk’. The reason behind the change in attitude is simple…Arab Spring. Like its neighbors in the Gulf region, Saudi Arabia has gone on a public spending spree to appease its restless citizens. It has sharply increased outlays on subsidies for items like food, fuel and housing in an attempt to appease its citizens. In 2011, the kingdom raised its domestic spending by $129 billion – the equivalent of more than half its oil revenues. Much of this increased spending will go toward upgrading the country’s infrastructure. Take electricity, for example. Saudi Arabia has revealed plans to spend more than $100 billion dollars on power plants and distribution networks by 2020. The kingdom has also set a goal to electrify 500,000 new homes that are being built in an attempt to mollify political unrest among its population of 27 million people. This spending spree led the International Monetary Fund and other analysts to estimate that the kingdom and other Gulf countries need oil to be selling between $80 and $85 a barrel in order for the governments to balance their budgets. This is up, in Saudi Arabia’s case, from a mere $25 a barrel a few short years ago! Unfortunately for oil consumers, this trend looks set to continue in years ahead. According to the Institute of International Finance, by 2015 the Saudi government will only be able to balance its budget if oil prices are at $115 a barrel if current spending trends remain in place. So in effect, with the Arab Spring forcing governments to spend more on their citizens, it has put a floor under the price of oil. OPEC will do everything in its power to keep the price above the budget breakeven points for governments in the Gulf region. Keep up to speed on the oil and precious metals markets with my free newsletter: www.GoldAndOilGuy.com Chris Vermeulen 



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