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Timing & trends

Oil Prices Gone Wild

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Posted by Chris Vermulen - GoldandOilGuy.com

on Tuesday, 18 September 2012 11:30

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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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Timing & trends

Israel-Iran conflict now the biggest danger to global financial markets this autumn

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Posted by Arabian Money

on Tuesday, 18 September 2012 08:00

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For all the analysis of the US ‘fiscal cliff’, eurozone sovereign debt crisis, Japan’s lost decades and China’s stalling economy, the biggest threat to global financial markets this autumn is the danger of a sudden strike on Iranian nuclear installations by Israel, most probably before the US presidential election.

The fear then is that Iran would attempt to close the Strait of Hormuz, the vital oil artery of the global economy with 18 million barrels of oil passing through this 34-kilometre wide stretch of sea.

At present there is an armada of ships from 25 nations conducting a mine sweeping exercise in the Straits, including three of the most powerful US aircraft carriers, each with more planes than the entire Iranian airforce.

Unpredictable consequences

Military experts are in no doubt who would win but wars are very unpredictable. The US over-ran Iraq in three weeks in 2003 but failed to adequately plan the occupation leaving the country highly unstable and in a virtual state of civil war.

Stock markets hit rock bottom in the spring of 2003 just before the invasion of Iraq and the Second Gulf War. That was the point of maximum uncertainty. Remember some then thought Saddam Hussein had weapons of mass destruction and nobody could be entirely sure.

This autumn many global stock markets have recovered to almost pre-global financial crisis levels, mostly without a full recovery in economic output. Arguably they are ripe for a fall.

As in 2003 the countdown to military action in the Gulf is just the sort of thing to put fear back into the markets. The most immediate impact is already being felt in the price of crude. Oil prices are at levels today that have tipped better global economies into recession.

Oil price impact

If Israel insists on making its attack on Iran then the price of crude will soar to levels beyond the peak of $147 a barrel in July 2008 that brought on the global financial crisis of that autumn after the failure of Lehman Brothers.

The stock market response will be to discount another major recession with very much lower share prices across the board. Hopefully whatever happens in this military action will not be anything like the worst case scenario and the bounce back for financial markets will be equally vigorous.

However, if you want to isolate the biggest threat to global financial markets this autumn it has to be an Israel-Iran conflict, something that the money printing of global central banks can do nothing to influence or contain.



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Timing & trends

The Bottom Line

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Posted by Don Vialoux - Timing the Market

on Monday, 17 September 2012 07:14

Downside risk exceeds upside potential in equity markets during the next five weeks. The recent breakout by the S&P 500 Index implies that depth of the downside risk is less than previous. Selected seasonal trades continue on the upside (gold, energy, software) and downside (transportation). However, many of these seasonal trades reach the end of their period of seasonal strength this month. September is a month of transition. Trade accordingly.



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Timing & trends

A Perfect Storm

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Posted by Mark Leibovit - Charts of the Day

on Friday, 14 September 2012 08:23

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"Mario Draghi and Ben Bernanke have willingly opened the floodgates and allowed their respective printing presses run 24/7. No surprise here. This is all Central Bankers know how to do and it had been forecast by many (myself included)."

"My Annual Forecast Model (below) along with Equityclock.com’s ‘seasonal’ studies all pointed to the time band from mid-summer forward as being friendly to the metals. So, for now, we need to sit back and enjoy it!"

"Depending on which forecast chart you look it, it is clear we’re overall headed higher. However, there is theoretical ‘cyclical’ risk of a pullback both here in September and again in October. Use pullbacks to establish or to add to current positions if you don’t feel you allocation to the metals is great enough."  

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Quote & Chart above from Mark Leibovit's Hot off the Press Sept. 14th 25 page VR Gold Letter . IF YOU HAVE NOT SIGNED UP FOR THE LEIBOVIT VR GOLD LETTER, HERE IS YOUR CHANCE. HERE IS THE LINK: WWW.VRGOLDLETTER.COM. YOU GET A 50% DISCOUNT FOR THE FIRST MONTH.

Miners Catching Up To Metals — Huge Run

Coming?

 

Gold bugs are a generally happy bunch this week. But they’d be a lot happier if precious metals mining stocks kept up with the metals themselves. Since early 2011 the largest gold miners have underperformed gold  by about 40%, while the junior miners have done even worse (I’m talking to you, Great Basin).

Thanks to this divergence between the metals and the miners, it was possible to clearly understand the monetary destruction endemic in the developed world, conclude that gold and silver were the places to be, make a decisive bet on this thesis — and still end up losing money.

There are two possible conclusions to draw from this: Either mining as a business has changed fundamentally and will be unprofitable forever –  in which case we should just own physical metal and forget about paper proxies. Or the past couple of years were one of those inexplicable divergences from established relationships that produce huge gains when they snap back to normal.

The past month has offered a taste of what the second possibility might look like. The chart below shows that the big miners (represented by the GDX gold miner ETF, red line) have outperformed gold itself (the GLD bullion ETF, blue area) since July. But the two-year gap, like I said, is about 40%, so parity is still a long way  off.

Now that the miners have some momentum, it wouldn’t be surprising if they made up this ground in no time at all.

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Above by DollarCollapse.com managed by John Rubino, co-author, with GoldMoney’s James Turk

Perspective on the current Dow rally

 

The Dow made another post-financial crisis rally high Thursday on the news that the Fed will embark on a third round of quantitative easing (a.k.a. QE3). To provide some perspective on the current Dow rally, all major market rallies of the last 112 years are plotted on today's chart. Each dot represents a major stock market rally as measured by the Dow -- with a rally being defined as an advance that followed a 15% correction (i.e. a major correction). As today's chart illustrates, the Dow has begun a major rally 28 times over the past 112 years which equates to an average of one rally every four years. Also, most major rallies (78%) resulted in a gain of between 30% and 150% (29.8% to 150.5% to be exact) and lasted between 200 and 800 trading days (9.5 months to 3.2 years) -- highlighted in today's chart with a light blue shaded box. As it stands right now, the current Dow rally (hollow red dot labeled you are here) which began in October 2011 (since it followed a 16.8% correction), would be classified as well below average in both duration and magnitude.

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Notes:
Where's the Dow headed? The answer may surprise you. Find out right now with the exclusive & Barron's recommended charts of Chart of the Day Plus.



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Timing & trends

Double Down: Vladimir’s Putin' Billions Into Gold In Anticipation of Global Upheaval

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Posted by Mac Slavo via Peter Grandich

on Thursday, 13 September 2012 00:00

"In the last 7 months alone the People’s Republic of China has added more gold to their reserves – over 500 tons – than the entire holdings of the European Central Bank. They aren’t alone."

"Russia’s President Vladimir Putin has been aggresively investing into the precious metal over the last five years – spending some $500 million monthly as he diversifies his country’s assets out of Dollars and Euros. Currently, 9% of Russia’s reserves are held in gold."

This, of course, begs the question: why?

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According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars’ worth every month.

No one else in the world plays global power politics as ruthlessly as Russia’s chilling strongman…

Putin’s moves may matter to your finances, because there are two ways to look at gold.

On the one hand, it’s an investment that by most modern standards seems to make no sense. It generates no cash flow and serves no practical purpose. Warren Buffett has pointed out that we dig it out of one hole in the ground only to stick it in another, and anyone watching this from Mars would be very confused.

But there’s another way to look at gold: As the most liquid reserve in times of turmoil, or worse.

The big story of our era is not that the Spanish government is broke, nor is it that Paul Ryan apparently feels the need to embellish his running record.It’s that the United States, which has dominated the world’s economy for several lifetimes, is in relative decline.

We will soon be the first people in two hundred years to live in a world not dominated by either Pax Americana or Pax Britannica. This sort of changing of the guard has never been peaceful.

The declines of the Spanish, French and British empires were all accompanied by conflict. The decline of British hegemony was a leading cause of the First and Second World Wars.

What will happen as the U.S. loses its pre-eminence?

Maybe this will turn out better than similar episodes in the past. Maybe the Chinese will embrace an open society and the rule of law. If you believe that, there is probably no reason to hold any gold.

On the other hand, we may be about to enter a much more turbulent and dangerous era of power politics and international competition.

Source: Market Watch [via Ulsterman Report]

....read the entire article HERE



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