Daily Digest 3/16 - Gold At $1900, The Story Nobody Wants To Hear, Yemen Unrest's Larger Implications
- Are Treasuries FINALLY the Short of the Decade?
- Strike On Iran, A Green Light From Washington
- The Noose Tightens
- Central Bank Balance Sheets Put Gold at $1900
- The Story Nobody Wants To Hear
- Has the Global Economy Become Less Vulnerable to Oil Price Shocks?
- A Golden Future for Natural Gas in the US
- Yemen's Unrest's Larger Implications
- Shell Boss Took Home £10m Amid Oil Price Surge
Check out the chart for TBT, a 2X negative long-term Treasury ETF (in other words, a fund that bets against Treasury bonds). In case the price numbers are hard to read, this fund peaked at 70 in 2008 and has since fallen steadily if irregularly to less than 20. Far from being the short of the decade, Treasuries, especially if you were using leverage to bet against them, have been a sound-money investor’s nightmare.
Iran has stopped discussing accepting euros for its oil, but has instead leapfrogged to a more egregious policy of now accepting yen, rials, rubles, renminbi and gold (NYSEArca:GLD) in exchange for its crude. In fact, the Iranians went a step further in January, as to intentionally insult the U.S., by making the announcement that included a gratuitous statement that the policy change in Tehran was suggested by the Russians.
The Noose Tightens (Davos)
It sure appears like preparations for war. It sure seems like we are tightening the noose around Iran’s neck in order to make them do something foolish. I don’t see Hillary being dispatched to Tehran in an attempt to ratchet down the escalation. I only see a military buildup and preparations for an attack. What do you see?
Right now, we have the second most oversold reading since 2008 and, as of yesterday’s low, gold appears to be selling at a discount of $255/oz to its average price. Thus, as I show below, gold investors are currently presented with yet another oversold and undervalued buying opportunity.
The old cliché that a bull market climbs a wall of worry seems to be playing out this year. Of course, despite the plethora of worries things have been steadily improving. The S&P 500 is up high single digits and the economic data continues to surprise on the upside. Still, the worries persist. Last October the stock market bottomed on October 4th, and the VIX peaked on August 8th at 48 and then again on October 3rd at 45.45. At that time there were multiple worries from the debt ceiling and downgrading of U.S. debt, a double-dip U.S. recession, a meltdown in Europe, a hard landing in China, the ECRI’s recession call (which is still being maintained), to social unrest as exemplified through the “Occupy Wall Street” movement.
Rasmussen and Roitman describe the observed association of high oil prices and contemporaneous rapid economic growth as “surprising.” In fact, there should be nothing “surprising” about this finding. As the economy grows rapidly, demand for oil is likely to be high, driving up oil prices. Thus, as far as the impact of oil prices on economic growth is concerned (rather than the impact of economic growth on oil prices), only an examination of the lagged effects of oil price changes would be meaningful.
A Golden Future for Natural Gas in the US (James S.)
It seems as if the natural gas prices are about to find a bottom. We believe that, at the current level, the sector can no longer work profitably. Numerous production and investment cuts for 2012 and beyond confirm this. For example, Chesapeake Energy announced that it would cut production by 0.5 bcf/d. If the prices were to remain at this level, the company would cut its output by a total of 1 bcf/d. In addition, CAPEX would be reduced from USD 3bn to USD 900mn. Exploration expenditure would be cut by 50%, which would represent a drastic u-turn from the aggressive expansion programme in the past years. And CHK, the second-biggest natural gas producer in the US, reported a decline in production of almost 10%. We expect numerous producers to follow suit, which would lead to further cutbacks and a further decline in drilling activity.
Yemen's Unrest's Larger Implications (James S.)
Since last month Yemeni militants have expanded their operations in southern Yemen following months of turmoil after the “Arab spring” suddenly erupted in the North African Arab Magreb, which increasingly paralyzed the country and eventually unseated former President Ali Abdullah Saleh, who was replaced last month in a vote by Saleh’s chosen successor, Abd-Rabbu Mansour Hadi.
Shell Boss Took Home £10m Amid Oil Price Surge (Michael W.)
Shell chief executive Peter Voser earned more than £10m last year in pay and bonuses at a time of near-record oil prices and in a year when the firm was responsible for 207 oil spills – considerably more than the year before.
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