Month: August 2012

By MoneyMorning.com.au

The resources boom is over — or so they say.

If you saw the headlines in the paper this week, you might never buy another resource share ever again. But hold on there.

Both the oil and gold price headed higher this week. Can we take anything away from that? Well, hold that thought for a moment.

If there’s one area where the bulls and the bears are starting to diverge in a big way, it’s on the commodity bull market. The bearish argument says new supply, a Chinese hard landing and a deflationary economy will knock commodity prices over and hold them down. So you should get out while you can.

The bullish argument says the rising middle class in Asia and Africa will put a rocket under demand for the next decade or more. And with central banks printing money faster than Prince Harry can knock back the vodka’s, this will devalue currencies against hard assets. In that case, load up on resources stocks now.

So which is it?

When the Commodity Bull Runs Different Races

It’s fair to say that when investors talk about the commodity bull market, they’re usually talking shorthand. After all, which commodity? In Australia’s case, the commodity bull market usually means iron ore and coal.

You can understand why, when you consider that these two commodities make up a huge share of Australian exports and the effect they’ve had on the terms of trade.

But the natural resource market is a little bit bigger than those two, and a bit bigger than Australia as well.

To remind ourselves of the broad shift in the commodity asset class over the last ten years, we sat down with our CRB Commodity Yearbook this week and thumbed through from Aluminum to Zinc.

If there was one commodity that stuck out in terms of rising production, it was iron ore.

Worldwide, it’s almost triple what it was 2002. We couldn’t see any other commodity with such a huge shift in output.

Even the infamous gold bull market has seen production trending down in the last ten years in big producers like Australia, South Africa and the United States. The only major country to show a significant increase is China — and it doesn’t export any of it.

One lesson of the last bull commodity market in the 1970′s is that different commodities will peak at different times. Iron ore looks like the first to peak this time around and coal is probably not far behind.

As resource expert Rick Rule likes to remind us, ‘markets work’. Price signals bring on more production until demand is met or higher costs cause it to subdue.

In the 20th century, the three big commodity bull markets ran on average for about 17 years. If you take the start of the current global bull market as 2000, we’re a good way in. It’s natural the huge price run-ups we’ve seen will level off in at least some sectors of the natural resource market.

But there’s more to Australia’s natural resources than just iron ore and coal.

Even so, you’d expect Australia’s terms of trade to normalize in the near future as those two huge markets revert closer to the mean. The good thing is opportunities should be available elsewhere…including overseas.

There’s Still Opportunity in Resources

It’s important to remember that the same price action doesn’t happen in every commodity at the same time. Each natural resource has its own supply and demand dynamic. Commodities may correlate in a broad way as an asset class, but each commodity will still form its own trend.

The hard part is separating the price signals between the underlying supply and demand from the shaky global economy, because the fundamental problems in financial markets have not been addressed.

We’ve heard it described as two huge weather patterns (the financial crisis, the natural resource bull market) clashing against each other. The result is volatility.

Oil demonstrates this perfectly. In 2008, it nearly hit USD$150 a barrel. In January 2009, it was under USD$40. This week it nearly touched USD$100 again.

Now oil may spike up or down depending on different events. But as oil explorers go into deeper water or use more difficult onshore extraction methods, its costs are going higher.

Some estimates say it costs about $75-80 a barrel for projects like off-shore Brazil or Africa. The trend in the production cost is up. The easy oil is gone. The low in 2009 was a chance to take advantage of distressed sellers.

But almost every commodity took a nosedive in 2008. When the market breaks like that, resource companies shelve marginal projects and try to save cash…to make sure they have enough money to survive until the market returns to normal.

No Capital, No Business

Four years later, most Aussie resource companies did survive.

But, in the face of the relentless global financial crisis, the resource industry is shelving projects and cutting costs again. And like 2008, low-margin, high cost and capital starved companies could go out of business.

Only companies with lots of money at hand, good cash flow, and low operating costs will make it.

The result will likely mean a crimp in supply, and some markets could even develop shortages. That will draw new companies into the market, and encourage cash-rich resource companies to crank up their exploration and mining projects again.

The continued volatility in financial markets will keep presenting opportunities like the break in oil. But how do you know where to look?

Well, Rick Rule’s approach to investing in natural resource markets is to look for industries with poor capital investment and poor supply.

If commodity prices stay depressed or fall further, the industry outlook will be bleak. This will be the best time to buy.

And as Dan Denning pointed out this week to subscribers of Australian Wealth Gameplan, it’s at the bottom of the cycle that you have the chance to buy assets for a song.

The bull market in iron ore and coal may be over but that doesn’t mean resource investing is going down with it.

Callum Newman
Editor, Money Weekend

The Most Important Story This Week

Network Ten has been in the news lately with a sinking share price and a string of failed shows. The head of programming resigned this week. This follows on from the poor reception to the recent Channel 9 Olympic coverage.

Print media has already seen its revenue from classified advertising lost to the Internet. This had led to huge cuts in the industry and big losses in both money and jobs. Is the same thing about to happen to commercial television? Kris Sayce says watch out — their days as relevant content providers are numbered — see what he says in Advertising Growth on Demand.

Other Recent Highlights…

Nick Hubble on The Bloody Oaths and Balance Sheet Imbalances of Australian Banks: “Australia’s banks are about to get hit with a double whammy. Banking is about managing the asset side of the balance sheet, and the liabilities side. It’s a question of what to invest in, and how to fund those investments. Both sides are in trouble.”

Jeffrey Tucker on Why Capitalism Could Be Haiti’s Saviour: “Without an understanding of economics, it is nearly impossible to see the unseen: the capital that is absent that would otherwise permit economic growth… Now to the question of why the absence of capital. The answer has to do with the regime.”

Kris Sayce on The Entrepreneur’s Miracle Ingredient for Success in a Free Market: “It’s proven that free markets and individualism work better than central planning. Not just for consumer products and services, but for everything…including the environment. Unfortunately, the vested interests want to spend your tax dollars.”

Bengt Saelensminde on Things Are Looking Up for Gold: “Despite the worsening situation in Europe, gold has been decidedly downbeat since last summer’s dash to $1,920. And I suspect that many people are beginning to lose interest. I think that is a huge mistake.”

The Resources Boom is Dead…but the Next Commodity Boom Has Just Begun

By MoneyMorning.com.au

Investment banks like to group ‘hot’ countries together. Not only is it a great way to grab investors’ attention, sometimes it even makes money.

In 2001, Goldman Sachs came up with the BRICs – Brazil, Russia, India and China. Those four markets did very well during the 2000s.

However, as we’ve pointed out already, these four seem to have hit the buffers. So now Goldman has come up with another shiny package of ‘must-have’ nations.

The catchy acronym this time? MIST – Mexico, Indonesia, South Korea, and Turkey.

As with the BRICs, there’s no real reason to group these countries together beyond branding. Each has its own merits and individual problems.

However, of the four, Mexico looks the most interesting to us. Here’s why…

Why China’s Woes Are Great News for Mexico’s Economy

One major attraction of Mexico is China. More specifically, the Chinese slowdown is good news for Mexico’s economy.

Why? Since the end of the 1970s, China has become the workshop of the world. Market reforms meant it could use its huge supply of cheap labour to flood world markets with low-cost goods.

This had a big impact on US industry. But it also dealt a knock-on hammer blow to Mexico. American firms who would once have outsourced production to a factory ‘south of the border’ instead moved to the Far East.

This model couldn’t last forever. And as China has become richer, wages have started to rise. This has reduced its cost advantage over middle-income countries. Indeed, wages in Mexico are now only 10% higher than those in China.

So if you’re the head of a multinational, you start to become less interested in the wage bill, and pay more attention to other factors, such as transport costs and governance.

This makes Mexico look much more attractive as a production location for firms exporting to, or supplying, the US. Despite its many flaws, Mexico is a market-based democracy that is just a truck drive away from many major US cities.

In contrast, the state still plays a massive role in the Chinese economy. Property rights are also weak. And in any case the distance means that any finished goods have to be shipped halfway around the globe, which costs time and money. Indeed, if productivity is taken into account, Mexican wages are now much lower than those in China.

So it’s no surprise that Mexico’s economy has grown strongly in recent years, even while the US has stagnated. GDP went up by 5.5% and 3.9% in 2010 and 2011 respectively. Indeed, Mexico also outpaced Brazil, which only grew by 2.7% last year.

One of the things that makes emerging markets risky in general, is that they tend to have high levels of public and private debt. This means a slowdown can quickly turn into a deep recession, as government and consumers are forced to deleverage.

Growth “South of the Border”

However, Mexico’s finances are generally in a good shape. Net government debt is only 35% of GDP, while private debt is relatively low. Ironically, this solid fiscal position is due to the fact that the personal banking system is underdeveloped. This means that most people have limited access to credit.

As Mike Riddell of bond fund manager M&G points out, the Mexican government has also made a big effort to reduce the amount of debt it issues in foreign currencies. The downside is that this means it has to pay more interest on its bonds.

But it also leaves Mexico far less vulnerable to a panic by foreign investors. It also means that – if necessary – the country could stimulate growth by making the currency cheaper, without worrying that this would make it harder to repay debt.

There’s no getting away from it, Mexico is not dirt cheap by any measure. The attraction here is growth, not value or income.

Matthew Partridge
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek (UK)

From the Archives…

A Housing Bubble…Upon Bubble…Upon Bubble
17-08-2012 – Nick Hubble

How Government Extortion is Happening Right Before Our Eyes
16-08-2012 – Kris Sayce

Are Gold Stocks About to Turn?
15-08-2012 – Dr. Alex Cowie

The Amazing Ethanol Scam in the USA
14-08-2012 – Jeffrey Tucker

Why I’ve Done a U-Turn on Solar Energy
13-08-2012 – Kris Sayce

A Way to Profit from a Chinese Slowdown – Buy Mexico

Article by Investment U

I’m sure you’ve read it before…

The IMF estimates that by 2014, somewhere in the neighborhood of 60% to 70% of the world’s GDP growth will be coming from emerging markets. These aren’t your father’s emerging markets anymore. EMs have become more economically sound with their own domestic demand and earnings growth.

I’m here to tell you that if you still have a bias towards the developed world, then the growth and the development of the rest of the world will undoubtedly pass you by. But below I’ll show you how to capture some of that growth in a relatively safe way…

As I and many other writers from Investment U have told you over the past few years, there’s no use in dealing with the headache of trying to time the market. It especially doesn’t make sense now with the current unpredictable ebbs and flows of the market.

Instead, stick with trusted strategies that reduce risk while gaining the best possible return. One of these time-tested strategies, advocated by Investment U’s own Marc Lichtenfeld, is investing in quality dividend stocks.

So without further ado, let’s take a look at dividend-paying equities in emerging markets.

A “New World” of Opportunity for Dividends

As I said earlier, the IMF expects up to 70% of the world’s GDP growth to come from emerging markets. But possibly even more impressive is the fact that about 40% will come from China and India alone.

And yes, these emerging market stocks have performed well. But what you probably didn’t know is that many companies in the emerging market world have also been increasing their cash payouts.

In fact, the average dividend yield in emerging market countries is now over 3%. If you look at all of the S&P 500, the average is a little over 2%.

There’s no reason to believe that this is a passing fad. Companies are now beginning to mature around the world. And after that initial growth stage has passed, it’s time for companies to take their cash and give it to the investor rather than just re-investing it in the company.

And sometimes, the law can actually be your friend. Some emerging market companies are actually forced to pay hefty dividends. Brazilian companies are required by law to pay out at least 25% of their net profits.

The Easiest Ways to Gain Exposure

Be aware that many of the better-paying companies won’t be listed on U.S. exchanges, so you’ll probably want to gain exposure (and valuable diversification) by buying a fund. Here are some to get you started:

• Wisdom Tree Emerging Markets Equity Income Fund (NYSE: DEM) is a favorite of Investment U’s emerging market expert Carl Delfeld. It’s a broad array of the highest dividend-paying emerging market stocks. If you’re investing or thinking about investing in dividend-payers, you have to keep this a long-term strategy, because that will be the most beneficial play. Because they tend to be less volatile than non-payers, they tend to lag in a bull market, but hold up better when markets falter, says Howard Silverblatt, the Senior Index Analyst at Standard & Poor’s. “Basically, the dividend acts as an anchor holding the stock in place,” he says. And this fund follows suit.
• PowerShares International Dividend Achievers (NYSE: PID). In order to get into this portfolio, companies must be an international stock with a stellar dividend growth record… at least five consecutive years of dividend increases.
• WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE: DGS) tracks the WisdomTree Emerging Markets SmallCap Dividend Index, which is made up of – you guessed it – small-cap stocks. The fund currently manages about $917 million and trades about 168,000 shares per day. The ETF charges an expense ratio of 63 basis points annually and is up 5.81% for the year. Along with capital appreciation, the current dividend yield is 3.9%.
• SPDR S&P Emerging Markets Dividend ETF (NYSE: EDIV) tracks the S&P Emerging Markets Dividend Opportunities Index, which consists of dividend-paying securities of 100 publicly traded companies in emerging markets. The ETF was launched in February last year and now has about $280 million in assets. The expense ratio for this fund is 0.59% and it’s down 5.39% year-to-date. But the current dividend yield is at 4.95%.

Take Note:

If you’d like to get your hands dirty in emerging marketing investing – by investing directly in the equity – and don’t like the mutual fund approach, you should definitely do it in a taxable account.

Many of these countries will levy 20% of withholding on the dividends paid to U.S. investors before you can get your hands on it. However, if it’s in a taxable account, you may be able to offset withholding against your payable U.S. taxes.

This wouldn’t be able to happen in a tax-free retirement account because of the tax laws that apply to those accounts.

Good Investing,

Jason Jenkins

Article by Investment U

Article by Investment U

On the way out of Barnes & Noble the other day, I noticed Harry Dent’s book, The Great Depression Ahead, sitting on the remainder pile. It was fetching $4.95 a copy in hardback if, indeed, anyone was buying it at all.

With less than auspicious timing, Dent – a self-styled “economic futurist” – brought the book out in January 2009, just three months before the current bull market began. The S&P 500 has doubled since then. Yet Dent warned readers away from stocks and favored cash and money markets instead.

Of course, anyone can make a bad call. But then, rarely has anyone gone so wrong so often – or made so much doing it.

Earlier this month, however, the Dent Tactical ETF (Nasdaq: DENT) – the brainchild of Dent – announced it’s shutting down. It had $20 million in assets in May 2011, but today is has roughly a quarter of that.

Dent made out okay, though. The fund charged an annual management fee of 1.65%, far more than most ETFs, which are designed to be cost-effective.

Putting a DENT in Shareholders’ Portfolios

The poor performance must be particularly hard for shareholders to swallow since the prospectus granted the fund near total flexibility. It could invest in domestic or foreign stocks or bonds or cash at any time. Yet instead it put a DENT in shareholders’ portfolios.

I draw special attention to this investment approach because it’s the polar opposite of our own. We regularly remind Investment U readers that no one can accurately and regularly predict economic growth, business cycles, interest rates, currency values, commodity prices, or the near-term direction of the stock market. So long-term investors should quit guessing and, instead, asset allocate and rebalance. Short-term traders should seek to identify individual companies that are likely to beat near-term earnings forecasts. That’s the primary driver of short-term stock movements.

Our approach has something to recommend it: It works. Dent’s approach? Well, you be the judge.

In 1999, near the tail end of the longest and most powerful bull market in U.S. history, Dent brought out his book The Roaring 2000s Investor, confidently predicting that the Dow would hit 44,000 by 2008. He was off by 35,000 points.

He also argued forcefully at the time for Nasdaq stocks – the worst investment you could make in the New Era bubble – and predicted, “the technology revolution will favor internet-oriented companies.” Within three years, the Nasdaq lost three quarters of its value and the leading index of internet stocks plummeted 89%.

Ouch.

In retrospect, it’s obvious just how wrong Dent was. But during the tech-stock mania, plenty of brokers and investors agreed with him. He sold thousands of books and raked in big bucks as an advisor to top Wall Street firms, including Morgan Stanley.

“The Next Great Bubble Boom”

Five years later, using his same “demographic trends theory,” Dent published The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010.

Well, no. That period encapsulated a full-blown financial crisis and the biggest stock market bust since the Great Depression. In the book, he argued again that the Dow would hit 40,000, this time by 2009. The benchmark plummeted to less than 6,500 in the spring of that year instead.

With a track record like this, you might imagine Mr. Dent would get out of the economic prognostication game and think about flipping pancakes or running a daycare center. But no, near the market bottom three and a half years ago, he unleashed The Great Depression Ahead.

Within weeks of the book’s publication, the financial crisis began to ebb, the economy moved out of recession and the Dow began one of its most powerful rallies of the last 100 years. Corporate profits – and profit margins – hit an all-time record. Three years later, the S&P 500, with dividends reinvested, had doubled.

Bloodied but unbowed, Dent next published The Great Crash Ahead. Since then, all the major indexes have surged higher than almost anyone expected – and remain in a primary uptrend.

You have to admire Dent’s pluck, if not his luck. Of course, if you make enough predictions, you can always point to some successes. But this is a man with a penchant for getting the big picture spectacularly wrong. And – giving hope and comfort to equity investors everywhere – he now says a stock market crash lies dead ahead.

As contrarian indicators go, it doesn’t get much better than this. So stay long stocks for now and keep an eye out for Dent’s next book. If he recommends getting fully invested, we may need to reconsider.

Good Investing,

Alex

Article by Investment U

Article by Investment U

It was the end of innocence.

Once upon a time, I naively believed that we live in a free market global economy where companies competed fairly on a level playing field.

That was until I studied Japanese business practices for a year in Tokyo, worked with the U.S. Congress and the U.S. Treasury, and then was appointed to represent America on the board of the Asian Development Bank in Manila.

From my perch, watching how the great game is played in Washington and in capitals around the world, I learned some useful lessons:

1. How companies, like a U.S. energy company I helped, snagged and financed a $100-million contract in a matter of weeks through identifying key decision makers.
2. How a small, privileged elite club of families that I got to know command the controlling heights of emerging market and Asia-Pacific economies – and why what they touch turns golden.
3. How companies are not treated the same at all – with some enjoying the benefits of being owned or closely allied with governments and key decision makers.

We all like to believe in free markets, but the rising countries in the Pacific Rim are playing by a different set of rules. “Crony capitalism” is one way to put it. Another is “semi-market, state capitalism.”

In a “semi-market, state-capitalism” world, governments and influential business leaders play a key role in deciding who and which companies will win or lose. This is especially true in emerging markets where 83% of the world’s consumers hold court.

This means that, unfortunately, investing in overseas companies with abundant talent and initiative, a great product or service, and the capital to execute a well-thought-out plan are sometimes not enough for big and lasting gains.

In short, it’s to your great advantage to invest in companies with strong influence within the country’s business and political power structure.

A “Blue Ocean” of Opportunity

This is one of the four drivers behind what I call “Operation Blue Ocean” – my quest to pick the stock of the Pacific Century.

Here’s a brief overview of the four drivers with their weightings in case you would like to try your hand in picking the best stock to capture decades of Pacific Rim growth:

• 40% – Strategic Importance and Preferred Status: Is the company strategically placed at the heart of blue ocean growth, providing key services tied to vital economic and security interests? Does the company’s board of directors represent a blue chip assembly of elite executives and government leaders? Do the company’s services tie in nicely into the Pacific free-trade initiatives? Do the company’s shareholders include investors who can help it overcome and even benefit from regulatory or political challenges? Does the company enjoy “home court” advantage and a wide “moat” or, even better, a monopoly or semi-monopoly position?
• 20% – Strong Fundamentals and Growth: Is the company rapidly building its book of business worldwide in areas where the growth trends are deep and durable? Does it enjoy a sterling balance sheet and a significant cash stockpile? Are its revenue and profits on a strong upward trajectory? Is the stock price moving upward and demonstrating clear relative strength?
• 20% – Significant Contracts in Pipeline: Is the market recognizing any recently signed series of substantial commercial contracts? Does the company have a clear and sizable leadership position in the industries that it competes in? Does its pipeline of contracts give it downside protection and fuel to maintain its momentum?
• 20% – Attractive Valuation: Does the company’s stock valuation trade at a deep discount to relative indices and peers compared to its record and prospects?

This is my blueprint. Make it yours…

Good Investing,

Carl

Article by Investment U

Article by Investment U

There’s no doubt about it…

Over the last 10 years (and more) the place for investors to be has been the commodities market.

Since August 2002:

• Gold prices skyrocketed over 400%.
• Silver popped 666%.
• Oil prices jumped 265%.

Meanwhile, the S&P 500 ticked up 50%.

And it seems, despite a setback caused by the 2008 financial crisis, the bull market in commodities could have legs for years to come.

Legendary investor Jim Rogers agrees.

He told Business Times just a few days ago, “This bull market in commodities has been going on for 13 years, which is a long time, but I still don’t see a major supply. Until supply starts coming in a big way, you’re not going to have the end of the bull market.”

In fact, in the past 200 years, the average length of commodity bull markets lasted anywhere from 17 to 22 years. One even ran up for 40 years straight.

It’s good news looking forward for commodity investors. But it’s also a plus for an often-overlooked currency, as well.

I’m talking about the Canadian dollar.

A Very Happy Birthday

Earlier this year, the Canadian dollar – otherwise called the “loonie” – turned 25 years old.

And in just the last 10 years, the value of it has soared against the U.S. dollar.

In 2002, you could buy one Canadian dollar for US$0.62. Today, the Canadian dollar is trading at parity with the U.S. dollar.

And like commodities, its run likely isn’t over yet.

You see, many Americans don’t even realize it, but Canada is our largest trading partner.

Last year, the United States imported $316 billion worth of goods from Canada, a 14% increase from 2010.

And Canada is the largest exporter of oil and second-largest exporter of gold to the United States, as well.

So if you’re bullish on the value of these commodities, especially oil prices, the Canadian dollar should be a no-brainer investment, too.

But for Canada, it gets even better.

That’s because it’s also in a position to dramatically increase its exports to emerging markets, particularly to countries like China.

This could end up being a huge boost for Canada and it should bolster the Canadian dollar even further against the U.S. dollar.

So where can you get started?

Three Ways to Play the Loonie

For investors, there are a number of ways to invest in the Canadian dollar.

First, the forex market is the best way to directly expose yourself to a rising Canadian dollar against the U.S. dollar.

Another way could be by picking up shares of an ETF such as Rydex CurrencyShares Canadian Dollar ETF (NYSE: FXC).

And a third option is going to be available soon, as well.

IShares just announced it’s going to be launching a group of actively managed currency ETFs soon that would give investors the chance to capitalize on a number of global currency movements, including the Canadian dollar.

No matter which way you invest, if commodity prices are set to head higher, you can bet the Canadian dollar is going to follow suit.

Good Investing,

Mike

Article by Investment U

By Central Bank News

   NEXT WEEK:
   The central bank calendar for next week includes meetings by four central banks (Israel, Hungary, Norway and Brazil) with markets expecting all banks to keep rates unchanged.
   The major focus of financial markets is the Jackson Hole symposium where Federal Reserve Chairman Ben Bernanke is expected to speak on Friday, followed by European Central Bank President Mario Draghi on Saturday.

By Central Bank News
    The Central Bank of Colombia cut its benchmark overnight lending rate by 25 basis points to 4.75 percent, as expected, and said a further weakening of global growth is likely. 
    The bank also said it would purchase $700 million on foreign exchange markets during the rest of August and September to provide liquidity to the economy.
    The central bank, which already reduced its key rate by 25 basis points in July, said second quarter results had confirmed that global growth was weakening and the latest trade and industry data suggested a further transmission of problems in Europe to the rest of the world.
    “This raises the likelihood of an even weaker global growth in the future,” Banco de la Republica Colombia said in a statement, adding: “International financial markets remain volatile and the risks from Europe continue to affect confidence.”
    The purchase of $700 million by the end of September should slow down the rise in the peso, which has strengthened over 6 percent this year against the U.S. dollar, raising the cost of exports.

    Markets had expected the central bank to cut rates again after minutes from the July meeting showed pessimism over growth prospects and some committee members had voted to cut the interest rate by 50 basis points. In January the bank had raised rates by 25 basis points.
    The central bank said the value of commodity exports from mining continued to slow, mainly due to lower international prices, and agriculture sector and industry contracted.
    Inflation remained relatively stable and inflation expectations fell, the bank said.
    Colombia’s GDP expanded by 4.7 percent in the first quarter from the same quarter last year, a sharp drop from a 6.1 percent growth rate in the fourth quarter.
    www.CentralBankNews.info
    
    

Source: ForexYard

The euro took modest losses against the US dollar in overnight trading, as concerns regarding Greece’s ability to control its debt levels led to risk aversion in the marketplace. The EUR/USD fell around 30 pips last night before staging an upward correction during early morning trading. The pair is currently trading just above the 1.2500 level. A hurricane in the Gulf of Mexico caused the price of oil to spike in overnight trading. The commodity gained more than $1 to reach as high as $97.69, before correcting itself. Currently oil is trading at $96.95.

Main News for Today

German Ifo Business Climate- 08:00 GMT
• Analysts are forecasting the indicator to come in at 102.7, below last month’s result of 103.3
• If today’s news comes in below the forecasted level, the euro could take losses against the USD and JPY as a result

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By MoneyMorning.com.au

Once politicians and vested interest stick their noses in somewhere, it’s darn hard to get them to buzz off. In the July issue of Australian Small-Cap Investigator, we wrote that the best thing to happen to the green energy sector was the 2008 global financial meltdown.

With governments strapped for cash, they’ve cut subsidies to green energy. This is great news because it removes the impact of government meddling.

It means green energy companies can stop planning for the short-term government handouts. Instead, they can innovate and plan for the future.

When technology can take years to develop, the last thing a company needs is for the government to throw short-term cash at it.

That’s because it forces green energy companies to put long-term projects on hold. After all, if they don’t grab the short-term subsidies, other firms will.

However, despite the funding cuts, lobbyists are still pounding away at the drum. And the desperation is showing…

Last week, former US Vice President, Al Gore, told a Sydney conference that ‘Australia is the canary in the coal mine’ when it comes to climate change.

The self-appointed fear-monger-in-chief must have wowed the crowd when he said – by video link – that Australia would be the first to suffer from climate change. And that whatever happened here – fires, floods, storms – would be an early indicator for the rest of the world.

Scary stuff.

Naturally, it’s not good enough to put the fear of God into people. You’ve got to butter them up too. So despite Australia’s potential for an ‘unimaginable catastrophe’ (Al Gore’s words, not ours), he says there is hope:

‘So policy actions like Australia’s historic achievement are beginning to unlock innovative approaches to the climate crisis that will provide new sources of sustainable economic growth and good jobs while simultaneously solving the climate crisis. We’re not there yet, but fortunately we are gaining momentum and we can solve this problem.’

And how do we solve this problem? Everyone doing their own little bit perhaps…no, don’t be silly. Al Gore explains:

‘The climate crisis of course, is not the struggle of an individual nation or government, it is a global challenge. And therefore in order to solve it we have to act together. Toward that end I salute Australia’s strong commitment to solving the climate crisis. And I know it’s going to continue to be a crucial player in building a global solution to this global problem.’

That’s right, just leave it to the central planners. They know how to spend your tax dollars better than you.

0% Chance of 100% Renewable Energy

Just remember, these central planners first met to ‘solve’ the so-called ‘climate crisis’ in 1979. 33 years later and they’re still meeting (in exotic places) to solve it. And if the latest Climate Commission report is right, they should have it figured out by…2020.

No rush…even if we’re staring at an ‘unimaginable catastrophe’.

[You can watch Al Gore’s brief presentation to the Climate Commission here.]

But Al Gore isn’t the only one with madcap central planning ideas. Last week, the Sydney Morning Herald quoted Australian Greens leader, Christine Milne. Ms Milne says, ‘What we now need is a big push toward 100 per cent renewable energy as quickly as possible.’

That’s an interesting idea. But it’s also a barmy idea.

We’ve told Australian Small-Cap Investigator subscribers about the info we’ve received from energy industry insiders. That is, based on current know-how and green energy efficiency, no country can rely on renewable energy for any more than 20% of its electricity generation.

So for Ms Milne to say we can get to 100% is silly. Even Denmark, which has an advanced renewable energy system, uses fossil fuels to generate three-quarters of its electricity.

But there is one renewable energy source that seems capable of going over the 20% threshold, and that’s hydroelectricity.

Hydroelectricity – Green Energy’s Best Bet – Or is it?

But that’s a problem for the green energy lobby. To build a hydro scheme you have to flood thousands of acres of land and uproot people from their homes. You have to divert surging rivers, and destroy and change natural habitats forever.

Not to mention the millions of tonnes of concrete, steel, copper, rare earths, and other natural resources. Each of which needs digging from the ground. That uses more energy and could harm other natural environments (as the green lobby is always so keen to point out).

So we’re not sure that hydro fits in with Green philosophy.

And besides, for all the time and money spent on Australia’s famous Snowy Hydro Scheme, it still only generates 1% of Australia’s electricity supply. Although it does provide more than this to meet demand surges.

But as the Australian Bureau of Statistics notes:

‘The [Snowy Hydro] Scheme was designed to produce peak electricity, and good flexibility exists on a short-term basis although it is not able to replace base load generation for prolonged periods.’

We know it’s blasphemy in Australia to criticize the Snowy Scheme. But we do it anyway, because it was a huge waste of manpower and resources for such a small contribution to the electricity network.

So we’ll expect a few ‘Letters to the Editor’, telling us we’re nuts (you can send comments to [email protected]).

But the numbers speak for themselves. Even the best green energy systems have trouble competing directly with the best energy source of all – fossil fuels.

Fossil Fuels Built Human Civilisation

Look, renewable energy is a great idea. And it’s nice to have some goals. But let’s be honest, as far as we can tell, it has been a long time since civilised and pre-civilised humans have used 100% renewable energy.

Even when Stone Age man needed fuel to keep warm, he burned wood. That isn’t a whole lot different to an electricity plant burning wood in its fossil-fuel form today – otherwise known as coal.

But if you listen to the green movement, they want you to go back in time to before man discovered fire. That’s about 790,000 years ago. And it was the last time humans relied on 100% renewable energy.

In short, forget the crazy idea of cutting out fossil fuels. It won’t happen. There’s too much of it around, and in the case of coal and natural gas, it’s cheap too.

The only alternative to fossil fuels is to let the free market develop green energy solutions using solar, wind, hydro and nuclear.

Over time, these energy sources could compete with fossil fuels. But they need innovation and advances in technology. That’s something that can only happen in a free market.

But even then they won’t completely replace fossil fuels.

But however this plays out, one thing is certain: the green energy industry and companies don’t need more government intervention. And they don’t need fear-mongering from lobbyists like Al Gore, and the impossible dreams of the Australian Greens.

What green energy needs is less meddling and more free markets.

Cheers,
Kris

PS. In the July issue of Australian Small-Cap Investigator we surprised readers by tipping a small-cap green energy stock. Some people think we’ve flip-flopped on the issue…and our publisher even thought the idea was crazy. But we think we’re onto a winner. For more details, click here…

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