Month: October 2012

By MoneyMorning.com.au

You can’t tell from the price action, but there’s plenty happening around the Middle Eastern oil industry right now.

Take the figures in the latest World Energy Outlook report from the International Energy Agency. It implies you can forget US shale oil, offshore West Africa and Brazil, because it says the key oil supplier for the next twenty years is smack bang in the Middle East: Iraq.

According to the report, Iraq is already back to the world’s third largest oil exporter (after Saudi Arabia and Russia), despite problems with its infrastructure and power supply.

Iraq has huge potential reserves in unexplored parts of the country and costs much less to produce in than other alternatives like, for example, Alberta oil sands.

The IEA contrasted three potential scenarios, and said, ‘The increase in Iraq’s oil production in the Central Scenario of more than 5 mb/d over the period to 2035 makes Iraq by far the largest contributor to global supply growth.’

The Wall Street Journal reported that Iraq’s output topped three million barrels a day for the first time since 2000.

But like we said, Iraq is smack bang in the Middle East. Syria, Iran and Saudi Arabia border it.

That might be the problem…

Cyber Warfare in the Middle East

You’d think there was enough uncertainty in the oil market right now without throwing cyber warfare into the mix as well.

The Financial Times reported this week that, ‘a flurry of recent cyber attacks have raised fears about the growing use of viruses to target critical national infrastructure in the Middle East.’

This follows recent news that a computer virus known as Shamoon hit Saudi Arabia’s Aramco, the world’s biggest oil company, in August. Apparently, it took Aramco two weeks to restore the damaged part of its network. Fortunately, no oil production was lost. This time, at least.

And the US didn’t miss the opportunity to suggest that Iran might be behind the same virus that also struck Rasgas, a Qatari natural gas company.

According to this, from an AFP article:

‘the threat that digital attacks could cripple vital infrastructure is real, with [US Defense Secretary Leon] Panetta warning of the possibility of a “cyber-Pearl Harbor” to justify a policy of moving aggressively against threats. A disruption to Saudi Arabia’s oil exports could cause oil prices to spike from their already elevated prices and tip the fragile global economy into recession.’

If cyber warfare wasn’t enough, on Tuesday, Iran again threatened to halt its oil exports if the US and EU impose more sanctions. The oil market didn’t seem to give this threat much chop, with a barrel of Brent crude still selling for under US$110 and actually continuing its downward trend since last month.

Click to enlarge

Could Iran survive without exporting oil? For a while, maybe.

The US estimates that 80% of Iran’s exports are petroleum, but it has a reported $100 billion in foreign exchange reserves.

The way the Iranian currency (the rial), is going, Iran will need them. According to Wikipedia, the rial is currently the least valued currency unit in the world, after the sanctions caused its value to collapse.

There’s more to this story though.

The Unintentional Boom in Istanbul

The sanctions on Iran are causing a boom for Turkish gold merchants.

Reuters revealed this week that because of Iran’s suspension from the international banking system, a new trade route from Istanbul to Dubai to Iran has sprung up.

The path goes something like this: Iran sells oil and gas to Turkey and is paid in Turkish lira. That lira is then spent in Turkey buying gold. Turkish couriers take it to Dubai. From there it gets to Iran, even if nobody seems sure how exactly it makes the last leg of the trip.

All this is legal, of course, although the stop off in Dubai is supposedly merely to deflect attention away from the fact that it’s Iran doing the buying.

According to the Reuters report: ‘The sums involved are enormous. Official Turkish trade data suggests nearly $2 billion worth of gold was sent to Dubai on behalf of Iranian buyers in August.’

You’d think this kind of ‘shadow banking’ at least gives some credence to Iran’s threat that it can hold out longer than expected from Western pressure through a combination of its energy exports and foreign exchange reserves.

All this is happening amongst constant aggressive rhetoric from Israel and US about mobilising against Iran, the civil war in Syria and wider unrest across the Middle East.

It doesn’t look like any of this is going to end anytime soon. We expect more turmoil in the Middle East.

Our colleague Dan Denning’s working strategy is that the continual risk of a flare up in the Middle East puts a premium on energy assets outside of the region.

And if he’s right that the Aussie mining boom is over in coal and iron ore, energy might be the one commodity sector to back in 2013 and beyond…despite current good news from Iraq and the oil price’s current dip.

Callum Newman,
Co-Editor, Scoops Lane

The Most Important Story This Week…

Our in-house trader Murray Dawes says the stock market has three intertwining trends — short, intermediate and long. Tracking these daily is part of his analysis. Right now he says the intermediate trend is up.

The problem is this can lure inexperienced traders into misinterpreting the signal and get sucked into buying at the wrong time. How should you approach the market? Read Murray’s analysis in The Big Fall in the Stock Market I’ve Been Waiting for is Still to Come

Highlights in Money Morning This Week…

Kris Sayce on Why a Return to the Gold Standard Could Actually Be Bad: ‘History tells you that gold and silver have been the money of choice for thousands of years. But history tells you something else. And this is the thing many gold investors don’t talk about. History tells you that governments will always try to fiddle with the money supply in order to pay for votes and wars.’

Murray Dawes on The Big Fall in the Stock Market I’ve Been Waiting for is Still to Come: ‘When a stock market trades above a previous high it will often look like a breakout to novice stock traders…The stock market will spike higher and for a few weeks can look fantastic. But then the music stops and suddenly the stock market plunges lower.’

Merryn Somerset-Webb Agricultural Commodities – The Best Way to Play Rising Food Prices: ‘Desertification and urbanisation are cutting into current land supplies; biofuels are interrupting the supply chain; and season of nasty drought is reminding us that agriculture consumes 70% of the world’s water.’

Nick Hubble on A Safer Than Super Investment?: ‘Yesterday we told you about one of our upcoming reports. It’s about a way to keep your savings safe from falling asset prices, like a stock market crash. But the real twist on this alternative safe and boring asset is that it’s about to get a whole lot less boring.’

A Turkish Delight for Iran

By MoneyMorning.com.au

The trend of consumers shifting away from print media to online is unstoppable.

Take these two headlines that caught our eye last week:

‘”Newsweek” to end print edition in December’ — USA Today

‘Guardian “seriously discussing” end to print edition’ — Telegraph

Former leading US news magazine Newsweek has decided to stop issuing a print edition in December. And it’s arguable whether the 80-year old institution will survive the change.

Newsweek’s circulation has more than halved over the past 10 years. It has dropped from four million to just 1.5 million today.

In the UK, one of the leading national daily newspapers, The Guardian, looks set to move to an online-only business model too.

This isn’t surprising. The Guardian’s daily circulation has halved over the past 10 years. The Guardian’s parent company made a multi-million pound loss last year. If you know anything about the UK newspaper industry, you’ll know there are 11 national daily newspapers…so there’s a lot of competition.

A Dying Industry About to be Reborn

This just goes to show you that print media is slowly dying. It can’t be long before Aussie newspapers go the same way. We just don’t know who still reads newspapers like the Australian Financial Review. We still have two copies delivered to our office, but it’s probably the least read thing here.

And back in our broking days, only the old timers bothered fingering through the rag. Most of the brokers used online news services to keep up to date with the latest events. And that’s the thing, even the best and most efficient newspaper business can only ever report yesterday’s news.

That puts it at a big disadvantage to online news services, most of which are free…including the free news sites run by the daily newspapers. Talk about cannibalising their own business.

But it’s not just the print media in trouble. TV media is in trouble too.

The Nine network was within minutes of going bust last week before financial backers hatched a deal. It was close to going bust because the company is a loss-making business.

The same goes for Ten Network Holdings [ASX: TEN]. Last week the company reported a $12.9 million loss, causing the stock price to drop following falls earlier in the month.

Bottom line: across the board, the media landscape is changing fast. And so far the traditional firms haven’t been able to move quick enough to avoid trouble.

But at some point the industry will realign. It will see new players emerge while older companies disappear or make big changes. We think we have just the right stock in the Australian Small-Cap Investigator portfolio to capitalise on this trend.

There’s no telling when the change will happen, but we’re prepared to bet as the National Broadband Network rolls out this game-changing event draws closer and closer.

Kris Sayce
Editor, Money Morning

From the Archives…

Why this Could be the Most Important Day of the Year for the Stock Market
19-10-2012 – Kris Sayce

A Back-Door Way to Invest in the Electric Car Industry
18-10-2012 – Kris Sayce

The Stock Market is Up, What’s Next?
17-10-2012 – Murray Dawes

Debt and Government Spending Means You Should Be Wary of this Stock Market
16-10-2012 – Greg Canavan

The Secret Investment to Buy When GDP Falls
15-10-2012 – Nick Hubble

The Australian Media: Big Losses, Big Potential Gain

By Central Bank News
    The Central bank of Trinidad & Tobago held its repurchase rate unchanged at 2.75 percent, with inflationary pressures easing slightly while business confidence has been weakened by uncertainty over Europe’s debt issues and the impending fiscal cliff in the United States.
    The central bank added that it would allow last month’s 25 basis point cut in its interest rate to work its way through the banking system.
    Headline annual inflation, based on retail prices, slowed to 7.7 percent in September from 7.9 percent in August, though on a monthly basis prices rose by 1.1 percent. The main reason for the decline in annual inflation was lower food prices, the bank said.
    The core inflation rate, which excludes food, rose marginally to 2.8 percent in September from 2.7 percent, and the bank said credit growth remained modest while consumer lending, which had been “quite lethargic over the past two months” picked up momentum, rising 2.2 percent annually in August.
    “Concerns about the Euro area and the impending fiscal cliff in the US have tempered expectations about a sustained global recovery and affected business confidence worldwide, including in Trinidad & Tobago,” the central bank said.
    www.CentralBankNews.info

By Central Bank News
    Colombia’s central bank kept its benchmark intervention rate unchanged at 4.75 percent, as expected, with the economy continuing to expand and inflation very close to the midpoint of the central bank’s target range.
    Banco de la Republica said the global economy remains weak, but the slowdown in some of the larger emerging economies appears to be stabilizing and it expects interest rates in other countries to be kept low for an extended period.
    The Colombian central bank has cut rates twice this year, in July and August, after raising rates in January and February, leaving rates at their end-2011 level.
    The weak global economy has been reflected in Colombia’s exports and industrial output, but the central bank expects the economic expansion to continue in coming quarters, driven by domestic demand as households remain confident,  the labor market strong and the financial system healthy.
    “However, the uncertainty associated with the problems of public finances and banks in some advanced economies remains high,” the bank said, adding:
    “The biggest threat to the country’s economic activity continues to be a severe recession in Europe.”

    The bank noted that international financial conditions had improved, helped by policy action at some of the world’s major central banks, and the probability of a worsening of Europe’s situation has decreased.
    Colombia’s inflation rate stabilized in September at 3.1 percent. The central bank targets inflation of 3.0 percent within a one percentage point range.
    Colombia’s Gross Domestic Product expanded by an annual rate of 4.9 percent in the second quarter, boosted by a quarterly rise of 6.4 in domestic demand, up from overall annual growth of 4.8 percent in the first quarter.
    The central bank made no reference to the exchange rate in its statement, apart from saying it had the tools and resources to meet liquidity needs. Last month the central bank said it would buy foreign currency worth $3 billion through daily auctions of at least $20 million between Oct. 1 and March, 29, 2013.

By The Sizemore Letter

China’s slowdown looks to have bottomed out, at least for now. Third-quarter GDP grew by 7.4% , the lowest rate in three years, but in line with what economists were expecting.

But most encouraging was the news that Chinese retail sales saw growth that was nearly double that figure at 14.4%.

I’m not the biggest fan of China’s “managed capitalism,” and, eventually, I believe that this model will reach the end of its road. In one critical aspect, it already has. China’s leaders have stated it is their goal to make China’s economy more “balanced,” meaning less dependent on exports and investment and more focused on domestic consumer spending.

But whether Beijing desires it or not, I believe this transformation would be happening anyway. As China’s middle classes expand and adopt acquisitive Western lifestyles, it is inevitable that their economic clout will be felt.

Ah, the elusive Chinese consumer. Just hearing him mentioned is enough to trigger a Pavlovian dog response in investors. But getting real access to him has proved to be difficult.

Consider that familiar consumer staple we know and love: beer. I have been a consistent advocate of global “Big Beer” as a play on rising consumer incomes. Heineken (HINKY) is a favored long-term holding of my Covestor Sizemore Investment Letter portfolio , and I have also written favorably about Anheuser-Busch InBev ($BUD). Both of these megabrewers have excellent exposure to the growing — and beer swilling — emerging market middle class.

But what about Chinese brewer Tsingtao Brewery (TSGTF)? It is, after all, the best pure play on Chinese beer consumption. Unfortunately, it is also too expensive to be taken seriously. Investors wanting access to Chinese beer drinkers have bid the shares up to 25 times earnings and to a dividend yield of less than 1% (as of 10/22).

Chinese Web browser Baidu ($BIDU) is also a bit on the pricey side at 29 times earnings, a valuation I might have expected to see 12 years ago. China Mobile ($CHL) remains attractively priced and pays a respectable 3.5% in dividend yield (as of 10/22).

Otherwise, it is a real struggle to find Chinese stocks with decent liquidity that cater to the country’s domestic consumers.

Instead, I continue to be a fan of the indirect approach, finding American and European companies with high exposure to China. Luxury goods stocks have been a good fit, and most have sold off, or at least traded sideways, in recent months due to fears that China’s slowdown would hit sales.

With China looking to be turning a corner, luxury firms will likely have a nice finish to 2012. One that I particularly like is the British Burberry (BURBY) . Burberry lost a quarter of its value last month on fears that its sales in China were slowing worse than expected. Shares have recovered about half of those losses in the weeks that followed, but expectations for the company are mixed.

Should Chinese luxury spending recover even slightly — and I expect that it will do much better than that — I expect Burberry to enjoy a nice multi-month rally.

This article first appeared on MarketWatch.

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The post Investing in Those Elusive Chinese Consumers appeared first on Sizemore Insights.

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By The Sizemore Letter

Apple ($AAPL) is getting most of the attention this morning due to its earnings release late yesterday.  Two weeks ago, I asked “Is it time to dump Apple,” and I think the answer is increasingly “yes.”  Though the company remains wildly profitable, earnings missed estimates this quarter, and there is a sneaking realization that Apple’s competitors are catching up.

But today, it’s not Apple I want to talk about.  It’s Apple’s erstwhile PC rival Microsoft ($MSFT). 

Microsoft was the undisputed winner of the PC era, but the company hasn’t quite found its way in the era of Web 2.0 and social media.  The smartphone war is down to two main combatants in software—Apple and Google ($GOOG)—and two in hardware—Apple again and Samsung.  And despite coming out with a tablet years before anyone else, Microsoft has been left behind on this front as well.

Things are about to change.  With the long-awaited release of Windows 8, Microsoft is making a real push into the world of touchscreens and tablets.

Apple launched the first offensive in the smartphone and tablet wars, but in a long-term war of attrition it is doomed to lose for the same reasons that it lost the original PC war.  Apple has always maintained a closed ecosystem and insists on making its own hardware and software.  Steve Jobs’ pigheadedness is the reason why it was the Wintel platform and not the Mac that came to dominate the desktop and laptop markets.

It’s all happening again.  Apple again jumped out to a huge lead, but it will lose the war in the end.

And what about Google?  I like Google and I personally use an Android phone.  But I believe that in a long war it is Microsoft that will win.   I question whether Google really takes Android seriously.  It’s a free product that generates revenues only indirectly by encouraging mobile web browsing via Google’s search engine.  Meanwhile, Microsoft knows how to manage corporate clients, and corporate IT departments are comfortable with Microsoft products to a degree that they will never be with Google or Apple.

As a value investor, I often get into trades too early. Not matter how I might try to game myself to avoid this, it seems to be hardwired into my DNA as an investor.  So it’s entirely possible that I am early this time as well.

That’s ok.  If Microsoft takes longer than I expect to rise to the top, we still get to collect its 3.3% dividend and benefit from owning one of the cheapest major blue chip stocks in the world.

Microsoft is a buy.

This article first appeared on TraderPlanet.

Disclosures: Sizemore Capital is long MSFT.  Get Sizemore Insights delivered to your e-mail FREE.

The post In a War of Attrition, Microsoft Will Beat Apple appeared first on Sizemore Insights.

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• AAPL Earnings – The End of the Apple “Mystique”
• How to Spot a Value Trap: Research in Motion
• Apple: Not a Short–Yet–But Not a Buy Either

By Central Bank News
Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

By Central Bank News
    Mexico’s central bank held its benchmark interest rate unchanged at 4.50 percent, betting that inflation has peaked, but warned that it would quickly raise interest rates if there was another spike in inflationary pressure, even if it were temporary.
    Banco de Mexico, which also warned last month that it may have to raise rates if inflationary pressures grew, said downside risks to the global economy continued to rise and lower economic activity worldwide and an expected fall in commodity prices should lead to a further loosening of monetary policy in many advanced and emerging economies.
    Mexico’s inflation rate eased slightly in early October to an annual rate of 4.6 percent, the national statistics agency said this week, fanning hopes in financial markets that inflation had peaked and the central bank would keep rates on hold today.
    In September  inflation hit a rate of 4.8 percent, up from 4.6 in August and the highest level in 2-1/2 years. It was the fourth month in a row that inflation exceeded the central bank’s target ceiling.
    Banco de Mexico targets inflation of 3 percent, plus/minus one percentage point and has left its target for the overnight interbank rate unchanged since July 2009.

    Bad weather and an outbreak of avian flu has pushed up food prices in recent months, but the central bank considers the rise in inflation to be temporary, saying inflation should have hit its highest level in September.
    The bank said it expects no real second-round effects on other prices from the rise in food prices, that inflationary expectations remain anchored and that the peso would appreciate following the further monetary easing in the United States.
   “Inflation is expected to decline further in the coming months to be located very close to 4 percent by the end of the year and to resume a trend converging to 3 percent in 2013,” the central bank said.
    “However, if there are persistent shocks to inflation, even if they appear to be transient, and changes in the overall trend of inflation and core inflation are not confirmed, the board believes that it would be appropriate to carry out an adjustment and raise the benchmark interest rate in order to strengthen the anchoring of inflation expectations, prevent contagion to the rest of the price formation process in the national economy and not compromise the convergence of inflation to the 3 percent target,”it added.
    With the global economy still losing momentum and uncertainty about the U.S. fiscal adjustment,  Banco de Mexico said the balance of risks to Mexico’s economy had continued to deteriorate. But economic activity continued to grow, albeit at a slower pace, and the labor market was recovering.
    Mexico’s economy expanded by an annual rate of 4.1 percent in the second quarter, down from 4.5 percent in the first quarter.  The central bank forecasts growth of 3.25 to 4.25 in 2012 and 3 to 4 percent next year.

London Gold Market Report
from Ben Traynor
BullionVault
Friday 26 October 2012, 08:00 EDT

U.S. DOLLAR gold prices traded just above $1700 an ounce throughout Friday morning in London, following an overnight reversal of yesterday’s rally, while European stock markets traded lower this morning following losses in Asia, ahead of the release of US GDP data later today.

“The trend remains bearish so long as gold trades below $1723,” says the latest note from Scotiabank technical analyst Russell Browne.

“People are still looking a bit at the downside rather than the upside for the time being, waiting for it to break $1700,” adds Ronald Leung, director at Lee Cheong Gold Dealers in Hong Kong.

Silver prices traded just above $31.70 per ounce for most of the morning, 1.2% down on last Friday’s close, while other commodities also edged lower and major government bond prices gained.

“Commodities have come under renewed pressure, owing to the Asian equity markets weakening in the face of disappointing corporate data and a stronger US dollar,” says a note from Commerzbank.

The US Dollar Index, which measures the Dollar’s strength against a basket of other currencies, hit a new seven-week high this morning.

Dealers in Asia meantime reported a quieter session this morning, with public holidays in Singapore, Malaysia and Indonesia.

“There’s light buying from Thailand and that’s about it,” one dealer told newswire Reuters this morning.

“Surprisingly, the demand from India is not there…in fact, Indian consumers started to sell again when the market was a bit higher. Maybe they will leave it to the last minute [before next month’s Diwali festival] before coming back to buy again.”

Going by London Fix prices, gold looked set for a third straight weekly loss Friday lunchtime in London, the first time this has happened since March.

“We continue to see modest pressure on gold prices in the near term,” says HSBC precious metals analyst James Steel.

Here in Europe, Spain’s unemployment rate rose to 25% in the third quarter, a new record high, according to official data published Friday.

Santander, the country’s biggest bank, yesterday urged the government to seek a formal bailout, which would pave the way for the European Central Bank to buy Spanish government bonds through its Outright Monetary Transactions program.

“A situation in which the Treasury funding is being helped by contingency credit lines offered by any international body will produce a fall in the sovereign debt risk premium and, as a consequence, a fall in banks’ risk premium,” said Santander chief executive Alfredo Saenz.

A Spanish bailout however is “a necessary, but not a sufficient condition” for ECB bond market intervention, ECB Executive Board member Joerg Asumussen said Friday.

Spain has already agreed a credit line of up to €100 billion from Eurozone rescue funds to finance the restructuring of its banking sector.

Elsewhere in Europe, ratings agency Standard & Poor’s last night downgraded French bank BNP Paribas by one notch, from AA- to A+. Ten other French banks, including Credit Agricole and Societe Generale, were put on negative outlook.

Nine more banks have been named as part of the ongoing Libor investigation. Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds, Norinchukin, Rabobank, Royal Bank of Canada, Societe Generale and West LB have all been sent subpoenas by the New York and Connecticut attorney-generals.

In South Africa, the majority of striking workers in the gold mining sector returned to work yesterday, Reuters reports, after unions agreed a wage deal with mine operators.

Anglo American Platinum meantime said Thursday it lost an estimated 138,000 ounces of platinum output, equivalent to over $200 million, as a result of South African strikes. The chief executive of Anglo American, which owns an 80% stake in Amplats, resigned Friday after leading the company for nearly six years.

In other mining news, African Barrick Gold lowered its 2012 production forecast Friday, when it also reported a 1.6% rise in cash costs per ounce as part of its third quarter results. China Gold is currently doing due diligence as part of its bid to buy Barrick Gold’s 74% stake in African Barrick.

Here in London, gold trading through London’s 11 market-making banks jumped 35% last month from August to the highest Dollar value since the all-time record gold prices of summer 2011.

The average daily volume of gold bullion transferred between wholesale market clearing members climbed 26% last month compared to August.

The daily average volume of silver bullion transferred increased 4% month-on-month in September.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.