Month: May 2013

By HY Markets Forex Blog

The Japanese Topix index fell sharply by more than 5 %, which is the most recent since the crises of 2011 tsunami, as financial industries plunged amid rising bond yields. Tokyo’s Nikkei 225 slid as much as 6 % as yen gained strongly against the US dollar. Mitsubishi Estate, one of the country’s biggest developers fell by 5.3 %; Mitsubishi Motors sank by 11.5% while sharp dropped by 8.8%.

Hitting a new four-time low, the Japanese yen gained 103.6 per dollar to 102.6 per dollar. Yields on 10-year JGBs hit 1 percent in the opening minutes of Tokyo trading, but fell back to 0.88% later in the afternoon.

The Bank of Japan has put in 2 trillion yen ($19.4bn) of one-year funds into the financial system targeted to develop the rise in the yields of the Japanese government bond. Japanese yen dropped for two days in a row, which marked its weakest in over four years.

The  reports released from HSBC and Markit Economics, the Chinese Purchasing Managers’ Index fell to 49.6 from 50.4 in April, which are believed to be the cause of the drop in exporters.  The Shanghai Composite was flat, while Hang Seng index, Taiwan Weighted index and ASZ200 fell 1.7%.

According to Mr Bernanke, the Fed could slow down the pace of its assets purchases in the next few meetings but only if the rate of unemployment decreased and labor market improves

The post Japanese shares drops sharply appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

European stocks slipped early Thursday morning as concerns spooked the U.S. Federal Reserve which could reduce its stimulus programme if the U.S. economy show signs of improvement compounded by the weak economic data from China.

The FTSEuro first 300 fell 20.75 points at 1,235.53 extending at its highest since 2008 in the previous sessions according to Fed Chairman Ben S. Bernanke statement from the testimony to joint Committee of Congress.

Investors raise concerns as to if the economic support in the U.S is withdrawn before Europe manages to maintain a stable growth, which may potentially send the economy into recession.

Lloyds Banking Group Plc dropped 3.6 percent along with a plan to auction $8.7 billion of U.S. mortgage securities.

In the minutes released , Ian Shepherdson chief economist at Pantheon Macroeconomic Advisors said “largely superseded” by Mr Bernanke’s testimony “but they do reinforce the idea that the doves – who are the ones making policy – will need a great deal of persuading to change their stance”.

Mr Bernanke stated in his testimony, that unemployment had dropped to a four year low of 7.5% and that inflation was running below the Fed’s long-term target of 2%.

According to the HSBC’s preliminary survey of purchasing managers, China’s factory activity decreased for the first time in seven months in May.

The post Europe Stocks drops on U.S Stimulus concerns appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By MoneyMorning.com.au

If you want to understand the current price action in the markets you need to study Japan.

Everything that’s happening at the moment is a function of the huge monetary stimulus recently unleashed by the Bank of Japan (BOJ).

I’ve known it was important to understand, and I’ve followed proceedings closely. But it’s now becoming clear that most of the moves we’re seeing in markets world-wide can be explained by the enormous money printing by the BOJ.

Therefore, we can only decipher the road forward by analysing the Japanese currency and bond markets…

Imagine you’re a fund manager and the Bank of Japan and the Prime Minister of Japan tell you they have an explicit policy to print a huge amount of currency to incite inflation and lower the currency.

You borrow in that currency at incredibly low rates. You then invest offshore and receive much higher interest rates. You do this safe in the knowledge that the currency you’re borrowing in will most likely be weaker by the time you have to repay the loan.

That trade would have to be the ultimate ‘no brainer’. You can leverage that trade many times over. But this isn’t theory. This is reality. I can assure you this is what every man and his dog is doing at the moment.

Let me show you with an example. In the last few months Italian government bond yields have rallied from 5% yield to below 4% in yield:

Italian 10 Year Government Bond Yields

Click to enlarge

Spanish yields have had a similar move. The carry trade out of Japan has been pinpointed as the main reason for the size of the rally. I see no reason to argue with that view.

This chart of the ASX 200 in relation to the carry trade currencies of the Euro/Yen and the Aussie/Yen is very compelling. I have shown it many times in the past so if you’re a regular reader you’ve seen it before.

ASX 200 vs AUD/JPY and EUR/JPY

Click to enlarge

When the only thing driving the market is currency movements due to central bank policy in another country, it makes a mockery of fundamental or even technical analysis.

So the first question we must ask is will the central bank of Japan continue on this path for the foreseeable future? If the answer is yes then you should expect the current trends to continue.

I found it interesting that the economy minister, Amari, came out during the week to say that he thought the Yen may be getting closer to the ‘right’ level. Of course a comment like that shows you they’re starting to get concerned that the moves in the Yen may get out of control.

I have a feeling that the future for the Japanese bond market and the Japanese currency is going to be a very volatile one.

Reverberations that Will Shake the World

Bond yields have risen in a disorderly fashion despite the huge amount of BOJ buying. Volatility circuit breakers have been hit on numerous occasions since the new policy was announced. Yields have spiked from a low of about 35bps to the current 90bps. That’s a more than doubling in yields in the last few months.

30% of tax revenues now go towards paying interest on Japan’s debt, which is approaching 240% of debt/GDP. If interest rates hit 2.8% then 100% of tax revenues will go towards paying interest on debt. In other words: lights out.

Of course we’re a long way from that scenario with yields still under 1%, but it will be very interesting watching how their bonds behave once they start heading above a 1% yield. When markets do turn they always move faster and go further than anyone predicts.

I was in the trading pits in Sydney when the US Federal Reserve did their surprise interest rate rise in February 1994. We all watched in horror for the rest of the year as bonds kept going down and down and down.

No one predicted the size of the fall in bonds that year and I saw many traders ‘killed’ trying to catch the falling knife.

When Japan’s bonds turn, a trickle will become a flood.

Japan’s bond market is the second biggest in the world, with about US$10 trillion outstanding. Italy is a very distant third with about US$2 trillion outstanding. If we get some serious convulsions in that market the reverberations will be felt all the way around the world.

If the pension funds and banks in Japan that own most of the debt start hitting the sell button en masse and allocate some of that money offshore we could be staring down the barrel of a potential currency crash.

What happens to markets in that scenario? Will bonds ex-Japan continue to rally massively due to the flood of money exiting Japan combined with the carry trades? And will that continue to levitate stocks for the foreseeable future? Who knows but I think we’ll find out within the next few years.

Is QE Working for Japan Domestically?

The lower Yen is supposed to feed into a better balance of trade for Japan but it looks like that isn’t happening. Preliminary figures from the Finance Ministry yesterday showed that Japan posted a deficit of US$8.6bn in its trade balance last month.

This is 70% wider than the previous months balance and ‘the most for the month of April since at least 1979‘ according to the Sydney Morning Herald.

The cost of importing energy, food and clothing is skyrocketing with the weak currency and exports aren’t increasing at the desired or expected pace.

So the standard of living of the Japanese is going down due to the increase in energy, food and clothing costs. The desired aim of the BOJ is to create 2% inflation within two years. Are the rising costs of necessities for the Japanese a cause for celebration? Will a rising electricity bill really inspire the Japanese to go out and spend? Or will it cause them to count their pennies?

This policy by the Bank of Japan will end up having some huge unintended consequences.

Everything seems to be working out well at the moment because the Yen going down is seen as a good thing. The rising stock market in Japan is seen as a good thing (even though a 60% rally in six months should be ringing alarm bells), the falling yields on bonds around the world are seen as a good thing.

So what could go wrong? Plenty.

Once the fall in the Yen starts accelerating and the powers that be in Japan start sticking their nose in trying to stem the fall we could see some incredibly volatile moves. When traders unwind carry trades it can cause huge volatility.

Everyone tries to get out of the door at the same time, and we all know how that ends. If the government tries to force the Yen higher from what they consider oversold levels they could inspire a sell-off in markets worldwide.

We haven’t reached that point yet. But the comments from Amari during the week show that the government is getting nervous.

And there is no guarantee that they can stem the fall in the Yen once it accelerates. A weaker Yen may be desirable, but a crashing Yen isn’t what they or the world will want to see.

Japan is at the forefront of the Keynesian dream, so it will be the first to unravel. Their policies are bringing forward the day of reckoning, but most are oblivious to the threat.

The underlying convulsions in JGB’s should be watched very closely going forward.

Murray Dawes
Editor, Slipstream Trader

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From the Port Phillip Publishing Library

Special Report: How to Buy Better Stocks

Daily Reckoning: Fed Up with The Federal Reserve

Money Morning: When Soros Buys Gold Stocks, You Better Take Note…

Pursuit of Happiness: Working Towards Independence From The State

By MoneyMorning.com.au

[Ed Note]: Yesterday Dave Gonigam reported to you on the roundabout journey 3-D printing expert Chris Anderson took in order to become a leader of the Maker Movement.

Today, he shows you how droves of ‘Makers’ are taking similar paths – in Silicon Valley and around the world.]

‘The first generation of Silicon Valley giants got their start in a garage,’ Anderson writes in Makers, ‘but they took decades to get big. Now companies start in dorm rooms and get big before their founders can graduate.’

That’s impressive progress…but it all takes place in the realm of ‘bits’. Social media, music, videos – it’s all digital.

‘Now the same is happening with physical stuff,‘ he writes. ‘Despite our fascination with screens, we still live in the real world. It’s the food we eat, our homes, the clothes we wear and the cars we drive. Our cities and gardens, our offices and our backyards. That’s all atoms, not bits.‘

You can have a great idea and design it on your own laptop using computer-assisted design, or CAD, software. Some of the software, like Google SketchUp, is free.

Then, just as you can click ‘Print’ on your 2-D printer now, you can click ‘Make’ and send the design to a 3-D printer. ‘The 3-D printers and other desktop prototyping tools are the equivalent of the cameras and music editing tools‘ that ordinary people use nowadays in the realm of bits.

Or if your creation is too complex for a 3-D printer using simple plastics, you can send the design to someone across town or across the world to make it for you.

‘The world’s factories are opening up,‘ Anderson writes, ‘offering Web-based manufacturing as an on-demand service to anyone with a digital design and a credit card. They allow a whole new class of creators to go into production, turning their prototype into a product, without having to build their own factories or even have companies themselves.‘

Can’t wrap your mind around it? Here’s an analogy from the realm of bits: You can email your digital photos to an outfit like Shutterfly, which sends you back a beautiful customized photo album.

3-D printers – the most basic are now available for less than $1,000 – are only one star in a cluster of technologies that will make it all possible. There are also laser cutters that can slice through wood, plastic or even thin metal.

And there are CNC (short for ‘computer numerical control’) machines. They can work with almost any material in dimensions as complex as your mind can conceive; they’re like the jigsaw you used in high-school shop class, only a heck of a lot more versatile.

‘What the new manufacturing model enables,‘ Anderson explains, ‘is a mass market for niche products…Products no longer have to reach global markets and find their audience. That’s because they don’t do it from the shelves of Wal-Mart. Instead, they use e-commerce, driven by an increasingly discriminating consumer who follows social media and word of mouth to buy specialty products online.‘

‘Small batches’ is the term blogger Jason Kottke gives this new brand of entrepreneurship.

Bypassing the Bankers and Venture Capital

The means of financing the new industrial revolution are as groundbreaking as the methods of production. The innovators of the future don’t have to prostrate themselves in front of bankers or hand over a stake in their company to venture-capital investors before they even get off the ground.

Makers cites the case of Alex Andon, a guy in San Francisco who set out to make custom tanks for jellyfish. (‘Don’t put a jellyfish in a regular fish tank,’ Anderson writes. ‘What happens if you do is not pretty.’)

Ordinarily, such tanks cost thousands of dollars. Andon figured he could do it for less. For a while, he succeeded…but in time, he wanted to produce an entirely new design at a much larger scale. He had a great idea, but he lacked seed capital.

‘Over the past few years,’ Anderson writes, ‘a new phenomenon of ‘crowdfunding’ has taken off, by which supporters and potential customers collectively contribute the money necessary to get the product made.

‘The one Andon chose was Kickstarter, a website where people post descriptions of their projects and anyone can chip in to help. Rather than just making a donation, most contributors essentially preorder the product by making a contribution above a certain level.

‘In the case of the Desktop Jellyfish Tank, donors who gave $350 or more would be the first to get the tank when it was available, at a lower price than regular customers would pay.’

Under Kickstarter’s rules, Andon set a target to raise $3,000 in 30 days. If he hit the target, everyone who pledged money would have their credit card charged. If not, no one would be charged, and he’d have to figure out another way to scare up the money.

The Desktop Jellyfish Tank was a smash hit, raising $130,000 in 30 days.

Kickstarter – and crowdfunding in general – started out in the realm of bits; people who wanted funding to record a song or produce an indie film pleaded their case on the Web and accepted donations from whoever was interested. Now crowdfunding is changing the world of atoms, and Kickstarter is itself a multimillion-dollar company.

Anyone Can Be an Entrepreneur

The future of manufacturing, Anderson writes, is much like the Web today: ‘ever-accelerating entrepreneurship and innovation with ever-dropping barriers to entry.‘

That’s good news for big developed countries like the United States. ‘Globalization and communications flattened the world once, drawing manufacturing to low-cost labor in the developed world… Now we’re flattening it again, but along a different dimension. Thanks to automation, labor costs are a small and shrinking fraction of the cost of making something.‘

Anderson’s own firm, with factories in San Diego and across the border in Tijuana, is an ideal example: ‘For one of our products, such as a $200 autopilot board, the difference in labor costs between making it in Mexico and making it in China amounts to less than a dollar, or about 1% of the product’s cost.’

‘The shape of the 21st century’s industrial structure will be very different from the 20th century’s,‘ Anderson writes in Makers. ‘Rather than top-down innovation by some of the biggest companies in the world, we’re seeing bottom-up innovation by countless individuals, including amateurs entrepreneurs and professionals.

‘We’ve already seen it work before in bits, from the original PC hobbyists to the Web’s citizen army. Now the conditions have arrived for it to work again, at even greater, broader scale, in atoms.‘

David Gonigam
Contributing Editor, Money Morning

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From the Archives…

The Foundations for the Great Lie We Have Built Our Lives Upon
17-05-2013 – Vern Gowdie

How the Aussie Dollar is Running Out of Friends, Fast
16-05-2013 – Murray Dawes

STOP PRESS…Resource Stocks Pay Dividends Too
15-05-2013 – Dr Alex Cowie

‘Best Week in Four Years’: Resource Stocks are Starting to Move…
14-05-2013 – Dr Alex Cowie

Why You Won’t See Me on ABC or CNBC Discussing Financial Markets…
13-05-2013 – Kris Sayce

By MoneyMorning.com.au

James Montier’s bible on behavioural finance, Behavioural investing, points out two recent discoveries by neuroscientists that have relevance to all investors:

1) We are hard-wired to think short-term, not long-term
2) We also seem to be hard-wired to conform to the herd mentality

A particularly intriguing experiment used by Montier to illustrate these points relates to our tendency towards ‘anchoring’.

In his words, anchoring is ‘our tendency to grab hold of irrelevant and often subliminal inputs in the face of uncertainty.‘

Feel free to follow the experiment yourself:

1. Write down the last four digits of your telephone number.
2. Is the number of physicians in London higher or lower than this number?
3. What is your best guess as to the number of physicians in London?

The idea of this experiment is to see whether respondents are influenced by their phone number while estimating the number of doctors in London. The results of the experiment can be seen below:

Click to enlarge

As the chart indicates, respondents with last-four telephone digits above 7-0-0-0 suggested, on average, that there were just over 8,000 doctors in London. Those with telephone digits below 3-0-0-0 suggested 4,000 doctors.

As Montier concludes, ‘This represents a very clear difference of opinion driven by the fact that investors are using their telephone numbers, albeit subconsciously, as inputs into their forecast.‘

So our thesis goes as follows. In the absence of reliable knowledge about the future, investors have a tendency to anchor onto something – anything – to help them predict future market returns.

And what better anchor to use for future market returns than prior ones?

This is Where the Story Gets More Intriguing

When looking at the UK stock market in discrete 20-year blocks, the period from 1980-1999 is the only one in the last 300-years in which inflation-adjusted returns averaged between 8% and 10% per year.

Click to enlarge

We think the story gets more intriguing still, because a good part of those returns was somewhat illusory in nature.

More specifically, given that they occurred during a once-in-a-century period of extraordinary credit creation, those market returns were in large part borrowed from the future.

This is the same way that governments have been funded, and their colossal bond markets serviced – by essentially loading the ultimate cost and the final reckoning onto the next generation.

So it seems that investors are not anchoring their predictions of future market returns to the past, because, as the data shows, long-term real returns have been quite low.

Instead, investors are anchoring their predictions to the very recent past that they have direct experience with, i.e. the twenty-year period between 1980 and 1999, even though this period was an anomaly compared to the last 300-years.

If this thesis is even half correct, investors piling into stocks now on the premise of recapturing some of those 8%-10% real annual returns, are being at least somewhat delusional.

The credit bubble has burst. Messily. The stock market has not necessarily woken up to the fact. This does not detract from the sensible analysis of equity market opportunities.

But for any investment, its most important characteristic is its starting valuation. Buy attractive equities at sufficiently undemanding multiples and you should rightly expect to do well.

Investors, however, seem to be anchoring their market predictions to recent returns of the past, therefore buying ‘the index’ expensively, inclusive of a grotesque bubble of credit. One can expect this to end in a train wreck.

Tim Price
Contributing Editor, Money Morning

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Publisher’s Note: This article first appeared here.

From the Archives…

The Foundations for the Great Lie We Have Built Our Lives Upon
17-05-2013 – Vern Gowdie

How the Aussie Dollar is Running Out of Friends, Fast
16-05-2013 – Murray Dawes

STOP PRESS…Resource Stocks Pay Dividends Too
15-05-2013 – Dr Alex Cowie

‘Best Week in Four Years’: Resource Stocks are Starting to Move…
14-05-2013 – Dr Alex Cowie

Why You Won’t See Me on ABC or CNBC Discussing Financial Markets…
13-05-2013 – Kris Sayce

There very well could be more upside in the Dow Jones Industrial Average.

Many components have been underperforming the stock market significantly; if there is to be any real economic recovery, these companies should feel it.

As an index, the Dow Jones Industrial Average seems a little out of date and not particularly reflective of today’s world or the rest of the stock market.

But regardless, it’s still the global benchmark, and ownership of both the index and component companies is vast.

Even though Merck & Co., Inc. (NYSE/MRK) is a great pharmaceutical company (and dividend payer), on the stock market, the position is back to where it was in 1997.

Another Dow Jones component looking for improvement is Hewlett-Packard Company (NYSE/HPQ), which has its own specific set of problems.

Then there’s Alcoa Inc. (NYSE/AA), which reports early. This stock market laggard is still trading at the same level it was in 1989, taking share splits into consideration.

And there are several other Dow Jones components that are laggards.

It’s pretty clear that institutional investors have made a profound bet on the safest blue chips, most evident in January and February.

While business conditions for a lot of companies are flat, both interest rates and monetary environments remain very accommodative. In addition, there are efforts being made regarding fiscal policies in many important economies.

China effected a policy to slow its frothy economy and real estate market, and it succeeded.

So, with many countries trying to get their fiscal affairs in order, the potential for genuine economic growth (in a year or two) is being cultivated.

If this came to fruition, then laggards within the Dow Jones Industrial Average should improve, and this could help the index with even more capital gains.

To me, the Dow Jones Transportation Average is an important leading indicator for the U.S. economy. (See “The Great Big Gamble: Can a Little Earnings Growth Turn into a Lot?”)

But for the long haul, investors are more likely to build positions in component companies of the Dow Jones Industrial Average.

Without question, this is a very difficult stock market in which to be a buyer. The reaping should almost be finished.

But if global economic data shows improvement over the coming quarters and the Dow Jones laggards start moving, then this would be a signal that the broader stock market could still go higher.

As a manufacturer of aluminum, Alcoa is an important leading indicator. Not specifically for the stock market, but for the global economy. Alcoa is one Dow Jones laggard to watch.

By Abby Joseph

Source – http://www.profitconfidential.com/stock-market/why-dow-jones-laggard-is-an-important-leading-indicator/

By Profit Confidential

The improved global economy has helped to drive up the spending habits of consumers, and an area that has really benefited from the income creation is the travel sector.

Airlines around the world have reaped the benefits from the improved travel sector.

The airline sector is estimated to earn $10.4 billion in profits this year, up from the previous estimate of $8.4 billion, according to the International Air Transport Association (IATA). (Source: “Small Boost to Airline Profitability – Industry Profit Margin Improves to 1.6%,” International Air Transit Association web site, March 20, 2013.)

According to the IATA report, the top market in the airline sector is predicted to be the Asian-Pacific airlines, with estimates calling for $4.2 billion in net profits this year, up from $3.9 billion in 2012 and accounting for a 40.4% share of the total global airline sector.

The North American airline sector is also looking good, with profits estimated at $3.6 billion this year, well ahead of the $2.3 billion recorded in 2012.

Coming in third is expected to be the Middle Eastern airline sector, with $1.4 billion in profits, more than 50% higher than the $900 million in 2012.

The airline sector has been improving since the end of the recession. Lower fuel costs and increased bookings and travelling have helped to drive up the sector.

Take a look at the Dow Jones US Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 in correlation with the S&P 500, as highlighted by the green line.

Chart courtesy of www.StockCharts.com

In the low-cost discount side, a carrier that I frequently fly with and like is JetBlue Airways Corporation (NASDAQ/JBLU). I have followed the stock for over a decade and continue to feel the company has what it takes to be a major player in the discount airline sector.

Chart courtesy of www.StockCharts.com

First formed in 1998, JetBlue Airways is a discount air carrier serving markets in the United States, Puerto Rico, and Mexico; along with 10 countries in the Caribbean and Latin America region. JetBlue offers services to 77 cities via 800 daily flights.

In April, the airline’s key revenue passenger miles reading came in at $11.5 million for an 83.8% load factor, up 6.8% year-over-year. (Source: JetBlue Airways Corporation, last accessed May 16, 2013.)

Following a decline in revenues from 2008 to 2009, JetBlue came back with growth in 2010 to 2012 and Thomson Financial estimates call for the growth to continue in 2013 and 2014.

For more of a global airline sector play, United Continental Holdings, Inc. (NYSE/UAL) is worth a look. The company formed from the merger of Continental Airlines and United Airlines in 2010.

Chart courtesy of www.StockCharts.com

United Continental offers around 5,446 flights daily to 370 airports on six continents.

Revenues are predicted to rise three percent to $38.3 billion this year, followed by $39.7 billion in 2014, up 3.9% year-over-year.

To play the growth in the airline sector, you can also play the suppliers of parts and services, which I discussed in “Aerospace: The Only Way Left to Play Global Growth.”

Source – http://www.profitconfidential.com/stock-market/wealth-lower-oil-prices-increased-spending-airline-stocks-headed-higher/

By Profit Confidential

“Shockwave,” “revolution,” “bonanza,” and “paradigm shift.”

These are just some of the provocative words in the Medium Term Oil Market Report-2013 that was just released by the International Energy Agency (IEA).

I don’t think I’ve ever read a more enthusiastic and fervent document from a government body in my life.

The IEA is an organization funded by 28 countries that was created after oil prices skyrocketed in 1973 and 1974. As policy, the agency doesn’t forecast oil prices.

The IEA’s executive director, Maria van der Hoven, said, “North America has set off a supply shock that is sending ripples throughout the world.” (Source: “Supply shock from North American oil rippling through global markets,” International Energy Agency web site, last accessed May 15, 2013.)

The IEA forecasts the North American oil supply will grow by 3.9 million barrels of oil per day (mbopd) from 2012 to 2018. That’s significant.

Chart Industries, Inc. (NASDAQ/GTLS) out of Garfield, Ohio is an oil and gas storage manufacturer that was recently featured in these pages. (Read “This Is an Investment Theme Worth Paying Attention To.”)

But the biggest gain of all, according to the IEA, will be in global oil refining capacity, which is expected to surge by 9.5 mbopd over the next five years, led by China and the Middle East.

The report said that higher oil prices over the past few years provided the backdrop for the “revolution.” Lofty oil prices helped make fracturing technology (used to extract oil from under rock) and Canadian oilsands production economically viable.

What’s most interesting (and worrisome) is that the report said the supply “revolution” is transforming the global supply chain, but that future economic growth related to the global oil industry will be strongest in commercial storage capacity and global hubs to support long-haul crude oil. (Source: Ibid.)

The ripples that van der Hoven is referring to have serious consequences—and not just for oil prices.

The report implies that the North American production boom, may only be that. With oil prices where they are (or better) much of the new hydrocarbons are going to get sent directly overseas.

The benefits of the oil and gas resurgence (refining, new infrastructure, jobs, spin-offs, the chance for lower oil prices, and lower prices at the pump) could essentially be shipped overseas.

There are infrastructure benefits (and costs) occurring now because of the oil and gas build-out. Oil prices recently strengthened.

The IEA said that every aspect of the global energy industry will experience some degree of “transformation” over the next five years.

I believe it. But if the “bonanza” simply gets shipped overseas, a huge opportunity will be lost.

The IEA and Exxon Mobil Corporation (NYSE/XOM) predict North America will become a net energy exporter by 2030.

When I read this report from the IEA and considered what it hinted at, it made me think how important it is not to give away the store.

Energy in all its forms (and alternative energy) has so much potential to help revitalize the U.S. economy.

Source – http://www.profitconfidential.com/stock-market/how-the-shock-in-new-oil-production-could-be-the-worlds-greatest-scam/

By www.CentralBankNews.info     Ghana’s central bank raised its policy rate by 100 basis points to 16.0 percent, saying the growing risks to the inflation outlook outweighed the risks to economic growth.
    The Bank of Ghana, which raised its rate 250 basis points last year in response to rising inflation, said inflation in April rose for the third month in a row, pushing up the bank’s central path of its forecast by a percentage point.
    In addition to its rate rise, the central bank said it was realigning its policy corridor by widening the band. The reverse repo rate will now be 200 basis points above the policy rate while the repo rate will be 100 points below it. The bank also plans to introduce a “informal standing facility” to improve the transmission mechanism of its monetary policy.
    The central bank said the major upside risks to its inflation outlook were heightened inflation and exchange rate expectations, lingering fiscal pressures, challenges in the energy sector, the effect of weakened commodity prices on the external sector, and the likelihood of full cost recovery in the energy sector.
    In April Ghana’s inflation rate rose to 10.6 percent from 10.4 percent in March, highest since May 2010, due to the continued effect of upward adjustment in petroleum prices in February.

    “Food prices continue to pose significant near-term risk to the inflation outlook. The inflation profile is therefore currently dislodged from trends over the recent past,” the central bank said.
    The central bank had earlier been optimistic about achieving its year-end target of 9.0 percent inflation, plus/minus 2 percentage points.
    Ghana’s trade deficit has widened further due to lower international commodity price, which have fed through to lower export earnings, resulting in heightened exchange rate pressures. Ghana is the world’s largest cocoa producer.
    Through mid-May from January, Ghana’s cedi currency has depreciated by 2.3 percent against the U.S. dollar, while in the first quarter the real exchange rate had risen by 5.9 percent.
    Gross international reserves eased to US$ 5.2 billion at the end of April, the equivalent of 2.9 months of imports, down from US$ 5.4 billion at the end of December.
    The central bank said the pace of domestic economic growth was weakening, with business and consumer sentiment about growth softening “amid heightened inflation expectations.” The growth of credit to the private sector had also moderated.
    Ghana’s Gross Domestic Product expanded by 2.1 percent in the fourth quarter of 2012 from the third for annual growth of 6.0 percent, down from 7.0 percent in the third quarter, the lowest growth rate since second quarter of 2010.
    Growth in 2012 eased to 8.0 percent from 2011’s rapid pace of 15 percent as oil came on stream.

    www.CentralBankNews.info

London Gold Market Report
from Adrian Ash
BullionVault
Weds 22 May, 08:45 EST

BULLION prices rose throughout Asian and early London trade on Wednesday morning, touching $1398 per ounce for the third time this week and recovering 4.4% from Monday’s one-month low.

Silver rose more steadily, and was capped below $22.80 as energy prices slipped and agricultural commodities held flat.

Tuesday’s retreat in the gold price today pushed gold bar premiums in Hong Kong to new record highs says Reuters, hitting $6 per ounce over and above international benchmark prices.

“Singapore premiums rose to $5 per ounce,” the newswire adds, with Asian demand continuing to outstrip local supplies of gold kilo bars – the preferred investment form in the Far East.

“Expect to see more choppy trading in gold heading into Bernanke’s speech,” says one bullion broker in a note, pointing to the Federal Reserve chief’s testimony to Senate today on US monetary policy.

Asked yesterday on Bloomberg TV whether the Fed will start to cut its $85 billion program of monthly quantitative easing, New York Fed president William Dudley said “It really depends on how the economic outlook evolves…It’s too soon to make that determination.”

Even if the US central bank does slow its purchases of government debt and mortgage bonds with newly created money, Dudley said the Fed would only be “adding less stimulus” rather than actually “tightening” monetary policy.

“[Bullion] market participants, reading between the lines of Bernanke’s testimony, might infer a signal about an early end to quantitative easing,” warns Standard Bank in London.

“That would keep gold under pressure.”

“Given the level of negativity in the atmosphere,” says London market-maker UBS, “a much stronger move is needed [in the gold price] to materially threaten the resolve of shorts” – meaning speculative traders who now hold a record number of bets that gold will fall on the US futures market.

“Many shorts still feel comfortable given the persistently weak sentiment. There may well have been a good chunk of shorts initiated or re-established near this week’s highs.”

Dudley’s colleague James Bullard, president of the St. Louis Fed, meantime warned Europe yesterday that it needs to start quantitative easing to avoid a long, Japan-style depression.

“You should worry about it, and then take policy action to avoid it,” said Bullard. “One way to get stuck would be to be passive in this situation and not take some aggressive action to try to get inflation back.”

“Europe can draw lessons from Japan on the dangers of half measures,” agreed Bank of Canada governor Mark Carney yesterday in his final speech before moving to lead the UK’s Bank of England in July.

Japan’s banking crisis began in 1989. More than two decades later, “to end its debilitating legacy,” says Carney, “Japan has just embarked on a bold policy experiment” – doubling its balance sheet with the most aggressive ‘quantitative easing’ yet seen.

“Governments have [already] been engaging in…printing money,” says Marshall Gittler, former head of forex at Deutsche Bank Private Wealth Management and now head of forex strategy at UK brokerage IronFX, writing for CNBC.

“But until [bank] loans have been made, [new central bank] reserves are just potential money.”

Challenging former UBS analyst and now precious metals strategist John Reade at Paulson & Co. – who wrote in the Financial Times last month that “the expectation of global paper currency debasement makes gold an attractive long-term investment” – Gittler says that

“While the gold bugs wait for hyperinflation, the global economy slides first into disinflation and then, who knows, perhaps deflation.”

Gold trading in India – the world’s No.1 consumer nation – meantime eased off Wednesday, according to local reports.

After last month’s festival season and the imposition of new import controls by the central bank in a bid to cut India’s trade deficit, gold prices edged lower today, even though “supplies are difficult to get and premiums are still high” for gold bars according to one major dealer

Adrian Ash

BullionVault

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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

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