Petrobras: The Real Winner From Brazil’s Offshore Oil Boom

by Mike Kapsch, Investment U Research
Thursday, January 26, 2012

Several miles off the coast of Rio de Janeiro, as much as $5 trillion in untapped crude oil is sitting under Brazil’s pre-salt fields.

Investment U’s Jason Jenkins stated last December that this massive find could make Brazil one of the world’s top five oil-producing nations in just the next few years.

Dan Bartfeld, a well-known project finance partner at Milbank, Tweed, Hadley & McCloy, says, “Brazil will continue to provide a huge amount of opportunities for industry in 2012.”

Energy firms from all over of the globe desperately want in on a piece of the action.

Yet one oil and gas company – Anadarko Petroleum (NYSE: APC) – is looking to cut ties entirely from the one million acres it owns in Brazil’s pristine pre-salt fields.

And it raises the question, why?

The Truth Behind Brazil’s Pre-Salt Reserves

Anadarko Petroleum is widely known today for its involvement in the 2010 oil spill in the Gulf of Mexico.

It owned 25% of the Macondo well that dumped five million barrels of oil into the sea and claimed the lives of 11 workers.

Last October, Anadarko reached a $4-billion settlement with BP (NYSE: BP) over the tragic spill. The attempted sale of its Brazilian pre-salt acreage is undoubtedly to help pay off its debt.

But Anadarko owns energy projects all over the world. In Brazil, it has multiple deep-water prospects near already existing oil discoveries.

Why would it want to abandon its efforts there with so much oil to be produced in the near future?

The answer is more than likely Petroleo Brasileiro (NYSE: PBR), or Petrobras.

Brazil’s State-Owned Pre-Salt Cash Machine

Recent regulations by Brazil’s government have given Petrobras a huge advantage over other companies looking to profit in the pre-salt oil fields.

Brazil now requires production-sharing agreements for all future production in the region to go through Petrobras.

More specifically, Brazil’s largest oil company can claim 30% of any project regarding the pre-salt fields. It will also lead all future operations in the region.

It’s no surprise Petrobras is getting such royal treatment. After all, it was created by the Brazilian government and is a partially state-owned company today. Brazil simply wants to keep as much profit as possible at home (as well as do everything it can to prevent another offshore oil spill catastrophe).

Yet shareholders aren’t too keen on Brazil’s aggressive stance.

Over the past year, Petrobras’ shares have fallen 22%.

But this looks way overblown…

A Final Word

When it comes down to it, as much as 50 billion barrels of oil will be produced from Brazil’s pre-salt fields over the next decade. Petrobras will be first in line to cash in as these developments take shape. And trillions of dollars are at stake.

Good Investing,

Mike Kapsch

Article by Investment U

Investing in Chinese Stocks: Capture Growth and Manage Risk

by Carl Delfeld, Investment U Senior Analyst
Thursday, January 26, 2012: Issue #1694

Soon I’ll be publishing a new book and releasing a special report with sharply different messages.

New World, New Boom: Capture Growth Like the New Tycoons is a very blue-ocean optimistic book. It’s chock full of strategies and ideas to help investors grow wealthy with emerging and frontier markets.

The special report aimed at institutional investors, How Seven Trends Could Break China, challenges the conventional wisdom that China is an economic juggernaut and a one-way bet for investors. Its basic premise is that China’s economic and political system isn’t sustainable and will end badly.

Am I crazy bipolar or what?

Let me explain.

China’s Strategy Has Run its Course

You would be hard pressed to find someone more enthusiastic about emerging markets than I am. During the past 30 years, their progress has been remarkable, as market reforms and breakthroughs in technology and communications pulled hundreds of millions of people out of poverty.

The world filled in, and in my view, we’re just getting started.

China, in particular, is a remarkable growth story. China now exports more in one day than it did in the entire year of 1978, just before it opened up to the world. In 1990, its economy was the same size of Taiwan; now it’s more than 10 times larger.

But in my personal view, the strategy that fueled China’s success has largely run its course. More importantly, its political and economic system isn’t flexible enough to adjust to the serious challenges that confront it.

Here’s how Minxin Pei puts it in this week’s Financial Times:

“As China marks the 20th anniversary of Deng’s history-changing tour, the most ironic fact – and perhaps China’s worst-kept secret – is that pro-market economic reform in China has been dead for some time.”

So if you carry my thinking to its logical conclusion, the biggest threat to my optimistic view for robust Asian growth isn’t the euro debt crisis or America’s out of control debt and spending.

It’s China.

If this is unthinkable to you, I have a question: Did you expect unbeatable Japan to stagnate for two decades after its property and banking crisis or the sudden collapse of the Soviet Union?

Not So Fast, Though

But even if I’m right about this risk, I strongly recommend that you not go out and sell all your China stocks for a number of reasons.

First, the direction and/or pace of the seven negative trends in my report aren’t set in stone. While I’m skeptical that “moneybags communism” can endure, the government has tools at hand to kick the can down the road, and they’ll certainly try to do just that as long as possible.

Second, Chinese stock markets are usually driven by liquidity and momentum rather than fundamentals. There were many years during the 1990s when the Chinese economy was growing at 10%-plus rates and the stock markets did nothing.

Take a look at iShares FTSE China 25 Index Fund (NYSE: FXI), the ETF basket containing China’s largest 25 companies. While China’s GDP growth is consistently growing at 10%-plus pace, FXI’s performance is on a rollercoaster.

A buy and hold strategy for China has been, well, disappointing.

As 2012 markets opened, the Shanghai market is coming off a two-year period of weakness – down 37%. Therefore, many stocks, and especially the banks, are trading at attractive valuations. This is why I wrote several times in the past few months that China stocks look dirt cheap.

This doesn’t mean the market will go up, but it does make it more likely. And so far in 2012, FXI is showing an upward trend.

On the liquidity issue, some of the domino trends might boost the market in the short term. As Chinese property markets slide, investors may very well move this wall of liquidity to stock markets. After all, what other choices do they have?

The state banking system set interest rates so low that they’re negative after adjusting for inflation. No wonder the Chinese who are able are moving capital offshore.

The One Simple Step

But there are simple steps you can take to limit or hedge Chinese risk. And the most important is to put in place a 15% to 20% trailing stop when investing in FXI, or any Chinese stock for that matter.

By doing this, you can capture any momentum in the Chinese market, but you’ll also protect yourself against the risks of continued market weakness.

So keep investing in emerging markets and Chinese growth, just be careful to manage the risks.

Good Investing,

Carl Delfeld

Article by Investment U

Jan. 26 (Bloomberg) — Mikio Kumada, a global strategist at LGT Capital Management in Singapore, talks about Federal Reserve and European Central Bank monetary policy, and its implications for global financial markets. Kumada also discusses China’s economy and central bank policy. He speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Jan. 26 (Bloomberg) — Treasury Secretary Timothy F. Geithner, Greg Valliere, chief political strategist at the Potomac Research Group, John Silvia, chief economist at Wells Fargo Securities LLC, John Herrmann, president of Summit, New Jersey-based Herrmann Forecasting, and Representative Mel Watt, a North Carolina Democrat, speak with Trish Regan in a Bloomberg Television special “State of the Economy.” Mark Pringle, vice president of operations at Siemens AG’s energy plant in Charlotte, North Carolina, Joan Lorden, provost at the University of North Carolina at Charlotte, and Bruton Smith, chief executive officer of Sonic Automotive Inc., speak about efforts to revive the city’s economy. (Source: Bloomberg)

Activist investor Carl Icahn and his fund picked up a 14 and a halfpercent stake in CVR Energy (CVI.N), saying the shares wereundervalued. Now CVR is an independent petroleum refiner and andmarketer of transportation fuels.Experts say Icahn will most likely remain passive in CVR. The stock istrading extremely cheap, at around $24 now, and 2 and a half timesEBITDA. And Icahn acquired the entire position in December of 2011,when the stock was even cheaper. He acquired common stock for $19 pershare, at the highest, and options, topping off at $23.13. And Icahnisn’t the only professional investor who sees value in this company.Other smart money names such as Appaloosa Management and Third Pointbought CVR as well.And while Carl Icahn is known for his shareholder activism, it’s worthnoting he isn’t new to making passive investments, particularly in theoil and gas sector. It’s estimated that he made a 42% return last yearon El Paso, and 42.3% on Chesapeake Energy – both oil and gascompanies.

London Gold Market Report
from Adrian Ash
BullionVault
Thurs 26 Jan., 08:30 EST

INVESTMENT DEMAND to buy gold continued to push wholesale prices higher Thursday morning in London, after the US Federal Reserve vowed to keep Dollar interest rates at zero until at least 2014 – one year later than previously promised.

The global market’s AM Gold Fix here in London was set at $1713 per ounce, more than 3.8% higher from Wednesday afternoon and the highest level since Dec. 8th.

The most-active US gold futures contract yesterday saw its heaviest volume in six weeks according to Amanda Cooper at Reuters, while investors wanting to buy gold exposure added 9 tonnes to the holdings of the New York-listed SPDR Gold Trust, whose assets rose to $69.3 billion by value.

“People are still very under-invested in gold, and so there is a huge scope of that increasing,” reckons UniCredit analyst Jochen Hitzfeld in Munich, speaking to Bloomberg.

“The [Fed’s] announcement prompted investors to buy gold as a hedge against inflation,” says the Associated Press, “which investors fear could be a result of the its extended low-interest rate policy.”

Five-year US Treasury yields touched a new record low of 0.75% last night. US consumer-price inflation was last pegged at 3.0% annually.

All other tradable assets also pushed higher Thursday morning, sending Japanese, German and UK government bond yields lower as crude oil added 1%, copper rose 1.8%, and the MSCI index of emerging economy stock markets gained 1.3%.

Silver bullion prices today rose 5.3% from Wednesday’s London Fix to trade at $33.35 per ounce, a better than 2-month high.

Hong Kong stocks added 1.6% on their first trading day after the Lunar New Year holidays.

“Because the low US interest rate will continue to 2014, I think it gives good support to stock and gold markets,” Reuters quotes Ronald Leung of Lee Cheong Gold Dealers.

“But Hong Kong is still in a holiday mood. I don’t expect too much activity on our side for the whole week.”

“We would expect prices to ease off as the euphoria subsides,” says Marc Ground at Standard Bank in London, reporting “some profit-taking already overnight in Asia, which kept precious metals from rallying further.”

Gold traded on the Hong Kong Gold Exchange rose 3.4% today, as did Tokyo gold futures, which jumped to their highest level against the Japanese Yen in 7 weeks.

Meantime in Europe on Thursday, the Greek press reported that private-sector investors were nearing a deal with Athens’ officials over the interest rate to be paid on new bonds, issued to compensate them for a 50% or greater write-down of their existing positions.

Various reports put the rate between 3.75% and 4.0% per year.

The Euro currency today touched its best level vs. the Dollar in 5 weeks at $1.3170, up by 4.3% from last week’s 16-month low.

Eurozone investors looking to buy gold, however, also saw it rise in price to break €42,000 per kilo – a level first breached in mid-August and barely 5% below Sept’s all-time high.

“Gold finally made the breakout,” says one London dealer in a note. Thanks to the Fed’s announcement, “The blue touch-paper was lit.”

Formally announcing a 2% annual target for US consumer-price inflation, Fed chairman Ben Bernanke said in his quarterly press conference on Wednesday that “[Our] framework makes very clear that we need to be thinking about ways to provide further stimulus if we don’t get improvement in the pace of recovery and a normalization of inflation.”

“It sounds like the finger is on the trigger [for more quantitative easing],” reckons one money-market economist quoted by Reuters.

“Financial repression,” says Bill Gross, founder and co-manager of the $1 trillion Pimco bonds fund-management group on Twitter, pointing to the loss of real value imposed on savers by sub-zero returns after inflation.

“QE 2.5 today, QE 3, 4, 5… lie ahead.”

“[The Fed’s policy committee] have now locked themselves in to [zero rates until] at least late 2014,” says a note from RBC analysts. “This shows you the level of worry.”

“The median [inflation] expectation of the committee may be lower than we had expected,” says Goldman Sachs.

“Indeed, a significant proportion of the committee may project the first rate hike in 2015 or later.”

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

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 today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(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.

Jan. 26 (Bloomberg) — Puru Saxena, chief executive officer of Puru Saxena Wealth Management, talks about the outlook for global financial markets, Federal Reserve monetary policy and his investment strategy. Saxena speaks with Susan Li on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)

Jan. 26 (Bloomberg) — Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc., talks about South Korea’s economy, government measures to support growth, and central bank monetary policy. South Korea’s economy grew at the slowest pace in two years as Europe’s sovereign-debt crisis weighed on exports. Kwon also discusses the South Korean won. He speaks with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

News that Japan logged its first annual trade deficit in over 30 years sent the JPY tumbling during yesterday’s trading session. The USD/JPY shot up well over 100 pips, reaching above the 78.00 level. Meanwhile the EUR/JPY extended its bullish trend before staging a downward correction toward the end of the European session. Today, a batch of US news is forecasted to generate market volatility. Traders will want to pay particular attention to the US Unemployment Claims figure, as it will be an important gauge of the US economic recovery.

Economic News

USD – USD Turns Bullish Following EU News

The US dollar had a particularly strong day yesterday following negative news out of both Japan and the euro-zone. News that Japan has logged in a trade deficit for the first time since 1980 caused the USD/JPY pair to jump more than 100 pips throughout the day. Meanwhile, fresh concerns regarding Greece’s sovereign debt drove EUR/USD down, virtually erasing gains made at the beginning of the week.

Meanwhile, investors largely shrugged off news that the US Federal Reserve is unlikely to hike interest rates until the beginning of 2014. The dollar has found significant support as of late, largely because of negative international indicators. Investors continue to view the USD as a safe-haven asset. With the euro-zone still in extremely fragile position, traders can expect the dollar to remain at its current level for the near future.

Turning to today, a batch of news out of the US may generate significant market volatility. Traders will want to pay attention to this week’s Unemployment Claims figure and the most recent New Home Sales report for clues as to the state of the US economic recovery. With both indicators predicted to come in positive, the greenback may be able to extend its current bullish run as we begin to close out the week.

EUR – EUR Erases Gains vs. USD

The euro gave back most of its recent gains against the US dollar in trading yesterday, as negative news out of Greece once again drove investors to safe-haven assets. Greece’s inability to reach a debt swap agreement with its creditors has overshadowed otherwise positive euro-zone economic indicators. As such, the EUR/USD once again dropped below the 1.3000 level, and analysts are warning that it will be hard for the pair to break the 1.3080 resistance level in the near term.

Today, traders will once again want to pay attention to any announcements out of the euro-zone with regards to the Greek debt situation. Additionally, any news on Portugal, which is now viewed as the most likely to default on its debt after Greece, could impact euro pairs. US news may also generate market volatility, with this week’s Unemployment Claims figure most likely to impact the EUR/USD pair.

JPY – Japanese Trade Deficit Turns JPY Bearish

Investors largely abandoned the JPY in trading yesterday, following news that Japan has logged a trade deficit for the first time in over 30 years. Increased demand for Japanese exports played a large part in the yen selloff. Questions regarding how long the country will be able to maintain its large public debt caused the currency to tumble. While the USD/JPY climbed above the 78.00 level, the EUR/JPY approached 102.00 during European trading before staging a slight reversal.

Today, the yen is not forecasted to stage a meaningful recovery. While Japan’s status as a creditor country is not in danger at the moment, significant policy changes will have to be implemented to address the current situation. In the meantime, a bearish yen appears to be on the horizon.

Crude Oil – Crude Oil Continues To Sink Following Global News

The price of crude oil continued to fall yesterday, following negative European and Japanese news that drove investors to safe-haven assets like the US dollar. Typically, riskier assets like crude oil fall when the USD increases in value and the commodity becomes less affordable for international investors. As a result, crude dropped below the $98 a barrel level during European trading.

Turning to today, traders will want to pay attention to a batch of US data which could impact USD pairs. Should any of the data come in below expectations, the dollar may move down as a result, which would likely support the price of crude oil as we begin to close out the trading week.

Technical News

EUR/USD

Technical indicators are showing that this pair has entered the overbought zone and may see a downward correction. The daily chart’s Williams Percent Range has hit the -20 level, indicating that a downward breach could occur. Traders may want to go short in their positions.

GBP/USD

A bearish cross has formed on the daily chart’s Stochastic Slow, indicating that a downward correction may take place in the near future. In addition, the Williams Percent Range on the same chart is well above the -20 level and pointing down. Going short may be the preferable choice for now.

USD/JPY

Following the spike the pair saw in recent trading, technical indicators are now showing that a downward correction could take place in the near future. The 8-hour chart’s Relative Strength Index is already well into the overbought zone, while the Stochastic Slow has formed a bearish cross. Short positions may be preferable.

USD/CHF

Most technical indicators are showing this pair range trading, meaning that no defined trend is forecasted at the moment. Traders will want to pay attention to the technical indicators on the daily chart, as a better picture is likely to present itself in the near future. Taking a wait and see approach for this pair is advised.

The Wild Card

Nasdaq 100

Following the steady bullish trend the Nasdaq has seen in recent days, technical indicators are now showing that a bearish correction may take place in the near future. The daily chart’s Williams Percent Range and Relative Strength Index have both drifted into overbought territory. Forex Forex traders may want to go short in their positions ahead of any downward correction.

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.