Month: February 2012

By MoneyMorning.com.au

Canada is one of the few Western economies to have rebounded strongly from the Great Recession.

Indeed, in some ways it’s as if it never happened. Annual output has surged above the previous peak in 2008. The trade surplus in December rose to a three-year high. And all the jobs that were lost during the downturn have been recovered.

What’s more, Canada has managed to pull this off without spending money like mad. This year’s government budget deficit (the shortfall of tax revenues against state spending) will only be about 2.5% of GDP.

And in fact, the final figure looks set to be even better than official forecasts. Compared with the near-double-digit deficits that seem the norm these days, that’s quite remarkable.

There’s just one problem. The country has been inflating its own massive housing bubble. This could undo all the good work done elsewhere – and present smart investors with some profit opportunities…

Canada’s House Price Bubble is Set to Burst

But as interest rates tumbled, Canada caught the bug just like everywhere else. And how. The ‘real’, i.e. inflation-adjusted, price of the country’s homes has increased by an average of 85% since 1998.

Sure, house values stagnated at the height of the financial crisis in 2008. But by 2009, property prices were back on a roll, rising by almost 20%. Canada’s current housing boom has now become one of the longest lasting in the world, says the Bank of Nova Scotia.

Indeed, Vancouver is the second-least affordable city anywhere on the planet, according to the annual report from the Demographia International Housing Affordability Survey 2012.

Like every other housing bubble, it’s been inflated by loose credit. Canadian household debt hit a new high last year. The average borrowing burden of Canadian families now stands at 153% of disposable incomes, according to Statistics Canada. To put that in context, that’s almost as much debt as US households had taken on at the peak of their own housing bubble.

In other words, the warning signs are everywhere. Canada’s housing market is plagued by “overvaluation, speculation and over supply”, says Merrill Lynch. The Economist conducts a survey that compares house prices with the rents that property owners can charge. On this basis, Canadian residential property is overvalued by more than 70%. Even the central bank admits there’s a problem.

In short, the country’s property prices won’t be able to defy gravity for much longer. Canadian lenders, including Toronto-Dominion Bank last week, are already lifting home loan rates to try to cool off the housing market. That’s seen prices start to drop in some areas – and there’ll be plenty more of that to come.

Why? Because despite its great recent export performance – boosted by a nascent recovery in the US – Canadian economic growth is slowing down. Unemployment is on the rise again.

That means that even if the Bank of Canada can keep interest rates at their current low levels, Canadian households have no scope to take on any more debt. If the dole queues get any longer, many homeowners may struggle to keep up with their existing payments.

What’s more, as we’ve written about several times, the omens for commodity markets this year aren’t good. If China really does slow down as much as we expect, raw material prices could be set for a lengthy period in the doldrums.

As we explain here, the Baltic Dry index of shipping rates is also pointing to a drop in demand for raw materials. Again, this would be bad news for Canada’s export-driven economy. In turn, that would hit the country’s housing market even harder.

Sounds familiar? If you’re a regular reader, it will be. Because we said something similar about Australia’s housing bubble recently. And with the housing bubbles set to burst in both countries, our advice is along the same lines.

A country’s – or region’s – currency is a useful barometer of investor confidence: just look at the eurozone. The Canadian dollar (CAD) is also known as the loonie (after the picture of the common loon bird on the reverse).

As markets begin to ‘price in’ what slower Chinese growth really means for commodity prices, the loonie is likely to come under pressure. A housing market crash would drive it down much more.

David Stevenson
Associate Editor, MoneyWeek (UK)

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

From the Archives…

Picking the Big Investment Story for 2012
2012-02-10 – Kris Sayce

Attention: If You Have Australian Bank Stocks – Sell Them Now
2012-02-09 – Kris Sayce

Why This Bearish Indicator Means it’s Time to BUY Stocks
2012-02-08 – Kris Sayce

Why The RBA Uses The Terms of Trade Indicator… And Why You Should Too
2012-02-07 – Greg Canavan

Why the US Unemployment Rate is a Slippery Statistic
2012-02-06 – Dr. Alex Cowie

Cash In As Yet Another Housing Bubble Bursts

By MoneyMorning.com.au

The Australian dollar has appreciated dramatically against the euro since April of 2009, when it first became clear that Greece might default on its debts. Before that, the euro was second only to the dollar as a “safe haven” and reserve currency. Plus, with everyone wanting to be in cash at the height of the GFC, the euro rallied.

Since then, the Australian dollar has smashed the euro. It’s conceivable that the Aussie dollar could even reach parity with the euro in 2012. A lot of things would have to happen for that to take place. But look what’s happened in the last five years!

Australian Dollar Making New Highs

The immediate issue for Aussie investors is that the interest rate differential between Australia (cash rate of 4.25%) and Europe (.25% by the ECB) could cause a lot of speculators to pump money into Australia. Those speculators wouldn’t be much different from previous speculators who borrowed cheap yen or US dollars to buy Aussie assets. Nor would the basic problem of huge speculative capital flows into Australia – soaring asset prices – belie what’s going on in the real economy.

In the real economy, the stronger the Australian dollar gets, the harder it is for Aussie exporters to compete globally. It’s pretty hard already. Just ask Toyota, which recently fired one-tenth of its Australian work force. A stronger dollar will accelerate the de-industrialisation of the Australian economy.

The only other country in the world to see its currency strengthen so much (thanks to commodities, the interest rate differential, and relatively low government debt) is Brazil. Remember the Brazilians were the first to publicly decry the “currency war” unleashed by the Federal Reserve in 2009. The huge inflow of capital to Brazil drove that country’s currency, the real, up.

Brazil retaliated by imposing a 2% tax on all foreign inflows into Brazilian stocks. Foreign investment in Brazilian bonds was taxed at a higher rate of 6%. And the country even slapped a 1% tax on currency derivatives. All of the measures were designed to weaken Brazil’s currency (the real) and thus preserve Brazil’s competitive advantage as an exporter.

Will the RBA Weaken the Australian Dollar?

It may seem strange to you that a country actually discourages foreign investment by taxing it. It’s even stranger that countries desire a weaker currency in order to remain competitive. But the fact that both things are true – despite how counter-intuitive they seem – tells you that we live in strange times.

There is a surplus of productive capacity in the world. As Jim Rickards has pointed out in his new book, Currency Wars, we are in a “race to the bottom”. It’s a war of all against all, in which nations are trying to out-compete each other by making each other’s export industries unprofitable. When the currency strengthens, a lot of jobs go.

This is certainly the case in Australia. The stronger the Australian dollar gets, the harder it will be for manufacturers to do business here. The economy will come to resemble the UK economy – dominated by financial and banking interests, devoid of manufacturing, and sprinkled with a healthy dose of only the lowest-cost exporters.

This leads me to believe the Reserve Bank of Australia will cut rates soon. It won’t do it to reduce currency speculation, mind you. It will do it to assist borrowers and consumers. But it will do it all the same.

Whether a rate cut will reduce the volume of speculative flows in Australia is hard to say. In fact, it’s hard to say just what the volume of speculative flows into Australia is. It’s likely a lot of the “hot money” coming into the country is in the currency markets. But if some of it is in the stock market too, keep in mind it can leave just as quickly as it came. See the chart below for evidence.

One thing you can be sure of is that the Australian dollar is not a “safe haven” currency as Prime Minister Julia Gillard has said. She needs to look at the chart above and reconsider the view she gave at an economic speech in Melbourne in early February. The chart above looks like a heart attack.

Of course some people will argue that the Australian dollar has been “re-rated” to reflect high-interest rates, commodity wealth, low unemployment, and relatively low government debt. Those people are cheer leaders and trend followers. They are wrong.

More importantly, if you listen to them, you’ll be unprepared for what happens to Australian stocks when the speculative capital flows reverse, as they did in 2008. It’s not a matter of “if”. It’s a matter of “when”.

In the meantime, the best way to be in the market is to only target companies whose share price and business are correlated with some larger, positive trend in the global economy.

Dan Denning
Editor, Australian Wealth Gameplan

Publisher’s Note: Dan Denning will be appearing at After America: the Port Phillip Publishing Investment Symposium, March 14th-16th at Sydney’s Intercontinental Hotel.

Australian Wealth Gameplan subscribers have been profiting from what editor Dan Denning calls ‘The Revolution in the Desert’ since last June. And in this case, profit means two tips up over 120% at last count.

To get in on the action, click here.

From the Archives…

Picking the Big Investment Story for 2012
2012-02-10 – Kris Sayce

Attention: If You Have Australian Bank Stocks – Sell Them Now
2012-02-09 – Kris Sayce

Why This Bearish Indicator Means it’s Time to BUY Stocks
2012-02-08 – Kris Sayce

Why The RBA Uses The Terms of Trade Indicator… And Why You Should Too
2012-02-07 – Greg Canavan

Why the US Unemployment Rate is a Slippery Statistic
2012-02-06 – Dr. Alex Cowie

Why the Australian Dollar Isn’t Safe and the RBA Will Act Soon

By MoneyMorning.com.au

Let’s be honest. If you could find a way of making a lot of money without doing anything, odds are you’d jump at it.

We’d all jump at it.

Unfortunately, opportunities to be lazy and still make money don’t come around too often.

But rather than try and make money the lazy way, what if there was a way for you to snag a regular income from other folks’ laziness?

Well, if you look hard enough, you can find it. You just have to work out where lazy people spend their money. When you’ve figured that out, and if you hit the sweet spot, it can mean capital gains and income to boot…

Filter the Good Stocks from the Bad

So, where do you look?

One way to analyse stocks is by filtering out everything you don’t want to invest in. Simply because you can cut away the rubbish and leave the stuff you really want to look at.

Now, this filtering exercise isn’t a one-step process. It’s many-layered. As a quick example, today we’re looking for a way to make a buck from lazy Aussies. That means cutting out stocks where consumers have to put in a lot of effort…

Or where the consumer can easily switch their buying habits. Such as ditching shopping mall retailers in favour of buying online.

Once you’ve done that you know the stocks you don’t want. What’s left are stocks you may want. From there you just have to figure out which is best… and most likely to pay you a good return.

In this case we’ve found three of the laziest – potentially – moneymaking stocks on the market. And they’re all in the fast food sector.

When you think about it, fast food is about as lazy as you can get. How often to you get home in the evening, put your feet up and think, “I really can’t be bothered making dinner, let’s get pizza.”

If you’re like your editor it may be once every couple of weeks. But we know people (and maybe you do too) who make it a weekly or twice-weekly habit – fish & chips night… pizza night… KFC night…

Bottom line: there’s a lot of cash going into the tills of the fast food industry. A good example is the granddaddy of the fast food industry, McDonald’s [NYSE: MCD].

Since March 2003, McDonald’s shares have gained 676%. That’s pretty good for a burgers and fries operation. Of course, Macca’s has changed its menu by adding new products. (Some would say it’s even put food on the menu!)

But at the core of Macca’s success is the ability to tap into laziness and familiarity.

It’s something a successful Aussie business has done too – Domino’s Pizza Enterprises Ltd [ASX: DMP]. This morning it announced a 10% increase in sales, a 9.6% increase in revenue, and a 23% increase in net profit…

All from selling pizza, garlic bread and chicken wings to Aussies who can’t be bothered making their own dinner.

Not surprisingly, Domino’s shares have taken off this morning. Up 7% as we write. And if you’d bought in a year ago you’d be sitting on a nice 26% gain, plus dividends (which would take the total gain to 29.5%).

Easy money. If only it was that simple.

Because there are two other “lazy” stocks you also could have invested in last year: Retail Food Group [ASX: RFG] and Collins Foods Ltd [ASX: CKF]:

By the way, Retail Food Group is a stock we tipped in Australian Small-Cap Investigator in late 2008. It was a beaten down stock. But we figured it was the type of business that does well in almost any market. Simply because it sold lazy food: coffee, donuts, bread and cakes.

We tipped it at $1.16 and told investors to sell 13 months later for $2.50 (plus dividends). A gain of 115.5%.

But since then, RFG hasn’t done so well. It’s still paying a dividend, but for now the share price has stalled. In fact, it’s down 9% since this time last year.

The other stock, Collins Foods, has done even worse. It has fallen from $2.48 to $1.34. Does that make it good value? Or is it a sign to stay clear? We’ll do the research and let you know.

Don’t Be a Lazy Investor

In any sector there will always be firms that are better than others.

Because don’t forget, many of these businesses vie for the same punters (Collins Foods owns a bunch of KFC franchises, in direct competition to Domino’s Pizza). So not every company will win.

As we say, only one out of these three stocks would have given you a positive return this year. That’s why, once you filter out the stocks you don’t like, it’s vital to go to the next level and carefully research each of the left over stocks.

In short: there are a number of ways to make money from lazy consumers. But just because the consumer is lazy, it doesn’t mean investors can afford to be lazy too.

Cheers.
Kris.

Publisher’s Note: If you enjoy reading Kris’s essays in Money Morning, you’ll love hearing him talking about the challenges facing Aussie investors in person. This March, Kris will be speaking at the first ever Port Phillip Publishing investment symposium in Sydney. Come along. Meet Kris. Ask him tons of questions. Marvel at how tall he is. For more information on our not-to-be-missed March conference, go HERE

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How Your Lazy Neighbours Could Make You a 29.5% Gain on Stocks in 12 Months

This is what’s in the news for Tuesday February 14, 2012. The Wall Street Journal reports BHP Billiton (NYSE:BHP) and its partners will make about $4B of investments in copper mines in Chile and Arizona as they seek to cash in on prices that have climbed to about $8,500 a ton after a slight downturn last year. The Wall Street Journal also reports Xstrata (NYSE:XSRAY) wants to sell 20% of its 75% of the proposed $6.4B Wandoan project in Australia that expects to be a key supplier of Asian power generators. Reuters reports that a bid of about $30B for Shire (NYSE:SHPGY) could emerge as the major deal among European pharmaceutical firms this year, in a market otherwise expected to be mostly bolt-on acquisitions. Finally, Bloomberg reports GM (NYSE:GM) is poised to receive approval to build a $1.1B factory in China, according to a provincial government statement.

In trading on Tuesday, shipping shares were relative leaders, up on the day by about 1%. Leading the group were shares of Dryships (DRYS), up about 7.5% and shares of Rand Logistics (RLOG) up about 4.9% on the day.

Canadian Conservative Prime Minister Stephen Harper is in the midst of an official visit to China.

His mission?

To convince Beijing’s mandarins to buy Canada’s Alberta oil sands hydrocarbon production, now that Republican Congressional overreach has effectively sidelined the Keystone XL pipeline, designed to transit the oil to U.S. Gulf of Mexico refineries, for the foreseeable future.

Harper faces an uphill struggle, as China is questioning the delays in implementing the Northern Gateway pipeline, to transit Alberta’s oil to Canada’s western coast for transshipment to China.

Complicating the picture, Harper has a weak hand of cards, and both he and the Chinese know it.

Since 1967 oil sands have been under development in Alberta, and investments there now exceed $97 billion.

Where to go?

Not unreasonably, Ottawa looked southwards, as according to the U.S. Energy Administration Canada is now the leading exporter of oil to the United States, providing 2.6 million barrels per day (mbpd) of the 9.03 mbpd the U.S. imports every day.

With the Keystone XL pipeline offline for the foreseeable future, Canada hopes that China will pick up the slack, but the slow pace of development of the $5.5 billion, 730-mile Northern Gateway pipeline has raised concerns in Beijing.

Enbridge chief executive officer Pat Daniel, accompanying Harper on his visit to Beijing said, “They’re frustrated, as we are, in the length of time it takes. They’re very anxious to diversify their supply, they’re very dependent on the Middle East for crude. (Canada) seems like the perfect match that should last a long time, but if you don’t move it along, people do lose interest.

We don’t have forever. The fundamentals in the business can change and you must take advantage of opportunities if and when they present themselves.”

But Harper and Daniel are in a weak negotiating position, and they know it.

Consider geography for a moment.

Canada went full-bore on developing Alberta’s oil sands on the “Field of Dreams” principle of “build it, and they will come,” but in reality, from the outset there were only two realistic export options, south to the U.S. and westwards to potential second-string Asian market partners.

Northwards?

Eskimos and polar bears have yet to evince any interest.

Eastwards across Canada? A pipeline multiples more expensive to Canada’s Atlantic provinces to where… Europe?

Not likely.

So, with the U.S. export route blocked, at least temporarily by Republican Congressional opposition, that leaves… Asia.

Harper accordingly pursued his dog and pony show during his meetings with both Premier Wen Jiabao and Vice-Premier Li Keqiang, who is expected to succeed Wen this fall, by calling for more cooperation. Besides Daniel, Harper’s entourage includes five Canadian cabinet Ministers and three dozen industry leaders.

But Harper’s portfolio is heavy with annoying local concerns. Over the past few weeks, federal ministers have carried out a high-profile dispute with environmental groups over the proposed Northern Gateway pipeline, with the government labelling protestors “radicals” and Harper has said he is working quickly to generate new legislation to ensure a more rapid review processes that can’t be “hijacked” by such groups.

But the news from Beijing is optimistic, as yesterday Li told an audience at a Canada-China business forum, “We need to carry out cooperation in energy trade and facilitate more large scale co-operation projects for oil and gas and mineral resources. We also need to expand our co-operation in nuclear energy and energy conservation clean energy and renewable energy.”

And the tea leaves note that China has already invested about $10 billion in Canada’s energy sector and, adding to the Harper team’s optimism is the fact that it hopes that Chinese investors are expected to seek only minority ownership stakes in Canadian oil and natural gas opportunities, as such a policy is seen as both more acceptable to Canadians and less likely to trigger wider review processes.

Canada holds further appeal for Chinese investors both for its relative proximity and as a stable democracy where supply can be guaranteed more easily than in conflict-ridden states currently supplying Chinese energy needs like Iraq, Iran and Sudan, both north and south.

Still, Harper and Daniels have their work cut out for them explaining those pesky Canadian environmentalists, with Daniels informing his hosts, “I tell them it’s the Canadian way. They say they would build it faster in China. But Canada is not China” before adding that both state-owned companies China National Petroleum Corp. (CPNC) and China National Offshore Oil Corp.

(CNOOC) are “very interested” in the Northern Gateway pipeline and have expressed “strong interest” in meetings on the project.

You want money? Canaccord Financial Chief Executive Paul Reynolds said that it is setting up a $1 billion fund with the Import Export Bank of China to invest in energy companies or projects in Canada.

And things on Harper’s visit are already going swimmingly, as Chinese state news agency Xinhua is reporting that “more than 20 commercial agreements were signed between enterprises of the two countries and that twenty Chinese and Canadian companies on 9 February signed cooperative deals worth about $3 billion on the sidelines of Canadian Prime Minister Stephen Harper’s China visit.”

But Harper has undoubtedly received his marching orders in Beijing, to modify current federal legislation that governs new projects – the National Energy Board Act and the Canadian Environmental Assessment Act.

Ottawa’s two-year window allocated for hearings on the Northern Gateway project will have Harper explaining Canadian policies to his host.

And who in Canada will pay for the Northern Gateway? Alberta’s government is seeking a path for the oil sands through British Columbia by increasing the economic benefits for B.C. to support the project – including the option of Alberta paying to modernize and expand Canadian West Coast ports.

But British Columbia might not be bought off so easily – last month, British Columbia Premier Christy Clark bluntly told Alberta Premier Alison Redford’s that public opinion is against the pipeline in British Columbia, as Alberta gets the benefits while British Columbia carries the risks of environmental disaster.

And Harper’s mao tai toasts may yet carry a favor of home, as British Columbia’s Yinka Dene Alliance, a group of five First Nations that represent several thousand Aboriginals people in north-central British Columbia, have written to Chinese President Hu Jintao and to the Chinese media asking Hu to query Harper on Canada’s human rights record.

The Yinka Dene Alliance, a group of five First Nations that represents several thousand people in north-central British Columbia, has sent open letters to Chinese President Hu Jintao and to the Chinese media.

The high media ground, in the land of cuddly, photogenic pandas?

“An oil spill on the coast would destroy sources of seafood and fish, like crabs, for thousands of people,” it says. “It could destroy the extremely rare spirit bear – a bear with white fur that is as beautiful as the Chinese panda bear.”

What is Mandarin for “bringing home the high carbon content bacon while dealing with those pesky environmentalists?”

Will the “extremely rare spirit bear” win out over an orphaned $97 energy billion investment with nowhere to go?

Place your bets.
Source: http://oilprice.com/Energy/Crude-Oil/Canadian-PM-Shills-Alberta-Oil-Sands-in-China.html

By. John C.K. Daly of Oilprice.com

There are some economists – most can be called Keynesian – who believe in times of economic hardship, you need something to get more money circulating around the economy.

To do this, your choices are limited. The first is for direct government intervention. Think the Great Depression. More recently, look toward infrastructure projects in the economic stimulus package passed in 2009. The government creates jobs and pays people directly, putting money in their pockets.

I did mention the stimulus package from a few years back. That legislation didn’t work as promised and the word stimulus has become blasphemous up in D.C.

Another option is for the Federal Reserve to cut interest rates, which makes it cheaper to borrow. The idea is for people to borrow more from banks so they will consume, build and create more.

Fed Chair Ben Bernanke did that back in 2008, but no one is biting. In fact, the Fed lowered interest rates all the way down to zero, so it’s safe to say there’s no more wiggle room for that option.

So with the initial tried and true options ineffective, the Fed borrowed a page from Japan’s monetary bank that they implemented a decade ago when faced with a similar financial crisis. It’s called quantitative easing, and not too many ideas have rivaled it as far as sparking controversy.

What Exactly is Quantitative Easing?

Quantitative easing (QE) is monetary policy used by central banks to increase the supply of money in an economy when the bank interest rate, discount rate or interbank interest rate is either at, or close to, zero.

A central bank does this by first crediting its own account with money it has “created,” or printed. It then purchases financial assets such as government bonds and corporate bonds, from banks and other financial institutions. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money from increased lending in the fractional reserve banking system. The increase in the money supply thus stimulates the economy.

Potential Problems With QE

• Risks include the policy being more effective than intended, spurring inflation. In order for the Fed to purchase these assets, they have to print more money. Printing more money eventually lowers the value of the dollar.
• Banks have the ability to just pocket this new infusion of cash so they can increase their capital reserves in a climate of increasing defaults in their present loan portfolio.
• Piggy-backing on the last point, a de-valued dollar down could drive up the cost of commodities. This could cause a big problem where the average consumer pays more for basic essentials like wheat, sugar, coffee and pork, just to name a few. If the prices we pay for essentials rise, the stimulation of the economy is offset by higher costs.

And What Does Quantitative Easing Do to Markets?

There’s a reason that markets usually react favorably to QE rumors and implementation.

QE attempts to flood the global financial markets with fresh cash to buffer deflated asset prices. When the stock market goes up, people and businesses feel wealthier, and are thus more apt to spend, invest and, hopefully, take more risks. Rising asset prices can improve the asset side of impaired global balance sheets, which the Fed hopes can rekindle the wealth effect. If the Fed can boost asset prices, balance sheets become more attractive in terms of the ratio of assets to liabilities.

But in this time of uncertainty, take into account the possible downsides of a possible QE3. Cause if the bubble bursts, there will be grave consequences. In the end, growth needs concrete private sector investment to carry on.

Good Investing,

Jason Jenkins

Article by Investment U

By TraderVox.com

Euro continued its slide against the US dollar during the US session. Important data from US came as disappointing. The expected retail sales were expected to grow at 0.7% but the actual data came at 0.4%. The single currency lost the 1.3150 levels and printed a low of 1.3126. The low for the day of 1.3127, formed during the European session is almost respected. It has since then come above the 1.3150 and is currently trading around that level still down quarter a percent. The support may be seen at1.3100 and below at 1.3050. The resistance may be seen at 1.3250 and above 1.3210.

Sterling pound also lost ground against the US dollar. It has come again below 1.5700 levels and formed a fresh low of 1.5660 during the US session. Currently it has cove near the 1.5700 levels down half a percent for the day. The support may be seen at 1.5690 and below at 1.5650. The resistance may be seen at 1.5700 and above at 1.5730.

The US dollar is gaining against the Japanese Yen after the Bank of Japan’s announcement this morning. The pair is approaching the 78.50 levels up more than a percent for the day. The pair is looking bullish and can eye 79 levels. The support may be seen at 78.30 which is a strong support and down at 77. The resistance may be seen at 78.70.

As expected the US dollar is gaining against the Swiss frank on this risk aversion day and is hitting the 0.9200 levels. The high for the day so far is 0.9202 which is also a one week high. The resistance may be seen around 0.9210 and above at 0.9250. The support may be seen at 0.9150/60 and below at 0.9100.

The Australian dollar also lost against the US dollar during the US session and is currently trading below 1.0700 levels at 1.0690, down about 0.40% for the day. The support may be seen at 1.0670 and below at 1.0640. The resistance may be seen at 1.0700 and at 1.0740/50 levels.

The US dollar index has gained levels and comfortably trading above 79 levels at 79.42.

Article provided TraderVox.com
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In Douglas Adams’ iconic The Hitchhiker’s Guide to the Galaxy, Deep Thought tells us the ultimate answer to the ultimate question of life, the universe and everything is “42.”

The origin and meaning of that number has always intrigued fans.

But Douglas Adams explained that there was no real rhyme or reason why he chose “42.” It just popped in his head and he went with it.

I always liked Deep Thought’s answer because 42 is a key number for people in the oil business – it’s the number of gallons in a standard barrel of oil.

Now, I don’t think there are any sectors as exciting as oil, particularly now. We had a record year in 2011 in terms of prices. This year will be another record year as companies spend $598 billion on E&P. And next year looks like it will be a record year in its own right in terms of price, and it’s not even here yet.

Why? The U.S. Energy Information Administration (EIA) revealed last week that it expects the price of West Texas Intermediate (WTI) crude to average $104 per barrel in 2013.

That’s an astonishingly high yearly average, particularly in a time where Europe and the United States are trying to pull their economies out of the toilet. So a lot of energy investors are looking for opportunities to cash in.

Oil, Oil Everywhere

Right now, the price of NYMEX benchmark crude is over $100 per barrel. And it’ll likely stay above that threshold for most of 2012. The Iran nuclear standoff is providing a psychological updraft to price. And this is on top of the number of “black swan” events that drove the commodity markets in 2011.

The Arab Spring movement that began in late 2010 led to upheavals across the Middle East, impacting oil supply from countries such as Libya. And ongoing conflicts in Nigeria, Sudan and South Sudan are also weighing in.

But we’re about to see major supply bumps in the crude market… And some of the biggest bumps will come from countries that have seemingly fallen off investors’ radars.

• Next year, the first production from Norway’s Barents Sea will start flowing.

• Post-Ghadaffi Libya expects to double production by 2014.

• The Kazakhstan Kashagan field will see its first commercial output in 2013.

• Plus, we have all those rich shale plays in North America ramping up production, as well as continuing strength from the Canadian oil sands.

But possibly the most notable is the number of major projects in Iraq coming online. Over the next few years these projects may propel its oil industry to rival that of Saudi Arabia in terms of output.

The Power Struggle Looming As An Industry is Reborn

After nine years of conflict, the United States troops finally left Iraq late last year. It marked the official end of the war.

During most of the post-war U.S. occupation of Iraq, the country’s oil production averaged about two million barrels per day (bpd) – the highest it had been in two decades. But that output is growing. It now stands at 2.9 million bpd with plans to hit 3.4 million bpd in 2012.

Projects coming online in 2013 could skyrocket Iraq’s oil output to nine million bpd.

By 2017, Baghdad has set what many see as an overly ambitious goal of having Iraq’s oil production top 12 million bpd. That would rival the Middle East’s juggernaut Saudi Arabia.

It’s a boom time for the Iraqi oil industry.

Over the weekend, Iraq cut the ribbon on the first of five new single-point mooring export terminals that will ultimately handle five million bpd of export capacity.

Like Libya, decades under the thumb of a corrupt dictator, war and international sanctions hamstrung Iraq’s oil industry potential. But it’s entered a whole new era.

Though this new era isn’t without some controversy… The international race to tap Iraq’s massive 143 billion barrels in oil reserves has sparked a power struggle between Baghdad and the semi-autonomous Kurdistan Regional Government (KRG).

And international oil companies (IOCs) now find themselves stuck between a rock and a hard place.

The Difference is R=X/Y

The central Iraq government and KRG are competing for companies to come in and develop resources. But there’s tension brewing as Baghdad doesn’t formally recognize contracts IOCs ink with the KRG Ministry of Natural Resources.

For example, on Monday, Exxon Mobil (NYSE: XOM) was barred from competing for contracts in Iraq’s fourth oil and gas licensing auction in May. This is because Exxon signed six deals with the KRG.

Hess Corp (NYSE: HES) was barred last year by the Iraqi government from working anywhere else in the country after it had done the same. And now France’s Total S.A. (NYSE: TOT) is debating whether to negotiate with the Kurds, meaning it could end up blacklisted, as well.

But over the weekend, Total’s CEO said that the company won’t likely participate in the upcoming Iraqi auction anyway, citing the opportunities with the KRG are more attractive.

The biggest hurdle for IOCs is that if they work with the central Iraq government to develop fields in the country, they actually don’t own any of the oil they produce. Instead, they’re paid a service fee on each barrel they pump out.

Under the KRG contracts the companies share profits from oil sold with the KRG.

Kurdistan claims to hold 40% of Iraq’s oil reserves. So it’s a difficult choice – take a smaller return on a larger resource base or a larger return on a smaller one.

How to Play Three Recoveries At Once

I’m always on the hunt for opportunities in beaten-down neighborhoods of the markets – Japan, Europe, sectors affected by disaster, etc.

This why I think Total provides a really intriguing opportunity. And not just because it might go forward with some Kurdistan development.

Total is Europe’s third-largest oil company. Like most European companies, it took one on the chin in 2011, off about 16% from the highs it set in the spring. And the start of the year hasn’t been spectacular yet, with the company’s stock up about 3%.

Last year, its earnings rose 17%, but that was primarily due to the high price of Brent, because its output declined 1.3%. Fortunately, management wants to rectify this. And has an aggressive strategy to take on more risks in the oil and gas sector this year to bolster production.

A deal with the KRG would exemplify this move. As well as its recent deals in Uganda, Kenya and the Ivory Coast. It’s also looking to construct a crude processing plant in Saudi Arabia to reduce its overall exposure to European refineries. The company is going to spend more than $20 billion this year to expand its resource base. So, it’s building up a head of steam.

Even more intriguing is that it just inked a $34-billion deal with Japan’s Inpex – which sells natural gas to Tokyo Electric Power – to build one of the world’s largest liquefied natural gas (LNG) facilities in Australia.

So, we have a company not only involved in the ongoing recovery in Iraq, but also looking to capitalize on Japan’s increasing reliance on energy sources other than nuclear.

Plus, from a technical standpoint, Total’s inching closer to that coveted “golden cross” where the 50-day moving average crosses above the 200-day moving average. That’s one of those ultimate bullish signals.

Good Investing,

Matthew Carr

Article by Investment U

The Metal That Inspired Henry Ford

In 1905, Henry Ford came across a remarkable metal that helped him to single-handedly revolutionize the budding American car industry.

After a car race in Florida, Ford examined the wreckage of a French racecar. He realized that many of the French car’s parts were made of a peculiar metal.

It was much lighter, and stronger, than the metal being used to build American cars. So Ford – seeing the opportunity to drastically cut material costs in his automobiles – rushed a specimen back to his laboratory. And it didn’t take long for Ford to learn that the French alloy steel contained one truly unique element: Vanadium.

Thrilled with the potential for using this low-weight, high-strength steel in his products, Ford rushed to finance and set up his own steel mill to make vanadium-alloy steel. And then, in 1908, he began using the new vanadium-alloy steel in the chassis of the time-honored Ford Model-T – reducing its weight to about half that of contemporary automobiles.

There’s no doubt that Ford’s assembly line process enabled the mass production and consumption of the Model T. But it was Ford’s use of the vanadium-alloy steel that gave American consumers a superior product – lighter, stronger and more affordable.

“The fine even distribution of the elements – the uniformity of structure indicate the superior quality of vanadium.” – Henry Ford, 1910

Metallurgical technology has rapidly advanced since Ford’s time. New processes are continually being developed to improve the effectiveness and benefits of using vanadium as an alloying agent in steel.

And today, this exotic metal has become of the best steel strengtheners known to man. With modern processes, just 0.1% vanadium content in steel can double its strength.

Lightweight, high-strength alloy steels allow producers to build superior products with less steel, saving significant material costs. And in the coming years, significant increases in vanadium-alloy consumption are forecast as global industrial producers fiercely seek costs-saving measures while retaining quality.

Vanadium isn’t a significantly rare metal – being about two or three times more abundant than copper. But like many other minerals, high concentrations that are economically feasible to mine are only found in a few places. Most of the world’s vanadium reserves are isolated in only three countries: China, South Africa and Russia. Less than 3% of the world’s resources of vanadium is located elsewhere.

Vanadium: Raging Opportunity for Growth

Vanadium demand is directly linked to global steel consumption – with 90% of world vanadium production consumed by the steel industry, which is poised for strong growth in the future.

Last year, all major steel-producing countries showed increased steel output. The World Steel Association recently reported that global crude steel production reached 1,527 million tonnes in 2011 – a record for global crude steel production.

This year, the World Steel Association forecasts global demand will increase an additional 6% to reach a new record over 1.6 billion tonnes. And the demand for vanadium should be rising with it.

In its 2012 Mineral Commodity Summary, the USGS agrees, saying, “Given the increase in steel demand, especially in China, it appears likely that, in the near term, vanadium demand will be strong.”

Increasing Global Vanadium Demand

Over the past decade, the demand for vanadium in the United States has increased 56%. And estimates suggest that vanadium demand is expected to continually grow at a compound annual rate of 7.8% thorough to 2015, fueled by increasing demand for stronger and lighter steel alloys.

With increasing demand and relatively low current prices, vanadium shows interesting investment fundamentals. But, unfortunately for us as investors, getting exposure to this strategic metal can be a bit tricky.

Unlike many other commodities, there are no specialized vanadium ETFs, pool accounts, futures trading, or other funds dedicated to vanadium. Instead, buyers and sellers of the product negotiate privately, leaving only a small handful of alternative investments for us.

Investing in Vanadium

Believe it or not, vanadium bullion is available from private individuals. But there are no reputable minters that produce vanadium coins or bars. Moreover, vanadium bullion will be very difficult to sell – so I would strongly advise against owning vanadium bullion as an investment.

With no physical bullion or direct fund or pool account access, investors looking for vanadium exposure have to look to the equity markets for companies that mine the metal. And even there, exposure to vanadium is usually overlapped with other metals.

However, there are a handful of small public companies with good vanadium exposure. Here are a few:

Atlantic Ltd. (ASX: ATI) is an Australian-based junior mining company that recently began vanadium production at its 100% owned Windimurra vanadium project.

Located in Western Australia, the Windimurra project is a world-class vanadium and haematite iron ore project that currently has 334,200 tonnes of vanadium reserves plus 546,800 tonnes of vanadium resources.

Once brought up to full capacity in 2013, production is expected to reach 6,300 tonnes of contained vanadium per year – 7% of the world’s vanadium supply.

EVRAZ plc (LON: EVR) is a large integrated steel, mining and vanadium business with operations on four continents.

The company is ranked the fifteenth-largest steel producer in the world based on crude steel production of 16.3 million tonnes in 2010.

EVRAZ’s international vanadium business comprises EVRAZ Highveld Steel and Vanadium (OTC: HGVLY.PK) in South Africa, Russia and the Czech Republic, and Strategic Minerals Corp. in the United States and South Africa. EVRAZ produces various vanadium products, including its own registered alloy, Nitrovan, which is produced the company’s process of simultaneously adding vanadium and nitrogen to steel, creating a very high-strength product.

American Vanadium (CVE: AVC) is a Canadian-based vanadium-mining firm that’s currently developing its 100% controlled Gibellini project in Nevada – along with several adjacent vanadium properties.

The Gibellini project holds a NI 43-101 compliant resource of 131 million pounds of vanadium in the measured and indicated category, plus an additional 47 million pounds in the inferred category.

Permitting and detailed engineering are currently underway at Gibellini. Production is ultimately expected to reach an average of 11.4 million pound of vanadium pentoxide per year. This could potentially supply approximately 5% of current global vanadium demand. Once production begins, Gibellini will be the only producing vanadium mine in North America.

Wrapping it Up

Lighter, stronger steel means better products and significantly lower costs for both producers and consumers.

With the demand for lighter, stronger steel on rise, powerful steel alloying agents like vanadium will be increasingly sought after.

For speculators, this could mean good potential for significant profits from the right investment vehicle.

Good Investing,

Luke Burgess

Article by Investment U