[MrBill]

$this->bbcode_second_pass_quote('Egomancer', 'O')k!

Egomancer

[MrBill]

A very quiet day with most of the major markets still closed or very inactive in observance of Easter Monday.

$this->bbcode_second_pass_quote('', 'T')oday the peg is taking the strain of adjustment in reverse to 1997-1998. Then, while asset prices plummeted 60% or more in some cases, if you kept your job, avoided a wage cut and were renting rather than a property owner it was actually pretty good. Rents were cheaper, so were holidays with the baht at 50 to the dollar.
Borrowing in a weak HK dollar with funding rates below U.S. Libor makes the Hong Kong currency arguably one of the best funding vehicles for global currency traders, say Nomura.
Of course that prognosis still rests on the HK's peg to the U.S. dollar remaining intact as the currency of its largest trading partner powers ahead.
HKMA chief Joseph Yam said recently Hong Kong would retain its currency even if the yuan was stronger, although you would expect nothing else.
In private, you do begin to hear comments from economists that the HK dollar has at most five years to go and will be folded into yuan -- the HK yuan.
Of course for now the yuan is not a convertible currency and China has considerable work to do to clean up its financial system before that can change.
Arguably, the drift in the currency mirrors political drift as it becomes more apparent ultimate decision making always rests in Beijing. As Hong Kong's erstwhile competitor, Singapore sets out to attract regional corporates and expatriates with a vision for the future, the difference is starkly brought home. Politically, Hong Kong cannot really control its future; immigration for one is limited under an agreed policy of 100 Chinese a day never mind the lack of commitment to elections. And the pillars of its economy -- a cyclical property market and a venue for mainland companies listing overseas, both look vulnerable to China's own development.

[Egomancer]

I always thought that London has a strong bourse because it remained from their former empire, but I may be wrong . As the global importance of UK decreased in time so did it's bourse.

There is a connection between the economic and military power and the power of your bourse .

Egomancer

[MrBill]

$this->bbcode_second_pass_quote('Egomancer', 'I') always thought that London has a strong bourse because it remained from their former empire, but I may be wrong . As the global importance of UK decreased in time so did it's bourse.

There is a connection between the economic and military power and the power of your bourse .

Egomancer

[MrBill]

Back to crude trading. And none has been cruder than mine as of late! ; - )

$this->bbcode_second_pass_quote('', ' ') U.S. fuel inventories probably fell last week as refiners shut units because of fires and interrupted power supplies, a Bloomberg News survey indicated.
Gasoline stockpiles declined 1.4 million barrels in the week ended April 6 from 205.2 million the prior week, according to the median of forecasts by 14 analysts before an Energy Department report tomorrow. Eleven of the analysts expected supplies to drop, two said there was an increase and one said there was no change.
Gasoline supplies fell 5 million barrels in the week ended
March 30, the biggest decline since October, according to last week's Energy Department report.
``Last year we had a draw of 3.9 million barrels in gasoline,'' Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut, said in a note. ``Over the previous four years, with every year showing a build, the average build was 1.1 million barrels.''
Inventories of distillate fuel, a category that includes heating oil and diesel, probably fell 850,000 barrels from 118 million last week, according to the survey. Eleven of the analysts said that stockpiles dropped, two forecast an increase, and one said there was no change.
Refineries operated at 87.5 percent of capacity, up 0.5
percentage point from the week before, according to the survey. Refinery maintenance occurs in February and March as the heating
season wanes. Units are upgraded before the summer when gasoline consumption peaks.
Crude-oil stockpiles climbed 1.7 million barrels from 332.7 million barrels the prior week, according to the median of responses. Twelve of the analysts expected an increase and two
said that inventories declined.

[MrBill]

Inflation, inflation, everywhere I look. What's a man to think? From the Rhyme of the Ancient Merchant Banker.

Let's start with US import & export prices.

US March import prices +1.7% vs. 0.8% f/c
+2.8% yoy

US March export prices +0.7% vs. 0.4% f/c
+5.3% yoy

US petroleum imports +9.0%
non-petroleam imports 0.03%

Forget rate cuts. The Fed is going to end up raising rates by 50 basis points, yet, if this does not mitigate soon. Even if the IMF forecasts meager 2.2% US growth in 2007.

While the IEA tells us that the Q1'07 drop in OECD petroleum inventories is the biggest in over 10-years practically guaranteeing that even the hurricane season aside that prices will remain high in 2007. Especially, if you add in strong growth in Asia and a weaker US dollar.

Don't expect much relief on the labor front either. Year on year wage gains as well as a tight work force are still pushing up secondary wage inflation as well.

And abroad?

China's foreign exchange reserves jumped to $1.202 trillion in February/March. While their trade surplus shrank slightly to $46.44 bio in Q1'07 vs. $67.75 bio in Q4'06. Still, M2 growth in China is a hefty 17.3%, while loan growth is 15.7%.

That means that as China sterilized its foreign exchange earning from exports that all that extra liquidity is finding its way into domestic assets prices in stuff like real-estate and apartments because let's face it there are no bonds to buy, and at 40-50X price to earnings the stock exchange does not look like much of a bargain there any more either.

I could not decide which parts of this article to re-print as I have no link, so here is all of it.

$this->bbcode_second_pass_quote('', 'D')on't read too much into the big slump in China's trade surplus last month.
The first quarter of the year is a volatile period for China's trade balance as factories change their work schedules and increase production before or after the Lunar New Year shutdown. By May, the data will stabilize.
Unless the world economy slows sharply, the Chinese trade surplus, which fell 71 percent from its February level to less than $7 billion in March, may return to where it was in the previous nine months: between $14 billion and $24 billion.

For several years now, the world has been anticipating a big reshuffle in the Chinese economy, one that would see domestic consumption gradually increase and the trade surplus abate. It hasn't happened yet; it may not for years.
If a balanced economy is one that doesn't consume too much less -- or too much more -- than what it produces, China is a long way from becoming one.
The deficiency of China's consumption isn't immediately apparent. Seven of the world's 20 biggest shopping malls are in China. Retail sales, as reported by the National Bureau of Statistics, rose 21 percent last year to 7.6 trillion yuan ($989 billion). That's a respectable $761 per capita, even higher than in some developed consumer economies, such as Malaysia.

This statistic, however, is misleading. A large part of ``retail'' sales in China should be seen as intermediate business expenditure masquerading as final consumer demand. Wholesale, catering and ``other'' trades are included in the number.
So how big is the retail market in China, really? Arthur Kroeber, the editor of China Economic Quarterly, estimates it to be about half the reported figure.

Retail in China

A $500 billion Chinese retail market would account for a fifth of the economy; India's $325 billion retail industry has twice as big a share in that country's gross domestic product.
UBS AG's chief Asia economist, Jonathan Anderson, makes the
same point differently.
A Chinese family that has a 100-square-meter (1,076-square- foot) house on mortgage, as well as a car loan, must earn about $18,000 a year. That gives a per-capita income of $6,000 for a family of three, the official household size in ``one-child'' China, he says.
China's average per-capita income is $2,700.
``Based on international experience with income distribution, the likely percentage earning twice as much as the average would be 10 percent,'' Anderson says.
According to his calculations, the real urban Chinese population is about 244 million, even though official figures put the number close to 600 million. So the core consuming urban middle class in China comprises just about 25 million people.

Missing Middle Class

If the UBS economist is right, the scope of China's challenge to boost consumption is immense.
On the one hand, 100 million Chinese factory workers are
flooding the world markets with every conceivable consumer product. On the other, there may be just 25 million urban Chinese who can buy goods made elsewhere in the world.

It's not that the remaining 1.275 billion Chinese don't count for global demand, though it's really just the urban middle class that has to drive import growth.
New York-based consulting firm McKinsey & Co. expects a transition from ``Made in China'' to ``Sold in China.'' Increasing affluence will create a 19 trillion-yuan, or $2.5 trillion, urban consumer market in China by 2025, it says. That will compare quite favorably with the current level of U.S. personal consumption of $9.3 trillion.

More than three-fifths of this demand would come from the middle class, or ``upper aspirants,'' as McKinsey researchers call them.

Growing Imbalances

A large consumer market in 2025 is of no consolation to China's policy makers today. In the short run, the only way for them to balance the economy will be to sacrifice some export growth. For one, the serious environmental damage from China's overgrown manufacturing industry needs a response.
How long would the nation want to carry the dubious distinction of having 20 of the world's 30 most-polluted cities?

Besides, China's strained trade relations with the U.S. can only get worse. Senators Charles Schumer and Lindsey Graham have
withdrawn their 2005 legislation proposing punitive tariffs on
Chinese goods. The senators aren't keeping quiet, though.
They have now joined hands with Max Baucus and Charles Grassley, the top Democrat and Republican respectively on the Senate Finance Committee, to come up with an alternative measure to force China to revalue its currency. This time, the threat of the U.S. Congress enacting a law may be much more real.

The rest of Asia's independent access to industrialized markets is shrinking. Research cited by the World Bank in its latest East Asia update shows clearly that China has gained market share in the U.S. in computers, peripherals and semiconductors at the expense of other East Asian economies.
Other Asian nations are keeping their export engines running by supplying to China, though that's not where the final consumers are.

It may be unrealistic to expect another yuan revaluation, though quicker appreciation in the Chinese currency would be welcome -- both in China's own neighborhood and in Washington.

[cube]

$this->bbcode_second_pass_quote('MrBill', '.')..
The market as well as time always teach us humility if nothing else!
...

[MrBill]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('MrBill', '.')..
The market as well as time always teach us humility if nothing else!
...

[cube]

$this->bbcode_second_pass_quote('cube', '.')..
Anyways I've been long gold for 2 weeks now and it's been bullish. I still think there's enough momentum to go higher.

Is cube going to learn a lesson in humility or count his gold profits? time will tell...

[MrBill]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('cube', '.')..
Anyways I've been long gold for 2 weeks now and it's been bullish. I still think there's enough momentum to go higher.

Is cube going to learn a lesson in humility or count his gold profits? time will tell...

[MrBill]

Sorry, no posts today. I really do not have any new ideas here. It has been that kind of week. EURJPY is right back up near its highs. The Shanghai stock index as well. Hard to fathom what the market is thinking? They are shrugging off risk and taking us to new highs after each subsequent correction. I call this pattern a broadening out formation and I believe it is ultimately very bearish. However, time will bear me out. It is hard to be consistantly bearish in the face of new highs. The market is always right, correct? ; - )

Here is a little weekend reading from Truth & Beauty. They are certainly more upbeat than I am about potential risks and emerging markets.
$this->bbcode_second_pass_quote('', 'A')t times it seems almost tragic the treasures of analytical talent and intelligence wasted upon the rational, fundamental assessment of financial markets. Although in the longer term, fundamental factors inevitably win out, in the short run (the only time period anyone really cares about) currently, despite the polite fiction of a thin veneer of rationality, markets are driven by an
accelerating oscillation between Fear and Greed. Volatility has
recently jumped - 5% daily swings in some markets become a common occurrence. Both sides of the balance have become exacerbated - market indices keep reaching new highs, rewarding the brave; yet the fear of a global crash is palpable, causing panicked exits on a regular basis - following any loud noise, investors sell first, asking questions only later.

The most recent bout of global fireworks following upon China's
announcement that GDP had hit 11%, rather than the expected 10%, was a case to point. From Lahore to London, everyone panicked because everyone thought that everyone else was going to panic - thus, of course, everyone was proved right!

Although Russia should be one of the world's major beneficiaries of
Any acceleration in Chinese growth, the RTS equity index plunged
Further than most (though recouping most of its losses just 24 hours later). Note that Russian 2007 GDP growth is set to come in above 7%, with investment increasing by 20% YoY and corporate earnings growing well above trend; we can only conclude that, after last year's outperformance,the equity market has temporarily decorrelated from the underlying economy. A catch-up is in order, although given the degree of hysteria in global markets, we are not even going to TRY to time it.

More fundamentally, Russia is enjoying a further acceleration of the
beneficent trends of recent years. The local economy is hugely liquid and popular consumption is going ballistic; massive construction and re-construction of the housing stock and domestic infrastructure are underway, and the popular mood is unprecedentedly good. Having swung from a basket-case to an increasingly important regional power in less than a decade (otherwise unprecedented in human history) Russia's success has not pleased quite everyone. Those in the West who warned
that the "wrong-turn" taken by the Putin administration would lead
Russia to grief are apparently resentful at having been made fools of. The Neocons are outraged, and after getting Russia systematically wrong for almost a decade, the International press continues to present a view almost totally divorced from the local reality. Those of our foreign friends who can afford the outrageous pricing of Moscow hotels should consider coming to see for themselves. It is certainly not what anyone living abroad would have expected!

On the diplomatic front, as the sands run out on the Bush
administration, its rhetoric becomes increasingly provocative;
this simply parallels its waning relevance. Russia is becoming
a major player in the Eurasian economies and markets - from London to Vladivostok. As a key commodities exporter, it has become an increasingly vital partner for the Asian Tigers and Dragons. As we have long asserted, Russia has turned East, embarking on her New Asian Century - indeed, after a very challenging past millennium (and with just 992 years left to go in the new one) her third millennium is shaping up brilliantly!

[MrBill]

Sorry for the lack of updates. Been very busy and will be leaving this week for several weeks in Canada, so in the meantime just trying to clear my way through a tonne of work. No time to trade or be active in the market.

Just as well. It is very volatile. Despite a weakish close the week (my time) the market did bounce back, and is now in a strong technical position on the back of various geo-political factors like Iran and troubled elections in Nigeria as well as tightening fundamentals. OPEC is succeeding in withholding supplies. Something the market may have doubted earlier this year. Not to mention production and refining shortfalls that were largely discounted earlier in the seaon. This was interesting. From a floor broker on the NYMEX.
$this->bbcode_second_pass_quote('', 'F')rom Sunday. AL-QAEDA leaders in Iraq are planning the first “large-scale” terrorist attacks on Britain and other western targets with the help of supporters in Iran, according to a leaked intelligence report.

LINK

1632 GMT Dow Jones NWE gasoline barge prices are soaring due to a shortfall of prompt material, says a trader. "Prompt (prices) are being driven by the barge tightness," and tight supply of physical oil. "People don't have oil in tanks and that's why we're seeing this massive backwardation," he says. Adds European oil
product exports and refinery maintenance have eaten into stocks levels, but the situation could change rapidly as refineries come back online. Notes fears of a Belgian refinery worker strike are also "lingering in the background." A deal for 10ppm Eurograde was last heard at $746/ton in the MOC

[MrBill]

I am leaving today. Back on May 14th. I doubt I will have any time to update these pages. Before I leave I hope to post a recap of recent event, but it not, then good luck and speak to you when I am back. Cheers.

[cube]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('cube', '.')..
Anyways I've been long gold for 2 weeks now and it's been bullish. I still think there's enough momentum to go higher.

Is cube going to learn a lesson in humility or count his gold profits? time will tell...

[pup55]

COTS

Hi, Cube:

While Mr. Bill is traveling I will point out this chart. We had looked at this in January right about the time that the oil markets were all down and out.

At that time, we noted that the commercial traders (the blue line) had gotten a lot less short, and this line had crossed over the net positions of the small fry. We thought at the time that this would be a signal that the market was ready to go long.

As it turned out, this was more or less right. With the exception of a false start which probably cost a lot of people some money, the market went long after that and if you had the resources to stay in the game (or stay the hell out of the pits and do a mutual fund like I do) you fattened up since then.

But it looks like this market still has quite ways to go, if the same indicator still works. The large traders need to get more long, and the commercial traders more short in order for a top to be called.

This has some risk from a fundamental standpoint. There is a lot of crude sitting around, waiting to be refined, and the refiners having a lot of problems. It will be interesting to see how the market copes with this problem.

[pup55]

Warning: I am not an investment advisor. Do not accept investment advice from anyone who has a job. Do not believe everything you see on the internet, especially this. Investigate before you invest.

Note: This post is a continuation of the conversation from the inventory thread.

You have to ask yourself the following questions:

a. Are we using any less oil right now than ever? Of course not. Despite the really high prices, we are using more oil than ever. Is there any real prospect that we will use less oil in the future? No, not really. If there is less oil, due to peaking, we will still use all we can, no matter how much it costs.

b. If you think about all of the possible things you could see on CNN tomorrow morning, can you think of anything that would cause oil to drop radically in price? How about the Iranian guy planting a big kiss on the Israeli PM's cheek? How about the arrest of Osama? How about some German guy standing in front of his cold fusion reactor? No, much more likely that you will see any of a dozen things on CNN in the morning that will cause oil to go much higher.

c. Is anything going to slow down China? This is a much tougher one. You can make the argument that a collapse of the Shanghai exchange will cause a lot of problems globally, but after all, China is holding all of those dollars, so even if it happens, they will still be importing a hoot load of oil for a long time. So, this one is not necessarily guaranteed, so you have to watch out for this one.

d. Is there a chance of a stock market or other financial melt down that will kill demand? Well, there is a chance of all of this, but much more likely headed into an election campaign that Bernanke will not rock the boat by fooling with interest rates. We have had this conversation before: He can't really raise rates (which is what he should do if he were actually a responsible public official) because he will make the housing thing even worse. He can't drop them because the dollar will crash even more than it already has. So, the chances are pretty good that the current interest rate regime will continue until conditions force a change.

So, you know, being a PO viewer that over the long haul, you are going to be paying more for energy. You have a little financial risk, and a little currency risk, and if you are exposed to China you have to keep an eye on that, but you have to say that on the whole, it is a no brainer that energy will cost more going into the future.

So, what you want to do is position yourself to maximize the long term gain, and keep away from the short term pain, which is a situation like today when the inventory report comes out against you and the market goes the other way on you temporarily.

I have suggested in the past use of mutual funds to accomplish this. This takes some of the vegas element out of it, but also makes it so that you do not have to have deep pockets to stay in the game. I believe in this so strongly that I did it myself. Last year I was sad, the price of oil went down, and I only made 8%. The year before I got 44% or something. In either case, the casual viewer of PO.com can easily offset the price of increased gas at the pump by some appropriate investing.

Now this is not to say that the strategy is without risk. Example: During the February stock hiccup, the oil stocks, and even the funds, were pretty hard hit. However, this proved to be temporary, so if you were patient, or had some money on the side to dollar cost average, you came out fine this time. There is some risk on all of this, so you might not come out fine next time, so beware.

If you insist in trying to do this thing via the commodities exchanges, I never was able to figure out how to make money in it dependably, but it is pretty clear that crude oil is in a trading range right now, so if it is cheap, buy it, and if it gets expensive, sell it until it breaks out, which it will when the first hurricane hits. You need to either have deep pockets, and be willing to sweat out a down day/week/month and avoid a margin call, or be prepared to hedge your long or short positions with put or call options respectively to keep from losing your butt, because you know just from being around for awhile that over the last six months the oil price has gone from 49 to 67 and interday swings of more than a dollar will stop out a good trade so fast it will make your head spin if your stops are set too close.

It is also not unheard of to do spreads. Example: today, crude oil is kind of beaten down and RBOB is stable and high, so you might short one and go long on the other and wait for the correction. Same with Brent vs WTI. Right now, Brent is high, and WTI is low, so this is probably another spread opportunity.

All of these spreads and hedging your position with calls and puts cuts into your profit and also tends to fatten up the brokers because you have to pay commissions on this stuff, so beware on that too. But for the time being, until the price breaks out on the upside, which it will at some point, you have to do it if you do not have deep pockets.

If you want to invest in individual stocks, and take on the extra risk that you would have by reduced diversification, I would say the most vulnerable are the giant integrated oil companies, and the most assured of success will be the drillers and oil service people. The refiners and pipeline people will be in between. Since you know what is going to happen (per a, b and c above) all you need to do is be patient and not panic if the market corrects, and wait it out and eventually you will be all right.

Go ahead and buy some gold if you want. I will not argue with the gold bugs that infest this forum, although they have been mainly laying low lately.

I did pretty well on my 3.55 Euro that I had left over from a trip in 2003. Since that time, I am up to about $5.10. Lesson: The dollar is headed down, Bernanke cannot defend it without having blood in the housing market, so do with this information what you will. Remember that oil is denominated in dollars, so a drop in the dollar will put even more upward pressure on the oil price.

Anyway if you do not spend everything you make, that is, have savings, consider yourself lucky. This is all the advice I have for now.

[oilluber]

hi Pupp, I am holding stocks of mining companies and
oil companies. THat is , Hard assets,,,, anything but the USD,
preparing for the worst in the US and the Best in CHina.

[eastbay]

I have suggested in the past use of mutual funds to accomplish this. This takes some of the vegas element out of it, but also makes it so that you do not have to have deep pockets to stay in the game. I believe in this so strongly that I did it myself. Last year I was sad, the price of oil went down, and I only made 8%. The year before I got 44% or something. In either case, the casual viewer of PO.com can easily offset the price of increased gas at the pump by some appropriate investing.


This is excellent advice from pup55. In fact, integrating a few of the ideas kindly offered by pup55, along with a few of my own, my choice is energy-based sector funds which are IMO the perfect way to invest in What We Know without the trauma and drama of picking individual energy company stocks. Be aware there is quite a bit of price swing in the energy sector, as the veterans will tell you, so you have to be able to withstand the sight of your investment quickly moving 5, 10, maybe even 15% up or down without getting too excited.

Funds representing various energy sectors include (among many) those focusing on traditional oil companies, energy service companies, or emerging alternative energy companies are available. If you wish to narrow it even more, you can invest in funds focusing on solar, wind, or tar (oil) sands, for example.

If you have the stomach, you can also try trading in energy-based ETF's, but much like trading individual stocks, this can be a mighty quick way to lose money too, so personally I avoid them.

Either way, watch for the first sign of a hurricane and when it starts to threaten any oil infrastructure, watch for the spike in price, then prepare to sell all or part. Then afterwards, sit and wait until prices settle back, then move in again. This hurricane season is predicted to be busy, so have fun!

This bears repeating and is Very Important: The best advice of all is to never trust what Any Internet Guy says, so do some research first. However, with all the knowledge and information available here and at a few other PO-based sites, there is no reason why all of us can't be making a few bucks off this disaster before it starts to get ugly. You don't need very much money to do this, so get on it.

[pup55]

$this->bbcode_second_pass_quote('', 'I') am holding stocks of mining companies and
oil companies

[eastbay]

Is there anybody that seriously thinks that oil and/or metals will get cheaper?

The only boogie man with the power to take down metals and oil is Mr. Recession, well, of course, along with his nasty relative, Mr. Depression. Anyhow, he's going to give us a visit at some point (maybe after summer) so be ready to meet him.

Until then, investments in these two areas, oil in particular, are just about certain winners.