Aussie and Kiwi Fall on Spain’s Concerns


Tradervox (Dublin) – The south pacific dollars have continued to lose against most currencies as concerns over Europe took a new twist with Greece now taking a back seat and Spain getting into the limelight as it struggles to rescue its banks. The turmoil in Europe has led to the decline in demand for currencies associated with growth which has caused the Aussie to drop to six-month low.

The Australian dollar also declined as reports showed that Home Approval declined against the market expectation. Some analysts speculate that the Reserve Bank of Australia may cut its interest rate further. The New Zealand dollar is set for its worst monthly decline against the US dollar since September. The recent declines by the south pacific dollars are limited by technical indicators that show the recent drop is excessive.

With focus now turning to Spain, analysts have indicated that it is becoming a huge problem with its bonds surging to almost levels that sent Portugal, Ireland and Greece to seek international bailout. The country is also faced with a banking problem that may prove difficult to tackle. Rochford Capital director, Derek Mumford indicated that Spain will require a lot of money to bail them out despite ECB showing some reluctance to come to its aid. The trouble in Europe will tie down the south pacific currencies as fear takes charge of the market.

There is a tussle between the ECB and the Spanish government as report from Spain indicates that ECB has refused to accept a plane to recapitalize one of its largest lenders. The ECB later denied having been contacted by the Spanish government to discuss such terms. As this turmoil continues, the Australian dollar was trading at 97.21 US cents after it had declined to as low as 96.74 US cents, the weakest it has been since November 25. The New Zealand currency was trading at 75.48 US cents.

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Market Review 31.5.12

Source: ForexYard


The euro fell as low as 1.2357 against the US dollar in overnight trading, as fears that Spain will soon require a bailout package continue to drive the common-currency lower. Crude oil continued its downward trend as well, reaching $87.25 a barrel last night.

Main News for Today

US ADP Non-Farm Employment Change-12:15 GMT

• Considered an accurate predictor of tomorrow’s Non-Farm Payrolls Claim
• Analysts are forecasting the figure to come in at 145K, slightly above last month’s
• Any better than expected news could help the USD move up against JPY

US Prelim GDP-12:30 GMT

• Analysts are predicting the figure to come in at 1.9%, which would represent a decrease from last month
• If the figure comes in as predicted, investors may continue shifting their funds to the safe-haven JPY as a result

Irish Stability Treaty Vote- All day

• Ireland is voting on whether to ratify a new EU fiscal treaty
• Analysts expect that Ireland will vote in favor of the treaty, but if it does not, the euro could see heavy losses as a result

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.

USDCAD rebounds from 1.0206

Being supported by the upward trend line on 4-hour chart, USDCAD rebounds from 1.0206, suggesting that a cycle bottom has been formed, and the uptrend from 0.9799 has resumed. Further rise could be seen over the next several days, and next target would be at 1.0400 area. Initial support remains at the upward trend line, only a clear break below the trend line support could signal completion of the uptrend.


Forex Signals

This ‘Strategic’ Minerals Stock Has Just Doubled: What to Do Next







Without the first, most people will die within a couple of minutes.

Without the second, you could survive for a few days, but that’s all.

And according to Forbes magazine, the third, fourth and fifth items are the most important and healthiest food items you can eat.

Bottom line: if you’ve got access to air, water, berries, beans and nuts, you should be able to at least survive at a subsistence level.

It’s something worth remembering for when economic Armageddon hits the world and you need to stock up your bunker.

Those elements and foods are the necessities of human life. But as an investor it’s pretty hard to make a profit from any of those five items.

But what if there was a crucial element that you could profit from? An element that’s set to become a necessity of industrial life?

As it happens, such an element does exist, and you can profit from it right here on the Australian Securities Exchange…

It’s a story our old pal, Diggers & Drillers editor, Dr. Alex Cowie has followed for some months.

He finally took the plunge by tipping a particular stock to his readers five weeks ago.

Today, those readers who followed the Doc’s advice are up over 150%. That’s pretty good when the broader market has fallen almost 10% over the same time.

The element the Doc plumped for is graphite.

When you ask most people to name the uses for graphite, they’ll say pencil leads…and that’s all.

But for anyone who’s read Dr. Cowie’s latest research report, titled Welcome to the World of “Strategic Mineral” Investing, they’ll know there’s more to graphite than pencils.

The importance of graphite is highlighted by the fact that it’s high on the Royal Geological Society’s list of strategic minerals. Strategic minerals include those minerals that meet specific criteria – such as a concentration of production in one country.

In the case of graphite, China dominates world production. It accounts for three-fourths of the world’s graphite supply.

You can see how limited and concentrated the graphite supply is on the map below:

graphite supply

Source: Wikipedia

As the map shows, China is the single largest producer. For now anyway. But that may be about to change…

World’s Largest Graphite Deposit?

Before we go on, just what is so special about graphite?

To be precise, it’s not graphite Dr. Cowie is interested in, it’s graphene. In his latest report, the Doc explained graphene’s unique qualities:

‘Graphene is a one-molecule-thick sheet of graphite.

‘The carbon molecules line up in hexagons. Close up it would look like chicken wire. It is stronger than diamond, is more elastic than silk, and conforms to any shape. It conducts electricity at the speed of light, and can transmit 1000 times more electric current than copper…

‘IBM has already used graphene to produce the fastest computer chip in history.’

That’s some mineral.

So you can see why Dr. Cowie got so excited when he came across a stock that could own the world’s largest graphite deposit.

If everything goes to plan, the stock he’s backed could end up with a multi-billion-dollar valuation…many times the stock’s current value.

Of course, as with any speculative small-cap resources punt, nothing is certain. The Doc knows there’s still a long way to go before the company gets near production.

But that hasn’t stopped the share price from putting in a tremendous run.

So, is the stock still worth buying even though it has more than doubled in five weeks? Or should investors wait for the price to fall back first?

To find out Dr. Cowie’s latest advice on this high-tech strategic minerals play, click here.


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This ‘Strategic’ Minerals Stock Has Just Doubled: What to Do Next

The Setting Sun of the Japanese Economy


Europe is the focus for bureaucratic bungling at the moment. It will probably remain in the spotlight for some time. But Japan… Japan is in a class all of its own.

For more than 20 years now, the Japanese economy has been in and out of recession. The bureaucrats have met every ‘challenge’ with a remedy that would have even Keynes turning in his grave – more government spending. Public debt in Japan is expected to reach an incredible 237% of GDP in 2012. No wonder Fitch Ratings downgraded Japan’s debt by two notches to A+.

And the debt continues to grow. Japan’s budget deficit hovers around 10% of GDP. This continual government largesse is tolerated by the markets because of Japan’s ability to fund the expenditure internally. The country’s trade surpluses are legendary. That is, Japan’s private sector produces more than it consumes, meaning it diverts savings into the government sector…that the government then spends wastefully.

Japan balance of trade


But the flow of private sector savings is now drying up. Japan’s balance of trade (see chart) dipped into deficit in 2011…and it hasn’t bounced back. While Japan’s stock of savings remains huge, its flow of savings – previously a torrent – is turning into a trickle. Without adequate flow, Japan’s economy will find it increasingly difficult to fund its deficits at such low rates.

Making matters worse, Japan’s population is aging rapidly. It’s the world’s oldest nation. Official forecasts have the population falling from 128 million (2010) to 87 million by 2060. In the meantime, the household sector will draw down on savings to fund its retirement. This means less for the government.

Despite all these headwinds, Japan’s funding rates (or the return on Japan’s private sector savings) are incredibly low. The other week, the yield on 10-year government bonds dipped to 0.83%, the lowest level since 2003. Yields haven’t traded sustainably above 2% since 1997.

Japan’s bond market is approaching light speed. And things are certainly getting weird. People, blinded and numbed by a 20 year bull market (when yields fall, prices rise) can only see more of the same.

But simple common sense tells you this can’t continue. Not with a terrible demographic profile and a deteriorating balance of trade. In the next few years something will have to give. In my view bond yields will most certainly rise.

Greg Canavan
Editor, Sound Money. Sound Investments.

From the Archives…

Free of the Dragon: Why the Energy Market Doesn’t Need China
2012-05-25 – Kris Sayce

China Stirs Up Troubled Waters in the South China Sea
2012-05-24 – Dan Denning

How Chinese Stocks Are Fading Fast
2012-05-23 – Lars Henriksson

LNG: Why Australia Will Be a New Global Gas Leader
2012-05-22 – Dr. Kent Moors

A Shocking Week for China’s Economy
2012-04-21 – Dr. Alex Cowie

The Setting Sun of the Japanese Economy

Keep Your Eye On Oil Exploration Companies


The problem with being a big oil and gas producer is that each day takes you closer to going out of business – unless you can find new reserves to replace those sent to market.

In the last five years, the oil majors have been exploring the proven shallow waters of the Gulf of Mexico, Nigeria and Angola, but their efforts to find new reserves here have not been especially successful. Meanwhile, their smaller and bolder oil explorer rivals have made significant new discoveries in deepwater locations off the coast of Brazil, Ghana and the Gulf of Mexico, as well as significant onshore discoveries in Kurdistan and Uganda.

With their coffers filled from selling oil at $120 a barrel, the majors are increasing their exploration budgets and are keen to look at new frontiers. This has important implications for pioneering oil exploration companies.

The terms of any ‘farm-in’ deal are very important. The junior oil explorer has the rights to the licence and a package of data, while the oil major has cash and expertise. Both need each other and the exact terms of any deal depend upon whose need is greater.

The oil majors today are making good money and need to get involved in new frontiers, so the junior oil explorers should be able to drive a hard bargain. Over the next few months we could see industry majors farming in to projects off the coast of Namibia and the Bahamas, and in the South Falklands Basin especially.

Technology Has Transformed Oil Exploration

Scientific advancements in oil technology over the last ten years have transformed exploration.

In its early years, the oil industry relied upon visualisation techniques, the most basic of which was simply finding oil seeps on the surface. In the mid-nineteenth century, when lamps were lit with whale oil, the black oil that could be found lying in small puddles on the ground offered a convenient alternative.

Seismic reflection, originally used to locate submarines in World War One, was another key breakthrough in oil discovery. In the 1920s, experts started to measure gravity and magnetic resonance. Oil and rock samples were taken away for analysis in laboratories. In 1927, the Schlumberger brothers (a physicist and an engineer) developed a way to use electrical resistivity to identify rock layers containing oil and water from within the borehole.

After 1955, seismic measurement became even more sophisticated. Wireline logging, geochemistry and laboratory equipment and satellites came to be used to map the surface and the gravitational field. The process known as 3D seismic was followed by 4D, which tracks changes in 3D images over time.

Today deepwater oil exploration begins with a fleet of seismic vessels dragging sonar equipment thousands of feet below the ocean surface to bounce sound waves beneath the bedrock. Each layer of sedimentary rock reflects different parts of the waves back to shipboard receptors. Huge amounts of seismic data will be collated into detailed 3D maps of the oil-filled caverns – so oil experts can pinpoint the best place to sink a drill. For an oil explorer it is often a case of how best to place an $80m-$100m well the size of a dinner plate on the seafloor.

That is allowing oil explorers to seek out ever more remote basins. Big Oil has to go where the big resources are. So the majors are forced into hostile territory where finding oil is a huge challenge. That’s why they are leaving the job to small oil explorers. The attitude is – “let them take the risk”. With new equipment at their disposal, these small oil explorers are on the cusp of some remarkable oil discoveries.

Investors have retreated from the higher-risk exploration plays and headed back towards the oil producers.

But good oil exploration assets, especially in major new basins, are likely to remain in demand.

Tom Bulford
Contributing Editor, Money Morning

Publisher’s Note: This is an edited version of an article that originally appeared in MoneyWeek (UK)

From the Archives…

Free of the Dragon: Why the Energy Market Doesn’t Need China
2012-05-25 – Kris Sayce

China Stirs Up Troubled Waters in the South China Sea
2012-05-24 – Dan Denning

How Chinese Stocks Are Fading Fast
2012-05-23 – Lars Henriksson

LNG: Why Australia Will Be a New Global Gas Leader
2012-05-22 – Dr. Kent Moors

A Shocking Week for China’s Economy
2012-04-21 – Dr. Alex Cowie

Keep Your Eye On Oil Exploration Companies

Exceptional People

By The Sizemore Letter

The following is a review and analysis of Exceptional People: How Migration Shaped Our World and Will Define Our Future, by  Ian Goldin, Geoffrey Cameron and Meera Balarajan.  In a U.S. election year, the subject of immigration is a controversial topic; kudos to the authors for stirring up a little controversy.  

“We live in a dynamic age of global integration, where the reconnection and mixture of the world’s people is challenging dominant norms and practices in many societies,” write Goldin, Cameron and Balarajan.  “Disintegration and integration are simultaneous and interwoven. Cultural codes adapt. New economies emerge. Innovation prospers.  Social institutions struggle to adapt.

“To many, the challenges associated with migration are characteristic of our age of postmodernism, multiculturalism, and aspiring cosmopolitanism. Some are nostalgic for an illusory past when people had more in common… Outsiders have always encountered opposition from their adoptive societies. Nevertheless, the direction of history points to the persistent expansion in the boundaries of community. Our cultural and political frontiers have gradually receded.”

The authors use eloquent words to describe a delicate topic.  Immigration—legal or otherwise—is a lightning rod, particularly in an election year.  It could be lumped with politics and religion as a subject best not discussed at the dinner table unless, of course, you enjoy a good case of heartburn.

Immigration is also a subject in which political and ideological lines tend to get a little blurry.   Neither party has a coherent platform on the issue.  In the Republican Party, there are two distinct camps: the “pro-business” party elite who favor a looser immigration policy and the “blood and soil” base who would like to see the border sealed air tight.  For the business lobby, a liberal immigration policy means abundant and affordable labor.  But at the nativist grassroots level, restricting immigration has become a do-or-die mission to preserve American values; taking a soft line is something tantamount to treason.  If it were possible to feel pity for a politician, one might feel sorry for a Republican candidate attempting to navigate this minefield.  You need the votes of populists to get elected, but you also need the campaign donations of the business community.  You can’t keep everyone happy, and there is not a lot of room for compromise.

While immigration is less of a campaign issue for Democrats, the Democratic Party is no less conflicted on the subject.  As a party dedicated to looking after the downtrodden, supporting the plight of immigrants only makes sense.  But this is also the same party that supports organized labor, and cheap immigrant labor is anathema to unions.  One’s liberal heart might bleed, but it won’t matter much if you need union support to get elected.  Furthermore, immigrants themselves cannot vote (at least not until naturalized as citizens), whereas union supporters do.  When push comes to shove, it’s not hard to see which way most Democrats will vote.

I tend to take a contrarian view on immigration: given the demographic challenges the country faces, America needs more of it—a lot more of it.  Most politicians—and economists too, for that matter—only look at the “supply” side of the equation, viewing immigrants as labor inputs.  I tend to focus instead on the “demand” side, viewing immigrants as consumers.   Contrary to rantings of many a radio talk-show host, immigrants do not “send all of their money to (fill-in-the-blank name of country).”  Quite a bit of it gets spent here.  And given the dearth of consumer demand in the years following the 2008 crisis, we’ll take consumer demand from any source we can get.

With all of this as an introduction, in the pages that follow we are going to review an insightful new book on the subject of immigration by  Ian Goldin, Geoffrey Cameron and Meera Balarajan: Exceptional People: How Migration Shaped Our World and Will Define Our Future.

Exceptional People is an exceptional book.  It is part history book part psychological profile and part political manifesto for free trade and free movement of people.  The authors repeatedly stress the point that the movement of ideas, goods and services, and—yes—people has been the driving force for human progress over the centuries.    The very idea of civilization itself—people living together in community—involved migration.  And the future, however it might unfold, will be defined by how trade and migration are managed today.  As the authors point out, immigrants to the United States founded many of the cutting edge technology firms that have defined the past decade, including Google ($GOOG), Intel ($INTC), PayPal, eBay ($EBAY), and Yahoo ($YHOO).  And more than a quarter of all global patent applications from the United States are filed by immigrants—even though immigrants make up less than 12 percent of the population.  A world with less immigration will be a world with less innovation.

The Economic Arguments for Immigration

“International migration pays dividends to sending countries, receiving countries, and migrants themselves,” the authors explain.  “In receiving countries, it promotes innovation, boosts economic growth, and enriches social diversity, and it is a boon for public finance. Sending countries have their economies stimulated by the financial and social feedback of migrant networks. Migrants reap the welfare benefits of higher wages, better education, and improved health when they move to relatively more developed countries.”

If all of this is true and immigration is such a wonderful thing, then why do so many people feel threatened by it?  As the authors explain, immigration suffers from the same primary challenge as free trade.  The benefits are spread out across the general population and are difficult to isolate and measure, whereas the costs tend to be highly visible and localized. 

Yes, immigration expands the economy and helps keep inflation in check for all of us; but if you are a directly competing with immigrant labor or a taxpayer having to fund the construction of new schools in your area to educate the children of immigrants, you might not particularly care.  (In the same sense, we all benefit from low-priced imports, but for the small minority who find their job “outsourced” the cost is devastating.)

It is an often-used argument that immigrants do jobs that Americans won’t do.  Whether this is precisely true or not is debatable; many jobs that Americans “won’t” do might get done at the right price.  This is really an irrelevant point, however.  As the authors explain, “Low-skilled foreign workers often provide services—such as home care or child care—that release skilled workers into the labor market.”

Yes, but what does this actually mean?  As they continue, “When a low-skilled migrant from Mexico moves to California and offers affordable child care, a mother staying at home is released to join the workforce. Through the movement of one person, two people enter the workforce, and they will both earn wages that are spent on goods and services. Migration produces its own multiplier effects.  Such indirect and second-order effects of migration are still underspecified, and the overall contribution of migrants to economic growth is therefore underestimated.”

Well said.  It’s not so much that low-skilled immigrants do jobs that Americans won’t do; it’s more like they create jobs that didn’t exist before.   Without the presence of affordable immigrant labor, Americans might simply do their housecleaning and yard work themselves, which takes time away from more productive activities.

Of course, not all immigrants are low-skilled. “Highly skilled migrants typically work in growing sectors of the economy, or in areas such as health care, education, and information technology that are short of native workers.”  One need only look at the diverse workforces of technology hubs like Silicon Valley or Austin, Texas—or simply visit their local hospital—to understand what the authors are saying.

Immigrants are also beneficial to the countries they leave behind.  In addition to sending cash remittances to family, immigrants also often return home with knowledge and experience from their time in a foreign country.  The authors gave an example that I personally found fascinating.  Being married to a Peruvian, I make several trips to Peru each year.  Scattered around Lima is a chain of chicken restaurants called Norky’s.

Frankly, I had never thought twice about the restaurant.  The food is good, but then, so is most food in Peru. (If you’ve never been to a Peruvian restaurant, find one.  Order lomo saltado and wash it down with a cold glass of chicha morada.)  The authors give an interesting account of the restaurant chain’s founding:

“The incentives for brain gain in sending countries may also be supported by skilled migrants who have worked abroad and return home to foster new industries. The point is illustrated by the story of Luis Miyashiro, an entrepreneur in Peru.

“Miyashiro is a Peruvian national who moved to Japan for several years under the Nikkeijin visa program, designed to attract those with ancestral connections to work in Japan. After several years in Japan, he returned to Lima and founded Norkys, a chain of chicken restaurants. The new chain renovated the food-stand concept that is popular in Lima by adding Japanese standards of cleanliness and efficiency. The new fast food chain was launched with ideas and capital from Japan, and it was the first of its type in an Andean country.

“The example of Norkys exemplifies how return migration can stimulate local development, and it also illustrates the transmission of ‘social remittances’—‘ideas, behaviours, identities and social capital that flow from receiving-to sending-country communities.’”

For every household name like Norky’s (well, household in Peru, anyway), there are countless smaller success stories.

Immigration: Historical Perspective

Liberal attitudes towards immigration are not a libertarian pipedream, nor are they a trendy new theory cooked up in an ivory tower.   The authors note that Francesco de Vitoria (1492-1546), considered by many to be the founder of international law, expressed a popular view in his day when he wrote that “It was permissible from the beginning of the world, when everything was in common, for anyone to set forth and travel wheresoever he would.”

These views continued to grow in popularity throughout the age of exploration, colonial era, and even the Industrial Revolution.  As the authors write, “This first era of globalization was accompanied by tectonic movements of people, who took advantage of global transportation networks to search for greater opportunity and security…  A doctrine of economic liberalism prevailed in the new, global economy: it was believed that people, goods, and capital should be free to move where they would produce the highest returns.”

Alas, it wouldn’t last forever.  By the early 1900s, attitudes towards immigration had started to shift. “The dramatic international population movements of the nineteenth century were gradually eclipsed as war, nationalism, and increasingly effective state bureaucracies led to the introduction of new restrictions on migration.”

When Europe tore itself apart in the First World War, open borders were one of the casualties of war.  And conditions didn’t improve with the coming of peace. “The peace that followed World War I was fragile, and nationalism and economic insecurity defined the priorities of European states. Trade protectionism returned with a vengeance, and economic and political failure was often blamed on foreigners.”

Of course, trade protectionism exacerbated the Great Depression and helped lead to World War II.  It wasn’t until after the war that policymakers began to seriously consider immigration again.  But during this second age of globalization, things would be different.  Immigration would not be considered a God-given right of mankind, but rather as an issue to be managed by government.

Parting Thoughts

For many readers, Exceptional People will be controversial.  As I noted at the beginning of this article, immigration is a divisive issues that tends to get an emotional response.  I encourage our readers to give the book a read and to keep an open mind.   I am certainly not an ideologue and concede that in the age of the modern welfare state immigration is more expensive to receiving countries than it used to be.  But at the same time, the economic issues facing the country are different than those of ages past.

In America—and even more so in Europe and Japan—how will the state be able to keep its pension and health promises to retiring workers without a steady stream of new immigrant workers contributing to the system?  How can we keep the economy growing when the Baby Boomers—the biggest and richest generation in history—are spending less and saving for retirement?

There are no perfect solutions to these problems, and immigration alone will not solve them.  But given the severity and importance of the issues, we can use every bit of help we can get.

MLPs: Good For Retirement, But Not Retirement Accounts?

Article by Investment U

MLPs: Good For Retirement, But Not Retirement Accounts?

If you want to use master limited partnerships for your retirement, just hold them in a brokerage account and take advantage of the tax breaks and high yields.

I’m tired of writing about it, and I’m sure you’re getting tired of reading about it…

Treasury yields are awful. Europe is awful. It seems I’ve been leading off with the same premise for the last year. So it’s a given that my goal is to help you find something that’s not going to be awful because of European uncertainty with a yield that beats inflation.

Ladies and gentlemen, I present to you, master limited partnerships (MLPs).

What Can MLPs Do for Me?

We’ve spilled a bunch of ink over the past few months about MLPs, but just in case you’re not completely familiar with these vehicles, here’s a quick run-down:

MLPs combine the tax benefits of a limited partnership with the liquidity of common stock. They have a partnership structure but issue investment units that you can trade just like common stock.

What we now know as MLPs were created by the Tax Reform Act of 1986 and the Revenue Act of 1987. These two pieces of legislation gave the guidelines of how a company can structure their operations to get specific tax benefits along with defining eligibility. To qualify, a firm must earn 90% of its income through activities or interest and dividend payments relating to natural resources, commodities or real estate.

That’s the “proper” definition, but here’s why they are growing popularity:

  • Many investors consider MLPs to be generally low-risk businesses because a high portion of their revenues are expected to come from long-term, fee-based contracts with built-in price escalators.
  • Unlike bonds and their fixed yield, a MLP is designed to give you a growing income stream over time, which can serve as a hedge against interest rate risk and inflation.
  • The publicly traded MLP sector is over $350 billion in market cap today and has been one of the best performing asset classes for the last 10 years.
  • There is some diversity out there. MLPs are not all the same and there are many different sub-sectors within the asset class.
  • Some investors view MLPs as total-return vehicles rather than income plays as there has been approximately a 7% cumulative growth rate in MLP distributions over the past 10 year period.

Capitalize on a Bright Future

Many analysts in the energy industry believe that MLPs will be the primary entities to handle the massive build-out of energy infrastructure across the United States over the next few decades.

This country has a lot of natural gas that’s been discovered over the past decade and lately we’ve discovered more crude oil. This could be the start of something big in the future. Here are two additional points to keep in mind:

  1. Last year the United States became a net exporter of petroleum products for the first time in over six decades.
  2. The Interstate Natural Gas Association of America estimates the need for over $250 billion in energy infrastructure to be built by 2035 in order to transport all of the newly found domestic oil and natural gas.

Good For Retirement, But Not for Retirement Accounts?

I think you need to understand an MLP’s tax structure to see why they’re perfect for retirement.

The tax implications for MLPs are totally different than corporations for both the company and its investors. MLPs don’t pay corporate taxes. Instead, taxes are considered “pass through,” meaning liabilities and expenses are passed through to the investors. MLP investors may write off partnership expenses, depreciation, and other things against income on their tax returns.

However, the tax benefits you get in a MLP can work against you if it’s put in a retirement vehicle like a 401(k) or IRA because you’ll miss out on some great tax breaks. And there’s a possibility that you could get hit with additional taxes you weren’t expecting.

MLPs in a retirement vehicle fall under the tax rule of Unrelated Business Taxable Income (UBTI). You pay this when cash distributions from an investment are considered unrelated to the structure that gives an entity its tax-exempt status. In other words, income from oil and gas is unrelated to saving for retirement, so Uncle Sam wants his cut. This primarily comes up when an investor has a big position in a MLP. But it could affect the average investor who has a particularly successful hit.

Some analysts believe that UBTI is no big deal in a retirement account because it’s actually the custodian’s responsibility to file these taxes, not the individual’s.

“Technically, that’s true, says Mary Lyman, executive director of the National Association of Publicly Traded Partnerships. “But what we hear from investors is that many times their custodians don’t really have a clue what to do.”

And, even if they do, it’s likely they’ll charge a fee for these services, says Mark Willoughby, principal at Boston-based Modera Wealth Management.

How to Invest in MLPs for Your Retirement

If your heart is set on having an MLP in your retirement account – even after reading my eloquent argument to not do so – then you can invest in exchange-traded funds and open and closed mutual funds that focus on MLPs. The shareholders in these accounts are not subject to UBTI taxes so that’s not what you have to worry about.

The real monster is the fees you most likely will have to pay. Fund companies are not considered “pass through” entities, they pay corporate taxes on MLP earnings. And since they pay, you’ll pay pretty high fees. Plus, total returns are often lower than you might get from individual MLPs.

It’s probably best that if you want to use master limited partnerships for your retirement, just hold them in a brokerage account and take full advantage of the tax breaks and high yields.

Good Investing,

Jason Jenkins

Article by Investment U

Natural Gas: The Perfect Contrarian Investment

Article by Investment U

Natural Gas: The Perfect Contrarian Investment

Historically, natural gas has been 10 times cheaper than crude oil. As I write, it is approximately 35 times cheaper. Don't miss out on this contrarian investment.

Many investors like to believe they are contrarians, investing against the crowd at key (and highly profitable) turning points. Yet in my experience, few actually do.

Here’s a simple test. Did you view the run-up in internet stocks in the nineties as absurd? Did you avoid speculating in real estate during the housing bubble? Did you buy high-quality stocks during the 2008 financial meltdown? Did you pick up gold back when it was under $300 an ounce? How about oil stocks when crude was less than $25 a barrel?

If you answered “yes” to any of these questions, you’re probably already looking at natural gas.

In mid-2008, natural gas traded above $10 per futures contract. Since then, prices have collapsed. Every day, the U.S. natural-gas market is flooded with an average of three billion cubic feet more than the nation consumes. Shares of most companies have taken a drubbing over the past year, even as the broad market has risen.

In sum, the news about natural gas has been almost uniformly awful. And that’s a good thing. As renowned investor Jeremy Grantham recently wrote, “Everyone who has a brain should be thinking of how to make money on this in the longer term.”

The shale gas revolution has cut the price of natural gas about 45% over the last year alone. New discoveries and innovative drilling techniques, along with recent mild weather, have led to a vast oversupply. According to the U.S. Energy Information Administration (EIA), national inventories have risen 56% over the past year.

No Space Left to Store Natural Gas

The market is so awash in natural gas, by this fall there could be no space left to store the stuff in the entire United States unless demand surges or producers seal their wells. We may be creating a surplus that is beyond our capacity to store.

Needless to say, that has put heavy pressure on prices. Historically, natural gas has been 10 times cheaper than crude oil. As I write, it is approximately 35 times cheaper.

Given this scenario, why would anyone in his right mind invest in natural gas right now? Because this discount is not just enormous, it’s unsustainable. Natural gas is preferable to coal and other fossil fuels because it is clean burning, easily transportable, and much more affordable. Over the next few years, the free market will turn natural gas into the answer for our country’s energy problems.

It’s already happening. Electrical utilities and trucking companies, among others, are already switching from coal or diesel to natural gas.

Waste Management says 80% of the trucks it purchases during the next five years will be fueled by natural gas. Navistar (NYSE: NAV), Cummins (NYSE: CMI) and General Motors (NYSE: GM) are all courting the market with new natural-gas powered trucks or engines. Navistar’s goal is to expand to a full range of products using natural gas in the next 18 months. The company says that within two years, one in three Navistar trucks sold will burn natural gas.

And we are only at the tip of the tip of the tip of the iceberg here. Less than one-tenth of 1% of vehicles on U.S. roads burn the fuel today. Clearly, this is going to be a big area of future growth.

Steer Clear of Chesapeake Energy

But what’s the best way to play it?

Not by buying Chesapeake Energy (NYSE: CHK), despite all the ink that’s been spilled. Yes, the company has wonderful gas assets. But it also has a boatload of problems that could sink your investment.

There has been a number of revelations about Chesapeake CEO Aubrey McClendon over the last few weeks and few of them are good. Among other things, Chesapeake saddled itself with about $1.4 billion of previously unreported liabilities through off-balance-sheet finance deals.

Yes, things could get better at Chesapeake, but they could also get a lot worse. It would be a shame to recognize the great opportunity that currently exists in natural gas and buy the wrong stock.

A much better investment, in my view, is a company that controls 1.1 million acres in the Marcellus Shale Play, a particularly attractive target for energy development in the Appalachian Basin. It also has hundreds of thousands of acres in low-cost, low-risk areas in West Texas, New Mexico, Oklahoma, Mississippi and Kansas.

Over the last decade, this firm worked tirelessly to lower its cost structure, strengthen its balance sheet and upgrade its inventory. As a result, the company now finds itself in the best position in its history.

Even with falling natural gas prices, it achieved record operating results in 2011. Proven reserves increased 14%. Production grew by 12%. Yet reserve replacement was 849%. It was the company’s sixth consecutive year of double-digit growth in both production and reserves.

Yet the best is still ahead. Results over the next several years will substantially exceed those of prior years. Liquids production will increase by 40% this year alone. I estimate earnings will jump sharply this year and then triple in 2013. That’s if natural gas prices remain depressed. If they rise, earnings will really skyrocket. And so should the stock.

That’s why this stock is the newest addition to our Oxford Trading Portfolio. And in fairness to existing members, I cannot reveal the company’s name here.

However, I do invite you to join us and become an Oxford Club Member and benefit from our many services, including our award-winning recommendations. To learn more, feel free to click here.

Good Investing,

Alexander Green

Article by Investment U

Events That might Affect the AUD/USD Pair


Tradervox (Dublin) – The AUD/USD cross has been experiencing a bearish movement following the recent risk aversion in the market. While risk aversion in the market might continue for some time as Europe struggles with the debt crisis, the cross bearish trend might be limited following some fundamental and technical indicators showing that the current drop is excessive.

Some of the positive events that have happened so far include the RBA Governor Stevens’ speech on Sunday which led to a great start for the Australian dollar and the HIA New Home Sales which was recommendable. The Retail Sales report which was released today minimized the effects of the Europe crisis prior to Italian auction.

The building approvals report which will be released on Thursday is expected to keep the Australian dollar strong against most of its peers, despite the risk aversion in the market. The release has been quite volatile in the past and might see the Aussie increasing or holding the dollar. The market is expecting an increase of 0.7 percent but any greater than this would lead to the AUD/USD rising. Another report that will be released at the same time as Building Approvals is the Private Capital Expenditure which fell 0.3 percent in the first quarter. However, the market is expecting a better reading of 4.1 percent.

The Private Sector Credit is another report that will be released on Thursday at 1:30 as the other two reports. The indicator tends to show less movement and is more accurate than most other indicators. The last two reports has indicated a moderate growth in new credit coming in at 0.4 percent both times. This time, the market expects a little change on the indicator. On this day, the AIG Manufacturing Index reading will be announced at 23:30 GMT. The index dropped sharply in April spiraling to 43.9 points which indicates contraction in the sector. A little improvement on this index is expected this time.

Disclaimer is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at are those of the individual authors and do not necessarily represent the opinion of or its management. 

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