Why the Saudi’s Are Making Me Eat My Words About the Oil Price

By MoneyMorning.com.au

While we’ve all been focusing on events in Europe and China recently, the oil price has been quietly sliding.

Since late March, the Brent Crude Oil price is now down by 16% to $106 / barrel.

A falling oil price is good news for the global economy, of course. Expensive oil has a habit of causing recessions — so cheaper oil takes the pressure off slightly.

But it’s bad news for investors in oil companies, because in the last few months stock prices have come off the boil.

So what’s behind the sharp pullback in the oil price? And is the price set to fall further? Read on…

One big reason for this is that the global economy is slowing down.

And this has seen the oil price fall 20% in recent weeks:

oil price fall 20% in recent weeks

Source: StockCharts

Europe’s economy is within a hair’s width of recession, the USA is decelerating, and China’s economy may be in the process of stalling as we speak.

The ‘red-cordial’ effects of their respective stimulus boosts are fading from these three engines of the global economy, and all at the same time. As economic growth slows, so does oil demand.

The bigger reason for this fall in oil prices is an increase in Saudi oil production.

Earlier this year the Saudi Oil Minister, (who spoke at the APPEA conference I recently attended), announced a target price of $100 / barrel.

So when prices soared to $125 / barrel, they actually wanted prices to FALL. Why? They can’t get greedy, because high prices make people look for alternatives, which is no good for them in the long run. And as the biggest oil exporter, Saudi Arabia can bring oil prices down if they want.

But, while Saudi Arabia has long claimed it could crank up production significantly…it has never actually done it.

I’ve taken a few pot shots at them to this effect recently — though I’m in danger of having to eat my words. The International Energy Agency (IEA) just announced that last month Saudi Arabia has pumped an average of 10 million barrels of oil a day. This is the fastest rate in 30 years. And the IEA reckons the rate is set to increase again this month.

So does this mean oil prices are about to fall further?

The High Cost of Oil

It’s very unlikely. The cost of producing oil has increased significantly. With these high costs, if the oil price falls too far, producers stop making money. Saudi Arabia has to set their export levels just right to avoid this.

Sabine Schels, Senior Director and Global Commodity Strategist at Bank of America Merrill Lynch, reckons bringing one barrel of OPEC oil to market now costs $80-90 on average.

If OPEC’s costs are really that high, then there’s no way we will see oil prices coming down much lower than their current level. In fact, if you look at the chart above, you can see the price bounces each time it gets anywhere near the $100 level.

$80-90 is a far cry from the $10-$15 production costs that once existed. There are two big reasons for this.

Firstly, the Saudi’s are using more sophisticated — and expensive — methods to increase the recovery rate from wells. These wells are now past their prime, so it takes more input to get them to flow.

I expect this is why they increased their oil target price just before they were able to achieve a 30-year high in production.

The second reason for the higher cost to get ‘one barrel of oil to market’, is that this probably includes all of Saudi Arabia’s fiscal costs.

By this I specifically mean spending by the government to keep its citizens happy. Since the Arab Spring, this has increased massively.

What this all adds up to is this: as long as Saudi Arabia is the dominant oil exporter, we can expect oil to stay above $100 / barrel.

And barring any major oil shock — like the closure of the Strait of Hormuz — we probably won’t see the oil price soar much above $125, for time being. The Saudis have shown they mean business about keeping the price from rising too far.

This sets a benchmark range — and importantly it creates an opportunity for anyone that can undercut it.

There are over 100 oil and gas stocks on the ASX. Some are exploring conventional energy onshore, and some are offshore in places like Brazil, and East and West Africa.

We also have a growing number of unconventional plays exploring opportunities in shale oil and gas for example. Some are in the US, which has the most mature stocks in this field. We also have a cluster of Aussie stocks looking at unconventional oil and gas right here in Australia.

Share prices have already soared despite there being more challenges than results at this stage — but there are still a few flying under the radar and yet to take off.

It’s a market rich with opportunity. In a difficult stock market, it is one of the few areas we can be confident of making money in this year.

Alex Cowie
Editor, Diggers & Drillers

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Why the Saudi’s Are Making Me Eat My Words About the Oil Price

Europe’s Energy Resource Puzzle

By MoneyMorning.com.au

The big theme in the April issue of Australian Small-Cap Investigator was Europe. To be precise, that if Europe is ever to recover economically, it must develop its own energy resources.

Take the following quote from a September 2011 report from the European Union:

‘More than half of the EU-27′s energy comes from countries outside the EU – and this proportion is rising. Much of this energy comes from Russia, whose disputes with transit countries have threatened to disrupt supplies in recent years – for example, between 6 and 20 January 2009, gas flows from Russia via Ukraine were interrupted’. Europe’s energy position is dire.

And as the EU points out, it’s getting worse.

But even we didn’t fully understand how dire it is for Europe until the other week. That’s when the scale of the problem hit.

You may have seen in Money Morning that my old pal and Diggers & Drillers editor, Dr. Alex Cowie, spent three days at the Australian Petroleum Producer and Explorer Association (APPEA) conference in Adelaide.

He was moving and shaking it with some of the biggest names in the Australian energy industry, and he came back with a lot of news to share with his readers. But there was one item in particular that caught our eye.

It was a chart from BHP Billiton Petroleum’s presentation. When we saw it our chin nearly hit the floor.

Here it is:

natural gas resource estimate

Source: Wood Mackenzie, BHP Billiton

What strikes you about this chart?

Well, if you read along the line of the world’s largest natural gas reserves, you’ll see only one European nation – Norway.

Europe. A continent with a population larger than the US, but with barely a fraction of the US’s proven natural gas resources. The gas is there, it just needs the economic environment for companies to exploit it.

The fact is, if Europe wants to remain a developed continent, its energy position just isn’t sustainable.

In time, Europe will need to ditch the folly of green and renewable energy sources, and embrace the only energy source that can meet Europe’s long-term energy needs – natural gas.

As a senior energy exec wrote to us in an email the other week:

‘The challenges you have outlined re undertaking exploration in Europe are REAL.

‘However like most challenging environments it creates opportunities for those who move early and have the fortitude to stick with it.’

The last sentence struck a chord. Getting in early and having the patience to stick with it is the core to small-cap investing.

We won’t always get the timing right but the long-term fundamentals and the potential reward for backing the Euro-Energy story early make now the ideal time to punt on this sector.

Kris Sayce
Editor, Australian Small-Cap Investigator

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

Europe’s Energy Resource Puzzle

The Global “Texas Standoff” Over Iran Oil

By MoneyMorning.com.au

It’s Iran again.

Actually, it has never stopped being about Iran, ever since the West passed heavy sanctions and the European Union decided to end all Iranian crude oil imports beginning July 1.

I keep going back to this issue, but it’s for one very simple reason.

The rising tension between Tehran, on the one hand, and Washington and Brussels, on the other, is still the single most serious geopolitical element impacting the global oil market today.

And now the matter is finally reaching a head.

Meetings have just concluded in Baghdad, between Iran and the six major powers (the five permanent members of the UN Security Council, plus Germany). There was some spin applied in the rhetoric before and after the meetings, but the conclusion is strikingly clear.

Nothing Was Accomplished For the Iran Oil Market

The next set of talks is scheduled to take place in Moscow on June 18 and 19, but time is running out.

Iran is now looking at losing one-quarter of its monthly oil exports, with no alternative markets for that oil in sight. That’s right – the Chinese have decided against becoming the “importer of last resort” for Iran. And their primary shipping insurers have knuckled under before the sanctions and are no longer covering Iranian crude oil consignments.

The sanctions have also made it difficult – on purpose – for Tehran to access international banking networks to exchange currency from the sales it does make. That means it costs Iran more to use indirect, and often shadowy, ways of moving money, squeezing even further the profits from sales.

Rather important for a nation whose national budget is dependent upon oil sales for 90% of its revenue…

Yet as we approach July 1, the imminent problems are not all on Iran’s side.

With No More Iranian Oil Imports
The EU Will Feel the Effects Too

Eleven EU countries import oil from Iran each month.

For most of them, the transition to other suppliers is a possibility to make up the difference – especially imports from Libya, where oil has come back on line quicker than anticipated.

However, for the three European countries most affected, the situation is quite different. Unfortunately, these three nations are also the three southern-tier EU members (at least for the moment) with the most acute financial problems.

Greece has been importing at least 30% of its oil from Iran monthly; Spain 14%, and Italy 13%.

Saudi Arabia has agreed to make up the volume difference, but only through the first delivery cycle, and without guaranteeing any pricing floor. The EU still has not worked out how it will compensate for deliveries past that, should the embargo last for any length of time.

So what’s going to happen?

Iran believes Europe will have to blink first in this ongoing game of diplomatic “chicken.” So Tehran has a single objective in these talks: play for time.

And, oh yes, stronger sanctions are working their ways through the halls of the U.S. Congress, assuring that the situation for a recalcitrant Iran will only become worse.

Meanwhile, the effect on global oil prices will only become more acute as the embargo kicks in.

Oil may be trading at around $91 per barrel (WTI) right now.

But that’s temporary.

The only reason we have not seen this rise in prices taking shape earlier is because of the current European sideshows following the French and Greek elections. The Continental angst has created ripples of demand concerns on both sides of the Atlantic, promoting a short-term (and emotionally-led) retreat in oil prices.

The pricing reversal in the other direction will follow in lock-step with the collapse in the talks between Iran and the global powers.

Already, my Moscow oil contacts are concluding that nothing of consequence will take place there next month, either. Actually, some think the embargo may even help increase Russian imports to Europe.

Brussels, however, certainly does not want to become more dependent upon Russian oil, since it is already dealing with the problem of being overly reliant on Russian natural gas.

So, what is the likelihood that those talks will collapse? If I were handicapping that eventuality, I would currently put that collapse as a 90% probability. Why? Because both sides have put down demands that the other cannot meet.

During the initial April meeting in Istanbul, the Iranian delegation required that the West suspend their sanctions before Tehran would discuss its nuclear program. While the Vienna-based International Atomic Energy Agency (IAEA) is holding out some hope for a renewed round of inspections, we have been down that road many times before. It is a non-starter. The West will not agree to freeze the sanctions first.

For their part, the U.S. and the EU have laid down three non-negotiable requirements before they will annul the embargo and the sanctions. These require that Iran:

  1. end all purification of uranium (both to the 20% and 3% levels);
  2. move all uranium currently purified out of the country; and
  3. open up the super-secret and heavily fortified underground installation at Fordo near the sacred city of Qom to full international access.

Iran will never agree to the last two; probably not to the first one either.

Absent the rise of another Neville Chamberlain and another Munich-like appeasement, we have a Texas standoff here.

And that assures increasing tensions, rising volatility in prices and a very interesting summer in the oil markets.

Dr. Kent Moors

Contributing Editor, Money Morning

Publisher’s Note: This is an edited version of an article that originally appeared in Oil & Energy Investor

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 Global “Texas Standoff” Over Iran Oil

Central Bank News Link List – 28 May 2012

By Central Bank News
Here's today's Central Bank News link list, click through if you missed the previous central bank news link list.  Remember, if you want to submit links for inclusion in the daily link list, just email them through to us or post them in the comments section below.

Forex: Currency Speculators raised US Dollar long bets sharply last week on risk aversion

By CountingPips.com

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators raised their overall US dollar long positions last week for the third consecutive week as risk aversion dominated the markets.

Non-commercial futures traders, including hedge funds and large speculators, increased their total US dollar long positions to $35.14 billion on May 22nd from a total long position of $28.52 billion on May 15th, according to the CFTC COT data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

Individual Currencies:

EuroFX: Currency speculator sentiment plummeted for the euro currency again last week as euro net short positions or bets against the currency increased to 195,361 contracts on May 22nd from the previous week’s total of 173,869 net short contracts on May 15th. Euro short positions have plunged to the highest level on record for a second straight week and surpassed the May 15th level when short contracts totaled 173,869.

The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

GBP: British pound sterling positions decreased last week for a second consecutive week after rising for four straight weeks and reaching the highest level in over a year on May 8th. British pound positions saw a total of 11,340 net long contracts on May 22nd following a total of 25,021 net long contracts registered on May 15th.

JPY: Japanese yen speculative contracts improved last week for a sixth consecutive week. Yen positions totaled 18,015 net short contracts reported on May 22nd following a total of 34,315 net short contracts on May 15th. The improvement in the Japanese positions has coincided with heavy risk aversion in the markets and the US Dollar falling against the yen in the spot price forex market. The USDJPY pair currently trades under the 79.50 level.

CHF: Swiss franc speculator positions decreased sharply for a second consecutive week last week. Speculator positions for the Swiss currency futures registered a total of 34,851 net short contracts on May 22nd following a total of 26,694 net short contracts as of May 15th.

CAD: Canadian dollar positions declined last week for a third straight week after reaching the highest level of the year on May 1st. Canadian dollar positions declined to a total of 38,555 net long contracts as of May 22nd following a total of 51,005 long contracts that were reported for May 15th.

AUD: The Australian dollar long positions dropped sharply for a third consecutive week and brought Aussie positions to a negative number for the first time in years. Aussie positions declined to a total net amount of 16,898 short contracts on May 22nd after falling to 4,734 net long contracts as of May 15th. AUD speculative positions are now at the lowest level since at least 2009 and two weeks ago surpassed the previous low level of the last 12 months that was a total of 5,167 contracts on September 26th of 2011.

NZD: New Zealand dollar futures speculator positions declined for a fifth straight week as positions for the Kiwi turned negative. NZD contracts decreased to a total of 1,509 net short contracts as of May 22nd following a total of 2,597 net long contracts on May 15th. This is the lowest level for New Zealand Kiwi contracts since March 15, 2011 when contracts were negative by 2,809.

MXN: Mexican peso speculative contracts continued lower for third consecutive week. Peso positions decreased to a total of 16,116 net short speculative positions as of May 22nd following a total of 14,445 long contracts that were reported for May 15th. This is the lowest level for Mexican peso contracts since January 17, 2012 when contracts were a total of 17,328 short positions.

COT Currency Data Summary as of May 22, 2012
Large Speculators Net Positions vs. the US Dollar

EUR -195361
GBP +11340
JPY -18015
CHF -34851
CAD +38555
AUD -16898
NZD -1509
MXN -16116


Next Month “Key for Gold” as US Futures Positions Steady, Euro “Loses Support” from Central-Bank Demand

London Gold Market Report

from Adrian Ash


Mon 28 May, 08:35 EST

LONDON’s benchmark wholesale gold price rose 0.8% in Asian and London trade Monday, touching $1584 per ounce before easing back as silver also retraced early gains and European stock markets halved their initial rise.

Press reports said Madrid may move to support both the failed Bankia lender and Spain’s cash-strapped regional governments with new public debt.

Spanish 10-year bond yields today rose back above 6.4% –  a level last seen before the European Central Bank’s €1 trillion LTRO loans began in December 2011.
Italy’s unelected caretaker government was accused of taking “no significant measure” to tackle untaxed employment.

The caretaker government in Greece – which is on track to back pro-Euro, pro-bailout parties in next month’s election re-run, according to weekend polls – may divert €3 billion from propping up Athens’ banking sector to help pay public sector salaries in June, the press quote an un-named finance official.

New York markets remained closed after the weekend for Memorial Day


“June will be a key month as investors await the Greek election,” reckons Phillip Futures analyst Lynette Tan in Singapore.

“[The gold price] will probably be rangebound between $1530 and $1600 per ounce if there’s no major news before the election” on Sunday 17 June.

“People are just waiting for the verdict on Greece,” agrees a Hong Kong gold dealer also quoted by Reuters.

Last Friday the gold price “closed down slightly on the week at 1570,” says the latest technical analysis from bullion-bank Scotia Mocatta, “negating [the previous] week’s bullish hammer in the candlestick charts.

“[That was] gold’s 2nd week below the previous long-term uptrend and thus the outlook remains bearish.”

Latest data from US regulator the Commodity Futures Trading Commission show hedge funds and other professional speculative, non-industry traders stemming the slide in their “net long” exposure to gold futures and options.

Private individuals playing the gold futures market continued however to grow their bearish bets in the week-ending last Tuesday.

That took the total “net long” position of non-industry gold traders to its smallest level since December 2008 – when the Dollar gold price was trading at $767 per ounce and down more than 60% from the record high of August 2011.

Credit-investors meantime pulled more than $3 billion from low-grade bond funds worldwide last week – the fastest pace since August last year – according to EPFR Global in Cambridge, Massachusetts.

International money market data now show speculators holding their heaviest pro-Dollar bets since May 2008, and a new record “short” position against the Euro for the third week running.

“For much of this year the Euro would not move,” says Standard Bank’s currency strategist Steve Barrow.

“But now it won’t stop falling and we do not see this changing,” he says, restating Standard’s new 3 to 6-month targets of $1.15, £0.75 and ¥85.0, and citing “a number of factors that seem to have propped up the Euro in the past [but] may no longer prove such a force.”

Barrow points to “severe currency weakness” amongst big foreign-reserve accumulators led by China, Russia and Brazil, plus a sharp slowdown in their pace of diversification away from the US Dollar. The Eurozone’s balance of payments has worsened, “suggesting [both] international fear about the crisis, and greater fears internally” as Eurozone investors move capital outside the currency union.

“Finally, we also wonder whether EU directives to banks, to lift their capital ratios by June of this year, could have led to an acceleration of Dollar-asset disposals,” says Barrow. “It could have served to support the Euro [but] should wane now that June is nearly upon us.”

Meantime in India – the world’s #1 gold consumer market until overtaken by China last October – lower demand to buy gold could dent imports by 50% this month, says Prithviraj Kothari, president of the Bombay Bullion Association, despite the government reversing an earlier, highly unpopular move to raise more tax from jewelry sales.

The Rupee gold price has remained near all-time record highs thanks to sharp falls in the Indian currency’s forex value.

“We are heading towards seasonally weak demand period,” says one Kerala retail manager to Reuters.

“The wedding season is coming to an end and the monsoon is approaching.”

India’s peak season for buying gold typically coincides with the post-harvest wedding season and festivals culminating with Diwali in November.
Adrian Ash


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

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


Lots, Leverage, and Profits in Forex Trading

The world of currency trading is full of its own distinctive terms and concepts. Understanding these terminologies is very essential in avoiding some pitfalls faced by newbie traders.

In Forex trading, lot is the standard transaction size of all transactions. The standard size for a lot is 100,000 units. And, there is
also sizes for mini lot (10,000 units), micro lot (1,000 units), and nano lot (100 units). Because trading using these units can make trading to be exorbitant for the average trader, Forex brokers have come up with a concept referred to as leverage.

Leverage enables you to execute large trades in your trading platform with a limited capital in your account. Leverage is a great moneymaking tool that many people have used to harvest huge profits in Forex trading. However, you should use it carefully because it can either work against you or for you. In other words, it is a double-edged sword.

If your broker provides 100:1 leverage, then you require 1 unit of currency to take charge of 100 units in the market. Therefore, it would only require 100 units to take charge of 1 mini lot (10,000 units) in the market, or 1,000 units to take charge of 1 standard lot (100,000 units). If your broker provides a 200:1 leverage, then you require 50 units to take charge of 1 mini lot, and 500 units to take charge of 1 standard lot.

Thus, profits in the business of currency trading is a factor of leverage x the type of lot being traded x the smallest price movement in the value of a currency pair (pip). On the other hand, loss is determined using the same method when price goes against you. Pip is normally the right-most digit of any quote of a currency pair, and it is what either increases or decreases when you enter a trade.

For example, if you buy EUR/USD at 1.2800 and the price moves to 1.2805, your profit will be:

$50 (for standard lot) = 100,000 x 0.0005

$5 (for mini lot) = 10,000 x 0.0005

$0.50 (for micro lot) = 1,000 x 0.0005

$0.05 (for nano lot) = 100 x 0.0005

Therefore, proper understanding of lots, leverage, and profits is important if you want to succeed in the business of Forex trading. Otherwise, if you don’t have a
solid grasp of these terminologies, you may lose a lot of money when trading Forex.


Heavy News Week Set to Cause Market Volatility

Source: ForexYard

The EUR/USD fell to an almost two-year low on Friday, as concerns regarding Spanish debt sent investors to safe-haven assets. The currency pair dropped to 1.2495 during mid-day trading before staging a slight recovery to close out the week at 1.2514. This week, traders can anticipate volatility in the marketplace, as a batch of significant US data is set to be released. In addition to the all-important Non Farm Payrolls figure on Friday, attention should also be given to Tuesday’s CB Consumer Confidence and Thursday’s Prelim GDP figures. Any better than expected news could help the dollar extend its recent bullish run.

Economic News

USD – Risk Aversion Helps USD Extend Gains

The US dollar was able to extend its bullish momentum on Friday, as concerns regarding Spain’s debt situation caused investors to continue selling off riskier assets. In addition, investors are still concerned about the affects of a possible Greek exit from the euro-zone. As a result, the EUR/USD dropped over 100 pips during the European session, eventually reaching an almost two-year low at 1.2495. The GBP/USD fell close to 70 pips over the course of the day, reaching as low as 1.5629 before staging a slight upward correction to finish the week at 1.5659.

Turning to today, dollar traders will want to note that US markets are closed due to the Memorial Day holiday. That being said, significant US news scheduled to be released throughout the week is almost guaranteed to generate activity in the markets. The CB Consumer Confidence figure on Tuesday, followed by Wednesday’s Pending Home Sales and Thursday’s Prelim GDP indicators could all help the dollar should they come in above expectations. Finally, Friday’s Non-Farm Employment Change figure is considered the most important economic indicator on the forex calendar, and has the potential to create volatility throughout the marketplace.

EUR – Euro-Zone Instability Leads to Heavy EUR Losses

The euro continued to fall against several of its main currency rivals on Friday, as fresh concerns regarding Spain’s ability to manage its debt caused investors to abandon riskier assets. In addition to the almost two-year low hit against the US dollar, the common currency also took heavy losses against the British pound and Japanese yen. The EUR/GBP fell 65 pips during mid-day trading before closing out the week at 0.7989. The EUR/JPY fell 85 pips over the course of the day, reaching as low as 99.46 before correcting itself to finish the week at 99.70.

This week, euro traders will want to pay attention to any announcements out of the euro-zone regarding the upcoming Greek elections. Any signs that anti-austerity political parties could win in the elections may drive the euro lower. In addition, an Italian bond auction on Wednesday could be an important indicator of whether the crisis in Greece is spreading to other euro-zone countries. Finally, the US Non-Farm Payrolls figure on Friday typically leads to volatility throughout the marketplace. Should the figure show improvements in the US labor sector, the euro may take additional losses as a result.

Gold – Gold Closes the Week on a High Note

The price of gold increased significantly on Friday, eventually finishing out the week at $1572.94 an ounce, up over $20 for the day. Analysts attributed the gains to investor reluctance to open too many short positions for the precious metal ahead of the holiday weekend in the US. Despite Friday’s gains, the precious metal was still down overall for the week due to euro-zone debt worries.

This week, gold traders will want to pay attention to any news out of the euro-zone. Wednesday’s Italian bond auction will provide investors with important clues as to whether the debt crisis in Greece is spreading to other countries in the region. Poor results for the debt auction could lead to an increase in risk aversion which may weigh down on the price of gold.

Crude Oil – Oil Sees Modest Gains to Finish Week

Inconclusive talks regarding Iran’s disputed nuclear program generated some supply side fears which led to a modest increase in the price of crude oil on Friday. Any sign that Iran could scale back its oil exports generally cause the price of crude to turn bullish. Oil increased by over $1 a barrel during morning trading, eventually peaking at $91.29, before moving downward to close out the week at $90.68.

This week, the price of oil may be influenced by a batch of highly significant US news. As the world’s biggest oil consuming country, high demand in the US typically leads to gains for oil. Traders will want to pay attention to Tuesday’s CB Consumer Confidence figure, Thursday’s Prelim GDP and Friday’s Non-Farm Employment Change. Any better than expected news could help oil extend Friday’s bullish movement.

Technical News


A bullish cross on the weekly chart’s Slow Stochastic indicates that this pair could see upward movement in the coming days. This theory is supported by the Williams Percent Range on the same chart, which has crossed into oversold territory. Going long may be the preferred strategy for this pair.


Technical indicators on the daily chart, including the Relative Strength Index and the Slow Stochastic, indicate that this pair could see an upward correction in the near future. In addition, the weekly chart’s Williams Percent Range has crossed into oversold territory. Opening long positions may be the wise choice for this pair.


While the Williams Percent Range on the weekly chart is in oversold territory, most other long term technical indicators show this pair range trading. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.


The weekly chart’s MACD/OsMA has formed a bearish cross, indicating that downward movement could occur in the coming days. This theory is supported by the Williams Percent Range on the same chart, which has crossed into overbought territory. Going short may be the wise choice for this pair.

The Wild Card


The daily chart’s Slow Stochastic has formed a bearish cross, indicating that this pair could see downward movement in the near future. In addition, the Williams Percent Range on the same chart has crossed over into the overbought zone. This may be a good time for forex traders to open short positions ahead of a possible downward correction.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.


J.P. Morgan Chase: A Screaming Buy for Value Stock Investors

Article by Investment U

J.P. Morgan Chase: A Screaming Buy for Value Stock Investors

J.P. Morgan Chase (NYSE: JPM) isn't going anywhere. Don't miss out on this rare value stock investing opportunity.

Unless you’ve been on a deserted island for the last two weeks and haven’t heard:

J.P. Morgan Chase (NYSE: JPM), our country’s biggest bank, admitted on May 10 to an unexpected trading loss in its chief investment office (CIO) unit.

And to make it more of a public relations nightmare, it’s a bad hedge on credit derivatives. At that time, the loss was reported at more than $2 billion. According to Morgan’s chief executive, Jamie Dimon, who called the actions “flawed” and “poorly reviewed,” it’s going to take some time before they know the total damage. Its shares have tumbled in response falling 2.9% to close at $32.51 on Monday of this week, bringing their monthly losses to 24%. So far this year, the shares have lost 2.2%.

This, my friends – believe it or not – is what’s called a buying opportunity.

The Star Pupil of the Bank

So how did this happen?

Up to this point, the chief investment office had been the star pupil of the bank. The unit was bringing in some big profits for J.P. Morgan even as other businesses at the bank, like home loans, began to hemorrhage. What no one addressed however, were the unit’s increasing risk. Or since they were making money – no one really cared.

As early as 2010, the senior banker who has taken the blame, Ina Drew, began to lose her grip on the bank’s chief investment office, according to current and former traders. She had guided the bank through some of the really tough times of the 2008 financial crisis, earning the trust of Dimon.

But after contracting Lyme disease that same year, she was frequently out of the office for a critical period, when her unit was taking riskier positions, and her absences allowed the inmates to run the asylum.

Dimon has described the trades as “sloppy” and “stupid,” and believe me he will not be embarrassed again.

Profiting Despite the Loss

J.P. Morgan Chase is the biggest U.S. bank by assets and it’s still expected to make a profit in the second quarter despite the losses in the CIO unit.

When everyday citizens start hearing about the loss of billions of dollars, we think the world is about to go bankrupt. But, in the world of government and high finance, the word billion isn’t that special. Remember, we have a deficit in the trillions.

So to J.P. Morgan, a $2-billion loss is not a huge amount. The loss represented about 0.5% of J.P. Morgan’s Cash and Cash Equivalents. Even with the loss, J.P. Morgan remains within the required Basel III Capital Requirement of 8% at 8.2% to be exact.

To relate it to the common man, you just lost your buy-in on poker night.

Media Versus Fundamentals

A $1-billion net trading loss during the second quarter would bring down earnings by around $0.17 per share. Analysts over the past week have already lowered their full-year estimate by $0.27. Even when you take all this into consideration, J.P. Morgan’s earnings are expected to go up to $4.71 per share this year from $4.48 last year. Early forecasts for next year call for earnings of $5.55 a share.

In March, I wrote an article about banks that passed the Fed’s stress tests and how they were then given permission to raise dividends. J.P. Morgan decided to increase its dividend to $0.30 a share and set in motion a $15-billion equity repurchase program.

Speaking at a financial-services conference organized by Deutsche Bank in New York, Dimon, stated that the bank will maintain its dividend.

“I’ve been asked a lot of questions about capital distribution,” Dimon said. “I made the mistake at the shareholder meeting, saying I hoped to continue dividends. No, we intend to maintain the dividend.”

He reiterated that the bank still has a “fortress balance sheet” that is “barely nicked by this thing.”

The repurchase program has been put on hold. Now there’s been dialogue out there that the repurchase program was suspended because of the loss. However, as the numbers show, that doesn’t wash. But here is what does:

  • The bank decided to suspend share buybacks in order to meet global regulatory requirements on higher capital levels, and not because of the size of trading losses in the CIO. “We intend to restart it [share buyback program], but we’re not going to tell people when we do that,” he said.
  • Jaret Seiberg, senior policy analyst at Guggenheim Securities LLC, said that J.P. Morgan’s decision to suspend share buybacks reduces the risk that regulators would force the bank to reduce or suspend its dividend.
  • The move also improves the bank’s image in Washington, just as key financial regulations are being finalized. “By taking the initiative itself to suspend repurchases, J.P. Morgan appears to be acting like a responsible adult,” Seiberg wrote in a note. “That will buy it credibility in the coming weeks when Jamie Dimon appears on Capitol Hill.”

Still Rated a “Buy”

Over 20 analysts still rate the stock a “Buy,” according to FactSet Research Systems Inc. Of the 26 analysts whose price targets and recommendations are tracked by FactSet, 17 have price targets for J.P. Morgan stock of $50 or above.

For analysts who follow J.P. Morgan, here’s the million-dollar question: Will the bank’s strong financial position trump the “occupy Wall Street” momentum in the media? Is Wall Street running amuck again in those markets we don’t understand… or was this just a bad play that’s already been corrected?

Rather than indict the whole bank, I’ll place the blame over there in London on some over- zealous traders. In the end, I personally see all this as an opportunity to buy a stock that was headed for a good year before. Dimon pulled the curtain. Despite the negative publicity brought by this, J.P. Morgan has strong fundamentals that should balance weaknesses that occurred in one business unit.

Good Investing,

Jason Jenkins

P.S. J.P. Morgan Chase is not the only screaming buy at the moment. Each day, our Investment U Plus subscribers have access to top stock recommendations from our team of contrarian investing experts.

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Article by Investment U

Finding Growth in Low Volatility Stocks and ETFs

Article by Investment U

Investing in Low Volatility Stocks and ETFs

Historically, low volatility stocks have performed as well as the broad market with far less risk.

As a financial writer, I am regularly inundated with friends and family members who ask two familiar questions.

The first is, “Where can I park my money these days to earn a decent yield without any downside risk?”

They don’t want to hear it, but I tell them the truth anyway. “Nowhere. If you want yield, you have to take risk. And if you want a high yield, you have to take considerable risk.”

The second most frequently asked question is, “Is there a way I can invest in stocks without having to endure all that neck-snapping volatility?”

Here the answer is a bit more nuanced. There are things you can do to soften the curves in your equity portfolio, from running trailing stops to selling covered calls, ideas we’ve talked about here before.

But there is another alternative, one that even widows and orphans can embrace: low volatility stocks – and the ETFs that invest in them.

Four Low Volatility Stock Funds to Consider

Take the PowerShares S&P 500 Low Volatility Portfolio (Nasdaq: SPLV), for example. Since its inception a year ago, investors have plunked more than $1.6 billion into the fund. And they have been amply rewarded. Despite its somewhat stodgy portfolio – filled with names like Coca-Cola (NYSE: KO), Kellogg (NYSE: K) and Procter & Gamble (NYSE: PG) – the fund is up 9% year-to-date.

(I should warn here that funds like these do go down from time to time, just less than the broad market ordinarily.)

There are plenty of reasons to believe this will continue to be a good investment going forward. Plenty of academic and industry research confirms that safe, well-established companies provide generous returns to investors over the long term, without the sleepless nights. It seems counterintuitive, but low-risk, low-valuation, higher-yielding stocks have fared as well or better than go-go growth stocks over the long haul.

And today there are 14 different funds that bill themselves as low-beta investments. For example, the iShares MSCI Emerging Markets Minimum Volatility Index Fund (Nasdaq: EEMV) holds more conservative blue-chips in Latin America, Eastern Europe and Asia. It would be a good choice for a retirement account or a college fund for a child or grandchild with five or more years until matriculation.

If you are too conservative to invest in emerging markets – a mistake, in my view, given their attractive prospects – you might consider the Russell Developed ex-U.S. Low Volatility ETF (Nasdaq: XLVO). Or, if you want to invest globally but without a particular emphasis on emerging markets, consider the iShares MSCI All Country World Minimum Volatility Index (Nasdaq: ACWV).

Low Risk, High Return

You’ve heard the old investors’ saw that risk and return go hand in hand, that you have to take more risk to get better returns. But there are exceptions. Low volatility stocks are one of them. Historically, they have performed as well as the broad market with far less risk.

If you know someone who has a low stock allocation – or no stock allocation – because they were burned during the market meltdown of 2008 or during the sudden downdraft of last year’s third quarter, low-volatility ETFs are a good solution.

And when I find that special investment with a decent yield and no downside risk, I’ll let you know that, too.

But don’t hold your breath…

Good Investing,

Alexander Green

Article by Investment U