Posts Tagged ‘inflation’

0 Jul 28 2011 @ 10:58am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas

Let’s Face The Music

At a time when we approach the unprecedented potential of a default by the US on its national debt, it is worth acknowledging that there may well be trouble ahead (…and imminently). As we face the music and prepare to lace up our dancing shoes,  it seems prudent to remember where we were a year ago, and then appraise whether current downbeat perceptions are muddying the water. So from the starting point of Energyland™ to the general economy, let’s take a look at ten reference points, to see if we need to throw in the towel, or just throw some shapes:  » read more

5 Aug 20 2010 @ 10:48am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, Random

Burrito Bites

Happy Friday one and all! Let’s start this week’s summary with some fun (goodness knows we need a laugh after this week’s market action). This picture needs a caption; funniest one wins a burrito-related gift. 

As for markets this week, a flight to safety has been the destination of choice for investors, as economic data continues to point an accusatory finger towards a slowing US economy. Crude is hitting 6-week lows, while natural gas is testing levels not seen in the last three months. That’s enough gloom for now; come on, let’s chow!:

–Is a library really more dangerous than a drilling rig?

Whiskey biofuel available in a few years, more potent than ethanol.

Dogs improve office productivity.

–Senior NOAA Scientist admits he lied that the Gulf oil spill is gone. 

Buffett vs Gross, inflation vs deflation.

Pay-as-you-throw…reducing landfills by charging by the trashbag.

9 challenges of alternative energy.

–18-mth low in floating storage points to potential inventory drawdowns for crude.

–Koala negotiates 50mph crash without a scratch. 

–Do 3 shale companies for sale signal the peak in its popularity

–Markets in everything – using parking lot satellite surveillance to forecast retail sales.

–Only 8% of energy stimulus spent.

The Beloit College Mindeset List for the Class of 2014.

–Why Opec doesn’t mind low oil prices.

–Boy, 13, hit by lightning on Friday 13th, at 13.13.

The Burrito Deluxe Award of the week goes to BHP Billiton, for shaking up the M&A landscape (and general markets too) by bidding for Potash - the world’s largest fertilizer producer. There’s a few more twists and turns left in this tale, which should provide some entertainment over the coming weeks.

The Burnt Burrito Award is postponed this week as there were too many losers to choose from.

Have a fantabulous weekend!

0 Jun 25 2010 @ 10:58am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, UK natural gas

Burrito bites

Ninja turtle!

Welcome to another Friday, where we have seen crude involved in a battle all week with a key technical level (like a ninja hero in a half-shell…crude power!), while natural gas has mostly pootled sideways as the threat of a storm disrupting production in the Gulf is unlikely. Elsewhere, Greek worries rise up once more and global bond markets rally, while equities continue on a bumpy road which they hope leads to recovery. Next week sees the end of the second quarter, but for now, let’s ease ourselves into the weekend by getting our munch on:

Let’s go fly a kite (…in the Gulf to see what’s going on).

A Colossal Fracking Mess - a rather one-sided Vanity Fair article on unconventional gas.

–Mystery surrounding ‘horse boy’ on google street view.

–In retrospect, not the best strategy ever….exporting US LNG.

–Man run over by his truck-driving dog.

Pig in Boots

–The most excellent Dian Chu paints a biflationary picture (= simultaneous inflation and deflation), and further expands on investing ideas based on this scenario here.

Kids prefer food products with cartoon characters on them (duh! don’t we all?!).

–The science of oil and peak oil revisited.

Email error ends up on road sign. (other confusing signs at the end of the article).

–Britain is the pivot point for global LNG.

–On the trail of the soda tax – higher prices = less soda drinking.

–Fast-reading computers are about to drink your trading milkshake. (ok, weird title, but the post is excellent). 

–Turning body heat into electricity.

Guardian angel slows traffic.

The Burrito Deluxe Award of the week goes (just a teeny weeny bit begrudgingly) to the US soccer team, for qualifying top of their group in the World Cup. Bravo, boys.

The Burnt Burrito Award of the week goes to US housing, and their post-rebate blues. Despite 30-yr mortgage rates hitting all time lows, housing looks set to to head lower once more, with new home sales looking horrid.

Rock on.

0 Jun 23 2010 @ 10:57am by Matt Smith in Crude Oil, Global Energy, risk management

The euro’s the one, and not the yuan.

The euro and the yuan = the Sonny and Cher of the currency markets

After the fireworks and celebrations in the streets that followed the announcement that the yuan is set to be unpegged from the US dollar to float freely, the initial excitement, like the bubbly, has now lost its fizz. What initially appeared as a selfless act of cooperation and compromise by China, has morphed into the realization that this announcement was just a mere gesture by them to avoid getting flame-grilled at this week’s G20 meeting about their position as ‘currency manipulator in chief’. While this move into the limelight firmly positions the yuan as the sexy currency du jour (à la Cher), one of its currency counterparts – the euro – is considered much less attractive (sorry, Sonny). But nonetheless, I’m backing Mr Bono (= the euro) to have a bigger influence over financial markets in the coming months, and specifically, over commodityworld(tm).

Let’s take a step back. So, what’s the big deal about letting the yuan float? It is this: China has pegged their currency to the US dollar for the past few years, which has meant their exporters (a huge driver of their economy) have been charging the world artificially deflated prices for their goods. Good if you are a Chinese exporter and good if you are a purchaser of Chinese goods; bad if you are a producer of competing goods. Unfortunately, most of the world, and especially the US and Europe, are net purchasers of Chinese goods, meaning the undervalued yuan has allowed Chinese producers to undercut domestic producers of similar goods.

Yuan renminbi vs US dollar, March 2009 - present

Letting the yuan float means it will likely strengthen versus other currencies (since it was considered artificially pegged at a low level).  

A strengthening yuan would be good for the global economy because it would make Chinese goods more expensive, hence increasing the competitiveness of other countries, and promoting the rebalancing of those economies with striking trade imbalances (notably, the US) . It should also calm inflationary fears and ease concerns of a housing bubble in China, as a strengthening yuan would be the equivalent of a bucket of cold water on the economy. However, it is more likely that China would let their currency float because they believe their economy is strong enough to be supported by domestic demand, or because of the benefits that an improved purchasing power (from a strengthening currency) gives them in buying goods internationally. Or, alternatively, they think their currency will weaken (it would be hilariously ironic if it did, but isn’t beyond the realms…).

Then what’s the big deal about the euro?
The euro is the official currency of 16 Eurozone countries. What started out as an attempt to build a superpower strong enough to rival the economic power of the US back in 1999 has ended up turning ever more sour in recent months. The weakest links in the Eurozone chain (= PIIGS) are dragging down the strongest countries in the Eurozone, as waning confidence in the collective currency is causing its devaluation. The chart below is a great illustration of the decoupling seen in the euro at the beginning of the year. While the euro tracked risk appetite during 2009, following a similar path to equities and crude oil (as an inverted flight from safety caused the dollar to weaken and funds to flow into the euro and other risk assets), the considerable sovereign default risks that countries like Greece and Spain are facing have caused a massive move out of the euro, and hence its rate versus the dollar to fall. Drawing this back to commodityworld(tm), and specifically crude, the two have become reacquainted in the past two months, and as the euro has had a relief rally in recent weeks, so have risk assets. Going forward over the next few months, the Eurozone is likely to face further and increasing default risks, which can only have a detrimental effect on the euro, and risk generally. This puts headwinds against crude oil advancing at a strong pace, regardless of the decoupling seen earlier in the year:  

Maybe I am being too cynical here; perhaps this move by China’s policymakers is a clear signal that they are willing to cooperate with the global financial community. Yet for all of the furor that the announcement has made, there has been little evidence that it will have a dramatic impact on markets (and hence commodities), in the short term at least. In the meantime, the bigger influence on commodities, and specifically crude oil, is more likely to come from the euro, which should come under further selling pressure as it struggles to find the cure for the economic illnesses infecting a number of its member-nations. As for how this will play out over the long term? We don’t know. And we won’t find out until we grow.

0 Jun 3 2010 @ 8:26am by Matt Smith in Capital Markets, Economy, Global Energy

Where The Wild Things Are

This, like many of my posts, is an elaboration on a simple theme, explained through the medium of something easy to relate to. So for this juncture, emerging markets are…. where the wild things are (specifically Brazil, India and China). Furthermore, The US is the self-crowned king of all the wild things (for now), based on its position as the world’s largest country by GDP, and the largest and most voracious consumer of the world’s goods and services. The wild things are labeled as such for good reason; their economies are running wild.

‘And now’, cried Max, ‘let the wild rumpus start!’

The first station on our whistle-stop tour is India. They released their first quarter GDP data on Monday, which showed its economy expanding by 8.6%, at its fastest pace in two years, driven by manufacturing and farming. India, similar to China, holds such great promise due to its size, and the sheer extensiveness of its poverty (which implies tremendous potential for income and asset growth). The current population is estimated at 1.18 billion, and should surpass China (currently 1.33 billion) by 2025, as the country encourages population growth much more than China does with its one-child policy.

And when he came to the place where the wild things are
they roared their terrible roars and gnashed their terrible teeth and rolled their terrible eyes and showed their terrible claws

Next stop, China. I already researched China in a recent post, but have been filling my boots on this stuff recently - including a great piece explaining how China’s manufacturing power is not driven by innovation, but by global demand. A most telling representation of China’s insatiable appetite for growth is illustrated through their demand for coal in the past four years, which has grown by double digits (in percentage terms) for the vast majority of months, even growing at as high a rate as 57.5% in January of this year. This resonates even further when one realizes that approximately 70% of China’s energy consumption comes from coal (approximately 3.5 billion tons per annum):

Our last stop is Brazil, which, although is showing  a strong recovery after last year’s slowdown, is exhibiting the symptoms of the most common disease to fast-growing emerging markets - inflation. The resource-rich country is, however, being proactive in combating this risk; the Central Bank of Brazil hiked interest rates by 0.75% in March to 9.5% – the first rate rise in two years, and are likely to raise again should inflationary concerns continue (and they should). 

   

So I draw this story to a close. We should be grateful to know where the wild things are, and should hope that their wild rumpus continues apace. After all, dealing with an overheating economy seems a much more preferable rumpus than that of facing potential deflationary pressures (your majesty). And if you can’t be grateful, BE STILL!