Consequence of Iranian Oil Embargo?

A January 15 article written by James Hamilton, Professor of Economics at the University of California, summarizes what he thinks the consequences might be of an Iranian oil embargo.  He compares results of prior what he calls ‘episodes in which geopolitical events led to production shortfalls from key producing areas”.  The article includes charts and statistics related to these ‘episodes’, which he says occurred in 1973-74, 1978-79, 1980-81, and 1990-91. I you were born before 1950 I suggest it does not take a great memory to recall that each of those periods either preceded, or were incorporated in, periods of developed country recession.  As I read the article that is the first message the Hamilton is working to convey, the second being that it is “unreasonable to assume that Iran would not try to retaliate in some way” if a current embargo is successful.

I think this article, which is short and well written, is worth taking the time to read for a general understanding of the importance of the ongoing threats and counter-threats around an Iranian oil embargo – and I think particularly worth that time if one participates directly or indirectly in the financial markets.

See ‘Iranian oil embargo’ published in the Econobrowser Blog – reading time 5 minutes.

IMF Cuts 2012 Global Forecast!

An article in the UK Telegraph published last Thursday reports that a ‘leaked draft’ of the International Monetary Funds 2012 World Economic Outlook has Global GDP growth now forecast at 3.3%, down from 4% forecast last September. The IMF is apparently, and I think not surprisingly, downgrading its forecasts for …..continue reading.

Commentary reading time 2 minutes.  Referenced article(s) reading time 5 minutes.

SEC ‘Settlement Language’ Change – Ridiculous?

In a move that I consider to be little more than window dressing, on Friday, January 7, the US Securities and Exchange Commission said that defendants can no longer settle civil cases using “neither admit nor deny” language if they have already admitted to wrongdoing in parallel criminal cases. This is said to follow from …..continue reading.

Commentary reading time 3 minutes, thinking time much longer.  Referenced article(s) reading time 4 minutes.

Gold’s Industrial Uses!

It is broadly known that silver is widely used in industrial applications. A recent article discusses the expanding application of physical gold in a number of scientific and technology applications. From my reading of the article, many of these applications relate to the use of gold in nanotechnology developments. The article lists the following physical gold applications …..continue reading.

Commentary reading time 3 minutes.  Referenced article(s) reading time 4 minutes.

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2012 – More Difficult Than 2011?

A January 3 article declared that 2012 will be a more difficult year than 2011 – or, according to that article so says German Chancellor Angela Merkel. The article sets out a number of statistics you may not be aware of:

• first, the United States has a smaller population and smaller economy than the European Union;
• second, the European Union’s economy is nearly as large as the combined economies of the United States and China;
• third, the European Union has more Fortune 500 head offices than does the United States; and,
• fourth, the European banking system is far larger than the U.S. banking system.

The article then goes on to provide quotes from a number of private sector senior economists and ‘experts’, including Christine Lagarde, the head of the International Monetary Fund.  Ms. Lagarde is quoted as having recently said that “we could soon see conditions” “reminiscent of the 1930s depression”, and that no country on earth “will be immune to the crisis”.

The article reports on information I have seen in other articles in the few days, including:

• manufacturing activity in the euro zone has fallen for 5 months in a row;
• the Spanish government has just announced the 2011 budget deficit is going to end up being about 8% larger than anticipated (see separate yesterday that specifically discusses this – reading time 3 minutes); and,
• Spain’s unemployment rate and the number of bad loans in Spain recently hit 15 and 17 year highs respectively.

Over and above all that, the article reports that “one of the most alarming things happening in Europe [currently] is the rapid contraction of the money supply. It is almost impossible to avoid a recession when the money supply shrinks substantially.”

There is increasing talk in the articles that I have been reading, particularly beginning January 3, that the euro zone may now be in technical recession. If that is true, turns out to be true, it seems to me 2012 is off to potentially a very bad economic start.

As I am sure you know, the European Union is comprised of 28 countries including the United Kingdom, as contrasted with the Eurozone which is comprised of only 17 of those countries.  Given the relative size of the European Union economy as set out in part in the statistics quoted in this commentary, continued deterioration of the European Union economies will in my view have to has to have a waterfall effect on the overall world economy – perhaps have regard to the banking interconnections, the United States economy in particular.

Something in my view for you to discuss with your investment advisor.

The referenced article was published, with links that support the quoted statistics, in the Economic Collapse blog. Titled ‘2012 will be more difficult than 2011’, the article is lengthy and will take you about 10 minutes to read. I suggest you do that.

Gold v. The Equity Markets?

An article yesterday reports that Goldman Sachs and Morgan Stanley have both confirmed physical gold as one of their 2012 “top picks” and at the same time UBS has put a target price on physical gold that is over 50% higher than current price levels. I suggest …..continue reading.

Commentary reading time 3 minutes.  Referenced article(s) reading time 4 minutes. This Commentary includes a suggestion that you speak with your Investment Advisor(s) with respect to its subject matter.

Hedge Funds Challenge IMF?

An article yesterday in my view adds a new twist to the “too big to fail” syndrome. Apparently at least some Hedge Funds are taking on the International Monetary Fund (IMF) with regard to the IMF’s plan to cut Greece’s debt burden. The article says that the Hedge Funds have built up such “powerful positions …..continue reading.                                

Commentary reading time 3 minutes, thinking time much longer.  Referenced article(s) reading time 5 minutes. This Commentary includes a suggestion that you speak with your Investment Advisor(s) with respect to its subject matter.

Bankers – Risky Behavior Rewarded?

A recent article questions whether in the time preceding the 2008 financial crisis executive pay in the banking system (the article is focused on the UK) encouraged risky behavior on the part of bank executives that in turn undermined “a sound financial system”.  The article focuses on …..continue reading.

Commentary reading time 4 minutes.  Referenced article(s) reading time 3 minutes.

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Iran v. United States!

In the news on Tuesday and Wednesday morning were statements by the Chairman of the Joint Chiefs of Staff of Iran’s Armed Forces who said aggressive measures against Tehran will have serious consequences, and that “every month, we witness the growth of the military technology and scientific progress of Iran and every new maneuver presents a new and powerful weapon proportionate to the threats”. At the same time, he noted the conclusion of Iran’s ten day Navy drills related to a possible future closing or disruption to the Strait of Hormuz. He further said “Iran’s defense doctrine and strategy are defensive and preventative and this shows the Iranian nation cannot be threatened.

A second article reports that on Tuesday the U.S. Obama administration “brushed aside” a warning issued by ran to keep U.S. aircraft carriers out of the Persian Gulf. These threats were dismissed by the U.S. on the basis that they were a consequence of American sanctions on the Iranian economy signed into law by President Obama on December 31. This makes little sense to me as a reason to dismiss ‘Iranian threats’.  This second article includes four things I think you may find to be of some interest:

• a link to a story titled ‘Iran defiant amid appeals for sanctions’;
• a link to a story titled ‘US warns Iran against closing Hormuz oil route;
• a link to a story titled ‘Iran Navy tests cruise missile in drill’; and,
• a short video which actually shows some of the Iranian military drill activity in the Strait.

The first article is titled ‘Iranian nation not threatenable’.  It was published by PressTV.  Reading time 2 minutes.

The second article published by USA Today is titled ‘US to Iran: warships to remain in Persian Gulf’ – reading time 4 minutes. Reading time of for articles linked in this second article – approximately 12 minutes.  Referenced video watching time 43 seconds 43 seconds.

I suggest you also read an article published January 3 on the Financial Sense blog titled ‘Is War Imminent in the Straits of Hormuz’ – reading time 5 minutes. This article sets out a summary of what has happened over the past few days in the Strait, an alternate strategy for Iran in the context of curtailing traffic through the Strait, a summary of Iran’s naval strength, and some interesting commentary (or so I think) on U.S. intervention and China’s possible views on all of this.

I continue to believe that investors and traders ought to follow what currently is going on in the Persian Gulf very carefully.

Yuan Hits New High!

In my 2012 forecast e-mail published this past Tuesday, I said that during 2012 “I continue not to see China taking steps to alter its currency exchange rates unless to do that is perceived by China to be in China’s favor”.  Subsequent to my drafting that e-mail I found an article that reported that on December 30 the Chinese Renminbi (or in common parlance, the Yuan) rose 148 basis points to a record high of 6.3009 against the U.S. dollar. That same article reported that the Yuan is allowed to change on …..continue reading.

Commentary reading time 4 minutes. Referenced article(s) reading time 1 minutes.

United Kingdom House Prices!

In my 2012 forecast e-mail published this past Tuesday, I said “I do not expect U.S. house prices to improve significantly through 2012.  In fact I think they might continue to drop during the year, and I expect to see an increase in the number of houses in foreclosure”.

I did not comment on UK house price trends through 2012, simply because I have no familiarity with that housing market and hence don’t have an opinion with respect to it. That said, an article on December 30 published in The Telegraph reports that UK housing prices dropped …..continue reading.

Commentary reading time 2 minutes, thinking time much longer.  Referenced article(s) reading time 4 minutes.

New Japanese Gold Tax!

A recent article reported that a new Japanese tax law, effective January 1, 2012, will require bullion retailers to report gold and platinum transactions over ¥2 million  (about U.S.$1.5 million) to the tax authorities. The article further reported that “investors have been eager to liquidate their gold holdings even though …..continue reading.

Commentary reading time 2 minutes. Referenced article(s) reading time 2 minutes.

Gold – Five Influential Pricing Factors

And while I think there is nothing particularly new in this, a recent article succinctly sets out five of the factors that I believe influences physical gold’s day/day price, and more particularly, its long-term trend price. Those 5 factors are:

• the simple economics of gold supply and demand …..continue reading.

Commentary reading time 2 minutes. Referenced article(s) reading time 3 minutes, thinking time longer. This Commentary includes a suggestion that you speak with your Investment Advisor(s) with respect to its subject matter.

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So, do you want to know what some big banks think the price of physical gold will be in 2012?  Here are three views that all were expressed in yesterday’s early hours: (1) Barclays Capital – U.S.$2,000 average, (2) Goldman Sachs – U.S.$1,810 average, and (3) UBS – U.S.$2,050 average.

As you know if you read these e-mails, I believe that any forecast of the physical gold price is a forecast on the world macro-economic and political condition at a given point in time.  Accordingly, as I reflect on the current gold price and these three 2012 price estimates – which for all intents and purposes are broadly in the same ‘ballpark’ – I have reached the following views with respect to them:

• First, generally speaking, assuming analysts get their underlying facts right and their assessments of prospective macro-economics and political matters in good balance, I think their estimates generally tend to be on the conservative side.  I think this whether they are forecasting the gold price, the silver price, or generating a ‘target price’ on a company’s shares irrespective of industry sector.  It follows that I believe that if the analysts who generated the physical gold prices for these three banks got the macro-economic and political conditions through 2012 ‘right’, then I intuitively believe their ‘real’ 2012 gold price forecasts may be lower than they really believe in their respective ‘heart of hearts’ the think the gold price will be in 2012;

• Second, if they didn’t get the macro-economic and political conditions through 2012 ‘right’, then as far as I am concerned any forecast of the 2012 physical gold price they generate either yesterday or at any other time is meaningless, and should be disregarded.  The problem is, of course, that based only on the article referenced below, there is not enough detail in my view to determine whether the Bank analysts have those things ‘right’.  The underlying macro-economic and political conditions through 2012 adopted by the analysts when determining their physical gold price forecasts that are set out in the article are for me:

• too general, and are not attributed to specific analysts or banks,

• incomplete – they include only a view or views by (I assume) the various bank analysts that 2012 will be an environment of (1) negative real interest rates, (2) continued Central Bank gold purchases, (3) a possible Eurozone breakup, (4) possible currency devaluations and risk of related ‘big inflation’ without reference to which currencies are at greatest risk (which ‘big inflation’ reference strikes me as being inconsistent with an assumption of ‘negative real interest rates’), and (5) “re-hypothecation and the serious risks that a massive period of deleveraging poses to the financial and economic system is likely to be a very important factor in 2012 which will lead to heightened volatility”;

• Third, I am particularly taken by the foregoing comment with respect to re-hypothecation and attendant related risk of financial system deleveraging.  I commented on re-hypothecation just last week – see ‘MF Global and Re-Hypothecation’ (December 12 – reading time 10 minutes).  I am increasingly thinking that re-hypothecation and what I think is the related topic of ‘derivatives’ is a potentially huge ‘overhang risk’ to the world financial markets.  To the extent I am right, and one or more of the bank analysts from the three Banks who made these gold price forecasts took that risk into account, I don’t see any way to assess how much they have impacted that risk in their gold price forecasts; and,
• Fourth, following from the foregoing, I see these three bank forecasts as little more than interesting observations.

The foregoing is an example, for what it is worth, of how I generally think through the things I read and listen to.  You may not agree with the way I look at things, but nonetheless it may give you some ‘food for thought’ with respect to your own ‘thought process’ as you do your own reading and listening.

The article yesterday that set out the three Bank forecasts referenced in this commentary is titled ‘2012 Gold price to be 28% more than current levels’.  The article was published on the CommodityOnline Blog – reading time 2 minutes.

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U.S. Home Sales Revisions!

Revisions expected today to U.S. home sales reported over the past 10 years are anticipated to result in downward adjustments by as much as 10% – 20%.  I am not sure that any such revisions ought in theory to mean much, as prevailing house prices won’t change as a result.  Among other things, prevailing house prices by area should reflect …..

Commentary reading time 1 minute.  Referenced article(s) reading time 4 minutes.

Brinksmanship and Close to the Brink?

Bickering continued yesterday in Washington over the Senate approved short-term extension of a payroll tax cut that has been saving the average American worker $1,000 per year.  As you likely know, the U.S. Senate agreed to a short-term extension of the payroll cut this past weekend.  However, the Republican controlled Congress has rejected that agreement, demanding that President Obama order ….

Commentary reading time 2 minutes.  Referenced article(s) reading time 4 minutes.

Europe – Unprecedented Finance Risk In Early 2012?

An article Monday reports that European Central Bank President Mario Draghi then warned that Europe could face recession in early 2012 as European Governments and Banks will compete in the next few months to refinance about U.S.$500 billion in bonds coming due …..

Commentary reading time 2 minutes.  Referenced article(s) reading time 4 minutes. This Commentary includes a suggestion that you speak with your Investment Advisor(s) with respect to its subject matter.

IMF Funding Falls Short!

Yesterday the European Finance Ministers who wanted to raise 200 billion Euros (U.S.$260 billion) for the International Monetary Fund to assist with Eurozone financial issues succeeded in gaining commitments for only 75% of that amount.  The United Kingdom refused to contribute its 25 billion Euro share.  If seems to me the question that needs to be asked of U.K. Prime Minister Cameron is: …..

Commentary reading time 1 minutes.  Referenced article(s) reading time 7 minutes.

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