Friday, 25 February 2011

Goodbye Friday 2?

Baltic Dry Index. 1242 -11

LIR Gold Target by 2019: $30,000. Revised due to QE.

Like many of the refugees arriving at the border, Marwan complained about the lack of effort on the part of Tunisia to evacuate its citizens from Libya -- the local Tunisair official even tried to blackmail them into handing over €90 each for a seat on the plane. "I went to Libya because there is no work here," Marwan said, "but they have always been racist toward us. I will never go to work in an Arab country again. Only to Europe."

Is today “goodbye Friday” for the Gaddafi regime in Libya? Even if it isn’t, Libya’s chaos will be with us for months. Libya’s oil has stopped flowing and is unlikely to restart anytime soon. Italy, Germany, France and Spain will be the big losers. Getting replacement light crude won’t be easy. Tens of thousands of foreign workers have left or are leaving, with many traumatized and unlikely to return. A great wave of mass migration from north Africa to Europe looks likely in the coming weeks and months. All kinds of Libyan construction projects now look likely to fail with the regime. Construction companies from Turkey to Italy look likely to get stiffed. All kinds of investment into Libya over the last few years will probably have to be written off. Below, today’s update on the continuing chaos in Libya.

FEBRUARY 24, 2011

U.S. Fears Tripoli May Deploy Gas As Chaos Mounts

WASHINGTON—The government of Col. Moammar Gadhafi hasn't destroyed significant stockpiles of mustard gas and other chemical-weapons agents, raising fears in Washington about what could happen to them—and whether they may be used—as Libya slides further into chaos.

Tripoli also maintains control of aging Scud B missiles, U.S. officials said, as well as 1,000 metric tons of uranium yellowcake and vast amounts of conventional weapons that Col. Gadhafi has channeled in the past to militants operating in countries like Sudan and Chad.


Refugees from Libya

Gadhafi's Henchmen Chase Foreigners

By Mathieu von Rohr  in Ben Guerdane, Tunisia 02/24/2011

Death, destruction and terror -- refugees coming from Libya tell of horrific scenes as Moammar Gadhafi tries to stay in power. Foreigners, especially Tunisians and Egyptians, have become a particular target in the latest wave of violence.

At the Ras Jdir border crossing a stream of refugees has been fleeing western Libya for three days. Nearly all the tired, scared people who arrive here in Tunisia have horror stories about the bloodshed in Libya and Moammar Gadhafi's dwindling grip on power. Many have told of rebels storming army weapons depots in the town of Zuara, 50 kilometers from the border, and celebrating on the streets. And the rebels are reportedly in power in most other cities in the 150 kilometers between Tripoli and the western border of Libya, while Gadhafi's forces supposedly only have firm control in the capital and the border region.

Most of the arrivals also reported encountering pro-Gadhafi forces on the road, too. There is utter confusion: Every few kilometers, different militias and soldiers hold sway. Anarchy prevails. Some tell of having been robbed by Libyan taxi drivers. Others praise ordinary Libyans who defended them from Gadhafi's henchmen. According to media reports, Misurata, the country's third largest city which is situated east of Tripoli, has now fallen to the rebels.

----Like most who have escaped, Marwan, 23, has a shocking story to tell. He made it to Tunis airport on a special Tunisair flight, he says, trembling and wide-eyed at the horrific scenes in Tripoli. He'd worked as a hairdresser in the capital for a year, but three days ago a group of Gadhafi supporters stormed the apartment where Marwan lived with other Tunisians. They foreigners were attacked with knives and beaten with rifle butts; many were seriously injured. Gadhafi's men vandalized the apartment, says Marwan, stealing mobile phones and all their savings -- including $3,000 (€2,200) belonging to him. "I saw 15 to 20 dead foreigners behind a hospital with my own eyes, it was horrible," he said.


Libya: Gaddafi's billions to be seized by Britain

Ministers have identified billions of pounds that Col Muammar Gaddafi and the Libyan regime have deposited in London, The Daily Telegraph can disclose.

By Robert Winnett, and James Kirkup in Muscat 10:52PM GMT 24 Feb 2011

The funds are expected to be seized within days. The Treasury is understood to have set up a unit to trace Col Gaddafi's assets in Britain, which are thought to include billions of dollars in bank accounts, commercial property and a £10 million mansion in London.

In total, the Libyan regime is said to have around £20 billion in liquid assets, mostly in London. These are expected to be frozen as part of an international effort to force the dictator from power.

A Whitehall source said: "The first priority is to get British nationals out of Libya. But then we are ready to move in on Gaddafi's assets, the work is under way. This is definitely on the radar at the highest levels."

Col Gaddafi was on Thursday accused of ordering the deaths of thousands of protesters, but he refused to surrender as Libya descended into civil war.

----Hundreds of Britons were finally able to leave Libya in military planes and on a Royal Navy warship after several days stranded in the country. More than 350 British nationals had been rescued by last night.

Those returning to this country spoke of Libya "descending into hell". United Nations experts estimated that more than 3,000 people may have died, while militias were reported to have executed wounded protesters.

Special forces soldiers were understood to be assisting the evacuation of dozens more British oil workers.


FEBRUARY 24, 2011

Chaos Hinders Mass Evacuation

For two days, Italian telecom worker Enzo Presutti hunkered down in a Libyan hotel as gunfire ripped across Tripoli, waiting to make a run for the airport.

"We felt completely abandoned," Mr. Presutti told Italian television reporters shortly after arriving in Rome on a Tuesday flight from Libya.

Tens of thousands more foreigners remain in Libya, caught up as a government meltdown and street battles have derailed one of the biggest cross-border evacuations of the past decade.

Countries world-wide were seeking Wednesday to repatriate their citizens from Libya, where oil, telecommunications, construction and other jobs employ more than 100,000 foreign nationals—Italians and Dutch, Chinese and Americans, Turks and Greeks. With most commercial flights canceled, countries were organizing planes, ships and even buses and fishing boats to evacuate their citizens.

These efforts are running up against the turmoil of Col. Moammar Gadhafi's Libya. As central control unravels, rescue planes from France and Netherlands were unable to get clearance to land; after circling above Tripoli, the flights were diverted to Sicily and Malta. Russian news agencies said a plane sent by energy giant OAO Gazprom was forced to land in Malta. A plane sent by China was waiting in Athens for clearance to proceed.

----Libya's ports, too, were closed. Some evacuation ships were getting through, but the U.S. State Department said a ferry that had been scheduled to evacuate Americans on Wednesday had been waylaid in Tripoli due to inclement weather. Those onboard were safe, it said. The U.S. State Department estimates there are several thousand Americans in Libya, many of them with dual citizenship.

-----Countries also helped one another. The Dutch Ministry of Foreign Affairs said one flight that had already landed in the Netherlands carried 32 Dutch citizens and 50 others, including Belgians, British and Americans. Russia's Emergency Situations Ministry said it was seeking to evacuate 1,263 people, including Turkish, Serbian and Montenegrin citizens working in Libya with Russian companies.

Turkey had among the most extensive rescue operations, as it extracted an initial 5,000 of the 25,000 Turkish citizens estimated to be in Libya. On Wednesday, several aircraft—one from Turkish Airlines, as well as charter jets from Egypt and a Libyan Airlines aircraft—landed hundreds of passengers at airports around Turkey.

-----"Thousands of Egyptians, with bags and sacks, were sitting around [the airport] wanting to get out," she said, as she disembarked from an Austrian Airlines flight from Tripoli. "There was fighting, people were hit with batons by the airport security personnel," she added.

Austrian Airlines said late Wednesday that it had suspended Tripoli flights because safety couldn't be guaranteed.

Egypt, which shares a border with Libya, is also bracing for an influx. Foreign Minister Ahmed Abul Gheit told local media that Libya hosts 1 million to 1.5 million Egyptian expatriate workers, many of whom will be eager to return.


The chaos of Libya has the ability to tip the global economy back into severe recession. The loss of 1.4 mbpd of Libyan light crude isn’t really replaceable. Nearly all the excess production capacity is heavy sour crude unsuitable for the refineries that were getting Libyan crude. Equally bad, who’s next. Unstable regimes cling to power in energy exporting Algeria and Saudi Arabia. With turmoil in Bahrain, who will want to invest in or move to Dubai? More and more Dubai look like a mal-investment doomed to permanent default.

At the Comex silver depositories Thursday, final figures were: Registered 41.91 Moz, Eligible 60.42 Moz, Total 102.33 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

No crooks again, just an assessment on the Libyan disruption is about to affect us all.

As you can see, were oil to go back to $150 a barrel and stay there, that would add more than 3 percentage points to US inflation but only 1 point to inflation here.

Hamish McRae: Oil's power to shock the world economy has not gone away

Economic Life: Opec has promised to increase production to offset any reduction in output from Libya. Yet the oil price has risen by more than $20 a barrel

Friday, 25 February 2011

It gets worse. At some stage – and let us all hope soon – Libya will be back to some sort of calm and a new regime installed. Meanwhile the world has to cope with the reality that a civil war in a middling-sized oil producer – it pumps a little more than the UK – has had an immediate and potentially devastating impact on the oil price and potentially on the world economy. What is happening is primarily a human story and a deeply distressing one. But it is also an economic story, so some words about that.

You can see what has happened to the oil price in the top graph: a surge from the levels during the early period of the recession, but still a long way from the previous peak. But the surge is troubling for obvious reasons. For a start, the price was rising even ahead of recent events. Note, too, that this is a relatively small shock to supply. Opec has assured the markets that other members will increase production to offset any reduction from Libya. And yet the oil price has risen by more that $20 a barrel. This matters tremendously because oil is still the principal source of the world's primary energy source, larger than gas or coal and far larger than the renewable options. It is also an important chemical feedstock, so it is not just energy prices that are pushed up: a large range of other prices are affected too.

So what will be the inflation effect? It is difficult to calculate because you have to allow for secondary effects as well as the initial one, so any estimates should be treated cautiously but I have been intrigued by some calculations by Fathom Consulting shown in the bar charts. Along the bottom axis is the price of oil, working from a base of $90 a barrel, in $10 increments. On the vertical axis is the rise in the inflation in the UK, measured by the RPI, in Europe and in the US. As youcan see we are all affected but the US is affected much more seriously than the UK and continental Europe.

-----So what happens now? I think the question really is whether this is just Libya, or whether unrest spreads to places such as Algeria and the Gulf. You begin to try to think through worst case scenarios, the various "what if?" questions.


Another weekend, and a worrying one at that. Time to fill up the cars and fuel cans, and start making plans for life under a different oil supply regime. If Saudi Arabia blows, better a plan b, than none at all. If Bahrain is about to reinvent itself as Sunni constitutional monarchy with a Shiite elected government, will change be long delayed in Kuwait and Saudi Arabia? Have a great weekend everyone. Nissan Leaf???  Stay long gold and silver, a new recession brings in QE 3, 4, 5 and 6.

The monthly Coppock Indicators finished January:

DJIA: +161 Down 10. NASDAQ: +228 Down 10. SP500: +161 Down 4.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

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