Wednesday, 9 February 2011

Saudi Oil Bombshell.

Baltic Dry Index. 1064 +19

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

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.

Joseph Schumpeter.

Today a bombshell. Saudi Arabia may not have the oil reserves they claim. Worse, they may not be able to get to 12.5 million barrels a day production, let alone the 15 mbpd they once promised. Below, the WikiLeaks US diplomatic cables carrying the bad news. The west must redouble its efforts at bringing on-stream renewable energy as a fallback hedge, and redouble its efforts at bringing on-stream Megawatt Grid Storage schemes, to take advantage of excess power generation, especially excess nighttime base power generation, for re-use during the next day. While renewable energy can’t solve the world’s energy deficit problem, especially if Saudi oil production plateau’s and then goes into decline, the greater the amount of energy available produced from renewable sources, the lesser the dislocation produced by a decline in Saudi oil production. Better energy efficiency, is another must too.

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%

John Vidal, environment editor Tuesday 8 February 2011 22.00 GMT

The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.

However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray."

It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."

The US consul then told Washington: "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."

Seven months later, the US embassy in Riyadh went further in two more cables. "Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.

It also reported major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." While fears of premature "peak oil" and Saudi production problems had been expressed before, no US official has come close to saying this in public.

In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the International Energy Agency, told the Guardian last year that conventional crude output could plateau in 2020, a development that was "not good news" for a world still heavily dependent on petroleum.

Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: "We are asleep at the wheel here: choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse."


In other stunning news this morning, the world’s two biggest mining Stock Exchanges, London and Toronto, have agreed to merge. What do they think they know of a growing age of resource scarcity, that isn’t yet in the public domain? When integrated, by my rough reckoning, that will provide professional stock coverage of about a 13 hour day. Longer if Toronto has or establishes professional coverage out of Canada’s great western city of Vancouver. In theory, that could generate professional coverage of 16 hours a day. Electronic trading would cover the rest, although thin electronic trading out of hours, brings too many potential problems for most.

"If ever there was an area in which to do the exact opposite of that which government and the media urge you to do, that area is the purchasing of gold."

Robert Ringer

TMX to merge with LSE

Globe and Mail Update

Published Tuesday, Feb. 08, 2011 4:28PM EST

Last updated Tuesday, Feb. 08, 2011 9:01PM EST

TMX Group Inc. plans to merge with London Stock Exchange PLC in a blockbuster deal that would bring together the world's premier mining markets.

The deal between TMX, which operates Canada's biggest exchanges, and LSE would be structured as a merger of equals. Together, the market value of the two is more than $6-billion.


London Stock Exchange in £4.2bn merger talks with Canada's TMX

The London Stock Exchange, one of the world's oldest bourses, is in advanced talks to agree a £4.2bn all-share merger with its Canadian rival TMX.

By Helia Ebrahimi 6:27AM GMT 09 Feb 2011

Late last night, the LSE confirmed an earlier report in The Daily Telegraph that it is planning to join forces with the Canadian owner of the Toronto Stock Exchange, the Montreal Exchange and the junion TSX Venture Exchange.

Trading in TMX Group, valued at C$2.97bn (£1.86bn), was suspended following the news. The LSE is valued at £2.4bn, based on last night's closing share price of 892p and its shareholders will take just over 50pc of the group.

The UK-based stock exchange group said in a statement: "London Stock Exchange Group Plc confirms that it is in advanced discussions with TMX Group regarding a possible merger of equals to create an international exchange leader."

A spokesman for the LSE said: "It is currently contemplated that the executive management and senior leadership of the merge group will be drawn from both organisations."

He said the merged group would be co-headquartered in London and Toronto and continue to be overseen by its existing regulatory authorities.


We end again with a nervous look at China. One day, one of these rate hikes will really work.

China raises interest rates for third time in four months

China raised interest rates on the last day of the Chinese New Year holiday to try to temper inflation as the country returns to work.

By Malcolm Moore, in Shanghai 11:53AM GMT 08 Feb 2011

With the Shanghai Composite Index due to reopen on Wednesday after a week of rest, the Chinese central bank signalled its determination to keep inflation in check by raising the one-year lending rate to 6.06pc from 5.81pc and the deposit rate to 3pc from 2.75pc.

The Hang Seng index in Hong Kong, which reopened on Monday, responded by dipping slightly to 23,484.3 points, a drop of 0.3pc.

The latest interest rate rise was widely expected. Chinese policymakers have tightened policy around the Chinese New Year holiday five times in the last six years, either by hiking the reserve ratio requirements of banks or by raising interest rates.

This year, Chinese banks have again flooded the economy with liquidity, doling out 500 billion yuan (£47 billion) in new loans in the first week of January alone.

Traditionally, Chinese banks lend heavily in the first quarter of the year, allowing them to collect interest on the loans for the rest of the year.


Demand for the metals is literally exploding in Asia, and it’s creating shortages of physical bullion around the world. The statistics are extraordinary. China, the world’s largest gold producer, now requires so much of the precious metal (in addition to what it already mines) that it imported over 209 metric tons (6.7 million oz) of gold during the first ten months of 2010. This represents a fivefold increase from the estimated 45 metric tons it imported in all of 2009.

According to the World Gold Council, Chinese retail demand for gold increased by 70% from October 2009 to September 2010, representing a total of 153.2 tonnes of gold imports. Yet, over the same period, the demand for gold jewelry rose by only 8%. There is a clear trend developing for Chinese investment in gold as a monetary asset, and China is buying so much gold for investment purposes that it now threatens to supercede India as the world’s largest gold consumer. Chinese demand in 2010 is expected to reach approximately 600 tonnes, just behind India’s 800 tonnes. To put that in perspective, 2010 world mine production is forecasted to be 2,652 tonnes, which means China and India could collectively lock-up over half of global annual production.


At the Comex silver depositories Monday, final figures were: Registered 42.34 Moz, Eligible 60.71 Moz, Total 103.05 Moz.


Crooks and Scoundrels Corner.

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

The music’s not playing any more, but Citigroup is still up for a dance. Below, mortgage scamster Citigroup dances its way out of court by making a deal and paying off the plaintiff’s costs.

As long as the music is playing, you’ve got to get up and dance,” he told The Financial Times on Monday, adding, “We’re still dancing.”

Charles O. Prince. CEO Citigroup, July 2007

Citigroup Settles Fraud Cases Tied to Texas Mortgage Assigner

By Donal Griffin and Dakin Campbell - Feb 8, 2011 5:00 AM GMT

Citigroup Inc., the third-largest U.S. bank, settled or lost at least five claims in 2010 brought by borrowers who accused the bank of filing fraudulent mortgage documents provided by a Texas firm.

In the most recent settlement in December, a bankrupt homeowner in Wappingers Falls, New York, challenged Citigroup’s use of a mortgage “assignment,” which shows the transfer of ownership of a mortgage. It was signed by an employee at Orion Financial Group Inc., a Southlake, Texas, firm that provides document services to lenders

The document was “of fraudulent nature and questionable origin,” the borrower’s attorney, Linda Tirelli, wrote in an August objection to the bank’s claim at U.S. Bankruptcy Court in New York. Citigroup created and filed the assignment after proceedings began because it otherwise couldn’t prove its right to collect the debt, she wrote in an e-mail. The bank denied the allegations and didn’t admit liability in the settlement.

Attorneys general in 50 states are investigating the industry’s use of mortgage assignments as part of a wider probe into faulty foreclosure methods, according to Geoff Greenwood, a spokesman for Iowa attorney general Tom Miller. Last month, a Massachusetts court ruled that two foreclosures by Wells Fargo & Co. and U.S. Bancorp were invalid because assignments presented in those cases failed to prove the chain of ownership of the mortgage, sending financial stocks down.

Connect the Dots

Bankruptcy judges are “appropriately skeptical” when mortgage servicers claim to have assignments, said Keith Lundin, a U.S. Bankruptcy Court judge in Nashville, Tennessee, in an interview.

“They’ve got to show me more than their swearing that they have the right,” he said. “They’re going to have to connect up the dots back to the note and the security agreement, which would be the mortgage.”

---- Citigroup paid almost $82,000 in opponents’ legal costs when settling challenges to four bankruptcy claims that used Orion letters in 2010, according to agreements filed with federal bankruptcy courts in New York and Arkansas. The bank reduced interest rates on the remaining debt by an average of 49 percent, while cutting the outstanding mortgage balance in three cases by a combined $55,000, the filings show.

---- In the Wappingers Falls case, Citigroup said it was owed about $390,000 from a mortgage on a property in Chapter 13 bankruptcy. The bank filed an assignment prepared by Orion to back the claim. This document claimed another lender had assigned the loan to CitiMortgage on June 24, more than three weeks after the bankruptcy began.

In settling the borrower’s objections, the bank didn’t admit wrongdoing. It paid Tirelli’s $35,000 legal fees, reduced the mortgage principal by $29,000 and chopped the interest rate almost in half, to 3 percent.


"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Alan Greenspan

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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