Baltic Dry Index. 1483 -16
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker
The big news this morning is the nuclear deal that the
USA, the west and Russia has made with Iran. If Iran follows through with its
commitments in the next six months, oil exports from Iran could double or more
in 2014, putting severe downward pressure on the crude oil price. If it
happens, it just might be the “get out of jail free” card desperately needed by
the west, especially continental Europe. At the rosiest interpretation, the
fast reviving western economies, might allow the Fed to start tapering without
cratering the stock markets, although that’s probably not true for bonds. But with Israel and Saudi Arabia both feeling
double crossed by America over the Iranian deal, that rosy interpretation looks
to be quite a stretch.
With the Iran deal, we look set for a particularly
uncertain and volatile six months.
Iran sanctions deal to unleash oil supply but Saudi wild card looms
The nuclear deal with Iran could lower oil prices but also trigger a Saudi backlash
A global deal to lift sanctions
against Iran could unleash a flood of oil onto world markets by next year just
as crude output pick ups in Libya, Iraq, and North America, triggering a slide
in prices and a major shake-up of the energy landscape.
The prospect of cheaper oil is a
welcome relief for the West, but poses a major threat to Russia and string of
countries that depend on oil revenues to finance their budgets.
The weekend deal in Geneva
between Iran and key world powers opens the way for a gradual end to sanctions,
provided the new government of Hassan Rohani delivers on pledges to curb its
nuclear programme.
The accord should unlock 800,000
barrels a day (b/d) of global supply by next year in a market of 89m, rising
over time as foreign firms return and the country’s ruined oil industry comes
back to life. Export curbs will stay in place for another six months but a
planned escalation of curbs will not occur.
Citigroup said the Geneva deal
should cut global oil prices by $13 over time, enough to depress Brent crude
below $100 and US crude below $85
----America’s rapprochement with Tehran is a dramatic upset in the region’s alliance system at a time when Shia Muslims led by Iran are locked in an epic struggle for Mid-East dominance with a Saudi-led bloc of Sunni regimes.
Chris Skrebowski, editor of
Petroleum Review, said the great unknown is how Saudi Arabia will react to a
move deemed treachery in Riyadh, already exposed in a WikiLeaks diplomatic
cable exhorting the US to "cut off the head of the snake" in Iran.
Tehran's diplomatic triumph may
embolden Saudi Arabia’s aggrieved Shia minority to press demands, perhaps even
threatening the main Saudi oilfields in the Eastern province where they
dominate. “The Saudis are very angry. The great question is whether they can
live with this deal, or whether it is intolerable,” he said.
----The US energy department said North America will add 1.5m b/d of oil supply this year, mostly from shale, and 1.1m b/d next year. This new supply is coming just as Iraqi Kurdistan opens a new pipeline to Turkey. Iraq’s output crashed to 2m b/d over the summer as al-Qaeda attacks reached a crescendo, but Baghdad claims output is poised to recover. The International Energy Agency expects Iraq to triple supply to 6m by 2020.
Goldman Sachs and Bank of America
have both warned over recent days that crude prices will slide in 2014, much to
the alarm of states that depend on oil to make ends meet. The “fiscal break-even
point” needed to balance budgets is near $120 for Bahrain, Nigeria and Algeria,
and $110 for Venezuela, and Iraq.
More
Oil Sinks on Iran Deal as Stocks Advance; Yen Slides
By Rachel Evans & Weiyi Lim - Nov 25, 2013 6:38 AM GMT
Crude oil headed for the biggest drop in three weeks while India led gains in
Asian stocks and currencies after Iran agreed to limit its nuclear program. The
yen fell to its weakest since May. Brent crude sank 2.6 percent to $108.15 a barrel by 3:37 p.m. in Tokyo as the S&P BSE Sensex Index rose 1.4 percent in India, which imports about 80 percent of its oil. Futures on the Standard & Poor’s 500 Index, which capped a seventh weekly gain Nov. 22, rose 0.3 percent and the MSCI Asia Pacific Index added 0.3 percent. The yen dropped as much as 0.7 percent while Thailand’s currency slid amid protests in Bangkok.
----The Iran deal “is obviously positive and hopefully we can have lower geopolitical risk,” Norman Chan, the Hong Kong-based head of investment at Calibre Asset Management Ltd., said by phone today. “It helps sentiment and growth assets such as stocks. We’re hoping to see oil prices drop to a new low.”
Brent fell from a six-week high and West Texas Intermediate oil dropped 1.4 percent.
More
Auto and Shipping Firms Among Potential Iran Deal Winners
By Indira A.R. Lakshmanan
- Nov 25, 2013 5:28 AM GMT
French automakers PSA Peugeot Citroën (UG) and Renault
SA (RNO) and companies that transport Iranian oil are poised to benefit
from the six-month accord to rein in Iran’s
nuclear program while easing trade sanctions. The deal struck yesterday in Geneva among Iran and six world powers, including the U.S. and its European Union partners, will relax restrictions on cars, petrochemicals, aviation parts, gold, and insurance for oil cargoes. In addition, it will let the Persian Gulf state continue exporting oil at current levels instead of forcing further reductions.
Direct commercial benefits from the agreement will be limited because the primary sanctions on oil and banking remain in place. Its significance may be as the first break in a pattern of ever-tighter sanctions on Iran and a potential first step toward its return to the international economy.
“Any indication that we could resume doing business with our partners in Iran goes in the right direction,” Peugeot spokesman Jean-Baptiste Thomas said yesterday. “We’ll of course welcome the re-opening of the Iranian market.
----The accord depends on Iran keeping its end of the bargain and the Obama administration fending off congressional pressure to impose a new round of sanctions. American companies don’t stand to profit because almost all U.S. trade with Iran other than food and medicine has been banned for decades
----Christophe de Margerie, chairman and chief executive officer of Paris-based Total, said on Nov. 10 that he hoped it “won’t take too much time” for France’s energy giant to return to Iran if those sanctions are lifted.
Iran, the second-biggest producer
in the Organization of Petroleum Exporting Countries before oil sanctions took
effect in July 2012, has fallen to sixth place.
More
Officals: Israelis in secret trip to inspect Saudi bases. Could be used as staging ground for strikes against Iran
Posted on November 24, 2013 at 12:10
PM EST By Aaron Klein
TEL AVIV — Israeli personnel in
recent days were in Saudi Arabia to inspect bases that could be used as a
staging ground to launch attacks against Iran, according to informed Egyptian
intelligence officials.
The officials said Israel, Saudi
Arabia, Qatar, Jordan and other Arab and Persian Gulf countries have been
discussing the next steps toward possible strikes on Iran’s nuclear sites.
The officials said the U.S.
passed strong messages to Israel and the Saudis that the Americans control
radar capabilities over the skies near Iran and that no strike should be
launched without permission from the Obama administration.
It was unclear whether the
purported visit to Saudi Arabia by Israeli military and intelligence officials
signals any real preparation for a strike or if the trip was meant to keep
pressure on the West amid Israeli fears about the current deal with Tehran.
The trip came prior to the
announcement today of the deal with Western powers that aims to halt key parts
of Iran’s nuclear program in exchange for sanctions relief.
More
In other less reported news, the chances of a clash
between China and Japan greatly escalated over the weekend. Stay long physical
precious metals.
China Trades Barbs With U.S. Over China Sea Defense Zone
By Bloomberg News - Nov 25, 2013 3:51 AM GMT
China traded barbs with the U.S.
and Japan over its newly announced air defense zone in the East China Sea, as
tensions escalated between Asia’s largest economies and risked damaging a
resurgence in trade.
China’s Defense Ministry filed
protests to both nations’ embassies, calling Japan’s remarks “unreasonable” and
the U.S. comments “wrong,” according to a statement posted on the ministry’s
website today. Japan lodged a complaint as the U.S. and South Korea expressed
concern about China’s creation of the zone Nov. 23.
The
war of words further strained ties in a territorial dispute between China and
Japan in the East China Sea days after China announced the air defense zone and
said aircraft entering the area must report flight plans and identify
themselves. Those frictions contrast with a nascent recovery in business, with
exports to China rising 21.3 percent in October from a year ago, and add to
pressure on Japanese Prime Minister Shinzo Abe, whose government is set to unveil its first
postwar national security strategy next month.
“The risks of a major conflict
stemming from an incident in the air or in the maritime domain ticked higher
this weekend,” Scott Harold, who specializes in Chinese diplomacy at Rand
Corp., a policy institute, said in an e-mail. “The step is highly provocative,
a new development, and undoubtedly raises the prospect of conflict.”
While the U.S. doesn’t take sides
in the territorial dispute, it recognizes Japan’s administration of islands in
the area. The U.S. is a treaty ally of Japan and in October the two set a road
map for defense cooperation over the next 20 years.
----China’s zone is
symbolic payback for Japan’s move last September to buy some of the islands,
said Kerry Brown, executive director of the University of
Sydney’s China Studies Center and a former British diplomat in Beijing. “Things
would be much less pleasant if there was actual physical contact and conflict,
but both countries are now so economically tied to each other I think this
would be a sort of mutually assured destruction.”
----A map and details of the zone’s coordinates were posted on the Chinese Defense Ministry’s website. “This is a necessary measure taken by China in exercising its self-defense right,” ministry spokesman Yang Yajun said in a separate statement also on the site. “It is not directed against any specific country or target.”
China has engaged in “profoundly dangerous acts that unilaterally change the status quo,” Japanese Foreign Minister Fumio Kishida said in a statement yesterday.
“Japan is working and consulting closely with its ally, the United States, and will coordinate with other relevant countries and partners which have common interests in the stability and safety of the region,” Kishida said
----South Korea said part of China’s zone overlapped with its own air defense identification zone in waters off Jeju Island. Korea’s Ministry of National Defense will raise the matter further with China, it said in a statement.
More
In other China news, signs of
rising distress. It’s all a big misunderstanding, or miscalculation, suggests
helpful analysts at China watching banks. As with most Chinese figures, it’s
anyone’s guess as to reality. The significance seems to be that someone pretty
high up is watching.
China Developers Owe $624 Billion in Land Taxes, CCTV Says
By Bloomberg News - Nov 25, 2013 5:01 AM GMT
Chinese property developers failed to pay at least 3.8 trillion yuan ($624
billion) in land taxes between 2005 and 2012, according to a China Central
Television report. Agile Property Holdings Ltd. (3383), which owes the government 8.3 billion yuan in land appreciation taxes, and Soho China Ltd. (410), the biggest developer in Beijing’s central business district, owe the most among the 45 developers that failed to pay, CCTV reported yesterday, citing calculations by Li Jinsong, a Beijing-based lawyer. Other companies that owe the tax include China Vanke Co. (200002), the country’s biggest developer listed on mainland exchanges, the state television said.
The report was questioned by
analysts from Credit Suisse Group AG and CIMB-GK Securities Research who said
it was either a miscalculation or didn’t take into account the timing of the
tax payments.
“Although the news may put
Chinese developers’ shares under pressure, I don’t expect it to immediately
prompt all local governments to enforce” full payment of the tax, known as LAT,
Jinsong Du, a Hong Kong-based property analyst at Credit Suisse wrote in a note
to clients today. “The TV program ignored the dynamics between developers and
local governments, which often allow developers to pay LAT over an extended
period of time to incentivize the developers to buy more land.”
More
"The paper standard is self-destructive."
Hans F. Sennholz
At the Comex silver
depositories Friday final figures were: Registered 44.30 Moz, Eligible 126.23
Moz, Total 170.53 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today
a red alert about President Putin’s Russia from the Managing Director of
Capital Economics. With the price of crude oil already under pressure before
this weekend’s nuclear deal with Iran that will likely see increased oil
exports from Iran, Russia is sailing dangerously close to the rocks.
"The history of paper money is an account of abuse, mismanagement, and financial disaster."
Richard M. Ebeling
No one wants Russia to implode but optimists have their work cut out
The Russian economy is in a parlous state and needs radical changes to the political regime
----For the state of Russia’s economy is parlous. A couple of weeks ago, the Russian ministry of economy slashed its forecast for average annual growth between now and 2030 from 4pc to 2.5pc.
In fact, Russia’s economy has
recently been extremely weak. It fell into technical recession in the first
half of the year and it looks likely to post growth of only about 1pc this
year, down from an average over the past decade of just under 5pc.
Russia’s previously strong growth
earned her inclusion in the group of countries known as the BRICs. In fact,
this gave a misleading impression of Russia’s underlying dynamism. Russia’s
strong past growth reflected a series of one-off factors which cannot be
repeated. Most importantly, over the past 10 years, higher oil prices have
increased Russia’s export earnings, and hence her spending power, by a
cumulative $1.5 trillion.
Meanwhile, the dismantling of the
Soviet economy created huge amounts of spare capacity, not least in the labour
market. Moreover, the introduction of market reforms after the Soviet collapse
spurred productivity improvements. The two together made possible increases in
production without the need for substantial investment.
However, after a decade of rapid
growth, Russia’s economy has hit the buffers. The productivity improvements
made possible by the end of communism and the reforms of the early 2000s have
been exhausted. At the same time, demographic pressures are building. The
population is shrinking by about 0.5pc a year.
Despite the recent weakness of
growth, there is little evidence of slack in the economy. Unemployment is close
to a record low and capacity utilisation is at record highs. In recent months
inflation has started to come down, but at 6.3pc it remains above the Central
Bank’s target range of 5pc-6pc. This has prevented the central bank from
cutting interest rates. Meanwhile, the oil price needed to balance the budget
has risen from about $40 per barrel in 2007 to about $110 today, which happens
to be just about the current price.
In any case, it’s not clear that
looser policy will revive Russia’s economy.
----The fundamental issues are the political
and legal system, the appallingly high level of corruption and the dreadful
demographics. The first two factors seriously inhibit investment, both foreign
and domestic. They also directly reduce productivity since even mundane bits of
economic activity or investment have to be liberally laced with pay-offs and
bribes, with the result that the ultimate return is not as large as it should
be.
More
"The
international monetary order is more precarious by far today than it was in
1929. Then, gold was international money, incorruptible, unmanageable, and
unchangeable. Today, the U.S. dollar serves as the international medium of
exchange, managed by Washington politicians and Federal Reserve officials,
manipulated from day to day, and serving political goals and ambitions. This
difference alone sounds the alarm to all perceptive observers."
Hans F. Sennholz
The monthly
Coppock Indicators finished October:
DJIA: +178 Up. NASDAQ: +238 Up. SP500: +217 Up. The Fed’s final bubble
continues to grow, until QE Forever isn’t forever. Up will remain up, until one
fine day out of the blue the Fed finally loses control, or the next Lehman
hits.
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