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EconMatters - Global Economic and Market Analysis That Matters

Gold vs. Oil: Underpriced Or Overvalued? (Guest Post)

April 9, 2011 by EconMatters   Comments (0)

By Andrew Butter No one agrees what is the “fundamental” price of gold. What’s indisputable is that the price went up by 400% over the past ten years; thus the “Gold Bugs” are purring like fat-cats full-up with fresh milk. Their indisputable logic is that the price went up, they got it right, and that proves their logic was correct; it’s hard to argue the other side of that debate. One point of common ground is that most people agree that the price of gold ought to have something to do with oil prices. Indeed the general trajectory of the price of gold has pretty much tracked the...

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The QE2 Trade Is Over: Can We Start Dumping Risk Assets Now? (Guest Post)

April 7, 2011 by EconMatters   Comments (0)

By Edward Harrison "The Fed could announce a federal funds target of 3% but the tsunami of excess reserves now out there swamps any conceivable demand, so the Fed funds rate would be guaranteed to remain stuck at zero. The target would be meaningless."  ~ Ryan Avent as quoted in Why the Federal Reserve wants to drain excess reserves, Dec 2009.This is the problem for the US Federal Reserve. And now that people are talking seriously about exit strategies for the Fed, it makes sense to discuss these mechanics. Yes, I know some people are still talking about QE3, but let's deal with...

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An American Syndrome: China, Crude Oil and Debt Bubble (Guest Post)

April 6, 2011 by EconMatters   Comments (0)

By Andrew Butter Along with the emergence of the much heralded “Green Shoots” that must by now be turning into roses (?), has come the sinking realization that (a) just piling debt on debt is not a long-term solution to anything, and that (b) perhaps there might have been more “wrong” under the blanket of mark to market (when markets were in a bubble), and mark to fantasy when they crashed, than can be swept under the carpet forever; like perhaps something structural? Q4-2008 was the first time in the history of America that over 40% of “recorded” imports of “goods” (“recorded” as in...

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Keystone Pipeline: 'Just Say No' Could Mean $7 a Gallon at The Gas Pump (Guest Post)

April 5, 2011 by EconMatters   Comments (0)

By Bob van der Valk Consumer studies by researchers at Harvard’s Belfer Center for Science and International Affairs suggested a year ago that in order for the Obama administration to meet their target to cut greenhouse gas emissions, Americans will soon be spending $7 per gallon. That day may now come sooner than most Americans think. The Opinion page of the Sunday April 3, 2011 edition of the New York Times (NYT) carried an editorial against approving the TransCanada Keystone XL pipeline, which was scheduled to transport crude oil from the Athabasca Oil Sands in northeastern Alberta,...

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Oil Market Speculation Argument to be Tested by WTI Rollover Cycle

April 5, 2011 by EconMatters   Comments (0)

By Dian L. Chu, EconMatters The monthly roll cycle starts Tuesday April 5th for Crude Oil with the 4-day rolling of USO positions, the USO is an exchange traded security meant to track movements in the WTI futures contract. This happens over a four day period now from the 5th-8th of April, so that traders cannot easily front-run the rollover process. Rolling, Rolling, Rolling - USO, Brent & WTI Nevertheless, obviously with the price of Crude rising, the USO has to sell a lot of front month longs in the May contract to rollover to the June contract. Based on the listed...

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Global Food Wars and Riots To Spike 300%? There's An Index For That (Guest Post)

April 4, 2011 by EconMatters   Comments (0)

By Russ Winter  The IMF has a report out supporting the predictability of my food riot/revolution index. It seems the rocket scientists there equate a 10% increase in global food prices, to a 100% increase in antigovernment protests. That makes sense. They add an important consideration concerning the US and other developed countries that addresses the large and growing third world population within those nations. In this case the bottom quartile spend 35% of their income on food. With 45 million in the US on food stamps I’d say that data is now understated and...

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Red Herring: Libya Oil Export Offline Indefinitely?

April 3, 2011 by EconMatters   Comments (0)

By Dian L. Chu, EconMatters There were some interesting developments coming out of Libya that It seems behind the scenes a transitional government is already being put in place, and contracts are being signed for the resumption and export of Oil to Libya`s trading partners. Rebels Making Oil Deal The finance minister for the Libyan opposition, a University of Washington lecturer Ali Tarhouni who returned to Libya nearly a month ago to help the opposition, told reporters that Libyan rebels have signed a deal with Qatar to market their crude oil abroad in exchange for food, medicine...

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U.S. Consumers Have Big Banks To Blame For High Gasoline Prices

April 2, 2011 by EconMatters   Comments (0)

By Dian L. Chu, EconMatters There is a bit of irony here in that the very same banks that taxpayers bailed out, and saved from going completely belly up, are now making you pay once again in the form of higher Oil prices, and the resultant higher gasoline prices at the pump (Fig. 1). Don`t be fooled by the rhetoric generated in the media by the Big Banks regarding the Middle East. It All Started With Jackson Hole…. This run-up in oil prices started with Fed Chairman Bernanke`s Jackson Hole speech where the big banks realized they were going to get a bunch more juice in the form of...

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Excess Liquidity & Cheap Money Runs Rampant on Wall Street

April 1, 2011 by EconMatters   Comments (0)

By Dian L. Chu, EconMatters If one studies markets trading during the week, one thing becomes glaringly obvious-- there is too much cheap money sloshing around markets these days (See Chart Below). You no longer have healthy, two-sided markets in most asset classes. This is not a good thing for true market based price discovery, and ultimately leads to the creation of market bubbles. There are so many bubbles today that once QE2 ends, and the tightening cycle begins, investors are going to lose a lot of money. Gold, Silver, and Oil, for the most part, trade as one giant...

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No More Storage in Cushing: WTI will be $90 in a Month

March 31, 2011 by EconMatters   Comments (0)

By Dian L. Chu, EconMatters The latest inventory report came out on Wednesday, March 30 from the U.S. EIA (Energy Information Administration) showing Cushing stocks at a record 41.9 million barrels (Fig. 1). And guess what? The news is only going to get worse for WTI longs, as the next couple of weeks will bring the total storage at Cushing close to the max capacity of 44 million barrels due to the fact that more traders took delivery on WTI on the last CL rollover. MENA Does Nat Matter Much There is a three week span after the expiration where actual physical delivery takes...

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