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Posts Tagged ‘oil’

Good piece on Seeking Alpha about market correlations: these days individual fundamentals don’t seem to matter as much as general market trends:

We used to be a market influenced by lemmings, but now they run the market. Remember two weeks ago? Every asset up… get out of the way. Risk is ON! Five weeks ago? You own stuff? Loser! Risk is OFF! 12 weeks ago? Everything must go up! Last week? Sell sell sell… everything!

The measured correlation of markets is around 80%, which indicates investing is more a game of follow the leader than picking opportunities.

Read on here.

And for anecdotal proof, here’s how the price of crude oil is correlated with other commodities: like alcohol:

LONDON (Reuters) – Britain’s financial regulator has fined and banned a former broker for manipulating oil prices by buying more than 7 million barrels while on a drinking binge.

The Financial Services Authority (FSA) said it fined Steven Perkins, a former employee of PVM Oil Futures Ltd, 72,000 pounds ($108,000) and banned him from working in financial services for at least five years for carrying out trades without the authority of clients or his employer.

Perkins’ unauthorized trading pushed the price of Brent crude oil futures up to almost $73.50 a barrel — at that point the highest level prices had hit on the InterContinental Exchange in 2009.

The rest of the insanity here.

It’s an absurd game we play.

“Sent from my BlackBerry® wireless handheld”

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A recent story on the Herald Tribune: (bold emphasis added)

Ukraine, once considered a worldwide symbol of an emerging, free-market democracy that had cast off authoritarianism, is teetering. And its predicament poses a real threat for other European economies and former Soviet republics.

It is not hard to understand why world leaders are increasingly worried about the discontent and the financial crisis in Ukraine, which has 46 million people and a highly strategic location. A small country like Latvia or Iceland is one thing, but a collapse in Ukraine could wreck what little investor confidence is left in Eastern Europe, whose formerly robust economies are being badly strained.

It could also cause neighboring Russia, which has close ethnic and linguistic ties to eastern and southern Ukraine, to try to inject itself into the country’s affairs. What is more, the Kremlin would be able to hold up Ukraine as an example of what happens when former Soviet republics follow a Western model of free-market democracy.

Ukraine’s economy has stumbled due to falling prices of its top exports: steel and chemicals.

One danger of the current financial crisis is that it has given a wide floor for critics of capitalism. The fears highlighted above are precisely the manifestation of how history usually becomes a naive judge of moral and political ideals.

From Russia Today, a lowdown on how the economic crisis has manifested in the politics of Ukraine:

Not only is the economic crisis influencing judgement of political ideals, but it has also stirred a new wave of politics on its own.

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Some effects of the ongoing global financial crisis may surprise you.

First is crashing oil prices have begun to hurt sentiment supporting research into biofuels.

Although falling oil has generally benefitted consumers due to falling fuel and electricity prices, the moral hazard here is that research into alternative fuels is disincentivized. In a post we featured earlier: in the case of fuels like ethanol, the amount of fossil fuels needed to process and transport it are roughly equal to the amount produced, so as oil becomes cheaper, pursuing alternatives makes less economic sense. As Abigail Ho writes for the Inquirer:

It might be better for countries to place their biofuels projects on the backburner at this time, as oil prices were expected to remain relatively low over the next two to four years, Jorge Montepeque, Platts global director for market reports, said at a forum.

Instead of pulling energy prices down, the use of biofuels might do just the opposite, he said.

“I think biofuels in most markets consume more energy than they produce, so they tend to be energy negative,” Montepeque said. “Most efforts in biofuels actually lead to higher energy prices. We expect some of these projects to be rolled back or cancelled as energy prices come down.”

Second, the implosion of investment portfolios with the meltdown in markets has had many a fund manager tightening their belts, bereft of their money machines. This has affected not just the confidence of the former market wizards but also the spending habits of their gold-digging trophy wives. Tara Wilson writes for the Telegraph:

‘You loser!” screamed Katie, aiming a vase at her husband. “You’ve destroyed my life,” she continued, hurling it. “Just look at my hair, look at my nails! You loser, you jerk, you nobody.”

Katie’s husband, Jack, whose property portfolio disintegrated in the financial crash, had just told his wife that she would have to cut back on her thrice-weekly visits to Nicky Clarke, the nail salon in Harvey Nichols, and the oxygen facials, chemical peels and seaweed wraps at Space NK.

Such was the aggression and verbal and physical abuse that followed that Jack was left with cut lips and blood streaming from a broken nose.

In this time of crisis, some things like oil head back to earth while some other things will remain forever out there in wild space.

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On the newswires recently:

QUITO, Ecuador – Ecuador vowed Friday to delay a $30.6 million interest payment on its foreign debt while it investigates possible irregularities in the contracts, sending its benchmark bonds and credit rating tumbling as default fears soared.

Finance Minister Maria Elsa Viteri said Ecuador won’t make Saturday’s payment, and is instead invoking a 30-day grace period to review an audit of 2012 bonds worth $1.25 billion. The audit is due next Thursday.

Standard & Poors devalued the country’s long-term debt rating by three notches, from B- to CCC-, citing the “severe uncertainty” that Ecuador will ultimately pay up. The ratings agency warned it would further slash its rating to “SD” or “selective default,” if the government signals plans to restructure its debt.

Full article here.

Another article on BBC:

Last week Ecuador won itself a place in economic history books when it became the first country to default on its Brady debt.

The default doesn’t just set a first for Ecuador, it is also likely to set a precedent for how government and investors behave when borrowers default.

The question is: whose responsiblity is it when a borrower can’t pay the money it owes?

Last year, official lenders, such as the IMF, came under fire for effectively bailing out private investors with public money during and after the Asian crisis.

The interesting thing? (more…)

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Hot off CNN today:

SEOUL, South Korea (CNN) — Armed gunmen hijacked a Japanese freighter and its 23-member crew off the coast of Somalia, South Korean officials said Sunday.

Somalia, which has had no functioning government since 1991, is the world’s top piracy hotspot.

Also a Russian patrol ship was able to thwart a hijack attempt on a Saudi Arabian vessel, a spokesman said Sunday.

Full story here.

Before this recent attack joins the statistics, it’s important to note some flashbacks to the strategic signficance of Somalia. (more…)

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Oil, Smoke and Mirrors is a documentary about the concept of Peak Oil production and its implications on economics, geopolitics, and financial markets. This film is interesting viewing in light of the recent surge in the price of oil following the subprime crisis, and the current cratering of Oil futures following the recessionary fears in the US, UK, and Europe.

Oil Smoke & Mirrors offers us a sobering critique of our perceived recent history, of our present global circumstances, and of our shared future in light of imminent, under-reported and mis-represented energy production constraints. Through a series of impressively candid, informed and articulate interviews, this film argues that the bizzare events surrounding the 9/11 attacks, and the equally bizzare prosecution of the so-called “war on terror”, can be more credibly understood in the wider context of an imminent and critical divergence between available global oil supply and increasing global oil demand. The picture “Oil, Smoke & Mirrors” paints is one of a tragically hyper-mediated global-political culture, which, for whatever reason, demonstrably disassociates itself from the values it claims to represent. While the ideas presented in this film can at first seem daunting, it’s ultimate assertion is that these challenges can indeed be met and perhaps surpassed if, but only if, we can find first the courage to perceive them.

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First a supposed admission by Sarah Palin, now this.

Is this really the reason? Assuming it is really the reason, would that be the the reason why they went to Iraq in the first place, or are they only in it now since they don’t trust what the U.S. will do in Iraq?

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I have heard of this conspiracy theory years ago. Now it’s on youtube. With all the hearsay conspiracy theories subsequently being documented on the web, I wonder how the U.S. will weather all the news. I tell you, people are just starting to talk now and they are now beginning to blame each other. Respectable Americans are now coming out and even asking to sell U.S. assets. How much lower will the U.S. economy go?

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and here is even another supposed admission by another government

http://www.youtube.com/watch?v=gVDCXpSD6Fk&feature=related

WOW – for the V.P. nominee to be questioning the motivation of America’s participation in the Iraq War while proclaiming its merits at the Republican Convention that ‘its all about terrorism’… gasp. And she is sitting there questioning this, and in the same breath sending her son over there for that purpose??
(more…)

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Over afternoon snacks today, my father asked me about the bankruptcies of major US banks such as Lehman Brothers, Merrill Lynch, and Bear Sterns, and how that might affect us who lived in Asia. In this modern age of speculative finance, nearly everything you can think of from the food on your table to the prices of gas in your car, to the interest rates on your savings account are all interrelated.

I co-moderate a stock market and finance forum Finance Manila and I recently did a poll of respondents to check how sensitive or indifferent they were to the performance of the US markets the previous night. My poll showed that as much as 2 out of every 3 respondents (and these were mostly Philippine investors and traders) showed some affection for the DOW’s result.

You can check out the details of this poll here.

This level of sensitivity is not surprising, considering that the Philippine stock market has a positive correlation to the performance of the DOW the previous night. In another study I conducted, I found that the general correlation of the PSE Index to the DOW is .30 positive for the last 10 years, and increased to .56 positive in more recent months (since 2007):

You can check out more of the analysis here.

This almost identical movement in both equity markets is simply reflective of the close knit relationships amongst all financial and speculative markets nowdays. The simple reason: the same people investing in stocks here and in the US, are the same people investing in commodities, bonds, and every other securitized asset across the world.

For example, if we track the performance of Oil vs. the US Dollar in the last decade, we see an inverse relationship:

So the movements in various other financial markets is simply the movement of capital from one asset to another. Check out the other relationships here. In a latest CFTC report on Crude Oil, it showed that the level of participation in commodity markets, was heavily biased towards speculators rather than actual producers and manufacturers. This is the reason why, despite many compelling economic arguments for or against the rise in oil, the movement in price has behaved more according to the whim of speculators:

And how do speculators move? Well, that can be based on many factors, but primarily speculative funds move based on two things:

  • Where they can get more profits
  • Where they can avoid losses

And with the recent tumble of equity markes due to the bankruptcies of banks and investment banks, speculators initially sought refuge in commodities, which drove up prices of Gold, Oil, Wheat, and others in order to insulate them from initial losses in subprime mortgages and bank shares. But as the losses increased, speculators were also forced to sell their commodity holdings to help raise cash to pay for their margin calls in other investments.

This means, that even if there is no economic argument of why a bank’s loss can affect the price of fuel–that’s exactly what is happening now.

So going back to my father’s question: does the bankruptcy of Lehman Brothers, Merrill Lynch, and Bear Stearns have anything to do with us, all I can muster is an understatement:

Yup.

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