This Giant Welfare State Is Running Out of Time

By Justin Spittler

The Saudis are begging Trump to stop pumping so much oil. Saudi Arabia made the plea earlier this month in its monthly oil report. The report said “the collective efforts of all oil producers” would be needed to restore order to the global oil market. It added that this should be "not only for the benefit of the individual countries, but also for the general prosperity of the world economy."

It’s a bizarre request, to say the least. You’re probably even wondering why they would do such a thing. As I'll show you in today's essay, it's a clear act of desperation. One that tells me the country is doomed beyond repair. I’ll get to that in a minute. But first, let me tell you a few things about Saudi Arabia.

It’s the world’s second largest oil producing country after the United States.…
It’s also the largest producer in the Organization of the Petroleum Exporting Countries (OPEC), a cartel of 13 oil producing countries. Like other OPEC countries, Saudi Arabia lives and dies by oil. The commodity makes up 87% of the country’s revenues. This was a great thing when the price of oil was high. Saudi Arabia was basically printing money.

But that hasn’t been the case for years. You see, the price of oil peaked back in June 2014 at over $105 a barrel. It went on to plunge 75% before bottoming in February 2016. Today, it trades under $50.

Low oil prices are wreaking havoc on Saudi Arabia’s finances.…
But not for the reason you might think. You see, Saudi Arabia is the world’s lowest-cost oil producer. Its oil companies can turn a profit at as low as $10 per barrel. That’s one fifth of what oil trades for today.

So what’s the problem? The problem is that Saudi Arabia is one giant welfare state.

Nick Giambruno, editor of Crisis Investing, explains:

Saudi Arabia has a very simple social contract. The royal family gives Saudi citizens cradle-to-grave welfare without taxation. The Saudi government spends a fortune on these welfare programs, which effectively keep its citizens politically sedated. In exchange, the average Saudi citizen forfeits any political power he would otherwise have.

Not only that, about 70% of Saudi nationals work for the government. These “public servants” earn 1.7 times more than their counterparts in the private sector.

In short, Saudi Arabia uses oil money to keep its citizens in line.…
But this scheme isn’t cheap. According to the International Monetary Fund (IMF), Saudi Arabia needs oil to trade north of $86 a barrel to balance its budget. That’s nearly double the current oil price. This is creating big problems for the Saudi kingdom. In 2015, the Saudis posted a record $98 billion deficit. That was equal to about 15% of the country’s annual economic output. Last year, it ran another $79 billion deficit.

Saudi Arabia is now desperately trying to restore its finances.…
It’s slashed its government subsidies. It’s borrowed billions of dollars. It’s even trying to reinvent its oil addicted economy. In fact, it plans to increase non oil revenues sixfold by 2030. It’s also trying to spin off part of the national oil company, Saudi Aramco, on the stock market. And it wants to create a $1.9 trillion public fund to invest at home and abroad.

The Saudis have even tried to rig the global oil market.…
It’s why they met with non OPEC members like Russia at the December meeting. At this meeting, OPEC and non OPEC members agreed to cut production. It was the first deal like this since 2001. OPEC hoped this historic pact would lift oil prices. There’s just one big problem.

U.S. oil producers aren’t playing ball.…
Instead of cutting output, they’ve rapidly increased production. You can see this in the chart below. U.S. oil production has jumped 10% since last July.

U.S. oil production is now approaching the record level set back in 2015. There’s good reason to think production will blow past that high, too. To understand why, look at the chart below. It shows the total number of U.S. rigs actively looking for oil. You can see that the total number of rigs plummeted in November 2015 before bottoming a year ago.

The total U.S. oil rig count has now risen 28 weeks in a row. There are now 396, or 125%, more rigs looking for oil in the United States than there were a year ago.

If this continues, the price of oil will slide lower.…
Saudi Arabia isn’t used to feeling this helpless. After all, the Saudis had a firm grip on the global oil market for decades. If it wanted, it could raise the price of oil by slashing production. It also had the ability to drive the oil price lower by flooding the market with excess oil. Those days are over. The United States now rules the global oil market, and it’s showing no mercy.

Unless this changes soon, Saudi Arabia is doomed.

After all, the country is already in a race against time. According to the IMF, Saudi Arabia is on pace to burn through all of its cash within five years. In other words, we’re witnessing a seismic power shift in the global energy markets, one that could cause oil prices to plunge even lower. That would be bad news for many oil companies in the short term. But it should also lead to one of the best buying opportunities we’ve seen in years. I’ll be sure to let you know when it’s time to pull the trigger. Until then, stay on the sidelines. This one could get nasty.

P.S. Crisis Investing editor Nick Giambruno predicted that Saudi Arabia’s oil addicted economy would implode back in March 2016. Not only that, he told his readers how to profit from this crisis by recommending a world class U.S. oil company.

Nick’s readers are up more than 20% on this investment. But it should head much higher once the U.S. puts Saudi Arabia out of its misery. You can learn all about Nick’s top oil stock by signing up for Crisis Investing. Click here to begin your risk free trial.

The article This Giant Welfare State Is Running Out of Time was originally published at caseyresearch.com.

A Stunning Move by the World’s Largest Oil Company

By Justin Spittler

Oil still can’t find a bottom. As Dispatch readers know, the oil market is in crisis. Since June 2014, oil has plunged 69%. It dropped 31% in 2015 alone. So far, 2016 has been even worse. The price of oil has fallen every day this year. On Friday, it closed at $32.88 a barrel, its lowest price since February 2004. Oil is already down 11% this year.

In October, Doug Casey predicted lower oil prices at the Casey Research Summit in Tucson, Arizona. I don't know how long [oil prices] will stay low. But they're going lower for the time being. Production is stable to up, but consumption is headed down with a slowing economy.…I'm still short oil at the moment.

The world has too much oil…..
As you likely know, new technologies like “fracking” have unlocked billions of barrels of oil that were impossible to extract before. U.S. oil production has nearly doubled since 2008. In June, U.S. oil production hit its highest level since the 1970s. Global oil output hit an all time high in 2014.

Falling oil prices have slammed the world’s largest oil companies…..
The world’s five largest publicly traded oil companies – Exxon Mobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS-A), BP (BP), and Total S.A. (TOT) – lost $205 billion in value last year, according to The Wall Street Journal. Shell, the worst performer of the five, dropped 24% in 2015. Total, the best performer, dropped 3%.

Oil services companies, which sell “picks and shovels” to the oil industry, have also tanked. The Market Vectors Oil Services ETF (OIH), which holds 26 oil service companies, has plunged 59% over the past 18 months. Schlumberger (SLB) and Halliburton (HAL), the two largest oil services companies, are down 39% and 44% in the same period.

Eventually, this cycle will end with absurdly low prices for oil stocks. We’ll get an amazing opportunity to buy oil stocks at fire sale prices. But, for now, we recommend staying away until the world works through some of its oversupply of oil.

Saudi Arabia is in crisis…..
Saudi Arabia depends more on oil revenues than any other country. Oil makes up 83% of its exports. And about 80% of the country’s government revenue come from oil sales. Last year, the Saudi government spent $98 billion more than it took in…its first budget deficit since 2009.

The International Monetary Fund (IMF) expects the Saudi government to post a budget deficit as high as -19% of GDP in 2016. For comparison, the U.S. government has not posted a deficit higher than -9.8% since World War II. The IMF says Saudi Arabia could burn through its $650 billion cash reserve by 2020 if oil prices stay low. Since oil crashed in the summer of 2014, the country has already withdrawn at least $70 billion from its cash reserve.

To raise cash, the Saudi government may sell its crown jewel…..
Saudi Aramco is Saudi Arabia’s government owned oil company. As the world’s largest oil company, it owns the biggest oil fields in the world, and produces 13% of the world’s oil. The Saudi government has controlled the country’s oil industry since the 1970s. Last week, Financial Times reported that Saudi Arabia is considering an initial public offering (IPO) for Aramco. An IPO is when a company sells shares to the public.

According to Financial Times, an IPO would likely value the company “in the trillions of dollars.” To put that in perspective, Apple (AAPL), the world’s largest publicly traded company, is worth just $538 billion. Some estimates put the value of Saudi Aramco at more than 10 times that of Exxon Mobil – the world’s largest publicly traded oil company.

Switching gears, the U.S. automobile industry is setting record highs..…
U.S. automakers sold an all time record 17.5 million vehicles in 2015. The industry sold 5.7% more vehicles last year than it did 2014. Auto sales have now grown six years in a row. Despite record sales, U.S. automaker stocks are struggling. Ford (F) was down 9.1% in 2015, and has only gained 17% since the beginning of 2012.

General Motors (GM) was down 2.6% in 2015, and has gained 46% since the beginning of 2012. Both stocks have performed worse than the S&P 500, which has gained 53% since the beginning of 2012. Companies that sell parts and services in the auto industry have done much better. Tire maker Goodyear (GT) has climbed 99% over the past four years. Repair and parts shop AutoZone (AZO) is up 119%.

Cheap credit has fueled the boom in the auto industry…..
Forbes reported last month: During the third quarter of 2015, Experian determined the average amount financed for a new vehicle was $28,936, which is up $1,137 from the same period in 2014. What’s more, 44 % of buyers are now taking out loans for between 61 and 72 months, with 27.5% extending their new-vehicle indebtedness to between 73 and 84 months, with the latter representing an increase of 17.1 percent over the past year.

As Casey readers know, the Federal Reserve has made it incredibly cheap to borrow money. In 2008, the Fed cut its key interest rate to effectively zero to fight the financial crisis. It has held its key rate at extremely low levels ever since. Today, its key rate is just 0.25%...far below the historical average of 5%. The average interest rate on a car loan is just 4.3% today. In 2007, the average car loan rate was 7.7%.

E.B. Tucker, editor of The Casey Report, isn’t surprised by the auto industry’s record year..…
Here’s E.B.: Of course the auto industry had a record year…how could it not? I've seen auto rates as low as 0% for 84 months. When money is free, people buy now and think later. The U.S. auto loan market has grown 18 quarters in a row. Last year, it topped $1 trillion for the first time ever. There is now 47% more auto debt outstanding than credit card debt in the U.S.

E.B. says this will end badly. The auto leasing market is also booming because of easy money. Leasing made up 27% of car sales during the first quarter of 2015. Those leases will expire 40 months from now. And someone has to buy those vehicles. This year, over 3 million leased cars will hit the market. Even more will hit the market next year and the year after. All these used cars will create a huge glut. If the free money dries up at the same time, things will get ugly fast. That’s how booms built on easy money come to an end.

Chart of the Day

Oil has plunged to its lowest level in 12 years. Today’s chart shows the price of oil going back to 2004. As you can see, oil has sunk to its lowest level since February 2004. It’s now down 77% from the all time high it set in 2008. As we’ve explained, the world simply has too much oil. Oil is now cheaper than it was during the worst of the global financial crisis in 2008-9.

The article A Stunning Move by the World’s Largest Oil Company was originally published at caseyresearch.com.

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Ignore Banks' Bearish Statements on Gold

By Jeff Clark, Senior Precious Metals Analyst

Goldman Sachs has lowered its gold price projections and says the metal is headed to $1,200. Credit Suisse and UBS are bearish. Citigroup says the gold bull market is over.

So I guess it's time to pack it in, right?

Not so fast. As we've written before, these types of analysts have been consistently wrong about gold throughout this bull cycle. Another reason to disagree, however, is history; we've seen this movie before. In the middle of one of the greatest gold bull markets in modern history, the one that culminated in the 1980 peak, gold experienced a 20 month, one way decline. Every time it seemed to stabilize, the bottom would fall out again. From December 30, 1974 to August 25, 1976, gold fell a whopping 47%.

1976 had to be a tough year for gold investors. The price had already been declining for a year – and it just kept on sinking. Since that's similar to what we're experiencing today, I wondered, What were the pundits were saying then? I wanted to find out.

I enlisted the help of two local librarians, along with my wife and son, to dig up some quotes from that year. It wasn't easy, because publications weren't in digital form yet, and electronic searches had limited success. But we did uncover some nuggets I thought you might find interesting.

The context for that year is that the IMF had three major gold auctions from June to September, dumping a lot of gold onto the market. Both the US and the Soviet Union were also selling gold at the time. It was no secret that the US was trying to remove gold from the monetary system; direct convertibility of the dollar to gold had ended on August 15, 1971.

The public statements below were all made in 1976. You'll see that they aren't all necessarily bearish, but I included a range to give a sense of what was happening at the time, especially regarding the mood of the gold market. I think you'll agree that much of this sounds awfully darn familiar. I couldn't resist making a few comments of my own, too.

To highlight the timing, I put the comments into a price chart, pinpointing when they were said relative to the market. Keep in mind as you read them that the gold price bottomed on August 25, and then began a three-and-a-half year, 721% climb…

[1] "For the moment at least, the party seems to be over." New York Times, March 26.

[2] "Though happily out of the precious metal, Mr. Heim is no more bullish on the present state of the stock market than any of the unreconstructed gold bugs he's had so much fun twitting of late. He's urging his clients to put their money into Treasury bills." New York Times, March 26.

Me: These comments remind me of those today who poke fun at gold investors. I wonder if Mr. Heim was still "twitting" a couple years later?

[3] "'It's a seller's market. No one is buying gold,' a dealer in Zurich said." New York Times, July 20.
Turns out this would've been an incredible buyer's market – but only for those with the courage to buy more when gold dropped still lower before taking off again.

[4] "Though the price recovered to $111 by week's end, that is still a dismal figure for gold bugs, who not long ago were forecasting prices of $300 or more." Time magazine, August 2.
The "gold bugs" were eventually right; gold hit $300 almost exactly three years later, a 170% rise.

[5] "Meanwhile, the economic conditions that triggered the gold boom of 1973 through 1974, have largely disappeared. The dollar is steady, world inflation rates have come down, and the general panic set off by the oil crisis has abated. All those trends reduce the distrust of paper money that moves many speculators to put their funds in gold." Time magazine, August 2.

This view ended up being shortsighted, as these conditions all reversed before the decade was over. Does this sound similar to pundits today claiming the reasons for buying gold have disappeared?

[6] "Our own predictions are that gold will go below $100, with some hesitation possible at the $100 level." As stated by Mr. Heim in the August 19 New York Times.

Yes, this is the same gentleman as #2 above. I wonder how many of his clients were still with him a few years later?

[7] "Currently, Mr. LaLoggia has this to say: 'There is simply nothing in the economic picture today to cause a rush into gold. The technical damage caused by the decline is enormous and it cannot be erased quickly. Avoid gold and gold stocks.'" New York Times, August 19.

You can see that these comments were made literally within days of the bottom! Take note, technical analysts.

[8] "'Gold was an inflation hedge in the early 1970s,' the Citibank letter says. 'But money is now a gold-price hedge.'" New York Times, August 29.

Wow, were they kidding?! This reminds me of those dimwits journalists who said in 2011 to not invest in gold because it isn't "backed by anything."

[9] "Private American purchases of gold, once this was legalized at the end of 1974, never materialized on a large scale. If the gold bugs have indeed been routed, special responsibilities fall on the victorious dollar." New York Times, August 29.

The USD's purchasing power has declined by 80% since this article declared the dollar "victorious."

[10] "Some experts, with good records in gold trading, declare it is still too early to buy bullion." New York Times, September 12.

Too bad; they could've cleaned up.

[11] "Wall Street's biggest brokerage houses, after having scorned gold investments during the bargain days of the late 1960s and early 1970s, made a great display of arriving late at the party." New York Times, September 12.

No comment necessary.

[12] "He believes the price of bullion is headed below $100 an ounce. 'Who wants to put money over there now?'" As stated by Lawrence Helm in the New York Times, September 12.

The price of gold had bottomed two weeks before, making the timing of this advice about the worst it could possibly be.

[13] Author Elliot Janeway, whose book jacket states, "Presidents listen to him," was asked by a book reviewer about his preferred investments. He writes: "Then, gold and silver? He likes neither. In fact he writes: 'Any argument against putting your trust in gold, and backing it up with money, goes double for silver: silver is fool's gold.'" New York Times, November 21.

Mr. Janeway ate his words big-time: from the date of his comments to silver's peak of $50 on January 21, 1980, silver rose 1,055%!

[14] "Mr. Holt admits that 'in 1974, intense speculation caused the gold price to get too far ahead of itself.'" New York Times, December 19.

So, anything sound familiar here? Yes, it was a brutal time for gold investors, but what's obvious is that those who looked only at the price and ignored the fundamentals ended up eating their words and dispensing horrible advice. Investors who followed the "wisdom of the day" missed out on one of the greatest opportunities for profit in their lifetimes.

I was pleased to learn, though, that not all comments were negative in 1976. In fact, in the middle of the "great selloff," there were those who remained stanchly bullish. These investors must've been viewed as outliers – they, much like some of us now, were the contrarians of the day.

Also from 1976…

• "Many gold issues, in fact, are down 40 percent or more from their highs. Investors who overstayed the market are apparently making their disenchantment known. The current issue of the Lowe Investment and Financial Letter says, 'We are showing losses on our gold mining share recommended list… but keep in mind that these shares are for the long-term as investments.'" New York Times, March 26.
  
  Sounds like what you might read in an issue of a Casey Research metals newsletter..

• "The time to buy gold shares," [James Dines] declares, "is when there is blood in the streets." New York Times, September 12.
  
  If you glance at the chart above, Jim's comments were made within two weeks of the absolute low.

• "We're recommending to clients that they hold gold and gold shares," [C. Austin Barker, consulting economist] says. "The low-production-cost mines in South Africa might be interesting to buy for the longer term because I see further inflation ahead." New York Times, September 12.
  
  Investors who listened to Mr. Barker ended up seeing massive gains in their gold and gold equity holdings.

• "The probability of runaway inflation by 1980 is 50%... In light of this, the only safe investments are gold, silver, and Swiss francs,'" said the late Harry Browne on November 21 in the New York Times.
   

• "In the longer run, [Jeffrey Nichols of Argus Research] believes gold's price trend 'is much more likely to be upward than downward.'" New York Times, December 19.
  
  The "longer run" won.

• "'I think the intermediate outlook for gold is a period of consolidation and a bit of dullness,' says Mr. Werden. 'However, six or nine months from now, we could see renewed interest in gold.'" New York Times, December 19.
  
  He was right; within nine months gold had risen 13.5%.

• "Mr. Holt offers some advice to investors who are taking tax losses on their South African gold shares – some of which are selling at just 30 to 35 percent of their peak prices in 1974. 'If leverage has worked against you on the way down,' he reasons, 'why not take advantage of it on the way up?'" New York Times, December 19.
  
  Solid advice for investors today, too.

• "What's his [Thomas J. Holt] prediction for the future price of gold? 'A new high, reaching above $200 an ounce, within the next couple years.'" New York Times, December 19.
  
  His prediction was conservative; gold reached $200 nineteen months later, by July 1978.

It's clear that there were positive "voices in the wilderness" during that big correction, and as we all know, those who listened profited mightily.

There were other interesting tidbits, too. For example, gold stocks had been performing so poorly for so long that some advisors suggested a strategy we also hear today…

• "It is probably too late to sell gold shares, the stock market's worst-acting group these days, except for one possible strategy: selling to take a tax loss and switching into a comparable gold security to retain a position in the group." New York Times, September 12.

Even back then, it was widely known that gold often bucks the trend of the broader markets…

• "You might put a small portion of your money into gold shares and pray like the dickens that you lose half of it. In that way, chances are that if gold shares go down, the rest of your stock portfolio will go up." New York Times, September 12.

Gold miners provided critical revenue and jobs, just like today. From the August 2 issue of Time magazine…

• "South Africa, the world's largest gold producer, is being hurt the most. The price drop will cost it at least $200 million in potential export earnings this year."

• "Layoffs at the gold mines would make it even worse – the joblessness could intensify South Africa's explosive racial unrest."

• The Soviet Union, the world's second-largest gold producer, is feeling the price drop, too. The Soviets depend on gold sales to get hard currency needed to buy US grain and other imports."

Gold was also used as collateral…

• "The international gold market was also roiled yesterday by a report by the Commodity News Service that Iran was negotiating to lend South Africa roughly $600 million, predicated on a collateral of 6.25 million ounces of gold."

And just like today, there were plenty of stupid misguided US politicians: From the New York Times on August 27:

• "The drop in gold bullion prices from $126, which was the average at the first IMF auction June 2, provoked the Swiss National Bank to attack Washington's attitude toward the metal as 'childish.' Aside from the estimated $4.8 billion of gold reserves held by Switzerland, bankers there advocate some role for the metal as a form of discipline against unrestricted printing of paper money."

That last statement from the Swiss bankers is hauntingly just as true today.
Last, you know how the government in India has been tinkering with the precious-metals market in its country? And how it's led to smuggling? From the New York Times on August 27:

• "India announced it was resuming its ban on the export of silver. India is believed to have the largest silver hoard and the government there freed exports earlier this year as a means of earning taxes levied on overseas sales. However, most silver dealers minimized the significance of India's move yesterday. As one dealer explained, 'Smuggling silver out of India is so ingrained there that the ban will have no effect on the flow. It never has. Indian silver will continue to ebb and flow into the world market according to price.'"

So what's the difference in mood today vs. the mid-1970s? Nothing! This shows that the same concerns, fears, and confusion we have now existed at a similar point in the gold market then. There were also those who saw the big picture and stayed vigilant. Virtually every comment made in 1976 could apply to today. Keep in mind that most of the statements above are from two publications only; there are undoubtedly many more similar comments from that year.

The obvious lesson here is that patience won out in the end. It took the gold price three years and seven months to return to its December 1974 high. It only took another 18 months to soar to $850. Today, that would be the equivalent of gold falling until June this year, and not returning to its $1,921 high until April, 2015. It would also mean we climb to $6,227 and get there in November, 2016. Could you wait that long for a fourfold return?

This review of history gives us the confidence to know that our gold investments are on the right track. I hope you'll join me and everyone else at Casey Research in accepting this message from history and staying the course.

So, what will your kids or grandkids read in a few decades?

• "Buy gold. It's going a lot higher." Jeff Clark, Casey Research, March 24, 2013.

Gold is going higher, but gold producers are going to go higher still. Now, junior gold explorers… if you select the right ones, you'll experience life-changing gains. Identifying junior gold miners with the right stuff is how contrarian investing legends Doug Casey, Rick Rule, and Bill Bonner have made millions – and right now you have the opportunity to hear them reveal exactly how they did it, and how you can, too. It's all happening during the upcoming Downturn Millionaires web video event, which is free.

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The 2 Energy Sectors You Should Invest in This Year

CME Morning Crude Oil Market Report For Tuesday June 19th

August crude oil prices traded lower throughout the overnight and early morning hours but were able to turn positive heading into the US opening. It is possible that reports that G-20 leaders were boosting IMF's funding, along with hopes that further stimulus could come from a two day FOMC meeting and potential interest rate cut by the ECB has offered a modest lift to crude oil.

August Brent crude oil registered a new 17 month low this morning, and it too has been able to climb back into positive territory. It is also possible that slow progress in talks between world powers over Iran's nuclear program in Moscow have presented a measure of support to the crude oil market. Negotiations over easing sanctions on Iran made little progress yesterday and seemed to come with tough language.

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ONG: Recent Developments Support Gold's Outlook

The G-20 summit ended Friday mainly focused on the sovereign debt crisis in the Eurozone. Two critical developments we observed were Italy's acceptance of surveillance and monitor by the IMF, as well as the failure to agree on the use of IMF resources. Both are expected to affect market sentiment towards the 17 nation region.

In the IMF program to monitor Italy's progress of the reforms, the world lender will provide independent and frequent assessments of the economic and financial conditions of Italy. It will also review on the Italian government's implementation of the fiscal policy such that credibility will be built up in the government regarding policy implementation.

The G-20 communiqué stated that G-20 countries 'stand ready to ensure additional resources could be mobilised in a timely manner'. The various channels that countries can contribute to the IMF include bilateral contributions, SDRs, and voluntary contributions to an IMF special structure such as an administered account.

AS happened last week was Greece's announcement and cancellation of the referendum of the EU agreement, FOMC meeting as well as ECB meeting. We will discuss in the precious metal section on these issues and their impacts on gold price......Check out Oil N'Gold.Com's commodities price movement charts.


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Phil Flynn: Is Europe Too Big To Fail?

Forget about all of that stellar manufacturing data and jobs data. Ok sure, that may have helped rally the oil yet it was the story that the U.S. stands ready to bail out Europe that sent the dollar falling and the oil on a second wind rally. Reuters News reported that an unnamed US official said the U.S. was prepared to support the European Union’s rescue fund through the International Monetary Fund and the largest contributor is the U.S.. The official said the spread of contagion through the euro region would be a problem for the global economy and because of that I guess the U.S. printing presses are ready to roll.

In other words, it looks like the U.S. just said that we are going to make good on all of Europe’s bad debts and make sure that European citizens can retire when they are 50. Ok maybe they did not say that exactly and they defiantly did not say anything about Europeans retiring when they are 50.( Maybe it was 60) And later the story was denied but don’t you tell that to the investment world because once you make a statement like that it is hard to take it back. Based on the weakness in the dollar after the story broke, it seems the market is convinced that come hell or high water the U.S. will back Europe in their time of economic need.

If the market believes it then there is a lot of pressure on the IMF and the US to make it so. If you don’t think so then you have forgotten the lessons of Fannie and Freddie. They were entities that were supposed to be independent but investors like the Chinese were led to belive that the government sponsored entity was backed by the full faith and credit of the good old American taxpayer. The same taxpayers that we have found out have backed a wide......Read the entire article.


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Commodity Corner: Crude Oil Down, Natural Gas Up for the Week

Crude oil settled at $81.51 a barrel Friday, a 34 cent decline from the previous day, as traders responded to action taken by the Chinese government to address rising inflation.

China's government, which many thought would raise interest rates to quell inflation, decided to take a somewhat milder approach Friday: increasing the required reserve replacement ratio for banks. Although less dramatic than the former approach, the move is expected to have a dampening effect on demand for oil and other commodities.

Also on the minds of traders was pending action by the Irish government, which faces a serious debt crisis brought on by a real estate bust. Ireland's prime minister on Friday confirmed the government was holding talks with the EU and the International Monetary Fund to craft a bank bailout plan to help stabilize the country's banks. The increasing likelihood of an Irish bank bailout has helped the euro to regain strength against the dollar recently. However, a weaker dollar was not enough to carry oil into positive territory for Friday.

December crude traded within a range from $80.59 to $82.75 Friday. Beginning with Monday's settlement price of $84.86, oil is down 3.9 percent for the week.

For natural gas, the story has been quite different. December gas futures surged 8.2 percent during the week, thanks to colder weather conditions taking hold in much of the country and forecast to continue through the Thanksgiving holiday.

Natural gas gained 15 cents Friday to settle at $4.16 per thousand cubic feet. It peaked at $4.17 and bottomed out at $3.975.

Gasoline for December delivery fell three cents to settle at $2.20 a gallon Friday. The futures price fluctuated from $2.16 to $2.25. Gasoline is virtually flat for the week, having risen only 0.2 percent since Monday.

Posted courtesy of Rigzone.Com

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Oil N Gold: Commodities Extend Weakness as Investors Avoid Risks

Crude Oil prices extend weakness for a third consecutive day as global risk aversion jumps amid Goldman's case. WTI crude oil price slides to 80.8 in European session, after plummeting -2.69% to 83.24 last Friday. Declines in heating oil and gasoline also accelerate with losses of -3% and -2% respectively.

After disclosing production of 29.26M bpd in March (+5.6% y/y), OPEC will probably increase shipment, by +0.9%, in the 4 weeks ending on May 1. This further increases oil supply which is already in a surplus in the market. Member countries are boosting production regardless insufficient demand.

In an interview over the weekend, Qatar's oil minister Abdullah bin Hamad al-Attiyah said there's no need for a special meeting before its October meeting but he mentioned that recent rally in oil price was is 'not related at all to there being a shortage...We see that inventories are at their highest'.

Natural gas has fallen in consolidative phase since April. However, resumption of inventory builds indicates risk of price is to the downside. Gas supply will likely remain ample in coming years as large producers are not going to cut output despite slump in prices.

Although Algeria's energy minister Chakib Khelil plans to seek commitments from 11 gas exporting nations to reduce output, both Russia and Qatar, respectively the biggest and the third biggest holders of the world's reserves, will probably refuse to collaborate.

Gold price slides due to broad based decline in commodities and weakness in the Euro. Currently trading at 1130, the benchmark contract fell to as low as 1124 earlier today. Despite the fall, gold's performance is relatively resilient when compared with oil prices. Some investors buy gold as they lose confidence on currencies on Greece's issue.

Talks on Greece involving the European Commission, the IMF and the European Central Bank have been delayed until April 21 as a volcanic ash cloud disrupted air travel. The market expects the EU and the IMF will impose tough conditions for the rescue package for Greece. The spread between Greek and German 10 year government debt widened +32 bps to 462 bps, the highest level since October 1998.

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Oil Price Has Little Change Depsite IMF's Upgrades

Hovering around 70, the benchmark contract for crude oil changes little ahead of US opening. IMF's upgrades on economic forecasts and OPEC's production cut in September are bullish factors but investors probably feel nervous to push oil higher after the +5.8% rally yesterday.

IMF forecasts world economy will expand +3.1% in 2010, compared with +3.1% projected in July, as driven by growths of +9% and +6.4% in China and India respectively. As stated in the report, 'the recovery has started and financial markets are healing...'in most countries, growth will be positive for the rest of the year, as well as in 2010'. However, 'to sustain the recovery, private consumption and investment will have to strengthen as high public spending and large fiscal deficits are unwound'.

For OECDs, GDP in the US, Japan and the Eurozone are anticipated to rise by +1.5%, +1.7% and +0.3%. All of these estimates have been revised upward from Julys' projections. According to Bloomberg's estimates, OPEC's crude production declined 50K bpd from August to 28.395M bpd in September as led by reductions in Iraq, Saudi Arabia and Angola. For the 11 members (excluding Iraq) that are subject to quota, total output dropped -10K bpd to 26.045M bpd in September, though the production was still higher than the target.....read the entire article and charts!