SALMANSPEAKS

IS THE BULL RUN OVER IN COMMODITIES?

noreply@blogger.com (salmanspeaks) — Mon, 01 Sep 2008 12:07:00 +0000

Recent days have seen an intense debate on the hot topic of the year — commodity prices. We have seen commodities across the board tumble in the past few months. Pessimists have started writing obituaries for the commodity bull and pronounced an end to the ascent in commodity prices. The scale of the rout can be seen in the Reuters-Jefferies CRB index, a basket of 19 commodities, which has fallen below 400 points to its lowest level since early April, a drop of about 14 percent since a record peak above 473 in early July.

So is the commodity supply/demand squeeze over?

Investors have retreated from the commodity markets on fears that economic slowdown in the United States has infected growth in the rest of the world, worries that demand growth will collapse and a rising dollar.

The global economy has been showing signs of demand destruction as a direct response to high commodity prices, especially Crude Oil. If recently released statistics are to be believed, Americans are driving lesser number of miles, buying fewer cars (especially gas guzzling SUVs) and are shifting to mass transport systems like railroads and buses, away from expensive modes like airlines. Globally also, oil consumption is expected to grow slightly in 2008 year by 760,000 barrels per day to an average of 86.8 million barrels, the weakest global growth rate since 2002. Due to a cyclical slowdown in world economy, not only in North America but also in OECD Europe and Pacific, oil demand will be weak in 2008 as well as in early 2009. Japan is also showing signs of reduced pace of economic activity.

The debate over whether the “Commodity Super Cycle” is dead or alive also revolves on whether the US-dollar has hit rock bottom against the Euro and other foreign currencies. A stronger US-dollar creates a virtuous circle of knocking commodity markets lower. In August, the dollar rose versus all of the other major currencies this on concern the economic slowdown that began in the U.S. is spreading to the rest of the world. The dollar gained 6.4 percent versus the euro, the best performance since the European currency's debut.

Commodity prices will fall, because they always do. It is a fundamental truth of commodities that they fluctuate about a mean. If demand exceeds supply, ultimately a new mine opens and supply then exceeds demand.

What is being ignored is the fact that that though Demand has slackened, supply still remains tight. When it comes to Oil, non-demand from OECD, Asia and the Middle East still remains strong. Soaring oil prices have not slowed China's consumption of oil as statistics show that China's apparent consumption of crude oil and refined oil products both hit record highs in the first quarter of the year. There are talks of slowdown in Chinese economy and demand for commodities post Olympics. However, we are yet to see any convincing evidence of such a halt in Chinese economic growth. Moreover, Chinese government has recently announced a fiscal stimulus which is expected to keep the Chinese economy from slipping into a post games slowdown and by extension, the global economy going.

Also, though OPEC supply has been increasing over the past few months, Non-OPEC supply remains a big problem. Production is declining quickly in Mexico and Russia as well as Britain North Sea Oilfields. Already, with each passing day, OPEC’s spare capacity is moving southward. Moreover, geopolitical situation still remains volatile, threatening to send commodities prices once again over the roofs.

Same goes for Base metals complex. There seems to be no end to the China’s appetite for Copper. Supply remains tight due to production disruption in Chile, Mexico and Peru, the leading producers. Precious metals are also expected to rule at comfortable level as the global economies reel under inflationary pressure. Given the strong demand supply mismatch, possibility of a crash in prices of agricultural commodities also seems far fetched. Rising global population has led to an upsurge in demand while at the same time acreage has gone down significantly. Moreover,inventories of food are touching all time low.

Mark Mobious, the renowned investment Guru says “When you have a long-term uptrend, excesses build up along the way. We are witnessing a correction”. He continues “Demand for commodities will remain at a high level in countries like China and India. If we see a serious worldwide recession, then we will see the end of the commodities boom.”

Thus, in retrospective, it seems pertinent that bull run in commodity markets remains intact. What we are witnessing is a corrective reaction to an unusual run up in prices within a framework of a long term bull market in commodities. Bull markets in commodities last as much as 15-20 years or even more. There may be periods of large correction that may witness a fall of as much as 40%. Though prices may cool in near term due to demand destruction and a stronger Dollar, in longer term, price is expected to be largely influenced by fundamentals intrinsic to commodities. Corrections are inevitable in any uptrend and the commodities market is no exception. The long-term fundamentals dictate that any major corrections remain buying opportunities for long-term investors.

WHAT INFLATED THE COMMODITY BUBBLE?

noreply@blogger.com (salmanspeaks) — Thu, 31 Jul 2008 14:27:00 +0000

Crude Oil has corrected over 15% from the top. Gold, Silver, Copper, Wheat and other commodities too have retreated from their respective highs. The heavy selling witnessed in last few days, has raised concerns that the air is leaking from the Commodity bubble and that a multiyear bull market might end soon. It has been pretty well established of late, that the commodity market has been exhibiting many of the characteristics of a bubble. Thus, we may be very well at the beginning of a bursting asset bubble. Historically, price bubbles have been destined to burst under their own weight, and at a moment's notice. No market travels in a straight line forever and what goes up inevitably comes down. And as the charts of the dot-com and housing bubbles show, the fall can be just as dramatic as the climb. Now, when the bubble in the commodity space is showing signs of cllapse, an analysis of various factors that inflated the same will make for an interesting study.

Commodities prices have increased more in the aggregate over the last five years than at any other time in U.S. history. Commodity price spikes have occurred in the past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today, unlike previous episodes, supply is relatively ample: there are no lines at the gas pump and there is plenty of food on the shelves.

It can be said that what we are experiencing is a demand shock coming from Emerging economies like China and India. In recent years, the two countries, which together possess more than a third of the world's population, have witnessed rapid economic growth. There has been a jump in national income; consumption levels and standard of living in this part of the globe on back of heightened pace of industrialization, urbanisation and benefits of globalization. It is being suggested that this particular demand factor was something which attracted new category of participant in the commodities futures markets: Institutional Investors like Hedge Funds, Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments etc. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant. According to the US Department of Energy, annual Chinese demand for petroleum has increased in the past five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels. In the same five-year period, Institutional investor’s’ demand for petroleum futures has increased by 848 million barrels. In other words, they have almost created another China in terms of demand. However, what was being ignored was that these economies are still not consumption/export driven. Also, the population and politics of these countries, unlike the western ones are quite price sensitive and any abnormal rise in price is met by demand destruction.

The rise in global food grain prices has also been attributed to the phenomena of “Agflation”, i.e., diversion of crops and land for biofuel cultivation. A large portion of corn is being diverted to produce ethanol which has emerged as an attractive substitute for Crude Oil. A leaked internal World Bank study suggested that biofuels have forced global food prices up by 75%.

OPEC, which accounts for 40% of total World Crude Oil production has also been blamed for the high Crude Oil and commodity prices. However, despite repeated pronouncements about an increase in shipments, OPEC appears to be losing its ability to influence the price of oil. According to Societe Générale economist Deborah White. "It is no longer within the power of OPEC to keep prices at $28 a barrel, OPEC can only set the floor, not the ceiling." On its part, OPEC has repeatedly blamed financial speculation in Crude Oil, use of Ethanol as Crude Oil substitute, weaker Dollar and “mismanaged US economy” for high Crude Oil prices.
As has been the case earlier, whenever prices of anything have gone up dramatically, people readily blame it on “speculators.” It has been suggested that the “Index Speculators” have now stockpiled, via the futures market, the equivalent of 1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve in the past five years. However, in a free and liquid market, it would be difficult for speculators to have that much influence. While speculators may have some short-term effect on prices, most investment professionals and institutions, largely discount such notions.

Globally, most of economists are now arriving at a consensus that the skyrocketing commodity prices can be best explained in terms of "Too much money chasing too few commodities". In recent times, monetary policy of US Federal Reserve has been seriously questioned and criticized. In order to arrest Subprime rout and Housing slump, the Fed slashed the Federal funds rate from 5.25% to 2% at a frenzied pace. Ben Bernanke, in a bid to put a floor under the housing and stock markets, cranked up the growth of the MZM money supply to an explosive 15.4% annual rate. As a result Dollar’s value plummeted, sending commodities price to sky high. Already, due to turmoil in financial markets investors had began shifting from equity to hard asset. A combination of uncertain macroeconomic climate and growth in money supply only worked in favor of a commodity rally.

Dollar’s value has special bearing on commodity space, as the chief commodity, i.e Crude Oil is priced in Dollars. "The Fed is printing money and are trying to prevent the recession, they are putting on Band Aids," commodities investment guru Jim Rogers said. Rogers added that "as long as the US central bank and the federal government keep making mistakes, you will have a longer period of slowdown, and it will be perhaps, one of the worst recessions we have had in a long time in America." However, Ben Bernanke cannot be entirely blamed for his act as he was merely responding to the Housing Crisis (or Subprime Crisis) brought about by a low interest rate policy of his predecessor Alan Greenspan. Alan Greenspan, on his part was forced to keep interest rate low as US economy was struggling from the IT bubble burst. Thus, to counter the ills of IT bubble burst, Greenspan slashed interest rate and thus encouraged bubble formation in US Housing sector. When the bubble in Housing sector got busted, Ben Bernanke was left with no option but to follow his predecessor’s policy and led to the bubble formation in commodities. It is being suggested mildly now that IT, Housing and Commodities bubble are interlinked, with one leading to another. According to this view the recent bubbles have been largely an incidental byproduct of focus, policy and actions of Central Bankers, specifically that of US Federal Reserve.

Whatever may be the case, the effects of the abnormal run up in prices of commodities is now very much visible in the streets across the world. Price pressures across the world are reaching levels that may soon threaten economic, political and social stability. Global inflation levels have reached uncontrollable levels, food riots have broken out in Haiti, Egypt, Bangladesh, economic growth has moderated and even slowed, Equity market has been witnessing massive selloff and thousands of jobs across the world are being lost. Policymakers are themselves finding themselves in a fix as they are facing a lethal combination of high inflation and slowing growth, also referred to as “Stagflation. Thus, “Commodity Bubble” is certainly a bubble which everyone wants to be pricked!

OFF THE ROAD: US AUTO MAKERS FEEL THE HEAT OF HIGH GAS PRICES

noreply@blogger.com (salmanspeaks) — Fri, 04 Jul 2008 11:23:00 +0000

The Sport Utility Vehicle has been an American icon ever since it was born into mass popularity during the days of World War II when the American Willys Jeep was introduced in the US car market. Vehicle buyers were drawn to their large cabins, higher ride height, and perceived safety. Additionally, full-size SUVs have greater towing capabilities than conventional cars, and can haul trailers, campers and boats. SUVs had the added benefit that they could carry more passengers than a pick-up truck. Finally, a perception of social wealth SUV owners grew.

For 17 years, the Ford F-150 Pick-up truck was the best selling vehicle in America on a monthly basis. That spot was lost to not only one car but to four. The Toyota Camry and Corolla and Honda Civic and Accord all past up the Ford F-150 in sales for the month of May and more vehicles are expected to make the leap.Light truck and SUV sales at major auto makers are down anywhere from 12 percent at Toyota to 37 percent at GM. GM announced plans to close four plants that manufacturer trucks and SUVs. Nissan, Ford and Chrysler all have similar plans.

General Motors Corp., the automaker that popularized the "monster car" Hummer, may sell a mini-car four feet (1.2 meters) shorter than its biggest offering and more than a foot shorter than anything else it markets in the U.S. to win back buyers scared off by high fuel prices. GM may bring the production version of the Chevrolet Beat to the U.S., people familiar with the plan said. The car, which would normally be reserved for Asia and Latin America, gets as much as 40 miles a gallon, a fuel efficiency topped in the U.S. only by hybrids. The possible American introduction of the Beat would be one step in a fleet downsizing and shift away from fossil fuel-based vehicles that the people said is already under way at Detroit- based GM. Resigned to $4-a-gallon gasoline and stricter pollution rules, the largest U.S. automaker has recognized that its response must go beyond the mothballing of large truck plants, the people said.

GM, turning 100 this year, has few options to re-inventing itself. Mattel Inc., maker of toy cars, has a larger market value than General Motors Corp. for the first time as record U.S. gasoline prices crimp sales of real cars and trucks. The company reported its largest annual loss in 2007, $38.7 billion, and hasn't had a profitable year in the past four. The car maker's U.S. market share hovers at the lowest level since 1925, and last year GM was 3,000 cars away from being dethroned by Toyota Motor Corp. as the world's largest automaker. GM shares fell to the lowest since 1954 this week after an analyst said bankruptcy was ``not impossible'' if the auto market continues to deteriorate.

Besides the Beat, GM is weighing a list of options for refocusing its auto lineup on fuel efficiency rather than performance. They include the U.S. introduction of a small pickup popular in Latin America and an expansion of the number of versions of the Volt plug-in electric car, the people said. GM is also trying to increase production and speed up availability of the successor to the Chevy Cobalt sedan and develop a fuel-efficient alternative to the Cadillac Escalade sport-utility vehicle, they said.

Already, GM has reassigned engineers to many of the projects, according to the people familiar with the planning. The company is taking them from SUV and truck programs suspended while awaiting the return of customers. Now, these people said, GM sees no point in waiting.

Sales of the smallest cars in the U.S. have risen 31 percent in the first half this year as the industry total fell 10 percent and the largest SUVs 31 percent. GM reported a 21 percent plunge in U.S. sales of pickups, SUVs and vans for the first six months. Higher input costs, which can be primarily attributed to a surge is steel prices is also seen as hitting the profitability of SUV makers.

Thus, a clear shift in consumer tastes and preferences is being marked in US, thanks to Crude Oil spike. As pointed out in my earlier post in the same blog, Americans are cutting down on distance travelled on road. American Airline industry too is reeling under the pressure emanating from high Aviation Turbine Fuel (ATF). Not surprisingly, American railroad industry has posted a decent comeback this year, with Ridership on Amtrak trains in the Northeast corridor, including those through Springfield, climbing sharply higher. May was the best month ever for the government-owned railroad company, said Amtrak spokeswoman Tracy L. Connell. For the Northeast corridor, from October to May, our ridership was up 11 percent over the same period a year ago, and for May alone, it was up 9.2 percent over the previous May. Other Mass Transit System like Peter Pan Bus Lines, which serves much of the Northeast, has also seen its ridership rising as gas prices have been rising.

Earlier also, during the oil crisis of 1973 when OPEC blocked shipments of crude oil to countries that supported Israel in the Yom Kippur War, Americans and other countries converted to more fuel efficient cars. Before the embargo, American car makers made larger and less fuel efficient vehicles. As the embargo took place, consumers made up their minds with their wallets. Foreign producers like Datsun (Nissan), Toyota, Peugeot, Volkswagen, Mazda and Honda generated record sales during this time. As OPEC lost its hold on oil production, gas fell cheap once again by the 1980s. Americans were driving larger cars once again, albeit with somewhat better fuel efficiency than that of the 1960s and early 1970s. SUV sales finally peaked in 2004 and 2005. Reaching a peak of 4 million SUVs.

One has to wonder though, will we see the SUV back on top in the American auto market any time soon? This is yet another question, which only the time can tell.

STOP COMMUNALISING THE INDO-US NUCLEAR DEAL

noreply@blogger.com (salmanspeaks) — Thu, 03 Jul 2008 14:20:00 +0000

Every attempt is being made by the political parties belonging to left , right and centre to gain a political mileage from the current US-India nuclear deal by stirring communal sentiments in the country. Recently, CPM politburo member, M. K Pandhe, warned Samajwadi Party, which had looked inclined to support the deal, of a Muslim backlash if it dropped its opposition to the agreement with the US. Also, Uttar Pradesh chief minister Mayawati followed the CPM’s crib by describing the Indo-US nuclear deal as ‘anti-Muslim’, and slammed the Samajwadi Party for trying to bail the Manmohan Singh government out by revising its stand on the issue. “The nuclear deal is anti-Muslim and the Samajwadi Party has taken a U-turn on the issue,” the UP chief minister told, in a clear attempt, like the CPM , to communalise the agreement.

All these comments, remarks and political gimmicks are nothing but an attempt to communalise the nuclear deal. As usual, political parties have resorted to their vote bank politics where once again a fear psychosis is being created to consolidate and polarize the votes of the two major Indian communities viz. Hindus and Muslims. This is one art which was invented by imperial British in its heydays and has been perfected by the indigenous politicians post independence. Time and again Manmohan Singh and Montek Singh Ahluwalia have emphasised upon the benefits of the Nuclear Deal for India when seen in the background of the issue of "Energy Security". We are at a disadvantage to other developed and developing countries when it comes to energy security as we don't have significant domestic reserves (we import 75 % of Crude Oil requirement), neither we have any favourable arrangement with the surplus countries. The need for energy cannot be overemphasised given the fact that we are the second fastest growing economy, with a GDP growth rate of 8-10%. to maintain such a growth rate we need to expand our energy and power infrastructure and reduce dependence upon fossil fuels like Crude Oil, Coal, wood etc. One of the possible and relative economical and cleaner option is Nuclear energy. But then again we don't have much reserves when it comes to uranium. Thus, to keep our nuclear reactors running its imperative that we need to sign the nuclear deal.High energy cost is one of the biggest threat to the consistent growth of Indian economy and the energy issue is one which need to be immediately addressed. The deal allows India an access to the elite Nuclear Suppliers Group (NSG) without having being a signatory to the NPT (Nuclear Proliferation Treaty). For India it is a win-win situation, no doubt about it. Also, those Indian nuclear scientists who had earlier expressed reservations on the deal have now endorsed it. The deal has also got full support of India's ex president and "missile man" A.P.J Kalam.

Moreover, If the political parties are under impression that they will be able to rally muslim support by playing the nuclear card then they are grossly mistaken.A muslim guy and girl is as much interested in becoming a part of India's 10% growth story as their Hindu, Sikh, Christian or Parsi brethren. As has happened in the past, muslims are once again being falsely stereotyped as having secret extraterritorial loyalties. Such typecasting only hurt the sentiments of the community which has fought along with other social groups to liberate India from foreign rule and exploitation. An ordinary muslim guy is more interested in earning his daily bread and butter rather than worrying about the developments in Iran, Israel or in knowing the technicalities of US Hyde act. The stand of Indian muslim is very clear- they endorse everything which is in favour of India and doesn't threatens their peaceful existence.

Personally, I used to have profound respect for Mr. Karat's party, for they are the lone intellectual and critical voice in Indian politics. But the way, the Indian Left has conducted itself on the issue of nuclear deal has even put an ardent supporter of leftist philosophy to shame. Instead of assuming the responsibility of having failed to convince the Indian middle class of fallouts of Nuclear Deal, IAEA safeguards and US Hyde act issues, Left has resorted to a worst brand of politics which till now characterised the other two major national parties and the regional parties of the hindi heartland. The left's decision of embarrassing the Indian government before the crucial G-8 meeting by withdrawing the support may prove out to be suicidal. The party's stand has sowed the suspicion of cross border loyalties and some of the national newspapers have even gone into the extent of blatantly calling them as " anti nationals". Though I would refrain from calling such names, I will certainly request Mr.Prakash Karat, Mr. Sitaram Yechuri, Mr D. Raja and company to get their acts right.

US DOLLAR: IS IT TIME TO GO LONG?

noreply@blogger.com (salmanspeaks) — Fri, 13 Jun 2008 17:34:00 +0000

Anyone who has been closely following the Foreign exchange market lately must have been aware of the gradual upward shift of Dollar against world's other major currencies in the last few days. Dollar has gained an impressive 650+ pips against Euro, ever since it hit a low on 22nd April (Euro traded at 1.6018 against dollar). The gain has been especially sharper in last few trading session wherein dollar has gained close to 500 pips against Euro in last 5 days and is trading at its one month high. On Friday the 13th, the US dollar will be finishing with the its biggest weekly gain in 3 years . The U.S. currency climbed 2.5 percent this week against the euro, the biggest increase since June 2005. The dollar also rose 2.9 percent versus the yen, the most since December 2004. Apart from it, US Dollar gained 2.5 percent against Australian counterpart, the biggest gain in 3 months and 2.3 percent against the New Zealand currency.

So what exactly has brought back the faith in Dollar? What interests us the most most is that a relatively quieter rebound in dollar is being witnessed at a time when US consumer price index increased by 0.6 percent in the latest quarter and when Crude Oil has been hitting newer high each day. Well, seen from a different perspective a higher than expected US CPI data only ended up helping dollar's cause. One week ago, the likelihood that the US Federal Reserve would raise its benchmark interest rate at the Aug. 5 meeting was zero, according to fed funds futures prices. Now, the odds are better than 65 percent. Moreover, a few days ago, Ben Bernanke made it clear that the Fed is ``attentive'' to the currency and will guard against a jump in inflation expectations. A weak dollar, according to Bernanke contributes to an ``unwelcome rise'' in inflation. Speaking to a conference in Barcelona, he said Fed and Treasury officials are collaborating to ``carefully monitor'' exchange rates. ``The risk that the economy has entered a substantial downturn appears to have diminished,'' Bernanke said in a speech at a Boston Fed conference on June 9. Earlier, Paulson began strengthening the U.S. stance in November only by stating the dollar would reflect solid long-term economic fundamentals.

Agreed, European Central Bank is very hawkish when it comes to monetary policy,but Federal Reserve's shift to fighting inflation makes the latter likely to raise interest rates more aggressively than the European counterpoint. According to the latest Fed fund futures, the market has already priced in a 67 percent chance of a 25bp rate hike in August and a 97 percent chance of a rate hike in September.

Recently released US indicators like Retail Sales, Housing data, Payroll figures etc. have shown signs of improvement. Especially in Retail Sales, the jump has been quite encouraging, though job market still needs some time to normalise. The tax rebate plan seems to have worked well with the economy. Have a look at some of the data released in last two weeks which have beaten analyst's estimates and market expectation's by wide margins.

Also, the supply of dollars is falling as the U.S. current account deficit improves. Because the major currencies are free-floating, prices are determined in the market based on the global supply and demand for a particular currency against another. And one of the major sources of supply of U.S. dollars is through the U.S. current account deficit. Now, the U.S. current account deficit is improving. That means less dollars in global markets, which should help the buck's value.

G7 is also seen as adopting a hard stand on the dollar front. Finance ministers and central bankers for the group of major industrial nations said April 11 that ``sharp fluctuations'' in exchange rates had ``implications for economic and financial stability.'' Moreover, G-8 finance ministers recently made it clear that the credit squeeze has been replaced by surging food and fuel prices as the biggest threat to the world economy. European officials also have expressed concern at the euro's climb versus the dollar. European Central Bank board member Christian Noyer said ``one can hope'' the gap between the euro and the dollar may narrow, in an interview published yesterday in Forces, a Canadian magazine. ``Markets often push currencies beyond the ranges in which we'd like to see them,'' Forces quoted him as saying.Jens Nordvig, a Goldman Sachs Group Inc. currency strategist in New York says``If we had another big dollar leg down, I think it would raise the possibility of intervention,'' said . The ``more immediate implication'' of Bernanke's speech is that ``the threshold for Fed easing is higher than might otherwise be the case'' should the economy weaken later in the year, he said.

The last time the major industrialized countries intervened was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

Moreover, the 15-nation euro is showing the sign of weakness as Irish voters turned down the European Union's new treaty, a setback for the bloc's plans to strengthen its global voice. Results from yesterday's national ballot on the Lisbon Treaty show opponents defeated supporters by 53.4 percent to 46.6 percent. ``The rejection of the treaty undermines the EU's public legitimacy and may influence public sentiment in countries contemplating joining the euro zone,'' wrote Geoffrey Yu, a currency analyst at UBS AG, in a note to clients today. ``This change may undermine the ECB's price stability mandate in favor of a growth mandate.''

Going by recent indications, we may soon see commodity prices, especially Crude Oil correcting from their current levels. OPEC has made it clear that the current price levels are unjustified when seen in the light of fundamentals. Also, countries like India, Taiwan, Malaysia, Indonesia have slashed the subsidies on Petroleum product, which again doesn't spells too good for CrudeOil as it has the potential to partially destroy the Crude Oil demand. A lower Crude Oil price is again a good news for dollar. According to Bloomberg calculations based on value changes, the dollar falls against the euro 93 percent of the time when oil rises.

Whatever may be the case, Dollar bulls are still in the minority as the picture is yet to become clearer. Traders are still hesitant to enter long in dollar in a big way The data coming from US is still by and large fairly inconsistent. .US Housing and labour market still needs lots of improvement. Same goes for Banking sector. Lehman Brother's results which is soon going to be declared, has the potential to once again derail dollar's rise. However going by the sentiment, much of the pessimism already seems to be priced.

The last two major bear markets in the U.S. dollar lasted seven years. The current bear run in the dollar is soon going to complete its seventh year. According to a latest Bloomberg survey, the currency will strengthen 2.5 percent to $1.50 per euro by year-end.Thus, in the light of above arguments, it seems pertinent that Dollar may soon embark on an upward rally. So am I betting my money on a dollar rally? Well, it's beginning to look that way.

GLOBAL INFLATIONARY PRESSURE: NO END IN SIGHT

noreply@blogger.com (salmanspeaks) — Sat, 07 Jun 2008 16:27:00 +0000

Inflationary pressures, coming at a time when there are palpable signs of economic slowdown, has been spooking the global Governments, policymakers, financial authorities and marketmen alike. Worldwide, prices of commodities like Crude Oil, Wheat and Rice have skyrocketed in last one year or so. Policymakers have been especially finding themselves helpless in present situation due to the "global" nature of the current inflation. Central Bankers are also in a fix as given the slowdown in economic activity, they wont be able to fight the inflation the way Volcker did by aggressively raising the interest rates back in 1970's. Stagflation is extremely difficult for conventional policy instruments to deal with, since the attempt to deal with any one of the problems tends to exacerbate the other.Things are pretty difficult this time as, it is the prices of Crude Oil, which is supposed to have a ripple effect on prices of almost everything which concerns our life,is seen as stoking the inflation. The spike in oil prices, which hit $139 per barrel in recent days, has pushed up fertilizer prices, as well as the cost of trucking food from farms to local markets and shipping it abroad. Then there is climate change. Harvests have been seriously disrupted by freak weather, including prolonged droughts in Australia and southern Africa, floods in West Africa, and this past winter's deep frost in China and record-breaking warmth in northern Europe. The push to produce bio fuels as an alternative to hydrocarbons is further straining food supplies, especially in the U.S., where generous subsidies for ethanol have lured thousands of farmers away from growing crops for food. Not only those countries who are importing Crude Oil but the Oil producers like Venezuela, Saudi Arabia and Russia are also witnessing price pressures as their economies are flushed with money coming from Crude Oil sales. Recently, US President George W. Bush and Secretary of State Condoleezza Rice even went on to the extent of blaming the rising middle class (and their consumption) of China and India as the main reason behind the rising commodity prices.

Price pressures across the world are reaching levels that may soon threaten economic, political and social stability. Inflation rates have reached: Venezuela (22%), Vietnam (21%), Latvia (18%), Qatar (17%), Pakistan (17%), Egypt (16%) Bulgaria (15%), The Emirates (11%), Estonia (11%), Turkey (9.7%), Indonesia (9%) Saudi Arabia (9.6%), Argentina (8.9%), Romania (8.6%), China (8.5%), Philippines (8.3%), India (8.24%), Eurozone (3.6%), US (3.9%). Food prices have doubled in three years, according to the World Bank, sparking riots in Egypt and Haiti and in many African nations. Brazil, Vietnam, India and Egypt have all imposed food export restrictions which is only expected to aggravate problems further. Rising food prices threaten a surge in violent protests across the world, the Red Cross has warned.

Talking of India, rise in prices has brought a flurry of problems for the current UPA government. Prime Minister Manmohan Singh and Finance Minister Chidambram, who are credited with initiating the reforms that led to opening of economy are under severe pressure emanating from price rise. Rising Crude Oil prices and depreciation of local currency (Rupee against Dollar) has finally forced the government to take bold step, latest being the substantial hiking of Fuel prices (Petrol, Diesel, LPG). Though the step is expected to check some of the losses of downstream oil companies (primarliy PSUs), experts are unanimous that the move will go a long way in pushing up the headline inflation numbers. Soon after the hike was announced, Petroleum Secretary MS Srinivasan said the increase in fuel prices would raise inflation by 0.5 to 0.6 percentage points. "Assuming the base inflation for the week ended June 7 to be around 7.8 per cent, we are looking at a WPI inflation number of 8.5-9 per cent over the next few weeks. Factoring in the probable revisions by around 40 basis points to the provisional inflation numbers, the actual inflation level is likely to be over 9.5 per cent," said Saugata Bhattacharya, vice-president (business and economic research), Axis Bank. Crisil's Principal Economist Dharmakirti Joshi expects the WPI to go up by 51 basis points (bps)as a direct effect of the price hike. Lehman Brothers' India economist Sonal Verma also said that inflation rate could touch 9.5 per cent for the week ended June 7. "A lower base last year will further add to the inflation rate," she added. Inflation rate stood at 4.28 per cent for the week ended June 9, 2007. Lehman Brothers has also revised its annual inflation estimate for 2008-09 to 8.5 per cent from the earlier forecast of 8.2 per cent. Rajeev Malik of JP Morgan Chase Bank feels that the headline inflation is likely to go upto 9.5-10%.

RBI in an attempt to take control of the situation, has taken a very hawkish stance when it comes to policy interest rate. Trading in futures of some essential commodities has also been banned by Finance Ministry though the merit of such a move has been questioned.

No doubt, due to raging inflation, Indian equity markets have lost favour with FIIs (commodities based economies like Russia and Brazil have emerged as hot destination). Brazil is up 9% and Russia is up 7% since early December, while India (Nifty/Sensex) is down 21% and China is down 31%. India imports 70% of total domestic Crude Oil consumption and hence higher Crude Oil prices coupled with a falling rupee/inflation has made the economy vulnerable. Corporate profits have come under pressure as input costs have risen. Higher inflation is also putting pressure on consumers’ disposable income and has thus brought down the consumption levels. IT companies, who were earlier sulking due to rupee appreciation (it affected their profitability), have been lately booking fresh losses on their hedged position in forex market due to sudden depreciation in rupee's value. However, analysts are still upbeat over the long term growth story of the Indian economy.

Thus, the key to rein in current level of international inflation lies in taming the Crude Oil prices. Increasingly, a consensus has been emerging the world over that the current bubble formation in commodities is a fallout of Ben Bernanke's aggressive move of slashing interest rate to counter losses arising from subprime crisis. History testifies to the fact that in recent times, a number of bubbles have formed due to the actions of Central Bankers. The most striking example is the Housing Bubble of US,( that roughly began in 2001) that was a product of Alan Greenspan's move of keeping interest rate low in order to counter the recently busted IT bubble (1995-2001). The bubble finally got pricked in 2005-2006, and the sector, which then went into a slump, is yet to recover from it. Any type of economic bubble is difficult to identify except in hindsight, after the crash.

There are indications that we are soon going to see a coordinated intervention in the foreign exchange market by the leading Central Bankers of the world. Ben Bernanke has recently given indications that he has done with slashing of interest rate and may now think of raising the same. ECB's Trichet has already made his mind to go ahead with raising the interest rate. Already, China, India, Malaysia, Indonesia are following tight monetary policy since last few months. Above all, economies like India, Malaysia, Indonesia and Taiwan have gone ahead with reducing the government subsidies on petroleum products and have raised the prices of fuel to check the artificial demand of Crude Oil. What effect all these steps will have on the international Crude Oil prices is something which will remain an enigma at least for some time to come.

US CONSUMERS SHYING AWAY FROM GAS GUZZLING CARS

noreply@blogger.com (salmanspeaks) — Thu, 05 Jun 2008 10:31:00 +0000

If recently released statistics are to be believed, Americans are switching from Sports Utilities Vehicles (SUVs) and other gas guzzling cars to more economic ones in the wake of high gasoline prices. The average fuel price at the US gas station reached a record $3.98 a gallon on Tuesday, up 26 per cent from a year ago, the AAA motoring organisation said.

Honda's small Civic saloon became the US's top-selling vehicle last month, overtaking Ford's F-Series pick-up truck, which has worn the crown for the past 26 years. The F-Series was also outsold by Toyota's Corolla and Camry saloons, and by the Honda Accord, highlighting a stampede by Americans away from big sports utility vehicles and pick-up trucks to less fuel-thirsty cars in the wake of the soaring fuel price./Tumbling SUV and pick-up sales resulted in sharp overall sales declines at the three Detroit-based carmakers, General Motors, Ford Motor and Chrysler, which depend more heavily on these vehicles than their foreign rivals. GM's sales fell 27.5 per cent last month compared with May 2008. Its market share shrank to a record low of 19.1 per cent, said Autodata, a market research firm. Ford reported a 16 per cent sale decline, Toyota was down 4.3 per cent, and Chrysler's sales plummeted by a quarter. Honda bucked the trend, with a 15.6 per cent surge. Describing May as a "watershed month" for the industry, Jim Farley, Ford's sales chief, said the profile of pick-up buyers had changed. "The ones who are buying pick-up trucks now are the ones who need them," Farley said.

Moreover acocording to the recently released data by US Energy Department, U.S. fuel consumption averaged 20.4 million barrels a day in the four weeks ended May 30, down 1.1 percent from a year earlier. Gasoline demand, in terms of the amount supplied by refiners, dropped by 244,000 barrels to 9.1 million barrels a day, the lowest since the week of March 7. Already, U.S. motorists, who are paying record prices for gasoline, drove 4.3% less in March for the biggest monthly drop ever, the Federal Highway Administration said. The decline in vehicle miles traveled was the first for March since 1979, the agency said.

The effect of high Crude Oil prices is also being felt in US Airlines sector. UAL Corp.'s United Airlines, the world's second-largest carrier, will cut its fleet by about 100 plans to counter record jet-fuel costs.

India meanwhile, joined Malaysia, Indonesia, Thailand and Taiwan in moves that may cut Asian demand and slow global oil-consumption growth.

WHY A RECORD INVENTORY DROP COULD NOT SAVE CRUDE OIL FROM FALLING?

noreply@blogger.com (salmanspeaks) — Sat, 31 May 2008 16:19:00 +0000

Despite a record drop in inventory levels as indicated in the weekly release by US Energy Department, Crude Oil prices, instead of climbing further, fell sharply by $ 4 on the same day. Interestingly, the Energy Department made its weekly supply report available on its Web site before the scheduled release time, due to a malfunction in the system. The price behavior of the Crude Oil post such an encouraging release ( for those who swear by Oil-will –not-correct) came as a shock to many. Crude Oil Supplies declined 8.88 million barrels to 311.6 million last week, the biggest drop since Sept. 17, 2004, when Hurricane Ivan forced the closing of U.S. oil platforms in the Gulf of Mexico. Gasoline supplies too dropped by 3.2 million barrels. Earlier, analysts worlds over were split over whether the report would show an increase or decrease in supplies. The initial selling pressure set in as Energy Department declared that the biggest drop in U.S. oil inventories in more than three years was caused by ``temporary delays'' in unloading oil tankers on the Gulf Coast. However, Crude Oil has failed to regain the upward momentum the very next day as well and is all set to finish the week with losses. It has been quite a time that Crude Oil will be finishing a week with looses rather than gain. In my previous posts I had highlighted some of the “Crude Bearish” factors. I will continue with further elaboration as this weekend is flushed with many bad news for the Liquid Gold.

I have always maintained that much of the current rally in Commodities can be attributed to the uncertain global macroeconomic climate post Subprime fiasco and subsequent aggressive rate cuts by US Federal Reserve. Crude story is thus not much different. History testifies to the fact that whenever there has been an uncertain situation (whether political or economic), cash begins chasing hard asset. Moreover, by slashing the fed funds rate 325-basis points to a negative -2%, after adjusting for inflation, and expanding the US-M3 money supply by 16.5% from a year ago the Fed encouraged buying in commodities by pushing down the dollar, which in turn, is pushed up the price of dollar-denominated commodities, such as crude oil and gold. One of the reason why I feel that Crude Oil should slightly pause in its current rally is the fact that recent release of US economic indicators have been quite encouraging, compared to what they used to be a few weeks back. The U.S. economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to a record. The Bush administration is betting the U.S. will keep growing as the economy benefits from the impact of weaker dollar. The trade deficit shrank to an annual pace of $480.2 billion, the smallest since the third quarter of 2002. Tax rebates and seven interest-rate cuts by the Federal Reserve since September is expected to have a positive impact on the overall economy, and is expected to reflect in the numbers for second half of the year. The positive impact of weaker dollar is now very much palpable with companies like Procter and Gamble posting impressive topline figures on the back of increase in overseas sales. Recently, the dollar rose to the highest in more than a week against the euro as a U.S. government report showed the economy grew at a faster pace than initially estimated last quarter. The 0.9 percent gain at an annual pace in gross domestic product compares with an advance estimate of 0.6 percent, the Commerce Department said.

Also, given the threat of raging inflation,, Fed is soon expected to once again raise the key interest rates. Dallas Fed President Richard Fisher and Minneapolis Fed President Gary Stern, both voting members of the FOMC in 2008, said they are keeping a close eye on inflation expectations being dialled into financial markets. "If inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, Fisher said in San Francisco. Rate increases could be made "even in the face of an anemic economic scenario," Fisher told the Commonwealth Club of California, adding that he did not expect a recession. Fisher said it would be "unacceptable" for the Fed to be viewed as resigned to higher levels of inflation. Further, a coordinated round of interest rate hikes by the world's top-20 central banks may deflate the bubble in a big way. Shanghai and Delhi have earned the reputation of following a tighter monetary policy. Trichet may also soon join their band as Europe too has started feeling the pinch of general rise in prices. Thus, tightening of money supply may curb the rally in two ways- by putting a limit on the money chasing the Crude Oil and easing the demand.

Eventually, as is the case in every commodity cycle, the consumer nations (mainly the US) changed their behavior in the face of high prices. This was the exact reason behind the demand destruction in the late '70s and early '80s through a switch to alternatives and simple conservation by driving smaller cars. And high prices also encouraged investment to boost production, which paid off with the development of the North Sea. Demand destruction and new production will eventually be the case with this oil market cycle. According to a recently released data, fuel consumption averaged 20.5 million barrels a day in the four weeks ended May 23, down 0.7 percent from a year earlier, the Energy Department said. Imports fell 3 percent to 8.96 million barrels a day, the lowest since the week ended April 11, the report showed. U.S. gasoline demand dropped 5.5 percent last week as prices at the pump reached records, according to MasterCard Inc., the second-biggest credit-card company. ``Elevated prices are starting to have an impact on demand,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. . ``There is word that Asian countries are cutting subsidies, which will also hit demand.'' Indonesia, Taiwan, Sri Lanka and Pakistan have decided to raise fuel prices as the cost of subsidies mounts, and Malaysia plans to announce a revision to its subsidies on May 30. Indonesia this week ignored widespread protests and allowed fuel price prices to rise by 28.7% and Taiwan permitted a 15.0% increase, the big India economy is unlikely to follow the same route. India's Oil Secretary M.S. Srinivasan said higher domestic gasoline and diesel prices are inevitable because of rising global prices. The basic laws of supply-and-demand don't work in an economy, where the government intervenes with price controls. In China, gasoline prices haven't gone up since last November, even though crude oil prices have gone up 35% since then.

OPEC too has expressed its displeasure with the protracted nature of current Crude Oil rally. “The current oil price has no relation to market fundamentals,” explained Saudi oil chief Ali al-Naimi on March 5th. “It is linked to tremendous speculation in crude oil futures. There are even those who buy futures and speculate that oil prices will reach $200 in 2013,” he said. On April 28th, OPEC chief Chakib Khelil observed that crude oil prices were climbing, “even though supply is adequate, because the market is driven by the dollar's slide. Each time the dollar falls 1%, the price of the barrel rises by $4, and of course vice versa. If for instance, the US dollar would strengthen by 10%, it is probable that oil prices will fall by 40%,” he figured. /In an interview with The Daily Telegraph, one of the world's biggest hedge fund traders, Mr George Soros said although the weak US dollar, depleting supplies from aging oil fields, government fuel subsidies, and record Chinese and Indian demand could explain the parabolic surge in energy prices, the crude oil market is also significantly inflated by speculation. “Speculation is increasingly affecting the price, which has a parabolic shape, which is characteristic of bubbles,” he said. Lehman Brothers energy analyst Edward Morse wrote in a report that commodities were, in fact, in a bubble and that it would burst by the end of the year.

The U.S. Commodity Futures Trading Commission, the watchdog for commodity transactions, is investigating U.S. crude oil trading to determine whether the surge in prices is the result of manipulation or fraud. The CFTC has been investigating the transportation, storage and trading of crude oil in the U.S. since December, it announced in a statement posted on its Web site yesterday. The commission's probe includes oil-futures contracts. The CFTC did not name any companies being targeted and said details of the probe were confidential.

It's very dangerous to pick a top in a raging bull market, since bubbles can inflate more than anybody could have imagined. Few days back, soon to be deposed Israeli PM Ehud Olmert called for a US naval blockade of Iran, and if that happens, crude oil could hit $200 /barrel. Hurricane season is also approaching and we may see Crude Oil flaring up occasionally. Historically, price bubbles have been destined to burst under their own weight, and at a moment's notice. No market travels in a straight line forever, and shakeouts in the crude oil market are designed to wipe-off the speculative froth.

CRUDE OIL BUBBLE: A CASE OF "IRRATIONAL EXUBERANCE"?

noreply@blogger.com (salmanspeaks) — Tue, 27 May 2008 17:48:00 +0000

The recent gravity defying surge in Crude Oil has attracted much attention and generated heated debate across the globe. A 99% annual appreciation in prices of world’s principal source of fuel is bound to affect all countries and their inhabitants in a big way. The situation is even worse at MCX, India, where a depreciating rupee (against dollar) has further added momentum to the rally as a stronger dollar directly translates to costlier imports (read Crude Oil). In my previous posts in the same blog and numerous articles, presentations, lectures and private discussions, I had reiterated that the era of "Easy/Cheap" oil is over. However, the way the Crude Oil is scaling newer highs each day has put analysts across the world in a fix. It is not the $130 or $135 level which is alarming us but the speed with which these milestones are being achieved.

Market is equally divided between those who are seeing further upside and between those who are expecting a substantial correction in near term.

The reasons for a deeper correction/profit booking in Crude Oil are numerous. There are many reasons to assume that market is overreacting to Oil bullish factors. What is being ignored is the fact that Commodity business is a cyclical one. Higher Crude Oil prices (or any other commodity) are self defeating as it directly translates into a reduction in demand as the consumers start cutting down on consumption or switches to cheaper alternative. Arjun Murti of Goldman Sachs who has to his credit many doomsday prophecies (including the recent Crude at $ 200 one) himself drives in a Hybrid car.

Many banks and investment firms have come out to defend the rise in oil prices, saying that it is based on fundamentals and that prices could rise much further. Analysts like Arjun Murti, Pickens, Guppy etc. and market movers like Goldman Sachs, UBS are constantly raising the projection levels in prices, thus sending the prices over the roof. While they go on saying this and prices continues to move upward, open interest in crude futures contracts has been moving steadily downward since a high of 1.58 million last July to 1.36 million now.

But aren’t there fundamental reasons for this rise in oil prices? In some ways yes, demand from China and India is increasing, but at a slower pace than oil has gone up. The chief market strategist for one of the world's leading oil industry banks, David Kelly, of J.P. Morgan Funds, recently admitted something telling to the Washington Post, “One of the things I think is very important to realize is that the growth in the world oil consumption is not that strong." One of the stories used to support the oil futures speculators is the allegation that China 's oil import thirst is exploding out of control, driving shortages in the supply-demand equilibrium. The facts do not support the China demand thesis however. The US Government's Energy Information Administration (EIA) in its most recent monthly Short Term Energy Outlook report, concluded that US oil demand is expected to decline by 190,000 b/d in 2008. That is mainly owing to the deepening economic recession. Chinese consumption, the EIA says, far from exploding, is expected to rise this year by only 400,000 barrels a day. That is hardly the "surging oil demand" blamed on China in the media. Last year China imported 3.2 million barrels per day, and its estimated usage was around 7 million b/d total. The US , by contrast, consumes around 20.7 million b/d. That means the key oil consuming nation, the USA, is experiencing a significant drop in demand. China, which consumes only a third of the oil the US does, will see a minor rise in import demand compared with the total daily world oil output of some 84 million barrels, less than half of a percent of the total demand. The Organization of the Petroleum Exporting Countries (OPEC) has its 2008 global oil demand growth forecast unchanged at 1.2 mm bpd, as slowing economic growth in the industrialised world is offset by slightly growing consumption in developing nations. OPEC predicts global oil demand in 2008 will average 87 million bpd -- largely unchanged from its previous estimate. Demand from China , the Middle East , India , and Latin America -- is forecast to be stronger but the EU and North American demand will be lower.

Agreed, US Crude Oil demand is fairly inelastic, but one should not ignore the fact that it is not perfectly inelastic. Some of the recently released data corroborates this fact. U.S. motorists, who are paying record prices for gasoline, drove 4.3% less in March for the biggest monthly drop ever, the Federal Highway Administration said. The decline in vehicle miles traveled was the first for March since 1979, the agency said. The peak U.S. gasoline consumption period lasts from this weekend's Memorial Day holiday until Labor Day in early September, as Americans take to the highways for vacations. Almost 31.7 million Americans will journey at least 50 miles from home by automobile from today through May 26, 1% less than a year ago, according to a report released by the AAA, the largest U.S. motorist group, on May 15.

Not only is there no supply crisis to justify such a price bubble. There are several giant new oil fields due to begin production over the course of 2008 to further add to supply. The world's single largest oil producer, Saudi Arabia is finalizing plans to boost drilling activity by a third and increase investments by 40 %. Saudi Aramco's plan, which runs from 2009 to 2013, is expected to be approved by the company's board and the Oil Ministry this month. The Kingdom is in the midst of a $ 50 billion oil production expansion plan to meet growing demand in Asia and other emerging markets. The Kingdom is expected to boost its pumping capacity to a total of 12.5 mm bpd by next year, up about 11 % from current capacity of 11.3 mm bpd. In April this year Saudi Arabia 's Khursaniyah oilfield began pumping and will soon add another 500,000 bpd to world oil supply of high grade Arabian Light crude. As well, another Saudi expansion project, the Khurais oilfield development, is the largest of Saudi Aramco projects that will boost the production capacity of Saudi oilfields from 11.3 million bpd to 12.5 million bpd by 2009. Khurais is planned to add another 1.2 million bpd of high-quality Arabian light crude to Saudi Arabia 's export capacity.

Brazil 's Petrobras is in the early phase of exploiting what it estimates are newly confirmed oil reserves offshore in its Tupi field that could be as great or greater than the North Sea . Petrobras, says the new ultra-deep Tupi field could hold as much as 8 billion barrels of recoverable light crude. When online in a few years it is expected to put Brazil among the world's "top 10" oil producers, between those of Nigeria and those of Venezuela.

In the United States, aside from rumors that the big oil companies have been deliberately sitting on vast new reserves in Alaska for fear that the prices of recent years would plunge on over-supply, the US Geological Survey (USGS) recently issued a report that confirmed major new oil reserves in an area called the Bakken, which stretches across North Dakota, Montana and south-eastern Saskatchewan. The USGS estimates up to 3.65 billion barrels of oil in the Bakken. These are just several confirmations of large new oil reserves to be exploited. Iraq , where the Anglo-American Big Four oil majors are salivating to get their hands on the unexplored fields, is believed to hold oil reserves second only to Saudi Arabia . Much of the world has yet to be explored for oil. At prices above $60 a barrel huge new potentials become economic. The major problem faced by Big Oil is not finding replacement oil but keeping the lid on world oil finds in order to maintain present exorbitant prices. Here they have some help from Wall Street banks and the two major oil trade exchanges—NYMEX and London-Atlanta's ICE and ICE Futures.

Moreover, the argument that Crude Oil is tracking a weaker dollar doesn’t hold true anymore. Euro has corrected sharply from its high of 1.6018 against the dollar. Signs of slowdown are being identified in Eurozone as well and ECB's Trichet has come under pressure to review his tight monetary policy. On the other hand recently released US economic indicators and have been largely mixed and point towards relative stabilization of Housing and labor market. Moreover with commodity prices going over the roof, US Federal Reserve may soon return to the policy of Inflation targeting. Interest-rate futures show the Federal Reserve may start to raise U.S. borrowing costs by the end of the year as the economy recovers and inflation accelerates. Earlier, seven interest-rate cuts by the Fed since September sent the dollar to an all-time low against the euro in April, boosting gold and other commodities.

Also, Crude Oil being a political (and strategic) commodity, we may very well see intervention from US on the issue of high prices. Entire global economy, especially that of US is under strong pressure due to Crude Oil induced inflation. Recently, the US House of Representatives overwhelmingly approved legislation allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude price. Already, President Bush in his recent trip to Gulf has pressurised Saudi Arabia, the most influential OPEC member to increase the Crude Oil production by 300,000 barrels per day. Also, if recent indications are to be believed, U.S. Government is soon expected to force regulators to raise margin requirements under current market conditions, specifically with respect to the oil markets. This could have a dramatic downward effect on prices. (Remember silver and the Hunt Brothers in 1980.) In April 2008, U.S. Sen. Byron Dorgan, a North Dakota Democrat, told Congress, “There is an orgy of speculation in futures markets. This is a 24-hour casino with unbelievable speculation.” He and others in Congress have been raising the idea of changing margin requirements that traders must pay up front in order to engage in oil speculation. Dorgan said stock speculation requires a 50% margin, but commodities like oil demand a much lower threshold, just 5% or 7%.

No doubt, Crude Oil, being in limited supply, is fundamentally strongest commodity around. But the way the recent spike has pushed the prices of the liquid gold has raised many an eyebrow and in coming days we may expect a substantial correction. Though a break below $100 is certainly not anticipated and too far fetched, a correction to the tune of $ 20 from current levels cannot be ruled out. However, traders should refrain from taking a short position arbitrarily and should wait for the confirming trend. Like any other market analysts, I too have faith in the old adage “Market is always right” and “Trend is your friend”.

INDIAN COMMODITY MARKET: STILL A LONG WAY TO GO

noreply@blogger.com (salmanspeaks) — Wed, 30 Apr 2008 16:03:00 +0000

Ever since its reintroduction in 2003, trading in commodity futures has found favour with Indian investors and has established itself as a separate asset class with good growth opportunities. Globally, commodity market is as much as ten times bigger than the equity market.However, in India, the commodity trading in the country has stagnated around 15,000 crores much below the equity segment volumes of over 50,000 crores. India being one of the the largest country in terms of consumption, production, export and import of commodities, volumes are bound to come in Commodities derivative in future but as of now, it has hit a roadblock. At a time when overseas commodity markets are busy experimenting with new and innovative products and technology, we are still stuck in a time warp. A combination of uncertain Government policies, volatility, ignorance, high level of speculation, heavy losses incurred by retail investors and shallow market are hampering the growth of commodity futures especially that in agricultural commodities.

The Indian commodity market has been marred by a number of inadequecies and imperfections. With inflation ruling above 7%, sections of ruling coalitions are time and again raising the demand of banning futures trading in essential commodities under the mistaken belief that futures trading encourages speculation and thus leads to price rise. Earlier, government had succumbed to the pressure coming from the same quarters and banned futures trading in wheat, rice, tur and urad. A committee under Professor Abhijit Sen was also constituted to examine whether futures trading contributed to price rise. The committee in its report, which was submitted few days back, has largely taken an ambiguous stand. Professor Sen himself, in various interviews, accepted that there is no statistical evidence to link the two. Wheat, which has been banned in commodity futures market has seen the most sharp rise in prices and this in itself demolishes the belief. According to a study conducted by NCDEX, some of the commodities that are not traded in futures market have shown greater percentage increase in prices as compared to the commodities traded. A basket of 15 commodities traded on the exchange were included in the study showing a year-on-year price increase of 5.84% as against 9.04% for nearly 30 items not traded in the futures market. The jump in prices should be located within the demand supply mismatch of the specific commodity rather than futures trading. People fail to realise that futures trading, instead of artificially inflating the prices, helps in keeping the same under check. Rather, Futures trading is an efficient,transparent and fair instrument of price discovery and it is very difficult to influence futures prices as it discounts all the fundamental factors,demand supply dynamics, expectations and news. Thus futures trading checks malpractices like hoarding and blackmarketing by special interest groups. Apart from this, futures trading plays relevant economic function as hedging tool and thus helps in minimising risk profile of farmers, producers and traders. Again, doubts have been raised over the participation of farmers and producers in the futures market but that can be largely attributed to the failure of government, regulatory body and intermediaries to spread awareness and integrate them with the market. A vibrant and mature futures market is thus an absolute necessity for a spot market to function well and vice versa.

The apex regulatory body FMC itself lacks the power to initiate reforms and take bold measures to bring reforms in the market as it is not an independent, autonomous and strong body. It is still governed by the archaic Forward Contract Regulation Act 1952. Recently, an ordinance, which was supposed to endow FMC with more power was allowed to lapse in parliament on account of lack of political will on part of the Government. It is exactly due to all this this reason that no progress has been made in the direction of participation of institution and mutual funds in the commodity market. Government has failed to realise that such a move will bring depth, liquidity and stability in a market which is quite shallow at present. Authorities have also not been able to come up with a coherent policy on participation of Foreign Direct Investment in Commodity Exchanges. One other major obstacle is the statutory ban on `Options'. Options are a vital adjunct to futures contract as it boosts the futures markets and enables the market to run smoothly. There are problems on the front of taxation laws as well. The tax law fails to recognise trade in futures as a legitimate business activity and hence authorities do not permit any loss in a futures market to be set off against gains accrued in other businesses. Tax liabilities, therefore, tend to increase for those who trade in futures, and escalate as a consequence the cost of both hedging and speculation, rendering such transactions uneconomical most of the time. The introduction of Commodity Transaction Tax (introduced in Budget 2008-09) is yet another regressive step which is seen as facilitating the dabba (illegal) traders. Lack of quantity and quality warehouses is yet another major drawback in Indian commodity markets. The warehousing system helps in better integration of spot and futures markets which in turn improves efficiency of futures market in price discovery and price risk management functions. Restrictions on the ready and non-transferable specific delivery (NTSD) forward contracts under the Forward Contracts (Regulation) Act, 1952 is yet another grey area. Lastly, Government, regulatory body, intermediaries and market participants often try to compare the Indian commodity markets with Equity markets. What they fail to see is that Indian equity market has a rich tradition which extends back to more than a century while organised commodity market (under a recognised national exchange) is only in its nascent stage of development. Some of the other major problems associated with commodity markets in India include infrastructure, trading system, broking community, controlled market, integration of regional and national exchanges as also integration of spot and futures markets.

Therefore, challenge is to getting the policy and regulatory framework right. The institutional and policy-level issues associated with commodity exchanges have to be addressed by the government in coordination with the FMC in order to take necessary measures to pave the way for a significant expansion and further development of the commodity futures markets.

GOLD : IS IT LOSING ITS SHEEN?

noreply@blogger.com (salmanspeaks) — Tue, 29 Apr 2008 13:00:00 +0000

In some past trading sessions, MCX Gold June futures has retreated substantially from its all time high of 13,418. The major dilemma which has plagued the Indian investors is whether Gold will pullback from current level or not, given the fact that US Federal Reserve is once again expected to slash the key interest rate by 25 basis points in upcoming FOMC meeting on 30 th April.

The answer to the above question very well lies in the fundamental factors governing the movement of Dollar. Currency experts world over are now convinced that Fed may be nearing a rate cut pause. In all probability Ben Bernanke is not expected to go beyond the 1.5% mark as it was his predecessor Alan Greenspan’s 1% interest rate policy which has been cited as the reason behind current Housing slump in US. Moreover, the continual rise in oil, steel and rice prices has everyone guessing that inflationary pressures may force Bernanke to stop cutting rates any further. Futures are now already pricing in just a 25 bps cut next Tuesday and then a stop to the rate cuts by the Fed. That should be bullish for dollar and bearish for commodities (because commodities have been pushed up on the theory of the weak dollar). Again, at a time when traders were counting upon European Central Bank to come up with Dollar bearish satements, one of the ECB official remarked that they do not consider the euro’s rise vs. dollar desirable. On top of all ECB President expressed his concern about a surge in the euro against the dollar, adding that the ECB's ``responsibility'' is to ``preserve price stability in the medium and long term.'' This might be a bad news for Gold atleast in the short term as it put an end to the speculation that ECB may even further raise key interest rate in Eurozone. G7 has also expressed its displeasure on the chronic weakness in Dollar, as it is hurting their economies very badly. The group of seven nations even possibly discussed the possibility of a co-ordinated intervention in currency market to halt the decline of Dollar. Eariler this moth, Euro hit the all time high of 1.6018 against dollar and has since given away some of its gains. With favourable news coming in market, Dollar is expected to post further recovery in near term. Moreover, given the changed fundamentals, Crude Oil is also widely anticipated to correct a bit from its current level of $ 120.

Technically speaking, Gold chart very well illustrates the weakness in the market. Prices are approaching major support and the current momentum threatens to breach even that. MCX Gold June looks all set to breach the 11,407 mark. If the momentum continues, then the prices may as well test the next level of 11,045. Prices may as well break past the psychological barrier of 11,000 mark if there is a significantly deep correction in Crude Oil.

DECOUPLING: MYTH OR REALITY?

noreply@blogger.com (salmanspeaks) — Thu, 03 Apr 2008 11:50:00 +0000

In the second quarter of 2007, one idea that gained ground in the global financial markets was that of “decoupling”. Many investors came to believe that the rest of the world (read Emerging Markets, EMs) will somehow “decouple” from U.S. economic weakness. A main pillar of this belief is the view that China and the other emerging market economies in Asia will maintain their impressive growth momentum despite a slowdown in the Western industrialized economies. With the US economy slowing and probably heading into recession, the debate is of particular interest at this time. The argument for calling the major EMs less risky than they used to be lies in their economic progress over the past few years. They've been growing at double the rates (or higher) of the developed world. They've amassed huge pots of foreign currency reserves. They tend to be resource-rich in a world that's bidding frantically for metals, oil and other commodities. They're also attracting more money from their domestic institutional investors who have long-term, asset-allocation goals. Another argument that was cited in support of the theory was that U.S. housing construction at the start of 2007 did not have much impact on U.S. imports, since America’s housing activity is primarily domestic in nature.

However, in recent times, the idea has come under serious criticism around the globe.

Exponent of the theory ignored the fact that during the past five years the U.S. economy grew faster than all the other G-7 economies. During that time, America’s economy remained the principal generator of global aggregate demand, accounting for around one-fifth of global imports and 25 percent of global production. This evidence very well elucidates that as in the past, if the U.S. economy sneezes, the rest of the world will catch a cold. Weaknesses in the housing market are now spilling over into the rest of the economy, which is far more import-intensive than the residential construction sector. Meanwhile, declining home prices at the national level are now damaging consumer sentiment and exacerbating credit problems in the U.S. banking system. Everywhere we can see the play of “Dominoe Effect”. One after the another, banks are collapsing. “Fire Sales” of assets is pointing to a “Great Crash” in the prices of assets. Corporate earnings are being eroded, leading to massive layoffs and a jump in unemployment rate. Moreover, complete decoupling doesn’t makes sense in a “Globalised” and a much more “integrated world. As pointed out by renowned Investment Guru Dr Mark Mobius , this outcome is unlikely because the world has become so interdependent.“There is no question relationships between nations are growing because world trade and travel has been growing. But whereas in the past the US was the centre – the biggest economy in the world by far – this is no longer the case,” he says. “Decoupling” is the buzzword. But there is no such thing as decoupling in this world of greater communications, investment and trade. Whether we like it or not we are bound together".

Still, it is not wise to completely reject the theory. The four biggest emerging (BRIC) economies, accounted for two-fifths of global GDP growth last year, and are the least dependent on the United States: exports to America account for just 8% of China’s GDP, 4% of India’s, 3% of Brazil’s and 1% of Russia’s. Over 95% of China’s growth of 11.2% in the year to the fourth quarter came from domestic demand. China and India combine has the potential to offset slowdown in any other part of the word, given the gigantic population and rapid pace of industrialisation/urbanisation. Given the dramatically improved fundamentals in emerging market countries, the future is bright indeed.

What I would like to emphasize here is, phenomena of such an economic scale and significance like decoupling don’t take place in a single day, month or even a year. No doubt there has been some progress in the direction; there is still a long way to go. Therefore instead of locating the current debate in terms of validity of decoupling, we need to find out the degree of the phenomena, spread over a comfortable period of time.

ARE HIGH CRUDE OIL PRICES HERE TO STAY?

noreply@blogger.com (salmanspeaks) — Thu, 03 Apr 2008 11:23:00 +0000

Being the chief source of energy and most traded legal commodity by value, Crude Oil leads the commodity space from the front. The recent spike in Crude oil prices has attracted much debate and deliberations across the globe. Analysts across the financial markets are split over the argument whether such a level in Crude Oil is sustainable or not. Some argue that such high prices can't be justified in an environment in which supplies are rising and demand is falling. Others are seeing even further upside in the prices of the “Liquid Gold”. Oil has been traded globally for more than a century, and commodity pricing in the oil sector is well-established. Crude oil prices behave much as any other commodity with wide price swings responding to fluctuations in demand and supply. In the short term however, the movements in crude oil price are also influenced by geopolitical scenario, movement of financial markets, expectations and psychology.

While consumption of the Crude Oil in the past has been driven by OECD countries, particularly the US, much of the current incremental demand is coming from emerging economies, particularly China and India, which contributed more than 40% of the incremental global consumption during 2000-06. Global oil demand is expected to increase to 100 million barrels per day (mbpd) by 2015 as against 85.7 mbpd currently. While oil demand is projected to increase significantly, supply may struggle to keep pace. The production from the existing fields is declining by 4% p.a which means that that around 3 mbpd of new capacity needs to be added every year just to offset the decline in existing production. In order to meet the demand projections of 100 mbpd, the annual supply increment requirement would be 7 mbpd by 2015 (the average annual increment rate during 1971-2006, considering a 4% decline, was 3.5 mbpd). Recently, the US Department of Energy said in a report that strong demand and limited supply is the root cause for the high price of oil. The DOE said oil producers are turning out 84.64 mbpd, while the consumption is 85.7 mbpd. OPEC which accounts for 40% of the world supply, while keeping output steady in its March meeting, argued that Oil markets are well-supplied with inventories of crude oil and refined products over their five-year average.

Among the various factors pushing up the Oil prices, sustained weakness in dollar has the potential to influence demand and supply situation in long run. OPEC countries receive their oil revenues in US dollars but use other currencies to buy goods and services from different nations (preferably Europe) and hence a weaker dollar hurts them the most as it depletes their purchasing power and fuels domestic inflation. Both an increase in inflation and a decrease in purchasing power reduce real income, and, in turn, reduce the amount of investment available to drill for more oil, thus hurting the supply side. Dollar devaluation increases demand for oil in countries with non-dollar appreciating currencies such as the euro and yen as it makes the commodity attractively priced. It also increases demand for gasoline in the US itself, as thousands of Americans spend their vacations at home instead of traveling to Europe where the cost of the vacation is at least 40% higher than three years ago.

Supply disturbances due to continued violence in Middle East and Africa have also contributed to the current surge in prices. Iran remains as defiant as ever on the nuclear issue, Iraq is yet to recover from the sectarian strife, Oil installations at Nigeria and Angola are constantly being targeted by militants whereas Venezuela issues warning to halt Oil supplies to US on a regular basis. Also post Iraq war, US influence over the oil rich Middle East nations has been on a decline. Iran has inaugurated its own version of Petroleum bourse in February this year, where trading of Oil will be done primarily in Euro. Also, Kuwait and Syria have dropped their currency’s peg to US dollar in 2007, while pressure mounts on other OPEC members to follow the suit. All this events tend to increase the “Risk Premium” typically associated with Oil, since it is also a strategic commodity.

Perhaps it is the enormity of above listed factor, coupled with turmoil in financial markets which has led the shift of Investment and Hedge funds to Commodities in general and Oil in specific in a big way. A reduction in the return on principal in other asset classes (stocks, bonds, real estate) has produced an 'oil as asset' environment. Oil, being a rare commodity is now being seen as “Safe Haven” and a hedge against inflation. The key question for the oil markets now is what will happen to the demand for oil as the US, and those that depend on the US as a market, enter a phase of recession. Goldman Sachs sees oil prices slipping to $90 a barrel in the next two months due to seasonal factors and reduced demand. London based Centre for Global Energy Studies’ is of the opinion that only a deep recession leading to a slowdown in Asian growth can end high oil prices. Those who subscribe to “decoupling theory” believe that demand growth in Emerging Markets has the potential to offset any decline in US. Still, the degree, geographical and time span of recession, if any, if it comes may decide the future direction of Crude Oil. As of now, with anticipation of further cuts in US policy interest rate in coming months, Crude Oil is expected to rule high. Correction, if any should be seen as a healthy trend in a bull market and an attractive buying opportunity.

CAN THE GLOBAL COMMODITIES BOOM SURVIVE A U.S RECESSION?

noreply@blogger.com (salmanspeaks) — Mon, 03 Mar 2008 17:28:00 +0000

Commodity prices have been rising for sometime now. Be they energy products, precious metals, industrial metals or agricultural commodities, the markets have been booming. Crude Oil has breached the three digit mark, Gold is ruling at its all time high, Base Metals too have strengthened. Cereals and vegetable oil markets have spiked as never before.As shown in the chart, the gains have been enormous for majority of the commodities, with wheat leading the way.Oil is up 65% and gold is up 39% .Only two commodities are down over the past year - Zinc and Nickel.

Some see a "supercycle" in climbing prices for oil, gold, and the like. But others say a slowing U.S. economy could drag them down.Wall Street economists at Goldman Sachs and Morgan Stanley are now even predicting an imminent recession.

The two trends present a puzzle: Slowing economic activity usually drags down commodity prices.

Historically,U.S. economic growth has been the greatest driver of demand for raw materials and thus the engine behind commodity price increases. Commodity bulls like Marc Faber have argued the current boom is different because growth in China and other developing nations, coupled with shrinking global supplies, has created a "supercycle" that will push up prices for years to come. Thus, the great debate in commodity investing circles for 2008: Can the supercycle be stopped?

Let us analyse individually for different classes within commodity space:

ENERGY: The global economy is still too highly attached to fossil fuels and is not expected to shift soon.Though the U.S. is still the largest oil consuming nation, soaring new demand has largely come from the Asia/Pacific region and especially from China.On the demand side, it is unlikely that China, India, Brazil and other developing countries will slow their growth anytime soon. China’s demand is up over 3,000% in the last three years and the trend is steadily escalating.On the supply side, many big fields are in decline and newly-found oil is usually much more expensive to produce. The fall in dollar’s value has reduced the purchasing power of OPEC's revenues,and that is the exact reason why the cartel is reluctant to hike production. The geopolitical situation in Middle East remains as volatile as ever, with Iran showing no sign of softening over nuclear issue.Supply of crude from Nigeria, Africa's largest oil exporter, has been cut since February 2006 because of militant attacks on the country's oil industry.Venezuela has been constantly threatening to cut exports to the US. Iraq is still struggling to get its oil industry back on its feet after decades of wars.

BULLION: The strongest factor that drives up the Gold prices is “Uncertainty”. Slowdown in U.S economy,housing slump, subdued labor market,Subprime fallout,credit crunch,losses incurred at financial majors,high energy prices,inflationary pressure on global economies,succesive US Fed rate cuts and above all fears of US recession and dollar’s collapse has contributed to a bull run in precious metal in a big way. Contrary to popular belief,it is investment demand rather than jewellery demand which has led to a rally in the precious metal.The meltdown in global equity markets led to a migration of capital to Gold, as it is generally seen as a safe instrument.Tense political situation in Middle East,Pakistan and Africa has also played its part.Mine closures due to power shortage in South africa,the largest producer of Gold has affected the supply of the metal in recent times.

BASE METALS: Chinese demand remains a vital link in Base metal story. Chinese demand growth has the potential to offset weaker US demand. Continued industrialisation, urbanisation and the expansion of electric power grids are expected to feed through to strong growth in the Chinese demand for copper. Declines in production have also spurred supply concerns. The worst snowstorms in decades have slashed output at refineries in China. Production at Chile's Codelco, the world's biggest copper supplier was also disrupted in recent times due to intermittent power failures and labor strikes. Falling inventory levels at LME and SHFE is also seen as pushing the Base Metal prices up.

AGRICULTURAL COMMODITIES: Also known as “soft commodities”,agricultural commodities have immense upside potential.Rising global population has led to an upsurge in demand while at the same time acreage has gone down significantly. Moreover,inventories of food are touching all time low.Jim Rogers,better known as “Commodity Guru” even goes to the extent of saying that prices of agricultural commodities will explode in coming times.

Thus, in retrospective it seems pertinent that the current commodity bull rally is only the beginning. There is more yet to come. Buoying the commodity markets across the board is the chronically weak US dollar and an uncertain global economy, particularly that of US.With talks of “Stagflation” in US, investors, especially fund houses are agressively buying into commodities to hedge their position. In recent times there has been massive investment flows from pension and hedge funds into commodities in international markets. Thus, if the recent developments are to be believed, then far from abating the commodity boom, a US recession may end up encouraging it.

IS GOLD OVERVALUED?

noreply@blogger.com (salmanspeaks) — Fri, 15 Feb 2008 17:18:00 +0000

May you live in interesting times.
- An Old Chinese Proverb.

With Gold prices ruling at all time high, we are indeed living in interesting times. A series of events at macroeconomic level have made possible this longest rally in gold since at least the end of World War II. The monster of Subprime, Credit rout in US and Europe and subsequent erosion of topline of financial giants like Citigroup, Freddie Mac, Wachovia, Northern Rock etc. which started the flight of investors towards “safety”. With Gold seen as “safe refuge” in times of “political and economic uncertainty” the current Gold Bull run is something, which was very much expected. Historical experience testifies to the fact. So much so, that Franklin Delano Roosevelt, who assumed office of U.S presidency during “Great Depression” introduced restrictions on owning Gold by general public in 1933. Even the current crisis in U.S and Europe is being compared to Crisis of 1970s when the Gold hit the previous high of $850.

However, uncertainty prevails among the investors regarding the sustainability of current Gold prices.

Gold is Still Cheap in Real-terms and is way below CPI-adjusted gold price of January 1980. Once properly adjusted for inflation, today's gold levels look positively low compared to the strong gold prices of the early 1980s. Inflation adjusted high of Gold which it hit in 1980 is $2272. In coming times, more and more of investment demand for the precious metal is seen to be picking up. The meltdown in global equity markets has seen investors shifting to the Gold in a big way as it is generally seen as holding its value better than other assets in equity and currency bear markets. At a time when Financial Services majors were reeling under the losses arising out of Subprime fiasco, many frauds are being unearthed at global financial institutions. Recently, the second biggest bank in France Society Générale admitted to a €2.05 billion writedown arising out of what may prove to be the world’s biggest ever “rogue trader losses”. This again triggers aggressive buying in Gold. The metal also gets boost from the sustained weakness in Dollar, which, with each passing day is losing respect and its status of “reserve currency” of the world. With US Federal Reserve aggressively cutting borrowing rates and pumping money supply into the economy, the recovery for dollar is not in sight. All paper money throughout history has proved defective when compared to Gold Bullion in terms of the classic functions of money. Gold is also traditionally seen as a hedge against inflation. In a time when Dollar is losing its value, Central Bankers are injecting cash into the economy and Crude oil is scaling new highs, inflation has emerged as a major concern worldwide. When it comes to the supply side of the precious metal Global gold mine supply remained relatively flat in 2007, falling just 1% to 2,444 tonnes. South Africa made the biggest news in the sector by falling to China as the world’s top gold producer. In addition, Peru saw a 17% drop in mine output to its lowest level in five years, while Canada and the U.S. also declined in production. China, however, along with Indonesia, Brazil and Ghana, boosted production to keep global output relatively unchanged.

Thus, in view of the above fundamental factor it seems that there is still significant upside remaining in Gold. Investors with intermediate to long term view should remain comfortably long in Gold at current levels ($915 at international spot and 11600 at MCX, India).

IS THE ERA OF CHEAP OIL OVER?

noreply@blogger.com (salmanspeaks) — Tue, 01 Jan 2008 16:54:00 +0000

In recent times, the surging price of Crude oil has been the matter of much deliberations among the statesmen and marketmen alike. With crude prices ruling above the $ 95 mark, the single most important question which is tormenting the minds of analyst around the globe is whether such a level is justified or not?It must be pointed out, Oil is heading for its biggest annual gain in eight years. In 2007 alone, Crude oil prices have risen by a whooping 59%!.

Crude oil, being a precious commodity is very sensitive to fluctuations in changes to supply and demand. However a lot of interesting factors have played their role in this bull run of Crude oil in 2007.

To start with, much of the upside in Crude oil price can be explained in terms of a weaker dollar. It's a common knowlege that OPEC is a major player when it comes to Crude oil. OPEC nations account for two-thirds of the world's oil reserves, and, in 2005, 41.7% of the world's oil production, affording them considerable control and influence over the global market. Now, these OPEC nations are being paid in dollars for their crude oil while they buy and shop around mostly in Euros. Thus, a weaker dollar against Euro means a significant erosion of the purchasing power of this block. Seen against this background, it is no wonder that OPEC is reluctant to pump up the production of the liquid gold. The way the dollar has been hammered down in recent times by the US credit crunch, poor corporate earning figures and subsequent rescue actions of US Federal Reserve has ensured that there isnt much potential donside threat to Crude oil prices. With talks of further US Fed rate easing in coming days, the only direction in which Crude Oil is poised to move, is up.

Again, one question that may be raised is whether or not the recent Credit crunch has impacted the demand of the world's largest consumer, i.e U.S? The answer to this question lies in the resilience of US economy. Recent data released by various US state department suggests that the US economy continues to post healthy growth, despite subprime fiasco. Though Financial services, Housing sector and Job market may have contracted, the overall U.S G.D.P growth, Personal Income and Consumption figures still remains as impressive as ever. Thus, any reduction in US crude oil demand due to credit crunch has been broadly offsetted by a newfound optimism. Falling US stockpiles amply suggest that US demand for Crude oil is showing no signs of slowing down. Recently released inventory data (by US Energy Department) indicates that Oil stockpiles in the U.S. have declined to the lowest in almost three years. Demand coming in from Asian Tigers China and India too have significantly contributed to the surge in Crude Oil prices.

Geopolitically, 2007 will be remembered for much tensions, especially in the oil rich nations of Middle East. Iran of Ahmedinejad remains as defiant as ever and its standoff with US doesnt seems to be petering off. Ahmedinejad has reiterated time and again that Iran wont backo off from pursuing the nuclear program, much to the discomfort of Bush Administration. Turkey's act of repeatedly bombing territories in northern Iraq sent the Crude oil prices soaring. Hugo Chavez' s (of Venezuela) constant veiled threat of disrupting oil supplies to the US couldnt be ignored as well.Towards the close of the year, Benazir Bhutto of Pakistan was shot dead, and lo! Crude oil was once again climbing up! All this events also put the seal on the fact that the US influence over the Oil rich Middle East region is waning off which in itself is too important a factor to be ignored. For decades, United States excercised its power and influence on the region to ensure regional peace and continous supply of Oil. However, with US policy on Iraq, Afghanistan, Palestine etc having almost failed, a spike in Crude oil prices came as something which didnt surprised many who are familiar with the commodity.

Therefore, on introspection it seems clear that the price which the Crude Oil is commanding today can be attributed to a number of factors all of which had the enough potential to send the crude oil prices soaring. Some analyst (including India's Petroleum Secretary) have tried to locate the surge in Crude oil prices to trading in futures on worldwide futures' market, especially, at New York Mercantile Exchange (NYMEX), the base market for Energy. The argument is simply ridiculous as futures' markets rather than manipulating the prices, discounts all the major factors and brings out the fair value of a particular commodity. No wonder futures market is taken as a tool of price discovery.

The next target which the market is anticipating for Crude Oil in 2008 is $ 150. Again if the above listed factors continue to hold their strength then such a level is not something which is unscalable.

MARKETS LEFT ASKING FOR MORE................

noreply@blogger.com (salmanspeaks) — Thu, 01 Nov 2007 16:09:00 +0000

Finally, Ben Bernake and Co. cut the benchmark rate on 31st October by a quarter point to 4.5 percent. Fedral Reserve has thus emerged as "a lender of Last Resort". With financial giants like Citigroup. Merrill Lynch reporting huge losses, the quarter point cut didnt come as a surprise. In fact, as the D-Day approached, financial markets had upgraded its expectations to a 0.5 percentage cut. It is being said now that had it not been an unexpectedly good G.D.P data, Fed would have seriously considered a 0.5 percentage cut in interest rate.

BUT...............

Someone said that "expect party at Wall Street, complete with fireworks"...........

What we are seeing now is not a " party" but a very lukewarm response to the Fed decision.....

Nifty closed in red, Wall Street remains as gloomy as ever, Copper sinks even deeper........

What went wrong??????????

Well, a person who is into markets knows very well that markets react only to "surprises" or to something that is "unexpectedly" good or bad for the market. The fact that Fed is coming up with a 0.25 rate cut was something that had been already discounted in the markets with all the global markets posting decent rallys in days preceding the FOMC meeting. That was also the precise reason behind the copper's unexpected rally behind 310 level at MCX, India, at a time when inventories for the metal at London Metal Exchange is ruling at a record high suggesting sluggish demand (?) in global markets.

Thus, a quarter point cut was something that was very much factored in. This was something which was very much expected from Ben Bernanke who is himself famous for unraveling the links between endemic bank failure in the US in the 1930s and the Great Depression; he understands this issue very well.

What happens to the "Inflation Targeting" image of Fed of Volker's/Greenspan's time????????

Only Bernanke has the answer.

Understanding the mind of US' Central banker is a tough job........

Some economists feel that rescuing financial firms triggers off a `moral hazard'. If financial firms know that they will be rescued when they take high risk and things go wrong, this will encourage them to be complacent about risk. And this in turn, will create even bigger monsters.

Ajay Shah, the leading Indian economist of current times very well brings out the paradox of the situation......

"If they have decided to cut rates, it must mean that in their judgment, things are really bad in the US economy. Financial markets seem to think that the rate cut is good news. But when we deconstruct the Fed decision, it seems to be predicated on a gloomy assessment.............."

Where Does Gold Go From Here?

noreply@blogger.com (salmanspeaks) — Sat, 27 Oct 2007 15:45:00 +0000

As of Saturday, October the 27th, Spot Gold in US has soared past 783$ while December futures at New York is in the region of testing 790 $. The prices for the metal are highest since 1980. Gold has rallied 23% in 2007, and is heading for the 7th straight annual gain. Even at MCX, India, Gold December future crossed the psychological 10,000 mark and if it was not for a much stronger rupee (against dollar) the contract may well have touched its all time high. However, the major question, which hovers in the mind of investors and traders currently, is whether such a level is justified and sustainable? And if yes, where do we need to see gold in coming times?

First of all one needs to be very clear that there is nothing surprising in such an upmove of the precious yellow metal. The metal is seen worldwide as a reliable “store of value” and a “safe haven” in times of “uncertainty”. Thus, subprime fiasco in US, tussle between Turkey- Iraq and US-Iran provides a perfect reason for investors, traders and hedge funds to shift to Gold. Again Gold competes with US Dollar as the world’s chief “store of value” and with Dollar at all time low against world’s basket of major currencies (primarily Euro) the metal is shining brighter with each passing day. September US Fed rate cut has already done enough to weaken Dollar and till the time this piece goes into print, Fed, in all probability would have already announced another interest rate cut. Already, the dollar fell to $1.4395 against the euro, the lowest ever, on expectations the Federal Reserve will cut interest rates again this year. Comparison of Gold prices and dollar rate (1993-2007) very well illustrates their inverse relationship.

Again, seen over a longer period of time, Gold generally moves in the same direction as that of Crude oil prices as, the metal is traditionally seen as a hedge against Crude oil induced inflation. With Crude oil prices crossing 92$ and fears of inflation looming large in US, it’s no wonder that Gold is ruling so high. The comparison chart pattern of Crude oil and Dollar well establishes the direct relation of the two commodities.

The demand side of the metal remains fairly attractive even at such higher levels. With Indian demand set to rise further in the coming festive season, the metal is expected to climb newer heights. Gold also stands to gain on expectation that investors in the Middle East will buy the metal, instead of U.S. Treasuries, should conflict escalate in the region. Gold demand in the Middle East rose 20% to 97.5 metric tons in the second quarter from a year earlier, according to the latest figures from the producer-funded World Gold Council. Hedge Funds too are heavily into buying Gold this year.

Expect Gold to test newer highs with each passing day. Correction if any should be taken as a healthy event in an upward rally. Go Long if you havent still. If already Long, hold for larger returns.

Patience, after all, pays.....................

OF KAFKA AND BERNANKE

noreply@blogger.com (salmanspeaks) — Sat, 27 Oct 2007 13:59:00 +0000

Writing blogs regularly is certainly a painful affair.First you need to think cohorently and then follows the ardous task of giving flawless shape to thoughts in words.For creatively challenged and confused creatures like us, sometimes it becomes pretty tough to pick up the right string and start.......

Finally, Anurag Kashyap's "No Smoking" has been released on Friday 26th. I was waiting eagerly for the movie, since I am a great admirer of the genius of this great film maker.However, going by the reviews it seems that the movie is going to be a dud. Kashyap, with this movie, joins a long list of film makers (all western till now) who tried to adapt Kafka on screen but failed miserably.Still, I cheer Anurag for the brave attempt. He has atleast tried the seemingly impossible (suicidal?) act of bringing Kafka to the "Indian" screen, that too at a time when two heavy duty candyfloss masala movie are lined up for launched. Do I need to name them?

Kafkaesque. Isnt it?

Kafka's character are described as Melancholy, Dark, Fretful, Dissatisfied, Sickly, haunted by nightmares of Dehumanization,Bureaucratic Labryinths and a Totalitarian Conservative society.

Sounds familiar? That may be salman.Replace K in "The Trial" by salman and you wont even notice the difference .........

Anyways enough of Kafka..........

With FOMC meeting lined up on 31st of October, next some days are going to be hectic for Ben Shalom Bernanke, the Fed Chairman. Market is optimistic about another interest rate cut with interest rate futures in US indicating a 94% chance of a 25 basis point cut.

So what's my take?

Expect a dearer Crude Oil. Yes, $100, may soon be a reality. Not to forget Bullion. Gold and Silver will shoot up further.Base Metals too will recover. Dollar, it is certain will sink further.

And the stock markets? Expect grand party at Wall Street/Lombard Street/Dalal Street complete with fireworks, so typical of these streets nowadays.............

A few days back I got inspired by Nassim Nicholas Taleb who writes in his book "Fooled By Randomness":-

“I have noticed plenty of analogies between those who blew up in the stock market crash of 1987, Japan meltdown of 1990, bond market debacle of 1994, Russia in 1998 and NASDAQ in 2000. They all made claims to the effect that “these times are different”.

Sorry, Taleb, I have switched sides..........

"Good Times", it seems are here to stay.................

FED BOWS TO THE WALL STREET PRESSURE

noreply@blogger.com (salmanspeaks) — Thu, 04 Oct 2007 15:18:00 +0000

By reducing the Federal Funds Rate (FFR) from 5.25% to 4.75%, besides cutting down the Discount Rate, US Federal Reserve has made clear that its immediate priority is to bail out a bleeding Wall Street rather than doing something bold about the economy which is well on a path to recession.

Fed took such a decision in the aftermath of a sharp devaluation of subprime loans, which in turn triggered a financial liquidity crunch leading to massive global selloff across equity and commodity space.

Wall Street in return cheered the Fed decision and the stocks rallied with The Dow Jones Industrial Average and the S&P 500 each ending with weekly gains of 2.8%, the best performance for both closely watched indexes since March.

Fed Chairman Bernanke told Congress subprime delinquencies were likely to rise further but that the Fed was “committed” to promoting responsible subprime lending.By reducing the Fed rate Ben Bernanke has acted in line with his predecessor Alan Greenspan who too believed in reducing Fed rates when faced with similar situation.

But even if stocks have room to fly higher, there are plenty of clouds on the horizon that could put the Fed in a tough spot and derail the rally.

It's no fluke that gold touched over $748 and that crude oil traded over $83 a barrel for the first time ever. Dollar too has fallen to a record low against basket of major currencies thus increasing the import bill. A sustained rise in food energy and consumer prices and a weaker dollar will only hurt the US economy in the long run. One need not be a rocket scientist to understand the connection.

A rate cut at this stage thus serves no meaningful purpose, but only postpones the recession by a few months, while at the same time exacerbating the imbalances. The step smacks of the mistaken belief that the performance of Financial market is NOT directly related to the performance of economy in general.

Fed action to cut rate at best can be described as a “patchwork”, an attempt to make things look good in immediate term when there is a storm brewing not far away. Being a developed and mature economy, US may be able to overcome the impact of such a move but for the rest of the upcoming economies, including India, it may have severe consequences.

NOTE: Just watch out for the fluctuations in Stock market and Rupee Rate (against Dollar) and you will get the clue!

"YOUR LAUGHTER"

noreply@blogger.com (salmanspeaks) — Mon, 10 Sep 2007 15:26:00 +0000

One of my close friend has introduced me to the works of this great author, Neruda, Pablo. I would like to share one of his most beautiful poem “Your Laughter” with my readers. Hope all of my readers will enjoy the poem as well.

“YOUR LAUGHTER”
Take bread away from me, if you wish,
take air away, but
do not take from me your laughter.

Do not take away the rose,
the lance flower that you pluck,
the water that suddenly
bursts forth in joy,
the sudden wave
of silver born in you.

My struggle is harsh and I come back
with eyes tired
at times from having seen
the unchanging earth,
but when your laughter enters
it rises to the sky seeking me
and it opens for me all
the doors of life.

My love, in the darkest
hour your laughter
opens, and if suddenly
you see my blood staining
the stones of the street,
laugh, because your laughter
will be for my hands
like a fresh sword.

Next to the sea in the autumn,
your laughter must raise
its foamy cascade,
and in the spring, love,
I want your laughter like
the flower I was waiting for,
the blue flower, the rose
of my echoing country.

Laugh at the night,
at the day, at the moon,
laugh at the twisted
streets of the island,
laugh at this clumsy
boy who loves you,
but when I open
my eyes and close them,
when my steps go,
when my steps return,
deny me bread, air,
light, spring,
but never your laughter
for I would die.

-Pablo Neruda

EMPIRE,SOFT POWER AND HEGEMONY

noreply@blogger.com (salmanspeaks) — Sat, 08 Sep 2007 13:48:00 +0000

“It is more important to be feared than to be loved”
said Niccolò di Bernardo dei Machiavelli in 16th century.
Even after the passage of five centuries, the statement holds true. A person who is most feared in society is the most respected one too.Same used to hold true in the international arena where every country vied with each others to outdo the other to establish their maximum possible domination and influence over global political, economic, social and cultural space. For decades the means to achieve domination over others was the use of force , that is to coerce the subject country to achieve one’s own end.

However, the 21st century “Empire” has changed the rules of the games and in the way, has made the game, even more interesting. The current reigning power exerts its influence, which is unique and different in many senses from that of its predecessors.
Power in itself, is the ability to influence others to get them to do what you want. There are basically three ways to do that: coercion (sticks), payments (carrots), and attraction (soft power) Every empire whether be it the current one or the numerous past ones have used coercion and payments to extend their influence over newer territories.

However in recent times the concept of what is known as “Soft Power” has gained currency.Coined by renowned International Relations expert Joseph Nye, the term describes the ability of a state, to indirectly influence the behavior or interests of other political bodies through cultural or ideological means rather than coercion or use of force. Soft power arises from the attractiveness of a country’s Culture, political ideals and policies .On the contrary, hard power, the ability to coerce, grows out of a country’s military and economic might. The United States undoubtedly exerts the greatest “soft power” on earth in terms of Nye’s definition. That is because “The Great American Dream” is also the world’s most coveted lifestyle. The U.S. has always wielded significant soft power due to its ability to "inspire the dreams and desires of others." In this “Great American Dream” money is synonymous with success. The “Dream” also encompassess the newfound ideals of individualism, freedom, liberty and oppurtunity, unimaginable in any other land.In a nutshell this Dream thus promises to offer paradise on Earth as opposed to the claims of almost all the faiths of the world who only promise it only in the life after death. Even that is not sure for every individual. In such a situation “The American Experience” is a bargain, paradise on sale, at dirt cheap value. No wonder, even in a country like India, where schooltexts boasts of civilizational superiority of Indian culture right from “Stone Ages” (pun intended ; it’s same with every civilisation, whether China, Egypt or Arabs, all claim to have attained current level of sophistication many centuries back), even a newborn , who has just started with his/her mothertongue wishes to land on “that great land” next day.

No wonder, Chewing gums, Coke and Hollywood movies are object of everyone’s desire, all over the world.

The Empire has thus proved Machiavelli wrong …………..

Soft power is often associated with the rise of globalization and neoliberal international relations theory. Popular culture and media is regularly identified as a source of soft power, as is the spread of a national language, or a particular set of normative structures; It constitutes very real power - an ability to gain objectives. Propaganda plays central role in it, though Nye denies it and avoids “calling a spade a spade” and an “Empire an Empire”.

The New Age Empire frequently employs “Propaganda” as a tool to further consolidate its soft power and extend its ideological border. I wasn’t surprised when it was only America and The American President, who singlehandedly saved our earth when aliens came visiting in The Independence Day. It holds true for The War of the Worlds as well. The whole world looks upto America as the saviour and the protagonist always comes out successful. One interesting and dominating theme of all these movies is a contest between “Good and Evil”. US, the Good always defeats the Evil who at different period of times has come to represent either the “Red Menace” or “Crescent Power”.

Present day “Globalization” is a misnomer. It is “Americanization”, plain and simple. It is just another tool in the hands of US and inherently exploitative capitalist system to harness the expansion of world markets for their own interests. I am NOT against Globalization. But YES, I am definitely opposed to “Globalization from Above”.

Multi National Corporations (MNCs) of modern world are an important link in this whole story. They are the “Modern Missionaries”, propagator of a new faith. The faith of Capitalism.

In early 20th century only, one of the greatest thinkers of our age, Antonio Gramsci of Italy had talked about the concept of what he called “The Cultural Hegemony” as a means to maintain and ideologically promote the capitalist state. Capitalism, Gramsci suggested, maintained control not just through violence and political and economic coercion, but also ideologically, through a hegemonic culture in which the values of the bourgeoisie became the 'common sense' values of all. Thus a consensus culture developed in which people in the working-class identified their own good with the good of the bourgeoisie, and helped to maintain the status quo rather than revolting.

Thus, the greatest casualty, in the process is the local culture. Burgers, Pizzas, Sweet (and sour?) Corn which were relatively unheard of a decade back, has now become staple of urban populace. Everything American is Cool. Everything Indian is Desi, and therefore uncivilised. We have certainly failed to distinguish between what is “Modern” and what is “Western”.

Unfortunately, countries like China too have started following in the footsteps of “The Empire”. Its illegal occupation of Tibet and Taiwan smacks of new age imperialism. The Chinese government continues to violate the human rights in the region and is employing every means (both hard and soft power) to consolidate its power and influence over the area. The new high altitude railway to Tibetan capital Lhasa, started by the Chinese government is just another attempt in the direction.

However, the author wants to make it very clear that he is NOT against any particular country, its people or culture. The article is only a review of the policies of the institutions of the countries in the question.

People say “Power corrupts”.

But in my opinion, G.B Shaw was right when he said “Power does not corrupt men; fools, however, if they get into a position of power, corrupt power.

DYNAMICS OF LIQUID GOLD

noreply@blogger.com (salmanspeaks) — Tue, 28 Aug 2007 15:29:00 +0000

Since I happen to belong to the tribe of financial research analysts, it becomes important for me to post some articles which are relevant to my field too.

In the article below, I have tried to explain the dynamics of Crude Oil to the readers. The article is very basic in nature and I dont expect my fellow experts to comment too seriously on it. However, comments from genuine readers and legpulling by close friends are always welcome and in fact,appreciated.

Before beginning the article I must acquaint my uninitiated readers that Crude oil, which I have referred to as "The Liquid Gold" happens to be a hot commodity in modern world, and like Stock market, the futures contract of this commodity is widely being traded all over the world. Since it's a relatively newer and slightly complicated concept, it may not go down too well with all of my friends. Honest enquiries, however will be highly appreciated.

Crude oil is the lifeblood of modern world. Crude oil prices, to a large extent determines the health and wealth of world economy and many a time, shapes up the global politics too. Oil is a major source of energy that is extensively used around the world. Sustained spikes in oil prices paint a bleak picture of the global economy, because oil is an important input for gasoline, heating oil, kerosene and other petroleum products and all these have multiple linkages. Due to its high energy density, easy transportability and relative abundance, it has become the world's most important source of energy since the mid-1950s. Petroleum is also the raw material for many chemical products, including solvents, fertilizers, pesticides, and plastics; the 16% not used for energy production is converted into these other materials The cascading effects of the spikes in prices can be devastating as they cause tremendous inflationary pressures. The IMF and the OECD sources suggest that a US$10 price rise is consistent with the loss 0.5% of world GDP in the first year.

Similar to other commodity prices, the primary driving forces, behind the run in the oil prices have been the combination of low additions to capacity and the emergence of a strong and broad based global demand.Some of the major oil-producing nations are Saudi Arabia, Russia, United States, Iran, Mexico, in that order. Saudi Arabia remains the top oil-exporting nation. The major oil consuming nations are United States, China, Japan, Russia and Germany.

The performance of world economy in general and the world’s largest economies such as US, Japan and more importantly Emerging Markets like China, India, Russia, Brazil etc. have a significant impact upon demand for crude oil and vice versa. World demand for oil is expected to increase by 54 per cent in the first 25 years of the 21st century, according to the Energy Information Agency of the U.S. government. To meet that demand, the world's oil-producing countries will have to pump out an additional 44 million barrels of oil each and every day by 2025.Much of the growth in demand – about 40 per cent says the EIA will come from Asia. Its daily oil fix is expected to double by 2025, thanks mainly to rapidly growing economies in China and India. In 2004, China passed Japan as the world's second-largest consumer of oil. It ate up an average of 6.63 million barrels of oil every day – about twice what it produces. Its oil imports doubled between 1999 and 2004. China's demand for oil is expected to continue to increase by five to seven per cent a year. If that happens, China will surpass the United States as the world's largest consumer of oil by 2025. Similarly, India's oil needs are expected to grow by four to seven per cent a year.

When it comes to supply side of Crude Oil, Organization of Petroleum Exporting Countries, better known as OPEC assumes special significance. The Organization of the Petroleum Exporting Countries (OPEC) is an international cartel made up of 12 member nations Iraq, Indonesia, Iran, Kuwait, Libya, Angola, Algeria, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC nations account for two-thirds of the world's oil reserves, and, in 2005,41.7% of the world's oil production, affording them considerable control and influence over the global market. However, post 1973 oil crisis and subsequent discovery and development of large oil reserves in the Gulf of Mexico and North Sea, the opening up of Russia and market modernization, OPEC's ability to control the price of oil has diminished somewhat. Scholars like James S. Robbins, on the other hand are of the opinion that OPEC is still powerful enough to adjust oil prices to the benefit of its members, and the detriment of the energy consuming countries. No doubt, OPEC tries to influence Oil prices by putting an upper cap on oil production (on members states) and thus keeps oil prices from falling. In recent times, scholars like K L Narasimha Rao have argued that a weak Dollar is a strong reason for the OPEC countries to keep oil prices higher.

Apart from the influence of Oil producing nations, Oil price tends to include a “GEO-POLITICAL” risk premium. Global political tensions, particularly in Oil producing nations like Iran, Iraq, and Saudi Arabia act triggers price rise. The belligerent stance of oil rich nations like Iran and Venezuela works as a catalyst for rising Crude oil prices. Moreover increasing frequency of terrorist attacks, particularly post 9/11, on the oil installations in various oil producing countries like Iraq, Turkey has only added a premium to oil prices.
Disruptions caused due to hurricanes and tornadoes hitting North American refining installation is also one of the major factor that drives up the Crude oil prices. Surge in Crude oil prices in 2006 when Hurricane Katrina had hit the US coastline can be cited as a case in point. Severe winters and summer rally season in US also play a great role in pushing up the oil prices.

When it comes to trading of oil in spot or futures market, generally, industry accepted Crude oil benchmarks act as a barometer of the overall market. The relative value of crude oils is determined by two main factors: location and quality. For the last 20 years, price discovery in the oil market has been concentrated around 3 main regional crude oil benchmarks, also known as 'marker' Crudes: West Texas Intermediate (WTI) from the United States, Brent Blend from the UK North Sea and Dubai, and Fateh, crude from the United Arab Emirates.

West Texas Intermediate (WTI) or Light, sweet crude oil commonly referred to as "oil" in the Western world. WTI is the underlying commodity of the New York Mercantile Exchange's (Base market for Energy) oil futures contracts. WTI is considered a "light sweet" crude because it has a high API (American Petroleum Institute) gravity of 39.6 and a low sulphur content of 0.24%, putting it on a much higher pedestal than other benchmark crudes. This makes it ideal for producing products like low-sulfur gasoline and low-sulfur diesel. WTI is high quality oil that is easily refined. This characteristics along with location, makes it an ideal crude to be refined in the US, the largest gasoline consuming country. WTI is used mainly to price North American crude and some US imports.

However in recent times, the unusual weakness of WTI to the other international crude (it is being traded at discount to Brent Crude in recent times) has raised questions about its viability as a key benchmark.

Brent crude oil is a global benchmark for other grades and is widely used to determine crude oil prices in Europe, Africa and Middle East. It is a type of oil that is sourced from the North Sea. It is now sourced primarily by the UK, Norway, Denmark, the Netherlands and Germany. Brent crude oil is not as light or as sweet as its counterpart, WTI. India is very much reliant on this oil from the Middle East. It has lower API gravity (between 38-39) and has a higher sulphur content of 0.37% making it inferior to WTI. However, in recent times, Brent Crude is commanding a premium of $1-$2 in global markets, making it a globally accepted benchmark.

Dubai Crude, also known as Fateh is produced in the Emirate of Dubai,part of the United Arab Emirates. Fateh is qualitatively different from other exchange markers, being considerably more heavy or viscous (as measured by a lower API gravity) and more "sour" (i.e.: with a higher sulphur content typically over 1%) than "sweet" crudes such as Brent and WTI. It is a newly introduced benchmark and relatively much inferior tother two benchmark crudes.

Expert Speaks:- Renowned ‘’Commodity Guru” Jim Rogers predicts that in coming few years Crude oil is poised to touch $100. Rogers says that, while he can’t pinpoint the exact timeframe, oil will reach $100 a barrel after a “correction”. Rogers says the fundamentals for $100 a barrel oil are still very much alive. There hasn’t been a major oil discovery in 30 years and economic growth in China and other Asian countries is boosting demand for oil, he says.

ALLAMA IQBAL:THE FORGOTTEN PHILOSOPHER

noreply@blogger.com (salmanspeaks) — Wed, 13 Jun 2007 10:20:00 +0000

POET, THINKER, HUMANIST

Allama Iqbal, also known as the "Poet of the East" remains one of the greatest poet, thinker and humanist of the modern era. Born in Sialkot (Punjab), British India , his poetry in Urdu and Persian is among the greatest of the modern era.After studying in England and Germany, Iqbal established a law practice, but concentrated primarily on writing scholarly works on politics, economics,history, philosophy and religion. He is best known for his poetic works, including Asrar-e-Khudi—which brought a knighthood— Rumuz-e-Bekhudi, and the Bang-e-Dara, with its enduring patriotic song Tarana-e-Hind.

However, Indian history has largely chosen to ignore the personality who also happens to be the composer of our unofficial national anthem "Saare Jahaan Se Achcha" , a work known for its rhyming beauty and lavish praise of one's homeland. Instead, his writings have been misinterpreted to suggest that he was the inspiration behind the partition of country and creation of two separate states. That in itself is an unfortunate allegation on a man who always appreciated the pluralistic and composite culture of India. In fact, at one place he himself says:

"Mażhab nahīñ sikhātā āpas meñ bair rakhnā hindī haiñ ham, vatan hai hindostāñ hamārā
or,
Religion does not teach us to bear ill-will among ourselves ,We are of Hind, our homeland is Hindustan

No doubt he has become a victim of animosity that exists between the two neighbours ,which in itself was, and is being fuelled by politicians.At one place he had himself said:

"Nations are born in the hearts of poets, they prosper and die in the hands of politicians"

Being a visionary, he probably had an idea of the shape of the politics to come.

Iqbal was a firm believer in the power of human will. He outrightly rejected the theory of predestination.He says at one place:

"Destiny is the prison and chain of the ignorant".

Thus, to Iqbal, humans are different from vegetation and animals in the sense that former are endowed with "free will".

The poet celebrates the spirit of "human will" to the maximum when he says:

"Thou didst create the night, but I made the lamp. Thou didst create clay, but I made the cup. Thou didst create the deserts, mountains and forests, I produced the orchards, gardens and groves. It is I who made the glass out of stone, and it is I who turn a poison into an antidote."

Here thou is being used to refer to the Allah, God who always poses newer challenges to humanity, but the latter turns these challenges into strengths.

Almost same thoughts were echoed in his masterpiece " Shikwa" and " Jawaab-e-Shikwa", which also gathered much controversy in the subcontinent. The author indulges in a candid dialogue with his creator, Allah in this work.

As far as I know, very few people of us are aware that India has been homeland to such great personalities. Even fewer are interested in knowing.

A society which ignores it's intellectuals, has no future. Sheer materialism only spells doom for any society. Philosophers like Iqbal, Gandhi, Gautum Buddha provide a base around which the future of the society is woven.

The legend himself says.........................

"Given character and healthy imagination, it is possible to reconstruct this world of sin and misery into a veritable paradise."

It may be argued in once own's favour that since he used to write in Urdu and Persian, a language known not much to many in present day India. However, such a line of argument seems funny when placed in an age of free source (internet), and great efforts at translation.

I would therefore urge readers to have a look at this great man's works.

Given below is a transcript of "Saare Jahaan se Achcha" along with translation:

Sāre jahāñ se achchā hindostāñ hamārā ham bulbuleñ haiñ us kī vuh gulsitāñ hamārā
ġhurbat meñ hoñ agar ham, rahtā hai dil vatan meñsamjho vuhīñ hameñ bhī dil ho jahāñ hamārā
parbat vuh sab se ūñchā, hamsāyah āsmāñ kāvuh santarī hamārā, vuh pāsbāñ hamārā
godī meñ kheltī haiñ us kī hazāroñ nadiyāñgulshan hai jin ke dam se rashk-e janāñ hamārā
ay āb-rūd-e gangā! vuh din haiñ yād tujh ko?utarā tire kināre jab kāravāñ hamārā
mażhab nahīñ sikhātā āpas meñ bair rakhnāhindī haiñ ham, vatan hai hindostāñ hamārā
yūnān-o-mir-o-rumā sab mi gae jahāñ seab tak magar hai bāqī nām-o-nishāñ hamārā
kuchh bāt hai kih hastī mitī nahīñ hamārī sadiyoñ rahā hai dushman daur-e zamāñ hamārā
iqbāl! koī maram apnā nahīñ jahāñ meñ malūm kyā kisī ko dard-e nihāñ hamārā!

Better than the entire world, is our Hindustan,We are its nightingales, and it (is) our garden abode
If we are in an alien place, the heart remains in the homeland,Know us to be only there where our heart is.
That tallest mountain, that shade-sharer of the sky,(It) is our sentry, (it) is our watchman
In its lap frolic those thousands of rivers,Whose vitality makes our garden the envy of Paradise.
O the flowing waters of the Ganges, do you remember that dayWhen our caravan first disembarked on your waterfront?
Religion does not teach us to bear ill-will among ourselvesWe are of Hind, our homeland is Hindustan.
In a world in which ancient Greece, Egypt, and Rome have all vanished without traceOur own attributes (name and sign) live on today.
Such is our existence that it cannot be erasedEven though, for centuries, the cycle of time has been our enemy.
Iqbal! We have no confidant in this world .What does any one know of our hidden pain?

Kuch Baat hai ki hasti mit ti nahi humari!