Month: November 2011

North Dakota Edges U.S. Closer to Energy Independence

by David Fessler, Investment U Senior Analyst
Tuesday, November 29, 2011: Issue #1653

Williston, North Dakota is a dusty, prairie town. It’s just a stone’s throw from the Canadian border. Up until a few years ago, few Americans had ever heard of it. Now they’re flocking there in droves. Even strippers from Vegas are making the migration.

You see, there’s no recession in Williston. Far from it: The city’s unemployment rate is close to zero. The majority of the jobs sport starting salaries north of $100,000 a year. That’s not a typo: Six figures to start. It’s a real honest-to-goodness Western boomtown.

The city’s two strip clubs are packed seven nights a week. They’re a good place to check out if you’re job hunting. Many workers find a job a few hours after they arrive.

And the strippers? They’re in seventh heaven. Even an average stripper can make $1,500 a night in tips. That’s 10 times what she’d make in Vegas. Good ones make double that.

What on earth is going on in this once quiet town in the middle of the northern prairie? Williston is ground zero for the new oil and natural gas boom that’s happening in the “Rough Rider” state.

Need a job? Pack your bag and head on up. Just bring a place to live with you. The few hotels are booked for several years by the oil companies who operate there. The housing shortage is Williston’s biggest problem. If you’re lucky enough to find a place to rent, you’ll pay four times what you would have just a couple of years ago.

The real estate market? In one sense, it’s booming, especially if you’re a seller. But there’s no thick listing book to look through like there are in most other cities. As soon as a house is put up for sale, it’s as good as sold. They’re quickly snapped up by the new wave of oil and natural gas workers who’ve moved in.

The Bakken Boom

It’s all due to the “Bakken Boom” – a revolution in shale oil and shale gas that’s taken this area by storm in the last few years. It’s the primary reason North Dakota’s overall unemployment rate is a whopping two percent – less than a quarter of the nation’s average.

The Bakken formation is a 25,000 square mile chunk of rock that underlies part of North Dakota, Montana and Saskatchewan. Estimates for how much oil it contains vary, but the latest are north of 50 billion barrels. That would run the entire country for about four years at present usage rates.

The oil- and natural gas-bearing rock is an average of 150 feet thick, but can be as thin as fifty feet in some places. Oil and natural gas were discovered here way back in the 1950s. It proved impractical to extract either, mostly because they were tightly trapped in the shale rock that makes up the Bakken formation.

But horizontal drilling and hydraulic fracturing changed all that. Drilling companies are able to drill down to the oil- or natural gas-bearing layer, turn the drill bit, and then follow it for miles.

Once the well is completed, the surrounding rock is hydraulically fractured, and the cracks are propped open. This allows oil and/or gas to flow out of the well to the surface. These two processes have completely changed oil and gas drilling in the United States. Nowhere is that more apparent than in the Bakken.

The Bakken Boom is responsible for the quadrupling of North Dakota’s oil production since 2005. Take a look at these charts from the EIA. The data is based on information from the North Dakota Department of Mineral Resources.

This past September, the state’s oil production averaged over 460,000 barrels per day (bbl/d). That’s nearly five times September 2005 levels. Oil production has increased to the point where North Dakota oil production is only surpassed by Alaska, Texas and California.

But the Bakken is just beginning to be exploited in terms of its oil content. Just over 200 rigs are currently drilling there, with 10 more added by the end of the year, according to a study undertaken by The Associated Press.

All that drilling has created a backlog on the back end of the process. North Dakota Department of Mineral Resources (DMR) data currently indicated there are over 350 drilled wells awaiting fracturing services.

As a result, the DMR is forecasting an oil production increase of nearly 100 percent to as much as 750,000 bbl/d by 2015. This is higher than the 700,000-bbl/d estimate it gave earlier this year.

Thus far, the crude oil takeaway capacity (via truck, rail and pipeline) is keeping up with the increases in production. The DMR doesn’t expect a problem, as all three are increasing their capacity in the region to handle the ever-increasing production.

So don’t count on a letdown any time soon.

Good investing,

David Fessler

Article by Investment U

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 29 November, 08:30 EST

THE WHOLESALE market gold price hovered in a 0.5% range around $1711 an ounce Tuesday morning in London, where Britain’s chancellor today gave his autumn budget statement to parliament.

Elsewhere in Europe, Italy’s borrowing costs hit new highs at an auction of government bonds, while Eurozone finance ministers are meeting to discuss boosting the single currency rescue fund.

By Tuesday lunchtime, the spot market gold price was showing a gain of 1.7% on last week’s close.
“In the short term [however], we fear gold could go a bit lower,” warns Daniel Briesemann, analyst at Commerzbank in Frankfurt.

“But this would be exclusively driven by weaker equity markets and weaker commodity markets, because of the increasing risk aversion.”

“We remain bullish on gold,” says Societe Generale commodities strategist Jeremy Friesen in Hong Kong, adding that “aggressive monetary policy” aimed at countering ongoing crises “will be positive” for the gold price in 2012.

The silver price meantime hovered around $31.80 per ounce – 1.7% up for the week so far – while stocks, commodities and US Treasury bonds were also broadly flat by Tuesday lunchtime.

Britain’s government is facing bigger budget deficits than previously forecast, after the Office for Budget Responsibility revised down its growth projections.

“Two more years of weak productivity growth would increase the structural deficit by close to £30 billion,” the Financial Times reports, citing its own analysis of Britain’s public finances.

The OBR now forecasts that growth for this year will be 0.9%, with 2012 seeing growth of 0.7%. The forecasts mean it looks unlikely the government will hit its target of eliminating the deficit by 2015.

In his Autumn budget statement today, Britain’s chancellor George Osborne told confirmed so-called ‘credit easing’ plans to provide £40 billion to underwrite loans to small and medium sized business. Osborne also restated the government’s opposition to a proposed European financial transaction tax. Public sector workers – many of whom plan to strike tomorrow over pensions – will have salary increases capped at 1%.

UK money supply meantime increased by £8.5 billion in October, according to the Bank of England’s preferred money supply measure M4 excluding intermediate and other financial corporations – a year-on-year rise of 2.8%.

M4 Sterling lending meantime – the total amount of money lent out to households, private non-financial firms etc. – rose by £5.6 billion, with UK mortgage approvals hitting their highest level since December 2009. The Bank announced on October 6 that it was increasing the size of its quantitative easing program from £200 billion to £275 billion.

The Sterling gold price fell throughout Tuesday morning, losing 0.8% by lunchtime to hit £1095 per ounce – just above where it began the week – as the Pound gained strongly against the Euro.

Despite yesterday’s promotion of ‘Buy a Bond’ day by the Italian Banking Association, Italy’s borrowing costs rose to fresh Euro-era highs this morning when it auctioned 3-Year and 10-Year government bonds. The average yield on €2.5 billion of 10-Year bonds sold was 7.56% – while the 3-Year average yield was higher at 7.89%.

Greece, Ireland and Portugal were all facing lower borrowing costs when they were forced to ask for bailouts.

“Italy has lost control of its fate and its future now lies with the European Central Bank, International Monetary Fund, France and Germany,” says Jeffrey Sica, president and chief investment officer at SICA Wealth Management, which manages over $1 billion in client assets.

In Brussels meantime, Eurozone finance ministers are meeting today to discuss options for leveraging the European Financial Stability Facility, while in Karlsruhe, the German Constitutional Court is reviewing whether or not Germany’s entire parliament will need to vote on any EFSF proposals.

“It’s not just Germany that has a parliament,” Jean-Claude Juncker, Luxembourg prime minister and chairman of the Eurogroup of single currency ministers, commented last month.

“They also exist elsewhere…we are dealing with 17 governments, 17 states and 17 parliaments.”

Ratings agency Moody’s announced Tuesday that has placed 87 banks in 15 European countries on review for possible downgrade. The majority of ratings to be reviewed are those of banks in Spain, Italy, Austria and France.

Over in New York, the number of bullish minus bearish contracts held by noncommercial gold futures and options traders on the Comex exchange – the so-called speculative net long – fell in the week ended 22 November, according to data published Monday by the Commodity Futures Trading Commission.

Speculative net long positions fell 12.3%, and by the equivalent of around 78 tonnes of gold bullion.

“The substantial decline in speculative longs is disquieting,” says Standard Bank commodities strategist Marc Ground.

“However, we are comforted that this decline in longs has not been accompanied by a marked increase in short positions, a signal that the market has not turned bearish.”

“In the week under review,” adds precious metals consultancy VM Group, “bets appear to be forming against the gold price. That said, news flow remains the single biggest driver and sentiment can change rapidly. Moreover, much of the fall in the net long position was due to option expiry for December month.”

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Is China Being Overvalued?

by Jeannette Di Louie, Investment U Research
Tuesday, November 29, 2011

Once upon a time, the term BRIC meant something. Brazil, Russia, India and China were all seen as rising stars in the global economy, and investors couldn’t get enough of them.

Not so much anymore. These days, only China seems to make the news.

Admittedly, there’s some good reason for that. The Chinese economy has grown by leaps and bounds for years now, and its political sway seems to be increasing just as quickly.

Just this month, U.S. President Obama refused to make a decision on Iran’s nuclear aspirations before he spoke to Chinese leaders. No wonder many economists predict China will surpass the United States as the world’s largest economy in less than 20 years.

Then again, economists and amateurs alike have made similar predictions for quite a while now. And while China might have another several strong years left in it, investors still might want to consider a different perspective on the communist country before they shift all of their money into it just like that.

Jim Chanos Sees China As the Next Enron

Trying to find a bearish opinion on China may seem like asking Congress’ so-called Supercommittee to get along, but it’s not nearly so difficult if you know where to look.

Take Jim Chanos, the short seller who famously predicted Enron’s collapse and the fall of the U.S. housing market. He’s publicly stated his opinion repeatedly that “China is heading for a fall”… and a big one at that.

“The property crash in China will be worse than it was in America or the U.K.,” he foretold back in February, after making similar predictions in 2010.

Don’t shrug off his prediction lightly just because it’s practically 2012. After all, Chanos first began shorting the U.S. housing market in 2005, well before anybody else had a clue about its imminent collapse.

Meanwhile, national security analyst Tom Barnett also believes China has a rocky future ahead of it due to “a lot of developmental walls” the country has built up in its own way. And Troy Parfitt, author of Why China Will Never Rule the World, completely agrees, saying that, “China lacks superpower qualities and hasn’t discovered any in its mad dash into capitalism.”

The Facts Don’t Bode Well for China

Three China bears against the likes of Jim Rogers, Mark Mobius, George Soros and practically every Tom, Dick and Harry around may not seem very impressive at first.

But isn’t that partially the point?

In the 1980s, everybody knew that Japan would surpass the United States as the next big superpower. During the 1990s into the 2000s, everybody was certain that real estate had only one place to go: up. And at one point or another, everybody thought that investing in Worldcom, Enron and Lehman Brothers were safe, sure-thing plays.

In other words, “everybody” gets its wrong     far too often. And when it comes to China, “everybody” is missing several key facts that don’t bode well for the country…

• One-child policy: As Barnett points out, China’s forced family planning over the last 30 years is now officially coming back to haunt it: “By the time they hit 2050, they’re going to have more old people than the United States has people [period].” In other words, workers will be scarce – and therefore expensive – and elderly dependents far too common for the younger generation to support.

• Continuing socialism: Sure, the country seems to be embracing all the best of capitalism, vaulting thousands of its working poor into its ever-expanding middle-class every month. But it’s still ruled with a heavy hand and strict regulations on personal freedom that don’t lend well to long-term ingenuity or social stability.

• Unhappy populace: For every citizen catapulted out of poverty, there are still far more left wallowing in it. And you can better believe that lengthy list of have-nots leads to a lot more violence and strikes than the Western world hears about.

• Pollution problem: In a desperate bid to catch up to the world’s economic players, the Chinese government has gone overboard building up its cities. The New York Times reported in June that “the Rapid growth of megacities… has drained underground aquifers that took millenniums to fill.” That has also led to an intolerable amount of air and water pollution, with all of the health risks involved.

A Final Caution on China

Perhaps the U.K.’s Telegraph said it best when it summarized acclaimed author Xué Xinran’s opinion of China’s future outlook:

“Its young are incapable, its old are exhausted and box-ticking bureaucrats make life hell. China, a superpower? First, it needs to grow up.”

That’s not to say that investing in the Asian tiger right now isn’t a good idea.

More than likely, the global economy will remain far too consumed with European and American financial woes well into next year, if not beyond. And that means negative focus will stay off of China for the time being.

Just keep in mind that the country’s long-term prospects aren’t nearly as rosy as China bulls want to believe. By now, the investing community should know better than that…

Nothing ever is.

Good investing,

Jeannette Di Louie

Article by Investment U

Nov. 29 (Bloomberg) — Francis Lun, managing director at Lyncean Holdings Ltd., talks about the market for initial public offerings in Hong Kong. Lun also discusses China’s economy and Europe’s sovereign debt crisis. He speaks with John Dawson on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Nov. 29 (Bloomberg) — Jim Rogers, chairman of Rogers Holdings, talks about his investment strategy. Rogers also discusses Europe’s sovereign debt crisis, Federal Reserve monetary policy and the U.S. economy. He speaks from Singapore with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By ForexYard

The USD came off its highs yesterday versus the majors after reports in the Italian press that the International Monetary Fund (IMF) will be providing aid to Italy. These reports subsequently proved to be false. Recent price movements in the FX markets have become more and more driven by the headlines and this should continue as reports come from today’s 2-day Eurogroup meeting.

Economic News

USD – USD Down Despite False IMF Aid Story

The USD gave up a portion of last week’s gains after reports of an IMF deal for Italy. The story proved false but that did not stop riskier assets from making a comeback at the expense of the USD. Both equities and higher yielding currencies such as the AUD came off of last week’s lows.

The main news releases this week will come from the US with today’s key data being consumer confidence. Initial numbers from the shopping spree on “Black Friday” hint at a strong start to the holiday shopping season which could signal a better Q4 GDP. On Thursday the ISM manufacturing PMI will be released and is expected to show an improvement over last month’s survey. This is in sharp contrast to European PMIs which were released last week below the 50 boom/bust level. Friday will have the all-important non-farm payrolls report. Early forecasts are for an increase of 119K new jobs added to the US economy. Strong data from the US could help to support the recovery in higher yielding assets, though events in Europe seem to be driving the overall trend in the markets.

EUR – Germany and France Working towards Fiscal Union

The EUR/USD added on almost 1.5 cents to its price, climbing to the 1.3400 level despite the lack of solid news or economic data from the euro zone. There is speculation of Germany and France working together towards a fiscal union and this has supported the EUR. Tighter fiscal rules in the EU may be a precursor to additional ECB involvement to help solve the ongoing European debt crisis. Perhaps this is an instance of buy the rumor, sell the fact?

Additional details may come out of the Euro zone today as European finance ministers will meet both today and tomorrow to discuss leveraging the EFSF. Discussions of additional European integration will most likely be on the agenda as well. The risk is for negative headlines to follow the meeting which would likely weigh on the EUR.

The October low of 1.3145 is the support level that many market participants are looking at. A break here would open the door to the January low of 1.2870.

NZD – PM John Key Wins Re-Election

NZ PM John Key won re-election with a strong mandate for his second term. Key has focused on reducing government spending but his attempts have been slowed by the global financial crisis and multiple earthquakes. New Zealand bond markets have signaled an approval of the government’s spending policies with bond yields falling, though this may also be a product of investors seeking alternative safe haven assets with the European debt crisis. Interestingly enough, Key is a former foreign exchange trader.

The NZD rose yesterday in-line with other risky assets. However, the appreciation in the currency may be short lived as the NZD/USD has already put in serious technical damage with a break of its long term trend line from the 2010 May low. Support is found at last week’s low of 0.7370 with resistance at the old trend of 0.7565 followed by the May low of 0.7750.

Gold – Gold Prices Rise on Weak USD

Spot gold prices bounced higher yesterday on broad USD weakness as the price of gold climbed back above the psychological $1,700 level. Similar to the EUR, gold prices were moving on the headlines of an IMF deal to support Italy. Despite the news reports proving to be false gold held onto its earlier gains.

The rise in the commodity yesterday helped to take out the near-term resistance of $1,710 from the mid-November low. A continued move higher may see resistance at $1,768 from the falling trend line off of the September and November highs. To the downside spot gold prices have support at the short term rising support line from the November 21st low at $1,666.

Technical News

EUR/USD

The EUR closed last week below the psychologically important 1.35 level and a close below it on the monthly chart will carry an even greater significance. Both monthly and weekly stochastics continue to fall and a break of 1.3210 will likely test the October low of 1.3145. Below here at 1.3040 there is the 61% Fibonacci retracement of the move from June 2010 to May2011 though this may only prove to be a mile marker in the new downtrend for the pair. Support is located at the January low of 1.2870. The November 18th high of 1.3610 stands out as resistance.

GBP/USD

Falling monthly and weekly stochastics may have the GBP/USD testing the October low of 1.5270 as the pair is pulling within striking distance of its long term uptrend from the 2009 low which comes in at 1.5050. Any move higher will likely encounter heavy selling from the July pivot at 1.5780.

USD/JPY

The downtrend for the USD/JPY remains firmly intact and only a break above 78.95 from the falling trend line from the 2007 high may reverse the pair’s bearish technical sentiment. A break above this line may have the pair testing the most recent post-intervention high of 79.50, a level that coincides with the pair’s 200-day moving average. To the downside the November 18th low of 76.55 is the initial support, followed by the all-time low of 75.56.

USD/CHF

The USD/CHF is testing its October high at 0.9310 and a break here will likely open the door to the pair’s 20-month moving average at 0.9460 and the February high of 0.9775. Initial support is located at the November 18th low of 0.9080 with a deeper move perhaps taking the pair to the November low of 0.8760.

The Wild Card

S&P 500

After breaking lower from the triangle consolidation pattern that spanned the first half of November the S&P 500 retraced 61% (1,152) of its October bullish run before gapping higher. Should the stock index continue to climb forex traders may find resistance at the November 1st low of 1,208. However, momentum is moving lower and as such forex traders may be eyeing support at 1,123 from the September 9th low followed by the October low of 1,067.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

This morning’s EUR/USD price action looks like a false breakout from the falling wedge pattern on the daily chart.

The Bank of Italy saw good demand in today’s auction where it sold EUR 7.499 bn worth of bonds. The trouble is the yield at which Italy will now pay to finance those debts. The yield for the new 3-year bond is at 7.89% while the yield for the 10-year Italian bond is trading at 7.56%. For Italy the cost to borrow funds is rising at an alarming rate.

Demand was strong for the Italian debt and the EUR climbed to its highest level in a week before coming off after the ECB failed to drain all of the EUR 203.5 bn from its deposit auctions. The ECB only succeeded in draining EUR 194.2 bn. Could this be the start of back door quantitative easing for the ECB to support the struggling euro zone economy?

The North American trading session will see the release of US consumer confidence numbers. FOMC doves Yellen and Raskin will also speak.

As the EUR/USD climbed to a new weekly high of 1.3440 there were willing sellers waiting to enter at better levels and the pair was sent back to 1.3330. The price action looks to be a false breakout from the falling wedge chart pattern that runs from the October 27th high. The base of the chart pattern may now be supportive at 1.3170. A break here could open the door to the January low of 1.2870.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By MoneyMorning.com.au

A potential IMF $600 billion bailout loan for Italy and US shoppers spending up big on ‘Black Friday’ was all the Aussie market needed yesterday to finish 1.5% higher.

And thanks to the Dow’s spectacular 2.5% gain Monday night, odds are the Aussie Stock Market will finish today up as well.

But don’t get your hopes up, ’cause this might not be the start of the Santa of rally.

According to Murray Dawes, editor of Slipstream Trader, this pickup in the volatile market is one last gasp before we see a sell-off.

In his free weekly stock market update last week on YouTube, Murray said:

‘We may see an attempted rally from 4050. In fact it may even get back to the ten day moving average. The best outlook would be for the market to reach the point of control of this structure, which is 4200.

‘After that point been reached, I’d expect to see it turn back down again.’

Click here to enlarge

Yet, the market heading south isn’t the only problem.

For this time of year, the market volume is extremely light. Normally it averages about $6 billion-worth each day. However, the Australian stock market has traded somewhere between $3.5-$4 billion a day in the last couple of weeks.

So who’s in the market? The short answer is not the big boys.

Most trades, as far as Murray can tell, are coming from high frequency trading and retail investors. Meaning, the fund and hedge fund managers are sitting out of the Australian market right now.

Simply because they don’t know which way the Aussie market’s going. No-one’s willing to take a big position until there’s a clear the direction from the market.

But Murray’s pretty sure he knows which way it’s going. He says:

‘It’s all rolling over. If the S&P/ASX 200 cracks below the 3800 zone that tells me that the whole distribution from the last few years has failed.

‘And that’s when the market will look really scary.’

Shae Smith
Editor, Money Morning

P.S. Don’t forget to check out Murray’s free weekly stock market update on YouTube every Wednesday afternoon. Click market update for last week’s video. Plus if you subscribe to his YouTube channel you’ll be notified when the next video is posted.

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From the Archives…

Stock Market Predictions
2011-11-25 – Kris Sayce

Stocks on the Australian Market Today – Three Things You Need to Know
2011-11-24 – Shae Smith

The Gospel of Gold and Silver
2011-11-23 – Kris Sayce

China’s Bubble Will Pop in 2012
2011-11-22 – Greg Canavan

ASX Stock Market Winners, Losers and the Newly Dumped
2011-11-21 – Aaron Tyrrell

For editorial enquiries and feedback, email [email protected]

The Aussie Stock Market is Looking Scary