InvestMacro FX

Healthcare: The Sector You Must Be Invested in for the Next 10 Years

by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, January 4, 2011: Issue #1679

Wes Harris of Charlotte is going to have a heart attack in February. His blocked artery isn’t going to wait to see if Greece or Italy will default on its debt.

John Davidson of Oklahoma City is going into the hospital for a knee replacement next week. The surgery will happen no matter if the S&P is up, down, or sideways.

And Carly Nelson who lives in a suburb of St. Louis needs a mastectomy after breast cancer was discovered. She will likely start chemo several weeks later. Whether unemployment climbs back over nine percent will have no bearing on her decision about treatment.

These procedures and others save lives and improve quality of life. Millions of operations, tests and other healthcare services will happen regardless of world events, economic, political, or otherwise.

When people are sick, they’ll do anything in their power to get better. And it doesn’t matter one iota what else is happening on the planet.

It’s one of the reasons I love the healthcare sector.

Starting this year until 2030, 10,000 Baby Boomers will turn 65 every single day. And you don’t need a doctorate in demographics to know that older people consume more healthcare as they age.

That’s why $4 trillion is expected to flood into healthcare over the next eight years.

Super Bowl of Healthcare

While football players are gearing up for the playoffs, hoping to make it to the big game, I know that I’m already going. But the Super Bowl I’m talking about is in San Francisco, not Indianapolis, and it takes place a month earlier.

On Saturday I fly to California for the J.P. Morgan Healthcare Conference. It’s the most important and exclusive healthcare conference of the year. Typically, you need to manage millions of dollars to get a ticket to sit in on presentations and meet the CEOs of some of the largest and most innovative healthcare companies.

This is my sixth consecutive year attending the conference and it always generates a ton of new ideas.

Presentations are expected from the likes of Pfizer (NYSE: PFE), Celgene (Nasdaq: CELG) and AstraZeneca (NYSE: AZN), as well as some smaller companies like Incyte (Nasdaq: INCY), Illumina (Nasdaq: ILMN) and NuVasive (Nasdaq: NUVA).

I’m looking forward to hearing about the macro picture and how all of these companies plan on capitalizing on the millions of new patients and trillions of new dollars that are on the cusp of entering the system.

As a result, I’m particularly interested in diagnostics and genetic sequencing. We’re already at the point where doctors know that specific cancers will or won’t react to certain treatments based on genetic mutations. But we’re in the very early stages of this type of science. Within the next 10 years, by reading our genetic code, doctors will be able to understand so much more about what keeps us healthy and what makes us sick.

And in order to gather that information, medical professionals will need tools – machines, consumables, tests – in order to gather and interpret all of that data.

I expect diagnostics and medical technology to be huge winners not only in 2012, but over the next decade or so. The Oxford Club’s Investment Director Alexander Green has been bullish on medical technology for a while now, discussing it at length in The Oxford Club Communique’s 2012 Forecast Issue.

Interestingly, on New Year’s Eve, I had dinner with a health insurance executive, a surgeon and a computer programmer. For half of the evening, we talked about the changes technology is bringing to healthcare. It further confirmed what Alex and I have been saying for a while now. This sector is going to be huge.

Packed Calendar

The pace of the week is hectic. I’ll at the conference every morning by 7:15 AM. Right now, the only holes in my schedule are Monday at 2:00 PM and Wednesday at 10:00 AM. Lunch and dinner are booked every day with fund managers and analysts.

Along with sitting in on presentations and breakout sessions, I have one-on-one meetings set up with several management teams, including the one from a tiny company with mind-blowing technology that’s on the verge of changing how new drugs are discovered.

I’ll report back to you next week in this column with some of my observations.

Meanwhile, if you’re as jazzed as I am about the prospects for the healthcare sector, let me know. When you provide your email address, you’ll be the first to hear about my new healthcare investing service, FirstLine Investor Alert, which is launching in the next week or two. And you’ll receive a special discount that’s only available to those who sign up on this hot list. You’ll be under absolutely no obligation. You’ll simply be notified first and save a significant amount if you do decide to try the service.

The healthcare sector is on the launch pad. The conference I’m attending always gives me some great ideas and new contacts to help my readers navigate the field to find the best profit opportunities.

With all of that money cascading into the healthcare sector over the next decade, medical stocks are going to take off with or without you. I hope it will be with you. And it’s taking place no matter what happens in Europe or the election.

I’ll talk to you next week.

Good Investing,

Marc Lichtenfeld

Article by Investment U

Jan. 4 (Bloomberg) — Claudio Piron, head of emerging Asia foreign-exchange and fixed-income strategy at Bank of America Corp.’s Merrill Lynch unit, talks about Europe’s debt crisis, the outlook for global currencies and his investment strategy. Piron speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 4 January, 08:30 EST

THE SPOT MARKET gold price ticked down to below $1600 an ounce Wednesday morning – having earlier touched its highest level since before Christmas at $1612 – while stock and commodity markets also edged lower as the US Dollar looked to have ended its recent spell of weakness.

The previous day saw the gold price gain over 2.5% in thin trade, with the Dollar falling against other major currencies on Tuesday – before easing as Asian markets reopened.

“Gold surrendered some gains overnight as Asian participants engaged in light profit-taking,” says Marc Ground, commodities strategist at Standard Bank.

“Key [gold price] resistance…lies at the $1630 level which represents the 200 day moving average,” says Russell Browne, a technical analyst at bullion bank Scotia Mocatta.

“We believe that while the 200 day moving average holds, the risk remains for another visit to the $1523 area.”

The silver price fell to $29.05 per ounce – a 3.8% gain for the week so far – having hit $29.78 earlier in the morning.

Record trading volumes were reported on the Shanghai Gold Exchange Wednesday – following a New Year holiday yesterday – with less than three weeks to go before Chinese Lunar New Year on 23 January.

“The physical demand side of things will be the big factor helping to take prices back up again, along with Dollar weakness,” says Daniel Smith, commodities analyst at Standard Chartered in London.

This morning however the Dollar rallied against the Euro, with the latter dropping back below $1.30.

The US Dollar Index meantime – which measures the US currency’s strength against six other major currencies – crept back above 80, a level it climbed to last month, having dropped below 73 earlier in 2011.

In India meantime, the federal cabinet has approved legislation that could lead to hallmarking of gold jewelry, which is currently done on a voluntary basis, being made mandatory.

“Hallmarking can boost investment demand in jewelry form,” says Prithviraj Kothari, president of the Bombay Bullion Association – which today predicted a 48% quarter-on-quarter fall in Indian gold imports in the first three months of 2012.
“Currently purity concerns deter many consumers from buying jewelry.”

The latest World Gold Council figures show Indian gold jewelry demand accounted for 14.6% of global demand for gold bullion in the third quarter of 2011.

“Our physical sales to India yesterday were about double average levels,” says a note from UBS precious metals strategist Edel Tully.

India’s gold imports fell by 56% year-on-year in the final quarter of 2011 – a period in which Rupee weakness contributed to record high domestic gold prices– according to BBA data published Monday.

“The key factor in this market right now is not purely the gold price, but stabilization in the Rupee,” adds UBS’s Tully – who was today announced one of the winning analysts in the London Bullion Market Association’s 2011 precious metals Forecast.

Tully was the closest of 24 precious metals analysts who 12 months ago predicted the average gold price for 2011 (she forecast an average gold price of $1550 per ounce – the actual average came in at $1572).

All of the 24 analysts polled underestimated by how much the gold price would move last year. The biggest predicted range – the gap between the high and low for the year – was $555, while the actual range came in at $581.

Over in the US, the Federal Open Market Committee – which decides Federal Reserve monetary policy – will start publishing members’ projections for future interest rate decisions, the latest FOMC minutes show.

“This is a complete 180-degree shift from the old mysterious-institution approach,” reckons Ethan Harris, New York-based co-head of global economic research at Bank of America Merrill Lynch.
“It’s a bit awkward – you’re going to reveal to the public how much uncertainty the Fed itself has about where it’s going.”

The price of WTI crude oil held above $102 a barrel Wednesday morning, as Iran threatened to close the Straits of Hormuz in response to US and European sanctions.

“With 40% of the world’s internationally traded oil moving through the Strait of Hormuz,” says HSBC analyst James Steel, “even a low probability of the strait’s closure…can have a material impact on oil and hence on gold prices.”

“Gold may not be a safe haven in financial turmoil,” adds Nick Trevethan, senior commodity strategist at ANZ Bank, “but it does seem to function as a safe haven against real-world geopolitical risks.”

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.

Jan. 4 (Bloomberg) — Bank Sarasin & Cie. AG, the Basel, Switzerland-based private bank, said it fired an employee who passed data on currency trades by the family of Swiss National Bank Chairman Philipp Hildebrand to a political opponent. The data allegedly showed the sale of 500,000 Swiss francs for dollars by Hildebrand’s wife on Aug. 15. Matthias Wabl reports from Zurich on Bloomberg Television’s “The Pulse” with Maryam Nemazee. (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.

Source: ForexYard

Riskier currencies like the euro and UK pound turned bullish yesterday, following the release of the British manufacturing PMI in morning trading. Meanwhile, the price of crude oil is steadily rising as tensions between the US and Iran continues to generate supply side fears.

Economic News

USD – USD Moves Downward as Investors Move to Riskier Currencies

The US dollar saw a largely bearish day yesterday, as positive economic data out of Europe generated risk taking among investors. The safe-haven greenback took losses against most of its main currency rivals, including the euro and GBP. The EUR/USD once again shot up above the psychologically significant 1.3000 level, while the GBP/USD crossed the 1.5600 barrier. The dollar also tumbled against other safe-haven currencies like the Swiss franc and Japanese yen, largely due to a lack of faith in the US economic recovery.

Turning to today, news out of the euro-zone is once again forecasted to dominate the trading day. Traders will want to pay particular attention to the UK Manufacturing PMI. Analysts are forecasting a drop from last month’s number, which if true, may cause investors to revert back to the safe-haven buck.

With regards to the rest of the week, traders will not want to forget about the US Non-Farm Payrolls figure set to be released on Friday. Early predictions are saying that the US increased their payrolls dramatically in December. If true, risk activity may continue, thereby extending the dollar’s bearish run.

GBP – UK Manufacturing PMI Sends Pound Soaring

The GBP saw its recent downward trend reverse itself in trading yesterday, following positive news that helped boost confidence in the British economic recovery. The UK Manufacturing PMI came in well above expectations and resulted in gains for the pound versus the USD and CHF. While it is too soon to say whether the figure was an actual signal that the UK was heading toward recovery, it was enough to get investors to move to riskier assets in trading throughout the day.

Today, pound traders will want to pay attention to the UK Construction PMI set to be released at 09:30 GMT. Analysts are predicting the PMI to come in at 51.8, which if true would signal expansion in the British construction industry and may help the pound extend yesterday’s bullish momentum.

Traders will still want to take note that the European economies are extremely fragile. While positive news is likely to help currencies like the pound and euro in the short term, the overall trend is still overwhelmingly bearish and the markets could reverse themselves at any moment.

CHF – Franc Sees Mixed Trading Amid a Return to Risk Taking

The positive news out of the UK yesterday resulted in a mixed session for the Swiss franc, as it was able to make gains against the USD and JPY while taking losses against the euro and pound. While investors did move their funds to riskier assets, they were unwilling to completely abandon the safe-haven’s which helped the franc against the dollar and yen.

Today, traders will want to pay attention to the news out of the UK and euro-zone. Any further positive news may result in the franc taking further losses against riskier currencies like the euro, pound and Australian dollar. That being said, the franc’s safe haven status may help it against the US dollar.

Crude Oil – Oil Prices Shoot Up Following Middle East Tensions

Tensions between the US and Iran have sent the price of crude oil soaring, as investors have begun worrying about crude supplies out of the Middle East. Oil is trading well above the psychologically significant $100 a barrel level. With relations between Iran and the west unlikely to improve in the near future, traders can count on prices to continue rising for the near future.

Today, any positive news out of the euro-zone could help oil’s bullish movement. Investors are currently investing in more volatile assets like crude oil. Further signs that the European economies are improving will likely help boost the price of the commodity.

Technical News

EUR/USD

Technical indicators are showing that the pair may see an upward correction this week. The Relative Strength Index on the weekly chart has entered the oversold region, while the Stochastic Slow on the same chart has formed a bullish trend. Taking a bullish long term trend may be a wise choice.

GBP/USD

Most long term indicators show this pair trading in neutral territory, meaning that major market movements are not expected this week. That being said, the Williams Percent Range on the weekly chart is creeping toward the oversold region. Should the indicator fall below the -90 level, it may be a sign for traders to go long in their positions.

USD/JPY

Following the bearish trend late last week, technical indicators are showing that the USD/JPY may be due for an upward correction this week. Daily chart indicators, like the Relative Strength Index and Stochastic Slow, are showing the pair in the oversold region. Going long this week may be a wise strategy for the pair.

USD/CHF

Following the slight upward movement the USD/CHF experienced last week, technical indicators are showing that the pair may turn bearish in the coming days. The Williams Percent Range on the daily chart is creeping toward the -20 level. Should it go above this level, it may be a sign that the pair will stage a downward correction. Traders will want to keep an eye on the daily and weekly chart for further signs of bearish movement.

The Wild Card

Gold

Technical indicators are currently showing that gold may increase its recent upward trend in today’s trading session. The Relative Strength Index on the 8-hour chart is pointing upward, but has yet to cross over into the overbought zone. This is a sign that the upward trend still has more room to grow. Forex traders may want to go long in their positions today, while the commodity is still bullish.

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

Is it really so preposterous to believe the United States and Europe would conspire to keep pole position in the global financial system?
I don’t think so – and neither does China.
That much was revealed in a diplomatic cable recently uncovered by Wikileaks.

According to the 2009 cable from the U.S. embassy, China believes the United States and Europe have, as a matter of policy, suppressed the price of gold to discourage its use as a reserve currency.
And there’s a pretty compelling case to be made for a gold price conspiracy.

The Gold Price Conspiracy

The cable summarised several commentaries in Chinese news media sources on April 28, 2009.
“The U.S. and Europe have always suppressed the rising price of gold,” it reads. “They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency.”
According to the cable, China believes that by building its gold reserves, it can not only safeguard itself against the declining value of the dollar, but encourage central banks around the world to expand their gold purchases, as well.
“China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold,” the cable said. “Large gold reserves are also beneficial in promoting the internationalization of the RMB.”

Now, if all we had were the Chinese claiming the U.S. and Europe were suppressing gold prices, it would be easy to disregard as superficial propaganda.
But in fact, there’s evidence that supports this claim.
In the decade between 1999 and 2009, central banks – dominated by the West – were net sellers of gold in every single year. And that’s despite the fact that gold in that time soared from $250 an ounce to $1,200 per ounce – a nearly 400% gain.
Then there’s the infamous “Brown Bottom.”
Between 1999 and 2002, Gordon Brown, then UK Chancellor of the Exchequer (and later Prime Minister), decided to sell nearly half of his nation’s gold reserves. At the time, just the advance notice of these substantial sales drove gold’s price down from $282.40 an ounce to $252.80.
Those gold sales yielded an average price of $275 an ounce, raising a total of $3.5 billion. Today, those 395 tons of gold would be valued more than $19 billion.

You have to admit, it doesn’t make a whole lot of sense to sell a solid asset whose price is moving steadily higher each year – especially when the United Kingdom’s debt problem then wasn’t nearly as bad as it is today.

The answer: Because there’s a conspiracy afoot.

Gold Dust on The Fed’s Hands

Here’s more damning evidence.
A U.S. District Court this year ordered the U.S. Federal Reserve to disclose to the Gold Anti-Trust Action Committee (GATA) the minutes of an April 1997 meeting of the G-10 Gold and Foreign Exchange Committee, as compiled by an official Federal Reserve Bank of New York.

And it’s a bombshell. The minutes suggest that officials from the G-10 governments and their central banks were, in fact, conspired to synchronise their policies to affect the gold market.

It turns out that U.S. policymakers aren’t just worried about preserving the dollar’s role as the world’s main currency reserve. They’re also worried about the effects higher gold prices could have on the nation’s debt burden.

The minutes include comments by a U.S. delegate identified only as “Fisher,” which is likely Peter. R. Fisher, head of open market operations and foreign exchange trading for the New York Fed.
Fisher, the minutes say, made the case that rising gold prices would increase U.S. debt. Fisher “explained that U.S. gold belongs to the Treasury. However, the Treasury had issued gold certificates to the Reserve Banks, and so gold also appears on the Federal Reserve balance sheet,” the minutes say. “If there were to be a revaluation of gold, the certificates would also be revalued upwards; however [to prevent the Fed’s balance sheet from expanding] this would lead to sales of government securities. So the net benefit to Treasury would need to be carefully calculated, since sales of government securities would expand the public portfolio of government securities and hence also expand the Treasury’s debt-servicing burden.”
Indeed, Fisher’s remarks are an open acknowledgement that the United States has an interest in suppressing the price of gold.
So, clearly, there is a growing body of evidence that Western governments, central banks, and even some of the largest investment banks have a vested interest in subduing the price of gold. Furthermore, they’ve already acted on behalf of that interest.
But now the tide is turning. The dollar and the euro are on the ropes and emerging markets have been steadily increasing their gold purchases.

While authorities in developed countries are making it more difficult for investors to build gold holdings, China and other developing markets are doing just the opposite. They’re actually encouraging their populations to adopt physical gold and gold investments like futures and exchange-traded funds (ETFs).

So I think it’s high time the average Westerner looked to the East for cues on wealth preservation and their attitude towards gold.
Editor’s Note: Peter Krauth is a highly regarded US market analyst and expert in metals and mining stocks, with a special expertise in energy and resource-related investments.

This article first appeared in the Money Morning US edition (www.moneymorning.com)

Gold Price Conspiracy: What Uncle Sam Doesn’t Want You To Know

By MoneyMorning.com.au

Recent manufacturing figures out of Europe have been terrible.

Marketwatch reported that…

“Euro-zone manufacturing is clearly undergoing another recession,” said Chris Williamson, chief economist at Markit. “Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single-currency area at a quarterly rate of approximately 1.5% in the final quarter of 2011.”

For the second month in a row, all nations covered by the survey reported a decline in output.

Williamson said it was particularly worrying to see new orders falling at a far faster rate than output. That indicates firms have relied on orders placed earlier in the year to sustain current production levels, he said.

The PMI is a diffusion index with reading below 50 in contraction, above 50 in expansion. The current readings for the PMI manufacturing index across Europe are:

• Germany 48.4
• France 48.9
• Netherlands 46.2
• Austria 49
• Italy 44.3
• Spain 43.7
• Greece 42.0

The US may appear to be decoupling at the moment. But rest assured Europe and America will begin to converge in the next few months with the US following Europe into recession.

The austerity measures in Europe will have to bite hard during 2012. Spain has already said they are going to miss their deficit target of 6% by a full 2 percentage points! So expect even more austerity in Spain.

Portuguese car sales are down over 30% in the last year. Spanish car sales are down 18% to 1993 levels. Germany must start to feel the pain of European austerity at some point this year.

When I look at the above I find it very hard to get very bullish about the latest rally in the stock market.

Many market players are still on holidays and the volume trading is very thin. I think the current excitement will be short lived and we will see another swan dive in the market before long.

Keeping an eagle eye on the sovereign debt situation and each bond auction in Europe will be important in the first few months of the year. Any signs of distress could lead to a sharp sell off but that is when you will see Bernanke fly in on his helicopter to save the day.

What a world we live in.

Murray Dawes
Editor, Slipstream Trader

Publisher’s note: Murray’s latest video, titled: “How to Trade Safely in an Extreme Market” is now live on YouTube. It’s not very often a pro-trader will admit to missing out on a potential half million dollars in profit because – in his words – he got greedy. But that’s exactly the sad and sorry tale Murray tells about his exploits during the Global Financial Crisis – in this brand new video message. If you like Murray’s videos you’ll love this one… you won’t believe how his fortunes changed (literally) in the space of four hours, one night in September 2008…

Suffice it to say, it didn’t end particularly well for Lord Slipstream… But it taught him three key lessons about how to trade in a volatile market – which he’ll gladly share with you today. You can watch “How to Trade Safely in an Extreme Market” for free, on YouTube, by clicking here.

Why Europe’s PMI Manufacturing Index Indicates a Short-lived Bull

By MoneyMorning.com.au

Despite the depressive sovereign debt looming above our heads, the S+P 500 leapt 19 points overnight to 1277. Commodities were also flying with gold up about 2.5% and silver having its biggest move in over three years, up over 6%.

Most market pundits are pointing to the fairly healthy Institute for Supply Management (ISM) manufacturing figures that came in a bit better than expected (up 1.2 percentage points at 53.9%). But the market was already up strongly before those figures were released.

I can’t be sure… But I suspect the dramatic change in the composition of the US Federal Open Market Committee (FOMC) board could have something to do with the surge in equity and precious metals markets.

Three new doves on the board of the FOMC have replaced three hawks. So now the board is stacked 9-1 in favour of loose monetary policy going forward. What are the chances the Fed will print some time in the next six months now? Pretty high I’d imagine.

It would be difficult for them to pull the trigger now because equity markets are rallying strongly and economic figures are picking up, so I don’t think they will print in the next couple of months. But with the huge amount of sovereign debt due to be rolled over in the next year I think money printing is the only way they will cope with it.

My eyes nearly popped out of my head when I read on Bloomberg last night that “Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year.” Yes you read that right. $7.6 trillion.

$3 trillion of that belongs to Japan and $2.8 trillion to the US.

G7 aggregate debt principal and interest

Click here to enlarge

On 29 December Italy auctioned 7 billion euros of debt, which was less than the 8.5 billion euros targeted by the Italian government. That’s not a very good start. Italy alone has to refinance $428 billion of securities this year with another $70 billion in interest payments.

If Italy struggles to reach its target of 8.5 billion euros just a few weeks after the European Central Bank (ECB) lent an “unlimited” amount to banks for three years via the Long Term Refinancing Operation (LTRO), how on Earth are they going to refinance $428 billion with 10-year yields at 7% and an economy that is keeling over into recession?

Before we can make any judgments about any possible money printing from the US Fed, you need to know what effect the LTRO will have. (I.e. the three-year loans worth US$641 billion that ECB recently made to over 500 banks in Europe.) Will the unlimited lending by the ECB filter into the sovereign bonds and therefore help with the upcoming mammoth task of refinancing?

I don’t know the answer… But banks have been dumping sovereign debt onto the ECB by the bucket load and I don’t think they are about to reverse course for the few extra basis points that can be made from the carry trade. But there is pressure being applied by the ECB and governments to use some of the proceeds from the three-year loans to buy sovereign debt.

Of course it has had a big effect on the debt under three years duration because the banks can easily match out their three-year loans with this debt. We have seen a dramatic fall in the last few months in this part of the yield curve in Europe. For example in late December 2011, the Spanish Treasury sold 3.7 billion euros of 3-month paper for 1.735%, after an average yield of 5.11% in November, at a bid-to-cover ratio of 2.9, up from 2.8.

The 6-month bill sold for an average yield of 2.435%, down from 5.227%, with 1.92 billion euros sold and demand outstripping supply by a factor of 4.1, after 4.9 a month earlier.

But when you look at the 10-year yields in Italy you see the same high levels near 7% as we saw prior to the LTRO.

As always the constant interventions in the market have unintended consequences.

If the ECB have forced all of the demand into the front end of the yield curve due to these three-year loans, does that mean the long end of the yield curve will suffer more than it otherwise would have?

Does that mean we will see a very steep yield curve even though Europe is in recession?

Will this then force each government to refinance with very short-term debt rather than long-term debt? Meaning they will need to refinance larger and larger amounts each year until the whole thing blows sky high?

A recent article on zerohedge.com outlined the shell games involved with the three-year loans.

Italian banks have been issuing bonds to themselves and then having those bonds guaranteed by the Italian government, so that they can use those bonds as collateral at the ECB for three-year loans. The mind boggles.

Most of the money that was lent out has been redeposited at the ECB. So as the new year gets underway the most important thing for us to keep an eye on is movements in this money deposited at the ECB. Will it sit there as a capital buffer for banks like we have seen in the States or will it be put to work?

If the banks prove gun shy in loading up on sovereign debt with this new money then we may see the US Fed step into the breach in a few months with printed dollars.

Either way, the market seems to be feeling confident that the mountain of debt will be refinanced somehow, so why not start buying ahead of the party?

I can’t say that I feel like such a Pollyanna.

Murray Dawes
Editor, Slipstream Trader

Publisher’s note: Murray’s latest video, titled: “How to Trade Safely in an Extreme Market” is now live on YouTube. It’s not very often a pro-trader will admit to missing out on a potential half million dollars in profit because – in his words – he got greedy. But that’s exactly the sad and sorry tale Murray tells about his exploits during the Global Financial Crisis – in this brand new video message. If you like Murray’s videos you’ll love this one… you won’t believe how his fortunes changed (literally) in the space of four hours, one night in September 2008…

Suffice it to say, it didn’t end particularly well for Lord Slipstream… But it taught him three key lessons about how to trade in a volatile market – which he’ll gladly share with you today. You can watch “How to Trade Safely in an Extreme Market” for free, on YouTube, by clicking here.

The Sovereign Debt Cycle Continues

The pieces and policies for potential conflict in the Persian Gulf are seemingly drawing inexorably together.

Since 24 December the Iranian Navy has been holding its ten-day Velayat 90 naval exercises, covering an area in the Arabian Sea stretching from east of the Strait of Hormuz entrance to the Persian Gulf to the Gulf of Aden. The day the maneuvers opened Iranian Navy Commander Rear Admiral Habibollah Sayyari told a press conference that the exercises were intended to show “Iran’s military prowess and defense capabilities in international waters, convey a message of peace and friendship to regional countries, and test the newest military equipment.” The exercise is Iran’s first naval training drill since May 2010, when the country held its Velayat 89 naval maneuvers in the same area. Velayat 90 is the largest naval exercise the country has ever held.

The participating Iranian forces have been divided into two groups, blue and orange, with the blue group representing Iranian forces and orange the enemy. Velayat 90 is involving the full panoply of Iranian naval force, with destroyers, missile boats, logistical support ships, hovercraft, aircraft, drones and advanced coastal missiles and torpedoes all being deployed. Tactics include mine-laying exercises and preparations for chemical attack. Iranian naval commandos, marines and divers are also participating.

The exercises have put Iranian warships in close proximity to vessels of the United States Fifth Fleet, based in Bahrain, which patrols some of the same waters, including the Strait of Hormuz, a 21 mile-wide waterway at its narrowest point. Roughly 40 percent of the world’s oil tanker shipments transit the strait daily, carrying 15.5 million barrels of Saudi, Iraqi, Iranian, Kuwaiti, Bahraini, Qatari and United Arab Emirates crude oil, leading the United States Energy Information Administration to label the Strait of Hormuz “the world’s most important oil chokepoint.”

In light of Iran’s recent capture of an advanced CIA RQ-170 Sentinel drone earlier this month, Iranian Navy Rear Admiral Seyed Mahmoud Moussavi noted that the Iranian Velayat 90 forces also conducted electronic warfare tests, using modern Iranian-made electronic jamming equipment to disrupt enemy radar and contact systems. Further tweaking Uncle Sam’s nose, Moussavi added that Iranian Navy drones involved in Velayat 90 conducted successful patrolling and surveillance operations.

Thousands of miles to the west, adding oil to the fire, President Obama is preparing to sign legislation that, if fully enforced, could impose harsh penalties on all customers for Iranian oil, with the explicit aim of severely impeding Iran’s ability to sell it.

How serious are the Iranians about the proposed sanctions and possible attack over its civilian nuclear program and what can they deploy if push comes to shove? According to the International Institute for Strategic Studies’ The Military Balance 2011, Iran has 23 submarines, 100+ “coastal and combat” patrol craft, 5 mine warfare and anti-mine craft, 13 amphibious landing vessels and 26 “logistics and support” ships. Add to that the fact that Iran has emphasized that it has developed indigenous “asymmetrical warfare” naval doctrines, and it is anything but clear what form Iran’s naval response to sanctions or attack could take. The only certainty is that it is unlikely to resemble anything taught at the U.S. Naval Academy.

The proposed Obama administration energy sanctions heighten the risk of confrontation and carry the possibility of immense economic disruption from soaring oil prices, given the unpredictability of the Iranian response. Addressing the possibility of tightened oil sanctions Iran’s first vice president Mohammad-Reza Rahimi on 27 December said, “If they impose sanctions on Iran’s oil exports, then even one drop of oil cannot flow from the Strait of Hormuz.”

Iran has earlier warned that if either the U.S. or Israel attack, it will target 32 American bases in the Middle East and close the Strait of Hormuz. On 28 December Iranian Navy commander Rear Admiral Habibollah Sayyari observed, “Closing the Strait of Hormuz for the armed forces of the Islamic Republic of Iran is very easy. It is a capability that has been built from the outset into our naval forces’ abilities.”

But adding an apparent olive branch Sayyari added, “But today we are not in the Hormuz Strait. We are in the Sea of Oman and we do not need to close the Hormuz Strait. Today we are just dealing with the Sea of Oman. Therefore, we can control it from right here and this is one of our prime abilities for such vital straits and our abilities are far, far more than they think.”

There are dim lights at the end of the seemingly darker and darker tunnel. The proposed sanctions legislation allows Obama to waive sanctions if they cause the price of oil to rise or threaten national security.

Furthermore, there is the wild card of Iran’s oil customers, the most prominent of which is China, which would hardly be inclined to go along with increased sanctions.

But one thing should be clear in Washington – however odious the U.S. government might find Iran’s mullahcracy, it is most unlikely to cave in to either economic or military intimidation that would threaten the nation’s existence, and if backed up against the wall with no way out, would just as likely go for broke and use every weapon at its disposal to defend itself. Given their evident cyber abilities in hacking the RQ-170 Sentinel drone and their announcement of an indigenous naval doctrine, a “cakewalk” victory with “mission accomplished” declared within a few short weeks seems anything but assured, particularly as it would extend the military arc of crisis from Iraq through Iran to Afghanistan, a potential shambolic military quagmire beyond Washington’s, NATO’s and Tel Aviv’s resources to quell.

It is worth remembering that chess was played in Sassanid Iran 1,400 years ago, where it was known as “chatrang.” What is occurring now off the Persian Gulf is a diplomatic and military game of chess, with global implications.

Washington’s concept of squeezing a country’s government by interfering with its energy policies has a dolorous history seven decades old.

When Japan invaded Vichy French-ruled southern Indo-China in July 1941 the U.S. demanded Japan withdraw. In addition, on 1 August the U.S., Japan’s biggest oil supplier at the time, imposed an oil embargo on the country.

Pearl Harbor occurred less than four months later.

Source: http://oilprice.com/Energy/Oil-Prices/War-Imminent-in-Straits-of-Hormuz-$200-a-Barrel-Oil.html

By. John C.K. Daly of Oilprice.com