Commodity Corner
Views on commodities and energy
from Global Investing:
There’s oil in them thar wealth funds
Some interesting new data on sovereign wealth funds from State Street Global Advisors, a huge fund firm that does a lot of business with them. Most interesting, perhaps, is that the vast majority of sovereign wealth fund money comes from oil and gas revenues rather than from countries building up large foreign reserves from other trade, eg China.
- -- The U.S. firm identified 37 major sovereign wealth funds worth a total of $3 trillion.
- -- More than two-thirds, or 70 percent, of that money came from oil and gas interests.
- -- Of the 37, all had at least $3 billion in assets.
- -- Eight of them had more than $100 billion.
- -- Only 13 of the 37 funds were not based on commodity wealth.
- -- Asia had the largest number of SWFs at 13.
- -- The 10 funds based in the Middle East had nearly half the wealth, or 46 percent, between them.
These funds, incidentally, are becoming more like mainstream investment companies by the day. State Street says they are eventually going to turn into the equivalent of large public sector pension funds and could well start becoming more active as shareholders in companies in which they invest.
from MacroScope:
Running out of resources
Oil prices are more than double the December-February troughs and commodity prices generally are going up as the market cheers signs of an economic recovery.
Jeremy Grantham, chairman of U.S.-based money monager GMO, warns that the world is running out of resources in the long run yet is not correctly pricing the fact.
"We are simply running out of everything at a dangerous rate... As we move through our remarkable and irreplaceable hydrocarbon reserves, the price will, of course, rise remorselessly to ration supplies. We need, it seems, the shock of a Pearl Harbor to really gear up and make sacrifices," he says.
Grantham points out that in 1977 President Jimmy Carter warned that we were running out of oil and urged people to fully insulate 80% of the houses in 10 years.
"Thirty precious years have passed, and there is now no safety margin. We must prepare ourselves for waves of higher resource prices and periods of shortages unlike anything we have faced outside of wartime conditions," he writes.
"In fact, I believe we are already several years into this painful transition but are still mostly invested in denying it."
from MacroScope:
Gold to go
Automatic teller machines (ATMs) -- 500 of them -- dispensing pieces of gold will be available around Germany, Switzerland and Austria by the end of this year.
That at least is the plan of German precious metals online trading company TG-Gold-Super-Markt.de. The ATMs, to be located at airports, railway stations and shopping malls, are intended to accustom ordinary people to the idea of investing in a physical asset such as gold, the thinking goes. Thomas Geissler, the company's chief executive, said the gold ATMs might even improve relations between the sexes. "I have yet to meet a woman who does not like a gift of gold. It's better than flowers. Flowers are more expensive. They wilt and you (as a man) don't get as many points at home as if you bring gold," he said. A prototype ATM on display for a one-day marketing test at the main railway station in Frankfurt, Germany's financial capital, did indeed reward your correspondent with a 1-gramme (0.0353 ounce) piece of gold. It cost the equivalent of $42.25 -- a 30 percent premium over the spot market price.
Thats what you call a good return on investment, selling the gold at a 30 percent premium, with little risk involved. Smart thinking, smart business idea!
Correlation Between Oil and Equities Markets
Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.
But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.
We are not at the economic threshold of return yet where we can handle higher prices in energies. If energies run up the economy will be pushed deeper into recession, perhaps even depression. The energy bubble caused a chain reaction of dissent in over-all financial stability. If energies…specifically oil began moving up at this time we will face economic times like we have not experienced for 70 years.
from Global Investing:
Gold offers double-edged shine
It was Goldman Sachs who famously predicted oil prices to reach $200 a barrel last year, but there are a school of bullish investors who forecast a substantial rally in gold.
Take Gold and Energy Advisor, which predicts gold will soon reach $2,500 an ounce (from today's $895) then to $5,000. The Florida-based firm argues that gold is the only asset class that’s not only private (as opposed to state-owned), but also liquid, portable, fungible, divisible, and valuable enough that a small amount can store a massive amount of wealth.
It also argues that of $11.5 trillion stored in offshore accounts and other assets, if one percent were transferred into gold, that would be almost four times the entire annual investment demand for gold.
Perhaps not as bullish, but Investec Asset Management also reckons that gold could perform well in either an inflationary or deflationary environment.
Investec also argues the potential areas of concern for gold investors: an increasing supply of recycled gold and the potential return of the "Goldilocks" scenario, where the economy sustains moderate growth and inflation in a "not too hot, not too cold" environment.
"This Goldilocks economy would completely remove the safe-haven investment case for gold as a form of insurance against inflation or as an alternative currency. Real yields could once again be obtained in cash and bonds, and equities could begin discounting economic growth," it says.
