Global Investing

It’s the dollar

Two graphs (from Scott Barber) to remind that what you get from assets depends on the currency:

Is it time for a Scottish wealth fund?

Oxford SWF Project, a university think tank on sovereign wealth funds, is looking at reports that the latest entry in the field could be Scotland. The project has a new post about the Scottish government floating the idea of an oil stabilisation fund to use oil and gas revenues.  It cites Scottish cabinet secretary for finance John Swinney looking abroad gleefully:

“We want to harness the benefit of oil revenues now for future years. An oil fund can provide greater stability, protect our economy and support the transition to a low carbon economy. Norway’s oil fund is worth over £200 billion – despite the first instalment being made as recently as the mid 1990s – and Alaska’s oil fund even gives money back to its citizens every year.”

The SWF project reckons the idea is a good one, but wonders if something other than meets the eye is at play. It had two questions.

Hung, drawn and (second) quartered

By any standard the second quarter of 2009 was remarkable. Here are some numbers to chew over as the third quarter gets under way:   

— World stocks as measured by the MSCI All-Country World Index had their best quarter since the benchmark was first compiled in 1988.

    — The world index gained 21.2 percent for the second quarter. Its nearest “competitor” was the fourth quarter of 1998 when it rose 20.66 percent.

from Global News Journal:

Oil’s run-up outpaces most price targets… more upside?

    The recent run-up in oil prices could have further to go as most analysts are likely to begin raising their year-end oil price targets, according to market research firm Birinyi Associates in Stamford, Connecticut.    "Given several considerably lower expectations, we think it is reasonable to expect upgrades," they said in a research commentary, noting that crude oil prices were already above most firms' year-end targets.    U.S. front-month crude hit an intraday high of $73.23 on Thursday, the highest intraday level since prices hit $75.69 on Oct. 21.    A year-end oil price target of note recently came from Goldman Sachs, which raised its end-of-2009 oil price forecast on June 4 to $85 a barrel from $65.    Oil's climb partly reflects weakness of the U.S. dollar and expectations that demand may be picking up as the global recession abates.--- Graphic courtesy of Birinyi Associates, Inc.

from Commodity Corner:

Correlation Between Oil and Equities Markets

oil-vs-stock-market

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.

from UK News:

Walking the risk-reward tightrope in Iraq

It's fair to say that investing in Iraq is not for the faint-hearted.

Just last week more than 200 people were killed in suicide bombings across the country, while kidnapping and armed assault remain commonplace.

That said, more than 600 delegates still turned up to the Invest Iraq 2009 conference held in London this week, eager to find out what opportunities there might be in the oil, construction, petrochemicals, engineering, agriculture, transport and tourism industries, to name a few.

From City of London bankers to executives from Shell and Chevron, bosses from energy service companies and airport construction firms, management training specialists and security advisers, they were all there, milling around a west London hotel in their smartest suits, seeing what business they might be able to do.

Zeitgeist check

– The estimated earnings growth rate for the S&P 500 for Q4 2008 currently stands at -1.2 percent. Six months ago, this was estimated at 59.3 percent.

– The price of oil was $37.71 at the close on December 26, the last formal price before Israel began its bombardment of Gaza. It has since risen close to 25 percent.

– A standout winner among investments last year was German stock volatility. The DAX New Volatility index rose more than 139 percent in 2008.

Will Spain face Russian ire for snubbing LUKOIL’s Repsol bid?

If Lithuania’s experience is anything to go by, Spain may regret its declaration that it would rather Russian oil company LUKOIL did not buy a major stake in its largest refiner, Repsol.

  

Russian oil company LUKOIL is in talks to buy around 30 percent of Repsol, one of Western Europe’s five largest non-government controlled oil companies by market value, sources close to the matter say. Analysts think the move could be a prelude to a full takeover, which would be the largest overseas acquisition by a Russian company.

 

Spain‘s Interior Minister Alfredo Perez Rubalcaba said on Tuesday he would prefer a different buyer. Rubalcaba didn’t say why LUKOIL was persona non grata in Madrid but analysts think the company’s nationality is the reason.

Barrels and ounces

The price of oil was falling sharply on Tuesday after traders stopped worrying about former Hurricane Gustav’s winds, but by at least one calculation it remains very pricey – that is, its link to the price of gold.Some market watchers argue that there is a long-term relationship between the prices of the two commodities. Roughly speaking, this theory would have 10 barrels of crude oil costing the same as one ounce of gold.  Back in March, for example, gold hit a record of $1,030 an ounce and a barrel of oil brought around $105.Oil

By July, however, gold had fallen and oil had risen to the extent that the ratio was not 10 to 1, but 5.9 to1. Some argued at the time that hedge funds noticed this and began to short crude. With the latest tumble, oil is about 27 percent below its high. But against gold, the ratio is still at 7.4 to 1.

The problem is that gold won’t stop falling either, which rather undermines the ratio theory. Perhaps it is all just hooey. If it is not, however, oil would have to dive another 25 percent to reach equilibrium of $79 a barrel against today’s gold price.

Will invasion of Georgia steel EU into kicking its addiction to Russian oil and gas?

As George Bush might say, the EU is addicted to Russian energy. While no member wants to kick the habit totally, Brussels would like the bloc to reduce its growing dependence.

Even before Moscow invaded Georgia, the main non-Russian route for exporting Central Asian and Azeri crude and gas to Europe, the EU watched Russia’s regular cuts in energy supplies to neighbours with concern.

But EU members have been reluctant to take the hard measures that would allow them to bypass Russia, so analysts think their reliance on Moscow will grow.