The Great Debate UK
from Felix Salmon:
How to get $12 billion of gold to Venezuela
Ever since the news broke last week that Hugo Chávez wanted to transport 211 tons of physical gold from Europe to Caracas, I've been wondering how on earth he possibly intends to do such a thing.
There are 99 tons already being held at the Bank of England; according to the FT, the plan is to transfer other gold to the Bank of England from custodians such as Barclays, HSBC, and Standard Chartered; then, once it's all in one place, um, well, nobody has a clue what might happen. Here's the best guess from the FT:
Venezuela would need to transport the gold in several trips, traders said, since the high value of gold means it would be impossible to insure a single aircraft carrying 211 tonnes. It could take about 40 shipments to move the gold back to Caracas, traders estimated.
“It’s going to be quite a task. Logistically, I’m not sure if the central bank realises the magnitude of the task ahead of them,” said one senior gold banker.
Is there such a thing as a real safe haven?
By Kathleen Brooks. The opinions expressed are her own.
There are traditional relationships that the financial markets respect. For example, when the markets are tanking the world wants to own safe havens like the yen, the Swiss franc, U.S. debt and gold. If volatility spikes investors go into auto-mode and are almost pre-programmed to purchase these asset classes.
But just how safe are the safe havens? Both the Japanese and Swiss authorities intervened to limit the appreciation of their currencies in recent days. The Swiss National Bank (SNB) did so first by slashing interest rates and announcing a new QE program to flood the economy with money to try and put downward pressure on the franc. The Bank of Japan (BOJ) embarked on something similar, but they directly intervened and sold yen in the markets.
A new paradigm for inflation
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
Looking through the minutes of the Bank of England’s policy meetings for the past year, there are a couple of patterns that you see emerge. Firstly, that rates are on hold, and secondly, that the UK’s elevated inflation rate is temporary. Now the European Central Bank has joined the chorus. ECB President Trichet recently sounded confident that prices will moderate, even though consumer prices rose above the ECB’s target rate of 2 per cent in December.
from Breakingviews:
Commodities cast wary eye on dollar and liquidity
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
LONDON -- You'd think commodities markets would like reviving economic growth. But despite positive data from Germany and the United States, prices are wobbling. The problem is that oil, food and metals prices have all thrived on a weak dollar, cheap money and inflows into real rather than financial assets. Recovery, a firmer dollar and higher interest rates are giving investors more to think about. There could be a lot of volatility ahead.
from The Great Debate:
Quantitative easing and the commodity markets
-The views expressed are the author's own-
A warning by an International Energy Agency (IEA) analyst this week that quantitative easing (QE) risked inflating nominal commodity prices and derailing the recovery drew a withering response from Nobel Economics Laureate Paul Krugman, who labelled the unfortunate analyst the "worst economist in the world".
According to New York Times columnist Krugman "Higher commodity prices will hurt the recovery only if they rise in real terms. And they'll only rise in terms if QE succeeds in raising real demand. And this will happen only if, yes, QE2 is successful in helping economic recovery".
from The Great Debate:
Wanted: more commodity hedgers
For the last decade, investors such as pension and hedge funds have been the fastest-growing segment of commodity derivatives markets. The most successful banks and dealers have been those which marketed themselves most effectively to this new group of customers.
In the next five years, however, expanding the use of derivatives as hedging instruments for producers and consumers will re-emerge as the priority area. Banks and dealers will be searching for natural counterparties for all the pension funds and hedge funds wanting to use futures and options as a source of returns, diversification and inflation protection.
Facebook group defends “harassed” BP
BP’s chief executive Tony Hayward branded “the most hated man in America” may be surprised to find himself cast in the role of victim by a growing clan of web-based supporters on Facebook.
One such group ‘Support BP’ calls itself the defender of an “undeservedly harassed institution” and seeks to show that the public opprobrium BP faces over its now 60-day-old Gulf of Mexico oil spill is not universal.
from The Great Debate:
Real commodity prices and the U.S. rate cycle
-- John Kemp is a Reuters columnist. The views expressed are his own. --
Commodity prices exhibit a strong cyclical component -- though it can be masked when producers are carrying a lot of excess capacity.
The attached chart shows the real price of various commodity baskets (Jan 1980=100) overlaid by U.S. interest rates (discount rate, later funds target), and the business cycle (NBER Business Cycle Dating Committee).
from The Great Debate:
Africa and the global economic crisis
- Jorge Maia is head of Research and Information for Industrial Development Corporation of South Africa, established in 1940 to promote economic growth and industrial development. The opinions expressed are his own -
Serious shockwaves are hitting Africa's shores as the global economic crisis unfolds.
from The Great Debate:
Should there be limits on commodity investment?
-- John Kemp is a Reuters columnist. The views expressed are his own --
The commodity boom and bust in the last 5 years suggests there is a natural limit on how much investment money these markets can absorb before price-setting mechanisms become distorted and prices unmoored from supply and demand fundamentals.
Exchange operators and dealers have a strong interest in increasing turnover and volume, since it boosts income from fees and commissions. But most also argue that increased turnover makes markets more efficient because it sharpens price discovery and makes them more liquid.
