Wednesday, December 29, 2010

Ex-Shell president sees $5 gas in 2012

( -- The former president of Shell Oil, John Hofmeister, says Americans could be paying $5 for a gallon of gasoline by 2012.

In an interview with Platt's Energy Week television, Hofmeister predicted gasoline prices will spike as the global demand for oil increases.

"I'm predicting actually the worst outcome over the next two years which takes us to 2012 with higher gasoline prices," he said.

Tom Kloza, chief oil analyst with Oil Price Information Service says Americans will see gasoline prices hit the $5 a gallon mark in the next decade, but not by 2012.

"That wolf is out there and it's going to be at the door...I agree with him that we'll see those numbers at some point this decade but not yet." Kloza said.

"The demand is still sluggish enough in some of the mature economies." (more)

Roar Earths

Rare earth metal miners were roaring this morning with many of the Market Vectors Rare Earth ETF component holdings up double-digit percentage points. On my daily volume breakout screen, 5 of the top 16 volume breakouts were in rare earth/strategic metals miners, including: China GengSheng Minerals Inc (CHGS), Avalon Rare Metals Inc (AVL), General Moly Inc (GMO), Rare Element Resources Ltd (REE), and REMX (the Market Vectors Rare Earth ETF itself). Those are just a few of the top volume breakouts across the U.S. markets. Here’s a list of holdings within the REMX ETF as per Bloomberg and their performance today:

Shares of many rare earth and strategic metals flew on Monday and Tuesday this week based on an announced rare earth mineral export quota cut from China, the largest producer of rare earth metals in the world. So what are the implications should the largest producer in the world restrict supply? Prices go up. It’s the same idea behind the oil cartels. Control the supply of a resource with inelastic demand and you have the setup to make substantial profits.“China’s Commerce Ministry allotted 14,446 tonnes of quotas to 31 companies, which was 11.4 percent less than the 16,304 tonnes it allocated to 22 companies in the first batch of 2010 quotas a year ago.” (more)

Petrobras Calls Could Heat Up the New Year

I have to admit that I was a bit taken aback when the Kuwaiti oil minister announced that the world could withstand oil at $100 barrel. It wasn’t that an oil minister said it; it was that the oil minister was from Kuwait and not Iran. Along with that eye-opening statement, we are seeing some very interesting things in the oil markets right now.

For instance, anticipation of growth has rallied oil despite an economy that hasn’t really done much in three years; China seems to realize it may have overdone the increase of its currency rates in an attempt to slow down the rally in commodity prices; a computer virus may have set the Iran nuclear program back two years; and an American car company can’t make a competitively priced electric car without the government’s $8,000 tax credit.

But all those factors probably weigh less on the oil markets than currency issues. Yes, oil is up $10, but how much is the U.S. dollar down against the euro and against every other world currency? One thing we know is that the QE2 effort has weakened the dollar against other currencies. (more)

Energy, agriculture, gold and silver bullion - protectors from the coming crisis

The Gold Report: Much has happened since our last discussion in September. The election, with the Republicans taking the House and the super majority in the Senate. QE2 (quantitative easing) not only discussed but actually released. The U.S. assisting in the financing in Europe. The benefactors of the 2008 bailout money finally published. And then the hottest topic in Washington for a while, extending the Bush tax credits along with an Obama unemployment tax credit. Have any of these developments changed or firmed your opinion of the U.S. economy or the international monetary crisis?

Porter Stansberry: I'm fascinated by the way the crisis is unfolding. The U.S. government is still willing to add enormous amounts of new debt. And it is willing to underwrite not only quantitative easing in the U.S. but also fund it in Europe as well. These are symptoms of a much bigger ongoing problem-the enormous sovereign debt crisis in the Western democracies.

I think we're going to see a lot more quantitative easing. We're going to have to see a lot more fiscal deficit growth going forward, especially with a union between the Republican House that wants to cut taxes and the Obama administration that wants to extend benefits. "You let us cut taxes and we'll agree to extend benefits." Of course, that's the worst of both worlds in terms of our fiscal position because it will result in vastly bigger spending and less tax revenue. There's no other government that will even attempt adding vast new debts at this stage in the game. Americans still have no idea of the risks our government is taking with our currency. (more)

Jay Taylor: Turning Hard Times Into Good times

click here for audio

Treasuries Drop as Five-Year Note Sale Attracts Lowest Demand Since June

Treasuries tumbled, pushing benchmark 10-year note yields up the most in two weeks, after the $35 billion sale of five-year securities attracted the lowest demand since June.

U.S. debt due in more than a year was headed for the biggest monthly loss in the global government bond market as primary dealers ended up with their biggest share of an auction of the five-year maturity since July 2009. The two-year note yield increased to the highest level in six months.

“Foreigners weren’t as aggressive at the sale as usual, leaving a lot for primary dealers,” said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners LLC, a brokerage for institutional investors. “It’s not looking good for the seven-year auction tomorrow.”

The yield on the current five-year note increased 12 basis points, or 0.12 percentage point, to 2.15 percent at 5 p.m. in New York, according to BGCantor Market Data. The price of the 1.375 percent security maturing in November 2015 fell 18/32, or $5.63 per $1,000 face amount, to 96 13/32. (more)

The Baby Boomers Turn 65

The first of 78 million baby boomers born in the wake of the Second World War will turn 65 in 2011. Some have long since retired, while others plan to hold onto their jobs for the foreseeable future. Many unemployed baby boomers are also looking for work to supplement poorly funded retirement accounts or to continue to contribute to society in a meaningful way.

Robert Baxter will turn 65 in August 2011, but is reluctant to leave a job he loves. "I've been lucky enough to work my way up in business to the point where I am running the show and that is quite rewarding, so I am in no hurry to retire," says Baxter, CEO of Dryden Mutual Insurance Company in Dryden, N.Y. He might consider retiring at some point between the ages of 68 and 70. "My generation is having second thoughts about taking any sort of early retirement," he says. "When my parents retired, they had a defined benefit pension and Social Security and they actually had over 100 percent replacement of their income. That's not going to happen to my generation."

But holding on to a job in your 60s or finding a new one can be difficult. "Workforce participation among older workers is higher than it has ever been and so is unemployment," says Ted Fishman, author of Shock of Gray, a book about the world's aging population. Once unemployed, older workers generally remain out of work longer than their younger counterparts. The average duration of unemployment for those age 55 and older in November 2010 was 45 weeks, 12 weeks longer than it takes the typical younger person to find a job. When Marty Colletti of Austin, Texas, a former account manager for Dell, was laid off in March 2009, it took her nearly two years to find a new job at a comparable level. Colletti, who will turn 65 in May, began a new job at a smaller company as a search engine optimization consultant in December 2010. "I tend to attribute my age to it taking so long to get a job," she says. (more)

Case-Shiller: Home Prices Dive Another 0.8% In October

Headline Number: Down 0.8% for 20 city index, worse than expectations.

Expectations: A fall in prices of 0.2% for October.

Background: In September, prices fell by 1.5% indicating housing was in a double-dip scenario.

From the report:

“The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October’s report. Home prices across the country continue to fall.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25% and the months’ supply of unsold homes is about 50% above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets."

Grow Your Returns With Agriculture ETF DBA

PowerShares DB Agriculture Fund (NYSE: DBA) — This exchange-traded fund (ETF) seeks to track the price and performance of the Deutsche Bank Liquid Commodity Index. Food shortages and higher prices for commodities like wheat, corn, soybeans and sugar are being forecast by economists worldwide.

And the recent move by China to raise interest rates is evidence that the country’s central planners are concerned about possible inflation in food prices that could cripple their economy.

As for agriculture ETF DBA, note the impressive pickup in volume on the chart, as well as the golden cross and the recent breakout from a double-top following a bounce from its 50-day moving average.

Traders should target DBA for a quick trade to $36 since the ETF broke down from that level in August 2008, but long-term investors may want to hold this ETF as a cornerstone investment with a price objective north of $50.

If You Haven't Bought Silver Yet, Read This

Chris Weber writes: The last time I was able to identify a period when a precious metals correction was about over happened two years ago...

At that time, gold hit a low of $693 and silver $9.63. Since then, gold has risen about 100%, but silver has soared 206%. This is an extraordinary occurrence in just two years.

Back in October, I thought both metals, and especially silver, were due for a rest, and perhaps a correction.

Silver reached $24.75 on October 14. I expected a back-off to begin. Silver briefly touched as low as $23. That is a 7% fall. In the universe of silver, this is nothing. And then the rise resumed. In December, silver reached a new high of $30.50.

This all feels unprecedented to me. Gold has not been giving people an advantageous entry point for a long time now. But silver is supposed to crash at certain times... It can almost be relied upon to do this.

Not this time. At least, not so far. Given an opportunity to correct or even consolidate its prior gains, silver barely takes a breath and then reaches new highs.

Why? Some say silver shorts are covering. But why now? Why this time? Silver prices refused to fall, and then rose... Of course under these circumstances shorts will cover. (more)