Trying to Eliminate Subsidies is a Losing Battle
There is an old story about a rich gentleman who was walking down the street one day when he comes upon a homeless man. The rich man felt pity for the man and decided to help him. He asked the homeless man how much he collected in a good day. The homeless man replied $50. The rich man told the homeless man that since he walked that way to work every day, if the homeless man were there on that street corner at 8:00 AM he would give him $50. And so that is what happened. Naturally the homeless man was happy to get the money. He no longer had to stand on the corner all day to get his $50. This went on for quite a while, every day the rich man would give the homeless man $50. But one day the rich man became ill and could not go to work and the homeless man did not have his $50 for the day. The next day when he arrived the homeless man demanded $100. since he hadn’t received his $50 from the day before. After all he was there at the appointed time it wasn’t his fault the rich man was sick. The rich man refused saying, he hadn’t been able to work so he didn’t earn any money the day before either…
The homeless man became angry and hit the rich man and took $100 from him.
The rich man called the homeless man ungrateful and decided walked to work a different way from then on.
History tells us that once a subsidy is instituted there will be riots if you try to remove them. Once people become used to getting something they feel entitled to it. If you try to stop the “entitlements” people become angry and riots ensue. We saw this in Greece and more recently in Nigeria. And it may become more widespread as governments try to cut back on expenses. In the following article our friends at Casey Research shed some additional light on the subject.
Tim McMahon~ editor
The Telling Tale of Nigeria’s Fuel-Subsidy Riots
The series of events that just transpired in Nigeria makes for a familiar tale – and a telling lesson. The tale tells of a poor, developing nation endowed with oil riches that, on the advice of international economists, tries to eliminate gas subsidies. The lesson is that the populations of oil-producing nations will inevitably erupt in rage against any such notions.
Nigeria is the biggest oil producer in Africa, pumping out 2.2 million barrels of crude oil a day to sit 10th in the global crude-production standings. But the average Nigerian gets little benefit from his country’s oil riches. There is an enormous gap between rich and poor in Nigeria, mostly because 80% of the economic benefits from producing all that oil flow to just 1% of the population. Politicians in the country’s infamously corrupt government have pocketed billions in oil profits, while three-fourths of Nigeria’s 160 million people live on about a dollar a day. Continue reading
Why Europe Should Pay Attention to Algeria
By Marin Katusa, Chief Energy Strategist, Casey Research
Tunisia’s uprising has democracy watchers wondering if the instability will spill over into neighboring North African countries, but really that instability is already there. In the first week of the year, Algeria experienced violent protests after the government hiked prices for staple foods like milk, sugar, oil, and flour. Some 800 people were injured in several days of rioting, prompting President Abdelaziz Bouteflika to cut costs on some foods and lower import duties on others. The rioters went home, but odds are they will return to the streets when prices rise again.
Those rioters are not just angry about high food prices. Unemployment in Algeria is officially at 11%, but estimates from outside of the government run much higher, along the lines of 25%. Inflation keeps creeping up, and the country’s impoverished population, who has very little freedom, has grown distrustful of the government. A massive boycott rendered the results of the last presidential election, where Bouteflika won with 92% of the vote, almost meaningless. Continue reading
State of Denial
By David Galland, Managing Director, Casey Research
Does the price action of gold of late make you scratch your head, falling as it has from its recent high of $1,420 to $1,359 as I write? Hard not to make one wonder, considering the nature of so much recent breaking news…
- Consumer prices in December exceeded forecasts, up 0.5%, with core inflation up 1%.
- Producer prices rose 1.1% in December.
- China’s inflation, at over 5%, is beginning to cause problems.
- Import prices into the U.S. are on the rise.
- The European Central Bank is now warning of inflation, and interest rates there continue to rise.
- Back in the U.S., the rise in interest rates is becoming persistent, with 10-year Treasury rates moving from 2.57% in November to 3.31% today – something that Bernanke is trying to spin as a positive, but given the amount of debt sloshing about, it is very much not.
- Oil – the stuff that makes the world go ‘round – appears stuck at around $90, no matter whether the news is good, or bad.
- The U.S. government is trying to chase foreign depositors away from the dollar by broadcasting that the IRS wants to begin looking in to all foreign-held U.S. bank accounts. Trying to keep ahead of the curve, JP Morgan, among others, has told foreign account holders they have to close their accounts by March 31. The harder it becomes to do business with the U.S., the weaker the demand for dollars. The weaker the demand for the dollar, the weaker the dollar will be… interest rates will have to rise to offset the fall, and import prices will go up even further.
- Following that thread, China and Russia have recently struck a deal to bypass the U.S. dollar in bilateral trade – the latest and most substantial act of foreign nations taking active measures to ditch the dollar.
- Food prices are soaring – with corn contracts up over 90% from June lows, and wheat up 80%. Continue reading
5 Energy markets that will help you thrive in 2011
In today’s short video I’m going to show you some of the markets that I’m looking at in the energy complex. We’re going to be looking at coal, oil, solar and some other large energy companies and ETF’s.
As this is a short video, be sure to check in and watch our webinar this Thursday, January 20th at 4pm EST/9pm GMT. You will need to reserve a spot as tour webinars typically reach capacity quickly.
As always all webinars are free to attend.
Take a look at what we will be covering in the webinar and check out our new portfolio manager which we will be using extensively throughout today’s video. We also have a big surprise which will be announced at the webinar and I have no doubt that you will like.
Today’s video requires no registration and is free to watch: Continue reading
Forgotten Treasure: Unconventional Oil in the Middle East
As the conventional and cheap oil and gas start to dry up in the Middle East… a bigger, even better opportunity seeks to replace it.
For many who aren’t familiar with the region, the Middle East comes across as an updated version of Lawrence’s Arabia, only with lots of oil. But this mosaic of cultures isn’t made up of only Arabs or Muslims, and most Middle East countries are neither awash with heavily armed, rather excitable citizenry… nor with black gold, which is what we’re interested in. Twenty-three countries comprise the Arab League, but only Saudi Arabia, Iraq, Kuwait, the United Arab Emirates (UAE), and Iran are major oil producers.
No matter; with the exception of Kurdistan in northern Iraq, none of the oil heavies are currently open to us investors anyway. We’re digging for other finds, with three basic criteria. We’re looking for countries in the Middle East that: Continue reading
Trade The Trend in Gold, Dollar, S&P500
Today we have an analysis by Chris Vermeulen “The Gold and Oil Guy”. Chris has some rock solid tips on trading choppy markets like we are seeing now. Picking tops can be very difficult and costly so check out Chris’ advice in the final paragraph. It’s worh its weight in Gold!~ Tim McMahon, editor
Dollar, Gold & SP500 Trend Trading
November 10th, 2010
It has been a roller coaster week thus far as stocks and precious metals plunged on heavy selling volume on the back of a rising dollar, only to make a strong rebound Wednesday. While there has been significant intraday price movement, it was no surprise to us as we have been anticipating this pullback since discussing it in my Sunday Gold Newsletter.
Let’s take a quick look at the charts…
US Dollar Daily Trading Chart
The past couple weeks the dollar has traded in a choppy fashion, and last week I mentioned to subscribers to keep any new positions small. The dollar looked ready to make a bounce and if it reverses we will see stocks and commodities correct rather sharply.
Last week we trimmed some profits on our gold and SP500 trading positions in anticipation of a rising dollar/lower equity and metals prices. The dollar is currently in a down trend so we are still trading with the trend, but the next couple sessions could potentially change that.
As you can see on the chart a similar pattern to what we saw during Continue reading
The Hungry Dragon: China’s New Oil Market
By Marin Katusa, Chief Investment Strategist, Energy Division
If you ever happen to eavesdrop on a conversation between energy investors, two words are sure to crop up – China and oil. Usually, they’re used together and usually, it’s about China’s increasing presence on the global oil scene.
It’s a pretty safe bet that, as one of the world’s fastest growing economies, China needs a lot of energy. And with an oil appetite that grows by 7.5% each year, seven times faster than the U.S., the country’s reserves don’t even begin to compare to the consumption.
But fuelling the blistering pace of its economy is China’s number one priority, and it is on a mission to lock down its energy interests all around the world. The emerging powerhouse has often felt that it was the last one onto the energy playing field with a lot of catching up to do.
At $1000 is Gold Expensive?
With Gold over $1000 and at all time nominal high prices many are wondering if Gold is overpriced.
If we look at the inflation adjusted price of Gold we see that even at $1000 it is still only about half-way to its all time highs.
For more information see Inflation Adjusted Gold Price .
But that is just one way to look at the price by comparing it to U.S. dollars. We could also look at its price in Euros or at what the price looks like to the people in China or India. And each of those are based on the values of their currency and how much they are inflating.
But a different way to look at it would be in comparison to the price of other commodities. Theoretically in an ideal world, if the supply of currency is inflating, then all commodities should increase equally.
But in the real world that isn’t true. There are inequalities partially because money doesn’t flow equally initially. Eventually it will even out as traders arbitrage high priced commodities against lower priced ones. Continue reading
