Monday, June 30, 2008

Marc Faber on CNBC

We're going to start off this week with a recent clip of Marc Faber on CNBC (Thanks to reader Domenico for the heads up on this video).

You'll hear everything straight from Marc for yourself, but let me just briefly outlilne some of the main points he made to CNBC in this interview from last week.

1. Investors should stop listening to the Fed. They are misleading the people with claims of strong dollar policies and their worry over inflation. Their actions have shown the opposite to be true (the Fed is not really concerned about inflation), and ordinary Americans have suffered from the central bank's inflationary policies.

Also, Marc notes again that the Fed is trying to pump the financial system full of liquidity, while the private sector is trying to tighten lending standards and credit conditions. For now, the private sector is winning.

2. The Federal Reserve should have let investment banks fail. As Marc says, "If I'm a bad businessman, who's going to help me?". He feels bailouts are a very questionable practice, especially in the case of the recent Bear Stearns buyout, where a once-prosperous and well-connected bank is bailed out/purchased with taxpayer money.

He also feels that many banks are essentially bankrupt, and that the financial sector is in worse shape than the investment community perceives.

3. Faber feels that oil and commodities may correct to the downside in the second half of the year. He has lately seen a noticeable slowdown in business across the globe, and says the slowdown will affect demand for commodities in China, India, and elsewhere.

While he notes that the commodities bull run may still be intact for years to come, Marc would rather buy gold than oil, as higher gold prices will be supported through continued money printing from the world's central banks.

We'll have more on the historical inflation theme as the week develops. Tune in for these upcoming posts. Until then, enjoy the clip!

Saturday, June 28, 2008


Jukebox video hits for your weekend enjoyment. Rock n' roll.

1. Motley Crue - Live Wire.

2. Sex Pistols - God Save the Queen.

3. Def Leppard - High n' Dry (Saturday Night).

4. The Runaways - Saturday Night Special.

5. The Ramones - Rock n' Roll High School.

6. The Replacements - Bastards of Young.

Friday, June 27, 2008

Features of the week

Enjoy our Friday "Features".

1. The Dow sank 358 points on Thursday, closing at its lowest level in almost two years.

2. Oil surges above $140; is $150 oil around the corner?

3. Drilling for oil in Beverly Hills.

4. Global oil supply worries fuel debate in Saudi Arabia.

5. Gold moves up to $920 an ounce on dollar weakness, risk aversion.

6. Video: Warren Buffett concerned about stagflation.

7. Uranium prices could rebound due to increased demand.

8. Jim Rogers and Van Eck Global have formed the Rogers Van Eck Hard Assets Producer Index, a comprehensive global commodities share index (Hat tip: Abnormal Returns).

9. "Danseuse", the Severini painting highlighted in Wednesday's art market update, ends up fetching £15.04 million, twice its pre-sale estimate.

10. Four years of home price gains wiped out. Case-Shiller home price index is down 15.3% in the past year, shows declines in all 20 cities tracked.

11. Public surveillance grows in America's emerging police state.

12. Aristotle on mixed economies (this applies to liberty as well).

13. Baby Bust! The world is panicking over falling birthrates.

14. Carbon trading set to dominate commodities.

15. Cap and Trade is not a "market solution". Discuss.

16. Who owns your friends? Social networking sites fight for control over users' personal information.

Enjoy your weekend, and thanks for reading Finance Trends Matter.

Wednesday, June 25, 2008

Sector broadening in the art market

The global art boom continues, as wealthy buyers from around the world continue to purchase rare and expensive works of contemporary, impressionist, and modern art.

But according to recent reports in the Financial Times and The Economist, buyers now seem favor works by lesser known artists in the impressionist and modern art movements.

According to the FT, newly rich buyers will be seeking out bright, bold paintings from German expressionists and Italian futurist painters.

""Two years ago, top lots in the impressionist and modern art sales were familiar brands: the Monets, Picassos and Van Goghs. More recently, bolder, brasher artworks by lesser-known artists have been netting record prices and, this summer, German expressionists and Italian futurists will be among the most sought-after catches.

Despite a popular perception that contemporary art sales account for the top prices, the impressionist and modern auctions, which broadly sell art from 1870-1945, are where the serious money is spent. The art auction record was achieved in one of these sales when Picasso's "Garçon à la Pipe" sold at Sotheby's New York in 2004 for $104m. Understanding developments in the impressionist and modern sales, the specialists agree, is key to decoding trends in the upper levels of the art market as a whole.

Helena Newman, Sotheby's vice-chairman of impressionist and modern art, says she has seen a steady influx of new bidders over the past two years. Seven per cent of buyers at her sale in February were new clients, who snapped up 15 per cent of the lots, focusing on bright, bold painting. She sums up their passion with a neat neologism: "Wallpower"."

Italian futurist Gino Severini, whose painting, "Danseuse", is pictured above, provides the model for this new phase of the art boom. "Danseuse" will be prominently highlighted in an upcoming Sotheby's auction, where the painting is expected to set a new record price for the artist. The Economist considers works like these likely to be among the "blue chip names of the future".

"During a buoyant market, houses can stick with identified trends and simply persuade holders of old stalwarts such as Picasso and the French Impressionists, for example, to part with their popular pictures. A far more complex and riskier challenge is trying to hand-pick the blue-chip names of the future.

Sotheby's appears to have had some success in creating a list of new “must-haves” for billionaires. A look at its recent major auctions of 20th-century paintings shows a number of artists who were fairly obscure just two years ago now command prices on par with the best-known artists of the period."

So as the art boom marches forward, record high prices are now being seen for works by previously lesser-known artists. And as both the FT and The Economist point out, as the market for these works has broadened, so has the international pool of art buyers.

Related articles and posts:

"Sotheby's contemporary art sale - slideshow" - Telegraph.

"The next blue chip" - The Economist.

"Works with Wallpower" - Financial Times.

"That Booming Art Market" - Financial Sense Online.

Tuesday, June 24, 2008

Politicians' oil argument is flawed

Due to the sheer amount of misinformation and flat out nonsense being broadcasted on the subjects of oil and commodity prices and the supposed price manipulation by speculators, it's important to seek out information from more truthful or knowledgeable sources, rather than relying on the suppositions of ignorant politicians and media demagogues.

With that in mind, I wanted to share a very fine article with you from today's (June 24) Financial Times. Hopefully, it will help to dispel some of the "evil speculator" myths that are still floating around.

In, "Politicians' oil argument is flawed", John Dizard writes of his surprise over politicians' continued willingness to make dogged attacks on commodity speculators, as traders and index investors are blamed for fueling recent price rises of oil and agricultural commodities.

Here, Dizard responds to those who argue that investment demand for commodities (expressed through investor purchases of long positions in futures contracts) is creating artificially high prices for much needed resources.

"Now if it were true that pension funds, insurance companies, evil hedge fund managers etc were all buying large quantities of physical products such as silos of grain and storage tanks of oil, then the peasants with the torches, and their leaders, would have a point. But the investors aren’t buying physical product.

For example, one of Senator Lieberman’s favourite witnesses, hedge fund manager Michael Masters, compared an 848m barrel increase in index speculators’ positions over a five-year period with the 920m barrel increase in Chinese demand. In other words, the speculators were almost as big as China.

Nonsense. Speculators only increase the demand for oil, or any other commodity, when they buy physical product and hold it off the market. So to match the real Chinese demand over that five-year period, the institutions would have had to build an astonishing amount of storage capacity. Using Mr Masters’ numbers, they would have had to fill storage tanks with more than 40 times the capacity available at the Cushing oil terminal in Oklahoma, which is where the WTI (West Texas Intermediate) oil contract is valued. Didn’t happen."

Ah, now we're getting somewhere. You might also be surprised to hear Dizard's claim that certain government policies are having more of an effect on oil prices than speculators. Read the whole thing and find out why.

And as Simon Denham notes in this Telegraph article, any government legislation that seeks to bar investment funds from the futures market or limit speculation is likely to end up driving trading activity over to European exchanges (disclosure: a family member is a CME shareholder).

"So the US is getting hot and bothered once more about those nasty ‘speculators’ who are apparently driving up the price of oil. The Senate looks to be at odds on whether to pass some type of law restricting ‘non end user’ trading in commodities.

Skipping over the rather unfortunate fact that the price actually rose (from $100 to $135) while the exchanges estimate that speculative positions have been pretty much flat. For the country that has been the bastion of capitalism for the last 120 years to moan about the effects of supply and demand and effectively say that “it is not fair, we want to change the rules”, smacks of desperation.

Fortunately for the UK and Europe (whose Futures exchanges would be the main gainers), it appears that US law makers are going to have another Sarbanes-Oxley moment and cripple their futures exchanges."

So we have that to look forward to...

But that's not the only interesting point Denham makes. He also reminds us how the futures market actually works:

"The fact is that futures markets are ‘no net gain’ exchanges, for every buyer there must be a seller. If a big fund is buying oil, up there must be somebody on the other side willing to sell to them and not only this, but at some point, the buyers must unwind their positions.

This would mean that if they really had been just forcing a market higher by buying everything in sight, then when they came to get out of their long positions, the price would fall just as fast, (in fact probably faster, as the commodity would not have the natural resistance to being in uncharted territory to hold it back)."

As the final thrust to his article, which is aptly titled, "Critics of oil speculators and short sellers are missing the point", Denham notes that the furor in the US over "speculative" buying of oil is balanced by British lawmakers' outrage over "speculators" short-selling bank stocks.

Still he wonders, would anyone complain if the targets of buying and selling were reversed, so that speculators were selling oil and buying banks? We doubt it too.

Related articles and posts:

"Plan to bar funds from commodities garners few fans" - MarketWatch.

"Tighter US commodity trading laws may be boon to foreign exchanges" - Pensions & Investments Online.

"Oil vs. Nasdaq: the "bubble view" - Finance Trends Matter.

"Oil: inflation meets tight supply" - Finance Trends Matter.

"Charles Maxwell: $200 oil possible on supply & demand" - Bloomberg.

"Speculators not to blame for high oil prices" - Robert Murphy, IER.

Monday, June 23, 2008

Stock market overview

Looking at the US stock market this week, we seem to find ourselves at an inflection point. Will the leading averages turn down and break through their previous lows, or does the market have enough strength to consolidate and head higher?

With the recent downturn in the Dow Jones Industrial Average (following its May rally highs), we are now headed right back down to the previous March low.

Meanwhile, the Dow Jones Transportion Average has been incredibly strong coming off its January lows, setting a record high of 5,492.45 earlier this month.

Unfortunately, that move was unconfirmed by the Industrials, which continued to slump from its May high. The DJIA remains well below its record high of 14,164.53, reached back in October.

Back in May, noting the confusion over the status of the latest upmove in the Dow Averages, we wondered if this was, in fact, a rally with serious muscle.

So far, the Dow Transports have managed to hold out impressively, but the coinciding downward move in the Industrials seems troubling from a Dow Theory point of view. Will the Industrials weigh the rest of the market down like a stone?

Looking beyond the Dow Transports and Industrials to the other leading stock averages, the picture for stocks is not so rosy.

The S&P 500 is down on the year and down considerably from its October '07 highs. Same thing goes for the Dow Jones World Stock Index, although both averages are still holding up well if we take a five year view.

And while the WSJ notes that the previously high-flying Indian and Chinese share markets are among this year's worst-performing markets, they also mention that India's Sensex and China's Shanghai Composite Index are both "much higher than they were a few years ago".

So certain areas in the global markets are still looking good (in the sense that they are still holding onto previous gains) from a multi-year vantage point.

For more on the direction of the US and global stock markets, see:

"Trapdoor falling on equities in stagflation cage" - FT.com.

"Technical Analysis: Indices are in major downtred" - Economic Times.

"Asian Markets Rumble" - Frank Barbera, FSO.

"No Capitulation" - John Hussman.

"US Stock Market - Muddling Through..." - Investment Postcards.

"Market Wrap - 6/23/08" - Bear Mountain Bull.

Friday, June 20, 2008

Features of the week

What's driving events in this crazy world of ours this week? Join us as we follow the money trail in this Friday's, "Features of the week".

1. Let's expand domestic spying, and grant telecoms immunity.

2. Midwest floods ruin crops; higher food prices to come.

3. John Paulson is bearish on UK property, and sees $1.3 trillion in losses for financial companies in the credit crisis.

4. Lieberman makes risky bet in speculation ban bid.

See also: Tighter trading laws may be boon to foreign exchanges.

5. Wilbur Ross speaks to Bloomberg about MBIA and Ambac, and says they are unlikely to regain their AAA ratings.

6. Your tax bill: how McCain, Obama differ.

7. Troubled Waters: Barron's 2008 Midyear Roundtable.

8. What recession? Shoplifting to make ends meet.

9. The Confidence Man. NY Mag profiles hedge fund manager David Einhorn, he of short Lehman Brothers fame (Hat tip to The Kirk Report).

10. Death of America's suburbs is greatly exaggerated.

11. Timeline: Bill Gates at the helm of Microsoft.

Plus: Additional Gates-Microsoft timeline from BBC.

12. China announces fuel price increase; the price hike takes Chinese fuel prices to about $78.60 a barrel.

13. Charles Maxwell of Weeden & Co. says oil prices could go north of $200 based on supply and demand fundamentals (Bloomberg News Video).

14. Oilwatch Monthly - June 2008 (The Oil Drum).

15. North Dakota's new oil barrons: Bloomberg report on the Bakken formation.

16. Hidden fees in your 401(k). Bloomberg TV report.

17. The Road to Revulsion: James Montier on the life cycle of a bubble.

18. The 'secret' to happiness... is no secret (Financial Philosopher).

Thanks for reading Finance Trends Matter. Have a great weekend!

Thursday, June 19, 2008

Oil vs. Nasdaq: the "bubble" view

As crude oil worked its way back towards the $140 mark last week, the recently favored view of oil as a "speculative bubble" was on full display in the media.

On June 13, a week after crude oil prices made a record move to $139.12 a barrel, Bloomberg covered the bubble view with a story entitled, "Oil Rally Topped Dot-Com Craze in Speculator's Mania". Investors Michael Masters and George Soros were there offering their views of prices in the crude oil market:

``I don't know if you can classify it as a bubble or not,'' said Masters. ``But there is no question that investor demand is having an effect on price. Very little of it has to do with physical supply and demand of crude oil.'' Masters testified at a Senate hearing in May on the role of speculators in commodities markets.

Gains in oil are the result of a ``bubble'' caused by speculation from index funds and a tight balance between supply and demand, Soros said in testimony before the Senate Committee on Commerce, Science and Transportation on June 3. ``The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality,'' he said.

So according to George Soros, the upward move in oil prices, "has a strong foundation in reality", while Masters thinks the move has "little... to do with physical supply and demand of crude oil". Interesting.

Well, differing views make a market, but it does kind of make you wonder where Michael Masters is getting his information on crude oil from, considering the recent phenomenon of shrinking global oil supplies meeting steadily rising global demand.

But, listen, I promised you the "bubble" view, and the bubble view you shall have.

Check out this nifty little chart that Bloomberg put together comparing the run up in crude oil prices to the decade long bull market in the Nasdaq and technology shares: "Crude rally surpasses dot-com boom".

So what do you think? Are recent oil prices a bubble or is this a bull market largely driven by supply and demand fundamentals?

Related posts:

"Oil: inflation meets tight supply" - Finance Trends Matter.

"The future of energy" - Finance Trends Matter.

Tuesday, June 17, 2008

Jim Slater: Return To Go

Yesterday, in our discussion on entrepreneurship, we posted a link to entrepreneur Luke Johnson's recommended reading list.

While glancing at the list again, I was interested to see a book called, "Return To Go", an autobiography by British investor Jim Slater.

I actually happened to be reading about James Slater the night before. Although he is a very famous investor in his native England (and was later known to US investors through his writing and his popularization of the PEG ratio), I had never heard of him until I stumbled upon his Investopedia "Greatest Investors" profile.

Apparently, Slater obtained his knowledge of the markets
while bedridden from illness and searching for an alternate source of income.

After his investment banking career went south and he found himself in debt to the tune of a million pounds, Slater used his business and investing acumen to claw his way back to prosperity, doing private investment deals and establishing himself as a popular financial columnist and stock advisory letter writer.

Although the book seems to have been published before Slater fully reclaimed his place at the top (1978), there are probably some very interesting stories and valuable life lessons included here. So Luke Johnson's recommendation of, "Return To Go", is one more item on my list of future reads.

I wonder how many other great stories there are to uncover in the fields of business and investments. Do you have a favorite book which highlights the life and trials of a talented businessman or investor?

Monday, June 16, 2008

What's so terrible about making money?

Luke Johnson offers a brief and eloquent defense of entrepreneurial capitalism in this recent FT piece entitled, "What's so terrible about making money?".

Here's an excerpt:

"One thing that has always baffled me is why certain people hate capitalism so much. They really are missing something.

Ever since I was 18 and co-founded a business by accident, I knew that being an entrepreneur was the most fun you could have with your clothes on - it is the greatest adventure modern life has to offer. And if you're lucky and astute, you might even get rich in the process. Why is that so terrible? Yet all too often capitalism is blamed for many of the ills of modern life, from global warming to poverty.

I remain convinced that many intelligent, ambitious individuals would adopt a self-employed way of life if they could strip away all the cultural bias and realise that building a venture can be a creative, even an heroic, endeavour. In truth, becoming an entrepreneur is a vocation, like fine art or quantum physics or teaching. But intellectual snobbery, prejudice and the comfort blanket of big organisations means business frequently fails to win the moral arguments."

Read on for more. If you are a fan of true capitalism, I'm sure you'll enjoy the piece as much as I did.

While you're at it, check out Luke Johnson's reading list for entrepreneurs, or as he calls it, "A reading list for those who want to succeed".

We'll have more on this tomorrow, as we highlight one of the items of note from Luke's reading list and look at a famous investor who is less known in the US than in his native England.

Until then, enjoy the article and Luke's reading list!

Friday, June 13, 2008

Features of the week

Enjoy this Friday's edition of, "Features".

1. Guantanamo detainees have rights, court rules.

2. Refinery oil premiums cast doubt on role of speculators.

3. Real interest rates are negative in most Asian nations.

4. Marc Faber feels most asset classes are currently overvalued.

5. Andrew Smith, of Aberdeen Property Investors, discusses the UK property market with FT's "View from the Markets".

6. Inflation soars in the US, India, Chile, Bulgaria, Egypt, Phillippines, Russia, and across Asia.

See also, "Emerging markets face inflation meltdown".

7. Ron Paul ends his US presidential campaign, and says he will focus his energy on building up the libertarian voice in the GOP.

8. Is there a short term fix for high gas prices?

9. Ed Lampert puts money on housing rebound.

10. International investors are hedging against a rise in the dollar.

11. The man who beat the SEC: Phil Goldstein. (Hat tip to Dave in NY)

12. Barron's editor Gene Epstein on gold, the Fed, and money.

13. An Introduction to Austrian Economics - free MP3 audiobook.

14. T. Boone Pickens thinks water is the new oil - BusinessWeek. (Hat tip to Abnormal Returns)

Like reading Finance Trends? Tell a friend and share the wealth.

Have a great weekend!

Thursday, June 12, 2008

Gene Epstein on Gold, the Fed, and Money

EconTalk recently interviewed Barron's economic editor, Gene Epstein, for a podcast entitled, "Gene Epstein on Gold, the Fed, and Money".

In this interview, Epstein argues in favor of a gold standard money system and privately issued currency. He feels this sound money system would lead to greater price stability and help reduce the impact of economic recessions.

If you are a Barron's reader, you're probably familiar with Epstein's column and style. From what I have read in his columns and book reviews, I'd say Epstein has a writing style and philosophy that is mainstream enough to suit most Barron's readers, while also exhibiting some influence of the lesser-known Austrian School of economics.

Given Epstein's Austrian leanings, it should be no surprise to hear his position in favor of the gold standard and privately issued money. In fact, Epstein recently pointed to Alan Greenspan's past defense of the gold standard as a strong argument for a sound money system based on gold.

For those who would like to hear more on this subject, check out Allan Meltzer's recent EconTalk interview, "Meltzer on the Fed, Money, and Gold", as well.

Enjoy the interviews, and the debate.

Tuesday, June 10, 2008

Oil: inflation meets tight supply

Gazprom's prediction of $250 oil came right on time for today's post topic: the factors behind behind steadily rising oil prices.

Last month, as oil moved up to $120 a barrel, we offered a wrap-up (with help from Jim Rogers, Bill Powers, and Matthew Simmons) of some of the factors fueling the nine-year uptrend in oil prices.

Now that volatility in the crude oil market is increasing, with large daily price moves quickly becoming the norm, many traders and market watchers are wondering if we've reached a top in oil prices.

Still, others wonder if prices can continue to surge higher on the growing realization that world oil production may in fact be peaking.

Which brings us to our latest update of the oil discussion. Is the current oil price a reflection of increased speculation, inflation, a weak dollar, or a function of supply and demand?

Paul van Eeden recently addressed these points in a recent BNN tv appearance and in an article entitled, "Sue OPEC".

According to Paul, the recent run up in oil prices over the thirty-some years is largely a function of increased money supply (by the Fed and other central banks) and the ensuing inflation that has taken place over that time frame.

He notes that supply and demand fundamentals have certainly played a key role in driving the price of crude oil, but that the vast majority of this longer-term increase in oil prices is simply a matter of the dollar price of crude oil catching up with the ongoing expansion of money supply (inflation).

Watch as Paul tries to explain this point to the CNBC shills, who try to deflect van Eeden's explanation with smug retorts and 3-on-1 questioning tactics. Sorry kids, no dice. This was like watching a bunch of bush-leaguers trying to pitch to Mickey Mantle.

Now just about every article I read seems to offer the view that high oil prices are "contributing to global inflation". This is incorrect. High oil prices, as Paul explains, are largely a reflection of US and global monetary inflation. They are an effect of inflation, rather than the cause.

This is true not just for oil, but for many commodities where limited supplies are met by rising demand and a torrent of fiat paper money chasing scarce goods.

As Adam Hamilton explains in, "Money Inflation":

"Today something like 2/3rds of the world’s population is starting to strive to live and consume like we blessed few do in the first world. Yet the world’s commodities-producing infrastructure was never designed to cope with such immense and fast-growing demand. It will catch up eventually, but prices will have to rise and stay really high for a long time to entice enough new capacity online to supply increased consumption.

So even if we were on a gold standard with no fiat-paper inflation whatsoever, commodities prices would still have to rise tremendously. But to have such a fundamental secular bull coincide with massive monetary inflation is incredible. Relatively more dollars bidding on relatively fewer already-fundamentally-scarce commodities is going to seriously amplify these bulls."

Check out Hamilton's article for a great, easy-to-understand explanation of monetary inflation and the fundamentals driving the bull market in commodities. Between Hamilton's and van Eeden's articles, you'll get an informative look at some of the true reasons behind rising oil and commodity prices.

Remember: Inflation + tight supplies & rising demand = higher prices.

Monday, June 09, 2008

Monday's notes

Some recent stories and business features of note for your Monday reading:

1. Lehman Brothers reports its first loss as a public company and outlines its plan to raise up to $6 billion in common and preferred stock.

2. As prices surge, Argentines cry foul over the official figures - FT.

"As food and fuel costs rise relentlessly, popular and official perceptions of inflation are diverging in many countries. But economists believe Argentines may have more reason than most to doubt the accuracy of their government's calculations. This could spell trouble for a country with a history of economic crises - especially at a time when a three-month-long conflict with farmers is shaking consumer and investor confidence.

When Mr Fernández acknowledged recently that Indec, the statistics agency, "wasn't measuring consumers' reality", many Argentines could not have agreed more. Yet while the government has been reporting what many economists and consumers feel are suspiciously low inflation figures for nearly a year and a half, the cabinet chief has announced changes that he says will result in a figure that is lower still."

This is a storyline familiar to those of us in the US and elsewhere, thanks to rampant money printing and rising inflation worldwide.

3. "The Reverse Wealth Effect". Chris Ciovacco looks at America's financial condition and notes that Americans are now saddled with more debt than ever as real estate and financial asset prices decline.

4. "How the FT is Losing the Financial Opinion Wars" - Felix Salmon.

5. Marc Faber speaks to Bloomberg TV and says stocks, commodities, and real estate are inflated and overvalued.

``I don't see any compelling value in equities, real estate or commodities,'' Faber said from Zurich. ``Contrary to the last 25 years, we are in a period of de-leveraging. Corporate profits in particular are still far too high for 2009 and have to be adjusted downwards, and valuations become less compelling.''

Faber thinks that investors should now focus on what to sell (or avoid), rather than focusing on what to buy.

He also notes that central bankers can increase the quantity of money at will, but they cannot increase the quantity of gold and commodities at the same rate. Therefore, money loses its purchasing power against commodities, the supplies of which are limited. Still, Marc feels the big upside may be gone for commodities, and investors should not buy them blindly.

As you can see, monetary inflation and its effects are a big theme in today's news. Enjoy the articles and remember to connect the dots and look for the related themes within.

Friday, June 06, 2008

Features of the week

The financials seem to be the prevailing theme in this Friday's, "Features of the week". But Lehman, BKX, and Ambac aren't the only items we have in store for you; there's lots more to see and hear.

Read on!

1. Lehman Brothers may raise $5 billion in capital in an effort to de-lever the balance sheet. The bank had been seen as a sale target earlier in the week.

For more, see: "Making sense of David Einhorn vs. Lehman Brothers", and, Jim Cramer's Blogging Stocks piece, "Einhorn gutted Lehman, and that's OK".

2. US unemployment rises at fastest rate since 1986.

3. Morgan Stanley, Merrill, Lehman ratings cut by S&P.

4. Some were taking this week's breakdown in the bank index (BKX) as an ominous sign; will there be an upcoming bounce for the banking sector?

5. MBIA and Ambac lose their S&P AAA ratings, affecting over $1 trillion in debt securities guaranteed by the companies.

6. IEA says world needs $45,000bn energy revolution.

7. It's not so easy being less rich - (New York Times).

8. Jim Rogers talks to Bloomberg about commodities, oil, and financials.

9. Ben Bernanke: Soaking them at Harvard.

10. Market wisdom from Bernard Baruch.

11. Stephen Schwarzman joins FT "View from the Top" to discuss the credit crunch, Lehman Brothers, Blackstone's IPO, and deleveraging in the banking sector.

12. "Dr. J", Julius Erving talks to Bloomberg about life after sports and says the Celtics vs. Lakers final is a "dream matchup".

Thank you for visiting Finance Trends Matter. If you enjoyed this post, please pass the link on to a friend!

Enjoy your weekend.

Wednesday, June 04, 2008

The future of energy

We looked back at the rise of Middle Eastern oil and imagined what lies ahead for the oil industry in Monday's post, "Oil: history and future".

Today, we'll extend the conversation beyond oil and take a quick look into our energy future.

What will the future of our energy use look like? Will oil and hydrocarbon energy continue to be plentiful, or will we require increased efficiencies and output from alternative energy sources to meet our energy needs?

If you've been keeping up with the changes in the global energy picture, you know that we are currently in a situation of shrinking oil supply and rising global demand. In fact, as energy investor and oil-man T. Boone Pickens has pointed out, global demand for oil currently exceeds available global supplies.

And you know what happens when the demand for a much-needed commodity is greater than its supply, right? The price goes up! Which is why Boone puts no stock in the current notion of an "oil bubble" driven by manipulation or speculative demand.

``There's nothing to it to start with,'' Pickens said in interviews at an American Wind Energy Association conference in Houston. ``That's not what happened. You have 85 million barrels a day of oil available in the global energy market and 86.4 million barrels a day of demand. So the price of oil is going to go up until you can kill demand.''

We're beyond "tight supply". The world is currently in an oil supply deficit. And while there have been some recent oil finds of a potentially large size in places like offshore Brazil, it will take time for those reserves to be proven and drilled/developed.

Even then, we are unlikely to come back to a point where new oil discoveries exceed our oil consumption. As Elliot Fishman points out in, "Oil: they're not making it any more":

"The year in which the world discovered the greatest amount of oil was 1964. Since that time we have generally found less and less each year. We have been consuming more oil than we find since 1982. We now consume four barrels of oil for every one discovered."

So now that we've addressed the topic of oil scarcity, let's move on to the next issue. What comes next after oil and fossil-fuel energy?

Anyone who's been keeping an eye open to these trends knows the conventional answer to this question. Our energy supply for transport fuels and power generation will come from a variety of sources, goes the common refrain, from "clean coal" and nuclear power to wind, solar, oil, and natural gas.

But what if our electric power grid starts to fall apart under the strain of heavy use and a lack of needed maintenance and improvements? Will we still be able to move towards an energy future of cleaner power from wind and solar, while providing enough electricity to power our homes and businesses?

People experimenting with off the grid energy solutions are probably living at the front lines of our energy future. It is from their experiences and notes that conventional energy users, like myself, might learn of innovations that will be increasingly used and adopted en masse, eventually changing the way we live and use energy.

Our cars may increasingly be powered through electricity from the grid in off peak hours, or via off-grid solar energy. New buildings will incorporate net-zero energy use designs and make increased use of solar power and other alternative energy sources for their electricity needs. These are the type of changes that could characterize our move from a system of centralized power to an era of decentralized power networks.

Of course, we don't know for sure how this will all play out. So we keep our eyes and ears open to changes that are sure to come, and try to understand what our best options for the future might be.

With that in mind, let me share some of my favorite energy sites and news resources with you.

1. The Energy Blog - One of the great energy-related sites that you'll find in our blogroll. The Energy Blog covers the latest news and developments in the fields of alternative energy, energy storage, and conventional hydrocarbon energy. An active site with lots of reader feedback and tons of helpful energy links.

2. The Oil Drum - TOD is a very interesting community-blog with a focus on peak oil and future energy sources. Lots of data-driven analysis of all things related to energy and energy use, with plenty of debate spilling over into the frequently long-running (and often illuminating) comment threads. Search the blog for past content on just about any energy-related subject or concept imaginable.

3. 321 Energy and GreenStockInvesting - Two great sites that will help you keep up to date with the latest energy news and headlines (grouped by subject). Both sites also feature original articles and editorials on energy and energy investments.

4. Financial Sense Online - FSO has a dedicated energy resource page in addition to the variety of energy-themed articles you'll find on the home page. Don't miss the weekly Financial Sense Newshour broadcast; Jim Puplava often hosts energy experts and industry figures as guests on his show, in addition to the weekly panel of energy watchers who join the FS News team.

Do you have a favorite energy blog or website, or some thoughts on our energy future? Add your two cents in to our comments section.

Monday, June 02, 2008

Oil: history and future

We have two rather unique articles on the subject of oil to share with you today. If you have any interest in the past and future of the oil and energy industries, I think you'll find these articles very worthwhile.

Our first piece is a brief historical background on the rise of the Middle Eastern oil industry. Taken from Sunday's edition of the Chicago Tribune, this article was written by Tom Hundley and is entitled, "A find rich in history".

Here's an excerpt:

"When the price of oil roared to record highs last week, it was duly noted. But another milestone passed almost unremarked: Monday was the 100th anniversary of the discovery of oil in the Middle East.

Britons William Knox D'Arcy and George Reynolds are not exactly household names in America, but it was D'Arcy's money and gambler's nerve, and Reynolds' hardheaded persistence that brought in the first gusher in what is today Iran. The discovery would change the world.

Over the next century, as America and the Middle East became locked in an extraordinary embrace, the flow of cheap, abundant oil would bring wealth and war; it would fuel mighty economies, determine the destinies of nations, and shape the everyday lives of almost everyone on the planet."

Excellent article and a quick read. Do check it out.

Stretching even farther back into the oil industry's past is this latest article from Edward Chancellor in today's Financial Times print edition, called, "Whale of a future for oil industry".

In this piece, Chancellor notes that while the "peak oil" theory of oil production decline is likely to take effect at some point in the future, higher real prices for oil in a time of diminishing supply will provide incentives to develop new energy substitutes.

Excerpt from "Whale of a future...":

"Long-dated oil futures have recently climbed above the spot price. Contango (the jargon for this situation) in the oil market may be a sign that bears are covering their short positions after the dramatic price spike or that producers are unwinding their hedges.

However, commodity investors are also playing a part. Some are doubtless motivated by a belief that the world is running out of oil. Exponents of “peak oil” might benefit from examining the history of another source of energy that went into decline a century and a half ago. The rise and fall of the American whale oil industry provides certain pointers as to where the modern oil industry could be heading."

Chancellor is a very interesting and engaging writer, always worth a read. So have a look at both articles and get an added bit of perspective on where we've been and where we might be going, energy-wise.

For more on the "peak" crude oil/whale oil analogy, see The Oil Drum's recent post on this subject. Fascinating stuff.

Tune in for our next post, when we'll talk more about the possible future of energy. Until then, enjoy the articles!