If you are an energy trader, tomorrow will be a big day for you. While it’s also a big day for the rest of the country, which will be celebrating Thanksgiving Day, for many in the oil patch looking for direction on oil prices, it’s also the day the Organization of the Petroleum Exporting Countries (OPEC), aka the “oil cartel,” will decide whether to cut production.
A major cut of at least one million barrels per day could send oil prices for West Texas Intermediate (WTI) and Brent crude gushing higher—or, at the very least, preventing them from falling further towards the threatening $70.00 level. On the other hand, a non-move by OPEC could see oil prices plummet toward $70.00.
Some pundits are even suggesting oil prices could fall to $60.00 per barrel if the status quo is allowed to continue, given the current supply/demand imbalance. The reality is that the massive outputs of oil from the shale formations in North Dakota and Montana have not been met with stronger domestic demand from users. This has led to excess supply and subsequent downward pressure on oil prices.
We also have the massive production ready to flow from the Tar Sands in Alberta, Canada to refineries in Texas and Louisiana. The Keystone pipeline has yet to be approved, however, despite the Republicans recently assuming control of both the House and Senate.
The reality is that the low oil prices may be a boost to companies and consumers, but it’s a financial drain on the oil producers at current prices.
The Situation Among Oil Producers
The feeling is that many OPEC and … Read More
It seems major economic hubs in the global economy are facing hardships, and they are moving towards an economic slowdown. But during discussions about where the next trading opportunity will be, some countries never get mentioned. For example, there is significant talk about an economic slowdown in the Chinese economy and the Japanese economy and how investors can profit. However, the Australian economy goes unnoticed even though it’s facing an economic slowdown as well, and it looks like conditions in the country are getting worse.
Unemployment in the Australian economy is increasing. The Australian Bureau of Statistics reported that in December, the country’s unemployment rate increased to 5.8%—0.1% higher from the previous month. The number of those employed full-time declined by 31,600. Part-time workers increased in the month, and the unemployed increased by 8,000 in December, reaching 722,000. (Source: “Australia’s unemployment rate increased slightly to 5.8 per cent in December 2013,” Australian Bureau of Statistics web site, January 16, 2014.)
The demand for work in the Australian economy is also very slow—a classic situation during an economic slowdown. Job advertisements in the country declined 0.7% in December after declining 0.8% in November. For the year, job advertisements in Australia have declined by nine percent. (Source: Kwek, G., “Job ads: signs of stabilisation,” Sydney Morning Herald, January 13, 2014.)
Another indicator of an economic slowdown, manufacturing activity is not so great in the Australian economy either. The Australian Industry Group Australian Performance of Manufacturing Index (PMI)—an indicator of manufacturing in the Australian economy—contracted for the second consecutive month. The index sat at 47.6 in December. (Source: “Manufacturing Remains in Contraction,” Markit … Read More
The central bank of Japan has taken center stage when it comes to using extraordinary measures to revive growth in an economy. In an effort to boost the Japanese economy, the central bank has resorted to quantitative easing. And unlike the U.S. Federal Reserve, Japan is also involved in buying exchange-traded funds (ETFs) and real estate investment trusts (REITs), not just government bonds and mortgage securities.
Unfortunately, the central bank is outright failing. One of the main goals of the Bank of Japan is to inject inflation into the Japanese economy through money printing, aiming for an inflation rate of two percent. Sadly, this isn’t happening; inflation in the Japanese economy is running far below the targeted level, and there may not even be light at the end of the tunnel.
“A 1 percent inflation rate may be possible, but that’s different to the Bank of Japan target,” said Takahiro Mitani, manager of the Government Pension Investment Fund of Japan (GPIF), the world’s largest pension fund. “We haven’t seen real demand to pull prices up yet. Whether inflation will be stable is questionable.” (Source: Winkler, M., “World’s Biggest Pension Fund Sees Japan Fail on 2% Inflation,” Bloomberg web site, December 4, 2013.)
Consumption is one of the factors that can help bring inflation into an economy. Sadly, the Japanese economy is seeing hardships here as well, as consumer confidence, one of the best indicators of where consumer spending will go, is declining. Between September and November, consumer confidence in the Japanese economy declined more than eight percent. The index tracking consumer confidence stood at 45.7 in September and 41.9 in … Read More
Major economic hubs in the global economy are in outright trouble, and each passing day there’s more economic data suggesting the slowdown is holding its own. Investors need to be wary about what’s happening, because it can affect their portfolio significantly.
The eurozone crisis, which sent ripple effects into the global economy, is rising again. In the early days of the eurozone crisis, we heard how the economies of such nations like Greece, Spain, and Portugal were suffering. Now, the bigger nations in the euro region are showing signs of stress. Consider France, the second-biggest economy in the eurozone, for example. This major economic hub in the global economy witnessed contraction in the third quarter. On top of this, France’s unemployment rate continues to increase.
Germany, the biggest economy in the eurozone and the fourth-biggest economic hub in the global economy, slowed in the third quarter. The gross domestic product (GDP) of the country increased just 0.3% in the third quarter. In the second quarter, Germany’s GDP increased by 0.7%. (Source: “Gross domestic product up 0.3% in 3rd quarter of 2013,” Destatis, November 14, 2013.)
Similarly, Japan, the third-biggest nation in the global economy, continues to struggle, despite the extraordinary measures the central bank and Japanese government have taken to boost the economy. In the third quarter, the growth rate of the Japanese economy slowed down. The GDP grew 0.5% from the previous quarter. The annual GDP growth rate of the Japanese economy was 1.9% in the third quarter. (Source: “Gross Domestic Product: Third Quarter 2013,” Cabinet Office, Government of Japan web site, November 14, 2013.)
Adding more to the … Read More
Maybe I’m reading into the economy too much, but the current state of the U.S. economy and Wall Street isn’t adding up. The vast majority of people don’t think we’re in a bubble, including Federal Reserve chair nominee Janet Yellen. Granted, you can only really point to a bubble in retrospect, but still, it certainly looks and feels like we are in one.
Talking before the Senate Banking Committee during her first public appearance as Federal Reserve chair nominee, Janet Yellen said she plans to keep printing $85.0 billion a month and set no timetable for when the Fed will begin to taper.
Truth be told, the Federal Reserve has been, for the most part, pretty straightforward about when it will taper its quantitative easing policy: when the U.S. economy improves. For most, that means an unemployment rate of 6.5% and inflation at 2.5%.
At the same time, other scenarios have been floated about, including no tapering until the unemployment rate hits 5.5%, or better yet, the Federal Reserve begins to taper in early 2014, but continues to keep interest rates artificially low until, by some estimates, 2020. Really, what’s the rush?
And why should they? Since early 2009, the S&P 500 has climbed more than 160% and is up more than 25% year-to-date. The Dow Jones Industrial Average, on the other hand, is up 132% since early 2009 and is up 21.5% year-to-date. And it looks like the good times are going to continue to roll, because, in the words of Janet Yellen, “It could be costly to fail to provide accommodation [to the market].”
Take a few steps … Read More
The Japanese economy has been in trouble for some time. The central bank of the country and the government of Japan have tried many different tactics to revive the economy. They have been struggling, with the interest rates in the Japanese economy being kept low to induce growth. Japan’s central bank has tried many different rounds of quantitative easing and failed, deflation became a problem, and growth isn’t there.
Not too long ago, a very aggressive quantitative easing policy was introduced into the Japanese economy. The goal was very simple: to increase both exports and inflation in the country. Exports would give a boost to the Japanese economy, and inflation would take the country from the deflationary rut it has been in for many years.
Now one must ask: what did Japan’s central bank and government anticipate actually happening in the Japanese economy? Is there inflation, and are they exporting to the global economy?
Well, it turns out they are failing at both.
Their goal of exporting more to the global economy isn’t panning out as they expected. According to the Japanese Ministry of Finance’s customs data, the trade deficit (more imports than exports) of the Japanese economy in September was 33% higher than the previous month, standing at 1.09 trillion yen, compared to 820 billion yen in August. (Source: “Seasonally adjusted Values for September 2013 [Provisional],” Ministry of Finance Japan web site, last accessed October 21, 2013.)
So what’s happening on the inflation front?
Not too long ago, the central bank of Japan stated that it wants inflation to be around two percent in the Japanese economy. In August, … Read More
The global economy seems to be in trouble. Some of the major economic hubs are showing deep concerns about their growth, while others are in outright economic misery and are registering poor economic performances.
China, the second-biggest hub in the global economy, is expected to grow at a much lower rate than its historical average. The International Monetary Fund (IMF) predicts the Chinese economy to grow 7.75% this year, lowering its prior forecast of eight percent. (Source: “IMF cuts China growth forecast to 7.75% in ’13,” China Daily, June 3, 2013.)
In 2012, the Chinese economy grew at the pace of 7.8%. Sadly, while this growth rate does look impressive for developed nations like the U.S., it was the slowest China had experienced in 13 years.
Japan, the third-biggest nation in the global economy, is experiencing a recession. The Bank of Japan has taken a severe approach to bringing the Japanese economy up to par, but it continues to fail. Exports from the Japanese economy remain stagnant, despite its currency falling more than 12% since the beginning of the year.
Bringing attention to the eurozone, it remains under severe stress. This time around, as the common currency region is in a recession once again, it’s not only the debt-infested nations that are suffering; the strongest and most major economies are also struggling for future growth.
Germany, the fourth-biggest economy in the world and the biggest in the eurozone, only grew 0.1% in the first quarter of 2013. In the last quarter of 2012, the German economy witnessed an economic contraction of 0.7%. (Source: “Germany reports sluggish first-quarter growth of 0.1%,” … Read More