Potential end of dollar-based oil deals

Potential end of dollar-based oil deals? Is this the ultimate bearish signal about the dollar? From contrarian stand point -- dollar seems like reaching to an ultimate point of maximum pessimism for the short term(1-2 years).

TOKYO (MarketWatch) -- Growing speculation over the potential end to dollar-based trading in the oil market may be part of the reason gold prices have rallied beyond $1,020 an ounce to stand near their highest level in 18 months.

And the strength was kept even as several top officials, including Saudi central bank chief Muhammad al-Jasser, denied the report.

Gulf Arab states, along with China, Russia, Japan and France, are planning to put an end to dollar-based trading in the oil market, according to an exclusive report published Tuesday in the U.K. by The Independent.

"News on gold's expected future role in oil transactions between these trading partners has sent the price past $1,020," said Peter Spina, chief investment analyst at GoldSeek.com.

http://www.marketwatch.com/story//potential-end-of-dollar-based-oil-deals-lifts-gold-2009-10-06

Global art market is recovering

Looks like all asset classes recovered strongly inclusive of the very economic sensitive art market. The confidence is strong enough that the operator is planning to expand their operations.

SINGAPORE: The auction house Christie's said on Friday the global art market is showing signs of recovery as prices stabilise and collectors return to the market.

One of the recovery signs was the record-breaking sale in February set by Yves Saint Laurent's art collection in Paris, which fetched nearly half a billion US dollars.

Christie's worldwide sales rose nearly 13 per cent in the first half of this year to US$1.8 billion, compared with the previous six months. However, sales in H1 2009 were down nearly 50 per cent on-year.

According to Christie's, Chinese investors are expected to drive growth because they tend to allocate more of their funds to alternative investments. The Southeast Asian contemporary segment is also expected to outperform previous estimates.

Andrew Foster, president of Christie's Asia, said: "The Southeast Asian market has been quite consistently strong in growing. It hasn't had that intense jump in prices that the Chinese contemporary market had over the last two years.

"(But) I actually think that it's going to recover more quickly, with the confidence of sellers to put objects on sale. I think it will recover more quickly than some of the other contemporary markets globally."

Moreover, the Asian art industry is expected to get a boost when Phase 1 of the Singapore Freeport opens for business in December.

The facility will be the world's largest free trade zone dedicated to the storage of high value art and collectibles. It will introduce a critical mass of new wealth management services to the region, such as art banking.

Phase 1 of the Singapore Freeport is already 86 per cent pre-booked. It is expected to store at least US$3 billion worth of assets when completed.

Singapore Freeport said apart from art, there is also a high demand for space to store gold as Asian countries relocate their assets closer to home.

Alain Vandenborre, president of Singapore Freeport, said: "What I didn't see coming was a huge demand for gold storage, which is now coming from different sources... Private banks for clients (and) also institutional banks in the market who want to have a facility in Asia where they can store sovereign state gold reserves confidentially. There's a facility like that in US obviously, there's one in London, no such facility in Singapore."

Based on the strong response, the company expects to start construction of Phase 2 in 18 months.
http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1007251/1/.html

Sotheby's auction house that listed in NYSE(BID) price recovered by almost 150% since the low also signaling tremendous improvement in risk appetite. You can see the boom-bust cycle quite clearly from the chart.

Sentiment poll

2010 Budget - a tough balancing act ?

Most investors will look forward to budget announcement to trade(punt for a few quick bucks). But, this is a non-event to me because I don't see any long-term fundamentals improvement(yet)- still keeping my fingers crossed. This will certainly affecting us all in the long-term.

Running a government budget, like running a family budget, it's quite simple. Two things: income and expense. If our expense exceeded our income for a long time, we are surely looking for troubles. Our government has been running for fiscal deficit for 12 years. While it's necessary to keep the current stimulus, the promise to unwind has to be kept!



When we run into deficit - the obvious solution is either working harder or working smarter to raise our income or cut our expenses like hell. We can register ourselves in a Harvard MBA(human capital) and land ourselves as CEOs of big companies, our incomes suddenly will swell by 3-5 times(productivity - high income nation). This will surely wipe out our deficit very fast despite of big tuition fees(investment or net development expenditure). After the reversal of bad fortune, we can suddenly buy a bungalow and a big car(better quality of life). However, if we spend a fortune but ended up as CEOs in small companies that pay lesser than our current job, we will be in trouble - big time.



Our Malaysia government situation was a bit worse than what I described - refuses to enrol in a Harvard MBA and keep giving money to siblings(a.k.a corruptions and cronies) generously. Income is deteriorating(see the downtrend of GDP growth since 2007). Luckily we have a rich grandfather(Petronas) that gives us RM 45 billion a year(oils income).

If our income continues to stay stagnant(low/declining GDP growth) and expenses keep growing at 15%/year and grand-pa funds is depleting at an alarming rates!; soon the only way left is to borrow. When our creditworthiness(sovereign credit rating) declining by days, like many others, we will be forced to dip into credit card that charge us 18% interest rate per annum.





We are still quite lucky as we still can borrow from our fama(father and mother-domestic debt). If left unchecks, fama bank will soon runs out money and we will have no choice but to turn to foreigners. The end game of that will be bankruptcies when nothing works. While I don't think traffic light is flashing red but certainly not a green - yellow may be. I pray hard that we don't run into this scenario during my lifetime(which Americans are facing now - high fiscal deficit, low growth, high external debts - IOUs and negative current account deficits).

Asian Rising?

This year marks 60th anniversary of The People's Republic. Western media made a big hue and cry about China's military parade, fearing the rise of China military might after gaining economic strength. The respected magazine the Economist ran articles for this big occasion, unfortunately sounding extremely negative.

FOR a country that prides itself on its “peaceful rise”, it was an odd way to celebrate a birthday. The People’s Republic of China marked its diamond jubilee on October 1st with a staggering display of military muscle-flexing (see article). Goose-stepping soldiers, tanks and intercontinental ballistic missiles filed through Tiananmen Square, past the eponymous Gate of Heavenly Peace, where, 60 years ago, as every Chinese schoolchild is taught (wrongly, it now seems), Mao Zedong declared that the Chinese people had “stood up”.

For many Chinese, daily life remains a grim struggle, and their government rapacious, arbitrary and corrupt (see article). But on the world stage, they have never stood taller than today. China’s growing military, political and economic clout has given the country an influence of which Mao could only have dreamed. Yet Chinese officials still habitually complain that the world has not accepted China’s emergence, and wants to thwart its ambitions and “contain” it. America and others are trapped, lament these ascendant peaceniks, in a “cold-war mentality”. Sometimes, they have a point. But a bigger problem is that China’s own world view has failed to keep pace with its growing weight. It is a big power with a medium-power mindset, and a small-power chip on its shoulder.

http://www.economist.com/opinion/displaystory.cfm?story_id=14548871

Fortunately, the Asians have learned to be more vocal defending their views and exercising independent thinking rather than kow-tow to big brothers that seem to be more clever and eloquent in their arguments. Look at these three comments to that article, surely you can feel the heat and passion.

I don't get it, Economist. Early on in the article, you whine at not knowing "What message was it meant to convey to an awestruck world?"

Finally, you begrudgingly recognize that "its main audience was not the outside world, but China’s own people."

It's so disingenuous to flip the tone of the entire article around at the last moment. China wasn't looking to push anyone around, nor does it care much about political influence it can wield outside its own borders. It is fully focused on improving itself, I dare say as any good capitalist country should be like, as well.

The Economist must love hypocrisy. How else can my country (America) proclaim to be freedom-loving and laissez-faire yet be heavily involved in changing the "hearts and minds" of the world?

The Economist also runs thin at trying to explain just what it doesn't like about China, apart from its political system. It does admit the stimulus worked, but complains it was "without debate." However, the Economist also supports universal-healthcare in America, but doesn't acknowledge our system of debate has all but destroyed this legislation.

Because we are raised in a society to think a certain way, it may be hard to think outside the box. "Benevolent dictatorship" may seem like an ancient and archaic political system, but keep in mind, if you are of the "Big Three" monotheistic religions, you already acknowledge that to be your preferred method of rule.

I wish for more checks and balances in the PRC and CCP, but they are coming. The world's impatience to deal with China's slow rise will not hasten political or economic reform, but simply create friction. Step back, relax, and let another country be free to deal with matters how it always has.

It looks like China didn't or does not know how to rule her country and only the west knows the best!

When China was weak, the hegemony west and Japan termed her "the sick man of East Asia", may I ask who cared about the poor and pitiful China during and before l949!? And China was almost carved into pieces and who cared and spoke for China!?

Did any western country or Japan ever tasted the bitterest bitter that their king's bed was sleeping and had fun with the local woman by an invader-general!? Where was the Chinese pride? Only humiliation and humiliation!!!

General MacArthur didn't sleep in Japanese Emperor's bed!!!

In Shanghai and other cities that the west and Japanese took up the lease territories and proclaimed with signboard of "No entry for Chinese and dogs"; The poor and pitiful Chinese were classified as DOG and who aided Chinese with a kind word!?

In l949, when Mao took over mainland, UK tested him with two destroyers sailing into Yantze River but escaped with Mao's consent not to engage the west when the nation was just to be established; The economic embargo etc....... to ratchet the China's rising can anyone with reasonable mind and professed human rights and democracy dare to say all were and are righteous!?

After inception, PRC never invaded any bordering nation except in defense of her integrity and what was wrong in defending her integrity!? Xinjiang and Tibet were long long ago historically and legally part and parcel of China; Those who critical China with invasion of these two territories, please refer proper history books and maps written by your westerners before opening your childish mouths!!!

The China had not owed the world anything but the western world and Japan due to her countless historical and moral obligation to understanding her and not just smearing with lopsided views and hostility!

If Japan were to compensate the war torn China, Japan cannot repay and would be forever poor for 100 years or more and which prompted US manipulated San Francisco Treaty indemnified Japan but both KMT and CCP govt of China didn't ink that paper!

The US was rich enough and generous for her political views but why sacrifice China who badly in need of monies to rebuilt her dilapidated vast land!?

What a piece of ignorant hypocritical crap!

If this country (China) did not show some deterrent force, some savages (such as England) would be trying to colonize them or knocking at their door pushing opium with their gunboats.

Go read some history before you write such stupid article.

What is upseting the markets?

Take a peep at the market during lunch time -- KLCI is relatively resilient and working hard to defend 1200. It's a 50-50 that 1200 can hold as traditionally this is a tough resistance and a strong support as well. Having said this, almost as good as saying nothing all, I will wait and see.

What is upsetting the US markets ?

Job reports ? Unemployment rate to rise, could hit 10 percent

China PMI came in weaker ? Came in 54.3 vs. expectation of 55?

The US ISM came in weaker unexpectedly ? Decreased to 52.6 in September from 52.9 in August.

And people ignoring positive news

IMF raises 2010 growth from 2.5% to 3.1%.

Pending Sales of Existing Homes in U.S. Rose 6.4% in August

US consumer spending surges in August

One simple explanation : markets are looking for excuses to take money off the table. The good news and bad news were about even for the last few days yet the market indices turned red, obvious path of least resistance is correction. Market will continue North bound after the corrections.

Gold Tells You U.S. Bubble Hasn’t Popped Yet: Alice Schroeder

Interesting view - gold is a currency. Owning some gold is not a bad thing. In Malaysia context, owning gold when Ringgit suddenly become very strong but lagging behind fundamentals, is a good insurance.

Oct. 1 (Bloomberg) -- If you owned stocks and gold and had to sell one, which would it be?

The Standard & Poor’s 500 Index has gained almost 60 percent since its low on March 9. Gold is near a record price. I know a fair number of people who would keep the gold.

I’ve never been a gold bug myself. They get no respect. They are associated with survivalists, conspiracy theorists and nutcases. They are always looking for the hyperinflation that never comes. Gold bugs pay a premium over the metal price for gold and silver coins on the notion that they will need the currency, come the Apocalypse.

On the other hand, the relationship between gold and financial crises goes back centuries. In the aftermath of the credit-bubble bust, we confront a Moby Dick-size pile of leverage and the question of whether this is inflationary or deflationary. So it’s worth considering what the price of gold may be telling us.

Leverage is a broad term that covers the complete history of finance, which all boils down essentially to the same structure: debt secured by assets. You give me a cow, I give you a piece of paper. Later innovations are simply variations of obligations secured by assets.

So a simple explanation of bubbles is that they form whenever someone creates a rationale to increase obligations too far beyond the level justified by the assets, regardless of the form of the asset or obligation.

Dutch Tulips

Consider tulip mania, which like all bubbles featured leverage; it was fueled not just by ordinary debt, but by leveraged tulip options. When the end came, the government of Holland declined to bail out those who had mortgaged their houses and businesses to buy tulip bulbs, and the multiyear depression that followed ruined an otherwise sound economy.

Our recent real-estate bubble wasn’t like tulip mania, in which the inflated asset had only a tenuous connection to the economy it came to dominate. The real-estate bubble swelled on the genuine beliefs among consumers about their future prospects and earnings. To be sure, some of those prospects and earnings were exaggerated to the point of fraud.

Thus the bubble burst when credit-card junkies had spent the last dollars they could justify, and the final peanut brain had been unearthed who could be persuaded to sign up for a negative-amortizing mortgage.

Because this link, however slim, remained between people’s prospects and earnings and the debt they could carry, real- estate prices even in hard-hit cities such as Las Vegas declined only by half. Stock-market losses were similar. These numbers are reported as if they were staggering, but they are less so compared with many bubbles.

Free Lunches

Some now blame consumers’ disinclination to spend and get the economy going again on banks’ newfound reluctance to lend. To the contrary, we are in the midst of a deflationary trend that is temporarily being masked by inventory restocking and free lunches like “cash for clunkers.” Consumers are done with borrowing. They will keep fueling the deflation by going through their attics and garages to find stuff they can sell on EBay to raise cash.

That’s because consumers have figured out that it was all a big head-fake from the Federal Reserve. Real incomes haven’t grown in years. Manufacturing and, increasingly, service jobs are still moving overseas. The Treasury is trying to pump the economy back to a high-water mark that was phony to begin with, and doing so in the face of a savings rate that is going up.

Trade Gap

The Treasury will succeed in printing enough money to forestall severe deflation. Even so, dollars will keep flowing out of the U.S. to other countries as the trade gap widens. Only when we start creating more jobs and higher earnings can this dynamic reverse. The question is, when will that be?

Enter the gold bugs. They aren’t just betting on inflation, as is the conventional wisdom. Gold has a wicked history of being an unreliable inflation hedge. It has, though, at times been a haven against sudden currency depreciation.

In all the talk of inflation because the Treasury is printing so much money versus deflation because it may not print enough, there is one type of inflation that is rarely discussed. This is the mega-inflation caused by a sudden currency devaluation. Currency is like any financial innovation, an obligation secured by assets. When the obligation is perceived to have increased far beyond the level justifiable by the assets, which in this case make up a country’s economy, a bubble has formed.

As in any bubble, those who recognize this need to act well in advance. Historically, governments have taken action to prevent currency flight when the owners of a severely overvalued medium of exchange start selling so much that it adds to the pressure on its price. They make private purchases of gold illegal, or tax the exchange of currency.

Right now, the American economy is worth less than the value implied by the market value of its obligations. How much less, no one knows. But gold bugs will tell you, privately, that this is why they are buyers. Might as well stock up, they say, before gold becomes a controlled substance.

I haven’t, so far, but the temptation is rising by the day.

(Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life” and a senior adviser to Morgan Stanley, is a Bloomberg News columnist. The opinions expressed are her own.)