The 5 Energy Shocks of 2010

The 5 Energy Shocks of 2010

(Part 1 of 3)

(Part 2 of 3)

(Part 3 of 3)

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How to Double Your Money in the Next Great Texas Oil Field

 How to Double Your Money in the Next Great Texas Oil Field  

By Matt Badiali.

"When this is all over, I think I'll buy myself an airplane…"

Last month, I spent several days driving along the coastal plains of south Texas… much of it with one of the most successful independent oilmen in the country.

Like most Texans, my guide on the trip was a natural risk-taker… and an eternal optimist. And while a lifetime of hard work and drilling success has brought him considerable wealth, it's this region of south Texas that has him contemplating "personal airplane" levels of wealth.

I spent about two weeks in the area… inspecting drill sites, looking at wells, and reviewing data from drill logs. My other tour guides were a bunch of genuine Texas wildcatters. Collectively, these guys probably have 100 years of experience scouring the Texas plains for oil and pumping out what they find. They've gone through plenty of booms and busts. It takes a lot to turn their heads.

And in this region – the Eagle Ford shale field – they all think they've found the greatest payday they'll ever hit.

As you've probably read in these pages, the Eagle Ford is a huge shale formation that begins near the Mexican border and sweeps 400 miles northeast almost to Houston. It's best known as Texas' "oil kitchen." Buried more than 12,000 feet underground, oil from the Eagle Ford leached out over the centuries into the more porous limestone above it, creating some of the most prolific oil reservoirs in the Gulf of Mexico basin.

Drilling shale formations like the Eagle Ford for the natural gas trapped inside has been the most important trend in the U.S. energy sector over the last decade. Developing the tools to extract shale gas is singularly responsible for an explosion of U.S. natural gas reserves. Now, oil and gas explorers are applying those tools to the biggest shale formation in Texas.

This play is new enough that it's difficult to offer a reliable estimate on how much oil and gas it holds. But consider independent explorer Petrohawk, which kicked off the discovery. It had no production here in 2008. Today, it's producing more than 63 million cubic feet of natural gas and 1,000 barrels of liquids (like butane and gasoline) per day.

Also… two of the early drillers in the region, Pioneer National Resources and EOG Resources, believe their assets hold 1.2 billion and 1 billion barrels, respectively. If Pioneer and EOG are correct in their assessments, this field could produce 5 billion to 10 billion barrels through its lifetime. That would make Eagle Ford the third-largest oil field in the U.S. today.

At one point during my visit, an oncoming semi was so big it forced us up on the side of the dirt road. We had to drive into the sunflowers to avoid a collision. The truck was moving a huge new drill rig, one of the many flooding into southeast Texas.

In March, 43 rigs drilled wells in Eagle Ford. That's up to 61 drilling there today. Nearly the entire fleet (91%) is in use. There just isn't any spare capacity. More rigs need to come into the region, and they will. In the Haynesville shale up in Louisiana, one in four rigs sits idle. In the Barnett, just up the highway in Fort Worth, one in five rigs is out of work. I expect some of those rigs to make the trip to south Texas over the next few months.

The land rush is on. Men and equipment are flooding into the area. Big operators have hundreds of thousands of leased acres. India-based Reliance Energy just spent $1.3 billion (roughly $10,000 per acre) to partner with Pioneer National. Giant oil companies like Shell and ConocoPhillips are working side by side with big independents like Petrohawk and EOG. Nearly all own hundreds of thousands of acres here.

My favorite way to invest in this idea is through companies with lots of unexplored, undeveloped acreages under ownership or lease. Petrohawk, EOG, and Pioneer all own or lease substantial portions of the Eagle Ford. I also recently told my S&A Resource Report subscribers about two companies that throw off huge dividends, yet could skyrocket in price because of their Eagle Ford land positions.

I told my readers to get in soon. One of the oilmen I rode with said the Eagle Ford will easily be the biggest discovery of his more than 30-year career… and maybe the largest in the history of the U.S. oil industry.

Good investing,

Matt Badiali

The 15 Things You Must Know to Survive the Fall of America

 The 15 Things You Must Know
to Survive the Fall of America
“Must Do” #10: Getting Off the Grid

More ways to be self-sufficient and thus self-reliant.

While on assignment in Hawaii back in the 1980s, I had the pleasure of Sea Trekking between the islands. At about the halfway point on our journey we pulled into a small bay on the North shore of Molokai. After a 20 minute hike up the mountainside surrounding the bay we came upon a remote homestead.

Time has passed and while I forgot the name of the couple whose homestead this was, the memory of what they had accomplished remains front and center. They had created what I viewed as Nirvana, an entirely self-sufficient, self-dependent existence on a piece of paradise.

Here’s how they did it. First, they started with a dream. That dream led them to years of pouring over county maps, looking for the perfect piece of property. After many false starts they struck gold. The owner of this idyllic spot on the island of Molokai listened to their vision and ended up deeding them the property for $1. That turned out to be the easy part.

Next, they endeavored to provide shelter for themselves. To say the location they had chosen was remote doesn’t convey how isolated they were. There are only two ways to access their plot of land. By sea, which is only possible for six months during the year due to the high wave action in the fall and winter months. By land, which required a two day hike from the nearest road.

Over the next four years they endeavored to build their dream home. Hauling lumber, cement, plumbing, wiring by boat and over land. From the mountain tops, two miles distant, they ran water pipes from a natural spring. Part of their genius was using this water source to provide additional water (they had set up a water catchment system to collect rain water for bathing and drinking) for irrigation of their garden and to run a series of propellers to generate electricity. Of course, being in Hawaii, they used solar power to heat their water and provide backup power for their battery system. They also had a generator in case all else failed.

The bay which they overlooked was an abundant source of food. The hillsides surrounding their home were populated by deer and wild pigs. Combined with their garden of vegetables, food was in year round supply. They had also made arrangements with a few regularly passing ships who plied the seas around their homestead to bring in occasional supplies like reading materials, toilet paper, gasoline (for the generator) and clothing. This was the status of their place when I visited. By now, I imagine they’ve installed wind generators and figured some way to connect to the internet. They are nothing if not resourceful.

To me, this husband and wife team define getting off the grid. Back in the mid 80s, when I visited them, the concept was not widely thought of, and certainly not the topic of conversation it is these days. But what they illustrate more than what the end result of getting off the grid can be, is the careful planning, hard work and commitment required to truly get off the grid and be self sufficient.

It’s not for everyone, you have to be ready to say “If I never see another person in my life, I’ll be ok.” A lot of us can’t do that. Or at least not without losing our sanity. Quite frankly, most of us couldn’t do the back-breaking work required to achieve this dream.

But for those of you to whom such an existence resonates, you can save a lot of time, energy and false starts by picking up a copy of the hit underground documentary, “The Fall of America and the Western World.” This film talks at length about many topics including our current financial state, how we got here and why it’s likely to stay this way. It also offers extensive actionable tips about how to protect yourself from the coming Greater Depression. But for our purposes in today’s newsletter, the film also offers great advice and concrete ideas on how to get off the grid. How to provide your own power. How to create your own garden. How to provide your own heating and air conditioning, naturally. And while a homestead overlooking a bay on the island of Molokai may not be possible for you, getting off the grid can be done practically anywhere. So start dreaming, and then get to work .

Regards,
Jimmie Rivers 

Silver Stock Report : Why Fear?

Why Fear?

(Fear Not!)

When I was 10, it was 1980.  I noticed that adults were scared of higher gold prices.  I asked, "Why should anyone be scared of higher gold prices, if you are scared, then why not buy gold?"  No adult could rationally answer that question, not then, and not ever since then.  Thus, my fascination with gold began at a rather young age.

It seems that my job today is partly to calm people's fears; or to encourage them.  Or share information, or warn, while encouraging.  But people today fear more than just high gold prices, the list is nearly endless:  Gun confiscation, Government Health Care, Increased Taxes, Arbitrary Laws too numerous to count or comply with, etc.

The Bible has a few words about fear.  We Christians are to be totally fearless!

[2 Tim 1:7] For God hath not given us the spirit of fear; but of power, and of love, and of a sound mind.

[1John 4:16] And we have known and believed the love that God hath to us. God is love; and he that dwelleth in love dwelleth in God, and God in him. [17] Herein is our love made perfect, that we may have boldness in the day of judgment: because as he is, so are we in this world. [18] There is no fear in love; but perfect love casteth out fear: because fear hath torment. He that feareth is not made perfect in love. [19] We love him, because he first loved us.

Fear appears to be as bad as murder and lies, according to the Bible!

[Rev 21:8] But the fearful, and unbelieving, and the abominable, and murderers, and whoremongers, and sorcerers, and idolaters, and all liars, shall have their part in the lake which burneth with fire and brimstone: which is the second death.

As I see it, we are not to fear anything, since we Christians are given the promise of eternal life through Jesus Christ!  Thus:

[Heb 13:6] So that we may boldly say, The Lord is my helper, and I will not fear what man shall do unto me.

But rather, we are to be prudent, cautious, wise, and able to detect the signs of the times so as to prepare.

Fear is a sign of the last times -- a sign of the soon return of the Lord Jesus Christ!

Luke 21:25-28 (New King James Version)
25 "And there will be signs in the sun, in the moon, and in the stars; and on the earth distress of nations, with perplexity, the sea and the waves roaring; 26 men's hearts failing them from fear and the expectation of those things which are coming on the earth, for the powers of the heavens will be shaken. [Luke 21:27] And then shall they see the Son of man coming in a cloud with power and great glory. [Luke 21:28] And when these things begin to come to pass, then look up, and lift up your heads; for your redemption draweth nigh.

"--men's hearts failing them from fear--"

I used to think that this phrase from scripture would describe many random people dropping dead at random.  But the verse does not say that, it says men's hearts will fail, due to fear.  It seems it's more specific, and the reality is more subtle.

The number one killer in the number one most populous, prosperous and most Christian nation on earth, the USA, is:

Heart disease, at about 350,000 per year.

Source:
http://en.wikipedia.org/wiki/List_of_causes_of_death_by_rate#United_States

Risk factors:
1.  Being a man!
2.  Stress!  Stress is fear, anxiety, a constant arousal caused by the desire to either fight or take flight, which is to run in fear!

Source:
http://www.americanheart.org/presenter.jhtml?identifier=4726

Analysis:  The bible is correct, and the reality of heart disease is only a partial fufillment.

Prediction:  "--men's hearts failing them from fear--" will get worse, and the Bible will be proved to be more dramatically true, as time goes on.

=====

Here is another interesting prophecy, this one seems harder to believe.

Rev 16:8 The fourth angel poured out his bowl on the sun, and the sun was given power to scorch people with fire.

Rev 16:9 They were seared by the intense heat and they cursed the name of God, who had control over these plagues, but they refused to repent and glorify him.

"The sun" was given power to scorch people with fire?"  I've always thought this prophecy was a bit hard to believe, since if this were literally true, the sun would burn up everything on earth if sunlight itself were powerful enough to burn up human flesh.  So, what's the definition of the Greek word used for sun in this case?

http://www.blueletterbible.org/lang/lexicon/lexicon.cfm?Strongs=G2246&t=KJV

Helios:
1. the sun
2. the rays of the sun
3. the light of day

Ah, so according to definition number two, "the rays of the sun", which is light, it could also mean "light", or perhaps any kind of light, regardless of source.  But, then again, if the writer intended to say "light", there was a word for that, too, so what else could have been intended.  Why "Helios" instead of "phos" or "phoster" for the word "light"?

http://www.blueletterbible.org/lang/lexicon/lexicon.cfm?Strongs=G5457&t=KJV
http://www.blueletterbible.org/lang/lexicon/lexicon.cfm?Strongs=G5458&t=KJV

Another interesting item is that the name "Helios" is the name of a Greek God, also identified as Apollyon, also known as "the destroyer", a name also mentioned earlier, in Revelation 9:11.

http://en.wikipedia.org/wiki/Helios#Helios_and_Apollo

Here is fascinating news item. (One more thing to fear, or not, as we should not!):

There is now a consumer laser that is powerful enough to burn (and destroy) human skin, and cause instant and permanent blindness (destroying sight), available for $299.

The Spyder III Pro Arctic Laser.

http://www.wickedlasers.com/lasers/Spyder_III_Pro_Arctic_Series-96-37.html

Analysis:  The bible is correct, and the reality of portable lasers that can burn skin is only a partial fufillment.

Prediction:  "--the sun (light or destroyer) was given power to scorch people with fire--" will get worse, and the Bible will be proved to be more dramatically true, as time goes on.

This laser weapon has the power to "shake the powers".  The history of the world has shown that with more power to the people, came more political power, and greater respect and restraint on the part of those who would claim to govern.  This laser weapon has the power to increase the power of the people, and to decrease the power of despots and tyranny.

I've already seen stories of people using laser pointers at police during riots. 

Belfast battles become 'Disney theme park' as rioters use high-powered laser lights to blind police -- 14th July 2010

http://www.dailymail.co.uk/news/article-1294675/Belfast-riots-Protesters-use-high-powered-laser-lights-blind-police.html

7 days later, Police get Green lasers too:

Blinding laser beam newest police tool

http://www.king5.com/news/BLINDING-LASER-BEAM-NEWEST-POLICE-TOOL-98973794.html

The new Spyder III Pro Arctic laser is 4000% brighter than a violet model, and the violent model, I presume, is brighter than the green ones.

Imagine if an entire squad of policemen could be permanently blinded in seconds with a laser sweep from just one, two, or three laser wielding protesters?

Is that the new reality?  What does that do to the world's power structure?  Shaken yet?  Or soon to be shaken?

The point of this prophesy is to glorify God.  Does it glorify God to take away power from despots, and put more power into the hands of the people?

2 Corinthians 3:17 (King James Version)
17 Now the Lord is that Spirit: and where the Spirit of the Lord is, there is liberty.

=====

If the bible makes accurate predictions, then it can be believed with regard to its other statements and promises, too, such as:

Rom 5:8 But God commendeth his love toward us, in that, while we were yet sinners, Christ died for us.

1John 1:8 If we say that we have no sin, we deceive ourselves, and the truth is not in us.
1John 1:9 If we confess our sins, he is faithful and just to forgive us our sins, and to cleanse us from all unrighteousness.

Rom 10:9 That if thou shalt confess with thy mouth the Lord Jesus, and shalt believe in thine heart that God hath raised him from the dead, thou shalt be saved.
Rom 10:10 For with the heart man believeth unto righteousness; and with the mouth confession is made unto salvation.

Mat 10:32 Whosoever therefore shall confess me before men, him will I confess also before my Father which is in heaven.

=====

I just discovered a narrative of prophetic dreams of high food prices, that are much more scary and "fear mongering" than perhaps anything I've ever sent out to my list.  As a fellow watchman, I feel compelled to share, because the truth of this resonates with my spirit.  Whether the date for dollar devaluation (August 2010) is correct or not, I have no confirmation of, but mark my words, paper money's death, and the rejection of honest money, can bring famine to America. My view is that it need not be that way, if people repent, and obtain silver before it is too late.  What I do see happening is that people in the USA buy most of the silver for investment worldwide, so there is hope that currency destruction need not end in horrific famine.  This is only a prophetic warning.  If it is heeded, famine might not be as bad.  Likewise, Jonah warned Nineveh, but Nineveh repented, and was not destroyed. 

America's Coming Super Depression.

http://believersjourney.blogspot.com/search/label/new%20currency
http://www.watchmanscry.com/article_lamentations.html
http://believersjourney.blogspot.com/2009/11/americas-coming-super-depression.html

=====

Here's another great article on silver:

Where Is the Silver?
July 20, 2010
http://seekingalpha.com/article/215450-where-is-the-silver?source=yahoo

The article documents less than 1 billion oz. of silver left.  Much is in the form of ETFs (Exchange Traded Funds), which might not have the silver at all, because the custodians are LBMA members who operate with fractional reserve silver lending.

=====

Finally, one of the best researchers and analysts in the Gold market writes:

Adrian Douglas: The LBMA joins the gold squeeze cover-up
Sunday, July 25, 2010
http://www.gata.org/node/8858

Adrian has recently been exposing that the LBMA banks are running a fractional reserve lending operation with gold, at a ratio of about 45 to 1.  The news now is that the LMBA has responded by ending the publication of the statistics that make this analysis possible.  Thus, the "cover-up".

There is no "lender of last resort" like the Federal Reserve to back up this fractional reserve lending fraud, except sales of central bank gold, which is halting, and turning into net buying.  Thus, this fraud will soon end.

===== 

I strongly advise you to get real gold and silver, at anywhere  near today's prices,  while you still can.  The fundamentals indicate rising prices for decades to come.

Price Board:
http://jhmint.com/cgi-bin/ssrbidask  

Our Coin Shops are open 10AM to 5PM Pacific, Monday to Friday
100 oz. silver minimum, USA shipping, wire transfer only!  
Janelle (530) 913 0553 begin_of_the_skype_highlighting              (530) 913 0553      end_of_the_skype_highlighting  silver_support1@hotmail.com

JH MINT & Coin Shop, Grass Valley, CA  -- our largest store
(530) 273-8175 begin_of_the_skype_highlighting              (530) 273-8175      end_of_the_skype_highlighting
http://www.jhmint.com/  

Rocklin Coin Shop, CA, 15 min north of Sacramento -- our first store
http://rocklincoinshop.com/  

NEW STORES!   
Mom's Silver Shop
https://www.momssilvershop.com  
3510 Auburn Blvd., #12
Sacramento, CA 95821
916 481-5656 begin_of_the_skype_highlighting              916 481-5656      end_of_the_skype_highlighting
(Mom will ship in lots of more or less than 100 ounces of silver, and overseas, and take credit cards or pay pal.)   

Oakland Silver and Gold
http://www.oaklandsilverandgold.com/   
3929 Piedmont Ave.,
Oakland, California 94611 
osg2010@gmail.com  

Sincerely,

Jason Hommel

Asia Market Update: Can China engineer a soft landing? Video

Andrew Robinson, FX Analyst, Saxo Capital Markets

Asia Market Update with Andrew Robinson, Analyst at Saxo Capital Markets Singapore.

China has learned to address specific issues, meaning it should be able to reduce the risk of a hard landing. For example, recent measures address the risk of a property bubble.

Asia has responded positively to the results of the EU stress tests, like the rest of the world.

Opportunities in the ‘pro-risk’ environment - looking at AUDJPY and AUDUSD.

And Indonesia is emerging from the shadows...

Weekly Commodity Update: Stress tests, earnings drive commodities

Ole S Hansen, Senior Manager, Saxo Bank

Market activity this past week has primarily been driven by the U.S. earnings season and the wait for the outcome of the European bank stress tests.

Corporate USA generally delivered Q2 results at or above market expectations which in turn kept stock markets supported. On the flip side FED Chairman Bernanke said that the economic outlook remains unusually uncertain, but was ready to act. With midterm election coming up continued soft US numbers could trigger some additional policy action. 

Meanwhile in Europe the long awaited release of the European bank stress test kept the market guessing about the outcome. Skepticism about the usefulness of the report emerged as the important questions might not be asked: how banks will perform should a weak nation be forced to realign its debt and what would happen if the recession deepens. A credible number of failures among the 91 banks being tested needed to be the result, otherwise the whole exercise would suffer the risk of backfiring leading to renewed risk aversion.

Commodities had a generally quiet week with the Reuters Jefferies CRB gaining one percent primarily on the back of a strong rally in copper, crude and sugar. Sell offs in Cocoa, coffee and corn limited the upside gains. The index has now rallied eight percent to 267 from the May low but will be finding resistance towards 270.

The International Energy Agency, who is an energy adviser to most of the world’s biggest economies, said that China had overtaken the US as the world’s largest consumer of energy. In their calculation all forms of energy such as crude oil, nuclear, coal, natural gas and renewable sources were used. Just ten years ago Chinas total consumption was just half the size of the US and it highlights the phenomenal speed of the economic progress of that nation but also how important a factor they are in determine the cost of various energy sources.

When it comes to crude oil demand the U.S. is still well ahead as they consume an average of 19 million barrels a day compared to China's 9.2 million barrels a day. China's power production relies heavily on coal which accounts for 80 percent of its production. Still China's oil demand rose to a fresh record high in June and is ten percent above the same period last year.

Crude Oil has gone into a summer lull trading inside a relative tight range and primarily taking direction from outside markets such as the dollar and stock markets with the above China story also having a bit of positive impact.
Meanwhile in the US crude oil inventories unexpectedly rose last week increasing the doubt about a recovery in consumption. Inventories at Cushing, the delivery hub into NYMEX rose to 37.1 million barrels, less than 1 million barrels short of the previous record at 37.9 back in May. Demand for VLCCs (Very Large Crude Carriers) has picked up again after recent surplus of tonnage has been putting charter prices under pressure. Operators of super tankers are still complaining about little or no profit being made at current subdued prices.

Crude oil has now spent the past couple of weeks trading sideways as the speculative long position remains pretty small at 35,000 which is small change from the 130,000 lots seen before the long liquidation during May. The dollars seven percent move lower during the past couple of weeks have not had any major positive impact on prices leaving some doubt about the ability of the market to move much above USD 81 near term. 

The second tropical storm of this season named Bonnie is now on route to the Gulf of Mexico after crossing the Florida Keys. This is delaying BP’s attempt to plug its wrecked Macando well by at least two weeks as ships working on the relief well will have to be moved for the duration. The storm is expected to reach the site on Saturday and any pick up in strength will be watched closely.

Support is just below 75 followed by 72.50 while resistance can be found at 80.9. This is the 50 percent retracement of the May 92.18 to 69.62 sell off on the WTI contract for September delivery.

Gold continues to trade close to 1,200 having seen some profit taking during the week which at one stage drove the price down to 1,175, the trend line support from the 2008 low. The speculative long position on Comex continues to be reduced in line with weaker price action and this week saw the first small reduction for several months in the amount of gold invested in ETFs.

Most investors look willing to sit this correction out holding on to their positions. Only a sustained move back below 200 day moving average at 1,146 could trigger a more aggressive round of long liquidation. Resistance can be found at 1,225 followed by 1,250.

Headlines from the Cocoa market brought back memories of the 1983 film “Trading Places” where two guys cornered the orange juice market and in process broke the Dukes. A London hedge fund called Armajaro specializing in Cocoa and coffee last Friday took delivery of an astonishing 240,000 tons of Cocoa from the London futures exchange. This has caused a ripple in the market considering it amounts to seven percent of annual global production and being the biggest delivery from the LIFFE exchange since 1996.

Mr. Anthony Ward nicknamed “Choc finger” because of his previous record as a major player in the London cocoa market had through the hedge fund been building up a huge position in the July futures contract and when the market realized that this position was not going to be closed or rolled into the next month a mad scramble to cover short hedging positions drove prices higher. The July cocoa contract settled at 2600, a 33 year high, after having rallied 25 percent since April.

The reason behind the move can be found in the fundamental outlook for cocoa with the market having been in a deficit for the past four years amid worries about a decline in production from the Ivory Coast which accounts for 40 percent of global production.

Whether Mr. Ward will be successful or has bitten off to large a chunk, which might be hard to swallow, remains to be seen. So far they are sitting on a GBP 80 million paper losses from the settlement price last Friday. This has come from an eight percent sell off since then and the fact that the new front month of September already traded at a discount to July. The near month continuation chart below shows that the price has broken down through the 200 day moving average at 2,272 leaving it potentially exposed to further losses.

Veksler's Forex Blog: Bernanke knows all. Or does he?

Ken Veksler, Senior Manager, Trading Advisory.

Well, our man Ben was out overnight spruiking his wares for all the world to hear… What did he have to say for himself? In simple terms that the economic environment in the US was “unusually uncertain”… In my view that translates to even he is not entirely sure of how the future looks. What is definitive, however, is rates will indeed stay low for quite some time and the yield play/differential becomes even more important. As we witnessed, the key beneficiary of this being the JPY and subsequently the USDJPY, but more on that a little later.

Otherwise we had equities doing little of any significant note other than sitting in what has now become a fairly well defined range. On the S&P 1085/90 marks the top end while 1055/45 marks intermediate support. Earnings reports after market failed to ignite any real enthusiasm and outside of some initial jawboning from the Japanese there really was little else of note happening out there.

The day ahead is data heavy and kicks off with Euro zone PMI followed with UK retail sales and in the US this afternoon home sales and weekly jobs data. Of course there will be the usual risk on/off tussle for dominance in the market around these numbers but I choose to bury my head in the sand and instead maintain my overall macro objectivity with regard this market.

And so with that in mind and the fact that this is my last day in the office until the 4th of August, I choose instead to leave you with what I feel may unfold in the coming 10 days or so as regard the major crosses and themes.

Tomorrow is going to be the marquee event that the market has supposedly been waiting so long to see, the Eurozone bank stress test results published at 1600 GMT. Not to offend anyone in Brussels or the ECB, but quite frankly I simply don’t care and as far as I’m concerned neither should you. This is going to be nothing short of pretty and fictitious accounting and window dressing to appease policymakers rather than people like you and I that live in the real world. Looking at the stress parameters on their own is enough to understand that we’re dealing with a parallel universe. The harsh reality is that the vast majority of these banks will not survive should the fate of credit markets follow the same path they have been until now. There is not enough liquidity in these markets and there is equally an insufficient amount of capital reserve in many of these banks to withstand the systemic pressures that we will continue to face in the near-term.

But I digress… the major crosses...

The theme for the summer as I highlighted about a month ago is to be long of JPY, both against the big dollar and the other crosses, and thus far it has proven to be rather profitable and for the most part devoid of significant volatility. As mentioned above just take a look at the spreads in the 10yr yields in the US and Japan and from their folks you’ll get a clear understanding of why we have seen these moves. So with that in mind 85.80 becomes crucially important on the USDJPY and outside of any jawboning by the Japanese with regard the overt strength of the JPY we should see this level tested and in all likelihood taken out opening up a raft of stop loss orders which are rumored to be sitting all the way into 84.00. If you’re short stay that way in the USDJPY, and if you’re not quite there yet, then look for 87.50 and 88.30 as levels to sell into.

On the commodity front, and thereby the AUDUSD and USDCAD, I am a dissenter and don’t believe the hype. What do I mean? Well simply that it’s a bubble and one that especially in thin summer markets is likely to disappoint rather than reward. So with regard the AUDUSD this means that I remain bearish and look for 0.8850/70 to be sold into and stops go in above the 0.8935/50 level looking for moves back into 0.8670 and 0.8530. Confirmation of this to me comes in the form of last night’s break and sustained hold below 0.8780, with only a small pop this morning allowing for fresh reloads of strategic shorts. On the USDCAD this translates to boring yet successful range trading which as noted several times before if it aint broken then no need to fix. I refer of course to 1.0630 in the immediate topside with the possibility of extension to 1.0700 while the downside is ensconced in 1.0350 and deeper into 1.0280/50 if you get the opportunity. Below the latter level of 1.0250 this cross becomes well oversold and a more convincing buy opportunity.

Of course all of you are wondering where to next on the EURUSD… and I tell you in response that we are going to be trading a newly defined range with the boundaries being 1.2550 and 1.3150/3200. The move overnight is not a surprise to me and shouldn’t be to you either, this simply is a consolidation of the recent move and breakout higher which was due to see some retracement. Going forward over the coming week or so, I would be a buyer for choice on dips into the aforementioned levels and play it purely from range trade view. Once the reporting season has finished it is then that we can reevaluate if that range is likely to continue or we wait until the 16th of August when the second batch of stress test results are released. In this instance it might be worth considering buying a strangle using options around the levels of 1.2550/2600 and 1.3200 with an expiry of around 2 to 4 weeks.

The Cable is likely to move in tandem with the EUR and needs to respect 1.5130 and 1.5300 as levels, breakouts from either of those levels will signify deeper moves and the risk in my view is the potential for the downside looking for (although not likely to find in my absence) 1.4750. In recent days this cross has been all about the EURGBP which looks to test and in all likelihood bounce out of the 0.8330 (with 0.8380 being the first real hurdle). On the upside however I favor another test of 0.8530, with a real chance of a break here….

So, in short, stay long the JPY and disregard any jawboning from the Japanese and most importantly of all be careful out there.

I leave for holiday tonight and will be back on the 4th of August so until then I wish you luck and safe helmet wearing.

FX Update: EURUSD to spike higher still?

John J. Hardy, FX Consultant.

FX Update: EURUSD to spike higher still ?

The Euro squeeze is still definitely on as we start a new week in financial markets. Supporting the nearly across-the-board upside in Euro once again today after an already sharp move higher last Thursday and Friday is the collapse in intra-European sovereign debt spreads and apparently the spike in European yields at the short end of the curve, as reflected in the yields of instruments like German t-bills and Euribor. As well, the higher Euro represents the pain trade for so many macro portfolios out there that have been shorting the currency aggressively all year until the last several weeks, which is probably providing a form of latent supply of Euro buying all the way up.

On Friday, we mentioned the rise at the front end of the European curve possibly being about a removal of the safety premium for holding non-PIGS debt (most importantly, German debt) while noting the relative easing in the type of "counterparty risk" trades that suggest a banking system in crisis. (If we remember back to the US financia crisis, the counterparty risk trade was a key story that developed for months and was only snuffed out starting several weeks after the actual Lehman bankruptcy event after an unprecedented spike.) At the same time we have the easing in Euro sovereign debt spreads, particularly for Spain, where the 2-year spread vs. Germany has collapsed to 128 bps from about 175 bps last Thursday and over 200 bps as recently. This is an enormous move.

All of these factors suggest an easing situation in Europe on the surface: but the most important question here is possibly whether higher yields at the front end of the curve mean an easing fear level or a rising fear as the rate spike represents a scramble for Euro liquidity. The latter explanation actually makes more sense and is one we haven't considered sufficiently as we were distracted by the lack of evident fear in counterparty risk (which was a hallmark of the US credit crisis). That's because the ECB has responded sufficiently strongly to keep counterparty risk off the table (no banks of any size allowed to fail) and has the firepower to backstop the sovereign debt situation for a time as well (especially now that China seems to want to jump in and buy sovereign debt, too - perhaps with the hopes of a stronger Euro as the real agenda. Yet, overall, liquidity remains very tight, especially for speculators with large positions funded in Euro that are beginning to feel the pain, and as everyone scrambles for cash, there aren't enough Euros available. So the question now is how much further we have to go in the squeeze process. In the EUR/pro-risk trades, there may be a very long way to go, especially if we see any follow through on Friday's very ugly move in the risk trades. In EURUSD, it is tougher to estimate - have a look at the chart below.

Chart: EURUSD vs. 2-year swap spreads
If the continued widening in interest rate spreads are supposed to reflect a scramble for Euro liquidity, then we might expect for the EURUSD rally to only end once Of course, at any time, a strong official response by the ECB or very large EUR selling from central banks that are relieved to see EUR back at these levels could slow the rally. Our assessment of the dynamic is this: it can go anywhere in the short term, but the higher it goes, the better the sell opportunity for the long term since this seems to be mostly about a short-term liquidity event rather than the long-run fundamentals, which have been adjusted permanently lower for the EuroZone by this year's crisis. It's one thing for rates to rise because of hawkish expectations for a central bank, another thing entirely when they rise for the liquidity reasons. In any case, an reversal in the widening spreads at the front end of the curve will likely coincide with an end to the EURUSD rally.

HUF and puff, and blow the Franc down
The IMF announced over the weekend that it refused to advance a planned $25 billion dollar payment to Hungary after it noted sufficient progress in Hungary's efforts to right its public finances. This was of course met with a gap lower in the HUF to open the week, but the action in EURCHF also reminds us of the aspect of the Swiss franc that has bothered us all along - the risk of default on Swiss franc loans extended during the bubble years (whereas the market has . Remember that most Hungarian mortgages were financed in CHF in those years... Of course, the EURCHF rally here has been aggravated by the EUR liquidity squeeze as well.

Looking ahead:
After the Friday meltdown, the direction in risk appetite is as important as ever and we're still surprised at the lack of response in volatility fears in the likes of the VIX and FX vols - that's either divergence that should encourage the bulls or a sign of excess complacency....

The other main highlights this week is the presentation of the stress tests for European banks, an event risk that could also provide an inflection point for the Euro rally. Ahead of that, however, we have Bernanke's semi-annual testimony before Congress on Wednesday and Thursday - a critical event for Fed watchers, as it represents the ideal forum for the Fed announcing a move in a new direction.

Other highlights this week include:

Today:

• US July NAHB Housing Market Index - normally a very good leading indicator on the US housing market, though it gave off a very strange spike in May that was erased in June. Would expect a very low reading on this survey today that suggests very slow interest in new home buying in the US.
• Australia RBA Meeting Minutes - key for Aussie rate expectations, which recently crossed below zero for the year ahead before rising a bit again.

Tuesday

• US Jun. Housing Starts and Building Permits - market looking for further double dip confirmation here for housing.
• Bank of Canada Rate Announcement - most expecting another hike, but should we be looking for a further deceleration in the hawkish rhetoric as the BoC nervously eyes the slowdown south of the border and budding signs of weakness in Canada as well? Still over 100 bps priced into the year forward for the BoC.

Wednesday

• UK BoE Minutes - looking for whether the bank is waffling on its dovish inflation view after the latest troubling signs of sticky inflation levels
• US Fed's Bernanke Humphrey Hawkins testimony - there is a gathering storm in the US economic data, and the recent FOMC minutes suggest an increasing feeling by many in the Fed that the recovery is failing. This could be an interesting performance by Bernanke as the market puts out feelers for when and to what degree the Fed is looking to head for QE, Part Two.

Thursday

• EuroZone Jul. Preliminary Manufacturing and Services PMI - amazing how resilient these have been in the face of the crisis - will we finally see more definite signs of slowing?
• Canada May Retail Sales - not a particularly timely report and the data series is very choppy. Still interesting to see this report after a very weak April reading
• US Weekly Initial Jobless Claims - last week looked encouraging, but this is the trickiest time of the year for seasonal adjustments  - this week and next week should be important for establishing whether the claims levels are really improving.
• US Jul. Existing Home Sales - weak number expected

Friday

• Germany Jul. IFO - spectacular that this index has remained so elevated through the crisis - but the DAX is not that far from highs for the cycle either (the two often move hand in hand). The stronger Euro could help this survey register a sizable drop this time around.
• UK Q2 GDP - expected at a relatively strong 0.6% QoQ by consensus, the best since 2007. The last hurrah?
• Canada Jun. CPI - inflation is certainly not the driver for BoC policy.

Economic Data Highlights

• New Zealand Jun. Performance of Services Index out at 55.7 vs. 53.5 expected
• UK Jul. Rightmove House Prices declined -0.6% MoM vs. +0.3% in Jun.
• EuroZone May Current Account out at -5.8B vs. -5.6B in Apr.
• EuroZone May Construction Output fell -1.0% MoM and -6.3% YoY

Upcoming Economic Calendar Highlights

• US Jul. NAHB Housing Market Index (1400)
• Australia Jul. RBA Meeting Minutes (0130)

Porter Stansberry: "The entire system is going to collapse"

From The Gold Report:

Stansberry & Associates Investment Research founder Porter Stansberry, who built his reputation on finding safe-value investments poised to give his followers years of exceptional returns and who has a reputation as an independent thinker with a penchant for "out-of-consensus" viewpoints, has tweaked his toolkit to help investors hedge a bit against volatility while protecting themselves against the collapsing fiat currency system.

In this exclusive Gold Report interview, he shares some of the techniques that you might consider...

Read full interview...

FX Update: Risk currencies poised but failing to break new highs

Andrew Robinson, FX Analyst.

Risk currencies poised but failing to break new highs

China data indicates a slowing economy but inflation pressures easing – the best mix?

Market Comments:
The moribund nature of yesterday’s Asian session extended into the early overnight session with risk currencies lacking the ability to press higher and equity markets placid. EURUSD held close to the 1.27 mark with a slight dip later in the session on (unfounded) rumours of a Spain downgrade by Fitch. GBP rallied following better than forecast employment numbers while the JPY was supported by more weak US economic data. The USD slid against the index and closed below the 100-day MA.

On the data front, US retail sales fell 0.5% m/m in June, slightly worse than expected, while the non-auto sales were down 0.1% m/m, as expected. Import prices fell by 1.3% m/m in June, marking the first back-to-back decline since January 2009. The FOMC minutes highlighted a more cautious outlook for the economic recovery with committee members revising down their forecasts for both GDP growth and core inflation over the next two years. As a result of the weaker data, stock markets lacked upward momentum on the day and, without any major earnings releases to ignite, were mostly flat on the day.

The main focus for the Asian session was the slew of China economic data releases mid-morning. As usual we had the rumours/leaks beforehand and, yet again, these proved to be mostly on the button. The exception was the CPI data which came in well below forecast, and even the leak. Consumer prices rose only 2.9% y/y and was probably the catalyst that gave risk a quick run-up post-data. Other data signaled an expected slowing economy but overall still seen on a more sustainable path.

Prior to the data risk was struggling to stay afloat as investors focused on a Fitch report, mentioned in the WSJ, suggesting Chinese banks are increasingly engaging in complex transactions that hide the size and nature of their lending and possibly masking a pending wave of bad real estate and infrastructure loans. It also stated that the actions of the banks had likely caused regulators to significantly under-report credit growth and credit exposure in the first half of the year. However, that was soon pushed to the back-burner post-data.

As we head into Europe, data releases include Sweden’s house prices, Norway’s trade balance and the Swiss ZEW survey. The US session is a busy one on the data front with the weekly US jobless claims data, PPI, empire manufacturing, Philly Fed index and industrial production/capacity utilization along with Canada’s new vehicle sales and manufacturing sales.

Economic Data Highlights

• US Jun. Import Price Index out at -1.3% m/m, +4.5% y/y vs. -0.4%/+5.3% y/y vs. revised -0.5%/+8.7% prior resp.
• US Jun. Advance Retail Sales out at -0.5% m/m vs. -0.3% expected and revised -1.1% prior
• US Jun. Retail Sales ex-Autos/Gas out at +0.1% m/m vs. flat expected and revised -1.0% prior
• US May Business Inventories out at +0.1% vs. +0.2% expected and +0.4% prior
• NZ Jun. Business PMI out at 56.2 vs. revised 54.4 prior
• AU Jul. Consumer Inflation Expectation out at 3.3% vs. 3.4% prior
• AU Jun. New Motor Vehicle Sales out at -1.2% m/m, +8.2% y/y vs. revised -3.9%/16.5% prior
• China Q2 Real GDP out at 10.3% y/y vs. 10.5% expected and 11.9% prior
• China Jun. PPI out at +6.4% y/y vs. 6.8% expected and 7.1% prior
• China Jun. CPI out at 2.9% vs. 3.3% expected and 3.1% prior
• China Jun. Retail Sales out at +18.3% y/y vs. 18.8% expected and 18.7% prior
• China Jun. Industrial Production out at +13.7% y/y vs. 15.1% expected and 16.5% prior
• China Fixed Asset Investment out at 25.5% vs. 25.2% expected and 25.9% prior
• JP BOJ leaves rates unchanged at 0.1%

Upcoming Economic Calendar Highlights
(All Times GMT)

• Sweden Avg. House Prices (0730)
• Norway Trade Balance (0800)
• UK BOE Housing Equity Withdrawal (0830)
• Swiss ZEW Survey (0900)
• CA New Vehicle Sales (1230)
• US PPI (1230)
• US Initial Jobless Claims (1230)
• US Empire Manufacturing Index (1230)
• US IP/Capacity Utilization (1315)
• US Philadelphia Fed Index (1400)

The equity steamroller rolls on

Ken Veksler, Senior Manager, Trading Advisory.

Well risk is firmly ON!

Intel out last night after market reporting not just well, but in fact their best quarter ever….

This type of print is exactly what I have been talking about for the last week or so in terms of market expectations and interpretation. That is to say the market needed something extraordinary to be really propelled higher. And that is in many ways what we got last night. Having taken out the important 1085 resistance level in the S&P we now edge ever higher looking for 1115. No earnings reports today, however tomorrow promises to be the marquee day with many financials reporting and it is then that we could see another real surge higher.

Understandably the risk crosses received a healthy boost from this price action and we saw the EURUSD running into important technical resistance in the 1.2730 area, while the Cable also ran straight back into 1.5230 resistance, but at the time of print it has now taken this level out and the associated stops printing a high this morning already of 1.5260 on the move. I have now stopped myself out of this trade and look to reevaluate once the dust post reporting season has settled. Overnight the AUD was a star performer running higher on good skilled vacancies data as well the treasurer indicating that the budget for the next year was looking healthier and healthier with each passing day and that the surplus was likely to get even stronger. This in turn understandably pushed the cross into the next point of resistance around the 0.8830/50 area and that’s where we open up this morning still looking well bid.

The day ahead in the absence of earnings reports holds data in the form of UK unemployment, Euro zone CPI and out of the US advance retail sales. While I hate trading around data releases the stubborn part of me believes that this move in the Cable was all just a squeeze to clean the market out ahead of what is likely to be a rather ugly unemployment print this morning.

The JPY crosses also took a run higher as the JPY was sold off across the board and the USDJPY now looks at 89.30 as the next immediate point of resistance. Does it get through there? In my mind not just yet, but then again tomorrow is another day…

The USDCAD is also softer today and fast approaching levels (1.0280) where I am ready to start scaling into fresh longs having cut most of my shorts already.

The other cross to keep on the radar is the GBPJPY at present which above the 135 level presents good potential to open shorts especially in light of the pain that trading the Sterling against the big dollar can bring (and has brought).

Outside of all of this interestingly the DXY has managed to hold the 83.50 support level and for the time being is still hanging in there. It’s now a question of what gives first, the equity indices or the DXY.

Keep your helmets on folks its likely to stay messy out there for a few days to come.

FX Options Update: Uninspiring volatility market

Michael Schmeja, Global Head of Derivatives Sales, Saxo Bank

A very uninspiring spot market keeps volatility unchanged, nearly to the figure compared to yesterday. Some trades in the broker market that are worth to mention:

EURUSD Put has been bought, 1 month, 1,2300 at 13.30 vol in about 300 Mio

EURJPY 15 delta strangles, 1 year, at 19.50 vol in 100 Mio per leg

Small bits and pieces traded in USDJPY and AUSUSD with both sides in equal demand for shorter maturities.

I will sell out my remaining 25% spot EURJPY at 111.50 with the option due to expire on Thursday. No other changes.

Short term Trading ideas:

EURJPY

Comment:

I buy spot, notional 1 at 111.25

I buy expiry 1 month 15th of July a 109 EUR Put, notional 1

I sell expiry 1 month 15th of July a 114 EUR Call, notional 1

Cost of 23 JPY pips on a notional of 1, after I bought back the 0.55 overhang. I sold 75% of my spot position at 111.95. Depending on the price action I will trade the spot until expiry against the option.

EURNOK

Comment:

Sold EURNOK Call, Strike 8.0700, Exp 1 month, 26th of July for 510 NOK pips

The $15 Million Death Incentive

By Dr. Steve Sjuggerud

Wednesday, July 14, 2010

"You don't know whether to commit suicide or just go on living and working," Eugene Sukup told the Wall Street Journal over the weekend.

Sukup is an 81-year-old maker of grain bins in Sheffield, Iowa. If he dies this year, his death tax will be zero. If he dies after December 31 this year, his death tax could be more than $15 million.

It's not just Sukup… Tens of thousands will be affected. By December of this year (if Congress does nothing), Jack Kevorkian might find himself with a line of patients out the door – people in Sukup's situation avoiding the coming tax bomb. It's the "largest increase in a major tax that we've ever seen," says tax historian Joseph Thorndike.

Here's the situation…

The estate tax is set to rise from 0% this year to 55% next year. While many people think the "death tax" is only for the ultra-rich, they've got it wrong… The death tax will kick in at a 55% rate starting on estates with just $1 million.

Look, a million-dollar estate ain't what it used to be… You surely aren't ultra-rich. If you're earning 3% interest on a million-dollar estate, that's $30,000 a year to live on. That's hardly enough to cover health insurance and the simple cost of living.

On the floor of the Senate a month ago, Iowa Senator Chuck Grassley talked about the upcoming death tax situation and two families (including the Sukups) from his home state…

These two family-owned companies will be facing a very large combined estate tax bill. That bill could total tens of millions of dollars between the two companies. That is tens of millions of dollars that will leave the state of Iowa.

These companies might face a fire sale and so often in this circumstance a company is sold to someone with no interest or desire to maintain the current location or contributions to the community.

After describing the jobs that would be destroyed by a big tax on these estates, Grassley continued…

What amazes me is the zeal by some to use tax policy to inflict this kind of damage on family farms and small businesses. All of this to fund an ever-expanding set of federal benefits to many who don't pay any income tax. The signal sent is that those who work hard, save, and want to pass something onto their families exist solely to fund these bloated federal programs.

Why work hard? Why save? Why not work less? Why not go into debt or live beyond your means? In the end, the government levels everyone out, at death, by, as the President said, "spreading the wealth around."

Grassley summed it up, "Taxing people's assets upon their death is just plain wrong…"

I agree with Senator Grassley. These days, entrepreneurs like Eugene Sukup give nearly half of their income to the government in the form of income taxes, property taxes, and sales tax. To then be forced in death to give half of what's left – that is… extraordinary.

In very rough terms, the government is expropriating three-quarters of your money. Where are we, North Korea?

The death tax rate should not be 55%. It should not kick in as low as $1 million. And no tax should be so bizarrely punitive that there's a $15 million "death incentive" for Americans like Eugene Sukup.

You may have a different opinion than I do. If you think it's right for a 55% death tax to kick in on estates starting at $1 million, then do nothing – that's the current law for 2011.

But if you think it is ridiculous, you'd better do something.

Senator Grassley said fixing the death tax that starts in 2011 is "nowhere on the Senate's radar screen." So contact your congressman, contact your senator, and let them know something has to be done.

Regards,

Steve.