Energy Security to the Highest Bidder

Reddit

–It’s a currency crisis, alright. Only it also looks like a bull market in commodities. Which can cause an uninformed investor to think the stock market is telling him everything is going along swimmingly. In fact, the whole glue that’s held the world together geopolitically for the last 50 years—the petrodollar standard—is coming unstuck.

–The headlines say the stock market’s woes are based on “Libya unrest.” But that is a superficial reading of events. It’s true people are now realising if there’s a protracted civil war in Libya that damages oil infrastructure…there’s some short-term pain. But Libya produces only 1.6 million barrels of oil per day.

–The bigger worry—which no one wants to discuss too loudly—is the whole region has entered a long period of low-level chaos. All hell is breaking loose, but in slow motion. That kind of political instability in the world’s biggest oil kitchen is a nightmare. It means big oil consumers like China and the US lose their energy security…or will have to find it somewhere else.

–The energy aspect of the story—where can you get secure supplies of fuel for your economy—is already creating movement in the share prices of smaller oil and gas companies. This is exactly what happened in 2008. Once oil got over $100 a barrel it made a lot of other conventional and unconventional energy projects economic.

–Of course last time around, it turned out the oil price rise was driven by speculators. When the credit crunch hit and the free money got more expensive, traders deleveraged and the oil price crashed. It’s possible something similar could happen today, although when you add the element of political turmoil in the Middle East, a crash seems a lot less likely.

–A lot more likely is that the higher oil price scares the crap out of central bankers and politicians. They will try to jawbone the price down by talking about higher interest rates, the end of QEII, and exploring for more oil. That might work for a bit. But it won’t solve any of the underlying problems in the Middle East (the unhappy relationship between people and their rulers).

–This means there’s a serious chance for a re-rating on smaller energy shares that have viable projects at a higher oil price. The projects we have in mind (and have written about in the Australian Wealth Gameplan) are mostly conventional and unconventional gas projects, although you could include nuclear. The name of the resource game now is to geographically diversify your supply of energy while you still can.

–And speaking of diversification, the gold and silver markets are telling us that the dollar and the euro are lousy stores of value. Silver hit another 31-year high. The May futures touched $36.11. Gold closed off its highs too. But both reacted well when the dollar index fell.

–Also, in case you missed it, Moody’s downgraded Greece’s sovereign credit rating by three notches. This shouldn’t surprise anyone. But it did remind some people, apparently, that Europe’s banks are stuffed to the gills with government bonds…and many European governments are so far down the debt hole, the only way out is default or restructuring.

–All in all, it was a rousing day for tangible assets and rout of a day for paper money. This leads us to believe gold is about to fall by $50 and oil by $10. You can never guess why. But asset prices don’t go up in a straight line, even in long-term bull markets. Somebody putting a bullet in Gadaffi’s head would probably trigger a big market correction in precious metals and oil.

–However this is the nature of the dangerous game being played by the Fed and the bankers. They have unleashed inflation on the world, with all its unpredictable and undesirable consequences. It can’t be easily put back in the box. There may be a tipping point at which gold and silver and oil go bananas. And we may be getting closer to it every day.

Dan Denning
For The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
Reddit

Leave a Reply

94 Comments on "Energy Security to the Highest Bidder"

Notify of
avatar
Sort by:   newest | oldest | most voted
Ross
Guest

One of my 2008 winners was ERA that touched 10 and gained what I thought it would. I went off it on world supply and demand and took profit. It has had production problems and it has hit 9.73 this morning. Trouble is I am short of reading time. Maybe someone else is on it?

Davo
Guest

Hi Ross,

Current price now down to $9.43 from $10.00 today. Research note by Bell Potter published in late January downgraded their 12 month share price outlook from $11.00 to $9.00 with a sell recommendation, based on production shortfalls due to wet weather conditions.
68% owned by RIO, which I would have thought would make it a takeover target for the remaining shares and possibly more so now the price has dropped. I’m considering buying some on that basis with a longer view that Uranium should be a good investment in years to come if the mop up doesn’t happen.
Cheers

Davo
Guest

ASX200 closed at lowest level for 2011 and lowest since early December.
Is this the start of something or just the usual up and down cycle of recent months in a tight trading range?

Ross
Guest
Davo, I have been a net seller of long positions for some time now, first in hard commodities, and then lately in soft commodities. If I was a trader I would be counting my spanking these past months. I’m hanging onto a few stocks for a lower AUD before intending to sell down some foreign currency earners. My favourite right now is Viterra because it is listed in AUD but effectively priced in CAD. Thanks for your report on ERA, I’m going to trust the market on the production problems and watch the chartists view. I remember being at odds… Read more »
Ross
Guest

@Davo, good job we didn’t go there eh? 8.25 at close. Having a look at it now. Need to reevaluate the supply side which, combined with the build time on new facilities was the reason i got out last time. DYL was another I was into and out of and it has tanked too.

Davo
Guest
Hi Ross, ERA at $7.48 at present and Paladin down to $3.41 (was over $5.00 a week or so ago). I look at the Japanese situation with their nuclear power plants, 2 out of 55 are having big problems, which means the other 53 have to maintain output to make up the difference, so they will require uranium still. China is going to build plenty in the next few years, so demand will still be high and going higher. The Japanese will ensure that lessons will be learned from the problems with the 2 plants and enhanced safety procedures will… Read more »
Ned S
Guest

Seems Greg is ‘as good as one might expect’ Lachlan. He posted a comment yesterday.

Biker
Guest

In case you have any, erm, doubt about the erm, bloke we were chatting with, Ned:

“…we’re thinking copper, rare earths, potash and uranium stocks – Aussie oil stocks have, erm, done nothing….

Everything looks fine as long as it lasts. But the housing sector is already hanging by a thread.”

‘Double Bubble’ Kris Skayce, 24th February 2011

Ned S
Guest

Yeah, I gathered you thought there could have been a bit more to ‘this’ than meets the ‘average’ eye Biker. But must admit I’m dumbfounded as to why the likes of ‘him’ might bother messing round with the likes of ‘us’ – Or certainly me anyway – ‘Cause as I often say I REALLY AM NOTHING but a numpty? :D

Not ALL shaven head Brits are nutters mate – I think??? :D

Ross
Guest

Davo, any thoughts on DYL? I’m still looking for the right big picture supply-demand report.

Biker Pete
Guest

Ned: “…why the likes of ‘him’ might bother messing round with the likes of ‘us’…”

Ahh, the Devil makes work for idle hands, Ned.

Seriously, though, this must be a fairly anxious time for some.
All that omnipotence challenged and all. ;)

It’s always easier when one’s stars are in the ascendancy. :D

Biker
Guest

I see he’s predicting the property market will be ‘cut in half’, Ned:

http://www.moneymorning.com.au/20110315/dismal-economists-and-spruikers.html

Not sure _all_ his disciples agree… . ;)

Ross
Guest

Biker,

AAP report says housing starts for Dec fell by 7.3 per cent annualised in a now steady decline. The main issue here is not the figure itself but rather the separation of rhetoric generated by those just trying to survive another day from actuality. This is creating shocks that is now feeding back into negative market sentiment

The median market forecast was for a 1.4 per cent rise in the December quarter. This was a dream that ran off inventory build across the economy and retailers late to admit their slump .

Biker
Guest

Heard it all before, sorry, Ross. Whenever I read these 50% – 80% crash predictions from property ‘watchers’,
I have to remind myself that the DRA banner has _always_ been “Australian Houses Seriously Unaffordable”.

This from spruikers who, a few days ago, included uranium in their top tips… .

“…7.3 per cent annualised ..” (?) HORRORS! The ASX has fallen around 10% in a few months… . :D

“…creating shocks that is now feeding back…?”
Colourful rhetoric, but topical, I’ll admit. ;)

Davo
Guest

Hi Ross,

Don’t know much about Deep Yellow, but they have a released a 9 page announcement to the exchange today regarding drilling operations in Namibia.
Worth having a read, but from my very basic understanding of the processes, it sounds like good news. The stock is at 18.5c today and was as high as 38c in Mid January. I was glad DR covered the Uranium story, as it’s good to obtain their opinion as to whether or not it’s worth “having a punt”.
Cheers

Davo
Guest
With housing, if the supply side is dropping off and it’s more difficult to obtain financing, if there was an oversupply of housing in Australia, wouldn’t that oversupply be being eroded as the population expands. Of course, the contentious point is whether or not there is a oversupply and is there an undersupply in some areas and an oversupply in others, leading to market pricing fluctuations between different areas. I reckon you should just be aware of what’s happening in your own backyard, as that’s the only market that is your concern (financially speaking) Maybe Kris has been living in… Read more »
Biker
Guest
Davo: “…if the supply side is dropping off… ” Data supplied by Ross suggests this is so: “…housing starts for Dec fell by 7.3 per cent annualised… .” So fewer houses are being built, even as the population steadily rises. “I reckon you should just be aware of what’s happening in your own backyard…” And within your particular market. Examples Kris cites are all in the upper range, very similar to examples posted by N Fool, in fact(!) We know that end of the market was ravaged by ASX losses. With the ASX 35% off its high, I’d be surprised… Read more »
Davo
Guest
Hi Biker, I’d be curious to see the same listing of million plus suburbs where units, flats and apartments are excluded from the exercise. The website I check out every few months for my suburb here in Brisbane now includes sales for WA, except you have to pay 30c for each listing identified. It’s a good research site and costs $5 or so to join up. May help to provide facts about WA prices for you to use in your verbal jousts with your fool mate. Mind you, facts aren’t in his quiver when he’s shooting at you. Truth only… Read more »
Biker
Guest
Very much appreciated, Davo. I’ll join, now. We’re about to sell a beach house for <$700K, so it could be a very useful site. We used to walk our two suburbs, with notebook and camera, but I'm not quite as focussed these days. All this DYL stuff is interesting, as we were 'converted' when Julia Mines delisted. From memory, I think we doubled or trebled our money and bailed at 22c. Mate of mine had an even greater win. His miner bought up Adultshop. His missus was horrified, so they sold, making eleven times their buy-in… . New home, new… Read more »
Ned S
Guest

“I see he’s predicting the property market will be ‘cut in half’, Ned”

If $10m mansions suddenly become worth $5m I don’t think it’s going to phase a lot of people Biker. And as I’ve presumably said/implied before, I (even as a bear) struggle with the concept of $450K Brisbane places becoming worth $225K.

Biker
Guest
For a couple of decades, we bought only properties which the very rich would be able to afford to buy from us, Ned. Around seven years ago, we sensed that property was doubling and trebling so quickly it _might not_ be sustainable in the long term. We decided to shift our focus to the sub-$500K market. Then, as we realised the likelihood of the BB generation downsizing, to sell off million dollar homes and bank the ‘downsize difference’ into Super, we bought/built in the $330K – $450K range. You can never be completely sure you’ve got it right until the… Read more »
Ned S
Guest
“We decided to shift our focus to the sub-$500K market. Then, as we realised the likelihood of the BB generation downsizing, to sell off million dollar homes and bank the ‘downsize difference’ into Super, we bought/built in the $330K – $450K range” – With those being very wise decisions I’d say Biker. With my decision dating back about 5 years ago to stay out of QLD ‘fun in the sun’ retirement type locations also just maybe starting to prove to have a bit of justification? “generalising this to median markets… and we just laugh it off” – Ditto. Except it… Read more »
Biker
Guest
Ned: “it does worry me that the occasional ‘young bloke’ just could fall into the potential trap of believing them” Too true. At one point in the last two years we calculated that medians in our main investment area _had_ actually fallen 1.83%. During that period we could see that developers weren’t selling much, hence our decision to negotiate for a couple of blocks. Built on one, just sold the second for an after-costs gain of 20%. Had we taken the view that this particular market would fall more than 2%… and done nothing… waiting for a larger fall… we’d… Read more »
Steve
Guest

As Greg wisely noted a few years back, there’s no ‘property market’.
There are property marketS… .

What property market”S” are you talking about Biker?

The ridiculously unaffordable Sydney market?
The ridiculously unaffordable Melbourne market?
The ridiculously unaffordable Brisbane market?
The ridiculously unaffordable Perth market?
The ridiculously unaffordable Newcastle market?
The ridiculously unaffordable Adelaide market?
The ridiculously unaffordable Canberra market?
The ridiculously unaffordable Darwin market?

Tell me what any of these markets don’t have in common or are unique from each other than the fact they are all “ridiculously unaffordable”

Biker
Guest
Within each of these capitals and regional centres there are numerous markets, Steve. Sometimes they’re recognisable by location, ie., suburb; other times by price; infrequently by shift in socio-economic status. Opportunities present all-the-time. You’ve probably missed one in the last couple of years. That doesn’t mean a second minor correction won’t occur. Almost nothing is surer than a fella who does his homework can pick up a bargain by knowing what’s happening in a desirable suburb. When we were in buying mode, we walked through every street, past every vacant block, every home, every apartment block. We took photos, notes,… Read more »
Biker Pete
Guest
Ned: “…my decision dating back about 5 years ago to stay out of QLD ‘fun in the sun’ retirement type locations also just maybe starting to prove to have a bit of justification?” Yes, I think so, Ned. I may not have thought so, prior to visiting. I must admit the only vacant block close to the beach we liked in FNQ (which had some difficult access issues, anyway) turned out to be $6.25 mil, after we inquired about the price! Not our scene at that price!!~ We were talking with our architect last week about a very new beachside… Read more »
Ross
Guest

Now this wouldn’t be you would it Biker?

Boomers weighed down with debt
18 March 2011 7:18am

Higher income and often older (in fact, quite old) households are responsible for much of the net increase in housing finance over the last five to 10 years, analysis by the Reserve Bank of Australia shows.

source Banking Day

Biker
Guest

Sorry, not me, Ross. Link?

We’re paid off by April 2nd… Party!!~ :D

Ross
Guest

Biker, the day after party? Seriously, a day to celebrate. I noted the downshift on the value of the individual property you sought too.

Not Fooled By Property Spruikers Hype
Guest
Not Fooled By Property Spruikers Hype

Bullshipper Pete

Can wait till you put all your thoughts into a book!!!

I will keep a eye out for it in the Comedy or Fiction sections.

Could I suggest a title?

“$hit I just make up as I go”

Not Fooled By Property Spruikers Hype
Guest
Not Fooled By Property Spruikers Hype

Money morning dispatched another property spruiker in their usual style.

http://www.moneymorning.com.au/20110318/are-falling-house-prices-%E2%80%9Cvirtually-impossible%E2%80%9D.html

Keep biting you Neck Biker !

Ned S
Guest

How much of a correction do you reckon you need before the company you work for will be happy to lend to you again Not Fooled?

Biker
Guest
Ross: “I noted the downshift on the value of the individual property you sought too.” Sorry, Ross, I fail to understand your comment. The property I sought? We seek no more properties at present. Our aim is to sell at least three prior to 2012, to minimise our CGT. We’ve already sold one this year. N Fool, I enjoy your disbelief. I take it as a compliment, in fact. Your incredulity suggests that your own claim of six properties (far less than our holdings) is entirely bogus. Your claims have never really made any sense at all: * You have… Read more »
nv
Guest

Phase 1 of the exit strategy as the resident fraudsters unwind.

Biker
Guest

No plan, just eNVy… ;)

Ned S
Guest
“Does _anyone_ believe it? If you believe it, anyone, please a.) tell us you believe it; b.) tell us why it makes any sense at all… . Is N Fool’s statement that he wants a crash to help his kids and yours logical, given his claims?” It seems potentially logical enough to me now Biker: A property speculator who believes he can talk markets into doing what he wants. Whose vested interest is in seeing a correction now. As: He’s taken his profit on his 4 Karatha apartments While he’s stuck with the DHA house (for a bit longer maybe)… Read more »
Biker Pete
Guest

Ned: “He’s taken his profit on his 4 Karatha apartments”

Must have missed that, Ned.

If you’re correct, why hasn’t he converted his $250K – $750 capital-gains-free win on the Woodvale property? Half a mil in bankable profit… .
Illogical to be talking Woodvale properties down (as he does on PerthNow) without first taking CGT-free profit on that one.

You may be right, Ned. Maybe there is some kind of strange logic there.
Seems a helluva lot of effort… and a baffling strategy (bragging about your own highly successful property holdings)… to crash a market. :D

Biker Pete
Guest

Nah, sorry mate. I don’t buy it.

Why the (cut’n’paste) attacks on SA property, through AdelaideNow?

This is bigger-picture. ;)

Ned S
Guest
” “He’s taken his profit on his 4 Karatha apartments” Must have missed that, Ned. ” I’m haven’t seen him claim he has taken that profit. But it would reasonable to assume he has; Given his expressed unhappiness at the fact he can’t “dump” the DHA property yet. :) “If you’re correct, why hasn’t he converted his $250K – $750 capital-gains-free win on the Woodvale property? Half a mil in bankable profit… . Illogical to be talking Woodvale properties down (as he does on PerthNow) without first taking CGT-free profit on that one.” Selling Woodvale could very well be putting… Read more »
Ned S
Guest

Why attack SA? Why not attack SA – And everywhere else. Including the US and the UK and Spain and Ireland etc. With all of it potentially helping and none of it potentially hurting. Then again his brother might be a SA property speculator he’s helping out????? Who’s to actually know eh? :D

Ned S
Guest
He laid the guts of the plan out for us a while back. With the PerthNow link you provided that mentioned the Karatha units and the DHA house making it possible for me to connect the dots: Re ‘the plan’, specifically on 15 Feb on DRA he wrote: [I’ll not give the link as the last time I did, my comment became MIA] “Ned….. why would anyone sell if they don’t have to ? Well the price of your house or my house is determined by what people paid for a similar house in a similar area. Let look at… Read more »
Stillgotshoeson
Guest
@Ned S “A speculator who figures he’s ‘smarter than the average bear’ (or bull) and wants to see volatility so he can trade both the ups and downs; And then trade the ups and downs again some more; While spruiking the market into going whatever way suits his current play.” I very much trade on the volatility of the share market Ned. (do alright at it as well ;) ) As much as there are different real estate markets (as I have said in this forum in the past ) There are also different markets on the stock market. As… Read more »
Ned S
Guest

Shoes: “I very much trade on the volatility of the share market Ned. (do alright at it as well ;) )

And with you never for a moment having pretended anything else Shoes! It would be nice to have the skills. But if I was ever capable of developing them, suspect that time has simply passed me by – With ‘old age’ having made me much too risk averse now. :)

Ned S
Guest

But all is not lost – I’ve been cleaning the mould off the ceiling of my front porch – And in the process it dawned on me how I can effect some renos to it cheap. And add a bit of value to this property that way. So even an old dog who doesn’t feel too hopeful he might be able to learn lots of new tricks, can at least continue to make use some useful ones he’s got for a while yet I guess! ;)

Lachlan
Guest
Hi Shoes. Yep still holding the Fs and hoping for a higher high this time. 8c was one good support though I was watching close. I still think the break out move could have gone higher so watching keenly this week on their progress to unload a part. The markets are obviously on a bounce here with the good support levels reached late in week 4500 (SP200) and 11500 (Dow). Just wondering whether we’ll rally back into selling pressure now and then go lower or whether we’ll have a push higher..hoping latter but staying neutral until the market breaks previous… Read more »
Stillgotshoeson
Guest
Next mine commencing production and good drill results from the island should see my target of 11.5 to 12.5 cents. Expect some profit taking at around this level (might join in this time) Drill results of 30,40 or even 50 g/tonne like the chip samples could see a rocket on the price Bought in a couple of more as well. “Seen a few people sell off on the down draft this week and regret it minutes later Shoes” One of my friends did.. panic got the better of him. Sold everything, is down a fair bit now he says. Got… Read more »
Biker
Guest
I’d be amazed if he has sold those ‘four Karratha properties’, Ned. The brand new subdivision there would be an attractive entry to that market… and great competition for any older property, which would attract much higher stamp duty. The current view at PerthNow is that he’s all BS. A number of share traders who were very highly-leveraged in both stocks and property were caught out when the share market nose-dived. They lost their properties as a result. They’re fighting to get _something_ back… perhaps even their personal domicile. Given his inconsistencies, N Fool fits that profile. The fidiot who… Read more »
Lachlan
Guest

Continued dollar weakness.
http://www.fxtrademaker.com/usdx.htm

Re: F’s…7.2 was a great buy anyhow. Hopefully we’ll beat the recent high quickly rather than go into a range.

The Fletchers are holding well so far too I see.

Important few weeks ahead I reckon.

Ned S
Guest
“I’d be amazed if he has sold those ‘four Karratha properties’, Ned.” – Just checked – And see Karratha is in the Pilbara! (Geez, I should have remembered that from high school Geography. :D ) Yep, they could VERY well be ‘keepers’ then as you imply. If ever he wants to tell us what his story is I suppose he will. But as a ‘fellow’ bear, the long and the short of it is that I’m not placing any faith in any buy-in points he might mention without an awful lot more info on exactly what his vested interests are.… Read more »
Stillgotshoeson
Guest

Comment by Lachlan on 19 March 2011

The Fletchers are holding well so far too I see.

Important few weeks ahead I reckon.

More results expected soon for the Fletchers, will sell on them on the rise.

Next 3 to 4 weeks will be interesting

wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au