Here at The Daily Reckoning we don't propose to tell you what the financial news is. You can find that out anywhere. Instead, we try and tell you what news on the World and Australian markets are worth paying attention to - and what it might mean for your investments.
You won't find throwaway share tips or easy investments advice either. What you will find are contrarian investment ideas not covered elsewhere by mainstream sources.
To find out more simply click the financial topic on the right that most interests you...
There’s no law in the market that oil and gold have to move together. But when they begin to diverge in a big way, like now, it pays to wonder why. Maybe BHP has the answer. It’s put Texas tea on the drinks menu, at the top of the list. So today’s Daily Reckoning will journey across the Pacific to visit the great American energy boom looking for answers.
Actually, it’s wrong to suggest all the energy action in North America is in Texas. The new drilling technology is unlocking supply from Canada to North Dakota to the Atlantic states.
To get an idea of the North American energy boom, check this out: 2012 saw the largest growth in oil production in US history. That’s according to the June release of the BP Statistical Review of World Energy. The oil biz in the US goes all the way back to Colonel Drake in 1859.
To be clear, BP is looking at the figures from 2012. But stepping back from the day to day data and news is probably more fruitful for tracking the big trends.
Here’s a curious point: on a net basis last year, the oil market didn’t change that much in 2012. Growth was a pretty meagre 1.3%. But in a regional sense, it’s no exaggeration to say the oil market is being completely remade, or in the spirit of Joan Rivers, ‘reworked’.
A Visual Metaphor For the Oil Market?
You can boil it down to this: US net imports have fallen 36% from their 2005 high. Meanwhile, China accounts for 86% of the growth in net imports in the same period. That’s huge. While North America drives the supply boom, China revs the demand.
But the thing that jumped out at us from this report is the fact that oil is actually losing market share. That’s as a percentage of global energy consumption. It’s at 33.1% and in the 13th consecutive year of decline.
Why that jumped out at us is because nobody seems to be telling the oil traders. The West Texas benchmark hit a 12 month high during the week.
Oil on the Up
Do they know something we don’t?
For now, that rising chart looks very lucrative if you happen to be a shareholder in a company operating in the energy business. As we said, one of those happens to be BHP.
They told investors at the Global Metals, Mining and Steel Conference a few months back that a US$1 move in the oil price moves their net profit by 45 million either way. The only commodity with a bigger impact on the bottom line is iron ore.
The brass at BHP maintains that the outlook for iron ore is more robust than the market expects. But they have a pretty handy hedge by having a foot well and truly in the door of the oil and gas industry in the USA.
There’s a kind of tussle between the spreading chaos in the Middle East and other oil producing countries against the uplift in production from North America. There might be a big premium to be had for good reserves in countries that are outside the possible danger zones.
That’s an idea Dan Denning over at The Denning Report says is worth following. That’s largely what he’s positioned his readers for. Norway, USA and Australia look a lot less risky and a whole lot more lucrative than Venezuela, Iran or the Sudan when it comes to speculating in energy on higher oil prices.
Of course, you need to have the reserves in place to capitalise if oil does go higher. For BHP, the most exciting prospect today is in the South Midland section of the ancient Permian basin in West Texas.
Apparently it’s no exaggeration to say this might be the biggest oilfield after Ghawar, Saudi Arabia. Ghawar has been producing for decades – the biggest ‘elephant’ oilfield of all time.
You probably already know that the Permian basin can’t replicate the cost base of Saudi Arabia. The oil of the Permian is very deep plus hard and expensive to access. But it makes up for it in possible size. It’s estimated to be 50 billion barrels. It could be triple that. Nobody knows for sure.
According to the International Energy Institute, the world currently uses 89 million barrels a day. That’s 32 billion barrels a year. So the Permian could have over one year of global supply, at least.
That’s the industry aspect of it. The geopolitical side is even more intriguing. Take this from the Australian Financial Review on Tuesday:
‘[Oil production from the Permian basin] would speed America on its path to topple Saudi Arabia as the largest oil producer, slash US imports, mute price spikes from Middle East unrest and even make substantial US oil exports feasible.’
That’s pretty high stakes in anyone’s books. That reminds us of something rogue economist Phil Anderson said in his Remembering the Future presentation: lower energy costs thanks to North America (if the Middle East can stay stable) could allow Ben Bernanke to get away with prodigious money printing. Phil argued deflation in energy costs will nullify the inflation of the US money supply. There seems to be some big assumptions in THAT argument.
We suppose there usually is in any investing case. For now, it’s telling that the world’s largest diversified miner has made oil and gas one of its four major pillars. It might pay for investors to think on similar lines.
Falling US bond prices are the prime mover in markets right now. As bond prices fall, yields rise. The investment implications multiply. There’s one simple way to view rising US rates: it signals the official end of the global credit expansion underway since the early 1970s. That may not sound simple. But it is when you break it down. So let’s break it down.
The Federal Reserve’s EZ money policies will either succeed or fail. Either way, it will be a disaster. If they succeed, interest rates will rise…and America’s debt-addicted economy will get the shakes. If they fail, the Federal Reserve will double down with further acts of reckless improvisation – including bigger doses of credit – until the whole thing blows up.
You’ll open your electricity bill and see that it’s double or even triple what you normally pay. There won’t be any good reason for it. It won’t be because you’ve used more power, or because someone’s running a dance club out of your living room while you’re away at work. It will be the result of specific failures to avert a perfectly predictable crisis.
It’s both a tragedy and a story of heroism and cool-headed action under pressure. But what has received little attention so far is the number of innovative materials in the Boeing 777 that helped so many of its passengers survive. Almost all of that advanced technology came from defence research, which leads us to today’s topic.
Callum is the feature editor for The Daily Reckoning — Weekend Edition. He covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors.
To follow Callum's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. More on Callum Newman...
Why You Should Subscribe to The Daily Reckoning...
Gowdie Family Wealth
WARNING: The worst mistake you can make when handing wealth on to your kids
This brand new investor briefing shows you what your family’s in for if you don’t take care to leave your wealth to them in exactly the right way.
And it shows you precisely how to prevent infighting, recklessness and misunderstanding over money.
Do you really expect the share market to boom in times like these? That's why Nick Hubble says the best thing you can do right now is invest for safety and income.
This brand new video shows you how you can get predictable, reliable and rock solid cash flow no matter what happens in the wider economy.
You could lock in up to $20,000 a year - and that's just the start. See how here.
World War D was the most important meeting of minds of the decade so far. What came out of it will almost certainly force you to reshape your investment plan for the rest of the decade. There's no way to go back in time and get inside the Savoy Ballroom of the Grand Hyatt. But you can do the next best thing. To find out what it is, click here.
‘These three trends are mostly likely to impact your investments in 2014.’
Dan Denning accurately forecast 2013′s flight from bonds to stocks, the commodities crash and the Aussie dollar top…to the exact week…
And in this new report Dan Denning does two things for you. He announces three new predictions he’s making for 2014. And he’ll give you some ideas on how to rearrange your investments in the highly likely event that these three forecasts become reality.[more]
According to Greg Canavan, the same major gold producer is about to bottom out again in 2014. If you want to know when to buy, you need to read this latest report.
The stock in question is one of two he’s getting ready to buy.
The sector they operate in is getting very close to a major turning point. When the turn comes, the move up could be big. Greg doesn’t make these claims often. But as he says: ‘this is an exceptional value opportunity’… [more]
Australian retirees are feeling ‘increasingly nervous about their investments, their living standards and income stability,’ according to a brand new report from ME Bank.
But retirement expert Nick Hubble says one simple investment strategy could calm your nerves AND potentially give you $20,000 a year in income, even if the share market falls 50%.
And in this new report, Nick Hubble explains how his simple but clever idea could leave you with less stress and more money in retirement…[more]
Diggers and Drillers
A 3-Point Plan to Re-Engage with the Aussie Mining Boom
This new video reveals a way for Aussie share investors like you to RE-ENGAGE with the next phase of the mining boom…while valuations are still dirt-cheap…
If you’d like to know more about what your favourite Daily Reckoning editors are reading and thinking about, join them on Google+.
You’ll get to discover what new investment ideas our editors are buzzing about right now — and you’ll be able to read what they read.
You can join in the conversation right now — it’s free and easy to do. Just click the ‘g+’ icon to visit The Daily Reckoning Google+ page now.
P.S. Don’t forget to ‘+1’ The Daily Reckoning homepage and any articles you enjoy!
Dan Denning is the Editor-in-Chief of The Daily Reckoning Australia and The Denning Report. He is also the author of 2005’s best-selling The Bull Hunter (John Wiley & Sons). Dan’s high-level, macro-economic and stock market forecasts are read by more than 35,000 high-dollar investors and fund managers in over 70 countries.
To follow Dan's financial world view more closely you can subscribe to The Daily Reckoning here. And to discover the investment commentary and ideas that he can't always fit into his regular Daily Reckoning emails, you can join him on Google Plus here.
Greg Canavan is a feature Editor at The Daily Reckoning Australia and Editor of the investment publication Sound Money Sound Investments. He is the foremost authority for retail investors on value investing in Australia.
To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning here. And to discover the investment commentary and ideas that he can't always fit into his regular Daily Reckoning emails, you can join him on Google Plus here.
Nick Hubble is a feature Editor at The Daily Reckoning Australia and Editor of The Money for Life Letter. He has spent the last three years discovering lots of new, exciting and surprisingly simple ways to generate money for retirement.
To follow Nick's financial world view more closely you can subscribe to The Daily Reckoning here. And to discover the investment commentary and ideas that he can't always fit into his regular Daily Reckoning emails, you can join him on Google Plus here.