Removing All Doubt

Posted on March 25, 2011 by MN Gordon

Oil prices jumped above $106 per barrel this week. What gives? The short answer: global supplies are tightening while consumption is increasing.

“Energy economists continued to gauge how recent unrest in Libya, Bahrain, Yemen and Syria will affect exports from a region that produces 27 percent of the world’s oil,” explains AP.

Obviously, it will affect exports negatively. From what we gather, Libyan oil exports are shut down. Without Libya and other North African oil producers contributing to global supplies prices could really go haywire. Particularly when demand is picking up in earnest…

“Platts reports that China’s oil demand in February rose 10.1 percent from a year ago, to the second strongest level on record. It hit an all-time high in December. China is the world’s second biggest oil consumer behind the U.S.”

As supply stagnates and demand continues to increase speculators will do their best to push prices up like they did in 2008…when oil topped $140 per barrel. You can count on that. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | Leave a comment

A Modest Alternative to Monkeying with Currency Markets

Posted on March 22, 2011 by MN Gordon

Late last week, while many were busy paying tribute to their Irish brethren with good cheer and libations, the Group of Seven (G-7) nations were busy monkeying around in foreign exchange markets with their first coordinated intervention in over 10 years.  What was their goal?  To devalue the Japanese yen.

Following the earthquake, tsunami, and nuclear crisis, something a bit counterintuitive happened.  The yen didn’t go down…it went up.  In fact, not only did it go up; it soared.

“The yen surged 4.5 percent in 26 minutes March 17 to a post-World War II high,” reported Bloomberg.  Pushing up the yen was the concern that Japanese investors would convert foreign investments back into Japanese assets to pay for reconstruction.  Sensing a mass repatriation of assets was underway, foreign exchange traders did their part to further strengthen the yen.

For large exporting countries, like Japan, a stronger currency hurts their economy…their products become more expensive to international consumers and demand drops.  So the U.S. Federal Reserve, Bank of Canada, Bank of Japan, the European Central Bank, the Bank of England, the Bank of France, Germany’s Bundesbank, and the Italian Central Bank all put their citizen’s money to use in the foreign exchange market in a coordinated effort to devalue the yen. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , , , | Leave a comment

Up the Creek Without a Paddle

Posted on March 18, 2011 by MN Gordon

This must be, without a doubt, one of the worst weeks we can remember.  Each day the news out of Japan goes from bad to more bad.  Here in the U.S. we gawk and grimace at the destruction wrought by the earthquake and tsunami.

Staples of developed countries, like power and fresh drinking water, have vanished as poor weather stifles relief efforts.  Immense human suffering, radioactive fallout, and worries that the next big one will hit any moment, leave survivors shell shocked.  A scenario any worse stretches the imagination.

At this moment economic consequences and money concerns seem shallow and trifling.  Yet that is our emphasis around here at the Economic Prism.  So we’ll go about our shallow business on your behalf…searching for hints and inklings as to what this means for money and markets – and more importantly, your money.

To get right to it, we offer one word of advice: Panic!

The stock market has been flying headlong into a crackup for months.  Last week, along the coast of northeastern Japan, it was delivered an all-time cataclysmic blow.  We find prospects for a quick rebound slim at best. Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , | Leave a comment

Advice Worth Considering

Posted on March 15, 2011 by MN Gordon

The Ides of March

“Beware the Ides of March,” warned a soothsayer on March 15, 44 B.C.  “Well, the Ides of March have come,” joked Julius Caesar.  “Ay, they have come,” replied the soothsayer, “but they are not gone.”

Before the day was over Julius Caesar was stabbed to death in the Roman Senate, marking an inflection point in Roman history.  “The Ides changed everything,” said Cicero.

Natural disasters, melting nuclear fuel rods, wars, riots, revolutions, Charlie Sheen…we’ve seen a rapid series of inflection points this year and it’s only the Ides of March.  What else could possibly go wrong?

A bond market collapse?  A stock market crash?  Perhaps both.  We’ll begin with some foreboding indications that are testing the nerves of bond investors…

An Unappetizing Mess

Inflation is the enemy of bond investors.  Once the inflation rate rises above a bond investors established yield, the investment generates a negative real return.  In other words, the income generated does not keep up with rising prices. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , | Leave a comment