India

There’s been a lot of excitement in the past year over the rise of North American oil production and the promise of increased oil production across the whole of the Americas in the years to come. National security experts and other geo-political observers have waxed poetic at the thought of this emerging, hemispheric strength in energy supply. What’s less discussed, however, is the negligible effect this supply swing is having on lowering the price of oil, due to the fact that, combined with OPEC production, aggregate global production remains mostly flat.  But there’s another component to this new belief in the changing global landscape for oil: the dawning awareness that OPEC’s power has finally gone into decline. You can read the celebration of OPEC’s waning in power in practically every publication from Foreign Policy to various political blogs and op-eds.

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A panel of the Swiss parliament is discussing the introduction of the parallel ‘Gold franc’ currency. Bloomberg has picked up on the news which was reported by Neue Luzerner Zeitung. The Swiss parliament panel will discuss a proposal aimed at introducing a new currency, or a so-called gold franc. Under the proposal, which will be debated in the lower house’s economic panel in Bern today, one coin in gold would be worth about 5 Swiss francs ($5.30), the Swiss newspaper reported. The Swiss franc would remain the official currency, the paper said. The proposal may lead to a wider debate about the Swiss franc and the role gold might again play to protect the Swiss franc from currency debasement. The initiative is part of the “Healthy Currency” campaign which is being promoted by the country’s biggest party – the conservative Swiss People’s Party (SVP).

Lately there has been a flurry of media reports focusing on America's obesity epidemic, and how costs associated with America's gradual shift to a fat society will inundate the already strapped budget in the form of shadow taxation and other direct and indirect costs, which are, to put it simply, unsustainable. As the first chart below shows, the primary cost center associated with the obese conditions - diabetes - has certainly gripped a substantial portion of the US population, at last count affecting at least 10% of the population. Yet as chart #2 shows, America, with its $23.7 million diabetes cases, actually has it good. Because when compared to countries without a social safety net, such as China and India, the US diabetes problem is child's play. With 90 million diabetes cases in China, and 61.3 million in India, or nearly half of the total 346 million worldwide diabetes cases, perhaps it is time for the developing world to worry how they plan on funding the billions of associated costs, as they assimilate more and more of the worst American habits. Because as the International Diabetes Foundation says, "In developing countries, the looming costs in human lives, healthcare expenditure and lost productivity threatens to undo recent economic gains." However since all of this is in "the future" what's the point of worrying about it now...

Gold Has Fallen Due To:

• Gold’s recent weakness is in large part due to a period of recent dollar strength. While gold in dollar terms has fallen by 25% ($1,920 to $1,540), gold in euro terms is only down by 14% (from €1,374/oz to €1,210/oz). 
• Oil weakness – since the end of February, oil has fallen from $111 a barrel to below $95 a barrel (NYMEX) today. Gold and oil are often correlated and many buy gold to hedge inflation that comes from higher oil prices.
• Gold’s weakness may also have been due to wholesale liquidation in all risk markets due another bout of "risk off" which has seen global equities and commodities all come under pressure.
• Physical demand from retail investors in the western world has slowed down as did demand from India in recent weeks due to the increase in taxes on bullion (since removed).
• Much of the selling has been technical in nature – whereby more speculative elements on the COMEX who trade gold on a proprietary basis have been selling gold due to the recent price weakness and the short term trend clearly being down. This has led to speculative longs now having their smallest positions since December 2008.

 A recent IMF working paper predicts a permanent doubling of real oil prices over the coming decade.  However, the "peak oil labor" could be just enough to tip the scale for the doubling in oil price scenario a lot sooner than year 2022.

The World Gold Council has released the Q1 2012 Gold Demands Trend report. Gold demand grew 16% over the past 12 months to 1,098 tonnes. This had a US dollar value of just $59.7 billion spent on gold, globally, in Q1 2012. While global demand was down 5% from the record high of Q4 2011, it was significantly higher than demand in Q1 2011 suggesting that global demand may be consolidating at these higher levels.  Probably the most important aspect of demand and one of the most important fundamentals in the gold market is that of still very robust and increasing Chinese demand. In this the Chinese Year of the Dragon – China is becoming a fundamental driver of the gold market. Global demand was boosted by China posting a quarterly record of 98.6 tonnes of investment demand up 13% from Q1 2011. This increase was a result of investors’ continued move to preserve wealth amid ongoing concerns over inflation, volatility in equity markets and price falls in some property markets. Jewellery demand in China, much of which is also store of wealth demand, increased to 156.6 tonnes – 30% of the global appetite.  This increase places China as the largest jewellery market for the third consecutive quarter.

Here are some of the things that David Einhorn likes and does not like, having just started his speech at the Ira Sohn Conference:

• Martin Marietta - stock plunges 10% and triggers circuit breaker.
• France - "a french default is not out of the question" - France not limit down yet. He says that a return to the Franc is not out of the question.
• Einhorn likes GJF.NO - "Norway is the only country which can finance itself."
• Einhorn likes Cairn Energy as it trades at discount to assets in just Britain and India.
• Says China is misunderstood and is not an investment opportunity: not enough money to feed the economy and banks aare becoming illquid; money is leaving the country
• Also does not like Japan for all the usual Kyle Bass and Andy Xie reasons. The Yen will continue strengthening.
• Einhorn likes AMZN, calls it "elephant in the room", but questions profit growth.
• Einhorn likes Dena Co, and Gree Inc in Japan
• Einhorn is short DKS
• Einhorn, who is long about $870MM AAPL as per last night's 13F, likes AAPL. Stunner.

As US weak hands keep piling out of gold whether to make space for the Facebook IPO tomorrow, or just to load up on paper currencies in advance of central banks printing much more, two things have happened: China is now on its way to becoming the biggest source of gold demand, surpassing India, but more importantly as of hours ago, in a truly historic move, "Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies." Not our words: the FT's.

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European equities are seen lower across the board with the exception of the CAC-40 index as markets remain nervous towards the prospect of a second wave of Greek general elections. The outperformance of the CAC-40 follows the news from oil major Total, who have stemmed the gas leak from their Elgin well successfully after conducting intervention. As such, Total are seen higher by over 2%, strongly above the Oil & Gas sector. The Bank of England have released their latest projections for the UK economy, revising lower their growth forecasts and higher their near-term inflation expectations, alongside analyst forecasts. The BoE have stuck to their long-term predictions that there will be a slow but steady return to recovery, but reiterated that major downside risks exist from Europe. Governor King’s subsequent press conference has shown him to remain somewhat dovish, commenting that an increase in downside risks would prompt the bank to commit to further actions, leaving the door to a boost in asset purchases open. The forecast revisions prompted a sharp move lower in GBP/USD, falling around 75 pips and Gilt futures moving 55 ticks to the upside after the opening comments. At the midpoint of the session, GBP/USD remains in negative territory despite seeing support before the inflation report after better than expected UK jobless claims data.

Billionaire investor George Soros significantly increased his shares in the SPDR Gold Trust in the first quarter. Soros Fund Management nearly quadrupled its investment in the largest exchange-traded gold fund (GLD) to 319,550 shares - compared with 85,450 shares at the end of the fourth quarter. John Paulson maintained his large stake, the ETF’s largest stake and other large and respected institutional buyers were PIMCO and the Teacher Retirement System of Texas. Paulson, 56, who became a billionaire in 2007 by betting against the U.S. subprime mortgage market, told clients in February that gold is a good long term investment, serving as protection against currency debasement, rising inflation and a possible breakup of the euro. Eric Mindich’s Eton Park Capital also bought  739,117 shares in the SPDR Gold Trust during the first quarter. The New York-based fund held no shares of the exchange-traded product as of December 31. Overall holdings in the SPDR Trust rose just over 8% in the first quarter, after a 2% gain in Q4 2011.

India is known for its historically high per capita demand for gold, particularly before festivals and the wedding season, which peaks in the months of October to December. With more than ¼ of the entire global world market for the metal, the country has long been leading world demand, though fellow BRIC member China is catching up. But recent developments in India have gold bugs stirring – protests, boycotts, and a proposal for a tax on the sale on gold jewelry has severely dampened demand ahead of one of the most lucrative festivals in the country. And with global gold prices down more than 10% since their February high of $1,787.75, there seems to be good reason to worry. While acceleration in gold prices and Indian GDP seem to link up as do Indian demand and global GDP growth, increases in demand have little correlation to gold price growth. Similarly, rampant inflation has almost no role in stifling demand for the metal. If these correlations - and the seasonal performance patterns - hold true in 2012, gold investors might be able to sleep a little easier. While none of this guarantees that gold will experience some kind of meteoric rise to $2k, especially given all the other factors that contribute to prices, Nic Colas, of ConvergEx, thinks it’s safe to say that the supposed softening demand in India shouldn’t be too concerning. The US has bought 42% less gold than it did in 2006. So when it comes to declining gold prices, don’t jump to blame India. After all, it isn’t even wedding season yet...

What's $2 Billion for Ben Bernanke's Chosen Son?

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