Thursday, January 25, 2007

U.S. Dollar continues to loose support worldwide

January 24, 2007
Kuwait May Abandon Dollar Peg to Protect its Economy
By Will McSheehy

Jan. 24 (Bloomberg) -- Kuwait, the third-largest Arab oil producer, may abandon the dinar's peg against the dollar in favor of a basket of currencies to help minimize economic harm after the dollar declined.

``We might go to a basket for an interim period,'' Bader al- Humaidhi, Kuwait's finance minister, told reporters today at the World Economic Forum in Davos, Switzerland. ``The dollar fell a lot against the euro last year, but if we'd been linked to a basket we wouldn't have suffered'' as much.

Al-Humaidhi declined to comment on which currencies might be in the basket. A switch from the dollar is being studied by Kuwait's central bank, he said. The Kuwaiti dinar rose to 0.28915 against the dollar as of 4 p.m. in London, from 0.28920 yesterday, according to Bloomberg data.

Dollar reserves are being replaced with euros by oil producers including the United Arab Emirates and Venezuela. China, which has the world's largest foreign-exchange reserves, and Indonesia say they plan to increase euro reserves and Iran says it's boosting oil sales priced in euros.

The dollar has declined 5.2 percent against the euro in the past 12 months. The currency traded at $1.2955 against the euro at 12:47 p.m. in New York from $1.3026 yesterday, when it reached a two-week high of $1.3044.

Currencies Undervalued

Most of the currencies of the six Gulf Arab states, including Saudi Arabia and Kuwait, are undervalued against the dollar, based on their current-account balances, inflation and costs of goods and services, Deutsche Bank
AG said in a report this month.

``Without the peg, Gulf currencies would have appreciated in the past couple of years because of the increase in oil prices,'' thus boosting the cost of imports, Standard Chartered Plc economist Monica Malik said in a telephone interview today from Dubai. ``Instead they weakened against other major currencies owing to the dollar.''

The six Gulf Arab states earned as much as $500 billion from oil sales last year, according to the International Monetary Fund. About two thirds of that amount is likely to be invested in overseas savings and investments in countries including the U.S.

The U.S. needs to attract about $2.5 billion a day from foreign investors to keep the dollar steady and fund a current- account deficit that widened to a record $225.6 billion in the third quarter of last year.

G-7 Urge Float

Kuwait in 2003 became the last of six Gulf Arab monarchies including Saudi Arabia to peg its currency to the dollar in readiness for a single currency planned for 2010.

The Kuwaiti dinar is trading at the top of a 3.5 percent permitted band set when the dollar peg was established in January 2003.

Kuwait central bank governor Sheikh Salem Abdul Aziz al- Sabah last month said he may decide to widen the range or change the peg if the U.S. currency continues to weaken and threatens domestic growth.

The Group of Seven industrial nations, including the U.S., Japan, Germany and the U.K., in April urged countries with current-account surpluses to allow their currencies to appreciate to help adjust global imbalances.

``I don't think other Gulf countries are going to adjust their pegs,'' Dorothee Gasser, a Middle East and Africa economist at ING Bank NV in London, said in a phone interview today. ``What we are likely to see is that they are going to convert some of their reserves into gold. It's bearish for the dollar.''

Single Currency

Crude oil futures in New York reached a record on July 14. They have since fallen because of rising stock piles in the U.S. and receding security concerns in oil producing nations. Oil at around $55 a barrel is still almost three times higher than five years ago.

Kuwait remains committed to a single currency for the Gulf states, al-Humaidhi said today. ``The 2010 target is still the same. I hope we can meet it,'' he said.

Friday, January 12, 2007

Stocks Closed Up for the Week ending January 12, 2007

January 12, 2007
By Benjamin Train

U.S. stocks rose for a third straight day on Friday, helped by a rebound in energy prices and data showing surprisingly robust December retail sales.

Mergers and acquisitions, too, hit record levels. Corporate profits reached record levels. Real estate deals in New York City hit noteworthy records. And of course, so did derivatives.

Investors are upbeat as the major benchmarks move to new highs and, as a result, the bullish sentiment is keeping the VIX near the lower end of its range, said Frederic Ruffy, options analyst at Optionetics, an options education firm in Redwood City, California. "The stock market remains in the midst of a steady grind higher."

Crude oil rose from a 19-month low in New York after some traders said this week's drop in oil prices wasn't justified. Some analysts expect OPEC's members to cut production to stop prices from declining.

OPEC President Mohamed al-Hamli said yesterday's drop below $53 a barrel was ``unacceptable'' and urged members to comply with the cuts in output they had promised to make in November and in February.

``The supply sides are going to remain tight,'' said Greg Smith, the U.K. managing director of the investment advisers Fat Prophets U.K. Ltd. ``OPEC can be successful in getting that price up, certainly getting it back towards $60 a barrel.''

According to Gary Dorsch; "What initially triggered the drop was a surprise move by Saudi Arabia to slash the price of Arabian Light, its finest blend, by $1.75 /barrel to a $7.50 /barrel discount to West Texas Sweet, for its US customers, the deepest discount in 10-months."

Saudi Arabia also cut the price of Arab Light to Asian buyers by a more modest 10 cents and to European buyers by 20 cents from January. About half of the Saudi kingdom's 7 million bpd of crude exports move to Asia. But why did the Riyadh to decide to tip the delicate balance between fear and greed in the oil markets to the bearish camp, by slashing its US oil price by $1.75 / barrel on Jan 2nd?


Persian Gulf oil ministers have carefully avoided mentioning a target price for their oil, but Kuwaiti Energy Ministry Undersecretary Issa al-Oun said on Nov 14th, "The Gulf Cooperation Council states see oil prices between $55 and $60 a barrel as an acceptable level, but if they start to decline then there should be action." What is not known is whether al-Oun was referring to OPEC's reference crude basket price, which closed at $51.25 on Friday, or West Texas Sweet which trades at a higher price.

In Rotterdam, Russian Urals crude oil fell below $50 per barrel for the first time in eighteen months, and should slow the Kremlin's massive build-up of foreign currency reserves, which hit a record $299.2 billion in December. Russia has the world's largest foreign reserves outside of Asia, and its holdings have grown by more than 50% from a year ago on the back of higher base metal, gold, and crude oil prices. Earlier this year Russia said the share of US dollar in its FX reserve had been cut to 50% and that that of the Euros increased to 40%, with the rest in yen and sterling.

I expect heating oil and natural gas prices to rise next week due to colder climate conditions and inventory declines. Colder weather will reach the northeastern U.S. Jan. 17 through Jan. 21, according to the U.S. National Weather Service.

Working gas in storage was 3,025 Bcf as of Friday, January 5, 2007, according to EIA estimates. This represents a net decline of 49 Bcf from the previous week.

The Dow Jones industrial average hit another record high close and the Nasdaq Composite Index posted a fresh six-year high on Friday.

The Dow has risen six times this year, out of eight trading days, and the average daily move in the blue chip index has only been 35 points. The Nasdaq has risen seven days and the average daily move is about 16 points, Ruffy said.

Precious metals rose this week after reaching their boom prices last week. Precious metals prices manage to hold their ground! Gold closed at $625.40, Silver closed at $ 12.78 and platinum closed at $ 1,146.00. I believe the reason that that precious metal prices have risen is due to the rising Fed influence in borrowed funds to keep America running.

The Economist magazine figures that "Though there is no agreement on how to measure liquidity, using the global supply of dollars as a proxy," they estimate that "in the past four years it has risen by an annual average of 18%, probably the fastest pace ever." According to Richard Daughty, the total Fed Credit expanded another $7.3 billion to $859 billion last week and another $3 billion in actual cash was created. Loans & Leases increased $12.3 billion to a record $6.076 TN, with a 2006 gain of $621 billion (11.4%). Commercial & Industrial (C&I) Loans expanded 12.6% during the year. Bank Real Estate loans expanded 14.1% during 2006. Total CP has increased $344 billion, or 20.9%, over the past 52 weeks.

If this trend continues, I expect gold to top $850 this year.