Lateral Thinking | 05/04/2011
The BOJ ( Central Bank of Japan ) answered the question that nobody does. What is causing the rally in Commodities :
“While the strong increase in commodity prices has been driven by global economic growth propelled by emerging economies, speculative investment flows into commodity markets have amplified the intensity of the price surge. The dynamics of global commodity prices has been changing as well, in accordance with the growing presence of financial investors in commodity markets. The entry of new financial investors has paved the way for the “financialization of commodities”. Consequently, global commodity markets have become more sensitive to portfolio rebalancing by financial investors, which has made commodity markets more correlated with other asset markets, including major equity markets. Furthermore, globally accommodative monetary conditions have played an important role in the surge in commodity prices, both by stimulating physical demand for commodities and driving more investment flows into financialized commodity markets.”
So thank you Mr. Bernanke for such a wonderful job !!!
Article first published as Oil Prices Hit Post-Crisis Peak Levels on Technorati.
Oil prices are at its peak for the first time after the worst financial crisis since the great depression in1930s that erupted in September 2008 worldwide. Peak levels have been reached on both sides of the Atlantic Ocean i.e. in North America and Europe.
In Europe, Brent crude futures hit $91.58 per barrel while West Texas Intermediate in the US touched $89.35 per barrel, both being highest levels since the financial crisis of September 2008. However, these levels are well below the pre-crisis peak levels. Prior to the financial crisis, due to speculative bubble in House building sector, all commodities prices along with crude price were flying high in the sky. Brent Crude price was pushed up to $147.50 per barrel.
Factors of Crude Rally
There are several reasons that drove crude price to its peak level. Primary factors have been:
The relatively rising demand due to global recovery though not equalled with pre-crisis demand: This is a long-term factor assuming that a double dip does not occur. The US spent $1.7 trillion as part of “Quantitative Easing 1” that extended unemployment benefits, reduced tax rates for both corporates and consumers and increased liquidity in the market and absorbed toxic mortgage housing loans that became biggest impediment for post-crisis growth of the economy. In addition to this, the US government announced QE2 programme i.e. second stimulus programme in November to buy treasury bonds thereby releasing more printed dollars into the economy. Reports are coming that the Fed is thinking of increasing QE2 money, originally set at $600 billion. If that happens, prices of all commodities including crude oil will increase further.
Cold weather in Europe: This is a short-term factor, which will last up to the end of winter season. All European countries are shivering with cold weather spread across Europe continent. Cold weather increases the consumption of fuel, which in turn increases fuel prices as demand increases.
Reuters | Oct 19, 2010 | 7:28pm IST
Global banking supervisors agreed on Tuesday to phase in the introduction of a key new global standard on lenders’ minimum short-term funding cover, handing further relief to a sector facing a hefty funding gap. The Basel Committee of banking supervisors and central bankers from 27 countries met on Tuesday in South Korea, which is hosting the Group of 20 leading countries that had called for tougher capital and liquidity requirements in response to the financial crisis.
The committee had already agreed to a soft phase-in for its net stable funding ratio, which covers a bank’s longer-term liquidity. That measure will be tested from 2012 and become mandatory in January 2018. On Tuesday, the committee said it would also phase in over time its liquidity coverage ratio (LCR), which will require a bank to hold enough highly liquid assets to cover 30 days of net cash outflows. The LCR observation period will start next year and the rule will become a minimum global standard in January 2015.
"There are elements of these ratios which we will study during this observation period because these requirements are brand new – that’s the reason for this change," the Chairman of the Basel Committee on Banking Supervision Nout Wellink told a news conference in Seoul.
RELIEF FOR BANKS
While a phase-in of the LCR had been expected, bankers welcomed confirmation of the delay. "The liquidity ratio and net stable funding ratio are some of the most difficult areas as international practices differ," said Pat Newberry, chair of the UK financial services practice at PWC. "Giving themselves time to look and think carefully has to be a sensible move. If you tighten up liquidity regimes, what does that do to lending volumes? It’s much more difficult to forecast than with capital," Newberry said.
Reuters | Aug 27, 2010 | 10:45pm IST
It could be 10 years before economic growth in the United States and elsewhere returns to pre-recession norms and employment rates may never regain lost ground if past history is any guide, two prominent economists said in a paper presented on Friday. Carmen Reinhart and Vincent Reinhart, in a paper presented at an annual conference hosted by the Federal Reserve, found that growth in gross domestic product is significantly lower during the decade after a severe financial crisis that is felt world-wide, as was the case with the recent meltdown. Their assessment could damp the spirits of central bankers gathered at the annual Fed enclave in Jackson Hole, Wyoming, who are already anxious that the recovery from the painful recession has run out of gas and they may be forced to take further steps to stimulate growth.
The authors, a husband and wife team — she is an economics professor at the University of Maryland and he is a former director of the Fed’s division of monetary affairs who is now a resident scholar at the American Enterprise Institute — drew their conclusions from studying global and country-specific crashes, including the 2007 subprime mortgage collapse, the 1973 oil shock, and the 1929 Great Depression. Policy makers should consider that growth, employment and credit may never regain levels attained before 2007, they said. "Recent discussions about the ‘new normal’ in reference to the post-crisis landscape leave the impression that the pre-crisis environment was ‘normal,’" they wrote. "In fact, there are reasons to believe that the pre-crisis decade set a high water-mark distorted by a variety of forces."
Bloomberg | Aug 14, 2010 | 1:45 AM GMT+0530
Research In Motion Ltd. is seeking to reassure Wall Street customers about the security of its BlackBerry e-mail service as countries including Saudi Arabia and India press for more access to its network, said two people familiar with the situation. RIM has held at least one conference call in the past week with clients including Goldman Sachs Group Inc. and JPMorgan Chase & Co. to discuss BlackBerry operations. At least one corporate customer has told RIM it’s not satisfied with the explanations so far and is seeking an additional meeting. The talks underscore the challenges for Waterloo, Ontario-based RIM as it expands in emerging markets as growth in North America slows. Sales outside North America rose to 37 percent of RIM’s $15 billion in revenue in the last fiscal year, up from 23 percent in the fiscal year ended February, 2005. Corporate customers such as Wall Street banks favor RIM’s BlackBerry because its encryption and other safeguards protect communications from prying eyes. Saudi Arabia, the United Arab Emirates and India have pushed for more access to BlackBerry services, out of concern the smartphone could be used to coordinate terrorist attacks or violate national mores.
Loopholes in System
Saudi authorities decided this week to allow the BlackBerry messaging service to continue in the country, after threatening a ban. RIM and the kingdom’s wireless operators are making progress in implementing a system to allow monitoring of user data, the state-owned Saudi Press Agency said, citing the country’s telecommunications regulator. Such reports have prompted questions from corporate customers about whether RIM is making concessions on the security of its software, said one of the people familiar with the conference call. RIM fell 77 cents, or 1.4 percent, to $53.40 at 4 p.m. New York time in Nasdaq Stock Market trading. Since the U.A.E. said on Aug. 1 that it plans to suspend BlackBerry service, the shares have lost 7.2 percent. Continue reading
Reuters | Wed Mar 31, 2010 | 7:07pm IST
Investors cut back on equities and lifted exposure to bonds in March, signalling a degree of caution about coming months as world stocks headed for their fourth quarterly rise. Reuters polls of 47 leading investment houses across the world also hauled back exposure to emerging market stocks, reflecting the sector’s recent underperformance, particularly China. Overall, the investment houses held an average of 53.5 percent of a typical mixed-asset fund in equities, down from 55.4 percent in February, Bond holdings rose to 34.5 percent from 33.3 percent, with the increase coming in investment grade corporate credit rather than government debt or higher yield. Cash fell to 4.5 percent of an average portfolio from 4.8 percent, suggesting that investors are still seeking yield over the safest of safe havens.
The pull back in equities comes as world stocks looked to be putting in their fourth consecutive quarterly rise. Each quarter has gained less than the previous one, however, with the current one expected to end with gains of just 2-3 percent. That is seen by some as a sign that last year’s rally is petering out in the face of macroeconomic headwinds. “Risks include government belt tightening leading to weaker growth in developed market economies and inflation fears in emerging markets, especially China, spreading,” said Stefan Rondorf, portfolio manager at Allianz Global Investors. The poll, meanwhile, confirmed suspicions that demand for once red-hot emerging market
Reuters | Fri Mar 26, 2010 | 10:36am IST
Mergers and acquisitions jumped to $520.4 billion in the first quarter, accompanied by a big shift in global deal making as emerging market and energy-focused takeovers made up a growing slice of activity. Thomson Reuters data released on Friday showed announced M&A rose 18 percent worldwide from the first quarter of 2009, when deal making was depressed by the credit crunch that followed the financial crisis. Compared with the last quarter of 2009, however, M&A fell 16 percent. Senior dealmakers said they expected M&A would continue to recover, after hitting a five-year low last year. But they warned that better financing conditions needed to be balanced against ongoing caution about the economic outlook and earnings.
"Most people we speak to would say: we are past the worst, but the outlook is still very uncertain and for many this feels like it’s going to be a long, hard climb," said Simon Dingemans, managing director, European M&A at Goldman Sachs. Goldman, unseated for the first time in 13 years as the busiest M&A bank by Morgan Stanley last year, staked an early claim to regaining its title, placing first for the quarter for global, US, and European M&A. Dingemans said boards remained "very cautious" but dialogue with clients pointed to a more sustained pick-up in deals in the second half of the year.
British insurer Prudential Plc’s $35 billion bid for AIG’s Asian life insurance business, the quarter’s biggest deal, helped power a near-doubling of deals targeting that continent, which hit $110.6 billion in total. For only the second quarter on record, Asian M&A outstripped European-targeted deals, which plunged 48 percent as worries about the