Posts Tagged ‘Shale Rock’

(Thoughts on) Natural Gas

Thursday, May 17th, 2012

 

by Scott Ronalds, Steadyhand Investment Funds

We’re in one of the greatest bear markets of all time. In natural gas, that is. The commodity’s price has fallen from over $10 per thousand cubic feet (Mcf) in July 2008 to about $2.50 today. Last month, it touched $1.90, representing a decline of roughly 85% from peak to trough.

Natural gas is used to heat and cool homes and generate electricity. It is also used in the production of plastics, fabrics and fertilizers, and among other applications, can be used to run vehicles (although until recently it has been more expensive than gasoline). Further, it’s a cleaner fuel than coal, which is more commonly used in generating electricity.

Over the past few years, advancements in drilling techniques – notably hydraulic fracturing (“fracking”) and horizontal drilling – and new discoveries in shale rock formations in areas such as Louisiana, Arkansas, Texas and Pennsylvania, have led to a massive increase in supply. Promising fields are also being developed in B.C., Alberta, Quebec and New Brunswick. Estimates suggest the new fields south of the border could provide enough gas to satisfy U.S. demand for decades. And to think that in the mid 2000’s many experts thought production was in permanent decline.

Add a warm winter to the equation (roughly half of American homes are heated by natural gas), and the continent is currently swimming in the commodity. In fact, there are concerns that storage facilities will soon be full and producers will have to turn off the taps or dump gas.

It seems a shame. Natural gas is a cleaner alternative than many fossil fuels, yet it’s not being used in enough industries to soak up the massive inventories. The commodity sells for much more in Europe and Asia ($8 – $16/Mcf), but it’s not cheap or easy to transport overseas. Advocates of the fuel also see it as a way to fight climate change and reduce dependence on foreign oil.

Why aren’t more industries and businesses using natural gas? For one, it’s expensive to modify machinery, vehicles and service stations. Also, businesses can be tied into long-term contracts for coal or other fuels. And finally, there’s no guarantee it will remain a cheaper alternative to coal and gasoline.

There are radically different views on natural gas in the investment community. Some analysts believe that prices are bound to stay depressed, if not fall much further, because supply will continue to outstrip demand. Others feel that the spread between natural gas and oil prices is unsustainable (oil is currently about 40x more expensive; the historic norm is around 10x) and the commodity is sure to rebound as more industries make the change, more governments implement green incentives, and new facilities and technologies make it easier to export.

As a Steadyhand investor, you want to know what our managers think of natural gas and the role it plays in your portfolio. We break it down by fund below.

Income Fund

With respect to the fund’s income-equities, the manager’s focus (Connor, Clark & Lunn) is on companies that generate steady cash flows and have the financial strength to pay rising dividends. Because of the volatile nature of natural gas prices, direct producers typically don’t fit CC&L’s investment criteria. Natural gas producers do not generate stable income and the manager is not comfortable with the dividend sustainability of many of these businesses. Accordingly, they do not own any direct producers in the fund.

The portfolio does have limited exposure to the commodity through oil & gas service providers such as Enbridge and Gibson Energy. These are midstream businesses, meaning they are involved primarily in storing and transporting energy. Both companies, however, are more focused on oil than natural gas.

Equity Fund

CGOV Asset Management, the manager of the fund, feels that it’s anyone’s guess as to what will happen to natural gas prices in the short term. Gord O’Reilly (the lead manager) believes the magnitude of the price decline has been so great, however, that a reversion to the mean is likely over time, particularly as liquefied natural gas (LNG) export facilities come into production over the next few years (facilities have been approved in Louisiana and Kitimat) and more electric utilities and commercial vehicles convert to natural gas.

Yet, producers aren’t making profits at current prices and Gord feels it’s difficult to find value in the sector beyond CGOV’s two holdings, Birchcliff Energy and Pason Systems. Birchcliff is focused on natural gas exploration and production in Alberta (with some light oil production as well). The manager likes Birchcliff because it has valuable land assets and the ability to rapidly increase reserves. Their light oil production also helps pay the bills. The stock has been the subject of acquisition talk and has bounced around as a result. Pason provides rental oilfield instrumentation systems for oil & gas drilling and service rigs. Although low prices have hurt gas drilling, strong oil drilling activity has helped compensate.

Global Equity Fund

The natural gas landscape outside of North America is much different. The demand/supply equation is more balanced. The closure of nuclear power plants in Japan and Germany has added to demand, while a new wave of LNG coming out of the Asia-Pacific region and the Middle East has contributed to supply. Shale-related supplies are not as plentiful, however, due to inferior geology. Natural gas prices range from the equivalent of $11/Mcf in northwest Europe, to $13 in the Middle East and close to $16 in Japan. The manager of the fund, Edinburgh Partners Limited, believes that gas will play a greater role in the world’s longer-term energy mix, with demand growth concentrated in power generation and the ever-increasing global vehicle fleet.

The fund holds three investments with meaningful exposure to natural gas. Russian-based Gazprom holds the world’s largest natural gas reserves and owns the world’s largest gas transmission network. The company accounts for 15% of global gas output, supplies roughly 25% of Europe’s gas requirements and exports gas to more than 30 countries. ENI is an Italian-based energy conglomerate with a significant natural gas division that produces and sells the fuel throughout Europe and abroad. Petrobras is a Brazilian oil and gas producer and the 5th largest energy company in the world. Although its focus is more on oil, gas is an important division.

Small-Cap Equity Fund

While there are plenty of small-cap resource companies operating in western Canada, few natural gas-focused businesses represent attractive investment opportunities in the manager’s view (Wil Wutherich). Wil feels that stock valuations are expensive at current gas prices. Unless the price of the commodity rises to around $5/Mcf in the near term (Wutherich is skeptical of this happening), he believes that most companies will be hard-pressed to produce compelling profits.

Currently, the fund does not hold any pure natural gas producers. It does, however, own some companies with business divisions that are focused in part on natural gas. Of note, Total Energy Services provides drilling rigs and gas compression equipment to western Canadian producers. As well, Badger Daylighting provides excavation services that are used in the energy field for tank and pipeline cleaning, pipeline trenching, and repair and construction activities. Wutherich has a handful of other gas-related businesses that he knows well and watches closely, but feels they aren’t attractive investments at current prices.

Summary

If you hold a balanced portfolio of our funds (or the Founders Fund), you have modest exposure to natural gas. Our managers’ focus in North America is primarily on natural gas service providers that also serve the oil industry and therefore have a more diverse revenue base. CC&L, CGOV, and Wutherich & Co. are more cautious of direct producers (Birchcliff Energy provides the greatest direct exposure). The landscape is quite different outside North America, where natural gas prices can be 4-6X higher. The Global Equity Fund has holdings in Russia (Gazprom), Italy (ENI) and Brazil (Petrobras), providing you with diversified exposure to a number of international gas markets.

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News That Matters (September 1, 2011)

Thursday, September 1st, 2011

via thetrader.se

FT.com
Wednesday 18:45 BST. Global stock markets continued to rally on hopes that the US Federal Reserve may still unveil a third dose of quantitative easing, after minutes released from the last Fed board meeting indicated that several policymakers backed further monetary easing to support economic growth, http://ftalphaville.ft.com/thecut/2011/08/31/666256/hopes-for-qe3-lift-appetite-for-risk-2/

Ed Miliband has called for an immediate Group of 20 summit to chart a way out of the economic slump, insisting that David Cameron and other world leaders renounce collective austerity and instead commit themselves to a “global growth plan”, http://ftalphaville.ft.com/thecut/2011/08/31/666246/miliband-calls-for-summit-on-global-recovery/

A Lancashire cabbage field might appear an unlikely frontier in the quest for new energy reserves. Yet 10,000ft beneath the mud and vegetables of this farm near Blackpool lies the Bowland shale rock formation, http://ftalphaville.ft.com/thecut/2011/08/31/666236/search-for-uk-shale-gas-resources-begins-ft/

Alistair Darling, Labour’s former chancellor, will expose in his forthcoming memoirs the dysfunctional relations, animosity and suspicion at the top of Britain’s economic elite, as officials battled to contain the fallout of the biggest financial crisis since the 1930s, http://ftalphaville.ft.com/thecut/2011/08/31/666226/darling-memoirs-to-expose-rift-with-king/

International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt. The analysis, which was discussed by the IMF’s executive board in Washington on Wednesday, has been strongly rebutted by the European Central Bank and eurozone governments, which say it is partial and misleading. http://www.ft.com/intl/cms/s/0/16d26bc8-d3f5-11e0-b7eb-00144feab49a.html#axzz1WOELnKbv

Strong domestic demand helped Chinese manufacturing growth record a marginal increase in August, despite a sharp fall in export demand. The official purchasing managers’ index climbed 0.2 points to 50.9 in August after falling for four consecutive months while a separate measure compiled by HSBC and Markit Economics stood at 49.9, up from 49.3 in July. A figure above 50 denotes expansion, while a reading below  that level points to contraction http://www.ft.com/intl/cms/s/0/80fd9d52-d444-11e0-9afc-00144feab49a.html#axzz1WOELnKbv

Global markets for raising capital mostly shut down in August, especially for smaller and riskier companies, amid a surge in volatility and a pullback in investor flows. August is normally a slow summer month. But even on those terms, markets saw a dramatic reversal of attractive financing conditions for even low-rated corporate issuers, sparked by worries that the burden of sovereign debt in the US andEurope is going to make it harder to rescue a slowing global economy. http://www.ft.com/intl/cms/s/0/9efb6b0c-d3ec-11e0-b7eb-00144feab49a.html?ftcamp=rss#axzz1WOELnKbv

Brazil’s central bank has taken the unexpected decision to cut interest rates, bringing its seven-month tightening cycle to an end as the country prepares for slower growth and a sharp deterioration in global markets. Policymakers on Wednesday cut Brazil’s benchmark Selic rate by 50 basis points to 12 per cent after raising it by 175 basis points over five consecutive meetings this year. Economists polled by Reuters had all expected the rate to be held at 12.5 per cent this time. http://www.ft.com/intl/cms/s/0/3ba99ed4-d432-11e0-9afc-00144feab49a.html#axzz1WOELnKbv

Japan spent a record Y4,510bn ($58bn) on one day’s currency intervention in August as it tried to stem the rise of the yen, according to figures released on Wednesday by the country’s Ministry of Finance. The MoF data did not specify which currencies were bought and sold, nor the date on which the action took place. Traders said, however, that the Bank of Japan only intervened on behalf of the government on August 4, and only in the dollar against the yen. http://www.ft.com/intl/cms/s/0/510e2178-d3d3-11e0-bc6b-00144feab49a.html#axzz1WOELnKbv

WSJ.com
Asian shares started September higher on Thursday after some U.S. economic data were not as weak as expected, while risk-sensitive currencies, such as the euro, shrugged off signs of softening in the region’s export sector and a mixed lead from China data. Japan’s Nikkei Stock Average added 1.5%, Australia’s S&P/ASX 200 gained 1.0%, South Korea’s Kospi Composite advanced 2.4% and New Zealand’s NZX-50 edged up 0.3%. Dow Jones Industrial Average futures were up 44 points in screen trade. http://online.wsj.com/article/SB10001424053111904716604576543322879249758.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Germany—buoyed by its cadre of family-owned niche companies—appears to be weathering the global slowdown, countering fears that Europe’s economic powerhouse faces a sharp downturn that could deepen the region’s debt crisis. A pair of bullish reports, on German employment and manufacturing, were reassuring on Wednesday: Unemployment remained at its lowest level in nearly two decades last month, while July machine orders jumped 9% from a year earlier. http://online.wsj.com/article/SB10001424053111903895904576542763247872044.html?mod=WSJ_hp_LEFTTopStories

Private-sector employment notched modest gains in August, according to payroll firm Automatic Data Processing Inc., the latest sign that the labor market didn’t collapse amid the debt debate and plunging confidence. Private non-farm employers added 91,000 jobs to their payrolls during the month, slower than the 109,000 gain in July, ADP said. The services sector drove the increase, accounting for 80,000 of the gain. Small and medium-size firms accounted for almost all the increase. Larger firms—those with 500 or more workers—added only 3,000 jobs.http://online.wsj.com/article/SB10001424053111904716604576542180639126702.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsSecond

A top Goldman Sachs Group Inc. strategist has provided the firm’s hedge-fund clients with a particularly gloomy economic outlook and suggestions for how these traders can take advantage of the financial crisis in Europe. In a 54-page report sent to hundreds of Goldman’s institutional clients dated Aug. 16, Alan Brazil—a Goldman strategist who sits on the firm’s trading desk—argued that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China’s growth may not be sustainable.http://online.wsj.com/article/SB10001424053111903895904576542703587784540.html?mod=WSJ_hp_LEFTWhatsNewsCollection

The mortgage industry will take a step toward cleaning up some of its most controversial practices under a deal between a New York regulator and three financial firms, including Goldman Sachs Group Inc. Under the agreement with the state’s financial-services superintendent, Benjamin M. Lawsky, the three firms—Goldman, its Litton Loan Servicing business and Ocwen Financial Corp.—promised to end so-called robo-signing, in which bank employees signed foreclosure documents without reviewing case files as required by law. They also agreed to comb through loan files for evidence they mishandled borrowers’ paperwork and to cut mortgage payments for some New York homeowners. http://online.wsj.com/article/SB10001424053111904716604576543021468088268.html?mod=WSJ_hp_LEFTTopStories

For months, former Massachusetts Gov. Mitt Romney’s 2012 campaign plan couldn’t have been simpler: Raise money, stay above the fray, watch his Republican opponents duke it out on the right, and hammer the incumbent president as through it were already the general election. Texas Gov. Rick Perry has complicated all that. Since joining the race not even three weeks ago, Mr. Perry has knocked Mr. Romney from his national front-runner status in the Republican presidential-nomination contest. Mr. Perry also is leading in the key early-voting states of Iowa and South Carolina.http://online.wsj.com/article/SB10001424053111904583204576542780971373792.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsSecond

Marketwatch.com
Argentina’s Industry Ministry expects more small companies to raise money on the local capital market next year following an initial public offering by a foods company earlier this month. “Since early 2011 [the ministry] has been working to bring small firms to the market. It’s expected that in the first quarter of 2012, about 20 companies will be in a position to go to the bourse,” Industry Minister Debora Giorgi told Dow Jones Newswires in an emailed statement Wednesday. http://www.marketwatch.com/story/argentina-sees-more-companies-tapping-local-bourse-2011-08-31

Australian retail sales rose by a stronger-than-expected amount in July, data out Thursday showed, giving some hope to the battered retail sector that consumers may be starting to open their purses. Seasonally adjusted retail sales gained 0.5% during the month, compared to a 0.1% drop in June and a fall of 0.6% in May, the Australian Bureau of Statistics reported. http://www.marketwatch.com/story/australian-retail-sales-gain-more-than-expected-2011-08-31

Reuters.com
Spot gold held steady on Thursday, as investors weighed the possibility of further easing moves by the U.S. Federal Reserve after better-than-expected manufacturing and labor market data. Spot gold was little changed at $1,824.54 an ounce by 0238 GMT, up 29 percent so far this year. It hit a record high of $1,911.46 on August 23. U.S. gold edged down 0.2 percent to $1,827.60 an ounce. Gold is faced with strong resistance at $1,840 and silver at $42, said the dealer. http://www.reuters.com/article/2011/09/01/us-markets-precious-idUSTRE7781Q420110901

The U.S. government on Wednesday sued to block AT&T Inc’s $39 billion purchase of T-Mobile USA, citing concerns it will harm competition in the wireless market and lead to higher prices. The surprise move, which was the biggest antitrust challenge yet by the Obama administration, caught the carriers by surprise and if successful would end AT&T’s move to unseat Verizon Wireless as the No. 1 U.S. mobile carrier http://www.reuters.com/article/2011/09/01/us-att-tmobile-idUSTRE77U39220110901

The International Monetary Fund has estimated European banks could face a capital shortfall of 200 billion euros ($287 billion), a European source said on Wednesday. The figure has prompted a fierce response from European officials who said the analysis was misleading, according to the Financial Times. The newspaper, citing two officials, said the 200 billion euro figure was one estimate of the impact of marking sovereign bonds to market. http://www.reuters.com/article/2011/08/31/us-europe-imf-banks-idUSTRE77U70X20110831

Beijing plans to restructure its $300 billion sovereign wealth fund, China Investment Corporation (CIC) CIC.UL, by spinning off its domestic investment arm, among other changes, a Chinese newspaper reported on Thursday, without citing sources. Talk has swirled for months that Beijing may restructure the sovereign fund, although the motivations for the plan are not clear. Some say it is political jockeying, while others say Beijing wants to tighten its grip on the financial sector. http://www.reuters.com/article/2011/09/01/us-china-cic-restructure-idUSTRE7800NR20110901

Bloomberg.com
Banks in Europe are exploring ways to cut costs by routing more of their trades and other business through overseas subsidiaries, a plan that may shift tax revenue away from London and loosen European regulators’ influence over the lenders.  Nomura Holdings Inc., HSBC Holdings Plc (HSBA) and UBS AG (UBSN) are among lenders preparing plans to book as much business as possible through legal entities in jurisdictions where tax rates are lower and rules on capital and liquidity are less onerous, the banks and lawyers and accountants working with them say. http://www.bloomberg.com/news/2011-08-31/london-the-biggest-loser-as-banks-look-to-book-trades-overseas.html

During the U.S. recession from December 2007 to June 2009, the BRIC nations of Brazil, Russia, India and China became the engines of the global economy, with Chinese gross domestic product expanding 7.9 percent even as America was still contracting. While emerging countries produced about 85 percent of global economic growth since then, China, India and Brazil are slowing after they lifted interest rates to curb inflation following at least $870 billion of fiscal stimulus during the financial crisis. “The policy driven boom of the past couple of years will not be repeated any time soon,” said Stephen King, chief economist at HSBC Holdings Plc in London and author of “Losing Control: The Emerging Threats to Western Prosperity.” It’s “difficult to see how emerging nations can ride to the rescue once more,” he said. http://www.bloomberg.com/news/2011-08-31/brics-no-cure-for-global-economy-this-time-as-avon-to-siemens-shares-sink.html

China’s millionaires may account for about half of the rich people across 10 major economies in Asia and hold more than half of the wealth by 2015, according to a study by Julius Baer Group and CLSA Asia Pacific Markets. The millionaires will more than double in number to 2.8 million, with 1.4 million high net worth people in China, according to a report released yesterday that covered China, India, Thailand, Indonesia, South Korea, Taiwan, Hong Kong, Singapore, the Philippines and Malaysia. Chinese millionaires will hold $8.76 trillion of the $15.81 trillion that these countries’ rich are expected to have, it said. http://www.bloomberg.com/news/2011-08-31/china-to-have-half-of-asia-s-millionaires-by-2015-baer-says.html

Congress hadn’t even returned from its August recess before a new partisan battle erupted, this time over when President Barack Obama can give a speech. Obama agreed last night to delay by a day the long-awaited presentation of his jobs agenda to a joint session of Congress, capping a day of bickering over whether he was trying to eclipse a debate by Republicans seeking the nomination to run against him next year. House Speaker John Boehner delivered an unprecedented public rebuff to Obama’s request to speak on Sept. 7 — the date of the Republican event — saying there wasn’t enough time to prepare for the president. http://www.bloomberg.com/news/2011-08-31/boehner-asks-obama-to-delay-jobs-speech.html

More than 1 million self-employed Americans are no longer in business almost four years after the last recession began, as the economy constrains entrepreneurial activity and small-business job creation. The 18-month contraction that started in December 2007 initially resulted in more would-be business owners, as the number of people who work for themselves grew to 16.3 million in July 2008 from 15.7 million at the end of 2007, according to data from the Bureau of Labor Statistics. Since then, the total has fallen about 10 percent to 14.7 million in July, the data show. http://www.bloomberg.com/news/2011-09-01/self-employed-struggle-as-u-s-recovery-offers-few-opportunities.html

CNBC.com
The rivalry between two of the biggest names in the multi-trillion dollar global bond market, Bill Gross and Jeffrey Gundlach, has gotten more than just personal — after one appears to have claimed he was asked to take the other’s job.A consultant and an executive assistant told a court this week that in 2009 prominent bond fund manager Jeffrey Gundlach said he had been asked to succeed Bill Gross, the money manager who has gained a reputation as “the bond king”, as the head of the world’s largest bond fund at Pacific Investment Management Co (PIMCO). http://www.cnbc.com/id/44350086

Nytimes.com
It seems to be a national obsession in India: measuring the country’s economic development against China’s yardstick. At a recent panel discussion to commemorate the 20th anniversary of India’s dismantling parts of its socialist economy, a government minister told business leaders to keep their eye on the big prize: growing faster than China. “That’s not impossible,” said the minister, Palaniappan Chidambaram, who oversees national security and previously was finance minister. “People are beginning to talk about outpacing China.” http://www.nytimes.com/2011/09/01/business/global/india-looks-to-china-as-an-economic-model.html?_r=1&ref=global

The German Cabinet approved new powers for the euro zone’s bailout fund on Wednesday, kicking off a month-long campaign to convince sceptics in Chancellor Angela Merkel’s conservative camp to back efforts to contain the bloc’s crisis. Concerned that Germany is ceding too much power to Brussels, some members of her center-right coalition have threatened to vote against bolstering the fund — the European Financial Stability Facility — when the lower house of parliament meets on Sep. 29. http://www.nytimes.com/2011/09/01/business/global/expanded-euro-bailout-fund-clears-hurdle-in-germany.html?ref=global

Foxbusiness.com
If these folks don’t know what to do, who does? It’s clear from the minutes of the Federal Reserve’s August 9 meeting that pretty much the only thing on which the 10 members of the all-important FederalOpen Market Committee agree is that the economy is rapidly getting worse. In the 10 pages of notes released yesterday, there are just a handful of sentences that indicate any sort of pervasive harmony among the members. Here’s one: “Participants noted a deterioration in labor market conditions, slower household spending, a drop in consumer and business confidence and continued weakness in the housing sector.” http://www.foxbusiness.com/markets/2011/08/31/federal-reserve-starting-to-look-like-congress/#ixzz1WfsMo5HQ

USAToday.com
Unemployment rates fell in a majority of U.S. cities in July, despite the weak economy that is producing few jobs. The Labor Department says unemployment rates dropped in 193 large metro areas, increased in 118 and were flat in 61. The biggest monthly decrease was in Morgantown, W.Va. A burst of hiring at the West Virginia University lowered the rate there from 6.6% in June to 5% in July. Yuma, Ariz., a farming hub, experienced the largest increase, from 27% in June to 30 percent in July. Metro unemployment data is not adjusted for seasonal changes, such as the start of the school year.http://www.usatoday.com/money/economy/story/2011-08-31/July-unemployment-rates-fall-in-most-cities/50205070/1

BBC.co.uk
The British Chambers of Commerce (BCC) has downgraded its forecast for UK economic growth this year for the third time. It now expects the economy to expand just 1.1% in 2011, compared with its 1.3% estimate in June and 1.9% at the start of the year. The BCC said the government’s aim to rebalance the economy towards exports and business investment was not happening fast enough. The Treasury has declined to comment. http://www.bbc.co.uk/news/business-14735753

South Korea’s inflation rate hit a three-year high in August as higher food costs continued to put pressure on consumer prices. Prices in August rose by 5.3% from a year earlier, latest data showed, up from a 4.7% increase in July.  This is the eighth successive month that inflation has remained above the central bank’s target of 4%. However, analysts said that despite the surge in prices, the central bank may not raise interest rates immediately. http://www.bbc.co.uk/news/business-14742575

Losses at cash-strapped Swedish carmaker Saab have widened substantially, as it continues to struggle to secure its future. Parent company Swedish Automobile made a net loss of 224m euros ($322m; £198m) in the six months to 30 June, compared with 56m euros a year earlier. Saab halted production in April after unpaid suppliers stopped deliveries. And its staff have now had their pay delayed for three months in a row. http://www.bbc.co.uk/news/business-14741085

The RAF has flown £140m of Libyan banknotes (280m Libyan dinars) to Libya after an assets freeze aimed at Col Muammar Gaddafi was lifted. The cash, printed in the UK, is the first tranche of £950m that will be handed to Libya’s Central Bank. A Whitehall official said the money should be available for cash machines and banks in Libya very quickly. Meanwhile, the BBC has learned that David Cameron set up a unit to block fuel supplies to Col Gaddafi’s forces. http://www.bbc.co.uk/news/uk-14734420

Telegraph.co.uk
Chris Lucas, the Barclays finance director, has brushed off an attack by Vince Cable on banks and warned the Government against prescriptive reform of the sector.  He said that if the Government wanted to put in place “workable” changes to avoid a repeat of the 2008 financial crisis, it needed to include banks. “We expect there to be an iterative process in the weeks following the Commission’s report as interested parties express their views about the Commission’s recommendations and we very much hope that greater certainty will emerge through the autumn,” said Mr Lucas.http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8732664/Barclays-finance-chief-brushes-off-Vince-Cable-attack-to-warn-against-prescriptive-reforms-for-banks.html

The Canadian economy shrank in the second quarter, its first quarterly fall since the recession triggered by the 2008 financial crisis.  Gross domestic product fell at an annualized rate of 0.4pc from the first quarter. This was worse than a 0.1pc increase expected by economists and a 3.6pc gain in the first three months of the year, Statistics Canada said. Temporary factors such as Japan’s earthquake and tsunami played a big role, with exports sliding 2.1pc – the fall since the third quarter of 2010. http://www.telegraph.co.uk/finance/financialcrisis/8733334/Canadian-economy-shrinks-in-second-quarter.html

Global trade buckled suddenly in the second quarter as Europe flirted with recession and Asia came off the boil, while Canada’s bellwether economy contracted outright, adding to the darkening picture across the world. Import growth in the large G7 economies and the China-led BRIC nations fizzled to 1.1pc compared to a 10.1pc pace in the first quarter, according to the OECD club of rich states.http://www.telegraph.co.uk/finance/globalbusiness/8733913/Downturn-in-global-trade-adds-to-gloom.html

Independent.co.uk
Adam Posen, the arch-dove of the Bank of England’s Monetary Policy Committee, has issued his loudest call yet for the world’s central banks to embark on another round of quantitative easing in order to prevent a return to global recession. “It is past time for monetary policy to be doing more to support recovery,” wrote Mr Posen in an article for Reuters. “Additional monetary stimulus is the last line of defence for the advanced economies today. G7 central banks should purchase more assets if we are to have any hopeof our economies ever catching up.” http://www.independent.co.uk/news/business/news/posen-urges-bankers-to-prevent-second-recession-2347152.html

Smh.com.au
The debt futures market, which weeks ago was betting on global market turmoil sending rates plummeting by 175 basis points, fell on the data today. “There’s nothing here that adds to the rate-cut case which is doing the rounds of markets, and it shows why rates over the medium term are going to need to g o higher,” said Michael Blythe, chief economist at Commonwealth Bank of Australia.http://www.smh.com.au/business/rate-cut-hopes-fading-fast-20110901-1jnbb.html#ixzz1WfvHLOdt

A gauge of manufacturing has slumped to the lowest level in more than two years last month as a surging currency hurt exports and the highest borrowing costs in the developed world curbed demand at home. The manufacturing index dropped to 43.3 in August, the lowest level since June 2009, from 43.4 in July, the Australian Industry Group and PricewaterhouseCoopers said in a survey released today. It was the fifth month in six the index was below 50, the dividing line between expansion and contraction. http://www.smh.com.au/business/manufacturing-slumps-as-dollar-surges-20110901-1jmsx.html#ixzz1WfvNFZQY

Bailed-out Portugal, struggling to get out of a deep recession and restore its debt-strained public finances, will return to growth in 2013 at 1.2 per cent, Finance Minister Vitor Gaspar says. “The economy should begin growing in 2013 thanks to a recovery in domestic demand … a correction of macro-economic instability and a continued pick-up in exports,” Gaspar said. http://www.smh.com.au/business/world-business/portugal-set-to-return-to-growth-in-2013-20110901-1jmpa.html#ixzz1WfvSWwAh

TheGlobeandMail.com
The rapid growth of Canada’s oil sands is expected to dramatically increase its consumption of natural gas over the coming decade, a prospect that stands to help Alberta’s gas industry but raise the country’s emissions. A new estimate by Ziff Energy Group, a Calgary-based energy advisory, predicts that oil sands gas consumption will rise to three billion cubic feet (bcf) a day, up from 1.1 bcf today.http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/amid-oil-sands-growth-a-boom-for-natural-gas/article2149379/

Straitstimes.com
China has appealed against a World Trade Organisation ruling that it illegally restricted exports of key raw materials, the global trade body said on Wednesday. ‘China notified the Dispute Settlement Body, which consists of all WTO members, of its decision to appeal the panel reports,’ the WTO said.  ‘The Appellate Body has up to three months to conclude its report,’ it said.http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_708273.html

Xinhuanet.com
Three Chinese firms have jointly acquired 15 percent of stake in the world’s largest supplier of niobium, Brazil’s CBMM. The Taiyuan Iron and Steel (Group) Co. Ltd. headquartered in northern Shanxi Province, CITIC Group and the Shanghai-based Baoshan Iron and Steel Group (Baosteel) have jointly set up a new firm — China Niobium Investment Holding Co. –, through which they acquired the CMBB stake for 1.95 billion U.S. dollars. The business transaction will be completed on Thursday, said sources with the Taiyuan Iron and Steel (Group) Co. Ltd. http://news.xinhuanet.com/english2010/china/2011-09/01/c_131088354.htm

China’s consumer lending market is expected to grow at an average annual rate of 24 percent in the five years through 2015, the China Daily reported Thursday.  oosted by rising personal wealth and government support, the balance of consumer lending, including mortgages, credit card balances, automobile loans and unsecured personal loans, will triple to 21 trillion yuan (3.3 trillion U.S. dollars) by the end of 2015, the newspaper cited a report released by the Boston Consulting Group (BCG) as saying. http://news.xinhuanet.com/english2010/china/2011-09/01/c_131088359.htm

A new personal income tax law of China will be implemented from Sept 1, exempting 60 million people from paying personal income tax from that date onwards, china.com.cn reported Wednesday. According to the new law, people with monthly personal incomes under 3,500 yuan ($541) after pension, medical and unemployment insurances and housing fund are deducted will no longer need to pay personal income tax. http://news.xinhuanet.com/english2010/china/2011-09/01/c_131088395.htm

Swedish economy has slowed down to a halt, but would resume recovery in later 2012, a report released by Sweden’s National Institute of Economic Research (NIER) said here on Wednesday. The Swedish economic growth rate will be at 4.3 percent instead of previously predicted 4.4 percent this year, and 1.9 percent instead of 2.9 percent next year, NIER said in the report.http://news.xinhuanet.com/english2010/business/2011-08/31/c_131087220.htm

International rating agency Standard & Poor’s (S&P) confirmed Russia’s stable sovereign credit ratings on Wednesday, giving A-3 for its short-term foreign currency sovereign rating, and BBB for long-term. The long-term rating for Russia’s ruble-nominated bonds remains at BBB+ level, while short-term rating is re-confirmed at A-2 level, S&P said. All these ratings were given a “stable” forecast, reported Itar- Tass news agency. Russian stock markets grew following the S&P announcement on Wednesday, with the RTS index up by 1.77 percent and MICEX index up by 2.02 percent.http://news.xinhuanet.com/english2010/business/2011-09/01/c_131087264.htm

The Philippine economy needs to post a double digit growth in the second half to achieve the ambitious 7 to 8 percent official growth target for 2011. Given that the country’s Gross Domestic Product (GDP) only expanded by a disappointing 3.4 percent in the second quarter, the country’s economic managers may need to either downscale the target or work doubly hard to post double digit growth in the second semester. National Statistical Coordination Board (NSCB) Secretary General Romulo Virola said in Wednesday’s briefing that to attain a full year growth of seven percent, the economy must grow by 9.9 percent in the second half. To achieve an eight percent growth by yearend, the country’s GDP needs to expand by at least 11.8 percent in the second semester. http://news.xinhuanet.com/english2010/business/2011-08/31/c_131087059.htm

Cs.com.cn
Severe economic slowdown in major economies such as the United States and Europe could destabilize capital flows in East Asian economies, a senior Asia Development Bank (ADB) official said Thursday. “Economic growth in emerging East Asia remains robust, but fears of slower growth in mature economies are mounting. A severe slowdown or contraction in mature financial economies could impact on emerging East Asian economies, potentially destabilizing capital inflows,” Iwan Azis, head of the ADB’s Office of Regional Economic Integration, said at a conference held in central Seoul.http://www.cs.com.cn/english/ei/201109/t20110901_3039156.html

Brazil’s industrial production increased by 1.4 percent in the first seven months of 2011 compared with the same period last year, the country’s statistics agency IBGE said Wednesday. Industrial output increased by 0.5 percent in July compared with June when a 1.2-percent decrease from the previous month was registered. However, the July figure fell 0.3 percent compared with the same period in 2010. In the August 2010 to July 2011 period, industrial production was up by 2.9 percent from the previous 12-month period. http://www.cs.com.cn/english/ei/201109/t20110901_3039151.html

Thehindu.com
Amid fears of slowdown, the Planning Commission on Wednesday said India may not achieve over eight per cent economic growth in the current fiscal on account of likely fallout of global uncertainties on domestic economy. “I don’t think so…We never felt that this year was going to be a big growth year,” Planning Commission Deputy Chairman Montek Singh Ahluwalia said when asked if India could achieve over eight per cent GDP growth during 2011-12. India’s economic growth rate moderated to 7.7 per cent in the first quarter of 2011-12 compared to 8.8 per cent the same period last fiscal. This was the lowest growth in the last six quarters. http://www.thehindu.com/business/Economy/article2415134.ece

Economictimes.com
The Federal Reserve could ease monetary policy further if economic conditions deteriorate and should not rule out any policy options, a top official of the US central bank said on Wednesday.  The US economy remains disappointingly weak and risks to the recovery have risen, said Dennis Lockhart, president of the Atlanta Federal Reserve Bank, though a renewed downturn is unlikely. http://economictimes.indiatimes.com/news/international-business/recession-2011-federal-reserve-may-ease-further-if-us-economy-worsens-says-lockhart/articleshow/9819211.cms

Inflation measured on consumer price index for industrial workers ( CPI-IW) moderated to 8.43 per cent in July against 8.62 per cent in the previous month.  “The All-India (General) point to point rate of inflation for the month of July, 2011 is 8.43 per cent as compared to 8.62 per cent in June, 2011,” the Ministry of Labour data said. Similarly, the inflation based on food index was 6.25 per cent in July, down from 6.91 per cent in June. http://economictimes.indiatimes.com/news/economy/indicators/consumer-price-inflation-moderates-to-8-43-per-cent-in-july/articleshow/9812875.cms

Yonhapnews.co.kr
A majority of South Koreans are generally upbeat about the country’s economic future, a poll showed on Thursday. The poll, conducted on 800 adults nationwide by the Federation of Korean Industries (FKI), showed 63.0 percent expressing positive views about the state of the economy 20 years down the road compared to 27.4 percent saying they are pessimistic. The lobbying group of large businesses added that of those that believed the economy will continue to do well, 10.2 percent said they are very upbeat, with 52.8 percent stating moderate optimism.http://english.yonhapnews.co.kr/business/2011/09/01/28/0503000000AEN20110901005600320F.HTML

TheMoscowTimes.com
Belarussian supermarkets are running out of meat as Russians take advantage of a currency crisis that a devaluation and the world’s highest borrowing costs have failed to stem. “All meat has gone to Russia,” said Alexander Andreyevich, an 82-year-old former tractor-plant worker. “My relatives near the Russian border called me a few days ago and said the shops are empty.” Belarus is grappling with a balance-of-payments crisis that forced a 36 percent devaluation of its ruble in May. It may need to raise $12 billion by 2013 through state-asset sales and international bailout loans to stave off economic collapse, Moody’s Investors Service said last week. The crisis has sparked protests as Belarussians vent their anger at President Alexander Lukashenko. While the authorities have sought to control food costs to quell public discontent, buyers from neighboring Russia have pushed meat prices higher. http://www.themoscowtimes.com/business/article/belarus-runs-out-of-meat-as-russians-exploit-currency-plunge/443004.html#ixzz1WfyOTBVK

Fin24.com
Zimbabwe, still struggling to recover from a catastrophic economic collapse three years ago, is still “far off” from qualifying for World Bank financing, a senior bank official said Wednesday. The country endured eight years of negative growth, inflation of 500bn percent, a currency that was rendered worthless and a severe breakdown of infrastructure that many economists blame on President Robert Mugaabe’s policies. But after entering into a coalition government with the opposition in 2008, Zimbabwe has cut inflation to less than 5%, introduced the US dollar as its currency and forecasts growth this year of 9.3%. http://www.fin24.com/Economy/Africa/Zim-wont-get-World-Bank-loans-soon-20110831

Thetrader.se
After posting this afternoon, the market might close below 1200, we got some “dissapointed” emails. Well, the market is reversing today. Let us see if we manage to close below 1200, and everybody gets fooled into the false bull once more. Meanwhile, for those following our charts, we reached our target today, 1220. For the interested, below is a chart of SPX. We clearly see how strong reversals, both up and down, SPX puts in after those typical hammer/inverted hammers/hanging man formations. Today is one of those reversal days. http://www.thetrader.se/2011/08/31/spx-reversal/

While the bulls desperately tried pushing the market higher at European close, it is now falling apart. The Dax spike at the close confused some participants. Somewhat peculiar buying pattern, or was the investor so bullish? http://www.thetrader.se/2011/08/31/european-close-momo/

SPX is up 100 points from the lows this Friday, when Bernanke said nothing. Imagine if he had announced something. Congratulations to all the longs out there, and the ones who followed our view of selling vol, especially as hedge funds collectively hold large SPX shorts, and NYSE short interest hit highs since 2009 a couple of days ago. Teflon Market seems to be back. http://www.thetrader.se/2011/08/31/spxs-100-points-move-in-3-days/

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