Options allows investors to bet as to whether oil will rise or fall in the future(think speculation) thus making the price of crude oil go crazy.

With the sudden impact that the oil crises has created for the U.S. Economy and other nations, there's seem to be no end in sight for skyrocketing oil prices except for a few notable theories.  Some predict that gas prices will peak around $3.90 or before Memorial Day.   Mike Lynch, president of Strategic & Economic Research says "I don't think we'll go much higher than that."   Well Mike, we hope that you're right, because if not, brace yourself for another ride on the rising oil train.

Read more below.

http://money.aol.com/news/articles/_a/oil-falls-as-options-expire-gas-prices/n20080515151709990024

http://www.energyseer.com/

I'm going over to Pelican Alley for some grub in a few minutes, and taking John and a girl he managed to scrounge up for a date.  I don't know how he does it.

Later on, I'm thinking of going down to the jetty and doing some fishing.  I miss my redneck fishing friends.  The jetty has a fish camp that has the cheapest beer anywhere.  Cans of bear are a buck, all the time, and I suppose I'll have a few beers.

I noticed the ICE was down for a substantial portion of the trading day.  That's the problem with electronic exchanges...a computer or power glitch, and there's no trading.  The same wouldn't happen at an open outcry exchange....only a presidental order would stop trading.  I remember power failures, and everyone went to the chalkboards and used cellphones to get quotes from the other exchanges.  Trading didn't miss a beat. 

I wrote a piece over on Daily Speculations that you might want to check out.

Jeff

COMMODITY ETFS
The agricultural long/short ETF pair are stuck in neutral, as the component corn, soybeans, and wheat have been mostly oppositely correlated over the past couple of weeks, cancelling out each other's moves.  Natural gas and oil have gone up quite a bit, but not quite far enough to trigger trades that would add to the short side of these markets.    Grains are more weather-driven, so I would expect the potential for sharp moves at some points in the summer.  Gold I think has a stabilizing dollar, energies about to roll over,  and its own seasonal trend working against it - I expect it to drop to at least $820 - maybe even $650-$700 in the next couple of months - then rally again.  Natural gas has almost doubled while going practically straight up, and oil has also had a big run.  The latter is at the end of a strong seasonal uptrend, and with ample inventories, it's just a (short) matter of time before a big price break.  Right now I think we're at that point of suspension just before the fall.  But with hurricane season soon upon the Southern U.S., we'll probably see a couple of big swings both down and up over the summer - particularly in July and August. 

ENERGY STOCKS
These are doing very well of late.  Husky and Credo are each up about 20%, while income fund Precision Drilling is up an impressive 58%.  I expect these to pull back when natural gas an oil correct, but not hugely.

TECHNOLOGY/NASDAQ STOCKS
Technology and growth stocks seem to be coming back with gusto.  Broadcom, Sun Hydraulics, Buffalo Wild Wings, and Trina Solar all had big up moves after their Q1 earnings reports, and Genesee and Wyoming (a short-line rail growth stock) quietly moved up 53% while no one was looking.

FINANCIALS
Still reeling, but no-one seems to care anymore.  It's amazing how the bad news is now just getting absorbed.  ING Canada today reported 82% lower earnings; sure the stock gapped down 3 points in the morning but it recovered 2 of that by the end of the day.  ING Canada, IGM Financial, and Bank of Nova Scotia are all slowly climbing, while the Proshares financial ETF is still trying to decide and not doing much of anything.

HEALTH STOCKS
Dead in the water.  But I heard on a business talk show that they tend to not do as well in election years because of all the political posturing with respect to "changing" health care in the United States.  Forest Labs and the ProShares ETF are bouncing along near their one-year lows, and Rochester Medical has bounced off the bottom but still still not all that far (and I missed that bounce while I was briefly out of the stock during some recent tweaking of the portfolio).

COUNTRY ETFS
Both the Australian (+11%)  and Asia ex-Japan (+13%) ETFs are doing well as global markets recover and commodities hold strong (for now). 

EQUITY SHORT ETFS
These are falling in opposition to the rising stock market, especially the NASDAQ one, but they're there for good reason (opposite correlation), and although for now they'll slow down my portfolio recovery if the market continues to rise, they'll put up some stingy defense if it doesn't. 

BONDS
I don't have any, but I should - the new 2x ProShares short 20-year+ bond ETF (TBT).  Rising inflation and the prospect of flat-to-rising interest rates make for a pretty good entry point for this vehicle both as a trade and a REAP core holding.  Long bonds can be pretty volatile and could produce some good action.

MARKET OUTLOOK
I think the stock market could be surprisingly strong this year.  Based on how its reacting to news, it seems to want to go up.  Perhaps the financials still need a bit of processing to do, but this earnings quarter was not all that bad, only slightly behind last year's in terms of positive vs negative surprises.  Tech stocks will probably follow through on their gains from here.  Big-caps should also do well since, while smaller companies may not in this environment, big blue chips have access to all the cheap credit they want - making stock buybacks an attractive option for them to boost their per-share earnings.

STAYING THE COURSE
Of course none of the above has any bearing on what I do.  The REAP holdings are set up to take advantage of something going on any market scenario - up, down, or sideways.  I'm just going to follow the plan, take the signals, and watch REAP catch up and pass the S&P500, then go net-profitable.  :)

Cheers,
Allocator
a.k.a George Parkanyi
gparkanyi@hotmail.com

Copyright 2008 - all rights reserved

1. First proof:
Over nineteen major coin shops around the world ran out of silver as the price fell from $21 to $16, as I documented here: http://silverstockreport.com/ssrarchive.htm from March 19th to April 2, and there are many reports even now that it will take a month or longer to get silver! Some of the big name shops included the Canadian Mint, the U.S. Mint, the Perth Mint, Kitco, Amark who is Johnson Matthey's number one silver distributor to the public, and Johnson Matthey is the largest silver refiner in the U.S. Other major online dealers popular with investors who ran out included Tulving, NWT Mint, CNI Numismatics, APMEX, bulliondirect.com and more.

Click here for full story

I have maintained for a while that oil prices (and perhaps other commodities as well) are being driven higher not by the laws of supply and demand, but by the moves of speculators. This morning the Dow Jones news-wire reported the following.

OPEC member Iran is storing about 25 million barrels of heavy crude oil in tankers in the Persian Gulf. The country expects to move the stored crude by the end of the second quarter or early in the third quarter, an official from the National Iranian Oil Co. said Wednesday.

In other words, there is so little demand that they have completely used up their on shore storage capacity and don't expect to clear this inventory until October. Clearly it is time for Senator Byron Dorgan's Bill to raise commodity margin requirements. All of this talk from our President and others about third world growth being responsible for dramatically higher commodity prices is nonsense. It's his old friends in the trading pits that are responsible for creating yet another bubble. Is it possible that our new reliance on finance (as opposed to production) as the engine of our economy requires us always to create speculative bubbles? First Internet stocks, then housing, now commodities.

Abaixo: Índices dos commodities na Bovespa: http://br.advfn.com

Cacau Futuros Jul 2008	Café Futuros Jul 2008	Açucar Branco Futuros Ago 2008
Dow Jones (índices)
EUA - Carvão Dow Jones (índices)	EUA - Aço Dow Jones (índices)	EUA - Semi-condutores Dow Jones (índices)

I'm going surfing, then picking John up at SRQ.

I better make arrangements with Sotheby's to deliver my art.  I left NYC without giving them instructions, and they want to know where and when it should be delivered.  Frankly, I'm going to try to convince them to store it for the summer, and I'll deal with it when I get back.

Jeff

T. Boone Pickens has liked oil in the past, and I can't wait to check out his current view point on oil.

http://paul.kedrosky.com/archives/2008/05/09/great_t_boone_p.html

The honest answer is, no one can be sure, but the signs of a commodity bubble are quite evident. Bloomberg cites that a lack of real demand to heat our homes, power our offices and feed our families is not a catalyst for high prices. Obviously, this is true, and those of you who are touting the BRIC economies, namely India and China's demand for energy and food are not 100% right either. Yes, there is ridiculous demand from India and China, but why did the futures market JUST realize the Tiger and Dragon's hunger for energy? Did world wide demand really increase so much that crude is up 30%? I am not so sure that argument works well either.

Investors spotted a gradual trend in rising commodity prices, and now everyone is trying to get a bite. Individual investors now picking at the Goldman Sachs Commodity Index, to get a chunk of the profits as oil, natural gas, corn and their commodity counterparts see a significant price appreciation. It is important to be weary of a bubble and act with caution.

An interesting article with a similar view from Bloomberg.

I'm slowly getting back into the grove of trading.  My mind is starting to focus, and I'm thinking both logically and rationally.  My edge is returning.  That trip to New York, although expensive, was the best thing that I could have done.  Plus, I picked up a nice piece of art.

My sister is staying here for the summer, and telecommuting. I offered to let her move in permanently, but I don't think she would do that.  I hope I don't cramp her style:)

I need to revisit my Mexico plans, and see what John wants to do regarding the trip.  He's really in the mood for Mexico, and wants a good surf trip.  I will say that the place we're staying, San Blas, could be described as rustic.  In fact, rustic would be a very charitable description.  However, the waves will be good, the beer cold, and the tropical nights will allow me to get my book done.

I ordered another Panasonic Toughbook, CF-19 Tablet with digitizer.  This is the laptop that I'm going to take with me on our extended vacation.

I need to get over to see Denise's grave and make sure that the head stone is right.  I need to bring some flowers, and just sit down and have a chat with here.  That's what I really miss.

Here's an interesting article that has it all wrong.  Journalists shouldn't try to explain economics.

http://www.csmonitor.com/2008/0507/p09s02-coop.html

Jeff

Molte sono state le ragioni di "analisi economica" che sono state usate per dare una spiegazione a questo fenomeno.... e sicuramente con un certo fondamento. La Cina e l'India stanno portando le loro popolazioni a livelli di benessere sempre più vicini a quelli dei più avanzati paesi occidentali, e probabilmente, la tendenza in questo senso sarà destinata a durare ancora diversi anni (salvo sorprese!). Oggi siamo quindi in molti nel mondo a consumare benzina o a comprare pane e in futuro saremo anche di più. Ma è solo questa la ragione che ha causato il forsennato rialzo dei prezzi delle materie prime sui mercati finanziari? 

Le variazioni fatte registrare negli ultimi 1-2 anni, ma anche solo negli ultimi mesi (vedi benzina e riso), sembrano in verità fuori dalla logica di crescita della domanda mondiale di quei prodotti. Come ha ben sottolineato una giornalista di Bloomberg.com negli ultimi giorni, rialzi così esorbitanti sono forse dovuti a un cambiamento nella natura dei "partecipanti" a questi mercati.

In passato le borse delle materie prime erano dominate soprattutto da soggetti che lavoravano con le diverse materie prime anche nell'economia reale (produttori di rame, società agricole, petrolieri, ecc.) e che utilizzavano la borsa stessa per coprirsi da eventuali oscillazioni dei prezzi che potessero incidere negativamente sul fatturato delle loro aziende. Oggi sia questi soggetti che altri (es. fondi pensione americani) stanno incrementando il carattere "speculativo" di queste borse con l'obiettivo più pressante  di fare profitti piuttosto che di cercare uno strumento di copertura.

E quindi in corso un allontanamento da una situazione di prezzi razionali (cioè determinati dalla realtà dell'economia reale)? Qualcuno già parla di bolla.... staremo a vedere!

Jeff

The price of oil is an example of how speculators cause these inflationary pressures by replacing supply and demand. The media and politicians rush to blame scapegoats such as oil companies, when the actual villains are financial speculators. Traders in opaque, sophisticated, financial markets have taken over oil prices by their trading “paper oil” in British and American stock exchanges. 60% of the price of oil, which reached $125.00 per barrel recently, is pure speculation. The speculators such as large trader banks and hedge funds receive $75.00 of this $125.00 as profits. See the May 6^th article, “Speculators knock OPEC off oil-price perch,” by F. William Engdahl in the Asia Times on line @ www.atimes.com (www.atimes.com/atimes/Global_Economy/JE06Dj07.html)

The main source of the present global inflation is the speculation of commodities and currencies. This ability to speculate can only be stopped by United States working in cooperation with the international community. E-mail the three presidential candidates to end this travesty, if they are elected, by sending this blog to: www.hillaryclinton.com, www.johnmccain.com, www.barackobama.com.

da: www.repubblica.it

Inflation, as reported by the Bureau of Labor Statistics, doesn’t sound too bad right now, with the Non-Seasonally Adjusted Consumer Price Index, excluding food and energy, up only 2.4% over the past year. Lots of things we buy continue to go down in price, including new cars and trucks (down 1.1%), computers (down 12%), and televisions (down 18.3%). And, as I have argued myself, the dramatically more agile global supply chain seems ready to readjust more quickly than ever before to shifts in the underlying balance of supply and demand.

But such macroeconomic truths may offer cold comfort to many real-world businesses and consumers. This may be especially true here in the United States, given what may be pent-up demand for a meaningful adjustment in our consumption patterns.

Consider another set of facts: the Institute of Supply Management, in its most recent Report on Business for Manufacturing (May 1, 2008 ), offered data showing producer prices are overwhelmingly up for American manufacturers. The data itself is scarier than the words convey, showing a huge preponderance of price increases across all commodity categories. The numbers for the past four months are 76, 75.5, 83.5 and 84.5, which is notable because everything else in the report tracks in the 40s and 50s. The underlying inflationary pressure on manufacturers is massive.

All’interno di una impostazione di lungo con minimi decrescenti, il Msci World osserva una settimana di pausa nel suo cammino di positività sul breve. Il medio periodo si imposta nella lateralità, mentre il lungo periodo rimane ribassista.
L’obbligazionario, dopo un profondo storna, sembra potersi reimpostare positivamente su breve e medio periodo.

PETROLIO

Ennesimi record per il petrolio che si trova su una resistenza dinamica di lungo periodo in area 125 dollari.

GOLD

L’oro persiste nella sua debolezza ma si intravede probabilmente la fine della correzione, nell’ambito di un trend rialzista di lungo periodo.

Yup, they are making a plea for you not to complain about their prices and bring your car back because the gas station only makes $.03/gallon.  Oh, and please pay cash because the credit card fees cut into their profit. Hahahahaha.

a) marketing department should have made the video to say it COSTS the hard working gas station folks $3.97/gallon to serve you.

b) Gas Stations make a lot of money, but not on gas.  Really, i didn't know. ;)

They obviously understand behavior and buying affinities, so they should use that knowledge to better effect.  Undercut pricing of supermarkets on milk, diapers and eggs and market the fact, "We Understand the Economic Crunch."  People will still buy the 95% margin coffee and energy drinks if they can get the gas, milk, eggs, and diapers cheaper.

It's unlikely consumers will feel much pity for gas company that the current gas price pump ads attempt to generate.  They will appreciate cheaper prices on necessities and maybe even attribute empathy to the gas stations and oil companies.

Oh, and if cash makes them more money, they should put ATMs at the pump so people have cash on hand more often.

~R

As you are no doubt aware, we are living in a time of scarcity. Consumer demand for essential commodities, such as grains, oil, and gold, has created sharp price increases for many essential goods over the past year.

On the weekend, I went to purchase a scone at my favourite neighbourhood bakery. The same scone that cost $1.45 last year now set me back $2.05, an increase of 41.4%. It’s gotten to the point where I have to choose between baked goods and cigarettes, and it’s placing a lot of stress on me.

Later that day, I went to fill up my Hummer at the gas station. I could hardly believe my eyes when the pump read a final total of $112.06. As the summer approaches, I can only imagine the price will increase even more. What am I supposed to do when it pushes $150 for a fill-up, buy a Prius? Please.

Even gold and precious metals are not immune from these precipitous price increases. I went to pick out some new custom grillz this morning, and it was going to cost me a cool five g’s. How can I maintain my street cred if I can’t afford the bling?

As a result of these commodity cost increases, my first quarter results show a loss of $4,028. While revenues increased by a modest 2.5%, operating expenses were up 27.5% over the first quarter of 2007.

So, with a heavy heart, I must inform you that I am imposing a $100 per week commodity surcharge on top of my current salary. I can assure you this is not a decision I have taken lightly. I held off as long as economically possible but with the unrelenting and unprecedented increases in the cost of commodities over the last year, I am implementing this measure to offset the effect.

Please don’t mistake this for a salary increase. My salary will remain the same. I will just be taking home an additional $5,000 per year to offset commodity prices. Same salary. Slightly more money. Not a raise. A cost of living adjustment. Understand?

The Canadian economy thanks you for your commitment to my long-term financial sustainability.

With best wishes,

Mr. Dearlove

This afternoon, I received a call from my niece in Texas. Her husband is in the service. They live near the base in an area where many other families in the service live. Yesterday, she received a visit from some kind of army personnel, as well as many of her girlfriends who also have husbands serving. From what I understand, this is what took place. She was given several locations as well as dates and times to show up for 'commodities', as well as a location on base they were required to show up today. She said the area on base they were told to go to, she was familiar with, only this time, there were large tents set up, one of which they were told to go to. She told me her fears were she would be told her husband was going to be sent overseas, however this wasn't the case. She said they were told that they would be taken care of, and to begin to stock up on non perishables. They were given a voucher for what she stated were 'large sacks' of beans, rice and other 'non perishables'. Also informed that generators would be provided. Times and dates to pick up these commodities. They were also handed out some kind of contract that the 'spouses' of personal were required to sign. It stated they were not at liberty to share this information with civilians. Her and several others when asking about what is going on, they were told the Army takes care of their own. This took place in Texas.

If you have any info on this go ahead and comment, links are fine. For the record, I am currently serving in the U.S. Army and I have not heard of this. Sounds like a hoax to me, but who knows these days....

If it was not so sad, it would be laughable.

Unfortunately it is not only sad, but extremely worrying and does not give Adam much hope that Doha will be resolved nor the food issues that bedevil the world, with closed mind thinking such as this, coupled with arrogance in spades.

This article in the Financial Times refers, and it starts:-

Germany believes China, India and the US should be forced to adopt higher environmental and health standards if they want to export food products to the European Union, says Horst Seehofer, Germany’s farm minister.

His comments echo calls by Paris for new EU barriers to free trade in response to rising global demand for food. Michel Barnier, France’s farm minister, last month called for curbs on “free-market liberalism”, a view reflected by Mr Seehofer: “We need more market liberalisation, but under fair conditions.”

Fair of course does not mean fair, but the opposite. The Minister continued:-

“This does not mean more protectionism. We do not want to isolate the EU but to apply EU standards in other parts of the world,” he told the Financial Times, adding that new standards should be agreed among industrialised and emerging economies in the World Trade Organisation.

This is economic and cultural imperialism of breathtaking arrogance. If they were successful and policies such as the EU's were adopted globally we would be setting back the cause of development let alone free trade decades. It would be as if the Green Revolution had never happened and agricultural science might well be frozen in a time warp, especially given the EUs specious views on GE and GM for example.

The UK plans to attack the proposals (see later in this post)

These proposals are about exporting European approaches to poorer countries, they might have an initial shortlist of locations, but it will be extended.

The article continued:-

Mr Darling will urge fellow EU finance ministers to support the dismantling of the CAP, claiming it is costing consumers in Europe billions of pounds a year in higher food bills, while hurting farmers in the developing world.

Mr Seehofer dismissed such assertions as “complete rubbish”. Rather, political change and greater farming efficiency in the developing world were needed.

“The developing countries need to be able to produce more food [for themselves]. They also need political reforms, better education and less corruption. Steps are also needed against big landowners that think only of maximising profits and not feeding the local population,” he said

The CAP is a byword for waste, inefficiency, bureaucracy and corruption. Plus note the attack on property rights.

Adam agrees that improved governance is needed in many countries, including the EU in agriculture, plus many European farmers are not efficient. Indeed, the CAP props up many - see France.

Then the piece concludes:-

Mr Seehofer said the EU had very high standards on “the environment, on water, on health and social issues, that are also expensive for our farmers to implement. The EU should move step-by-step to ensure that third-world countries also have to meet these standards if they want to export to the EU.”

Make it so costly that they do not bother. This is the EU where some farmers make more money by preserving the landscape than farming. The latter sentence in the paragraph is also threatening to those farmers who have managed to create a market and living by supplying vegetables such as beans from Kenya to Europe.

He said this idea was broadly in line with France’s proposals on a “European preference” in farm products to reflect higher EU standards. Poorer developing countries would not be affected, but the US, China, India and Latin America would, he said.

So in one breath it does not affect poorer countries, but then immediately prior he spoke of 3rd world countries having to comply.

Note how he attacks USA, India and China as well as Latin America.

This is rampant protectionism, cloaked in a lot of tosh and piffle and faux concern for the poor.

Where is Peter Mandelson in all this? This statement seems against what he was saying the other day, when in another FT article he was quoted as saying:-

In an interview with the BBC’s Hardtalk programme to be broadcast on Thursday, Mr Mandelson said: “It is irresponsible to be pretending to people you can erect new protection, new tariff barriers around your economy in this 21st century global age and still succeed in sustaining peoples’ living standards and jobs. It is a mirage and they know it.

and later in the same article as saying:-

Mr Mandelson said that even the rhetoric of protectionism was damaging. “It is very irresponsible in my view to pretend to people that we can disengage from international trade, we can create barriers around our economy and then be surprised when people retaliate by doing the same,” he said. “It is going to lead us into a vicious spiral of beggar-thy-neighbour policies which will take us decades back in terms of trade growth.”

Now Mandelson was referring to the US Democratic Presidential hopefuls - Clinton and Obama. However, in this writer's view you cannot say this about them and not be held to a similar standard in your own bailiwick.

No doubt Mr Mandelson will have some suitable casuistic turn of phrase to seek to distinguish and defend the indefensible views of the French and the Germans, whilst castigating those nasty protectionist Democrats. Protectionist though they are.

The UK Chancellor, perhaps for domestic reasons, plans to take a strong stance in a meeting this week, here is an extract from an FT article on Alistair Darling's viewpoint:-

The future of the European farm budget, which still consumes more than a third of all EU spending, could become the most contentious issue facing the union in the next few years.

With Gordon Brown's government under fire at home, and with public anxiety about rising food prices growing, Mr Darling's decision to pick a fight with key European partners now may be influenced by domestic politics. Many of his prescriptions for the CAP are shared by the European Commission, which is phasing out the last export subsidies and which wants to shift more direct support for European farmers to rural development.

But Mr Darling wants to go much further, scrapping EU external tariffs, which inflate prices for commodities such as beef and dairy products, and ending all direct payments to farmers. "It is unacceptable that, at a time of significant food price inflation, the EU continues to apply very high import tariffs to many agricultural commodities," he writes.

The chancellor says "efficient international markets" - not protectionism - are the best way to maintain global and European food security, and that a successful conclusion of the Doha round of world trade talks is vital.

He also calls for action to raise "farmer knowledge" of mechanisms such as agricultural futures and options to manage risk, and for more investment at a European and national level into agricultural research.

It is perhaps unfortunate that Mr Darling perhaps lacks credibility given his recent performance in the field of economic management and his Prime Minister's low political status.

Again though we see the common factors emerging here when looking at a European dimension that we see elsewhere, the need for:

• better governance, for example massive reform of the CAP
• elimination of distorting subsidies
• more sustainable approach to biofuels
• better agricultural management and development
• improved farming practices
• free trade
• successful conclusion of the Doha Round
• greater investment in agricultural research
• more overall investment in developing

If this was done we might see improved food security and living standards for the poor, more sustainable farming practices and cheaper food in Europe.

Nah, Adam is being delusional - but one can hope.

I will note that the art market has been perking up.

I haven't been spending much time on the internet as of late.  I've been going to places that have wifi, but have only checked into the internet about once a day. 

I have managed to do a very rough outline for my book, and I am looking forward to getting this project going in ernest. 

by Vivian Salama

The National

Importers, anxious over the rising prices of basic food items, are calling for the Government to subsidise rice by at least 25 per cent.

Importers say their margins are being squeezed and, in some cases, they are making losses as they attempt to reconcile record commodity prices with a demand by retailers to keep costs down.

“Rice is the most basic food item so, of course, it should be subsidised,” said Riaz Hussein Bhojani, the general manager of Rashwell Company, a Dubai-based importer.

Global rice prices jumped from US$650 (Dh2,386) to US$1,000 per tonne in just the first three months of this year, hitting a 25-year high. India’s basmati rice export prices have also gone up from US$1,100 to US$1,200. In response, several retailers, including Baniyas Co-operative Society, Carrefour, the Union Co-operative Society and Lulu hypermarkets have agreed to implement price caps on dozens of basic commodities.

“International rice prices are going through the roof so, by fixing retail prices here at 2007 levels without subsidies, the Government is not taking into consideration what importers will have to face. And [they are] making room for a black market,” an Abu-Dhabi rice importer told Reuters. “I think that asking for only 25 per cent rice subsidy is a fair and modest demand.”

Last year the UAE imported about 750,000 tonnes of rice from countries including India, Pakistan, Thailand and Egypt, traders said. According to Mr Bhojani, one tonne of Pakistani basmati rice now costs his company Dh5,505 to import, up from Dh2,569 last year. A 39kg sack of Pakistani basmati rice costs him as much as Dh230.

“It is difficult for me to understand why the government is giving millions of dollars to other countries and not helping its own people,” Mr Bhojani added.

A senior official with the Emirates Society for Consumer Protection, a branch of the Ministry of Economy, believes that rice subsidies are not a solution to the crisis. 

“Salary subsidies would be a better economic option than rice subsidies,” he said, noting that the Government was not presently considering such a move. The Government is days from announcing a contingency plan to alleviate the burden of inflation on UAE residents, the official added. 

The Abu Dhabi Department for Planning and Economy has reported a 10.7 per cent jump in inflation last year, driven by higher rents, transport and food costs. According to the Emirates Consumer Protection Society, food inflation could rise as high as 40 per cent this year.

While several countries in the region have used subsidies as a way of addressing domestic poverty, high inflation has forced some to reconsider.

In Syria, for example, basic items such as sugar, tea, bread and water are subsidised at a price the country’s poorer residents can afford. However, with the influx of more than 1.5 million Iraqis to Syria since 2003, the country’s lawmakers have considered dropping subsidies as the economic burden becomes increasingly hard to absorb. Food and energy subsidies in the country are predicted to cost US$7 billion this year – almost 20 percent of the country’s gross domestic product, according to government estimates.

Burhan Turkmani, the general manager of Al Rabiah Trading, a Dubai food importer, said he was not optimistic that subsidies would be applied here, despite believing that a 25 per cent subsidy was a reasonable demand. “It is a rich country and the economy is strong, so I believe the Government can certainly absorb such a cost. But I don’t think it will happen because of the high number of foreigners living here,” he said. “I think a government’s first priority is to help its own citizens, so maybe rice subsidies are not on the top of the list.”

Among other measures, the Government is exploring the option of purchasing farms in Pakistan in an effort to boost strategic food reserves. Last month the Ministry of Economy urged retailers to start stockpiling basic food items to prevent shortages caused by export bans in countries such India, Egypt and Brazil. The Government has since recommended that, as a cost-cutting measure, retailers consider eliminating the middlemen when importing commodities.

Interesting statistical analysis of gold newsletter sentiment.

via Gary's blog.

We'll be revisiting this article come June.

When Bad News Is Good News for Gold
By MARK HULBERT

I HAVE SOME GOOD NEWS for beleaguered gold investors: The editors of gold timing newsletters finally have thrown in the towel and given up hope that the bull market in gold will soon resume.

If you have a hard time understanding why that is good news, you're not familiar with contrarian analysis. According to contrarians, the market rarely accommodates the majority, especially at major market turning points.

That means that the rallies that have the most staying power tend to be those of which the majority is skeptical, while declines thrive on the hope that the decline will be only temporary. To put it in terms of phrases that most of you probably have heard before: Bull markets like to climb a wall of worry, while bear markets like to descend a slope of hope.

This psychological perspective helps investors to differentiate between a decline that is a mere correction from one that is the beginning of a major bear market. In the former case, the typical market timer is likely to react to the decline by quickly running for the exits, certain that the decline is the beginning of the end.

In the latter case, in contrast, when the decline is likely to be the beginning of a major bear market, the average market timer is likely to instead conclude that the decline is only a temporary "pause that refreshes," and that it therefore represents a great buying opportunity.

From this perspective, things as recently as mid-April were not looking good for the gold market. During the second and third weeks of April, for example, a period in which gold bullion dropped some $25 per ounce, the editor of the average gold timing newsletter actually became markedly more bullish.

This reaction far more closely fits the template of what precedes more serious declines than mere bull market corrections, and, as a result, contrarians concluded that a bottom was not yet at hand.

The price of an ounce of gold quickly dropped another $50.

Today, however, the editors of gold timing newsletters are beginning to throw in the towel. This has dramatically changed the sentiment picture, to the point that contrarians are now willing to entertain the notion that a sustainable rally can now begin.

Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest.

As of the close of trading on Tuesday, May 6, the HGNSI stood at minus 10.7%. This negative level means that the editor of the average gold timing newsletter is net short the market, advising that 10.7% of the typical recommended gold portfolio is invested in a bet that the gold market will decline.

Since the beginning of 1985, some 23 years ago, the HGNSI has been this low or lower only about one-tenth of the time.

But that's not the only reason that contrarians are encouraged: The HGNSI's decline in recent weeks has been precipitous. In mid-April, for example, the HGNSI stood at plus 25.0%. So in only about three weeks' time, the HGNSI has declined by nearly 36 percentage points. This quick a drop suggests that many gold timers have thrown in the towel, which is a bullish sign according to contrarians.

The Hulbert Financial Digest has rigorously analyzed the HGNSI back to the 1980s, studying the correlations that exist between high and low sentiment levels and how gold bullion has performed over subsequent weeks and months. These correlations are statistically significant at the 95% confidence level that statisticians often use to assess whether patterns are genuine.

To illustrate, consider first the 10% of weeks since 1985 in which the HGNSI was as low as it is currently, or lower. (About 120 individual weeks are included in this decile.) Over the 30 days following each of these instances, gold bullion produced an average annualized return of 14.1%.

That's a lot better than the 4.4% average annualized produced by gold over the entire period since the beginning of 1985.

Now consider how gold bullion performed in the wake of sentiment readings at the opposite end of the spectrum -- when the typical timer was quite exuberant, in other words. On average following the 10% of weeks since 1985 in which the HGNSI was highest, gold bullion produced an annualized loss of 1.4%.

That's markedly worse than average.

These results definitely point to a higher gold price over the next month. But note carefully that there is no guarantee: Statistical significance does not equal a guarantee. So one most definitely should not throw caution to the winds.

Nevertheless, unlike the situation that prevailed as recently as mid-April, the odds are now looking good.

"Let men imagine money as something somehow immortal, to be construed as Holy Writ instead of handled as a tool, and they lose both their sense of humor and their capacity to think. The depreciation of any and all values unable to pay a loan shark's rate of interest transforms the company of gentleman adventurers into a colony of anxious squirrels. Other people come to be seen as objects, commodities, or product placements, and freedom, in practice if not in commencement speeches, as the license to exploit." - Lewis H. Lapham

Will write on this and fair vs. free trade tomorrow if the time.