Peter J. Cooper’s Weblog

November 20, 2008

$3.5bn Saudi gold deal huge against $6.5bn consumer record

Filed under: Gold & Silver, US Stocks — peterjcooper @ 12:06 pm

6a00e55291c5fc883300e55489e5488833-800wiThe revelation of the purchase of $3.5 billion worth of gold by a group of Saudi Arabian investors over the past month is a huge gold deal when you consider that total record third quarter spending on gold by consumers was $6.5 billion.

Since the story broke on this blog I have received an email from an individual claiming to have personally handled the Saudi deal and confirming its veracity. But nobody appears to have a clue where the gold came from or who actually bought it.

Public sales of gold coins and bars reached their highest levels for more than a decade in the third quarter while gold exchange traded funds saw record inflows as revealed by the World Gold Council in its latest Gold Demand Trends report.

Record demand

The WGC said consumers spent $6.5 billion in buying 232.1 tonnes of gold coins and bars in the third quarter of 2008, an increase of 121 per cent in volume terms over the same period a year ago, and the strongest growth since the mid 1990s. In the first nine months of this year, net retail investment in coins and bars reached 443.6 tonnes, 10 per cent more than all of 2007.

Germany and Switzerland saw a surge in demand for coins and bars in the third quarter with net retail investment of 19 tonnes and 21 tonnes respectively, up 533 per cent and 500 per cent compared with the same period a year ago.

Exchange Traded Funds also saw record buying interest with inflows of 150 tonnes in the third quarter, up 8 per cent over the same period last year, with investors spending more than $4.2billion accumulating holdings in ETFs. Lehman’s implosion in September led to a jump in ETF inflows, which surged by an unprecedented 100 tonnes in just five consecutive trading days.

Jewellery demand

Strong growth was also seen in the jewellery sector where demand reached 647.6 tonnes in the third quarter, up 8 per cent compared with the same period last year, and taking spending to $18.2 billion. India, the world’s largest jewellery market saw demand reach 178.5 tonnes up 29 per cent compared with the same period last year as consumers rushed to take advantage of lower prices ahead of the Diwali festival in October.

Why then have gold prices fallen in the third quarter? It certainly defies the laws of supply and demand. As commented elsewhere on this blog the problem is that the Comex paper futures market sets the spot price of gold, and as hedge funds have sold this paper the price of gold has fallen.

This has, however, just further whetted consumer appetite and for once retail investors are acting rationally and buying on falling prices. That prices could suddenly reverse upwards, and soar ahead is also obvious. It just needs the hedge funds to stop their disposals, which must surely be almost done.

November 18, 2008

Will hedge funds stop selling on December 31st?

Filed under: UAE Stocks, US Stocks — peterjcooper @ 5:55 pm

traderes1608_468x411Hedge funds are driving global capital markets down and down with their relentless selling, so when will they stop?

This morning I listened to Citadel Capital CEO Ahmed Heikal’s presentation to the Private Equity World MENA 2008 organized in Dubai by Terrapin. He suggested hedge funds would look at their year-end redemptions after the November 15th deadline and carry on selling until they could fulfill redemptions.

Hedge fund sales

That makes good sense. Hedge funds have no choice but to sell down all their assets to repay their obligations to subscribers. If as Mr. Heikal suspects redemptions have been higher than expected then so will be the sell off.

But does that mean the selling will stop on December 31st? It could indeed mark a selling climax - the favored time for a stock market crash by Indian astrologers, although have we not already had one in October-November?

Slower meltdown

A gloomy delegate from Germany said he thought the bailout packages would string the slow meltdown of stock market values over the next couple of years, and the year-end climax would just be a part of that long process.

To be fair he has stock market history on his side. Crashes are dramatic but the bigger picture is a much longer up or down wave, and you do not need a degree in macroeconomics to see what type of wave we might now be experiencing.
Order my book online from this link

November 17, 2008

Cash is king, but gold is the crown prince in waiting!

Filed under: Gold & Silver, US Dollar, US Stocks — peterjcooper @ 2:36 pm

tutankhamun-and-the-golden-age-of-the-pharaohs864_mainpicture‘We have just been in Bahrain and everybody is cashed up!’ one banker told me today. My reply was that if everybody is now in cash then it just has to be the wrong place to be! Thinking about it there are some very good reasons to worry about a large cash position.

Quite apart from the contrarian argument that the crowd is always wrong, you have to consider what is happening to the supply of cash. We know that with the sell-offs in global capital markets there is plenty of demand for cash, what about the supply?

Money supply out of control

Another banker today showed me a chart of US money supply growth over the past few months, and highlighted a 111 per cent increase. This compared with something like 15 per cent money supply growth in the early 1930s as the US authorities grappled with the Great Depression!

There is an absolute tsunami of money coming into the system. What happens when the supply of something exceeds the demand: the price drops. And that is exactly what is going to happen to the US dollar - the authorities are about to inflate away their debt problem.

It is so simple: the debt stays at the same nominal amount, you print more money and the real value of the debt falls. Of course in the real world that also means a bond market collapse as inflation will make both the coupon and real value fall.

I wonder how long it will be until cash is deposed as king of the investment world? My guess is that it will not be long after the sell-off ends. How long will that take? It could be at the end of the year as the hedge funds attempt to square their positions, or it might be next spring after another lurch downwards in stock prices.

The bottom for stocks will be the top for cash and treasury bonds. Then inflation will start to emerge and depose cash from its temporary throne. Who will be the new king?

Gold and silver

Step forward precious metals to take a bow. Everybody knows that gold is inversely correlated to the US dollar and that silver is leveraged against the gold price. But why have precious metals taken so long to claim their crown in this financial meltdown?

The straight answer is that hedge funds have been selling assets across the board and turning gold into dollars, or at least the paper gold of futures contracts into greenbacks. The physical demand for gold and silver has been growing strongly all the time, hence the silver coin shortage and the $3.5 billion Saudi gold purchase.

Once the hedge funds stop selling, and you always do eventually run out of assets to sell, then gold and silver prices will rally, and the rush out of cash and into precious metals will do something pretty spectacular to the price. Gold and silver stocks, languishing at a 40-year low, should jump and deliver phenomenal performance for new investors and repay the patience of long-term holders.
Order my book online from this link

Islamic hedge funds take another leap forward

Filed under: Gold & Silver, Islamic Finance, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 1:34 pm

45262-barclaysHedge funds with no leverage, options or futures might sound like a product stripped to the bare essentials of short and long equity strategies, but that has not deterred the $50 million seeding of the BlackRock Global Resources & Mining Fund by the Dubai Multi Commodities Centre.

At a press conference today fund arrangers Barclays Capital and Shariah Capital refused to give a target for how much the fund intends to raise when it goes public in December. However, the DMCC has now seeded four Islamic hedge funds with a total of $200 million and hopes for billions of dollars in subscriptions.

Shariah Capital’s Eric Meyer, the driving force behind the world’s first Islamic hedge funds, says this is a big day for his industry which fills a market niche for Shariah compliant investment. His company has developed tools for screening stocks to ensure they comply with Islamic principles such as low gearing, and a technique that allows shorting in compliance with Shariah.

Scholarly advice

The group also has its own in-house Islamic scholar to monitor movements within the portfolios on a daily basis to ensure nothing ‘haram’ creeps into the asset base. At the same time, each of the funds is run by a best-of-breed fund manager with huge experience in stock picking.

For example, John C. Hathaway of Tocqueville Asset Management manages the gold fund. He points to the 40-year low in gold stock prices as a buying opportunity, and says that massive money supply inflation means dollar weakness would resume very shortly.

This is indeed a bizarre time to launch a new hedge fund. But as Mr. Meyer argues these are not traditional hedge funds because they use zero leverage. Only in the facility to go long and short are they hedge funds in the strict sense.

Commodities will boom

But the timing might actually prove auspicious with stock prices around the world at such lows, and conservative stock-picking by expert fund managers looks a good strategy, particularly when focused on commodities which may recover rather quickly as multi-trillion dollar stimulus packages inflate the world economy.

It has been notable that Islamic equity funds have performed well in the downturn because avoiding heavily borrowed companies is a plus in such times. The only quibble is that staying in lowly geared companies is not good for growth in an upturn. But then we have to get there first.
Order my book online from this link

$343bn Saudi foreign reserves in ’safe’ assets, nothing for IMF

Filed under: Dubai Property, Gold & Silver, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 9:02 am

23049-20512-gold21Vice-governor of the Saudi Arabian Central Bank Mohammed Al Jasser told journalists in Dubai yesterday that the Kingdom’s $343 billion in foreign reserves were held in ‘very liquid, safe, minimal risk’ international assets. ‘Our bank exposure to international markets is extremely small’ he added.

His comments followed remarks by Saudi Finance Minister Ebrahim Al Assaf in Washington that the Kingdom has no intention of tapping into these funds to recapitalize the IMF. ‘There were lots of rumors that we are coming here to pay the bill, there is no such thing,’ he said.

However, His Excellency emphasized that Saudi Arabia would make good its promise to invest $400 billion in the oil and gas sector over the next five years. Saudi Arabia has responded promptly to the global financial crisis to secure its domestic economy, cutting interest rates, lowering bank reserve requirements, guaranteeing bank deposits and injecting billions into its banking system.

Brown’s blundering

But it appears that last week’s visit to the Kingdom by the hapless British Prime Minister Gordon Brown has backfired as his request for money to boost the IMF’s war chest has been ignored.

Al Assaf commented: ‘This is his opinion. This is not our opinion. We are not going to pay more than others. We have been playing our role responsibly and will continue to play our role, but we are not going to finance these institutions just because we have large reserves.’

Mr. Brown’s blundering diplomacy is part of his quest to flood the world with money to avoid a deep recession that will surely cost him his job when he faces his first-ever general election as Prime Minister. As Finance Minister he presided over the UK housing boom and a massive expansion of public spending, now seen as reckless domestic economic management which has left Britain the worst exposed economy in the global financial crisis.

Domestic investment for global benefit

Saudi Arabia is acting responsibly in looking to invest its money in long term economic infrastructure rather than short-term, highly inflationary spending by desperate Western politicians. New supply is the way to prevent another oil crisis, not handing money to the IMF.

It is also not surprising that local Saudi investors are also choosing to invest in sound money like gold, of which a group of businessmen recently bought $3.5 billion, apparently just before the price correction of the past couple of weeks.

Caution now reigns among Persian Gulf investors who have seen early investments by their sovereign wealth funds in Western banks decimated by stock market crashes. The feeling is that markets abroad need to find a bottom while good investments can be found closer to home in national infrastructure development.
Order my book online from this link

November 16, 2008

Gerald Celente buys gold, predicts US revolution

Filed under: Gold & Silver, Oil Prices, US Dollar, US Stocks, Video — peterjcooper @ 3:50 pm


If only Gerald Celente had not been right so many times before. If you visit YouTube there is a complete library of correct predictions. He recommended gold first in 2006. Now he is talking about the breakdown of law-and-order in America as the country experiences a period worse than the Great Depression. He sees President Obama’s mission impossible for what it is - I just hope he is wrong!
Order my book online from this link

Dubai over-correction?

Filed under: Dubai Property, Oil Prices, UAE Stocks, US Stocks, Uncategorized — peterjcooper @ 2:02 pm

burjdubaiheight
The Dubai stock market lost another 4.5 per cent of value today, after shedding a massive 25 per cent of its market capitalization last week. Bellweather stock Emaar Properties is down 80 per cent.

So does Dubai face imminent bankruptcy and collapse in 2009? Far from it, infrastructure projects will continue to be built. The Burj Dubai, the world’s tallest building, will be finished next summer.

The government is clearly short of money but not running out, and Abu Dhabi is a wealthy cousin whose help will come at a price but not an exorbitant one.

The city is suffering from inflation and traffic congestion, in short an over-heating economy. This cool down is to be welcomed and is a correction and not a crash.

The international logistics center of the oil-rich Gulf States is well positioned to survive the global economic recession next year, and will probably emerge all the stronger for having shed its weaker projects and business persons.

Business cycles

Let us not forget the cycle of capitalism is not an upward line on a graph. Fortunes rise and fall and the best survive and the weak do not.

In the context of the Dubai stock market the animal spirits are getting carried away into an error of pessimism. Emaar stock last plunged like this in 1999. If you had bought then and held for seven years you made a 15-fold profit.

Now if the world had discovered a rival energy source to oil I would have some sympathy with local investors who are throwing in the towel. But nothing has changed.

Oil prices

The supply and demand position for oil in a world of diminishing reserves is compelling, and even a very sharp dip in oil prices next year is unsustainable. Prices will rebound thanks to the multi-trillion dollar stimulus package that governments are providing.

It is not just the coffers of Abu Dhabi that will save Dubai by rolling over its debt in an emergency, the whole world is propping up the oil price with its huge public spending plans, and Dubai will get the benefit of both.

That is clearly too late for stock prices, and perhaps to prevent a nasty real estate crash, but the recovery is already baked in the cake.
Order my book online from this link

November 15, 2008

What does the $3.5bn Saudi gold rush in two weeks mean?

Filed under: Gold & Silver, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 8:22 am

saudi1_200revThe revelation on this blog, actually sourced from what appears to be a reliable story in the Gulf News, the leading regional newspaper, that Saudi Arabia has spent a total of $3.5 billion on gold over the past two weeks has naturally attracted huge worldwide interest.

I can not verify the source but all I can say is that this has the hallmarks of a genuine story, based on my 25 years in financial journalism. First, it was buried on an inside page and the amount was given in UAE currency later in the story - hardly the action of somebody looking to manipulate the gold price, more an indication that the sub-editors did not understand the importance of this story.

Second, this is how the best stories emerge from Saudi Arabia - the market is not very transparent but insiders do notice big changes and pass this information on, and it surfaces as well sourced rumor. I am afraid this is about as good as it gets in the Middle East.

Truth in rumors?

After 9/11 we had rumors about chartered 747s flying full of gold and dollars back to the Kingdom to avoid the increased scrutiny of US regulators. Was it true? Real estate here is said to have boomed on the back of this new money - that certainly happened, did the transfer? We do not know for sure.

So what is going on? By whom and why are these gold purchased being made? Again we can only indulge in informed speculation - nobody is ever going to give an on the record comment on this.

However, we do know that the Saudi stock market has crashed over the past two weeks. There has been an enormous amount of money cashed out. The obvious source of the money for gold purchases has to be that money.

The problem for Saudis is that by cashing out of local stocks they get their own riyals in exchange, and riyals are effectively US dollars due to the currency fixed link. The US dollar is presently high, so diversifying into another asset class makes sense.

But what do you buy? What is safe these days? Dubai villas, perhaps but the rest of regional real estate is crashing? US stocks - you must be joking?

Conspiracy nonsense

I think some of the conspiracy theorists are wide of the mark. People love to come up with elaborate rationales for actions. It is laughable to see Saudi Arabians rushing to buy gold as a conspiracy to bring down the West. The West has brought that on itself, and the Saudis are just trying to find an effective shelter for their wealth from that collapse.

Gold and silver are precious metals with a limited supply that retain their value over time. Also if we are in a repeat of the late 1970s, as this author believes, then cash and gold are the safe havens, with silver probably the best of all, if very volatile.

Therefore, my lesson to draw from the Saudi gold rush is that very much higher gold prices are coming and investors in the Kingdom are making a logical choice ahead of the global pack. If you can not beat them I would join them and preserve your capital.

Incidentally, what I would like to know is who is buying? The report in Gulf News makes it sound like the broad mass of local investors, not the government, and that would explain why such a report has surfaced. If it was the government we would not have heard about it.

So this is just a local flight to a safe haven asset class by people panicking about plunging local and global stocks. But $3.5 billion in two weeks is a big shift in demand for gold in a short period.
Order my book online from this link

November 11, 2008

‘Opportunity Dubai’ on the Amazon bestseller lists

Filed under: Dubai Property, Gold & Silver, Media, US Stocks — peterjcooper @ 4:46 pm

Many thanks to all the readers of this blog who have ordered my book from www.amazon.co.uk.
‘Opportunity Dubai’ is presently ranked No.20 in the charts for Entrepreneurship and No.30 in the Biographies and Memoirs section.

It is going to be very interesting to see how it sells in Dubai when the censor has finished reading the book. Nobody has published anything like this in the UK about modern Dubai in recent times.

HSBC has already placed a bulk order for copies which some of its clients will doubtless be receiving for Christmas, and anybody else wishing to do the same should click on the right-hand navigation link ‘Opportunity Dubai’.

The book is intended to be educational and entertaining for anybody wanting to make a financial success of living and working in the UAE. Hopefully even old Dubai hands will find some useful nuggets of information or at least something to provoke their thoughts afresh.

I began my time in Dubai by wading through many self-help guides and there was nothing specifically useful for the UAE. ‘Opportunity Dubai’ may help to fill that gap - and I hope guide many readers in finding their own opportunities in this fascinating city.
Order my book online from this link

China stimulus relatively five times bigger than US bank bailout

Filed under: Gold & Silver, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 1:26 pm

ist2_5569861-china-dragonThe $586 billion stimulus package announced by the Chinese government is mainly destined for infrastructure and real estate spending, and represents a huge nine per cent of GDP. By contrast the $700 billion US bank bailout is less than two per cent of GDP for the world’s biggest economy.

So it is quite clear that what China has done is actually more radical than anything the US authorities have done thus far to ease the global financial crisis. What will the impact of this huge spending package be on the global economy?

First, the package clearly supports higher levels of Chinese domestic economic growth than would have been evident without it. It means that the anticipated slowdown in the Chinese economy will be less than expected. Indeed, the stimulus is as big as GDP growth this year.

Commodity prices

That will be good news for basic resource producers for whom China is their biggest customer. Oil from the Middle East should command a higher price next year because of the stimulus package. Iron ore and coal deliveries from Australia will not slump.

But then that is most likely bad news for commodity price inflation that the US recession has been bringing under control, and inflation could therefore pick up quicker then expected.

However, what is not clear is whether this money will be diverted from foreign investments. Is that $586 billion less to spend on US treasuries at a time when the US is going to be borrowing heavily? That would be bad news for bond sales and the US dollar.

On the other hand, if Brazil, Russia, India and China are to take over from the US, Europe and even Japan as the engines of global economic growth next year this stimulus package is an important step to keeping that engine revved up. China is behaving both responsibly and in its own best interest.

Welcome news

On the whole, this stimulus package is probably the most important positive piece of economic news this year. It should help to prevent a global recession becoming a depression, although there seems nothing left for any country to do to avoid a nasty global recession next year.

It is still going to take the developed economies a long period to sort out their financial systems and purge the excessive asset prices left over from the era of easy money. A lot of people are going to find that they are considerably less rich than they thought.

From an investment perspective I think this package makes Asia ex-Japan a buy as soon as global markets show a sign of bottoming out. It is also highly supportive of commodity prices, and precious metal prices that will surge again as the dollar resumes its long-term devaluation.
Order my book online from this link

Next Page »

Blog at WordPress.com.