Commodity Markets - Shaw Capital Management Investment

The general improvement in sentiment in the financial markets over the past month has also been evident in the commodity markets.

There has been further evidence that the global economic recovery in continuing, there has been more support for the view that the pressures resulting from the sovereign debt crisis in Europe may be easing.

As a result, base metals are generally lower over the month, even after the rally on the latest Chinese announcement about the renminbi; most soft commodity prices are slightly lower, although there have been sharp rises in beverage prices on concerns about future supplies; precious metal prices have moved higher as investors have continued to seek “safe havens in the storm”; and there has been a strong recovery in oil prices, helped by optimistic signs of a pick up in US demand.

Base metal prices are ending the past month well above recent low levels, but still slightly lower overall, and there has been an additional boost to confidence in the announcement of a “more flexible” policy towards the renminbi.

It is assumed that even a modest appreciation of the Chinese currency will boost the purchasing power of Chinese buyers, and increase still further China’s position as the world’s largest importer of a broad range of global commodities.

But there is clearly a risk that the importance of this fairly modest move is being exaggerated; and the extent of the earlier reaction should be a powerful warning of the degree of speculative activity in the markets, and the vulnerability of prices. Chinese demand clearly remains a critical factor, and the evidence suggests that it will remain reasonably strong.

Soft commodity markets have again produced a more mixed performance.

Movements in grain prices have been fairly modest, although there has been some support from a recent report by the US Department of Agriculture that the increasing importance of ethanol production will continue to draw down stock levels and help to offset the effects of what is expected to be a bumper grain crop this year.

Most price movements elsewhere have been fairly small; but there have been two significant exceptions. Cocoa prices have been pushed to their highest levels for more than 30 years because of disappointing crop levels in West Africa, and particularly in the Ivory Coast, and the warning that the fall in production will continue unless there is significant investment in new trees and in fertilisers.

There are fears that demand will outstrip supply for the fifth successive year in the 2010/2011 season, and this has forced cocoa buyers to push up prices to cover their requirements, and has exposed the position of banks and others that sold call options in the expectation that prices would fall. The second significant exception has been coffee prices, which have increased by almost 20% during the past month.

The indications are that one commodity-trading house has accumulated a very large number of futures contracts and has indicated that it intends to take delivery of the coffee.

Other funds that had sold futures contracts short have been unable to obtain the coffee to honour those contracts, and so have been forced to scramble to close them and have suffered considerable losses as prices have moved higher.

It is not yet clear whether this technical position has now been cleared; but the fundamentals do not appear to justify the price action, since Brazilian production is expected to be very high in the current season, and so, once the technical position had been cleared, prices could fall fairly sharply.

Oil prices have also been affected by the improvement in market sentiment, and have recovered very sharply over the past month.

Speculative activity has been an important factor; but there has also been an encouraging report from the US Department of Energy indicating strong demand for oil products in the US, and a larger-than-expected reduction in crude oil inventories.

There has also been evidence of continuing strong demand from China; and a warning of the onset of the hurricane season in the Gulf of Mexico, and its possible effects on production levels.

So far however the dramatic oil spill at the BP production well in the Gulf does not appear to have had a noticeable effect on market prices, although the possible consequences, especially for deep-water drilling operations in the future, could clearly become a very significant factor.

The recovery in prices has been very impressive; but it may not be sustainable. OPEC itself has recently issued a very cautious monthly report which argues that “recent developments have moved oil prices out of equilibrium”, and which emphasises that increasing supplies from non-OPEC countries are keeping downward pressure on prices.

It concludes, that “although demand has seen some improvement recently, it has been more than overwhelmed by the higher growth in supply”. It seems likely therefore that the present rally will lose momentum unless there is a serious deterioration in the political situation in the Middle East. Precious metal prices have also moved higher over the past month; investors are clearly still seeking “safe havens in the storm” despite the improvement in sentiment about prospects that has pushed some other commodity prices higher.

Gold prices have reached $1250 per ounce, and silver prices have also moved significantly higher, with exchange-traded funds aggressive buyers of both metals.

The World Gold Council, in its recent quarterly report, indicated that demand for gold was “exceptionally strong”, and that it was expected to remain so for the rest of year, “driven by jewellery demand in India and China, and investment demand in the US and in Europe”.

However it is clear that investment demand is the more important factor, with EFT gold holdings now above 2000 tons, and central banks also adding to their holdings again.

There is an obvious risk that the latest surge in prices will lead to some profit taking. But given the present situation, and particularly the risk of sovereign debt defaults, it would be unwise to assume that the improvement in precious metal prices in over.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

Financial Markets Focusing Greece and Spain - Shaw Capital Management Newsletter

The situation in Greece and in Spain has obviously caused great concern in London. But the Bank is also aware of the risks as a time when the economy is still in a very fragile state, and of the need to compensate for the fiscal retrenchment by maintaining a supportive monetary policy, and low short-term interest rates. There are therefore reasons for concern about the prospects for sterling. If the latest measures do succeed in reducing the fiscal deficit to manageable levels without aborting the economic recovery, and if the problems affecting the euro continue, or become even more serious, then sterling may well maintain current levels or even appreciate further.

Shaw Capital Management, Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

But the situation is very uncertain, and the odds do seem to favour a further period of weakness until the effects of the latest government measures can be more accurately assessed.

The yen has weakened slightly over the past month as the improvement in market sentiment has increased

the “risk appetite” of investors for the equity markets, and for commodity-related currencies.

The economic background in Japan has continued to improve, helped by the export performance; but there are still doubts about whether this improvement can be sustained, and these doubts have been increased by the latest announcement by the new prime minister that the main priority of his government will be a reduction in the huge fiscal deficit, rather than the promotion of fresh measures to accelerate the growth rate.

There is also a further uncertainty created by the decision by the Chinese authorities to adopt a “more flexible” policy on the renminbi that presumably means that it will be allowed to appreciate slightly faster. It is not clear what the consequences of this move will be; but overall it seems likely that conditions elsewhere, especially those affecting the euro, and some disappointment with “risky” investments in global markets, will continue to provide some stability to the Japanese currency.

SHAW CAPITAL MANAGEMENT:Shaw warns FSA stance on mutuals could force mergers

SHAW CAPITAL MANAGEMENT:Shaw warns FSA stance on mutuals could force mergers

Martin Shaw, chief executive of the Association of Financial Mutuals has warned that the Financial Services Authority s stance on friendly society s use of with-profits funds will force societies to merge or demutualise in order to survive.
The FSA has sent a dear CEO letter to friendly societies » Full Story on clipmarks.com
Diamond Could Store Quantum Information
When it comes to quantum computing, flawed diamonds are better than perfect ones. Click to enlarge this image.
Ann Thomas/Corbis
THE GIST

* By manipulating atoms inside diamonds, scientists have developed a new way to store information.
* The technique could lead to quantum computers capable of solving problems beyond the reach of today's technology.

One of the most common defects in diamond is nitrogen, which turns the stone yellow. When a nitrogen atom sits next to a vacant spot in the carbon crystal, the intruding element provides an extra electron that moves into the hole. Several years ago, scientists learned how to change the spin of such electrons using microwave energy and put them to work as quantum bits, or qubits.
The technique has "a fidelity of 85 to 95 percent," Awschalom said March 22
this diamond memory works at room temperature. The spins inside the diamond can be both changed and measured by shining laser light into the diamond

Welcome to the new Boiler Room website!

Located in Logan Square, the Boiler Room is the newest spot for great food, drinks and fun. Local farm seasonal daily specials! And as always, Jameson on draft.

Be sure to follow us on Facebook and Twitter to get food & drink specials, news, events and more!

Boiler Room (2000)

In this drama that explores greed and corruption in American business, Giovanni Ribisi plays Seth Davis, an intelligent and ambitious college dropout who runs a casino in his apartment. Eager to show his father that he can succeed, Seth lands a job with a small stock brokerage firm. He is given a space in the company's "boiler room," where he makes cold calls to prospective clients. As it turns out, Seth has a genuine talent for cold calling, which gains him the approval of his superiors, the admiration of his father, and the attentions of one of his co-workers, Abby Hilliard (Nia Long). However, the higher up the ladder Seth rises, the deeper he sinks into a quagmire of dirty dealings, until he's breaking the law in order to keep his bosses happy and his paychecks coming. The Boiler Room also features Tom Everett Scott, Scott Caan, Jamie Kennedy, Nicky Katt, and Ben Affleck in a cameo as the headhunter who brings Seth into the firm. Ribisi and Scott also appeared together in That Thing You Do; Ribisi was the drummer replaced by Scott, who then led The One-Ders to fictional pop stardom. ~ Mark Deming, Rovi

Shaw Capital Management August 2010: Financial Markets

Sentiment in the financial markets has improved over the past month. There has been further evidence that

the recovery in the global economy is continuing; the sovereign debt crisis in Europe has not yet produced a major casualty; there has been a modest rally in the euro; and the Chinese authorities have announced that they intend to adopt a “more flexible” policy towards the renminbi that is expected to allow it to appreciate at a slightly faster rate.

Shaw Capital Management August 2010: Financial Markets - These developments have suggested that the gloom was overdone. The effect in the currency markets had been to slightly weaken both the dollar and the yen, as the “risk appetite” amongst investors and traders has increased, and to strengthen the commodity-linked currencies and ease the pressures on the euro. Sterling has also improved over the month, helped by the measures announced by the new coalition government in the UK, both before and during the recent budget statement, to significantly reduce the huge fiscal deficit.

Shaw Capital Management  views on financial market - But overall movements in the major currencies have been fairly small, and there is still considerable optimism about prospects.

The latest evidence on the performance of the US economy has enhanced the prospects for the dollar, and this should also continue to provide some stability for the yen.

The sovereign debt problems in Greece, Spain, Portugal, and even in Italy, continue to worsen, and may well lead to defaults and put further pressure on the single currency system.

There must also be serious doubts about the latest improvement in sterling.

The new government in the UK is making credible efforts to reduce the size of the fiscal deficit; but it faces a daunting task, and will find it very difficult to maintain its tough stance.

There is therefore a serious risk of a crisis in the UK currency market, and so it is crucial that the international agencies prepare contingency measures to enable them to act quickly if the situation appears to be running out of control.

The latest available evidence on the performance of the US economy; show the recovery from recession remains on track.

Retail sales were 1.2% lower in May than in April, emphasising the cautious mood amongst consumers; non-farm payrolls increased by 431,000 in May, but 411,000 jobs were accounted for by temporary government hiring to complete the 2010 census, leaving the increase in “real” jobs well below expectations; new home starts fell sharply in May following the withdrawal of government measures to prop up the market, and existing home sales also fel.

And the M3 measure of broad money growth is also continuing to decline because of weak loan demand from reliable borrowers, and the reluctance of the banks to lend to anyone else. There are offsetting factors in the strength of the manufacturing sector; and consumer confidence figures remain reasonably strong.

The Commerce Department has recently revised its estimate of growth in the first quarter of the year down to a 3% annualised rate; but this rate may not have been maintained in the current quarter; and this has already led to a strong plea to Congress from the government to authorise additional spending programmes costing up to $50 billion “to keep the recovery on track”, it is not clear how Congress will respond.

The Fed chairman, Ben Bernanke’s recently testimony to Congress; that the pace of the recovery will not be strong enough to fix the jobs market or reduce the budget deficit without further help, also argued that, despite the size of that deficit, “to avoid sharp, disruptive shifts in spending programmes and tax

policies in the future, and to retain the confidence of the public and the markets, we should start planning now how we will meet these budgetary challenges”. This view about the economy is repeated in the statement after the latest meeting of the bank’s Open Market Committee, and so, although the bank believes

that the recovery is continuing, it is not surprising that it is quietly considering what steps it might have to take if the recovery unexpectedly falters.

There has been a modest recovery in the euro from a low-point in the early part of the past month, although it is still ending the period slightly lower.

The economic background in the euro-zone is continuing to improve, and there has been evidence of support for the euro, particularly from the Swiss National Bank, which reported an increase in its foreign currency reserves of more than $100 billion in May. But the benefits have been limited by the on-going sovereign debt problems amongst some member countries of the euro-zone, and especially by the serious deterioration in the situation in Spain, and so the improvement that has occurred remains very fragile.

Shaw Capital Management Korea: Postal Reform Rollback

The Japanese government has decided to revise the

proposed reforms of the postal system …

Shaw Capital Management Korea: One of the world’s largest financial institutions

The government now proposes to absorb Japan Post

Network Co. and Japan Post Service Co. into Japan Post

Holdings on October 1, 2011.

The newly consolidated holding group will continue

to have two financial units, turning the system into a

three-company structure, from the current five

companies (currently, the system consists of Japan Post

Holdings Co. and four units — a postal service, a savings

bank, a life insurance company and a retailer for the

services of the other three).

Under the new plan, the current Democratic Party of

Japan-led government (DPJ) also plans to double the

maximum amount of deposits that Japan Post’s banking

unit can accept per person from the current ¥10 million

to ¥20 million and to raise postal insurance coverage

from the current ¥13 million to ¥25 million.

The government is also likely to hold on to more than

a third of the postal group’s shares in a turnaround

from full privatization — this will enable the

government to veto any major changes in the firm.

The bill with these latest changes, is expected to be

submitted to the Diet.

“We made the bill’s outline with the aim of ensuring

that Japan Post will sufficiently offer universal services

throughout the nation”, Shizuka Kamei, Japan’s Finance

Minister, told reporters at a press conference.

The Japan Post group provides insurance services

through its 24,000 post offices across the nation

especially in rural areas where private banks have little

or no presence or have trouble gaining the trust of

locals, and holds savings accounts for about 57 million

people.

The group as a whole employs about 226,000 people

and, with assets of more than ¥300,000 billion, sits at

the heart of a system of public institutions that own

almost half of Japan’s national debt.

Moreover, it helps to keep the government’s cost of

borrowing low even as its gross debt closes in on 200%

of annual output.

Japan Post was nominally privatised in 2003; with the

reforms spearheaded by former Prime Minister

Junichiro Koizumi, the champion of structural reforms

for a more market-oriented economy.

Under the previous plan, Japan Post’s financial units

were to be fully released from government control by

2017. With these latest moves, Prime Minister Yukio

Hatoyama’s government, which took power last

September from the long-ruling Liberal Democratic

Party (LDP), is halting the sale of its shares to maintain

control over the company’s plentiful assets, long a

source of public financing.

Behind the proposal is the government need for a

growth strategy.

In the fiscal 2010 budget, general-account expenditures

stand at a record ¥92 trillion, so politicians are pushing

for postal savings to be used to finance their policies.

But these proposed changes to postal reform raise

numerous concerns.

First of all, if the massive postal group attracts even

more money with the lifting of the savings cap, it will

hamper private-sector financial businesses and spark

an outflow of funds from private banks.

Tadashi Ogawa, chairman of the Regional Banks

Association, says raising the deposit cap is “truly

regrettable” because small regional banks in particular

will be affected in times of financial crisis because

depositors may flee to Japan Post Bank.

Moreover, the two subsidiaries — the postal bank and

insurance company — are likely to be permitted

substantial operational freedom.

This would, for example, enable them to offer housing

loans or sell cancer insurance policies.

The uneven public-private playing field, however,

would no longer be just a domestic problem. The US

and Europe have already expressed concerns about

these developments.

Also, creating an even bigger public financial entity

will loosen the government’s fiscal discipline through

increased purchases of government bonds (JGBs) and

accelerate wasteful spending on public works projects.

The system of public institutions buying JGBs has been

central to the economic status quo that has kept Japan

afloat since its stock market plunged in 1990.

“The revision will be a turning point for the worse”,

says Naoko Nemoto, a banking analyst at rating agency

Standard & Poor’s in Japan.

The deep misgivings over public spending originate

from the way postal savings were used for years.

The money had long been used to fund unnecessary

public projects such as highways, bridges and airports

in the middle of nowhere via the Finance Ministry’s

fiscal investment and loan program, which was

reformed in 2001.

These expenditures were not only inefficient but also

lacked transparency because they were made through

government-affiliated organisations.

Creating an even bigger public financial entity is also

risky because it will distort the entire interest-rate

structure of financial markets, where loans with higher

risks should reflect higher returns.

If a public institution extends loans with below-market

interest rates to support certain industries, we are back

to the government ‘picking winners’ or worse just

backing losers.

In other words, this is yet another example of how the

DPJ is mis-managing the Japanese economy, pandering

to voters and reversing necessary reforms passed by

the Koizumi government.

Shaw Capital Management Korea: World Trade

The fall-out from the failure of the Doha Round of trade

liberalisation measures, and the impact of the recession,

are continuing to increase the threat of further

protectionist restrictions on world trading activities.

The US Commerce Department has recently launched

an investigation into whether certain forms of

aluminium made in China is being dumped, or sold at

less than its fair value, in the US; and the Chinese

Commerce Ministry has responded by launching its

own anti-dumping enquires into imports of

caprolactam, a widely-used synthetic polymer, from

both the US and Europe, and has finalised the ruling

on some nylon imports.

These developments are not likely to lead to early and

dramatic changes; but they do provide a further

illustration of the dangers if the global economic

recovery does not accelerate and lead to a relaxation

of the pressures in the trading system.