Guess the year-end price of oil and gold!

Welcome to the seventh (wow!) semi-annual "Guess the price of oil and gold contest" where readers can compete to win a free one-year subscription to the companion investment website Iacono Research by providing the closest combined guesses for the year-end price of crude oil and gold. Past contests have produced the following results:
That was quite a move to the right over the last few months and, looking back over the last few years, with the obvious exception of the late-2008 meltdown in the price of oil, the overall direction has been decidedly up and to the right.

Also note that the biggest moves tend to occur during the second half of the year - another one now clearly underway.

The last contest was won by ycching who is now enjoying the benefits of the subscription site, the results of that contest shown in the graphic below.
Your host is hopefully at the end of a cold spell, having come in 70th place and then 68th place during the last two contests. This follows a string of three top tens, so, the potential is clearly there. [Note: If I ever did win this thing, I'd get braggin' rights only and the second place finisher would receive the first place prize.]

This time around the rules are the same as they've always been.

The contest is based on the combined percentage differences between the guessed values and the closing prices on December 31st, 2009 using the near-month (February) Nymex futures contract for WTI crude oil and the COMEX closing bid price for gold bullion.

Entries may be made either by posting them in the comments section of this post or sending mail to either tim-at-iaconoresearch.com or tliacono-at-yahoo.com.

All entries must be received no later than Thursday, Nov. 19th

Sorry about the short window, but I'm getting a late start.

There will be two more notices such as this one as reminders and current subscribers can win a free one-year extension to their existing subscription should their guesses be the closest.

The winner will be announced on December 31st - good luck to all!

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To learn more about investing in natural resources using commonly traded ETFs,
stocks, and mutual funds, see this description at Iacono Research.
For subscription details, click here.

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Life on severance

This is a fascinating read and, fortunately, for those who were formerly WSJ subscribers and have had to cut back lately, the story is in the free section of the online paper.

Paul Joegriner hasn't worked since March 2008, when he was laid off from his $200,000-a-year job as chief executive officer of a small bank. But you wouldn't know it by appearances.

His wife, Marzena, shuttles their two young children to private school every morning. The family recently vacationed in Virginia Beach, Va., and likes to dine on Porterhouse steaks. Since losing his job, Mr. Joegriner, 44 years old, has had several offers. He's turned each down in hopes of landing a position comparable to what he held before.

The family's lifestyle over the past year and a half has been propped up by a $200,000 severance package and another $100,000 in savings -- funds the family has burned through rapidly. By Mr. Joegriner's own calculations, the family will be out of money in six months if he doesn't find work.

"It will be D-Day," he says. "But on the outside, no one has any idea that we're in trouble."

Mr. Joegriner is a member of what might be called the severance economy -- unemployed Americans who use severance pay and savings to maintain their lifestyles. Many lost their jobs in 2007 and 2008, and thought they'd soon find work. Now, they're getting desperate.

Wow - almost 200 comments over at the WSJ. While I haven't read them, my guess is they are an equal mix of sympathetic views and those thinking Mr. Joegriner should make his own coffee now that he's about down to his last few dollars.

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IEA whistleblowers and our energy future

Yes, the image below is a bit over the top, but, it was just too irresistible given recent revelations about fudged energy reserve statistics from the IEA that have come to light after whistleblowers talked to reporters at the Guardian newspaper and this report was filed.
You see, Mel Gibson's early days as a screen star were all about competition for scarce energy resources and, while the world's energy future won't necessarily include guys like this, it could be a radical departure from the last few decades, making last year's $147 crude oil and $4 gasoline look quite tame by comparison.

The Guardian report is included in its entirety below.

Key oil figures were distorted by US pressure, says whistleblower

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation's latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies.

In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.
Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.

"Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.

The IEA acknowledges the importance of its own figures, boasting on its website: "The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans."

The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies.

The IEA said tonight that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow.

John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.

He said he had also been contacted by some IEA officials unhappy with its lack of independent scepticism over predictions. "Reliance on IEA reports has been used to justify claims that oil and gas supplies will not peak before 2030. It is clear now that this will not be the case and the IEA figures cannot be relied on," said Hemming.

"This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation," he added.

The IEA was established in 1974 after the oil crisis in an attempt to try to safeguard energy supplies to the west. The World Energy Outlook is produced annually under the control of the IEA's chief economist, Fatih Birol, who has defended the projections from earlier outside attack. Peak oil critics have often questioned the IEA figures.

But now IEA sources who have contacted the Guardian say that Birol has increasingly been facing questions about the figures inside the organisation.

Matt Simmons, a respected oil industry expert, has long questioned the decline rates and oil statistics provided by Saudi Arabia on its own fields. He has raised questions about whether peak oil is much closer than many have accepted.

A report by the UK Energy Research Centre (UKERC) last month said worldwide production of conventionally extracted oil could "peak" and go into terminal decline before 2020 – but that the government was not facing up to the risk. Steve Sorrell, chief author of the report, said forecasts suggesting oil production will not peak before 2030 were "at best optimistic and at worst implausible".

But as far back as 2004 there have been people making similar warnings. Colin Campbell, a former executive with Total of France told a conference: "If the real [oil reserve] figures were to come out there would be panic on the stock markets … in the end that would suit no one."

Note that the Paris-based IEA (International Energy Agency) is not to be confused with the U.S.-based EIA (Energy Information Administration), otherwise known as the Energy Department, though it's possible that they were somehow involved in the above.

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Copper on pigfarms and giant lots of new cars

This story just in from Politico (hat tip SL) in which Chinese pig farmers storing rolls and rolls of copper wire (that have helped to keep commodity prices lofty, widely viewed as an indication of a growing economy) now have company in the form of the Chinese government that is suspected to be storing giant parking lots full of brand new cars (that show up as "sold" in their economic statistics, widely viewed as an indication of a growing economy).

The conventional wisdom in Washington and in most of the rest of the world is that the roaring Chinese economy is going to pull the global economy out of recession and back into growth. It’s China’s turn, the theory goes, as American consumers — who propelled the last global boom with their borrowing and spending ways — have begun to tighten their belts and increase savings rates.
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“Purchases of U.S. consumers cannot be as dominant a driver of growth as they have been in the past,” Treasury Secretary Timothy Geithner said during a trip to Beijing this spring. “In China, ... growth that is sustainable will require a very substantial shift from external to domestic demand, from an investment and export-intensive growth to growth led by consumption.”

That’s one vision of the future.

Yes, that's the rosy scenario. The "less than rosy" view of things arises from clear signs of overcapacity and a Chinese consumer that appears to be a reluctant spender in ways that do not show up in government statistics.

The conditions on the ground may be quite different than the conditions reflected in the official economic data and at least one bear is ready to move in.

The China bears could be dismissed as a bunch of cranks and grumps except for one member of the group: hedge fund investor Jim Chanos.

Chanos, a billionaire, is the founder of the investment firm Kynikos Associates and a famous short seller — an investor who scrutinizes companies looking for hidden flaws and then bets against those firms in the market.

His most famous call came in 2001, when Chanos was one of the first to figure out that the accounting numbers presented to the public by Enron were pure fiction. Chanos began contacting Wall Street investment houses that were touting Enron’s stock. “We were struck by how many of them conceded that there was no way to analyze Enron but that investing in Enron was, instead, a ‘trust me’ story,” Chanos told a congressional committee in 2002.

Now, Chanos says he has found another “trust me” story: China. And he is moving to short the entire nation’s economy. Washington policymakers would do well to understand his argument, because if he’s right, the consequences will be felt here.

Chanos and the other bears point to several key pieces of evidence that China is heading for a crash.

First, they point to the enormous Chinese economic stimulus effort — with the government spending $900 billion to prop up a $4.3 trillion economy. “Yet China’s economy, for all the stimulus it has received in 11 months, is underperforming,” Gordon Chang, author of “The Coming Collapse of China,” wrote in Forbes at the end of October. “More important, it is unlikely that [third-quarter] expansion was anywhere near the claimed 8.9 percent.”

Chang argues that inconsistencies in Chinese official statistics — like the surging numbers for car sales but flat statistics for gasoline consumption — indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.

There's a bit more to this and it's well worth the look, including a frightening comparison of the U.S. subprime collapse to a coming "overcapacity" collapse in China.

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"Kill all the bankers" iPhone app

Spotted via Patrick.net over at The Huffington Post is what should be an increasingly popular way for people to pass the time as we close in on Wall Street bonus season.

The game's description on iTunes reads:

Defend the White House and save the US taxpayers' money before it gets stolen! It's time for you to give them what they deserve! [...] It's your only chance to really take revenge on bankers for the recession they caused [...] Explore many different ways to beat bankers: tap, grab, or shake them in the air.

Note the very large banker that appears at about the one-minute mark in the clip above and the means used to defeat him. It's too bad there isn't something like that in the real world.

Related reading: Banker's bonuses: 40% bigger this year

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Tuesday morning links

TOP STORIES
Key oil figures were distorted by US pressure, says whistleblower - Guardian
Dodd to Propose Removing Fed, FDIC Bank Supervision - Bloomberg
Banker's bonuses: 40% bigger this year - CNN/Money
Fed's Tarullo: Don't break up big banks - MarketWatch
Gold - a six thousand year-old bubble - Buiter, FT
Laid-off workers tapping 401(k) funds to survive - Chicago Sun Times
Financial innovation is Wall Street's new 'soul sickness' - MarketWatch
What's booming in a recession? Lobbying in D.C. - Omaha.com
Dreams Die Hard - Kunstler, CFN

Get these links delivered to your inbox every day.

MARKETS/INVESTING
Oil falls to near $79 as hurricane weakens - AP
Gold Drops for First Day in Three as Dollar Rebounds - Bloomberg
Nouriel Roubini: The Coming Commodities Correction - HAI
Mad Dash Into the Year End Statement Print - Zero Hedge
Investors' Thinking: Time to Hedge Gold Stocks - HAI
Grandich vs Nadler - National Post

ECONOMY
Not all bubbles present a risk to the economy - Mishkin, FT
Keynes, Friedman Give Way to the Master of Gloom - Bloomberg
Can’t Make Rent? More Landlords Willing To Negotiate - WSJ Developments
Most common Clunkers deal: old pickup for new pickup - Contra Costa Times
For “new economics,” look to old economists - Reuters
Sprint to slash up to 2,500 jobs - CNN/Money

INTERNATIONAL
RBI may’ve sold US T-bills to buy gold - Economic Times
Asia Risks Bubble of 'Mind-Boggling Size': Economist - CNBC
China’s House Prices Jump 3.9%, Most in 14 Months - Bloomberg
For brave investors, Zimbabwe could be the ultimate turnaround story - Telegraph
Fitch Says U.K. Rating Most at Risk Among Top-Rated - Bloomberg
Japan faces risk of ratings downgrade over debt - Reuters
Europe's industry slams China over currency - Telegraph
Blowing emerging bubbles - FT AlphaVille
'Banks on steroids' worry France - BBC

REAL ESTATE
FHA's reserve fund hits 7-year low - Washington Post
Wildlife returns to abandoned Contra Costa County subdivisions - Contra Costa Times
Property Index Predicts We're Less than Halfway Through Fall - Seeking Alpha
46% of South Florida homeowners are `underwater' - Miami Herald

FED/TREASURY/BANKING
Banks say companies are reluctant to borrow - USA Today
The Fed's Various Open Market Intervention Techniques - Zero Hedge
UCBH, which accepted almost $300 million, fails - MarketWatch
A Squeeze on Customers Ahead of New Rules - NY Times

INTERESTING
PE Pro in Zany Scuffle Over Leftover Wine! - PE Hub
Lapdancers, call girls suing her City boss for £4m - Mail Online
Japanese fishing trawler sunk by giant jellyfish - Telegraph
This credit-card offer isn't in the mail - MarketWatch

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GLD adds a little metal

It's funny that, for about four or five months earlier in the year, news outlets like Reuters would cite any changes to the inventory at the SPDR Gold Shares ETF (NYSEArca:GLD) in their morning report on the gold market, sometimes in the headline.

That doesn't happen much anymore for reasons that should be clear in the chart below.
The "tonnes in the trust" did tick up earlier today, the 6.1 tonne addition being the biggest increase in over a month, following an addition of 4.9 tonnes four days ago.

Maybe this is the start of some serious "catching up" for the world's most popular gold ETF as the holdings now sit at the same level as when the price of gold was almost $200 lower.

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Vanderbilt and Buffet , railroads and stocks

In this otherwise excellent WSJ story about "Commodore" Cornelius Vanderbilt's 19th century railroad empire as it relates to Warren Buffet's acquisition of Burlington Northern, in which you learn a lot about the history of the railroads as well as that of the stock market, the little, offhand, parenthetical comment highlighted below has stuck with me...

Mr. Buffett's approach to investment often seems to parallel the Commodore's. Vanderbilt accepted no salary as an executive, but took only the dividends on his personal stock. (In his era, investors expected steady dividends, not rising share prices.)

To prosper, he had to make his corporations profitable, year after year. He bought lines with permanent advantages—those that ran through developed regions that provided local traffic, for example, and that had low grades, which reduced operating expenses. So, too, does Mr. Buffett look to the long term.

It seems that, back in the olden days when money and credit didn't flow quite as freely as they do today (for better or worse), instead of buying stocks in hopes that the share price would go up, investors bought stocks to get a share of the company's profits in the form of a dividend stream.

That is, good 'ol fashioned income - a higher stock price was a bonus.

Today, investors use company earnings (real or imagined, since accounting has become much more "flexible" in the last hundred years) to determine whether a stock's price is fair, then they root for that price to go higher while receiving little or nothing in the form of dividends.

Isn't there something fundamentally wrong with this sort of "progress".

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