INDIAN PETROLEUM SECTOR SUBSIDY CONUNDRUM

The Government of india finally implemented a long overdue price hike in diesel, LPG & Kerosene.

Even as inflation statistics continue to remain uncomfortably high, the government had to finally bite the bullet!
The government must come up with a long term viable pricing policy for petroleum products.
The Oil Marketing companies like BPCL, HPCL & Indian Oil cannot afford to keep subsidizing retail fuel prices. Currently their profitability is dependent on Oil bonds - a government handout!
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Upstream marketing companies like ONGC & GAIL are helping the government to bear the losses from under recoveries, and this is preventing them from investing in Oil Assets and building Oil & Gas infrastructure like gas pipelines etc
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The government will also have to step up investment in public transport infrastructure like metro rail projects & urban bus transport networks. Perhaps such a move will help reduce traffic congestion and in the long run reduce our heavy dependence on petrol and diesel.
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Lastly I would like to point out that a large chunk of the levied retail fuel price on fuels like petrol and diesel, consists of govenment taxes that does not go to the oil companies, but is a major source of government revenue!
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It's time that a truly sustainable long term fuel pricing policy is formulated.
With Crude Oil prices that continue to trade around $100/barrel, the government must come up with such a policy as soon as possible.
Below is an announcement by the Govt of India in the Economic Times on the 27th of June 2011.

GOLD CHART UPDATE

The months of June to early September have traditionally been months when Gold has witnessed sell offs.

Below is an excellent chart prepared by Mr P. Radomski of Sunshine Profits.
Do stop by his Sunshine profits site for some really insightful analysis on precious metals.
LINK:Sunshine Profits Tools for Effective GOLD & SILVER INVESTMENTS ...

Gold is testing the upper resistance line in the chart below.

I would avoid buying in at the current juncture but would instead await better opportunities over the coming months. An equity market sell off is likely to trigger a big correction in precious metals.

DJIA - THE RALLY GOES ON

As the rally in the US equity market continues, even the most ardent ''bear'' is probably just about ready to throw in the towel.

Can this rally be explained in light of deteriorating fundamental news such as rising unemployment and government debt levels ?

Perhaps now is the time for the prudent investor to re-assess his risk reward matrix.
Does waiting for a possible upside from current levels justify the risk at this stage?
Some analysts are saying that the current rally since 2009 has started to form a bearish ascending wedge formation on the charts, and that it's time to book profits.

The Bullish Bear Blog's view:

• The risk reward ratio is clearly not in favour of the long only investor.



• After a monster rally from the lows back in March 2009, potential downside risk clearly outweighs any possible upside.



• The mega rally has exhausted a large percentage of short positions in the market. This in turn means that the market has much less support on the downside if a correction ensues.



• Meanwhile the market continues to ignore serious issues like the Club med debt crisis, unemployment issues in the US & steadily rising government debt levels in the developed world.

RISING GASOLINE PRICES

A chart from http://www.chartoftheday.com/.

A weak USD and high Crude Oil prices has resulted in rapidly rising gasoline prices.

USD - WHERE TO NEXT ?

Here is a USD update from Graham Summers of Gains Pains & Capital.com

April 25, 2011: Graham Summers’ Free Weekly Market Forecast (China Dumping Dollars edition)

His analysis is always insightful and he is always willing to tell it like it is.

The USD has clearly been under pressure recently. It is oversold at the moment and even though the Bullish Bear has a long term bearish view on the USD, I continue to believe that the current rally in the EURO and the GBP will soon see a reversal.

The Euro and the GBP have their own issues as well! ...facts that the market is currently ignoring!

Will the USD take out the 2008 lows? Watch this space!

Gold and Silver have had a fantastic run, although Silver prices pulled back quite sharply this week after almost reaching $50.

As you can see from the third chart, Silver had a lot of catching up to do, and since mid 2010, it has caught up with Gold quite swiftly.

I continue to advise caution on Silver prices, as prices have already risen significantly and a further pullback over the near term can be expected.

SILVER - SOARING PRICE & RISK !

Here is a fantastic Silver chart from Carl Swenlin of Decision point.com.

Here is the link:Silver Still Soaring

Clearly, silver has had a fantastic rally, and could possibly rise still further as speculators rush in. The Bullish Bear Blog has been bullish on Silver ever since the inception of the blog.

However, the almost vertical rise prices makes me wary of a sudden selloff ! Buying in at this stage is ''HIGHLY RISKY''.

For those already long the white metal, I think it's time to start booking profit in stages and sticking to stop losses, to lock in profits.

Wait for a pull back to invest, and yes it's time to take some chips off the table for now.

ROBERT PRECHTER : 6 TRENDS ABOUT TO REVERSE

Here's an article I came across in 'The Business Insider' > Robert Prechter: These 6 Trends Are About To Reverse‎

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Prechter argues there are several themes out there right now that investors, economists, and markets all believe to be true just like they did with interest rates in the 1980s.

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  The dollar - everyone is bearish.


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  Interest rates - everyone thinks they're going to rise.


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  The stock market - everyone is bullish but corporate insiders.


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  Inflation expectations - everyone thinks it is going to go higher.


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  Economy - everyone is confident in 2011.


• 
  
  Oil - everyone thinks it is heading higher.

"

He makes some really valid points. Ignore the principles of 'Madness of crowds' and 'mean reversion' at your own risk.

GOLD : RALLYING IN ALL CURRENCIES

EURO RALLY - SUSTAINABLE....NOT

A positive rate outlook for the Euro and the continuing downtrend in the USD has resulted in quite a sustained uptrend in the EUR USD exchange rate. As the Club Med nations come to the table asking for handouts, the ECB has gone ahead with the first of many proposed rate hikes. Rising inflationary pressures as a result of booming commodity prices led by Crude Oil could have forced the ECB's hand at this point.

But is this rally in the EURO justified?

Is the USD in much worse shape than the Euro?

Here's my analysis:

• The Euro has considerable exposure to Club Med and is by no means out of the woods.
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• The USD too has many structural weaknesses - rapidly expanding Federal debt levels, terrible finances at the state and municipal government level, a slumping housing market and uncomfortably high unemployment.
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• But the fact remains that the USD is oversold at the moment.
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• The CBOE VIX is currently trading well under 20, at 18 currently. A warning sign for perma bulls.
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• Equity markets are far too complacent at the moment, totally ignoring the headwinds of $113 Crude Oil and all the negative geo -political newsflow. The risk reward ratio is clearly against the prudent investor. .


• Just like 2008, an equity market sell off will once again be accompanied by risk aversion and a rebound in the USD as investors shun other risky asset classes ( emerging market equities and hot commodities) for the relative safety of the USD and the US Bond Market. The USD always benefits from the flight to safety during market panics.

Sadly,most fiat currencies are seriously flawed as governments continue to ignore structural problems of their economies, preferring to ''kick the can further down the road''.

This is reflected in the fact that Gold and Silver continue to rally in most currencies.

Commodity currencies like the CAD, Swedish Krona & the Australian Dollar remain vulnerable to a sell off in the commodity markets. The Swiss Franc and the Japanese Yen have also shown sustained strength vs the USD.

To conclude, I expect the USD to recover when the stock market starts to sell off & I expect further negative newsflow from Club Med in coming months to weaken the ''overbought'' EURO.

SILVER FEVER !!

Most fans of the precious metals sector will obviously be over the moon after the monstrous rally in Silver in 2011 so far.

The USD continues its sell off, while the Euro rally continues despite all the trouble with Club Med.

With all the momentum in Siver bullion, prices could rise still further.

Personally, I would advise against any opportunistic buying at the moment, as the risk reward ratio is clearly against the long only trader for now.

For those investors with access to hedging strategies, perhaps they can use put options to protect long positions, given the overbought position in Silver.

Mr P. Radomski of Sunshine Profits has some excellent analysis in his latest free update.