Barclays ‘making up to £340 million profit’ on food price speculation

By Tom Levitt

High-street customers could be subsidising the role of Barclays Capital in driving up global food prices and leaving millions facing hunger and malnutrition, says campaign group. Tom Levitt reports

Barclays could be making as much as £340 million a year in profit through gambling on the price of key commodity crops like coffee, sugar and wheat, the Ecologist has learnt.

By creating funds to allow investors to speculate on the price of food, in the same way they would invest in the shares of a company, Barclays and others are able to bet on the price of food. However, food commodity trading is leading to higher and more volatile prices, say campaigners, which affect poor families in the less industrialised world the hardest as they can’t afford basic foods and also make it more difficult for farmers to plan and invest.

A World Bank report in February showed an extra 40 million people had been pushed into poverty as a result of rising food prices since June 2010.

An analysis of Barclays’ involvement in food speculation, commissioned by the campaign group World Development Movement (WDM) – and seen by the Ecologist – has found it to be the dominant figure in the UK both in terms of the estimated volume of trading and risk it is allowing its traders to take.

[more at theecologist.org...]

Bill Bard says:

Gambling with our food now.

View the original article here

Barclays ‘making up to £340 million profit’ on food price speculation

By Tom Levitt

High-street customers could be subsidising the role of Barclays Capital in driving up global food prices and leaving millions facing hunger and malnutrition, says campaign group. Tom Levitt reports

Barclays could be making as much as £340 million a year in profit through gambling on the price of key commodity crops like coffee, sugar and wheat, the Ecologist has learnt.

By creating funds to allow investors to speculate on the price of food, in the same way they would invest in the shares of a company, Barclays and others are able to bet on the price of food. However, food commodity trading is leading to higher and more volatile prices, say campaigners, which affect poor families in the less industrialised world the hardest as they can’t afford basic foods and also make it more difficult for farmers to plan and invest.

A World Bank report in February showed an extra 40 million people had been pushed into poverty as a result of rising food prices since June 2010.

An analysis of Barclays’ involvement in food speculation, commissioned by the campaign group World Development Movement (WDM) – and seen by the Ecologist – has found it to be the dominant figure in the UK both in terms of the estimated volume of trading and risk it is allowing its traders to take.

[more at theecologist.org...]

Bill Bard says:

Gambling with our food now.

View the original article here

When the Oil Price Portends Recession

03/18/11 Baltimore, Maryland – What a nuisance! Our laptop computer collapsed this morning. Hours were wasted trying to revive it. We were like a carpenter without a hammer…a clown without a red nose…an idiot without a village.

Meanwhile, the financial world seemed to be on the verge of collapse too. Stocks rose 161 points on the Dow yesterday…after a big drop the day before. Gold rose a bit too.

This is the kind of market nervousness that usually resolves itself – in a big drop. Yes, our “Crash Alert” flag – tattered, faded, and frayed – is out. Ignore it at your peril!

The Fed is still pumping $4 billion of new money into the system every day. And the federal government is putting in another $5 billion of deficit spending every day.

With this kind of support, you wouldn’t expect asset prices to fall. Instead, they should be soaring.

“Don’t fight the Fed,” the old timers warn.

But watch out. The Fed might have lost control.

The Great Correction isn’t going away. It’s intensifying.

As you know, it’s been war out there. The feds against the market. The market wants change. The feds fight to protect the status quo.

It’s an ancient struggle. But this phase of it has been going on for more than 10 years. The markets try to go down…to correct their mistakes…to reduce the amount of debt in the system. And the feds fight back with overwhelming firepower – forcing prices back up…adding more debt…preventing bankruptcies. And now the battle is heating up.

What to make of it? First, the feds can destroy wealth. They can prevent it. They can move it around. But it’s only the private sector – and market forces – that create it.

Second, the more the feds meddle in the markets, the more distorted and grotesque the outcome becomes. Regulation, rigged credit markets, bailouts and subsidies – all pervert the natural outcome of market forces.

Third, the feds’ current use of overwhelming force to block a market correction is creating overwhelming unforeseen and pernicious problems. They put money into the system to try to encourage spending and investment. The money pushes up stocks – giving investors more “wealth” to spend. But it also tempts speculators into risky trades…and pushes up oil prices…giving business and consumers higher energy prices…and less money to spend on other things.

Let’s look at what happens next.

No, the feds didn’t cause earthquakes in Japan or revolutions and civil wars in North Africa. But they created such a rickety financial structure…so top-heavy with debt…that almost any calamity can bring it down.

As it happens, political troubles in the Arab states…and Japan’s nuclear problems…both grip the world’s single most important market – oil – like the jaws of a vise.

The Arab world produces the stuff. Japan consumes it. Without its nuclear reactors, Japan will rely even more heavily on other forms of energy…leaving more people standing in line with gas cans in their hands.

And here’s where the feds come in – their funny money had already sent the price of oil from a low near $30 at the bottom of the ’09 crisis…to a high over $100 before the first coffee cup started to rattle in Japan.

Where the price will go next, we don’t know. But it’s being squeezed on both sides – supply and demand – simultaneously.

And here’s something you should know:

According to Nomura Securities, every time there is a big increase in the price of oil – 170% or more – there is also a recession.

We mean every time in the last 40 years – ’74, ’79, ’90, and ’00.

And don’t forget, it wasn’t just subprime debt in the US that spelled doom for the economy in ’08. It was also skyrocketing oil prices…that pinched household budgets all over the world.

And guess what? The price of oil has already risen more than 170%. It had hit the critical point even before the revolutions in North Africa or the earthquakes off the coast of Japan. Now, under even more pressure, we can expect a higher price of oil…until the bottom falls out again…

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

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Will The Day Of Rage In Saudi Arabia On March 11 Send The Price Of Oil Into Unprecedented Territory?

The price of oil is shaping up to be the number one economic story of 2011, and right now the eyes of the investing world are closely watching the developing situation in Saudi Arabia.  All of the other recent Middle East revolutions have been organized on the Internet, and now all over Facebook and Twitter there are calls for a "Day of Rage" in Saudi Arabia on May 11.  The Saudi monarchy is attempting to head off any protests by promising to give $37 billion in "benefits" to the people and by publicly proclaiming that all political demonstrations are specifically banned.  In addition, the Saudi government is stationing thousands of security forces at various potential "hot spots" around the country.  So far similar measures have not done much to quell unrest in other nations in the Middle East, but Saudi Arabia will be a true test of the revolutionary fervor that is sweeping the region.  The Saudis have a long history of brutally repressing their own people.  They simply do not mess around.  So a revolution in Saudi Arabia will not be nearly as "easy" as it was in Tunisia, Egypt or Libya.  However, if a revolution does sweep across Saudi Arabia, it is going to send the price of oil into unprecedented territory.  Saudi Arabia is the number one exporter of oil in the world, and if their oil fields get shut down even for a little while it is going to have a dramatic effect on the global economy.  With the world already on the verge of a major sovereign debt crisis, the last thing it needs is for the price of oil to start soaring into the stratosphere.

Right now the investing world is not sure what to think about all of this, and financial markets do not like uncertainty.  One piece of really bad news could send markets all over the globe crashing down.

Speculation in oil futures is absolutely rampant.  A recent report on CNN noted the following....

The speculative fervor is so remarkable that the big trading firms now have nearly twice as many long contracts open as they did in 2008, when oil spiked to $147 in the summer, a development that either foreshadowed or caused the global economic meltdown, depending on how you look at it.

In particular, the number of investors that are betting that a revolution in Saudi Arabia is going to send the price of oil up to $200 a barrel has exploded in recent days.

$200 a barrel?

Are people actually betting that is going to happen?

The all-time record is only $147 a barrel.  Just a few months ago it was absolutely unthinkable to most economists that we could potentially see $200 oil in 2011.

But it would be a mistake to assume that a full-blown revolution is guaranteed to break out in Saudi Arabia.  Remember, this is a nation that has a very, very long history of denying even the most basic freedoms to the people.

For example, in Saudi Arabia the practice of any religion other than Islam is strictly forbidden.  By law, citizens of Saudi Arabia are not permitted to change religion.  Even foreign visitors are forbidden to openly practice any other religion.  It is a whole different world.  You cannot go to the store and buy a Bible in Saudi Arabia.  In fact, if you try to pass out Bibles in Saudi Arabia you will be thrown into prison.

Beheadings and other brutal public executions still happen in Saudi Arabia to this day.

So if you plan of being a revolutionary in Saudi Arabia you had better put your big boy pants on, because the Saudis play hardball.

Much of the rest of the globe is desperately hoping that a revolution does not happen in Saudi Arabia because the global economic situation is precarious at best.

In Europe, if the price of oil causes a significant economic slowdown right now it could have global implications.  Moody’s Investors Service just slashed Greece’s debt rating three levels all the way down to B1.  But Greece is far from alone.  Several European governments are finding it much more expensive to finance their debts these days.  We are right on the edge of a major European sovereign debt crisis and the chaos in the Middle East could potentially be just the thing to spark a panic.

The United States could feel a rise in the price of oil even more than Europe because the U.S. economy is so spread out and it is so dependent on products from overseas.

Did you know that in 1960 only 8 percent of the things Americans bought were made overseas but that today 60 percent of the things Americans buy are made overseas?

It's true.

So what would happen if the cost of transporting all of those products suddenly doubled?  All of the products we buy must be transported somehow, and a rise in transportation costs will be passed on to U.S. consumers.

But the truth is that the pain is already here.  Already, millions of American families are starting to feel some very real financial pain from the chaos in the Middle East.

From February 18th to March 4th, the average price of gasoline in the United States rose 33 cents.  That was the biggest two week increase ever recorded.

Ouch.

The rise in the price of oil has some broader economic implications as well.

The more the price of oil goes up the bigger our trade deficit is going become.  As the trade deficit gets bigger, that means that more money is going out of the country and less money is going to support American businesses and American workers.  When American workers lose jobs, that means that they aren't producing wealth anymore and they aren't paying taxes anymore.  Instead, they become a drain on the system as they start receiving government handouts.

When millions of Americans go from being productive, taxpaying workers to unemployed welfare cases it causes our federal budget deficit to become even larger.

Most Americans do not understand how connected our trade deficit and our federal budget deficit really are.  One feeds right into the other.

Unfortunately, the Federal Reserve seems to think that the solution to any economic problem these days is to print more money.

According to Atlanta Fed President Dennis Lockhart, if the price of oil goes up high enough, it could force the Federal Reserve to do even more quantitative easing.

Really?

One of the reasons why the price of oil and other commodities has been going up over the last six months is because of all of this reckless money printing.

Now Lockhart is saying that because of the oil price increases they may have to do more money printing?

How bizarre is that?

Unfortunately, several other top Fed officials have dropped hints about a possible "QE3" lately.  It just seems like the insanity never stops.

Let us hope that the Fed does not go there because the U.S. dollar is falling apart fast enough already.

In any event, the rest of 2011 is certainly going to be very interesting to watch.

Even if a revolution does not happen in Saudi Arabia, the price of oil will most likely continue to slowly move higher just as it has been doing for months.

But if a full-blown revolution does happen in Saudi Arabia, it could literally change the global economy almost overnight.  The entire world financial system would be thrown into a state of chaos.

Oil is the lifeblood of the world economy.  Without a continuous supply of very inexpensive oil, life as we know it would dramatically change.  Most of us just assumed that we would always live in a world where we would always have an endless supply of very cheap oil.

Well, the times they are a changing.

You had better buckle up because it is going to be a bumpy ride.

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The Most Important Price Chart for Investors

So, let me guess. You thought I was going to give you a price chart of the movement of oil, gold or interest rates. I don’t need to show you charts on them…you’ve been reading on these pages for months that they will continue to rise.

The most important chart for investors is about a transfer of economic power. It is about investors and foreigners leaving the U.S. dollar. It is about the repercussions that America will feel during its quiet devaluation of the greenback. It’s simply about America no longer being number one.

Somewhat of an economic history buff, I’ve come to learn that history does repeat itself. Only the places and people change. Countries gain economic power and world dominance, they get spoiled and lose their way, and then they lose the economic power.

By the end of World War II, the U.S. industrial revolution solidified the position of the U.S. as the world’s leading and largest economy. We became a creditor nation. We did more trade with foreign countries than anyone else. Investors the world over wanted American-made goods and U.S. dollars. In fact, we were so strong as an economic power that we were able to convince world central banks that they can sell their gold and replace their reserve currency with U.S. dollars. (Likely to be eventually recognized by historians as the biggest global financial scam of the 1900s.)

Just over half a century later, we became a debtor country that started importing more goods than we exported. Commerce-hungry foreign countries seized the opportunity to make goods cheaper and cheaper than we ever could. Now, I know I will get e-mails today telling me that the American manufacturing base is still strong. But the facts are the facts. We’ve gone from being a huge net exporter to a huge net importer in about three decades’ time.

In 1962, a man from Arkansas figured he could bring in goods from Asia and sell them to Americans at a savings they would enjoy. Today, Wal-Mart accounts for about 10% of all retail sales in the U.S. Along the way, other entrepreneurial American corporations figured they could open plants in Mexico, Indonesia, China, Taiwan, India and other low-wage countries and import goods to the American people.

The chart linked to below shows what all this American ingenuity has done for our currency: the greenback has been devastated. There is a very real risk that our currency will soon fall to a record low against a basket of other well-known world currencies. When that happens, our interest rates will rise, stock markets will fall and gold bullion will enter phase three of its bull market.

http://stockcharts.com/h-sc/ui

Whatever your portfolio consists of, whatever you would like to leave to your family or children, ensure your portfolio is properly structured to benefit from, or at least be protected from, the repercussions of your assets and investments being denominated in a second-tier currency.

Michael’s Personal Notes:

It’s December 1999 and I’m in a real estate closing. The two real estate brokers, who I didn’t know knew anything about stocks, are on the phone with their stockbrokers buying shares of Internet companies with no revenue. They are paying about $200.00 a share, because the IPO is almost sold out. I see this as investor euphoria, also known as investor panic buying on the upside. The NASDAQ is trading at 5,000 in December 1999.

Twelve years after the bubble burst, it is still down 44%.

It’s December 2005 and I’m in a restaurant in Miami, Florida. The waiter has just told me this is his last week working as a waiter, as he just got his real estate sales license. He tells me that condos in Miami will double in price by 2007. There is a new financing vehicle called a “No Income Validation” mortgage that is making it easy for consumers, investors and speculators to own multiple homes. By 2011, we will still be in the biggest real estate crash in American history with no bottom to the market in sight. Home prices in the U.S. have fallen an average of 30% since 2005.

The above are two true stories.

It’s December 2015 and the price of gold bullion has just surpassed $3,000 an ounce. Any company calling itself a gold miner is having no problem raising money for its IPO. In fact, investors are throwing money at the companies even though all they have is mineral rights to unproven properties. The shares of Barrick, Goldcorp, Newmont…they are all trading well above $100.00. Everyone wants in on the gold action.

The above story will become a reality, hence why you need to act and position yourself BEFORE the crowd moves.

Where the Market Stands; Where it is Headed:

The Dow Jones Industrial Average starts this final trading day of the week up 5.9% for 2011. I’m still of the opinion that the bear market in stocks that started in March of 2009 is still intact. Yesterday’s surprise 191-point advance by the Dow Jones Industrials confirms this opinion.

What He Said:

“For the economy, the message from retail stocks is quite clear: Consumer spending, which accounts for roughly 70% of U.S. GDP, is in jeopardy. After having spent like ‘drunkards’ during the real estate boom years, consumer spending is taking the same trend as housing prices, slowing down faster than most analysts and economists had predicted. As news of the recession continues to make headlines in the popular media, the psychological spending mood of consumers will continue to deteriorate, lowering earnings at most high-end retailers and bringing their stock prices down even further.” Michael Lombardi in PROFIT CONFIDENTIAL, January 28, 2008. According to the Dow Jones Retail Index, retail stocks fell 39% from January 2008 through November 2008.

Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter

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