Sterling…Beware the Reaper!!!!

Just a quick note on the seismic change going on in the world. Oil has now hit my target set over a year ago. This could be the big move I have been talking about for a long while. The chart below highlights how governments have ramped up spending along with the increase in Oil prices. If todays move to $70 is maintained or even moves lower, huge budget/spending cuts by these governments will follow at some time. Of course, prudent governments will have sufficient reserves to wait and watch for six months, beyond that, they have no option. If you read my thread on commodities and deflation you will find I talk about the potential collapse of Bonds backed by energy companies. To highlight that, Energy bonds make up 15.7 per cent of the $1.3tn junk bond market, according to Barclays data – compared with 4.3 per cent a decade ago. In the not too distant future, screams of anguish will be heard from investors.

My reason for this article, and I have not got much time, is the currency market. The move in Oil prices has lead to weakness in (Oil producing currencies) the Norwegian Krone. Yes, they have a lot of Oil but if this rout in commodities in general continues, I can assure you, the Norwegian Krone is where you want to be. I have said on many occasions that the fiscal approach of saving a large percentage of their oil income will make them the ultimate safe haven if the going gets as bad as I have constantly warned about. To my absolute disbelief, STERLING, has not moved. I know that our revenue (from Oil) has declined significantly. I have attached a copy of a recent government report. Nevertheless, the important fact to remember is how expensive it has become to extract the oil from beneath the North Sea. I believe the current costing is between $55-60. If oil were to fall below that, our entire energy sector would be in turmoil. Scotland would see mass unemployment on the east coast. The £7-8bn direct revenue would be in jeopardy and investment would collapse. These might not sound like big numbers but with a  deficit growing day by day, the implications for the whole of the UK are catastrophic. I reiterate my long term forecast for Sterling/dollar (Cable) to retest its all time low at $1.08…worrying stuff

Iron Ore is getting close to the 50% decline I have warned of…regular readers will know how and why this is occurring…all is not well in the world. I have said that equities are constantly supported by direct Central Bank purchases. Company Buy Backs and Sovereign Wealth Funds. The time may be upon us where even that support will not be enough. I will suggest a deep out of the money PUT OPTION in my next blog. Sorry, I have to dash…politics awaits..

 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323371/140620_UK_oil_and_gas_tables_for_publication_in_June_2014.pdf

 

 

Oil price graphic

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Thursday, November 27th, 2014 Norway, Oil, USD

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