Fenton of JPM sees Brent Crude heading to $130/barrel by Q3 2011

“The commodity correction is closer to its end than its beginning, and prices are set to start rising again, according to JPMorgan’s Colin Fenton.

Fenton sees Brent Crude heading to $130/barrel by Q3 2011. He does, however, outline 5 risks to this outlook. The first are the typical, including rising prices triggering a U.S. rate hike, a Californian financial crisis, a U.S. debt ceiling crisis, and the government’s pro-natural gas turn.

There’s one, however, that sticks out for us.

Risk #5: The pace of innovation and deflation in tech. Genomic sequencing costs have dropped by 99.96% since July 2007…”

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“Unless you have been asleep or hiding under a rock for the past five years, you already know that we are experiencing the worst real  crisis that the U.S. has ever seen.

Home prices in the United States have fallen 33 percent from the peak of the housing bubble, which is more than they fell during the Great Depression.  Those that decided to buy a house in 2005 or 2006 are really hurting right now.

Just think about it.  Could you imagine paying off a $400,000 mortgage on a home that is now only worth $250,000?  Millions of Americans are now living through that kind of financial hell.  Sadly, most analysts expect U.S. home prices to go down even further.

Despite the “best efforts” of those running our economy, unemployment is still rampant.  The number of middle class jobs continues to decline year after year, but it takes at least a middle class income to buy a decent home.  In addition, financial institutions have really tightened up lending standards and have made it much more difficult to get home loans.”

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“The Man Who Invented The BRICs warned last week of a slowdown in China.

In an interview today he elaborates, saying growth could fall to 8%. He told Economic Times:

“It is my judgement that the Chinese economy is probably slowing down more than people realize. And I suspect that China is going to slow down to around 8 pct GDP growth. If I’m right, that means sometime in the 2nd half this year, Chinese inflation will not be a problem, and will come back down to around 4 percent. And the PBOC will be able to stop tightening monetary policy and we can all live happily ever after.”

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commodities.

“Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a Bloomberg survey found.

Almost 1 in 3 of those questioned say they will hold more cash, while 30 percent intend to reduce investments in commodities, according to a quarterly Bloomberg Global Poll of 1,263 investors, analysts and traders who are Bloomberg subscribers. Both results were the highest since the survey began asking the question last June.

A plurality — 40 percent — expects oil prices to fall in the next six months, the first time respondents felt that way since the inception of this poll in July 2009.”

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“A report from Reuters attributes the wild commodity price moves last week to algorithmic stop-loss trading.

Brown offered these details on the oil trading:

Those funds interviewed said the massive amount of stop losses that were triggered was beyond comprehension…. When the crash finally came the number of positions liquidated was staggering. As each technical level was broken it triggered more stop losses and more short selling to capture the drop….

Credit Suisse analysts said the high frequency and algorithmic trading accounted for about half of all the volume in the oil markets.”

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“INTERNATIONAL. Legendary global investor and chairman of Singapore-based Rogers Holdings, Jim Rogers hardly sees how silver could be a bubble when, even at its top, it’s still below its all-time high.

Last week’s plunge in prices was good for the market especially for silver which needed a set back and consolidation, according to Rogers who was hoping prices would go down so he could buy some more.

Speaking to Alix Steel in a TheStreet interview, Rogers said: “When something goes up 25%-30% in a month, that’s something to worry about a great deal. I don’t know what caused it maybe it was short covering, maybe it was rumors. I have no idea. I know that 25% in a month is dangerous”.

“Silver went down a great deal but if you raise margin requirements 150%-200% you would expect something to collapse,” he added.”

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While silver is still down 6% for the day, most silver stocks have trimmed earlier losses.

1 SSRI 0.29 Silver
2 CDE -0.54 Silver
3 MGN -0.91 Silver
4 AG -0.99 Silver
5 PAAS -1.14 Silver
6 SLW -1.59 Silver
7 HL -2.31 Silver
8 EXK -2.55 Silver
9 MVG -3.24 Silver
10 SVM -4.04 Silver
11 GPL -4.24 Silver

Data provided by The PPT

“Jasmine” has become the political equivalent of “fire” in a crowded movie theater for leaders in China, who consider the word dangerous to the point of being unmentionable because it has come to mean one thing: revolution.

After Tunisians rose up earlier this year and overthrew their dictatorial regime, they dubbed their accomplishment the “Jasmine Revolution.” Some individuals in China liked the sound of the phrase and began referencing it, especially since jasmine is also an integral part of Chinese culture. The flower is a mainstay of Chinese tea and the subject of a popular folk song.”

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Okay that was a cheap shot. We do of course have to curtail our deficit spending and get a handle on debasement…..

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“Legg Mason CIO Bill Miller says now is the time to snap up healthcare and tech stocks.

“We believe now is a good time to buy what’s on sale, and a bad time to buy what’s been marked up, just as it was in 2000,” Miller writes in the Financial Times.

“Where is the value in the market today? In the assets people do not want, that have no momentum, and that are cheap.”

Three broad sectors and two broad themes stand out, says Miller. The S&P 500 sectors are financials, technology and healthcare, which are in the bottom decile of their historical valuation ranges. ”

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Benefits from the two programs will allow some to collect up $1 million after inflation…..

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top ?

“BOSTON – Investors continue to put more money into stock mutual funds than they’re withdrawing, kicking off 2011 with the fastest start in six years.

April’s $5.6 billion in net deposits marks the fourth consecutive month that new cash has come into U.S. stock funds, industry consultant Strategic Insight said on Wednesday.

The year-to-date total of $42 billion is the biggest start to a year since $65 billion came in during the first four months of 2006.

Investors are cautiously returning to the market after the 2008 financial crisis led many to pull out of stock funds and shift into the relative safety of bonds. One factor driving the rebound in confidence is the near-doubling in the Standard & Poor’s 500 since its March 2009 low. The stock index rose 9 percent through the first four months of this year, and 3 percent in April.

“The post-crisis wariness is starting to fade,” says Avi Nachmany, research director with New York-based Strategic Insight.”

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“BEIJING (Reuters) – China lifted bank reserve requirements by 50 basis points on Thursday, signaling that containing inflation and soaking up excess cash remained its top priority even after signs the economy was slowing down.

The announcement of more tightening came as a surprise to some analysts who had expected the People’s Bank of China to tap the monetary brakes more gently after a host of data from industrial output to imports were weaker than expected in April.

To many of them, China’s latest directive to lock up more of the deposits that banks would otherwise have lent was simply an attempt to drain inflationary capital inflows rather than opt for a rate rise, ostensibly a heavier monetary tool.

“The central bank is moving the deposit reserve ratio again to soak up liquidity as hot money inflows and current account surplus remain large,” said Xu Biao, an economist with China Merchants Bank in Shenzhen.

“It should not be read as a real tightening move. Instead, it may have become part of China’s neutral monetary policy operations. If that’s the case, the central bank will continue to raise the ratio.”

The increase in bank reserves came a day after data showed China’s factory output growth in April eased much more than expected, while annual increases in money supply and outstanding yuan loans hit their lowest pace in 29 months –signs that measures to slow the economy are starting to bite.”

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“Minneapolis Fed President Narayana Kocherlakota made some comments today explaining the role of equity markets in Fed policy. Michael Derby at the Wall Street Journal has the story:

In gauging the success of the Federal Reserve Treasury bond buying program commonly known as QE2, officials like Chairman Ben Bernanke have pointed to a rising stock market as a sign of policy making success.

Against the long course of Federal Reserve history, however, that’s a strange way to justify doing business. For many years, central bankers have declined to comment on the performance of stock markets, and have instead justified their actions in purely economic terms. To the extent financial markets entered into it, central bankers were most mindful of bond markets as the mechanism that translated changes in monetary policy into credit availability for businesses and households….

…. It isn’t clear whether Bernanke’s shift in focus represents a change in how the Fed does business, or whether his comments represent an effort to justify a policy that hasn’t worked as planned, leaving the chairman to support it in whatever way he can….”

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What recession?

“Two articles this morning lead me to conclude that housing still has no upside. The first from the NYT the other from Bloomberg.

The Times reports on what I (and others) have been warning about for some time. The lending limits for the GSEs and FHA are scheduled to be cut on 9/30/2011. Bloomberg reports on a growing trend, seller financing.

The GSE lending limits were increased as part of the 2008 HERA (bailout) package. Housing was in free fallback then; there were no private lenders. It (sort of) made sense to increase the limits in the overall effort to stop the economy from tanking.

The limits have already been extended once (end of last year). I’m sure that there is going to be a push by some in Congress to extend them again. I think the effort will fall flat. Fannie and Freddie have cost hundreds of billions. Extending the limits just keeps them alive and helps them grow. That is not a very popular position to take one year before an election. The additional argument will be made that the higher limits just support rich people. To some extent that is true.”

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He lowered his target to $120 on mounting concerns that the government will bring criminal charges against the firm.

Silver is down 5% at the open.

Delays of stabilization are expected……

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