Gold Is the Worst Investment in History

Marko Beric

http://www.dailyfinance.com/2015/02/05/gold-worst-investment-history/

Nobody wants to be the bearer of bad news. Nobody wants to crush people's dreams. But in the world of investing, cold, hard facts, not dreams, are what make you money. And the fact of the matter is, historically speaking, buying gold is the worst possible investment you can make.

I am very sensitive to the fact that what I just said has probably caused some readers to go apoplectic, and for that I apologize. I know that I will never convince the gold bugs, inflation hawks or doomsday preppers of this thesis, nor my own personal position that gold will eventually be worthless. But for the rest of you, let me lay out the case to avoid gold as an investment.

The Numbers Don't Lie

In his seminal book "Stocks for the Long Run," renowned economics professor Jeremy Siegel looked at the long-term performance of various asset classes in terms of purchasing power -- their monetary wealth adjusted for the effect of inflation.

With a $1 investment each in stocks, bonds, T-bills and gold, beginning in 1802 and ending in 2006, Siegel calculated what those assets would then be worth.

Stocks were the big winners, growing the initial dollar investment into $755,163. Bonds and T-bills trailed dramatically, returning only $1,083 and $301 respectively. But the big surprise was in how badly gold fared during that time, only growing to $1.95.

An Inefficient Investment Vehicle

In addition to its miserable historical performance, gold also has many other failings as an investment, not least of which are the cumbersome and inefficient options available to own it and the prevalence of less than reputable salespeople in the precious metals space.

Owning physical gold in the form of bullion has many drawbacks. Wide bid and ask prices on physical gold ensure that the moment you purchase it you are already underwater on your investment. In addition, shipping costs for the heavy metal will further add to your cost basis.

Once you get your gold, you then have to decide how to store it. Keeping it at home exposes it to the risk of theft, fire or natural disaster. Taking it to the bank requires the rental of a safe deposit box, the cost of which will eat into your profit as well.

Firms will store your physical gold on site, but they charge for the service, and the idea of having your yellow treasure held by someone somewhere else, commingled with that of others, is not very appealing.

Don't Look to the Stock Market for Help

So what about the various gold ETFs –- most notably the SPDR Gold Trust (GLD)? Aren't they a cheap and easy way to own gold? The short answer is "no."

The idea behind these ETFs is to give investors a way to buy and sell gold as simply as they would a stock. But the problem is that when you buy GLD or any other gold ETF, you are not buying physical gold. Instead, you own an asset –- shares of the ETF –- that are backed by gold. And where is this gold? Good question.

All the gold that backs GLD is allegedly held in HBSC (HSBC) vaults in an undisclosed location in London. How much gold is there? Nobody actually knows, and investors have to take the word of the trustee, Mellon Bank of New York (BK) that halfway across the world, enough bullion sits in these vaults to cover GLD's liability.

However, no matter how much gold it holds, there are no redemption rights by shareholders, meaning you cannot exchange your ETF shares for physical gold. In addition, the physical gold is not required to be insured, which means the trustee is not liable for loss, damage, theft, or fraud. Not too reassuring is it?

Won't Protect Against the Worst Case Scenario

Despite all the points I have outlined so far, the fail-safe that most gold enthusiasts assert is that in cases of hyperinflation or global crisis, gold will retain –- and even increase –- its value, which far outweighs its other investment risks.

But the problem with that thesis is that the U.S. government has the right, any time it wants, to confiscate gold owned by private individuals. And there is historical precedence.

In 1933, when Franklin Roosevelt came into office, he issued the Emergency Banking Act, which required all those who held gold to turn it into the government via approved banks. The citizenry was given 30 days to comply with this order and were paid the current spot rate of $20.67 an ounce.

Roosevelt allowed some exceptions, such as personal jewelry and collectables, but that was done at his discretion, and there is no guarantee that there would be any exemptions in a future confiscation. And what would be the point of having gold to protect against a catastrophic event if the government can just seize it?

Enter the Modern World

Ultimately, gold is a legacy investment vehicle from a time before mass communications, ease of global travel, and the internet. It no longer is the default store of value that it once was, and financial and technological advances have made it an investment best suited for collectors and hobbyists, but certainly not for serious investors.

Oil "possibly at or near" a bottom: Sonders

http://finance.yahoo.com/news/here-s-why-it-s-so-hard-to-call-a-bottom-in-oil-151933880.html

So far in 2015, the buzzword on Wall Street is oil. The sudden drop in prices last summer extended through January, before rallying 20% the past 4 days (it’s down 3% again today). “Oil” mentions litter the pages of Q4 earnings reports. Economic forecasts run on about cheap gas prices and the impact on consumers. Everyone wants to know, needs to know, what’s next for the world’s favorite fuel.

But that’s the problem – no one really knows. Charles Schwab Chief Strategist Liz Anne Sonders replied, simply, “I don’t know,” when we asked her if the recent rally in crude means we’ve hit a bottom. She went on to site several reasons for, and against, the argument that a bottom is here (or near).

Rig Counts

Number one in Sonders reasons for why a bottom might be here (or near) is the steep decline we’ve seen in rig counts. “In the past, when we’ve seen the rig count drop by 20-25% in this span of time, you were close to a bottom in oil,” she said. As Yahoo Finance Editor-in-Chief Aaron Task pointed out, a lot of that was wildcatters closing down their rigs.

But as always, the devil is in the details. “The at, or close, [to a bottom] is important, because in a few cases [historically] where you weren’t at the bottom but you were close time-wise, you still had a bit to go percentage-wise.”

Contango

“You recently got into steep contango,” pointed out Sonders. For the un-commodity savvy, contango is when the price of further-dated futures contracts are higher than shorter-dated contracts. For example – contango occurs if the price of oil for March delivery is cheaper than contracts with April delivery.

“A lot of speculators have been loading crude on ships and just kind of hanging it out there until prices [rise], literally,” she said. “These are the types of things that tend to happen at, or near, bottoms in oil.”

Rally

“We’re in bull market territory with the rebound,” mused Sonders. Even though oil prices are, overall, still down some 50% since June, the 20% rally of the last few days has technically put us in bull market territory.

“It does remind me a little bit of the Nasdaq circa 2000, 2001 where you would have these ferocious rallies and people would say, ‘That’s it, the bottom’s in,” and then of course you were heading back into the soup on the way to 2000,” said Task.

Sonders also pointed out that oil bottoms tend to be V-shaped. “When you do find a bottom in oil, unless this is a very different environment, they don’t tend to be either Ls or kind of choppier elongated bottoms,” she said. But that doesn’t mean the Vs are totally balanced – the right side rally may not recover all of the original price.

Production

The biggest argument against an oil bottom comes from production, which is a big “but.”

“Production is still at a record, which I think the people who do attempt to forecast oil price tops or bottoms probably would point to, the fact that production is still at an all-time high as maybe a reason why we haven’t quite hit bottom yet,” Sonders said.

If you’re trying to play the market, Sonders' best advice is to keep your portfolio at market weight. “It’s maybe still too soon to buy, but probably too late to sell,” she said.

Nigeria: PWC Submits Forensic Audit Report On NNPC to Jonathan

Photo: Leadership 

              

http://allafrica.com/stories/201502031055.html

Lamido Sanusi

               

By Jaiyeola Andrews and Ejiofor Alike

PricewaterhouseCoopers (PWC), the international audit firm appointed by the federal government to undertake a forensic report on the alleged unremitted oil revenue by the Nigerian National Petroleum Corporation to the Federation Account, finally submitted its report to the presidency on Monday in Abuja.

In a brief ceremony witnessed by the Auditor General of the Federation, Mr. Samuel Ukura, President Goodluck Jonathan, who received the report from the firm's Country Senior Partner, Mr. Uyi Akpata, expressed delight that the report was finally out, adding that it would go a long way in bringing to an end the controversy over allegations on "stolen funds" in NNPC.

He described the reports in some newspapers as ridiculous, adding that the kind of figures that he could not even believe Nigeria were being bandied as missing funds.

He said the Auditor General would look at the report and present key highlights of it to the public within one week.

"There has been so much of controversy over NNPC and leakages or no leakages. I remember the Senate had also looked into it, so it is also good that you professionals have also looked into it.

"What appeared in the papers and speculations were also very high. In fact, figures that I cannot even imagine the country would make were being bandied in the newspapers.

"So I am quite pleased that you have undertaken the forensic audit. Though it is voluminous, I will give it to the professionals.

"In government work, there are people that have the statutory responsibilities to handle such assignments, which is the auditor general of the federation.

"So the auditor general will look at it and within the week, let us know the key highlights because the media would want to know the key findings vis-a-vis the Senate findings and figures being bandied around in the newspapers, because Nigerians are interested in this information," Jonathan said.

The president also said his administration was committed to reforming the oil sector with the Petroleum Industrial Bill (PIB), which is still before the National Assembly.

"Indeed you mentioned the issue of reform in the sector and everybody knows that the sector needs to be reformed. By the time we go through the Petroleum Industry Bill and pass it into a law, most of these lapses will be corrected and the misconceptions will be properly addressed," he said.

Jonathan thanked PWC for its work and expressed confidence that the report will help to move things forward and set the records straight, promising to handle the recommendations of the report decisively.

Jonathan also allayed fears over the country's finances, disclosing that PWC had offered to submit an interim report, which he rejected and insisted that a comprehensive forensic audit must be submitted.

"I hope we will not call you back, but where need be, we will call you back if there are issues that are not so clear. But we are happy with what you have done so far "I assure you that this is a precious document that the accountant general will keep and I will have my own copy, because even after I leave office and I need to write my memoirs, I will use some part of it," he said.

The federal government had appointed PWC early last year to undertake a forensic audit of the finances of NNPC after the former CBN Governor (now Emir of Kano), Alhaji Muhammadu Sanusi II, had written a letter to Jonathan over the non-remittance of $49.8 billion to the Federation Account by the corporation between January 2012 and July 2013.

The revelation, which led to an uproar among Nigerians and Sanusi's eventual suspension as the CBN governor, forced the federal government to appoint the audit firm to audit the NNPC.

Before his ouster, however, Sanusi revised the amount, which he said had not been remitted by NNPC from $49.8 billion to $10.8 billion and later to $20 billion. Meanwhile, crude oil prices rose yesterday as investors ignored the industrial action by workers of refineries in the United States of America (US) and bought more crude oil in anticipation of lower production, following a fall in the US rig count.

But the member countries of the Organisation of Petroleum Exporting Countries (OPEC) have remained cautious, saying that prices may stay depressed until summer due to weak seasonal demand.

They however believed that Saudi Arabia's strategy of curbing the output growth of rival producers in the US, Canada and Russia might have started achieving tangible results.

Oil prices had on Friday closed above the 20-day moving average for the first time since July 2014 and with the US rig count falling sharply, signaling lower production down the line, investors felt that it was an opportunity to buy more crude.

Reuters also reported that Brent crude futures were up 50 cents at $53.50 a barrel, after leaping as high as $55.62 and dipping as low as $51.41, as the bulls battled with the bears.

Similarly, US crude (West Texas Intermediate) was up 55 cents at $48.79 a barrel, after touching an intraday high of $50.56 and slumping to $46.67.

Brent crude speculators raised their net long positions by 1,056 contracts to 143,039 in the week to January 27, as some investors took the view that the oil price was beginning to bottom out.

Gas Prices on the Rise, but No Need for Alarm

The end of $2 gasoline has probably arrived, analysts say, but average prices are still at record lows.

A glut of oil drove the average U.S. price at the pump to $2.03 last month, its lowest point since March 2009.

http://www.usnews.com/news/blogs/data-mine/2015/02/02/gas-prices-on-the-rise-but-no-need-for-alarm

It was good while it lasted.

The end of $2 per gallon gasoline has likely arrived. After falling to the lowest average price in nearly six years last month, retail gasoline costs are once again on the rise – and they’re expected to keep increasing through spring.

 

Still, experts say, it’s no reason to panic.

“This is not revisiting 2011 to 2014 – this is the normal increase and we’re probably a little low,” says Tom Kloza, global head of energy analysis for the Oil Price Information Service. “That’s still an awful good price.”

 

The average price at the pump has increased from $2.03 on Jan. 25 to $2.05 on Monday – but is still far below the average price of about $3.28 last year.

Driven by a glut of oil and falling global demand, prices had previously fallen for a record 123 days. The last time prices increased was Sept. 25.

“Many drivers are noticing an uptick in gas prices for the first time in months,” AAA spokesman Avery Ash said in a statement. “It is typical to see gas prices increase this time of year due to refinery issues, yet hopefully the consumer impact will be less problematic given how low prices are today.”

Monday’s average price was $1.22 per gallon less than in 2014.

[READ: Obama Administration Proposes Offshore Oil Drilling in Atlantic]

“That’s good news for consumers,” says Gregg Laskoski, senior petroleum analyst with GasBuddy.com

Experts expected prices to rebound at about this time, when refineries start preparing to shift from winter to summer blends of fuel. Hot weather traps more air pollution, so federal law requires refineries to blend cleaner-burning – and more expensive – ingredients into their gasoline mixes than in winter. The transition begins around Groundhog Day, when many refineries deplete their stocks of winter fuel and go offline for maintenance, decreasing the supply of gasoline on the market and therefore driving up prices.

 

[ENERGY OF TOMORROW: Saudi Succession Stirs Oil Markets, But Stability Expected — For Now]

“It’s like a segment of the movie ‘Groundhog Day': For years it’s traditionally been the bottom of the market, and you could set your clocks that prices would go up from Groundhog Day to Cinco de Mayo,” Kloza explains. “Gasoline – it’s like cake that’s gluten-free in the spring and summer, but the rest of the summer, you can load it up with all sorts of cheap flour.”

 

The last time average retail gasoline prices fell below $2 per gallon was in April 2009.

Benchmark Brent and West Texas Intermediate crude oil prices, however, have also experienced a recent uptick, perhaps contributing to the increase in gasoline prices. The reason for the rise in crude prices is less clear, but some analysts suspect it could be a sign of oil prices achieving balance after the nearly 60 percent drop they experienced from June.

 

[ALSO: Budget Spends Big on Climate, Clean Energy]

“Crude seems to be rebounding from the floor that it hit,” Laskoski says. “The hope or the expectation is that the market will find equilibrium.”

 

Kloza is less certain. Crude prices, he speculated, will probably increase through May, but they could then fall again if supply keeps outpacing demand. Contract negotiations between labor unions and refineries could also prove a factor, he adds, driving gasoline prices higher in the event of a strike – an event he characterized as extremely unlikely.

“For gasoline, we see this every year,” Kloza says. “Crude oil, it’s really unscripted. You’ve got new projects coming on that were orchestrated years ago when you could sell crude for $100. A year from now, do I think crude prices will be higher than they are now? Probably. But I think this spring – probably March, April, May – boy, it’s hard to figure out where it’s going to all go.”

U.S. workers strike for second day at nine refineries; one to shut

Members of the United Steel Workers union picket the Tesoro refinery in Carson, California February 2, 2015. REUTERS/Bob Riha, Jr.

http://www.reuters.com/article/2015/02/02/us-refineries-labor-strikes-idUSKBN0L60CL20150202

By Erwin Seba

Union workers were on strike for a second day on Monday at nine U.S. refineries and chemical plants as they sought a new national contract with oil companies covering laborers at 63 plants.

The walkouts were the first in support of a nationwide pact since 1980 and targeted plants with a combined 10 percent of U.S. refining capacity. One of the plants, Tesoro Corp's (TSO.N) 166,000-barrel-per-day Martinez, California, refinery, was being shut because it was in the midst of planned maintenance work.

The other refineries appeared set to continue running normally as operators initiated contingency plans, calling on trained managers as replacement workers. U.S. gasoline and diesel fuel prices rose on Monday on concerns over supply, as well as a bounce in crude.

Talks broke down against a backdrop of plunging crude prices, down nearly 60 percent since June, prompting oil companies to cut spending.

The United Steelworkers union (USW) said Royal Dutch Shell Plc (RDSa.L)(RDSa.N), the lead industry negotiator, halted negotiations early Sunday after the union rejected a fifth proposal from the company. Shell said it would like to restart talks.

Shell activated a strike contingency plan at its joint venture refinery and chemical plant in Deer Park, Texas, to keep operating normally.

Tesoro said management was operating its refinery in Carson, California, and that managers would take over from union workers at its plant in Anacortes, Washington, in the next 24-48 hours.

Besides Shell and Tesoro, the USW said strikes were called at three plants belonging to Marathon Petroleum Corp (MPC.N) in Texas and Kentucky, and LyondellBasell Industries NV's (LYB.N) plant near Houston. At least two of the plants on the list have a history of deadly accidents.

The USW said all other refineries it represents, including Exxon Mobil Corp's (XOM.N) plant in Beaumont, Texas, would operate under rolling 24-hour contract extensions.

  

The expiring three-year national contract covers about 30,000 hourly workers at plants that together have two-thirds of U.S. refining capacity.

The latest rejected proposal was the fifth turned down since negotiations for a new three-year contract began on Jan. 21.

The union is seeking annual pay raises double the size of those in the last agreement. It also wants work that has been given in the past to non-union contractors to start going to USW members, a tighter policy to prevent workplace fatigue, and reductions in members' out-of-pocket payments for healthcare.

Gene Oliver, president of the union chapter at LyondellBasell, said the company brought 10 issues to the table and did not want to discuss all of the 36 points raised by the union.

"They were unwilling to work on the issues," he said.

Independent refiners, such as Valero Energy Corp (VLO.N), have made big profits recently by tapping cheap crudes from the U.S. shale boom, while refining units at integrated companies such as Exxon have provided a cushion against low prices hurting upstream operations.

But the drop in oil prices from $100 per barrel last summer has hurt the union's hand, analysts said.

(Writing by Terry Wade; Editing by Jeffrey Benkoe)

OPEC leader: Oil could shoot back to $200

Right now the oil market is totally focused on finding a bottom for oil prices. However, according to OPEC's Secretary-General Abdulla al-Badri we've already hit bottom.

http://money.cnn.com/2015/02/03/investing/oil-price-rebound-opec-200/

Not only that, but he sees a real possibility that oil prices could explode higher to upwards of $200 per barrel in the future. He's far from the only one that sees a return of triple-digit oil prices.

Finding a bottom: According to recent comments by the Secretary-General when he was in London, the oil market doesn't need to look for oil prices to bottom as the market has already bottomed. Instead, he offered quite bullish comments by saying, "Now the prices are around $45-$55, and I think maybe they [have] reached the bottom and we [will] see some rebound very soon."

Normally that type of remark would be just another layer of noise, but this is coming from OPEC's Secretary-General so it comes with a lot of weight behind it.

That said, he's not saying that OPEC will come in and rescue the oil market by reversing its previous decision to hold steady on production. Instead, he sees the signs that the oil market is self-correcting as oil companies have made deep cuts to spending, which will eventually lead to lower production growth.

Further, the rig count in the U.S. is plunging, which is usually a key to a bottom in oil prices. However, in the midst of cutting back as the industry works through the current oversupply the Secretary-General is now warning that the industry is putting future oil supplies at risk by under investing today.

Underinvestment leads to a shortage: The Secretary-General said that, "if you don't invest in oil and gas, you will see more than $200" when it comes to future oil prices. While he didn't give a time frame, he did note the correlation between investment and future production.

This is because oil production naturally declines and oil companies need to invest in new production to not only replace this decline in production from legacy oil fields but to add new production to meet growing demand. However, oil companies are reluctant to invest in new production as their cash flows decline.

Over time this could become a problem as oil fields around the world naturally decline by an average of about 5% per year. As we see in this chart from a Chevron Corporation (CVX) investor presentation, in order to overcome this decline oil companies need to develop about 200 billion barrels of oil supplies over the next decade and a half just to meet demand.

 

These supplies will require the industry to invest $7-$10 trillion. However, with the big capital budget reductions oil companies have announced this year it could make it harder for the industry to meet future supply needs. In fact, the industry might defer up to $150 billion oil projects this year due to the collapse in crude prices. Many of these investments, however, wouldn't have yielded actual production for a couple of years due to the long lead time of major projects.

As an example, Chevron delivered first oil on two of its Gulf of Mexico projects late last year after beginning construction on the fields in 2011. Meanwhile, another $6 billion project it just sanctioned at the end of last year won't produce any oil until 2018. It's these long lead time projects that are being delayed, which is setting the world up for higher oil prices in the future as an under investment today has the potential to lead to a constriction in future supplies.

Investor takeaway: OPEC's Secretary-General is calling the bottom in oil prices. While he's not the first to call a bottom, he does lead the organization that currently controls the oil market so his comments do have a lot of weight.

Further, he's also suggesting that the cuts that oil companies are making could have a dramatic impact on future oil prices as the under investment has the potential to cause oil prices to rocket higher if demand grows faster than future supplies. That, however, would all be part of OPEC's plan as it purposely pushed for lower oil prices now so it could control market share once oil prices surged in the future. It's willing to endure short-term pain for the potential of a big long-term gain.

Matt DiLallo has no position in any stocks mentioned, though he is bullish on oil prices in the future. The Motley Fool recommends Chevron.

Ghana's new oil fields to start production on schedule next year -Tullow

http://www.reuters.com/article/2015/01/29/ghana-oil-production-idUSL6N0V872120150129

Ghana's new oil fields are on schedule to start production next year as development has passed the half-way stage, lead operator Tullow Oil said on Thursday.

The offshore Tweneboa, Enyenra and Ntomme (TEN) project, which will have a peak production capacity of 80,000 barrels-per-day, is expected to cost close to $5 billion.

Ghana, which exports cocoa and gold, joined the league of African oil producers in late 2010 when it began pumping crude from its offshore Jubilee field with an average output currently at 100,000 bpd.

The government approved the development plan for TEN in May 2013. It is expected to produce oil for around 20 years.

Tullow said drilling of the first 10 wells required for the start-up next year had been completed weeks ahead of schedule.

"The floating, production, storage and offloading vessel, which will receive and store the oil, is under construction in Singapore and remains on schedule to arrive in Ghanaian waters in February 2016," the company said in a statement.

Other partners in the TEN project are the Ghana National Petroleum Corporation, Kosmos Energy, Anadarko Petroleum Corporation and PetroSA.

Ghana is currently in talks with the International Monetary Fund over an assistance package to help fix its economic challenges including high deficits and widening debt.

In addition to a potential IMF package, the government is hoping to use potential hydrocarbon resources to stabilise the economy and bolster growth. (Reporting by Kwasi Kpodo; Editing by Susan Fenton)