Less bad is good…so goes the mantra of today’s bull. So goes the rationale for buying global shares…and so goes the motivation for buying oil. That is to say, the global economy continues to sputter along, but it is doing so at a slightly faster pace.
Be that as it may, it is still stumbling. China’s economy is showing the weakest growth since 1999, retail sales continue to plunge, while the Fed Beige Book indicates a moderation in the pace of decline. Not exactly “good” news to offset the dismal economic headlines. Unemployment is rising and as per March’s Industrial Production Report, the factory economy is lifeless, falling to its lowest levels since 1988. At the end of the day, however, investors trade on perception, moreso than facts.
NYMEX natural gas seems to be the only commodity in the energy complex that is following fundamentals. Since early July of last year, both the spot contract in NYMEX natural gas and UNG have lost 76% and 79% of their value respectively. Yet, despite all of this bearish news, there may be one technical indicator that shows a potential for reversal of the trend. In this week’s ETF Market Intelligence Report, we note that the Relative Strength Index (RSI) of both UNG and its underlying commodity is teetering right above the 30 mark (30 and below=oversold, 70 and above=overbought). However, we remain on the side of fundamentals.
It was not surprising to see Obama appease the “green” voters this week with an Earth Day lullaby.
The story read how the administration is going to push a budget resolution through Congress that creates millions of new jobs in the renewable-energy arena. Unfortunately, the “greenies” are likely to lose sleep over a nightmarish study by Dr. Gabriel Calzada, a Spanish Professor of Economics, which claims that what happened in Spain will play out in the U.S. The study shows that for every green job that is created with government funding, 2.2 regular jobs are lost and that only 1 in 10 jobs wind up being permanent. In other words, now is not the time to leave your day job to go work at the algae farm.
It’s a start: China gets in the Game… While the carbon emissions debate continues on the Hill, China is taking steps to show, at least from a public relations perspective, that they get it. China is a big oil and coal consumer and it needs to show the international community that it is taking steps to cut its carbon emissions as it emerges as global economic powerhouse. To that end, the Chinese government announced it is planning to impose three types of taxes aimed at reducing carbon emissions and incenting clean energy. The government is working to impose an environment, energy and a carbon tax.
The carbon tax is the key element of the plan and will directly affect coal, oil and natural gas companies. It is hard to estimate how big the impact will be since the tax rate has not yet been fixed. But Su Ming, deputy director of the Institute of Financial Science in the Ministry of Finance, said that the initial rate would not be set so high as to impose too great a burden on companies.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.