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Gnostam February 27th 2012

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Effect of strike on Iran for World Oil market

Effect of strike on Iran for World Oil market

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  • 1. 21 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937     Performance Through Independent Research ANOTHER OIL SHOCK: with 698 centrifuges operating inside the Fordow installation near Qom city, 156 The Persian Gulf allies of the United States km from Tehran, a 69 percent increase have been increasingly concerned with the on the number recorded during the last growing size and complexity of Irans inspection in October, the UN watchdog ballistic missile programs. The recent IAEA said. inspectors report UN experts disclosed a 42 percent rise in the number of operational Iran had declined to offer full cooperation centrifuges enriching uranium inside the to IAEA inspectors during their visit to Natanz facility, located in central Iran, in the country earlier this month. the last four months, from November 2011 In particular, the inspectors were Work inside a second, previously secret prevented from visiting a military location enrichment plant has also been stepped up, at Parchin, where experiments that would   Fig.  1  Above  Where  the  missile   1   launching  facilities  are.  
  • 2. 21 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   Gnostam LLC performance Graphs Figure  2.  Gnostam  Performance   Gnostam  was  established  in  February  2004.   Since  inception  the  annualized  rate  for  return  for  a  client  portfolio  managed  by  Gnostam   LLC  has  returned  a  total  9.24%  to  February  17th  2012.   Please  refer  to  table  below  for  actual  year  performance  numbers.     GNOSTAM  PERFORMANCE  NUMBERS     2  
  • 3. 4321 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   only be relevant to mastering the detonation may have been working. system of nuclear weapons are understood to have been conducted. So we are facing a standoff between Iran over the latters nuclear program, The latest report by the IAEA is likely to states around the Persian Gulf fear that deepen Israels fears about Irans intentions, Iran would retaliate for an attack on its particularly the build-up of centrifuges at the nuclear program by launching missiles Fordow facility, which is dug into a at regional oil installations and other mountainside and could be immune from strategic targets. military attack. Examining the threat posed by Irans The IAEA reported that 8,808 centrifuges missiles to Saudi Arabian oil were functioning inside Natanz, compared installations, based on an assessment with 6,208 on its last visit, although the of Irans missile capabilities, a detailed report cautioned that not all of the machines analysis of Saudi Arabian oil   3  
  • 4. 6521 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   infrastructure, and a simulated missile nuclear weapons site shown in the map campaign against the network using known below. Iranian weapons, finds no evidence of a significant Iranian missile threat to Saudi According to informed sources in the infrastructure. weapons merchant business —in both Israel and Saudi Arabia– the military These findings cast doubt on one aspect of leaders are looking to launch the attack the Iranian threat to Persian Gulf oil while in June, with the al Saud family covertly offering an analytic framework for supporting a strike against Iran’s nuclear understanding developments in the Iranian facilities, even though there is no missile arsenal and the vulnerability of oil guarantee that the strike would knock out infrastructure to conventional attack. the Iranian nuclear weapons capability. It is tempting to think that the current sabre The answer to why the al Saud regime rattling is all about a Israel and its allies would not be upset at an attempt by Israel preparing a preemptive strike against Iran’s and its allies attack on Iran’s nuclear   4  
  • 5. 21 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   Portfolio  Changes  and  Recommendations  for   New  Year  2012   STOCKS TO HAVE IN THE supports China has became the largest PORTFOLIO: manufacturing nation by output in 2010, [United Nations Statistics Division], using Simple ideas ~ Pipelines and Natural Gas Real Manufacturing Value-Added figures. storage. We need to have a substantial The U.S. represented roughly 20% of global exposure to these. manufacturing at about $1.83 trillion and China was nipping at its heels with $1.79 My favourites in the Natural Gas trillion. This gives credence to the concerns Domestic Pipeline and storage are: about the U.S. facing stiff competition in the manufacturing arena. • Plains All American, [PAA]; • Southwest Energy, [SWN]; Considering that the U.S. achieved that $1.83 trillion in output on the backs of 11.5 In domestic transport: million workers, while it took 100 million Chinese workers to generate slightly less • Canadian National Rail [CNI]; output, this shows how Chinaʼs rapid • Rail America, [RA]. economic expansion over the past two decades, has been mainly fuelled by low- In Water Supply: cost labor. In 2009, China accounted for only about 12% of the worldʼs manufactured • American Water States [AWR]. goods. This advance suggests that the global economic downturn enabled China to In Technology: benefit from increased demand for less expensive goods. • Cadence Systems, [CDNS]; • VM Ware, [VMW]. The US has continued to see a substantial decline in manufacturing employment over SELLERS OF SOME OF THE TANKER the past several decades (from about 20 STOCKS: million in 1979 to roughly 11.5 million today). Global outsourcing, increased Rates have come down because of excess worker productivity, technological advances supply. As the amount of crude that is carried and the further mechanization/automation through the straits of Hormuz, [currently between of the manufacturing process have reduced 35-40% of seaborne traded crude], and the the labor intensiveness of the industry. This industry right sizes for the new demand has reduced costs and enabled the U.S. to conditions [increase in seaborne trade mainly to increase production at a more profitable Asia from Persian Gulf], it may be profitable pace. But the shift in jobs to the service again to invest in shipping stocks like FRO. and technology sectors can only drive MANUFACTURING IN THE UNITED STATES: economic growth but so far. There remains a need to produce tangible goods that Much has been made about the US about support infrastructure and strengthen the manufacturing revival. There is now data that core of domestic economic productivity.   5  
  • 6. 21 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   Range  of  Sahab-­‐3  missiles  from  Iranian  missile  launch  sites   6  
  • 7. 8721 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   enrichment facilitie iss that Saudi Arabia is Afghnaistan in the next few months which dominated by Sunnis; whereas Iran’s leaders would make the troops in Afghanistan are Shi’ite. The al Saudi Arabia’s rage against available to support the Israeli attack on the Shi’ites exceeds its dislike of its Jewish Iran in some way. neighbors. Is any of this plausible? The If along with launching missiles on the nuclear Economist reports that there is a site in Iran, Israel will also occupy southern perception that Iran is enriching uranium. It Lebanon in order to take control of Hezbollah writes that Iran is ”acquiring the missiles that Iran has stationed there to launch technology it needs for a weapon. Deep aerial attacks on Israel in the event of an underground, at Fordow, near the holy city Israeli airstrike on Iran. This would be a of Qom, it is fitting out a uranium- serious cause for unrest in the region, and enrichment plant that many say is likely resisted diplomatically by the US. invulnerable to aerial attack.” The U.S. will not be simply an innocent And certainly the price of oil has spiked bystander in the event of a Saudi supported since last February despite tepid demand Israeli attack on Iran. It is somewhat likely that and an increase in supply. Oil’s price is up US troops will be withdrawn from Afghanistan 20% in the last year — Brent Crude sold in the wake of the recent killing of two for $104 a barrel in February 2011 and Americans in a NATO facility. was a whopping $125 a barrel, as of February 24, 2012. To this end we should watch for any U.S. administration announcement of victory in Supply and demand do not explain a 20% leap in the price of crude. After all,   7  
  • 8. 9210 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   demand growth has been very slow. For million barrels a day last week, compared example, in 2011, world oil demand crept up with an average of about 7.5 million in a mere 0.8% and that demand is expected January.” Meanwhile, Iran currently to rise a mere 0.9% in 2012 to 89.9 million produces 2.2 million barrels of oil per day — barrels a day, according to the International supplying “2.24% of the daily oil Energy Agency. consumption in the world,” according to Meanwhile, the IEA reports that supply is up Nevertheless, an attack on Iran raises the and is likely to rise in 2012 as well. For level of political uncertainty quite example, in January 2012, global oil considerably. For example, if there are production was 90.2 million barrels/day — a countries that are supplying arms to Iran — million barrels/day higher than the year such as Russia and China – they may feel before. Meanwhile, IEA forecasts a compelled to take sides against Israel’s considerable increase in OPEC and non- backers. OPEC supply in 2012. This would probably be good for those And even if Iran stops producing, supply betting on a rise in the price of oil and gold. should not be affected. How so? Reuters But it would not be so good for the global reports that Saudi Arabia plans to “increase economy — after all a rise in oil prices would its output to cover any shortfall to the world boost gasoline prices and put the brakes on supply from Iranian exports.” an economic recovery in the U.S. And Reuters reported Saturday that Saudi Certainly, rising gasoline prices tax Arabia had increased exports to “just over 9 consumers’ budgets. According to AP,   8  
  • 9. 2121 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   Persian  Gulf  areas  at  risk  in  the  event  of  an  armed  nuclear  conflict  with  Iran   “every one-cent increase in the price of 2012. Any conflict in the middle east is gasoline costs the economy $1.4 billion.” If the highly de-stabilizing, and very difficult to price of gasoline rises by, say, $2 a gallon, contain, especially potential nuclear threat that would reduce GDP by about $280 billion from Iran. — representing 2% of GDP. The central theme for investing in 2012 is Politically, such a war has the potential to clearly a continuation of staying with boost President Obama’s chances for pipeline investments in the domestic US, reelection. [our number one pick for 2012 is Plain All American, PAA], while gaining some From an investment standpoint even though I incremental exposure to the big oil consider any armed attack against Iran as reserves of Brazil through Petrobras. unlikely, what will likely face investors is a “lower” return scenario for their portfolio’s in In technology we favour Cadence systems   9  
  • 10. 21 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937     10  
  • 11. 2143 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   PEAK  OIL  PRODUCTION  2011-­‐2012.    Time  to  develop  our   domestic  gas  resouces  and  gas  transport  infrastructure   [CDNS] and the very expensive but very the developed world we face a very profitable VM Ware, [VMW]. substantial increase in ages 40-65. As this decreases and people enter retirement, we Because of the massive quantitative easing will face more conflict in advanced by Central Banks around the world, coupled economies on how to pay for retirement. with the decrease of peak oil production and the increasing age of population in the developed world, the flight to hard assets will continue. After all demographically in   11  
  • 12. 21 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937   Demographics  of  aging  mean  that  developed  nations  deficits  will  increase     12  
  • 13. 21 Gnostam  LLC     February  27th,  2012  Newsletter   PO  Box  960     Inverness,  CA  94937     Disclaimer: The information and any statistical data contained herein have been obtained from sources which we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. Gnostam LLC and/or its shareholders, directors, officers and/or employees, may have long or short positions or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The securities mentioned in this report may not be suitable for all types of investors. ALL investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Furthermore, you should read all transaction confirmations, monthly, and year-end statements. Read any and all prospectuses carefully before making any investment decisions. You are free at all times to accept or reject all investment recommendations made by the Gnostam LLC. As you know, a recommendation, which you are free to accept or reject, is not a guarantee for the successful performance of an investment and we are expressly prohibited from guaranteeing accounts against losses arising from market conditions. Past performance is no guarantee of future results, and current performance may be lower or higher than the performance data quoted. Investment Disclaimer All investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Furthermore, you should read all transaction confirmations, monthly, and year-end statements. Read any and all prospectuses carefully before making any investment decisions. You are free at all times to accept or reject all investment recommendations made. All products sold are subject to market risk and may result in the entire loss to the clients investment. (For example: excessive withdrawals may result in the depletion of your account). Please understand that any losses are attributed to market forces beyond the control or prediction of Gnostam LLC. As you know, a recommendation, which you are free to accept or reject, Gnostam  LLC   PO  Box  960   Inverness,  CA  94937  USA     E-­‐mail:  pcorsano@gnostam.com     www.gnostam.com     13  

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