Oil and Gold

Demand for Oil –Recent economic downturns have slowed the demand and to top this sluggish demand Mid East turmoil has not helped in a steady supply. The growing economies will push the demand for oil slower than past years. Let’s break the oil consumption and tackle the top 5 consumer’s demands one by one.
1. US :The IEA data shows that the consumption is going to fall about a 1% and remain there till end of 2012
2. EU : Again with the economic disasters and EU’s pledge to reduce oil consumption by 20% ,will reduce the demand by about a 1%
3. China :Double digit growth rates, surpassing US consumption by 4% and interestingly the majority of consumption is from heavy industry and not like consumer demand as in US.This will fuel the demand by at least a couple of percentage points as demand in heavy industry does not fluctuate as much
4. Japan: The Japanese utility companies have been utilizing more oil as the nuclear utilization has fell to 3o year low because of recent earthquakes. Only one of the nuclear reactors has been allowed to reopen and all others are in a holding pattern. We can expect a growth of around 1% till next year.
5. India:The demand will increase though the domestic oil covers only around 20% of consumption recent economic sluggishness has not decreased the demand for oil
With OPEC being a swing producer and the majority of members residing in Middle East, and the recent uprising in an autocratic regime, OPEC’s resolution and steadfastness in maintaining a credible pricing structure is key to the economics of oil
________________________________________

Demand for Gold: The consumption of gold produced in the world is about 50% in jewelry, 40% in investments, and 10% in industry .Lets break gold consumption to see
1. India, China and Turkey who represent more than 50 % of consumption have shown a growth of 16% over last quarter.
2. Much of the new investment demand has come from the gold-backed ETFs and new investment vehicles around Gold which has been a traditional inflation hedge.
3. Gold has a little industrial or intrinsic value as compared to other metals and has always been a piece of jewelry or in personal savings in countries like India, Turkey etc.

Investors have been trying to drill the fact that gold is not an investment but a speculation and with this adage catching on in common investors psyche, if we mainly rely on ornamental and industrial use of gold we should see a normal growth in demand for gold (mainly from the Jewelry facet of consumption rather than jumpy investors escalating prices in order to hedge their bets)

Was TARP too large or too small ?

It was neither large or small but did its work partially. Troubled Asset Relief Program was to give relief to Troubled assets now if we think of
Troubled Assets = (CDO and toxic assets which banks held + Average American home ).
First goal ( not in that order tough)was to stabilize financial institutions and to get banks lending again and prevent a systemic collapse and it did that. It was always thought of as a temporary thing and folks were supposed to return the money when markets stabilized and it worked.
Second goal was to keep folks in their homes , so far that is clearly not the case , housing market is a clear indication of that goal and its failure to stop the foreclosure crisis calls for some serious contemplation
Verdict : Depending on which goal we value more our verdict on TARP size and goal can go either way