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About Me


Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.


Monday, 30 June 2014

Energy Series: Alternative Energy

Alternative energy is any form of energy which is not obtained from fossil fuel. We have covered nuclear, solar and wind energy so what does that leave? It is anything that will reduce the advance of global warming.
Other methods that could become or are already regarded as economical alternatives to fossil fuels include energy from tide and from waves, Hydrogen, geothermal, ethanol biofuels, algae, biogas and biomass briquettes. These are all likely to be a part of the kaleidoscope of alternatives that are being developed as an alternative to fossil fuels because they are being made worth the commitment of funds to their development by subsidies and support from politicians, scientists and from potential customers in the recognition of the potential problems from global warming.

Energy from the power of water movement is obtained by collecting the energy derived from water as it moves in the form of waves, tide and current. Taking them one at a time: -
Wave power is the capture of energy produced by ocean waves.  This sounds highly feasible and there is a 3 mw farm being operated in Scotland as part of a £13m package to develop marine power.  There is also a wave hub that has been built off the northern coast of Cornwall that is thought to be capable of producing 20mw of capacity and is sufficient to power 7,500 homes.  There are others around the world in Portugal, Australia and America.  There is thought to be huge potential for this source of power but such installations could be a shipping hazard, could disrupt the fish and fishing and could damage the coastline.

Tidal power is also thought to have huge potential with this form of generating power being capable of producing 20% of Britain’s needs. Barrages which collect the tidal movement and use it to drive generators producing electricity were the original plan but these need to be built in estuaries and problems of impact on the environment are huge such as sewage collecting as the tide does not clear it and mud flats remaining covered and the impact that could have on wild life.  Other solutions being examined include marine turbines built out at sea.

Hydrogen fuel can be used in car engines and can be converted into electricity with the use of electrochemical cells.  It does not exist in its pure form and needs to be created from water using electricity created using wind or other alternative method.  The hydrogen can then be stored and re-converted into electricity at a later stage.  As such it could be used to overcome the problem of erratic production of electricity from such sources as wind.  The excess power could be stored as hydrogen fed into the grid and re-converted to electricity when needed.  Companies like ITM Power are heavily involved in developing a viable product for this.

Geothermal power is generated from the heat generated within the Earth’s crust and can be found in hot springs.  Water from hot springs has been used for bathing and for space heating since the Romans. It is used in many countries to produce electricity. It is a cost effective way of producing electricity but is limited to areas where there are tectonic plate boundaries.  Production elsewhere would be very expensive because of the cost of drilling for it.

Ethanol is most often used to power engines and is produced from agricultural products.  It is widely used in Brazil and the US in a blend with gasoline.  Most car engines in the US can use the blended fuel and it is mandatory to do so in Brazil.  The concern that arises from this form of energy is that it is using product that would otherwise be used as food and pushing up its cost. A potentially exciting alternative is to use algae as this would avoid the problems of using agricultural products, uses saline and non-potable water.  It also produces ten to fifty times more oil per acre than does agricultural product.  Harvesting algae is challenging because of its small size and processing it is energy intensive but technology is advancing fast.
Biogas is produced, as well as digestate, from food waste, slurry, crops and manure. It is created by anaerobic digestion of these natural wastes and the biogas is then used to create power and heat and biomethane which can be added to the gas grid. It also produces digestate which can be used as a fertiliser. This is not a new technology and has been used in the UK since the late 1800s with more and more plants being built in the UK to divert waste from landfill sites. These plants are operated by the water companies in the UK.

Biomass briquettes tend to be used in the developing world as a substitute for coal and are made of green organic materials.  They burn longer when in the form of briquettes and do not have the same level of carbon as does fossil fuel.
Each of these alternative forms of power generation have their detractors because of the difficulties and problems associated with their production.  Their use does, however, reduce the level of carbon released into the atmosphere and, in some cases, is the cheapest way for developing economies to replace direct fossil fuel use.  They are affected by the economics of their production and do require support from governments and communities so that in a recession new projects will find it more difficult to find approval.  Some will not find sufficient favour to survive and there will be substitutes such as algae for agricultural products.  The use of hydrogen has a growing band of supporters and could have global usage both for engine fuel and for storing excess electricity for later release.  Proposals around tidal and wave power will probably be limited to specific areas such as the major oceans of the Pacific and Atlantic and to suitable estuaries.  Each can play a part in developing our options to replace fossil fuel.  We will have to face higher energy costs as a result but that is a price the planet has begun to accept.
There are a number of small companies in this field that are already moving into profit and others that are not far from doing so.  There are also collectives (investment trusts, unit trusts and ETFs) that specialise in investing into the small and unquoted companies that make up the majority of this sector.  


Friday, 27 June 2014

Trading: Choosing the Right Analytical Tools

Some execution brokers online occasionally provide a variety of charts and a few analytical tools for traders, but they do frequently charge for this data. Moreover, if the analytical software is provided gratis, then often it may not be fully comprehensive and difficult to interpret for the novice trader. In some instances traders in the past have even complained about some of the data provided by their broker even being inaccurate, bamboozling and of little or no value to them when making trading decisions. Perhaps this is no surprise after perusing over a review of online brokers, which revealed traders general dissatisfaction with their brokers. In view of this, the sane; don’t put all your eggs in one basket might also be relevant when deciding what software analytical tools to use when trading. Indeed, in view of the above, it might be prudent to use independent analytical software from that offered by your broker.

When having an edge in trading is all about making either a profit or a loss it would be wise to invest in analytical software tools that help you make timely, accurate and effective trades. To be governed by your emotions; fear and greed is the last thing that you would want to influence your decision making in a stressful environment, such as trading. For this reason, a comprehensive analytical software package is a tremendous aid for the trader because their decision making process is guided more by their analytical mind, apparently a higher part of the brain, rather than the emotional primal part of the brain, which controls fear, greed and lust, which apparently doesn’t help us when we are required to make cerebral decisions.

Maybe this is the strongest reason why quality analytical trading software is a must have in the tool kit for any professional trader. But with so many options on the market choosing the right one is a bit of a minefield to say the least.

So a question worth pondering over is what do the professional traders, those who actually make a living from trading, want from their software package.

High up the priority list is being able to display data in state of the art charts. For example, a software analytical tool that can show price movements in a candle stick chart format is helpful. A candle stick is a combination of a line-chart and a bar-charts, in that each bar represents the range of price movement over a given time interval. Candle stick charts are often used in technical analysis of equity and currency price patterns and they are a useful visual aid for decision making in stocks, foreign exchange and commodities. Being able to display price movements and other relevant data daily, weekly, quarterly and even 5 year timeframes can also be helpful in determining recent and historic price movements. Charts which also show unique color barometer with a snapshot of every indicator are also preferable.

Having the facility to build lists of tickers to chart from simple to complex was another feature required by traders. The ability to overlay one ticker on another is a great feature that can also give the trader an edge. For example, if you believed that the Dow had a repetitive historic pattern, say during the years 1972 and 2002 you may find it useful if the software you are using can overlay, say 1972 in red and 2002 in yellow on the same chart. This would enable the trader to pick out reoccurring patterns and decide whether history does indeed repeat itself with respect to price movements.

A software tool that can chart trend lines, showing support and resistance price levels is another great tool to have when deciding whether to sell or buy. Basically a trend line is formed when a diagonal line can be drawn between two or more price pivot points. A trend line is created by connecting bottoms to bottoms in the case of an uptrend and tops to tops in the case of a downtrend.

Plotting trend lines can be helpful in determining the future direction of prices movements; again this is a feature you’d want from your software.

The software package should also provide Gann indicators, which have been used by active traders for decades. Gann angles are a popular analysis and trading tool that are used to measure key elements, such as pattern, price and time. On a Gann angle the past, the present and the future all exist at the same time. A Gann angle is a diagonal line that moves at a uniform rate of speed, which is why traders tend to prefer Gann angle compared to trend line for technical analysis. This allows the analyst to forecast where the price is going to be on a particular date in the future.


Another popular tool amongst traders is Fibonacci retracement, which is based on the key numbers identified by mathematician Leonardo Fibonacci in the thirteenth century. In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.

A real time alerting system is another must have feature of any trading software because it means you don’t have to be glued to your trading screens for hours on end. A few of the better trading software enables the trader to send alerts to his/her pager, e-mail or have it play an audio file. In some of the premium trading software package available you can even build color studies or define your own indicators.

So trading software is an essential companion to the professional trader. Most trading software currently available on the market do provide the most basic tools for traders. However, there is one trading software package that stands out head and shoulders above the rest, that’s the winway charts, which is a trading software package containing a complete array of analysis tools. Winway charts ticks all the boxes and is well worth exploring with continuous value added components to give you an edge in your trading.


Energy series: Solar Power

The conversion of sunlight into electricity is known as solar power. This can occur directly using photovoltaics (PV) or indirectly using concentrated solar power (CSP) via mirrors or lenses which track the sunlight and focus it from a large area into a small beam. Photovoltaics is a combination of 2 Greek words meaning light and electrical power and is defined as sunlight converted into a flow of electricity or electrons. As light (or photons) strike certain compounds, mainly metals, it causes the surface of the metal to emit electrons which are then accepted by other compounds, and the combination of these two compounds can be used to make the electrons flow through a conductor creating electricity.

In 1839 a French physicist named Alexandre-Edmond Becquerel first observed and described the photovoltaic effect in Les Comptes Rendus de l'Academie des Sciences, "the production of an electric current when two plates of platinum or gold diving in an acid, neutral, or alkaline solution are exposed in an uneven way to solar radiation."
Nowadays solar technology has advanced and its potential is huge. Countries do not have to import solar energy and therefore it is considered to be a secure form of energy. 

Solar energy is a renewable source of energy and in countries that have exposure to intense sunlight they are an extremely cost effective method of generating electricity. However in countries such as the UK solar power is still a relatively expensive method of generating electricity due to the UK’s latitude and the frequent incidence of cloud cover, particularly during the peak demand periods of winter and evenings. However the technology is advancing and improvements to the performance of solar panels and storage of the energy produced by them could help to address these issues.

The biggest benefit of solar power is that it generates electricity without any waste or pollution. Solar power has a small carbon foot print as many of the materials used in the panels are recyclable. The panels are relatively low maintenance and are very reliable. It is also inexhaustible and as such is capable of becoming a serious competitor with conventional forms of energy.

Solar panels are fairly easy to install and this can be done on any scale and they are usually installed on site where the power is required which removes any need to transport it. They are widely used in remote locations such as desserts and at sea.

Solar power stations are known as photovoltaic power stations or solar farms. These are large areas of land where multiple solar tracking panels are installed. These installations have been causing controversy in the UK in recent months with planning applications being challenged as being unsightly and a waste of arable land. The British government has recently intervened and overturned previous decisions saying that the disadvantages significantly outweigh the benefits and has hinted that such applications may also fail in the future. Two major projects which had previously been given the go ahead may now be abandoned. Currently there are 143 solar farms which are seeking planning permission.

The cost of installing solar panels domestically in the UK is fairly high and it can currently take many years for the system to pay for itself in terms of bill savings and support scheme income. A 2.7 kWp system should produce 1,700 kWh per year which is the equivalent of 50% of the annual household electricity consumption and would cost approximately £12,000 to install. It is estimated that the cost of generating electricity using solar panels in the UK will be 25.2p/kWh by 2020.

Currently in the UK there are government backed subsidies available called Feed-in Tariffs in order to encourage households to install solar panels. There are 2 different ways that consumers are rewarded. The first is the generation tariff which is paid by the energy supplier for each kilowatt of electricity generated. The amount of this tariff will fluctuate with inflation but will be paid for 20 years. The second is an export tariff which is a payment for every kilowatt of electricity generated but not used which is exported to the national grid. This payment has a set floor price of 4.77p per kwH but can be negotiated with the supplier for a higher rate. 

Solar power is a new industry which relies on government subsidy and on the success of the technology to develop and bring down the costs of generating the power. As such, its success as an investment depends on the importance of these two things in an investor’s mind. If the government wants to promote more support for the industry it may increase subsidy(ies) to the public and to business in order to increase demand for the product. This in turn may increase the investment of suppliers into ways of making it more cheaply. It also depends on the end users perception of how important it is to support a switch to new technology. 

In recent years there has been much debate on the dangers of global warming. It is felt by some, however, that the urgency for a need to reduce the use of fossil fuel is not completely clear. End users are going to focus on any question there may be about how necessary it is for them to be pioneers in the switch away from fossil fuel. They will need convincing that it is worth their while and this needs ample government subsidy to bridge the gap in costs. It is particularly true at a time when the economy is going through a recession of the magnitude of the recent one. This is amplified by the big increases there have been in the cost of energy and the cut backs there have been in subsidies in order for government to cut its debts. When we have fully left these problems behind then the future of solar power should improve. In the meantime the providers of equipment and operators of solar farms may struggle to remain viable.

Solar energy can be traded via direct investments in the companies involved in the manufacture of the panels such as PV Crystalox Solar plc in the UK or through Exchange Traded Funds such as Market Vectors Solar Energy ETF or the Guggenheim Solar ETF. Good Energy have proposals to build commercial solar farms but the cost/benefit of such schemes will limit their use as will local and national government opposition. Small private companies are the main suppliers and installers of equipment. There are more opportunities outside the UK for investment in companies involved in solar power. In the US where there is more space and more sunlight the opportunities may be greater.


Thursday, 26 June 2014

Which Trading Platform?

Where there is muck there’s brass and I guess that’s applicable to trading platforms too.
Looking beyond the bells and whistles of the most commonly deployed trading platforms used by traders in the market today and instead perusing over some of the recent reviews and it becomes fairly apparent that traders are overall disappointed with what is available. Admittedly bad news travels faster than good news, particularly in the globally interconnected world. Obviously, nobody is jumping with joy when they see money slip through their fingers, more so professional traders. But you would be side stepping the issue to assume that these reviews/complaints are just about traders who are sore losers, blaming the trading software for their losses. After all, when you get numerous traders complaining about the same problems with the same software trading platforms offered by their brokers, then we could assume that there might be something in it.

Let’s start with FXCM, which happens to be the world’s leading FOREX online trading and Contract for Difference (CFD) broker. Generally speaking the reviews for FXCM are sadly in the dumps. While many traders would agree that on the surface FXCM is excellent. The broker has friendly staff that are customer orientated. They tend to provide good quality educational resources and the paper trading demo platform is well designed, clearly laid out and excellent to use. Most traders have reported no real issues with funding their account, or moving funds out of their trading accounts. Moreover, there didn’t seem to be any problems with the trading platform, no unexplained slippage while buying and selling. However, the problem arises where it really matters, in the price dealings. There is a general consensus amongst traders that a movement against your position usually moves faster than price movements in your favor. 

FXCM get quotes from a number of banks, but some traders have complained that they are offered rates least favorable to them. Instead the broker takes the most favorable rate and the difference between the most and least favorable rate represent their profit, making it easy for FXCM to cream the profits from traders. Apparently only 23 percent of trades are profitable with FXCM. 

Other complaints from traders concerning FXCM platform is that executing orders tends to be frustrated during heavy volume trading hours, which often leaves traders unable to lock in their profits or cut their losses during a fast market. In some instances the software platform frustratingly froze when trying to execute orders. A number of traders have complained about seeing price gravitate towards their stop losses, then mysteriously spiking up. One trader complained that sometimes FXCM can actually hit his stop losses from as much as 20 price interest points (PIPS), which measures the amount of change in the exchange rate for a currency pair. Other complaints concerning the FXCM platform include, in some instances, inaccurate charts. The FX rates don’t always correspond to the true market exchanges rates, instead quotes using FXCM platform tend to favor the broker at the expense of the trader. Another complaint was the lengthy time it takes to open an account after funds have been sent. In one case a trader sent 25,000 USD into his trading account from a joint account, so the funds were not accepted, nor were they sent back to him after two weeks had elapsed. 

But by far the broker with the worse review was the Danish Bank, Saxo Bank. The help desk was rated rude, unhelpful and arrogant by most traders. Many traders reported strange things happening with their stop losses and margins. “What they do with stops, is they wait and see if the price bounces up, and then they trigger the stop,” claimed one trader. But while operating a “bucket shop,” doing pseudo-brokerage is illegal in many states in the US it is perfectly legal in the EU. An Information Technology professional, who specifically develops software systems for banks, decided to put the Saxo Bank software to the test. This insider made some interesting revelations. He argued that his motive for trading was purely to test the system, not to make a profit. However, whatever strategy he applied just didn’t work. He believed it had nothing to do with his trading strategy; instead it was the software that was programmed deliberately to work against him. He claimed that the software was engineered to “intelligently” wipe out balances from traders’ accounts, through either lost connections, screen jam, not enough margin, price moves against his position until the trader changes his bet or panics. Furthermore, he added that Saxo Bank has a different approache for different types of clients, which is determined when the applicant declares his profession and trading experience at the time when he opens the account with them. Indeed, there are a number of lawsuits against Saxo Bank and their license is now under threat.

CMC Capital markets was also heavily criticized for similar problems, frozen screens, running stops, wide margins and dealing prices not reflecting the real market. Furthermore, their next generation software has also been given the thumbs down. Referring to the next generation software platform, one trader said, “It allows them to tinker with the 'rules' more easily - they'll change spreads and margin requirements suddenly.”

They are also starting to charge "Price data feed" for shares on 01 Dec 2012. 

However, the trading platform with the best review was Finexo, which was set up in 2003 by veterans of the global financial industry and is one of world’s fastest growing online Forex brokers. Generally traders are happy with the platform fast executions and excellent customer service.

It is no surprise that Finexo is one of the fastest growing online brokers in the world. Indeed, what research is suggesting is that the market is crying out for decent software trading platforms. But just as choosing the right execution broker, which deploys a fair platform to execute trades online is important for traders so too is having at your disposal a comprehensive analysts and trading package. WinWay TradingExpert Pro, was developed by a successful trader, Darren Winters, for specifically traders in mind. The trading software package contains a complete array of analysis tools, thereby sharpening your trading decisions, making them timelier; more decisive, quicker and right on the money. Certainly, the WinWay Trading package software, combine with a fair play online execution broker, are critical partners to making your trades more profitable.


Tuesday, 24 June 2014

Where to Keep Your Money?

In an attempt to stimulate the economy following the 2008 financial crisis, central banks around the world have followed expansionary monetary policy with the intended aim of keeping interest rates at record lows. Low interest rates would stimulate business investment, consumption and spur the economy back on the trajectory of growth and prosperity, so the theory goes. Mario Draghi, governor of The European Central Bank (ECB) has even gone one step further, early this month, by deciding to cut the ECB base rates to -0.1 percent, with the unusual consequence of banks now being charged for parking funds with the ECB overnight.

Indeed, parking your money in a bank account is probably now costing you money, after taking into consideration such factors as inflation, which in most cases exceeds the meagre, or now if any, interest paid out on deposits.


So investors have gotten creative by thinking of ways of how to employ their money for a better return. Tap in alternative investments in Google and you are swamped with choices. For example, funds that specialize in alternative investments; Forestry Investments offering 8 to 18 and Farming Investments offering 7 to21 percent per annum. Some investors are even turning their hobbies or interests into potential lucrative investment vehicles and it ranges from art, whisky and wine, classic/vintage cars and even watches. These “passion assets,” have done rather nicely, according to a recent article in the Telegraph. Classic cars were the best- performing alternative investment, returning 257 percent in the seven-and-a-half-year period, while the value of classic watches surged 176 percent and jewellery jumped 146 percent.

But from a practical stance how feasible is it for middle low income earners to invest in a vintage/classic car? Moreover, would they know whether the cylinder head or the catalytic converter on a classic 150,000 USD Ferrari is worn and are those precious stones authentic sapphires and rubies? Most of us don’t possess intricate knowledge of a combustion engine or have a trained eye to determine whether precious stones are indeed precious. Additionally, there is the issue of safely storing the asset and the cost of insuring it.

So for the average investor, or retail investor, their risk taking capacity is far less than wealthy individuals or institutional investors. Furthermore, their knowledge of alternative investments maybe limited. Perhaps for this reason shares and bonds are still the preferred investment vehicles for the retail investor.

Certainly, the recent International Public Offering (IPO) for the TSB shares may underscore the fact that there is still a healthy appetite amongst retail investors for equities, albeit attractively priced IPOs. Apparently, retail demand was high for TSB stocks, which enabled the issuer to price the shares at just above the mid-point of the 220-290 range it had set. What's more, Joe public who invested in TSB through an intermediary/stockbroker, were rewarded a handsome 12 percent in the first day of trading. In other words, investors who applied for 2,000 pounds sterling in TSB shares were allocated 769 shares and if they had sold their shares on the first day of trading they would have banked an easy 240 pounds-that’s a nice play for a few taps on a keyboard, or a two minute dialogue with your stockbroker, particularly, in the era of austerity with pitiful interest rates on deposit accounts. Moreover, you didn’t need to be high up the food chain to be invited to pick the fruits. Indeed, the recent TSB float was also an invitation to treat for the retail investor. Perhaps the only drawback of the recent TSB float is that some retail investors might not have been able to buy as much as they wished from their intermediary/stockbroker due to the large demand from the public. For example, those that invested 2,000 pounds sterling would have received the full allotment amount of 769 shares, but anyone applying over that amount would have received 769 shares plus 30% of the excess they applied for over that amount. So 10,000 pound sterling application was scaled back to 1,692 shares worth £4,399. Bearing this in mind, if you believe that demand from retail investors in a pending IPO is likely to be high it might be prudent to oversubscribe for the shares, since you are unlikely to be allotted the full amount of shares you’re applying for through your intermediary or broker anyway.

And then there are bonds, which is where the investor (the bondholder) purchases debt in exchange for regular interest payments. The bond holder is also promised by the issuer (party receiving the money), to repay the face value of the bond (the principal) at a specified date (maturity date.) It’s supposedly less risky to invest in bonds compared to shares. This is so because in the unfortunate event of the business insolvency/bankruptcy, the bond holder (investor in bonds) comes ahead of the equity shareholders in terms of payouts should the entity be made insolvent.

Most retail investors have bought corporate bonds through funds, which invest in a number of different firms thereby spreading the risk accordingly. However, the downside to investing in bond funds is that you will also need to pay the fund manager fees.

In 2010 the London stock exchange launched a retail bond market, called the Order Book for Retail bonds, known as Orb. The aim of Orb is to encourage more firms to go direct to personal investors with bonds as the minimum investment is lower. The minimum investment for these types of bond starts at just 100 pounds sterling but more usually it is 1,000 pounds sterling.These types of investment, available to retail investors have been dubbed “retail bonds” and can be purchased through your stockbroker/intermediary. Retail corporate bonds have been relatively popular with the retail investor, approximately one billion pound sterling where invested in this type of asset last year.

With pitiful interest rates on saving accounts available today it has been those savers who have thought outside the box and have been savvy enough to assess the risk rewards of their investments have done well for themselves.


Sovereign State VS Hedge Fund

It has been dubbed as the financial case of the decade, involving a Latin American sovereign state, the Republic of Argentina versus NML Capital LTD hedge fund, led by billionaire hedge fund manager Paul Singer.

The story goes something like this; you have a group of bond holders who reckoned that there was a killing to be made by purchased Argentinean sovereign debt just after it had collapsed in 2001.  This relatively risky investment strategy may sound wolf like but if it played out in your favor it could also be extremely lucrative for those cashed up and well connected.  The idea is to hunt for distressed debt and buy it (in this case sovereign Argentinean debt) on the secondary market at or near the point when the debtor is very weak or in imminent danger of default, at a huge discount, then sue the debtor for a larger amount than the purchase price.

So that is precisely what Mr. Singer and his pack of wolves did and they are now arguing that Argentina should cough up and pay back in full the 1.5 billion USD debt. But that isn’t the way the South American state sees it. On the other side of the fence Argentina is contending that NML Capital LTD, is immorally profiteering from a debtor in financial distress.  The country is arguing that NML Capital should have restructured the debt in 2005-2010 just like the other bond holders had done. Argentine President Cristina Fernandez, known for not mincing her words and always ready to tap into populace opinions is calling the hedge fund managers “vultures,” and flat right refusing to pay as a matter of principle.  But perhaps this could be partly due to the fact that if Argentina where to agree to pay NML it may also open the floodgates for the country to pay their other bond holders to the tune of 15 billion USD. This would certainly be an unwelcomed scenario for Argentina’s fragile economy, which it cannot afford.

Nevertheless, the US Supreme court has recently ruled in favor of NML Capital. Argentina’s final appeal has been refused by the Court, which has ordered Argentina to pay back the 1.5 billion USD within 14 days. Moreover, the US Supreme Court ruled 7-1 that bondholders could now force Argentina to reveal where it owns property around the world, making it easier to collect on the unpaid debts. This could even expose its embassies and military ships to seizure if the government doesn't pay, according to Justice Ruth Bader Ginsburg. Drumming the sound beats in favor of the US Supreme Court’s ruling a NML spokesman said: “America’s highest court has spoken. Now it is time for Argentina to honor its commitments to its creditors, which would benefit both Argentina’s economy and its international standing.”

Nevertheless, responding to the US’s highest court in the land ruling Argentine president Kirchner appeared on national TV stating, 'What I cannot do as president is submit the country to such extortion.' The financial consequence of such a stern posture by the head of the Argentine state was both immediate and predictable.  The cost of insuring Argentine bonds against default rocketed, and the value of Argentina's currency plunged to 12 pesos to the dollar on the black market and shares on Buenos Aires Merval stock exchange index fell by a whopping 6 percent and they were down again 4.92 percent on Friday, June 20.

There are now a number of options available for Argentina; it could obviously honor its commitment and pay the bond holders. But this is unlikely to happen since it would be keen to avoid a floodgate scenario with it’s other bond holders.

Alternatively, Argentina could try and renegotiate the debt. A likely obstacle here could be a piece of legislation called “the lock law”, which prohibits offering a better rate to the debt holders who did not accept the restructured rates.  Alternatively, Argentina could try and reroute payment to exchange holders outside the US, thereby circumventing US ruling, but as cited in the FT this would be logistically difficult to do.  The final option is that Argentina could default on its debt. This would not be a feeble matter, since the last time Argentina defaulted was in 2001 on 82 billion USD sovereign bonds, which happened to be the largest in history. The following events occurred; the Argentina President resigned; the peso was devalued, unemployment rocketed and riots broke out with more than 53 percent of Argentines falling below the poverty line. It took four years for the economy to recover. 
It’s worth noting that Argentina remains today cut off from the global financial markets. So an Argentina debt default may not be so damaging to the global financial markets this time around.  Furthermore, the likely amount of debt default of approximately a few USD billion is significantly less than last times non-payment of its 82 USD billion debt.

Bearing this in mind, the consequence of another Argentina default, while it may rattle Mr Singer and his pack, it is unlikely to result in a major global financial disruption. However, the US Supreme Court’s ruling could be a floodgate case for next time a country runs into financial difficulties and is unable to pay back its debts. Investors may have little or no incentive, or even be under a fiduciary obligation not to participate in any future debt restructuring scheme. While the court’s ruling is a boon for holdouts it has also made striking a debt restructuring deal a lot harder for debtors. Argentina’s next payment is due on June 30.


Monday, 23 June 2014

Energy Series: Wind

Wind energy producing electricity for the national grid has been targeted by government as the major alternative to the carbon burning alternatives. This would help the UK to meet its obligations for reducing our greenhouse gas emissions and help us to contribute to the, generally agreed, need to reduce the march of global warming and the devastating impact that would have on the way we live.

Wind turbines are used to create the electricity and these can be various sizes from small ones to generate power for an individual house through large single or small groups to supply small complexes to large wind farms for feeding the national grid and for replacing coal and gas fired generators. They can be placed, subject to planning permission, anywhere that the wind blows sufficiently to produce electricity in economic amounts. They are large complex structures with a fan or veins that are rotated by the force of the wind. The veins can usually be adjusted so that maximum advantage can be taken of the wind’s power allowing for its direction. The rotors are connected to a shaft which, in turn, is connected to a gear box. The gear box is connected via a system of cogs to the generator and it is this that produces the electricity which is then fed by high powered cables to where it will be utilised. Technologies are being advanced all the time which is making these structures more efficient.

To produce enough electricity for commercial use wind farms have been erected in places where the wind is plentiful all year round so that they will often be found in remote areas such as on mountain sides or on flat plains that are exposed to the weather and at sea. It costs around two million pounds to erect each one and will need regular maintenance however after that, they become cheap to run as the wind is free. According to your point of view the wind turbines are either very beautiful or an ugly eye sore. They are also very noisy and the noise of a wind turbine in operation has been likened to that of a small jet engine. This noise multiplied several times over would be very hard to bear for anyone in close proximity to them but to those viewing them from a distance this may not be a concern.

These concerns have led to many wind farms being constructed at sea where the wind is more regular, is unaffected by obstructions and the noise only affects those that sail nearby. They are, however, regarded as a shipping hazard and they are much more expensive to erect and to maintain because of the harsh and difficult environment. They will be damaged by the force of the sea and by the salt and the high powered cables will need to be longer and run under the sea. They are, therefore, much more expensive to run and have needed to be subsidised more heavily to encourage operators to construct them there. They do avoid the objections often put up by those that will have them ‘in their backyard’ which will include the noise and the blot on a landscape. Many of the better sites will be beauty spots. The objections will delay planning permission and could extend the time before they are up and running to several years which also adds to the cost of building them.

The wind is variable and this makes for an unreliable source of power. Without wind, there is no generation of electricity possible. It is also possible for the wind to be too strong so that the generators have to be shut down. This is a big disadvantage of wind power as a smooth and reliable supply is required for the national grid. New technologies are being developed to overcome this disadvantage with the objective of storing the power at time of plenty so that it can be released when there is not enough electricity. It is clear that the national grid requires reliable and plentiful power and until this problem is overcome wind will remain second to fossil fuels and nuclear energy for supplying the nation’s electricity. In the meantime, subsidies and regulations will be the main reason why wind farms are developed but the certainties of the need for alternatives has also spawned the industries which will develop the existing technologies and find new ones to make this a viable long term alternative to fossil fuel.

Wind appears to have a clear long term future and as such can be invested in and there are a growing number of opportunities in which to do so. There are companies such as Green Energy which run their own wind farms and which provide the electricity produced for it’s growing customer base. Customers close to the wind farms they own are given a discount to compensate them for the disruption of living nearby. The company has been successful and appears to have a future of growth. Another is Greencoat UK Wind Trust which operates offshore wind farms that were sold to it by the existing operators who have retained a stake in the company. This is a good way of funding further growth as the companies have developed the farms to be profitable and they get the funds to allow them to continue developing new fields which, once successful can be sold on. Greencoat UK Wind is able to run the fields and produce enough cash to pay an attractive dividend and to enable them to buy new fields as they become available. There are also environmental unit and investment trusts that will invest in wind projects among other alternative energy and eco sensitive businesses. There are also ETFs that can be used such as First Trust ISE Global Wind Energy Index Fund.

There are clearly risks involved investing in new technologies but wind energy has become a part of our energy production programme and will find a growing place in the global energy sector.


Energy Series: Nuclear Power

Nuclear energy began its history in Germany where a scientist named Roentgen started experimenting with cathode rays in a test tube from which he had removed all the air. He noticed that when the device was energised the photographic plates beside it lit up.  Following further experimentation with the rays over the next 2 weeks he took the first x-ray photo of his wife’s hand. In 1896 a scientist in France named Becquerel noticed that energy was coming from inside uranium salts sitting on photographic plates causing them to expose even though no cathode ray tube was energized. From there Marie Curie and her husband Pierre discovered 2 new elements that also exhibited spontaneous energy production, Polonium and Radium, which they named “radioactivity”.

In 1899 Ernest Rutherford began studying radioactivity and discovered 2 different types of rays and named them alpha and beta radiation. He also discovered the atomic nucleus and gamma radiation. For his research he is widely regarded as the father of nuclear physics.

In 1932 the neutron was discovered and in 1938 fission was discovered once it was established that it was possible to split uranium atoms using neutrons.  In 1939 following research into neutron multiplication it was concluded that a nuclear chain reaction was possible and a warning letter was sent to President Roosevelt in America warning him of the possibility of the production of nuclear weapons.  Despite this warning the possibilities of a weapon based on this reaction was too tempting and the news that Germany was developing such a weapon lead President Roosevelt to commit the US to the Manhattan Project designed to produce a viable atomic bomb. More than two billion dollars was spent on a project lead by Robert Oppenheimer and, in the July of 1945, the first nuclear weapon test occurred and this was closely followed in August by their use in the Second World War when the United States dropped 2 atomic bombs on Hiroshima and Nagasaki in Japan, causing the Japanese to unconditionally surrender. This lead to the end of the Second World War and changed global politics for ever.

In 2011 nuclear energy provided 10% of the world’s electricity. Commercial nuclear energy began in the middle of the 1950s and at least one nuclear power plant became connected to the grid every year since until 2008. The country producing the most nuclear power is the United States where 19% of the electricity consumed is nuclear power. France produces 80% of its electrical energy from nuclear power having implemented a huge nuclear power programme in response to the oil crisis in 1974. There are more than 430 commercial nuclear power reactors in over 30 countries providing 13.5% of the world’s electricity.
In order to generate nuclear energy uranium needs to be mined and then enriched before being manufactured into rods which are then placed inside nuclear reactors where they will be used, usually for 6 years. Uranium is a common element found in the earth’s core.  It is a very heavy metal with a melting point of 1132 degrees Celsius.

Nuclear power involves the use of exothermic nuclear processes to generate useful heat and electricity. Nuclear energy is derived from the burning of nuclear fuel by a process known as nuclear fusion.  There is a large volume of waste produced in the production process and although this has a relatively low radiation level it is one of the major concerns for opponents of this form of energy production. Most of this waste is stored at the reactor sites and will remain hazardous for many years. Much thought has gone into safe ways of storing the waste.

It is estimated that there will be a huge increase in demand for cleanly generated electricity over the next 20 years. Nuclear energy is considered to be a low carbon method of producing power and is seen as a sustainable energy source and potential answer to reducing carbon emissions in the future.  It produces virtually no air pollution.  Opponents to the use of nuclear fuel cite problems regarding the processing, transport and storage of nuclear waste, the proliferation of nuclear weapons and the environmental damage and health risks associated with uranium mining.  There is also the massive cost associated with de-commissioning old reactors at the end of their life.

Nuclear fuel is also used to power around 150 ships (both military and icebreakers) and submarines, enabling the vessels to stay at sea for long periods without having to make refuelling stops. The first submarine to be powered by nuclear energy, the USS Nautilus, was launched in 1954.  In the same year the first commercial nuclear power plant was established in the Soviet Union.  Some space vehicles also utilise nuclear reactors.

Nuclear power plant accidents thankfully are rare but when they do occur they have a devastating and long lasting impact.  The most recent accident happened in Japan at Fukushima in 2011 following an earthquake and resulting tsunami. Prior to that there was a disaster at Chernobyl in Russia in 1986 and Three Mile Island in The United States in 1979. In Fukushima the reactor which suffered damage had been designed and built in the 1960s and this prompted other countries with nuclear facilities to re-examine the safety of their reactors and their nuclear policies in general.  As a result Germany made the decision to close all their reactors by 2022 and Italy banned nuclear power completely.

Despite these accidents nuclear power has caused fewer fatalities per unit of energy generated than any of the other major energy sources, however the economic costs associated with nuclear power accidents are high and will probably take many decades to recover. Not to mention the tragic impact on lives and livelihoods.

Nuclear energy can be traded through Exchange Traded Funds such as the Market Vectors Uranium and Nuclear Energy ETF and the I-Shares S&P Global Nuclear Index Fund, or through investing in the shares of general miners that also produce uranium such as Anglo American, BHP Biliton and Rio Tinto. A specialist uranium miner such as Ur-Energy in North America would be a more direct form of investment in nuclear energy.


Friday, 20 June 2014

The Bond Bubble

Trillions of dollars of investment wealth has been funneled into a black hole of debt, over the past five years, in a frantic search for a decent return on capital and what has been perceived as a relative low risk asset compared with other asset classes. Indeed, the trajectory of the bond market has followed pretty much one direction over the past five years; that’s up and up and up.  To quantify this in money terms, had you invested say, 10,000 pounds sterling in an average strategic bond fund five years ago it would be worth today approximately 15,500 pounds sterling. 

There are several factors which may have caused the bond market to behave like it was on steroids. For example, following the financial crisis of 2008 there was a flight to safety away from riskier asset classes. In other words, there was a net capital inflow into bonds and a capital outflow from equities as investors reconfigured their portfolios to reflect the, then volatile financial environment. So the demand for bonds over more risk alternative  asset classes, such as equities, drove bond prices higher and interest rates lower; due to the inverse relationship between bond prices and yields.

The lower interest rates also meant lower returns for investors on their high street bank deposit accounts. This made alternative less risky investments such as bonds more financially attractive, which in turn drove up the demand for bonds and their price.

Moreover, expansionary monetary policy was rigorously implemented by the US Federal Reserve and the Bank of England during the financial meltdown of 2008 in an attempt to choke off a depression. This is supply side economic thinking favored by centre, centre-right governments. The idea is to stimulate the economy, or in the case that preceded the financial collapse of 2008 crank start the economy back to life by lowering interest rates.  The lower interest rates, it is believed, would stimulate business investment, thereby reducing unemployment.   So the Reserve banks also stepped in with Quantitative Easing (QE). In other words, it also bought bonds with the intended aim of keeping interest rates low. But this policy also drove bond prices up and resulted in low yields.

The real fear now is that the policy adopted by the reserve bank, while it may have been successful in halting temporary a severe stock market crash, a bank run and a maybe even an economic depression, may also have inadvertently created a new bubble in equities, London property prices and the bond market.

Indeed, it is the latter, the bond market that is starting to look precarious. The tell-tale symptoms of “yield chasing”  by investors which has been aided and abetted by years of Quantitative Easing “funny money” and interest rates that have remained near zero and most recently even negative. The European Central Bank (ECB) will now be charging banks to keep their money in overnight deposits. Perhaps it is this perverse combination of yield chasing and funny money that is skewing investors’ perception of risk versus rewards. In Wall Street speak it has been described as “picking up nickels in front of a steamroller,” the risks are far outweighing the rewards. The glut of investor cash is being tossed into the bond market in the hope of sniffing out a decent return and bond investors have become oblivious to the risks.

Perhaps this is why investors have scrambled on board to buy Greek bonds. Surely the sight of investors celebrating the return of Greece to the bond market somehow underscores the problem.  Candidly, Greece’s economy remains a basket case, its economy lies in ruin after six years of depression, 27.5 percent of the workforce is unemployed, and the official figure may be even higher. Its youth are squandered with 58.3 youth unemployed. Its economy has shrunk by almost a quarter since the financial meltdown of 2008. Moreover Cyprus, the country that was hitting bank deposits and imposing capital controls just one year ago has most recently returned to the bond market.  Cyprus’s credit rating remains deep in junk territory and it is also plagued with high unemployment.

But flocking to high risk European sovereign bonds doesn’t truly reflect the improved state of Europe, but rather investors’ irrational exuberance fueled by cheap money and a ECB that now actually charges Banks for depositing their funds.

So perhaps this is why Bank of England Governor, Mark Carney, is proposing to do the reverse of the ECB and has surprised the markets by flagging up the prospect of rates rises from its historic low of 0.5 percent.  Even though it may seem premature to discuss the prospects of rate rises, while the British economy appears to show signs of clawing its way out of the longest recession in history the recovery is relatively fragile and unbalanced.  The economy still has excess capacity, inflation is low, growth in nominal wages is feeble and youth unemployment also remains stubbornly high at 35.9 percent among those aged 16-17 years.

It would appear that Mr. Carney is now more worried about financial stability than economic growth.  The BOE’s proposal to raise rates maybe intended to deflate the bond bubble and reduce leverage in the system. In a financial crisis liquidity vanishes and the price of risk goes through the roof. So a more leveraged system where credit is cheaply available is likely to face a greater disruption to the system when a crisis hits.

But when interest rates rise, bond prices fall. What happens when bond holders in volume decide to sell, who will buy this debt?  Perhaps this will be the catalyst to a bond bubble burst. But this would not only wipeout a chunk of life savings for those who invested in bonds via their pension schemes but it could also create another credit crunch, worse than that of 2008. This is maybe why Federal Reserve is considering imposing punitive exit fees on anyone trying to take their money out of bond funds to halt a run on the investments.

But a really question worth pondering over is what does Mr. Carney know that we don’t, why is he so prepared to sacrifice a fragile recovery for financial stability? “There may be trouble ahead, let’s face the music and dance.” 


Crowdfunding - Raising money in the 21st Century

Want to replace the church roof? Or pay for your grandad's open heart surgery? Or perhaps you're a band wanting touring funds, or then again you could be starting up a company. If your bank manager is unsympathetic you might choose to bypass him completely, and try the crowdfunding option.

Crowdfunding provides a way to source money from individuals by essentially putting your idea out there and asking people to support it financially. It's a variant of the crowdsourcing concept. In crowdsourcing a piece of work is farmed out to volunteers or paid workers who contribute their expertise in order to solve a problem. If you're the one sourcing it's a bit like commissioning work from a bunch of employees you've never met. It can be a powerful way to distribute pieces of a complex problem to many people, who by doing their bit individually help to create a total solution. Wikipedia is a good example of crowdsourcing. In the case of crowdfunding however, it's all about asking the crowd out there to solve your problem by opening their wallets.

Although the word 'crowdfunding' only came into use in 2006, the concept itself is nothing new. In 1884 the newspaper publisher Joseph Pulitzer asked the American public to donate money towards the completion of the Statue of Liberty when existing funds ran out. In six months he raised $100,000. But what is making crowdfunding so powerful a medium in the late 20th and early 21st centuries is the reach of the internet. One of the first examples of crowdfunding is the British band Marillion, who in 1997 raised $60,000 from their fan base to finance an American tour. The same concept applies to charity fundraising, with JustGiving being launched in 2000. Since then thousand of registered UK charities have benefited from the generosity of the public, raising in excess of £700 million.

Things became more sophisticated with the founding of Kiva in 2005, as a micro financing platform. This allowed people to lend their money to others in developing countries, where people often have no access to traditional bank loans. Since inception Kiva has lent in excess of $573,000,000 in 75 countries, with a repayment rate of 98.84%. A resounding success story. After Kiva the model evolved into what is now known as peer to peer lending, which operates on the same principles, but in developed countries. It's a simple way for individuals to lend money to each other without any bank involvement. An example of P2P lending is LendingClub, which started up in 2007. They've transacted more than $4 billion in loans since then. The beauty of the idea lies in the concept that you as a lender have the opportunity to invest in areas that genuinely interest you, and that you believe in. And you're paid interest too ... LendingClub cements its credibility by being registered with the Securities and Exchange Commission.

Then in 2008 IndieGoGo was born. This variation on the crowdfunding theme is about raising money through donations for creative ventures. Things like movie making, music, and technology ideas are funded by contributors who don't get anything as tangible as interest payments in return. Instead they may get product samples or concert tickets, or simply anything appropriate that's linked to the idea being sold. Kickstarter came along in 2009 and today these two sites are the leaders in this area of crowdfunding.

Only relatively recently, in 2010, the equity based model emerged. GrowVC is an alternative to traditional venture capital, aimed at technology startups who want to raise money. This was followed by CrowdCube in 2011, which offers investors the chance to fund start up companies in all business areas. You can lend to established businesses for a fixed return, or take an equity stake in startups yet to prove themselves.

The two dominant models operating today are the donation based and equity based models. Others may yet emerge. Let's look at some of the benefits and risks associated with crowdfunding.

The benefits for the initiator of a crowdfunding project are multifold. A good project can help to raise the profile of the person starting it, thereby boosting reputation. It's a chance to prove that there is a market for their proposal, and it provides an opportunity to communicate with their audience, who provide feedback. If your idea doesn't fit the criteria of traditional banking finance you can open it up to the 'wisdom of the crowd'. This wisdom is predicated on the concept that the collective commitment and judgement of the crowd is a good predictor of success.

On the flip side, your reputation as a project initiator can be damaged if you generate no interest or fail to reach your stated goal. Appealing to the same bunch of donors again for subsequent projects may produce donor fatigue, which can doom a project to failure. If you're a lender as part of the loan based model you run the risk of losing your money, though in defence of the concept LendingClub has an annual default rate of just 3%, which seems reasonable, depending on your point of view of course.

As far as equity crowdfunding is concerned the risks are obviously higher for investors in start ups. The failure rate for start up businesses is high, and in some cases potential investors let their hearts rule their heads. Although in the UK the Financial Conduct Authority (FCA) regulates loan based and equity based crowdfunding, their outlook on the subject is that the risks are high. They advise potential investors to do their due diligence on the business they're thinking of investing in, and to satisfy themselves that they can handle the level of risk they're taking on.

Crowdfunding as a 21st century phenomenon has been made possible through the rise of social media and the sharing economy that it encourages. In the late 90's people were more reluctant to participate, but as social media networks like Facebook gained popularity the whole 'sharing' concept gained acceptance. This has allowed crowdfunding to grow and prosper. The donation based model has the potential to help individuals realise creative visions that enrich our art and culture, and assists charities in furthering their work. The equity based model allows entrepreneurs and prospective investors the chance to come together and realise business based visions. This comes with a risk warning, but it also opens up a new avenue of financing and communication that your staid bank manager could never contemplate. It is to my mind a refreshing disruption to the status quo, and demonstrates yet another way that the web is changing our lives.



Thursday, 19 June 2014

Energy Series: Natural Gas


Natural gas has been known to man since 1,000 years before Christ. The Oracle of Delphi in ancient Greece was built around a flame that arose from a seepage of natural gas. It is thought that the gas was set alight by lightening but the ancient Greeks were puzzled and amazed by it and believed it came from divine intervention. The Chinese were able to transport gas arising from seepage with the use of bamboo pipe lines. They then, in 500 BC, used the flames created to boil sea water for drinking water.

Natural gas was found and identified in America in 1626 when the French discovered the local indigenous population lighting gas seepage around Lake Erie. In 1821 William Hart noticed bubbles of gas coming to the surface and dug a 27 foot well in Fredonia New York to obtain a larger flow. A self-styled Colonel Drake dug the first natural gas and oil well in the Lake Erie area when he dug down just 69 feet in 1859.

Manufactured gas was produced from coal and first commercialised in 1785 in Britain when it was used to light houses and streets. The Americans followed in 1816 in Baltimore and also used the gas to light the streets.

Gas continued to be used as a source of light throughout the 19th century until Robert Bunsen invented the Bunsen burner which opened up the opportunity to use gas for cooking and heating. Pipelines were then built and gas was used in many more applications with the development of gas cookers, water heaters, boilers and many uses in manufacturing and processing plant.

Natural gas is a commodity that trades in a similar way to oil and is the third largest physical commodity futures contract by volume in the world. Natural gas is a fossil fuel found in deep underground rock formations formed when layers of buried animals, gases and plants buried beneath the ground are exposed to intense heat over many thousands of years. It is a non-renewable source of energy and a bi-product of oil production, however it has its own uses for everyday life in heating and cooking and its price is very much driven by supply and demand. During cold winters the price will rise as demand to heat homes and businesses rise and although summer is usually the period when demand is low, excessively hot periods will also cause the price to rise as air conditioning units are turned up high. Natural gas prices are also affected by adverse weather conditions such as hurricanes as most of the production occurs in and around the Gulf of Mexico and the rigs will be closed down for safety reasons once storm warnings are in force.

Natural gas is a hydrocarbon and once extracted it contains other products such as propane, butane and helium that are extracted from the methane in order to make it commercially viable. It is considered to be an efficient and environmentally friendly fuel as it is the cleanest burning fossil fuel. One barrel of oil has approximately six times the energy content of natural gas.

Almost a quarter of the United States energy consumption is made up from natural gas and the US consumes approximately 25% of world production. It is transported around the country by pipelines. The US is a net importer of natural gas consuming all of its own production and importing the balance mainly from Canada. The first country to extract natural gas in 1825 was the United States.

It is estimated that there is 50 years’ supply of natural gas in the world and, in addition there are 900 trillion cubic metres of unconventional gas available for extraction of which only 180 trillion may be recoverable. The world’s consumption in 2015 will be 3.4 trillion cubic metres of gas per year meaning that world stocks should be sufficient to last 100 years.

Natural gas is the cleanest of fossil fuels, is easy to obtain and to transport, and it is therefore being used more and more by nations in order to keep down their carbon emissions and the cost of energy. It is difficult to store natural gas unless it has been converted to liquid natural gas and huge tankers are necessary in order to transport it around the world.

Natural gas has hit the headlines recently as fears have grown over the dispute between Russia and Ukraine which could threaten supplies to Europe. Russia stopped supplies to Kiev following a dispute over Ukraine’s unpaid gas debts of almost $5 billion which it is refusing to pay. Nearly a third of Europe’s gas demand is met through imports from Russia and it is estimated that half of this is fed through Ukraine. This is not the first time that supplies through the area have been halted following similar instances in 2006 and 2009. Approximately 15% of Europe’s demand is dependent upon Russian gas delivered via Ukraine. If Europe is unable to satisfy its needs from this source they could need to buy higher priced liquefied natural gas in order to meet demand. However Europe is currently sitting on its biggest gas inventories in 3 years with their storage facilities operating at around 65% full at present which is currently sufficient to meet demand.

Natural gas can be traded either directly, or through Exchange Traded Funds (ETFs) or through the shares of companies that process natural gas such as Centrica in the UK.

Natural gas is traded internationally and every week the US reports its gas inventory levels on a Thursday afternoon compared to the previous week. Natural gas is measured in cubic feet and is usually reported in billions of cubic feet (or Bcf).

Natural gas is traded on the New York Mercantile Exchange (NYMEX), US Futures Exchange, Intercontinental Exchange (ICE) and Multi Commodity Exchange (MCX) and the price is quoted in cents per million Btu (mmBTU). A futures contract for natural gas would be traded in 10,000 million British thermal units (Btu) with a tick size of 0.1 cents per mmBTU or $10 per contract. The price of natural gas can be extremely volatile and it is therefore wise to use a good risk management strategy if trying to trade it.


Wednesday, 18 June 2014

Energy Series: Coal

Coal, as we all know, is formed from the decomposition of vegetation. Most coal was formed in the carboniferous period in tropical swamps in the land masses that were close to the equator. They are initially turned into peat by bacteria which eat everything and consume all the oxygen. The bacteria die from the lack of oxygen caused by their own activity and the peat that is left remains so unless it is covered by sediment in an anaerobic environment. As continents drifted and climates changed the peat was driven ever deeper and covered by sediment. With rock crushing it and geothermal heat cooking it the peat turned into coal. The quality of coal is determined by the type of vegetation growing from where it originates, the depth it is buried at, and the pressure and temperature where it is buried as well as the time period that the coal has been forming.

Coal is mined from open pits where the coal strata reaches the surface and from deep mines with shafts driven deep into the earth’s crust. Britain developed the mining techniques that were used in the 18th century and these were further developed in the 19th and 20th centuries with new techniques increasing the production of coal from more previously inaccessible seams. Coal gradually became replaced by oil from the 1860s and natural gas and electricity. To get at coal seams miners have been known to blast away entire mountains. This permanently alters the landscape and can choke up streams with sediment.

Coal is black or brownish and is basically carbon plus some other elements such as sulphur, hydrogen, oxygen and nitrogen. It has always been used as an energy source and was the most important fuel from which electricity was produced. It was developed as a primary source of energy in the industrial revolution and was used for domestic fuel and in industry for smelting and other things.

Coal is the largest source of energy for the production of electricity worldwide and is also the largest producer of carbon dioxide releases. The level of emissions of carbon dioxide in 1999 was 8,666 million tonnes and in 2011 was 14,416 million tonnes. As natural gas has replaced coal for the generation of electricity so the emission levels have reduced and in the first quarter of 2012 the US recorded the lowest carbon dioxide emissions for the first quarter of any year since 1992. The UN climate agency has declared that most of the world’s coal resources should remain underground to avoid catastrophic global warming.

Coal is a global industry and is mined in 50 countries, the biggest being USA, Russia, China and India, and it is used in more than 70. There is an estimated 861 billion tonnes of proven worldwide coal reserves which it is believed is sufficient to last around 112 years at current production rates. Coal is used for the generation of electricity, steel production, manufacturing of cement and also as a liquid fuel. It is also used in the manufacture of paper, alumina refineries and in the pharmaceutical and chemical industries. By products of coal are tar and ammonia gas and among the products made from these are aspirin, dyes, fibres, plastic, soap and solvents.

Approximately 30% of primary energy is supplied through coal and 41% of global electricity generation. Demand for coal is particularly high in countries such as India and China whereas in the US there is a surplus of coal and relatively low demand.

It is possible to transport coal quickly and easily and safely by road, sea and rail. Although most coal is used in the country in which it is mined. It is the transportation that makes up a large proportion of its price. Australia has always been one of the world’s largest producers of coal although Indonesia has recently become the largest exporter.

Coal, however, has a number of health issues such as the waste materials generated in the form of ash and sludge, the acidic rain caused by sulphur released when the coal is burned, the issue of particulates and interference with water tables. Miners can also suffer from the dust generated getting into their lungs and causing pneumoconiosis and early death.

Man has found ways to reduce the environmental impact of coal by cleaning coal by mixing crushed coal with a liquid. Some power generators use flue gas desulpherisation equipment known as scrubbers to reduce the amount of sulphur emitted from their smoke stacks. The smogs in Britain during the fifties and sixties were largely eradicated with the use of cleaner fuel, as was acid rain which had been killing forests not just in the country burning the coal but in those that were downwind of it. Coal is cheap and is used by many of the developing countries to produce the electricity that they require. The smogs in China are a repeat of those in the West in the middle of the last century

Coal can be traded through the use of ETFs (Exchange Traded Funds), coal contracts or directly through purchasing the shares of coal producing companies. Coal futures are designed for consumers and producers of coal in order to manage the risk of price fluctuations. Speculators will also attempt to take advantage of any supply and demand imbalances.

Currently, coal is an essential fuel for the world and many argue that it is needed to back up the use of renewable energy which is a less reliable generation.

Coal futures are traded on the New York Mercantile Exchange (NYMEX) under the symbol QL. Each contract is 1550 tons of coal on a minimum incremental price fluctuation of 1 US cent per ton ($15.50 per contract).

The price of coal is a lot more stable than many other commodities such as oil and gas and has been historically the cheaper priced fuel, hence why it is favoured in countries with high energy intensive industries where they have access to either their own or affordable imported supplies.


 
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