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My thanks to a reader for this informative article by James Herron for The Wall Street Journal.

Domestic energy consumption in the world's largest oil exporter, Saudi Arabia, is growing so fast that it threatens the country's ability to adequately supply world oil markets, London think tank Chatham House warned Wednesday.

However, Chatham House's recommended solution to this problem-raising domestic energy prices in the kingdom-is also fraught with danger, as violent protests against similar price hikes in Nigeria demonstrate.

This shows how Saudi Arabia, and by extension the buyers of its oil in the developed world, will have to navigate a treacherous path between falling oil exports on one side and potential civil unrest on the other-either of which could cause a damaging oil price spike.

In a report posted on its website Wednesday, Chatham House warned:

"Saudi Arabia's energy consumption pattern is unsustainable. Demand for its own oil and gas is growing at around 7% a year. At this rate of growth, national consumption will have doubled in a decade."

If that happens, it could deprive the world of 2 million barrels a day of oil exports and largely eliminate the Saudi spare oil production capacity that is so important as a cushion against sudden supply disruptions, such as the civil war in Libya.

The end result could be "an oil supply crunch leading to major price spikes on the world market," it said.

My view - This is another very important reason why every country needs to prioritise energy independence. Saudi Arabia is not the only oil producer with an authoritarian government which bribes its citizens with cheap oil and other subsidies in order to stay in power. All of them are certain to increase their energy consumption.

Meanwhile, the best way for other countries to achieve energy independence within a decade, for those fortunate enough to have the resources, is by developing domestic oil and gas reserves, including shale deposits.

Inevitably, there are environmental trade-offs in the extraction, refining and burning of fossil fuels, but it can be done in an increasingly responsible manner thanks to technological progress.

Countries without conventional and non conventional oil and gas reserves should reconsider modern nuclear power technology, in my opinion. The French did this very successfully and have produced over 70 percent of their electricity with nuclear power in recent decades. However, following Fukushima (very old plant on a vulnerable site, plus bad and poorly regulated management) a majority of French people now want to phase out nuclear power. The country has also banned the fracking of shale reserves. Shades of, 'Those whom the gods wish to destroy they first make mad.'

Political greens mostly oppose the use of fossil fuels and nuclear power. We are all green at heart - in terms of our love for planet earth and nature - but the activists do not have a viable alternative to fossil fuels and nuclear power at this time. Over-reliance on expensive and currently unreliable alternative forms of energy such as wind and solar will weaken our economies and leave us increasingly vulnerable to the next oil price spike. Also, we are in the process of discovering that wind and solar farms introduce their own environmental risks, commencing with the need for back-up coal power stations when the often dramatically fluctuating output from renewable energy sources falls.

This does not mean that we should cease research and development for various renewables - far from it. They are a long-term solution but possibly twenty or more years from being economically competitive. Meanwhile, cleaner coal, including gas from coal, arguably has better short to medium-term prospects.

This item continues in the Subscriber's Area and contains a report mentioned in the article above, plus several other relevant links.

Email of the day - On gold:

"Gold a buy below 1600? Or need we wait for 1400-1500?"

This item is in the Subscriber's Area.

Fed Nears Adoption of an Inflation Target as Bernanke Pushes Transparency - This is an interesting report from Bloomberg. Here is the opening:

Federal Reserve officials are nearing agreement on adopting an inflation goal as Chairman Ben S. Bernanke extends his push for improving transparency and communications with the public.

"We are very close to having inflation targeting in the U.S.," James Bullard, president of the Federal Reserve Bank of St. Louis, said in a radio interview yesterday on Bloomberg Surveillance hosted by Tom Keene and Ken Prewitt. "We are getting closer to being able to make a committee-wide statement about these longer-term policy goal issues."

An explicit numeric inflation objective would mark another step in Bernanke's unprecedented campaign to open the Fed's policy process to public view to boost accountability and effectiveness. The Fed chairman has also introduced regular press conferences and will publish the central bank's own forecasts for the benchmark lending rate this month. At the same time, Bernanke is following a road already taken by central banks from Sweden to New Zealand.

"We're in a situation where everyone is starting to appreciate the benefits of having the Fed be able to provide clear signals," said Mark Gertler, a New York University economist and research co-author with Bernanke.

Deciding on the rate of inflation the Fed should shoot for is within reach, said Columbia University economist Frederic Mishkin, who helped shape the Fed's approach to the question as a governor from 2006 to 2008.

More difficult will be agreeing on how to define full employment, which is also part of the Fed's marching orders from Congress.

My view - While a commendable idea, the principle of adhering to an inflationary target is very unlikely to be etched in granite, judging from what we have seen in the UK. For the last three years and counting, UK inflation has been well above its 2% target and is currently over 5%. Throughout this period the Bank of England has repeatedly stated that inflation would soon fall back.

Quote of the week - On character traits:

"The things we admire in men, kindness and generosity, openness, honesty, understanding and feeling are the concomitants of failure in our system. And those traits we detest, sharpness, greed, acquisitiveness, meanness, egotism and self-interest are the traits of success. And while men admire the quality of the first they love the produce of the second."

John Steinbeck, novelist, Nobel laureate (1902-1968)

Additional commentary by Eoin Treacy

US Banking sector With most investors focused on Europe's troubled banking sector and the need for recapitalisation, it is easy to ignore the USA's banks. They have their own problems, with continued stress in the property market and low economic growth. However, they have rallied rather well over the last few weeks, in contrast to their European counterparts.

The S&P500 Banks Index has remained largely rangebound since 2009 and is currently rallying from the lower boundary. A drop below 130 would be needed to break the three-month progression of higher reaction lows and question scope for additional higher to lateral ranging. A sustained move above 150 would complete the base and suggest a return to medium-term demand dominance.

This section continues in the Subscriber's Area.


Boom time in the Middle East? Thanks to Emad Mostaque for this edition of his ever interesting report for Religare. The full report is posted in the Subscriber's Area but here is a section on Nigeria:

Sub-Saharan jihadists: The politicisation of jihadist groups is a worrying trend and we see them getting a stronger foothold in Africa. We will return to this topic, but the most immediate threat is in Nigeria, where Boko Haram may well ignite a sectarian war with Southern Christian militia in the next few months, raising fears over disruptions to Nigerian oil and bidding up Brent.

My view Iran has been the focus of geopolitical fears over the last few months as Libyan supply has begun to recover and the US has pulled out of Iraq. However, as a major oil and gas exporter Iran has a vested interest in both high prices and being able to avail of them. Therefore it is unlikely to do anything to limit its potential to continue to produce oil and gas, while doing everything in its power to ensure prices remain high.

This section continues in the Subscriber's Area.

World Equity Index Valuations Tables - The monthly list of 99 global indices ranked in descending order by dividend yields, then in ascending order by P/E, Price / Book and Price / Cash Flow is posted in the Subscriber's Area along with my additional comments..


Weekend Reading Thanks to a subscriber for this list of academic reports contributed in the spirit of Empowerment Through Knowledge.

BIS: "Evaluating the potential impact of deleveraging by euro area banks on emerging market economies"

This section continues in the Subscriber's Area.


Speaking engagements in the USA I was invited to speak to the members of the Technical Analysis Society Singapore and the Australian Technical Analysts Association on my tour with The Chart Seminar last year. In fact, it was a subscriber, who is also an ATAA member, who suggested the tour in the first place.

I will be in southern California for approximately 10 days before driving up to San Francisco for The Chart Seminar. I will also be in New York for a few days before the New York Seminar. If you are a member of a local MTA chapter in those areas and/or a member of the TSAASF or AAPTA and interested in having me come speak to your association I still have space on my itinerary and would be happy to make time.

The Chart Seminar 2012 Following a sell-out tour to Singapore and Australia last year, The Chart Seminar will be held in San Francisco, New York and London this year. Please be aware that the early booking rate for non- subscribers at the US seminars expires on January 31st.

We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at sbarnes@fullermoney.com.

The date and venues for my seminars so far in 2012 are:

San Francisco - April 16th &17th 2012 Nikko Hotel

New York - April 23rd & 24th 2012 at The Manhattan Club at 800 7th Avenue

London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.