Saturday, January 31, 2009

Weekly Commodities Review - Next Stop: Gold $1,000

Next Stop: Gold $1,000

Gold has a date with destiny. Destiny may not be at the bar yet, but she's now definitely circling the parking lot, looking for an open spot outside the Gold $1,000 comeback party.

My comments on gold from last week's commentary, which were verified to some extent by the continued rally this week:

Adam Hewison of believes the gold market is getting wound up, ready to explode higher (check out his free video here). Long time readers know that I believe gold is heading much higher, because inflation is heading much higher.

Inflation is already through the roof - it's just that we are not yet experiencing the effects of this newly printed money, because the velocity of money has dropped off so sharply. Not that this has been any consolation to my wife - who I "protected" last July by shifting her entire 401K into gold stocks. I may have hit the exact short-term top in gold stocks.

I think Bernanke is fighting the wrong battle. As a student of the Great Depression, he's working to prevent deflation at all costs. And in the end, I think he'll be successful - and bring us a true inflationary nightmare.

Grains Still Rangebound

The grains were off a bit on the week, but still holding above the near-term resistance levels. We continue to hold, with stops set at our customary 15-day lows.

Cotton Down Slightly

Cotton dropped a bit over 1 cent this week. I'm not particulary concerned - this slowwwwwww developing uptrend still appears to be in place.

While demand for cotton is taking it on the chin, cotton supply seems to be taking an even harder fall. The Commodity Research Bureau projects that global cotton output will fall 7.4%, which outpaces the 6.1% year over year fall in global cotton consumption the USDA is projecting.

Open positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss
01/16/09 Long 1 MAR 09 Corn 374 3/4 378 1/2 $187.50
01/20/09 Long 1 MAR 09 Corn 397 1/2 378 1/2 ($950.00)
12/31/08 Long 1 MAR 09 Cotton 48.52 49.50 $490.00
01/13/09 Long 1 MAR 09 Mini Soybeans 987 1/4 981 1/2 ($57.50)
01/13/09 Long 1 MAR 09 Mini Soybeans 989 1/4 981 1/2 ($77.50)
Net Profit/Loss On Open Positions ($407.50)

Account Balances

Current Cash Balance $39,223.08
Open Trade Equity ($407.50)
Total Equity $38,815.58
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $38,815.58
Cashed out: $20,000.00
Total value: $58,815.58
Weekly return: -5.3% :(
2009 YTD return: -23.6% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

(Had to add these historical facts in to keep me from smashing my head into my keyboard).

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

The Scary Truth Behind the Government Bailouts

How effective have the bailouts been to date? Not very. In fact, I think that because of them, we're screwed!

In this exclusive piece,
Casey Research editors Doug Hornig and Bud Conrad break down the gory details of Fed's current predicament - and it's a doozy.

Uncharted Waters

By Editors Doug Hornig and Bud Conrad, The Casey Report

These are uncharted waters, indeed. The shenanigans being foisted upon us by Washington are unprecedented at least since World War II, and probably ever. There is so much complexity, if not sheer trickery, going on that it becomes increasingly difficult to make any sense of what’s happening, much less what the net effect is going to be.

Nevertheless, we must try.

As always, the first line of inquiry should be directed at the data, for the raw numbers tell us things that our politicians will reveal only reluctantly, if at all.

Let’s first take a look at what didn’t happen: Casey Research Chief Economist Bud Conrad has been scrunching the numbers to distill the bigger picture. Over the past four months, American banks have received massive amounts of bailout money, ostensibly to unfreeze the credit market and enable the banks to lend money again. That it didn’t work is obvious from a couple of charts. Here’s Bud’s first chart.

Note that banks’ cash assets rose by over a half-trillion dollars in just two and a half months. That’s primarily the money (ours) that was handed over to them via the Federal Reserve. Did it go to a socially useful purpose? Mmmm… no. In actuality, we got scammed.

Here’s how the scam operated: the Treasury borrowed our dollars via the sale of Treasury notes and deposited the cash at the Fed. The Fed used the money to relieve banks of their most toxic liabilities. But instead of lending it, the banks simply bought more Treasuries, thereby polishing up their balance sheets. This is made starkly evident by Bud’s second chart, where you can see that cash was being hoarded even as lending declined.

The net result of this asset shuffling is that the Treasury (that’s us) incurred more debt, the Fed absorbed all manner of toxic waste for which it may not get 10 cents on the dollar, and the banks wound up with many more bucks and much less junk, leaving them sitting pretty and chuckling all the way to… well, to the bank.

These were not small-potatoes moves, either. Check out Chart 3 below.

That bears repeating. The Treasury Department, on our behalf, nicked us for a cool trillion in three months. Never been done before.

And remember, over the same period, the Fed was bloating its balance sheet with financial garbage to the same trillion-dollar tune. Chart 4 shows the path of the reverse meteor.

As badly as it’s behaved at times, the Fed hasn’t done anything remotely like this in all its checkered 95-year history.

What’s our point? Simply this: delicate financial balances are quickly falling into imbalance. Responses of gargantuan size have merely served to keep the system from collapsing and have barely begun to improve it. Thus, the situation is not yet stabilized. There will be new surprise problems, and bigger responses, for the foreseeable future. Of that we can be certain. And collectively, all the government’s responses will inevitably have a negative effect on the value of the U.S. dollar.

With all these momentous forces at play, it’s understandable that you would feel small and powerless. Obviously, you can’t fight City Hall. But are there ways to play along with it? Is it possible to survive, and even prosper, while the economy heads for hell in a handbasket?

Yes… but you must look behind the headlines, learn to follow locked-in trends, and develop the foresight to invest counter to what the herd may be doing. The Casey Report brings you opportunities to accomplish just that.

In these times of crisis and extremely volatile markets, the trend can truly be your friend… if you recognize it in time to profit while the investing masses are still oblivious. Month after month, The Casey Report scrutinizes and analyzes emerging trends – a strategy that has been providing our subscribers with double- and triple-digit returns. Learn more here.

Take the Steelers -7 in Super Bowl 43

To figure out where to place my Super Bowl bet (I'm sure you're stunned a commodity trader like me would ever gamble), I consider two factors:
  1. Which team do the talking heads seem to be favoring
  2. Where is the "public" placing it's bets

Last year, this technique worked well, as I took the Giants with the points, because I thought the spread was too high because everyone was scared to bet against the Pats.

This year, my highly inexact science of gauging the media (read: ESPN) has me thinking that there is a little too much "The Cardinals could keep this game really close" talk.

The spread seems to low to me - I thought it'd be double digits - maybe because everyone is fearing the underdog after last year.

As a backup, I also like to check the public betting percentage, as a contrarian indicator. The site I use is - right now it's down, presumably from all the degenerates trying to check the latest line. When I had checked earlier in the week, 58% of the public was betting in favor of the Cards.

With both indicators lining up, we're talking the Steelers -7 of the Cardinals tomorrow in Super Bowl 43.

And, of course, can't wait for the halftime show - what if Bruce rocks all night like he's at MSG, and they never get to play the 2nd half?

Thursday, January 29, 2009

Which Energy Plays Will Prevail Under Obama

Which energy plays will win, and lose, under the Obama Administration? The Casey Research Energy Team breaks it down for us here, in this exclusive piece. Note: I subscribe to their regular publication, Casey Energy Opportunities.

How Obama Will Influence Energy Stocks

By Marin Katusa

Chief Strategist, Casey Research Energy Team

Casey Energy Opportunities

One might think the United States would be charging hard on energy security as well as border and other kinds of security in its Global War on Terror campaign. Not so. For example, America imports some 12 million barrels of oil per day, yet maintains a Strategic Petroleum Reserve (SPR) whose maximum is 727 million barrels (and its inventory is currently lower, 701 million barrels, because the government cut off shipments to it last year in an effort to modulate gasoline prices.) The math gets even more discouraging when you work in the fact that the SPR's daily drawdown capacity is only 4.4 million barrels – so America is completely unprepared for any worst-case scenarios, or even the bad-case ones.

It's not that the United States doesn't have the capacity for domestic energy production. Administration after administration, Republican as well as Democratic, is simply choosing to legislate it away. Designate the land above one of the biggest, cleanest coal deposits in the world a national monument, rope off huge swaths of offshore waters to drilling, threaten stringent new mining laws, derail hydroelectric projects, and America is handing foreign suppliers its own barrel for the country to crawl under.

Speaking of administrations... how about the new one? Will President Obama's promised green policies make a difference? As we laid out in the November 2008 edition of
Casey Energy Opportunities, the short answer is no. In fact, we believe that if Obama pushes through the goals as he's outlined, the United States is actually headed for a more, not less, dangerous path. Green energy isn't enough to offset the pressure he plans for the “dirty” energies. A bull market will come for the traditional energies in the long run; the problem lies in the shorter term, in the instability of America's energy portfolio before the Obama administration realizes that nice girls don't wear that much paint.

With this in mind, let's look at each power generation technology from an investor's view.

Coal. However you slice it, the coal industry is in for a hard time under Obama. He proposes a tough 100% cap-and-trade system that will make coal plants uneconomical to run at almost any electricity or coal price around now. This goes for existing as well as new plants, and installing the latest-generation scrubbers will just be another route into the red for many companies. Did we mention that coal generates almost half of America's electricity?

As a result, we expect coal prices and coal utilities to trade well below their worth for the next few years. We're closing our position on a coal ETF in our portfolio, which we recommended in February 2007 and took a free ride on in June. But as time goes on, America will realize how overambitious Obama's targets are and come back to the tried and true. With the help of the coal industry's powerful coal lobby in Washington – not to mention all the voters the coal industry employs – coal will catch fire once more, and we'll reevaluate our position then.

Natural Gas. While a thermal-generation technology like coal, natural gas is less likely to feel pain under Obama because of its cleaner burning. And as natural gas is already one of the cheapest power technologies available, the industry would weather a cap-and-trade system better than coal. Natural gas is set to push to the forefront of the electric world.

So far, so good. The next factor changes things a bit for the savvy investor, however. Without Russia's heavy hand on the tap to deal with, prices should shadow market patterns in United States. Due to the country's large natural gas reserves and resources in both gas shale and coal bed methane, we predict natural gas prices will drop in the near term. Thus we're avoiding all but the best U.S. natural gas plays in the
Casey Energy Opportunities portfolio.

Nuclear. Obama's stance on nuclear energy is decidedly neutral. He appears to recognize its benefits for domestic energy security as well as its carbon-reducing qualities. He's also aware it's still a touchy subject for many Americans, even with the Yucca Mountain waste disposal site moving forward. We add this up to mean that nuclear reactors currently in planning stages are likely to go ahead unimpeded by federal or state meddling. This is good news for our uranium picks.

There's another bullish influence coming for uranium: the sunset of America's current Highly Enriched Uranium (HEU) agreement with Russia in 2013. At best, Moscow will demand to renegotiate the bargain-basement price it's now obligated to offer under terms of the agreement. More realistically, it will threaten to shop its converted weapons-grade uranium elsewhere – another barrel over the land of the free – and Russia actually has several incentives to do so. Sooner or later, the United States will return to sources within its own borders, then from Canada.

Wind. Wind energy has much to gain from Obama's plan, which, as it stands, has some $15 billion slotted for clean energy initiatives. His target of “25% by 2025” would require roughly double or even triple growth for the wind industry. Obviously this growth is achievable only through government subsidies, which may or may not be sustainable. Only a few areas of the United States, such as around the Great Lakes and offshore in territorial waters, enjoy the steady stiff breeze that wind farms require to be viable.

Offshore projects raise another hurdle: transmission lines. For fun, let's run some numbers for President Obama. For wind power to supply 20% of America's power by 2030, the country would need to build an estimated 12,000 miles of 765 kV transmission lines. At a cost to generate power of US$0.06 – about the same as geothermal – the transmission lines would cost $2.6 million per mile (in today's money), or $31 billion total. That figure would account for 21% of the total budget for clean energy alternatives, or to put it another way, two years' funding for NASA.

A company with projects bearing very good wind reserves near an existing transmission line is the only kind of investment we'd consider here. For now, however... like T. Boone Pickens, who recently announced he's putting his giant Texas wind-farm project on hold because of the credit crunch and falling energy prices – we, too, are steering clear of wind energy.

Solar. Sun-powered electricity is a great long-term energy provider. Despite advances in the technology, however, it continues to be one of the highest-cost producers; and there will always be the issue of what to do when the sun doesn't shine (and not just on cloudy days – there's every night). And while the Mojave Desert isn't as remote as China's Gobi, the incoming administration still needs to consider cost of infrastructure when promoting solar farms. That said, we still believe that our investment in two hand-picked solar stocks will return good profits in the next few years.

Geothermal. Many projects generating electricity from hot water would run into trouble if oil were to go below $50 per barrel. True still, but geothermal continues to appeal nonetheless. First, oil is unlikely to stay this low for long; and more fundamentally, geothermal's load factor – as high as 95% -- pushes it far to the head of the renewables class and comparable to natural gas and nuclear.

Its limitation is geographical. At the very best, only 10% of the United States could be supplied with geothermal power, according to the Department of Energy, and we find that figure optimistic. Geothermal currently represents 0.35% of America's power generation.

We're willing to invest in geothermal companies because of the robust economics and the fact that they're likely to do well under the cap-and-trade system that appears inevitable. We want to pick those that have not only good resources but also customers, so two top-quality geothermal companies are currently in the
Casey Energy Opportunities portfolio.

Hydroelectricity. On the scale of energy generation technologies, hydroelectricity tends to rate as reliable, and generally cheap and environmentally benign. Like Europe, however, the United States has little hydroelectricity left to exploit, and even the newer run-of-river technology is unlikely to bump its contribution up much from hydropower's current 10%.

Biofuels. Unlike the Casey Research Energy Team, Obama is fond of this stuff. Biofuels are both heavily subsidized and currently high-cost alternatives to reducing carbon – second generation (from non-food organic material) and third generation (using algae) included. However, the White House is soon to hold a former senator from Illinois, one of the largest ethanol producers in the United States, so biofuels are likely to hang around in some form or another. We'll keep our eye on research, as well as industry developments in the near future.


As Casey Research Managing Director David Galland likes to say, “There has never been an economy so heavily politicized as the current one.” Therefore, anticipating how a market sector will be faring is not enough anymore… you also need to be able to foresee what Washington and/or the Fed is going to do to influence that industry.

To that end, Casey Research offers you a brand-new FREE special report, Obama’s Newer Deal, a short but comprehensive guide on the policies and stances you can expect from the new administration… and how it affects you as an investor. Plus, test Casey Energy Opportunities risk-free with this special offer… clicking here.

Tuesday, January 27, 2009

Deflation? What Deflation? Girl Scouts Adjusting for Cookie INFLATION

As our Fed prints money to battle this current "deflationary spiral", the economically pragmatic Girl Scouts are bracing their sales force for the very real effects of inflation.

Here are some "Fingertip Facts for Girls and Families" listed on the Girl Scouts website, so these brave girls can educate their neighbors about the very real effects of inflation on Girl Scout Cookies.

A decision by Girl Scouting
• The national Girl Scouting office said it was okay to change the weight of some licensed Girl Scout
cookie packages.
• Rising costs of food and gas have made baking cookies more expensive.

It costs more to make a cookie than it did one year ago
• You probably know that your family’s grocery bill is rising. The same is true for the bakery’s food bill for
ingredients like flour, baking oils and cocoa.
• It’s expensive to fill a car’s gas tank nowadays. Imagine the cost of filling the tanks of all the trucks that transport ingredients and deliver baked cookies.

Some things never change
• The taste is as great as always!
• The average consumer is still expected to buy 2-4 packages according to national consumer insights research.
• The number one reason consumers do not buy Girl Scout cookies is simply because they are not asked.

Why the new sizes are the right sizes
• Even if money is tight, consumers want to support you! Share your goal with customers when asking themto buy Girl Scout cookies.

What if a customer asks: Is this cookie package smaller?
• Always tell the truth. Here’s a great way you might respond:
Yes, the packages are a little smaller. That’s because the cost of baking cookies has gone up along with food and gas prices. Of course, the delicious taste of your favorite Girl Scout cookie is exactly the same!

Brett again - I'm wondering if some of the TARP funds could have been better spent subsidizing girl scout cookies. These tasty delights were already quite expensive!

We'll let CBM readers weigh in - has anyone bought the "newly sized" Girl Scout Cookie Box this year?

Oil/Gold Ratio at 10-Year Extreme

Oil has not been this cheap relative to gold in 10 years, expert trader Jeff Clark writes in today's Growth Stock Wire. He believes it's time to go long oil.

The last time the ratio was this high, back in 1999, oil quadrupled from $10 per barrel to over $40 in just one year. A similar move this time will generate big gains for anyone willing to buck the trend and buy oil today.

So if you missed the shot at buying gold near $800 per ounce last week, then don't miss your shot at oil right now.

Upcoming Rally for the Norwegian Krone?

Everbank's Chuck Butler highlights the reasons he foresees a possible rally in the Norwegian Krone on the horizon in today's Daily Pfennig:

I had a great lunch yesterday with the Big Boss, Frank Trotter, and we were discussing what we would talk about next week at the Orlando Money Show. I told Frank that I really believe in the prospects of a nice big rally in Norwegian krone... Let me tell you why... First and foremost, it remains a Surplus country... A positive balance of payments... And that surplus has allowed Norway to weather the storm that's hit just about every other country in the world... See, why I believe the Surplus countries should always be considered when buying currencies? Anyway... The main reason it lost ground from last July's levels is the drop in Oil prices... They like the other types of Commodity driven currencies like Aussie, Canada, Brazil, New Zealand, South Africa, just got hammered due to the selling in Commodities... But... You know my outlook for the inflation in this country, and that will be driving Commodity prices higher by year-end... But the leader in the forefront of all this move will, in my opinion, be Oil prices... And IF Oil prices rebound like I suspect they will, that will be a very nice underpin for Norwegian krone...

Chuck's currency insights are often quite prescient, and he doesn't always come out flatly and say what he likes to rally soon in the Pfennig, so this is worth noting.

If you're looking for a place to make this trade - your not alone - my futures broker doesn't offer this contract either. One good option to consider is a foreign currency account with Everbank.

Sunday, January 25, 2009

How to Buy Physical Gold

Interested in buying physical gold to protect yourself from the coming inflationary holocaust? Here's a quick primer on the ins and outs of buying, and taking possession of, physical gold.

Going Long

Finding Elusive Gold in This Market

By the editors of BIG GOLD, Casey Research

At this writing, gold is still 15% off its peak, at least in U.S. dollars. Yet at the same time, the metal is cruising at or near all-time highs against a host of other currencies, including the Swiss franc, British pound, Canadian dollar, Australian dollar, and Indian rupee.

That currency disparity means buyers around the world are prepared to pay much more for gold, relative to their own currencies, than is reflected in the New York spot market, which prices gold in dollars.

Demand for gold coins in particular is running so high that there were severe shortages in 2008. Dealers’ shelves emptied, mints either rationed their output or stopped producing entirely, and premiums over the spot price rose dramatically. All of which implies that the metal’s bull market is far from over. Yet taking advantage of the trend becomes problematic if you can’t get what you want.

Sure, you can buy as much paper gold as you like, through the SPDR Gold Trust ETF (NYSE.GLD), which is bullion-backed and will be sensitive to an advancing price. But what if you simply want physical metal and want it in quantity – say, a hundred ounces?

Well, you could buy 100 coins. If you could find them. Or you could buy a single 100-ounce bar.

Take heed: if you are buying in 100-ounce, 400-ounce or 1-kilo sizes, you want a good delivery bar, one that carries a hallmark from a recognized refiner. And buy only from a source you have a good reason to trust. The gold trade has been replete with con artists since ancient metalworkers began hammering on the shiny stuff and found they could increase their profit margins by adding in a little silver, copper, or even lead. With 100 ounces going for upwards of US$85,000, caution is in order.

Once you’re ready to commit to a 100-ounce buy, the next logical question is: Is there any way to avoid the big premiums and acquire what you want at spot? The answer, fortunately, is yes. You can elect to play with the big boys and get your 100-ounce bar on the COMEX, where the bullion banks and giant funds do their trading.

Playin’ the COMEX

The COMEX is primarily a paper market, with speculators going long or short on contracts for future delivery. 99.9% of those contracts get settled in cash and are closed out before the delivery date arrives, with participants pocketing profits or taking their lumps. Very little physical gold changes hands through COMEX trading.

But some does, because every participant who goes long has the right to pay in full and insist on actual delivery. And every participant who goes short has the right to deliver the goods and get paid. Those trades represent the other 0.1% of the contracts.

The Casey COMEX User's Manual

First, get a little more acquainted with the topic. Log on to the COMEX gold section at ( and have a look around.

Pay close attention to the Current Session Overview. It gives you a real-time picture of trading, with the various delivery months displayed, along with the price per ounce being bid. (With gold, the months further out nearly always have higher prices, a situation known in the commodities trade as contango. The opposite, when near-term prices exceed those down the road, is called backwardation, and for gold it’s extremely rare.)

If you decide to proceed with the idea of buying on the COMEX, you have to open an account with a futures broker. To do that, you’ll need to answer some questions about your financial status and then make a deposit. We spoke with an agent at Lind-Waldock in Chicago, one of the oldest and most active futures brokers, to learn about their requirements.

First, at Lind-Waldock, you must have a yearly income and net worth of at least $25,000 and $50,000, respectively; anyone who can afford a hundred ounces of gold will surely qualify. Then you must deposit a minimum of $5,000 with the broker. Finally, you choose from among several levels of service, which affects the amount of commission you’ll pay.

Once the futures account is in place, you’re set to go.

Let’s say the bid price three months out is $850/oz., and you like gold at that price. You call your broker and place an order at $850, for one gold contract (which represents a single 100-oz. bar of good delivery metal). As with bidding on a stock, you may not get what you want if the market is heading up and runs away from your price. The alternative is to place a market order, trusting that it gets filled at close to your target price, but that can be risky in a fast-moving market.

Let's assume you get your contract and lock up what you’ll pay for the gold, most of which will be due at expiration. What next? There are two possibilities. You can just deposit the full cost of the gold, sit back, and enjoy the wait for your prize. Or you can deposit the minimum amount required (the minimum “margin”), which varies and is set at the exchange’s discretion. For a single gold contract at the moment, it’s $5,800, or about 7% of the contract’s value.

That’s how the speculators play the market, putting up as little front money as possible. For you, that won’t be a problem if the price of gold rises, since the broker will be crediting a matching amount of cash to your account on a daily basis. But you have to be careful if the price of gold falls, because the broker will then charge your account for a matching amount of money day by day – and to keep the balance from going below the minimum margin requirement, he’ll send you a margin call, insisting that you deposit more cash. If you fail to do so, the broker will enter a sale order for you, and you’ll be out of the market.

Changes in the value of a futures contract, with their attendant shifting cash requirements, are of critical importance to traders who are simply playing with paper. Since you’re only interested in acquiring a physical gold bar, the fluctuations shouldn’t affect you. Just make sure you have enough money in your account that you’re not inadvertently sold out.

Then, on the settlement date, your account will be charged for an amount equal to the settlement price multiplied by the exact weight of the particular bar that’s been assigned to you (a “100-oz.” COMEX good delivery bar can actually vary in weight between 95 and 105 ounces). This is when everything gets squared up.

Taking Delivery

If you keep your position open until delivery, the COMEX will hand your broker a warehouse receipt with the details of your specific bar (hallmark, serial number, and weight to one-thousandth of an ounce). The broker can either hold the receipt in your account or mail it to you. (If you take possession of a warehouse receipt, be aware that it’s an irreplaceable bearer instrument. Don’t lose it!)

Your bar will be sitting in the vault of one of the four designated COMEX depositories, all of which are in or near New York City. If you want to bring the bar home, you’ll have to pick it up at the depository or arrange for third-party delivery. If you intend to hold it until gold reaches a certain price and then sell, your best bet is probably to leave the bar in the COMEX depository and leave the receipt with your broker.

We called Scotia Mocatta, which operates one of the COMEX-designated vaults, and were quoted a storage fee of $15/month per bar. If, however, you want the bar in your hands, you’ll have to pay a $150 delivery fee to get the bar released by the depository. Then you’re responsible for retrieving it, which could be a problem.

Unless you want to put the bar in your suitcase and fly home with it, you’ll have to have it delivered. You can’t ship a gold bar via the U.S. mail, FedEx or UPS; you have to hire an armored car service, such as Brinks.

Shipping costs depend, of course, on how far your gold will travel from the City. VIA MAT International (USA) gave us a ballpark figure of $150 to transport one gold bar from New York to California – a heckuva lot cheaper than airfare, and you get to keep your shoes on.

One final note: armored carriers won’t deliver to a house address. You would have to arrange to receive the shipment at a business, which could be an additional worry if neither you nor a trusted friend owns one. Or you could have it delivered to your bank and slide it into a safe deposit box, provided you don’t mind the bank’s employees knowing what you’re doing.

Will You Need an Assay?

If you leave your gold bar in the COMEX depository, it will be easier to sell. You just go through the above procedure in reverse, going short a contract instead of buying one.

However, if you take physical delivery and later wish to sell through the COMEX (or through a private dealer), you will need to have the bar reassayed. A prospective buyer of such a costly item must be certain that it was genuine to begin with and hasn’t been tampered with while in your possession.

The COMEX provides a list of approved assayers on its website. The one we contacted, Ledoux and Co., quoted us $300 per bar for the service.

And that’s all you need to know to get gold wholesale.

When it comes to anything gold, the BIG GOLD experts have the inside scoop on it… an invaluable service, especially in times like these, with gold serving as a crisis hedge. For just 22 cents a day, you’ll learn everything you need to know about gold, the physical metal, as well as the safest stocks of major gold producers, royalty companies, the best gold ETFs, and much more. Learn more about our 3-month, risk-free trial subscription with 100% money-back guarantee.

Weekly Commodities Review: Is Gold Breaking Out?

Gold Breaking Out?

Adam Hewison of believes the gold market is getting wound up, ready to explode higher (check out his free video here). Long time readers know that I believe gold is heading much higher, because inflation is heading much higher.

Inflation is already through the roof - it's just that we are not yet experiencing the effects of this newly printed money, because the velocity of money has dropped off so sharply.

Not that this has been any consolation to my wife - who I "protected" last July by shifting her entire 401K into gold stocks. I may have hit the exact top in gold stocks.

I think Bernanke is fighting the wrong battle. As a student of the Great Depression, he's working to prevent deflation at all costs. And in the end, I think he'll be successful - and bring us a true inflationary nightmare.

Rangebound Grains

A pretty quiet week in the grains, after last week's excitement (nausea). We continue to hold our corn and soybean positions, and are waiting for the market to tell us what to do next.

Cotton Rallies Late

A BIG Friday for cotton! The "Pakistan Observer" reports that cotton rallied on news a major merchant took out significant amounts of cotton from the exchange - hey, it's on the internet, so it must be true.

While demand for cotton is taking it on the chin, cotton supply seems to be taking an even harder fall. The Commodity Research Bureau projects that global cotton output will fall 7.4%, which outpaces the 6.1% year over year fall in global cotton consumption the USDA is projecting.

A Socialist Plea

Earlier this week, I felt compelled to step up to the plate and defend free market capitalism, after receiving this socialist plea from our local utility company.

What do you think - did I take it too far? Not far enough? You decide, Komrade!

Open positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss
01/16/09 Long 1 MAR 09 Corn 374 3/4 390 1/4 $775.00
01/20/09 Long 1 MAR 09 Corn 397 1/2 390 1/4 ($362.50)
12/31/08 Long 1 MAR 09 Cotton 48.52 50.55 $1,015.00
01/13/09 Long 1 MAR 09 Mini Soybeans 987 1/4 1006 $187.50
01/13/09 Long 1 MAR 09 Mini Soybeans 989 1/4 1006 $167.50
Net Profit/Loss On Open Positions $1,782.50

Account Balances

Current Cash Balance $39,223.08
Open Trade Equity $1,782.50
Total Equity $41,005.58
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $41,005.58
Cashed out: $20,000.00
Total value: $61,005.58
Weekly return: 0.6%
2009 YTD return: -19.3%

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

(Had to add these historical facts in to keep me from smashing my head into my keyboard).

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

Saturday, January 24, 2009

Fred Thompson on the Absurdity of our Economic Recovery Plans

Great job by Fred. My favorite line: "We could give everyone in America a shovel. Half of them can dig holes, and the other half can fill them in. Then everyone would get a check, and that would fix our unemployment problem."

Friday, January 23, 2009

A Socialist Plea From My Local Utility Company

Why create wealth when you can just redistribute it?

When my wife handed me this letter from our local utility company, I exploded.

I have an idea for you, SMUD - how about YOU take a look at YOUR internal processes, and figure out how YOU can become more efficient! It is a recession, after all.

Then YOU are welcome to pass on YOUR savings to the customers YOU deem to be in need.

That way, you won't have to bother customers like ME - just a small time entrepreneur working his ass off to get a business or two off the ground.

You want new jobs to bring us out of this crap?

Then just leave us alone - please, everyone - I'm looking at you too, Federal government! Just let us be - we'll figure out ways to create new jobs - innovation comes from the ground up, NOT from the top down.

And SMUD - don't EVER send a socialist letter like this to my house again. God help me, if I actually had children, and my hypothetical son or daughter opened this letter, and was exposed to this level of mind pollution. Might as well send us an envelope laced with anthrax.

So I, Brett the Commodity Blogger, am hereby calling for all SMUD customers to turn down their thermostats, or just turn them off altogether, and let us unite to combat socialism by freezing our collective asses off.

And with that, I sign off from my home office, where the current indoor temperature is 51 degrees.

Thursday, January 22, 2009

Has George Soros Lost His Mind?

Reuters reporting on George Soros' testimony at the U.S. Conference of Mayors - whatever the hell that is:

Soros said the United States needed "radical and unorthodox policy measures" to prevent a repeat of the Great Depression of the early 20th century that include recapitalizing banks and writing down the country's accumulated debt.

Also, he said, it should create more money to offset the collapse of credit and then rapidly pull that cash out of the system when inflation emerges. The government would have to be very nimble in the timing of such moves, he said.

"If they are successful...the deflationary pressures will be replaced by the specter of inflation and the authorities will have to drain the excess money from the economy almost as quickly as they pumped it in. Of the two operations the second one is going to be, politically, even more difficult than the first," he said.

Is Soros - freaking - insane? Has this ever worked in history? Just once???

Hang on, it gets even better:

At the same time, the $700 billion financial bailout known as TARP for Troubled Assets Relief Program had been carried out in a "haphazard and capricious way" and "without proper planning," he said.

"Unfortunately it was misused and the way it was done has poisoned the well. It has created tremendous ill will toward putting up more money," Soros said.

I was stunned as well, when $700 billion was misspent by the bright bureaucrats in our Federal Government.

Let me ask you a question - last time you went to the Post Office to mail a package - how long did you wait?

Well those are the SAME DAMN BUREAUCRATS in charge of allocating this slush fund!

Why are people shocked when things our government does don't work out as planned? They NEVER work out as planned!

That's what the free market is for. (Check out John Stossel's excellent 20/20 piece about the limitations of government, and the power of the free market - highly recommended).

Now George Soros is not stupid - he's one of the most successful speculators of all-time.

So has he just lost his mind?

Have years of socialist dreaming finally penetrated and damaged his cranium?

Or is he just screwing with us common folk?

Stratfor: Obama's Two Unavoidable Crises

Thanks to our friends at Stratfor, for granting us the right to republish this fine analysis of the two major challenges President Obama faces on the global stage.

Obama Enters The Great Game

By George Friedman

U.S. President-elect Barack Obama will be sworn in on Tuesday as president of the United States. Candidate Obama said much about what he would do as president; now we will see what President Obama actually does. The most important issue Obama will face will be the economy, something he did not anticipate through most of his campaign. The first hundred days of his presidency thus will revolve around getting a stimulus package passed. But Obama also is now in the great game of global competition — and in that game, presidents rarely get to set the agenda.

The major challenge he faces is not Gaza; the Israeli-Palestinian dispute is not one any U.S. president intervenes in unless he wants to experience pain. As we have explained, that is an intractable conflict to which there is no real solution. Certainly, Obama will fight being drawn into mediating the Israeli-Palestinian conflict during his first hundred days in office. He undoubtedly will send the obligatory Middle East envoy, who will spend time with all the parties, make suitable speeches and extract meaningless concessions from all sides. This envoy will establish some sort of process to which everyone will cynically commit, knowing it will go nowhere. Such a mission is not involvement — it is the alternative to involvement, and the reason presidents appoint Middle East envoys. Obama can avoid the Gaza crisis, and he will do so.

Obama’s Two Unavoidable Crises

The two crises that cannot be avoided are Afghanistan and Russia. First, the situation in Afghanistan is tenuous for a number of reasons, and it is not a crisis that Obama can avoid decisions on. Obama has said publicly that he will decrease his commitments in Iraq and increase them in Afghanistan. He thus will have more troops fighting in Afghanistan. The second crisis emerged from a decision by Russia to cut off natural gas to Ukraine, and the resulting decline in natural gas deliveries to Europe. This one obviously does not affect the United States directly, but even after flows are restored, it affects the Europeans greatly. Obama therefo re comes into office with three interlocking issues: Afghanistan, Russia and Europe. In one sense, this is a single issue — and it is not one that will wait.

Obama clearly intends to follow Gen. David Petraeus’ lead in Afghanistan. The intention is to increase the number of troops in Afghanistan, thereby intensifying pressure on the Taliban and opening the door for negotiations with the militant group or one of its factions. Ultimately, this would see the inclusion of the Taliban or Taliban elements in a coalition government. Petraeus pursued this strategy in Iraq with Sunni insurgents, and it is the likely strategy in Afghanistan.

But the situation in Afghanistan has been complicated by the situation in Pakistan. Roughly three-quarters of U.S. and NATO supplies bound for Afghanistan are delivered to the Pakistani port of Karachi and trucked over the border to Afghanistan. Most fuel used by Western forces in Afghanistan is refined in Pakistan and delivered via the same route. There are two crossing points, one near Afghanistan’s Kandahar province at Chaman, Pakistan, and the other through the Khyber Pass. The Taliban have attacked Western supply depots and convoys, and Pakistan itself closed the routes for several days, citing government operations a gainst radical Islamist forces.

Meanwhile, the situation in Pakistan has been complicated by tensions with India. The Indians have said that the individuals who carried out the Nov. 26 Mumbai attack were Pakistanis supported by elements in the Pakistani government. After Mumbai, India made demands of the Pakistanis. While the situation appears to have calmed, the future of Indo-Pakistani relations remains far from clear; anything from a change of policy in New Delhi to new terrorist attacks could see the situation escalate. The Pakistanis have made it clear that a heightened threat from India requires them to shift troops away from the Afghan border and toward the east; a small number of troops already has been shifted.

Apart from the direct impact this kind of Pakistani troop withdrawal would have on cross-border operations by the Taliban, such a move also would dramatically increase the vulnerability of NATO supply lines through Pakistan. Some supplies could be shipped in by aircraft, but the vast bulk of supplies — petroleum, ammunition, etc. — must come in via surface transit, either by truck, rail or ship. Western operations in Afghanistan simply cannot be supplied from the air alone. A cutoff of the supply lines across Pakistan would thus leave U.S. troops in Afghanistan in crisis. Because Washington can’t predict or control the future actions of Pakistan, of India or of terrorists, the United States must find an alternative to the routes through Pakistan.

When we look at a map, the two routes through Pakistan from Karachi are clearly the most logical to use. If those were closed — or even meaningfully degraded — the only other viable routes would be through the former Soviet Union.

· One route, along which a light load of fuel is currently transported, crosses the Caspian Sea. Fuel refined in Armenia is ferried across the Caspian to Turkmenistan (where a small amount of fuel is also refined), then shipped across Turkmenistan directly to Afghanistan and through a small spit of land in Uzbekistan. This route could be expanded to reach either the Black Sea through Georgia or the Mediterranean through Georgia and Turkey (though the additional use of Turkey would require a rail gauge switch). It is also not clear that transports native to the Caspian have sufficient capacity for this.

· Another route sidesteps the issues of both transport across the Caspian and the sensitivity of Georgia by crossing Russian territory above the Caspian. Kazakhstan, Uzbekistan (and likely at least a small corner of Turkmenistan) would connect the route to Afghanistan. There are options of connecting to the Black Sea or transiting to Europe through either Ukraine or Belarus.

· Iran could provide a potential alternative, but relations between Tehran and Washington would have to improve dramatically before such discussions could even begin — and time is short.

Many of the details still need to be worked out. But they are largely variations on the two main themes of either crossing the Caspian or transiting Russian territory above it.

Though the first route is already partially established for fuel, it is not clear how much additional capacity exists. To complicate matters further, Turkmen acquiescence is unlikely without Russian authorization, and Armenia remains strongly loyal to Moscow as well. While the current Georgian government might leap at the chance, the issue is obviously an extremely sensitive one for Moscow. (And with Russian forces positioned in Azerbaijan and the Georgian breakaway regions of Abkhazia and South Ossetia, Moscow has troops looming over both sides of the vulnerable route across Georgia.) The second option would require crossing Russian territory itself, with a number of options — from connecting to the Black Sea to transiting either Ukraine or Belarus to Europe, or connecting to the Baltic states.


(click image to enlarge)

Both routes involve countries of importance to Russia where Moscow has influence, regardless of whether those countries are friendly to it. This would give Russia ample opportunity to scuttle any such supply line at multiple points for reasons wholly unrelated to Afghanistan.

If the West were to opt for the first route, the Russians almost certainly would pressure Azerbaijan and Turkmenistan not to cooperate, and Turkey would find itself in a position it doesn’t want to be in — namely, caught between the United States and Russia. The diplomatic complexities of developing these routes not only involve the individual countries included, they also inevitably lead to the question of U.S.-Russian relations.

Even without crossing Russia, both of these two main options require Russian cooperation. The United States must develop the option of an alternative supply route to Pakistan, and in doing so, it must define its relationship with Russia. Seeking to work without Russian approval of a route crossing its “near abroad” will represent a challenge to Russia. But getting Russian approval will require a U.S. accommodation with the country.

The Russian Natural Gas Connection

One of Obama’s core arguments against the Bush administration was that it acted unilaterally rather than with allies. Specifically, Obama meant that the Bush administration alienated the Europeans, therefore failing to build a sustainable coalition for the war. By this logic, it follows that one of Obama’s first steps should be to reach out to Europe to help influence or pressure the Russians, given that NATO has troops in Afghanistan and Obama has said he intends to ask the Europeans for more help there.

The problem with this is that the Europeans are passing through a serious crisis with Russia, and that Germany in particular is involved in trying to manage that crisis. This problem relates to natural gas. Ukraine is dependent on Russia for about two-thirds of the natural gas it uses. The Russians traditionally have provided natural gas at a deep discount to former Soviet republics, primarily those countries Russia sees as allies, such as Belarus or Armenia. Ukraine had received discounted natural gas, too, until the 2004 Orange Revolution, when a pro-Western government came to power in Kiev. At that point, the Russians began demanding full payment. Given the subsequent rises in global energy prices, that left Ukraine in a terrible situation — which of course is exactly where Moscow wanted it.

The Russians cut off natural gas to Ukraine for a short period in January 2006, and for three weeks in 2009. Apart from leaving Ukraine desperate, the cutoff immediately affected the rest of Europe, because the natural gas that goes to Europe flows through Ukraine. This put the rest of Europe in a dangerous position, particularly in the face of bitterly cold weather in 2008-2009.

The Russians achieved several goals with this. First, they pressured Ukraine directly. Second, they forced many European states to deal with Moscow directly rather than through the European Union. Third, they created a situation in which European countries had to choose between supporting Ukraine and heating their own homes. And last, they drew Berlin in particular — since Germany is the most dependent of the major European states on Russian natural gas — into the position of working with the Russians to get Ukraine to agree to their terms. (Russian Prime Minister Vladimir Putin visited Germany last week to discuss this directly with German Chancellor Angela Merkel.)

The Germans already have made clear their opposition to expanding NATO to Ukraine and Georgia. Given their dependency on the Russians, the Germans are not going to be supporting the United States if Washington decides to challenge Russia over the supply route issue. In fact, the Germans — and many of the Europeans — are in no position to challenge Russia on anything, least of all on Afghanistan. Overall, the Europeans see themselves as having limited interests in the Afghan war, and many already are planning to reduce or withdraw troops for budgetary reasons.

It is therefore very difficult to see Obama recruiting the Europeans in any useful manner for a confrontation with Russia over access for American supplies to Afghanistan. Yet this is an issue he will have to address immediately.

The Price of Russian Cooperation

The Russians are prepared to help the Americans, however — and it is clear what they will want in return.

At minimum, Moscow will want a declaration that Washington will not press for the expansion of NATO to Georgia or Ukraine, or for the deployment of military forces in non-NATO states on the Russian periphery — specifically, Ukraine and Georgia. At this point, such a declaration would be symbolic, since Germany and other European countries would block expansion anyway.

The Russians might also demand some sort of guarantee that NATO and the United States not place any large military formations or build any major military facilities in the former Soviet republics (now NATO member states) of Estonia, Latvia and Lithuania. (A small rotating squadron of NATO fighters already patrols the skies over the Baltic states.) Given that there were intense anti-government riots in Latvia and Lithuania last week, the stability of these countries is in question. The Russians would certainly want to topple the pro-Western Baltic governments. And anything approaching a formal agreement between Russia and the United States on the matter could quickly destabilize the Baltics, in addition to very much weakening the NATO alliance.

Another demand the Russians probably will make — because they have in the past — is that the United States guarantee eventual withdrawal from any bases in Central Asia in return for Russian support for using those bases for the current Afghan campaign. (At present, the United States runs air logistics operations out of Manas Air Base in Kyrgyzstan.) The Russians do not want to see Central Asia become a U.S. sphere of influence as the result of an American military presence.

Other demands might relate to the proposed U.S. ballistic missile defense installations in the Czech Republic and Poland.

We expect the Russians to make variations on all these demands in exchange for cooperation in creating a supply line to Afghanistan. Simply put, the Russians will demand that the United States acknowledge a Russian sphere of influence in the former Soviet Union. The Americans will not want to concede this — or at least will want to make it implicit rather than explicit. But the Russians will want this explicit, because an explicit guarantee will create a crisis of confidence over U.S. guarantees in the countries that emerged from the Soviet Union, serving as a lever to draw these countries into the Russian orbit. U.S. acquiescence on the point potentially would have ripple effects in the rest of Europe, too.

Therefore, regardless of the global financial crisis, Obama has an immediate problem on his hands in Afghanistan. He has troops fighting there, and they must be supplied. The Pakistani supply line is no longer a sure thing. The only other options either directly challenge Russia (and ineffectively at that) or require Russian help. Russia’s price will be high, particularly because Washington’s European allies will not back a challenge to Russia in Georgia, and all options require Russian cooperation anyway. Obama’s plan to recruit the Europeans on behalf of American initiatives won’t work in this case. Obama does not want to start his administration with making a massive concession to Russia, but he cannot afford to leave U.S. forces in Afghanistan without supplies. He can hope that nothing happens in Pakistan, but that is up to the Taliban and other Islamist groups more than anyone else — and betting on their goodwill is not a good idea.

Whatever Obama is planning to do, he will have to deal with this problem fast, before Afghanistan becomes a crisis. And there are no good solutions. But unlike with the Israelis and Palestinians, Obama can’t solve this by sending a special envoy who appears to be doing something. He will have to make a very tough decision. Between the economy and this crisis, we will find out what kind of president Obama is.

And we will find out very soon.

Tell Stratfor What You Think

Editor's note: You might also like: Obama's Newer Deal, by Casey Research's David Galland

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