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 INO.com 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.
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.
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:
Which team do the talking heads seem to be favoring
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 www.thespread.com - 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?
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.
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 Opportunitiesportfolio.
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.
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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.
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 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.
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.
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.
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.
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.
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Adam Hewison of INO.com 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.
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.
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."
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.
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!
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.
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.
·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.
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.
According to the projections of the Buenos Aires Cereals Exchange published on Jan. 16, the country’s wheat yield for 2009 will be 8.7 million metric tons, down from 16.3 million in 2008 (domestic wheat consumption in 2007 was approximately 6.7 million metric tons). Total wheat planting dropped by 350,000 hectares, or 8 percent, in the 2008 planting season, and the drought has affected what has already been sown. Corn production is projected to drop from its 2008 figure of 20.9 million metric tons to 16.5 million metric tons, with a reduction in crop planting by 26 percent from 3.2 million hectares in 2008 to 2.4 million in 2009. Soybean output, meanwhile, could fall to 40 million metric tons if the drought continues — a 7 million metric ton drop.
Jan. 19 (Bloomberg) -- Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said he expects a “swift and violent rebound” in energy prices in the second half of the year.
Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, the analyst said. There is scope for a “new bull market” in oil, Currie said.
According to a Reuters report, Jim Rogers is still very bullish on Asia, and still very bearish on the US dollar and Treasury Bonds.
Jim Rogers accused U.S. authorities of consciously trying to devalue the U.S. dollar by flooding the market with liquidity -- or in his words, "turning on the printing presses" -- and said anyone chasing the rally in government bonds is making a "terrible mistake."
"The idea that you can fix a period of excess borrowing and excess consumption by more borrowing and more consumption to me is just ludicrous," he said.
Marc Faber's observations on a CNBC interview from January 19, 2009:
The corporate credit markets have improved somewhat
He expects government bond markets to weaken, due to the increasing unlikeliness they will be able to pay off their mounting deficits - believes this may be the "next shoe to drop"
There's a very good chance the 2nd half of 2009 could be even worse than the 1st half of 2009
At 850-900, the S&P is not particularly inexpensive, because corporate earnings continue to dissolve
There are some pockets of value in Asia, and many stocks have attractive dividend yields at 3 to 4 times the bond yields
Faber on Commodities
The bull market in commodities is still relatively young (started in 2001) - while the bull market in stocks started about 20 years earlier
Supply of many commodities will suffer greatly due to this credit crisis
When the global economy recovers, many commodities will rise substantially as a result
Faber on Inflation vs. Deflation
While there has been a deflation in asset prices, he has not noticed any deflation in consumer prices
Doesn't know who "in their right mind" would buy a 30-Year US Treasury that is yielding less than 3%...in a structurally weak currency
Faber's Current Investments
Thinks the markets became very oversold in November
Anticipates the markets will stabilize and rebound somewhat over the next couple of months
Has some shares in Asia, mining stocks, exploration companies, physical gold, and a basket of currencies
Thinks the dollar could strengthen further in the short term
This guest article about Obama's Newer Deal, courtesy of Casey Research's David Galland, includes a free special report on the Obama administration, and what it means for your investments. Enjoy!
Obama, Keynes, and Pragmatism By David Galland Managing Editor, The Casey Report
On several occasions of late, I have read or heard the phrase, "We are all Keynesians now," an erudite way of expressing the idea that the free market is dead. And that the fate of the global economy now relies almost entirely on pragmatic measures yet to be taken by governments, most notably that of the United States.
Given that the word "pragmatic" is often used to describe President Obama, it appears that the man of the hour has arrived just in the nick of time.
Not to be a spoilsport, but there is much wrong with this latest entry in the thick and well-worn journal labeled “Popular Delusions.”
First and foremost, the idea that the world's largest debtor nation should be stood up as role model is laughable. That is like hiring the town's serial bankrupt to run the bank. Putting aside the irony, the inherent conflict of interest destroys any U.S. credibility as an honest broker in the current scenario.
Secondly, while the incoming team has done a superior job of spinning pragmatism into the Obama brand, it is another thing altogether to actually demonstrate the quality when the shoe leather hits the fast-moving pavement.
And, if you think about it, even the word defies definition. I have heard Obama supporters comment lately that “if the private sector won’t spend money, then the government has to.” Like beauty, pragmatism, it seems, is in the eye of the beholder. In the current context, what Team Obama might consider pragmatic – soaking the successful, slapping on an energy tax, revving up the money engines ever higher – might be considered by others to be very un-pragmatic.
Even so, adopting the optimistic spirit of America’s new era, we’ll credit the incoming president and all those who surround him as pragmatics, in the sense that they are the best sort of men and women who can be counted on to make intelligent and, well, pragmatic choices in the face of a rapidly eroding global economy.
Unfortunately, no sooner do we hand Team Obama a laurel than we have to point out a rather large and ugly fly in the otherwise nicely scented ointment. It is this: if the word pragmatic isn’t used as an adjective in direct association with the word “dictator,” then it becomes all but meaningless.
That’s because even if Mr. Obama is a pragmatic, the same can hardly be said of the American public, which, according to the law of the land, are the purported owners and – through the ballot – operators of the economy.
To use one easily understood example, a pragmatic president might look at the insurmountable obligations hanging over the Social Security program and decide that, at the least, some form of means testing might be applied to recipients. But the voting bloc of American elderly, readily ginned up into an elevated emotional state by the AARP and other special-interest groups, assures that anyone proposing even modest modifications to the program will be loudly shouted down and find themselves in heavy waters come the next election.
And I’m not referring just to the next presidential election cycle, which won’t kick off for another two years… but to the next congressional election of November 2010, less than two years hence. In that election, 1/3 of the Senate and 100% of the House of Representatives will be up for grabs.
With only history as my guide, I’m going to hypothesize that few of Mr. Obama's supporters in Congress, avid though they may be, will be willing to make their reelection campaigns more difficult by supporting unpopular legislation… no matter how pragmatic.
Sure, maybe they’ll inch a little way out on the limb during a brief honeymoon period, but once the 24-hour-news-as-entertainment channels start in with a vengeance, cracks in the coalition of collectivists will begin to appear and Team Obama will turn from making “hard choices” to the “easy giveaways” the American public requires in exchange for continuing to support his party come November 2010.
After that, we move seamlessly into the next presidential election cycle, and things will go downhill from there.
Of course, this situation is not unique to the Democrats – rather, it is an intractable and, in time, terminal disease of our late-stage democracy itself.
The Keynesian Fallacy
Even ignoring the near impossibility of organizing consistent and sensible government policies in a rapidly degrading democracy, the whole idea that a government can effectively manage an economy – Keynes’ central theme – just doesn’t hold water. Despite hundreds and maybe thousands of experiments along those lines, none has shown any real durability.
There have been some examples, however, of long-term free market successes, the most powerful being the early, laissez-faire days of the United States. There are lesser examples such as Dubai in recent decades, or Hong Kong under the British – economies where the operating manual was thin and almost entirely supportive of wealth creation and free markets. Were they perfect? No, because there is no such thing as a perfect world. But in terms of creating the wealth needed for a society to advance to a more refined stage, they performed exceptionally well.
In sharp contrast, today’s freshly minted Keynesians call for increased penalties on success and a steep ramping up of regulation, the very opposite of the prescription needed.
There is another problem with the utopian aura now surrounding Team Obama, and it’s simply that government doesn't produce anything tangible. So when it comes time to "manage" the economy, government is left with only a couple of tools. One is to force you and me to use our time and capital for purposes they view as important. Bush, for example, felt invading Iraq was a priority. Naturally, Team Obama has a slate of fresh ideas on the best use of your money, and say they want even more of it. I take umbrage at the notion that I should open my wallet even further for "the public good," especially when the perceived public good so often runs contrary to my own beliefs. For instance, on principle, I am against war – it is always the innocents that suffer the most. And I am against the creation of new and expensive regulatory structures, a government specialty.
The other tool available to Team Obama is, of course, the creation of money. And we are now hearing a steady drumbeat that we the people should pay no attention to the deficits for the next few years.
To which I can only wonder, “Isn’t that exactly what’s been going on for the last eight years?”
It sure seems that way, considering the unprecedented levels of debt already overhanging the economy.
***
There has rarely, if ever, been a period of time where the economy of the U.S. has been more politicized. Today it is not enough for an investor to paw through the fundamentals and correctly identify the best – or worst – sectors or even individual companies to be invested in or to avoid. Success depends equally, and maybe even more so, on correctly anticipating what actions the government is likely to take (or not) in regards to any particular enterprise. Take GM, for example, whose rise or demise depends to a large part on the question whether the government will prop it up.
The FREE special report Obama’s Newer Deal by Casey Research analyzes the economic and political climate of the incoming Obama administration, providing a “weather forecast” that can help you prepare your assets for a rainy day. Get it now – no cost, no obligation – by simply clicking here.
On Monday, the USDA released it's agriculture supply and demand projections, which sent grains "limit down" for the day across the board, and many of the softs down sharply as well.
That proved to be the worst of it - as grains slowly recovered during the week as the market digested the news, finishing the week off with a sharp rally on Friday.
As you can tell from my positions as of last Sunday, I was not prepared to handle a "limit down" day across the grains board. It's one of those days that, as a leveraged trader, you just want to vomit.
I had an offsite meeting in the morning, so returned to the home office after markets had closed to see the carnage. Not only was I down 25% (!) on the day, but also still had these positions open. Everything had closed limit down, and I had no clue where this market was going to find a bottom - and even when I'd be able to get out of these positions.
Fortunately I was able to get out that evening during the Asian trading sessions - basically covered the grains positions and also my Treasuries short, leaving only cotton open.
Then while sipping some wine and reading the WSJ later that night, I read analysts mentioned they liked soybeans more than corn. So the next day, I went long soybeans, and short corn - nothing like a little wreckless pair trading to get over a big loss.
Well this trade actually held up OK until Friday morning, when, bless his heart, my commodities broker Robert gave me a call.
"Brett, I'd really like to get you in on this corn trade. It's trading $0.50 below the cost of production. Farmers are already switching to soybeans."
After picking Robert's brain for about 10 minutes, I had him put the trade through for me (he manages my Rollover IRA account), and ran to my computer here to cover that corn short, and then go long.
Phew - not a moment too soon - corn finished the day on a sharp rally.
Doug Casey believes we've begun what he calls "The Greater Depression." In this insightful article, he explores the foundations of the current crisis we're facing.
Sugar prices continue to climb, and there could be a supply shortage shaping up soon.
From our friends over at Market Folly - coverage of Peter Schiff's latest comments regarding the bubble in US Treasuries - brief excerpt here, click the link above for the full coverage.
"However, since the only way the Fed can buy bonds is by printing money, the more bonds they buy the more inflation they will create. As inflation diminishes the investment value of low-yielding Treasuries, such a scenario will kick off a downward spiral. But the more active the Fed becomes in their quest to prop up bond prices, the bigger the incentive to hit the Fed?s bid. The result will be that all Treasuries sold will be purchased by the Fed. But with the resulting frenzy in the Treasury market, and with inflation kicking into high gear, we can expect that demand for other debt classes that the Fed is not backstopping, such as corporate, municipal and agency debt, to fall through the floor, pushing up interest rates across the board."
Jan. 16 (Bloomberg) -- Sugar prices rose, posting their fourth straight weekly gain, on speculation that demand for imported supplies will increase this year in China and India, the world’s largest consumer. ...
Also worth noting:
Reduced supplies from India likely will widen a global market deficit that Czarnikow Group Ltd. estimates will be 5.8 million tons this year, said Michael Ferrari, a vice president at Weather Trends International Inc. in Bethlehem, Pennsylvania.
Global market deficit! Music to a commodity trader's ears.
Corn farmers could be in some trouble this year reports the Batavia News, an upstate New York newspaper.
The (corn) price has been hovering near $4. That could be trouble for farmers if there is an average or below average crop. Many of his customers have ordered more soybean seed. That crop requires less fertilizer. New York farmers last year planted 235,000 acres of soybeans, the most ever in the state. That was up 15 percent from the previous high of 205,000 planted in 2007.
Tip of the hat to Tom Rivers on a very well written and investigated piece!
Stratfor reports that more European nations are likely to face credit downgrades, and that, ultimately, a restarting of the global economy and flow of credit will be needed to drive down the cost of debt financing.
The article mentions how the massive amount of debt being issued by the US Treasury, in the form of Treasury bills, is really squeezing other countries, as they vie for very small remaining slivers of the sovereign debt pie.
We, like the rest of professional investors it seems, are quite bearish on US Treasuries (that's the only thing we don't like about this trade).
National governments will really feel the squeeze if and when rates on their sovereign debt begin to rise. Couple that with falling tax receipts...and rising expenditures...look out!
The International Energy Agency (IEA) released figures Jan. 16 indicating global oil consumption will fall in 2009, The Associated Press reported. The IEA blamed the global economic crisis for the reduction in oil demand, and said a drop this year is the first two-year slide since 1982-1983. The IEA forecasts oil demand will drop by 1 million barrels per day (bpd) to 85.3 million bpd, 0.6 percent lower than 2008. Oil demand in 2007 is estimated to have slide 0.3 percent to 85.8 million bpd. The IEA bases its forecast on estimates for global economic growth, which it projects to be 1.2 percent in 2009.
He asks Bernanke at the end, and he skirts the gold standard question.
Just got done reading the latest Casey Report, which has an interview with Ron Paul. He recites a story about Paul Volcker, who in the early 80's, came into a room 1st thing one morning and immediately asked one of his staffers: "What's the price of gold?"
Everybody wants predictions. The following article does a little better than that, in that I wrote it back in November of 1997, outlining several theories of history, and pointing to a logical way of anticipating what will likely happen to the world at large over the next generation.
As you will read, the methodology I relied upon for anticipating the events that are now unfolding – 11 years later – were actually quite accurate, confirming, in my mind at least, that now is a time to be very cautious in your personal and financial affairs.
The article is unaltered in its text from the original, though I have added some current commentary in bold italics
Doug Casey
December 26, 2008
"Don't know much about the Middle Ages, look at the pictures an' I turn the pages. Don' know much about no rise and fall, don' know much ‘bout nothin' at all" "Wonderful World," Sam Cooke.
The lyrics quoted above probably describe the average American's knowledge of history about as well as any academic study. Not only don't they know anything about it, and think it's irrelevant, but what they do know is inaccurate and slanted. And they must not think very much about the future either if the amount of consumer debt out there, mostly accumulating at 18% interest, is any indication.
One point of studying history is that it gives you an indication of what's likely to happen now, if you can find an appropriate analog in the past. This is a tricky business because as you look at factors contributing to a trend, it's not easy to determine which ones are really important. Making that determination is a judgment call, and everyone's judgment is colored by his worldview, or Weltanschauung as the Germans would have it.
Let me briefly spell out my Weltanschauung so you can more accurately determine how it compares with your own, and how it may be influencing my interpretation of the future.
I'm intensely optimistic about the long-term future. It seems to me a lock cinch that the advance of technology alone – and nanotechnology in particular – will result in a future of incredible abundance and prosperity, and that alone will solve most of the problems that plague us. Space migration, intelligence increase, and life extension will be commonplace realities. These things, plus the growth of both knowledge and its accessibility and the concomitant rise of the individual from the group, will constantly diminish politics as an element of life. The future will be much better than anything visualized on Star Trek, and will arrive much sooner. That's the good news.
The bad news is that within the longest trend in history, the ascent of man, there is plenty of room for setbacks, and much of history is a case of two steps forward and one back. My gloomy short-term outlook, and my reasons for maintaining it, is recounted here monthly. Whether it's right or wrong, from an investor's point of view, the short term is more relevant than the long term. Notwithstanding Warren Buffett's great success in going for the long term, Keynes was right when he said that in the long run we're all dead. History shows that goes for civilizations as well as people. The problem is that our civilization is probably just now on the cusp of the long term.
Hari Seldon: Where Are You When We Need You?
Isaac Asimov's classic Foundation trilogy centers around a scientist, Hari Seldon, who invents a science called psychohistory, which allows the fairly accurate prediction of broad trends in society going for centuries into the future. Seldon lives on Trantor, the planetary capital of a galactic empire; the entire planet is covered with a high-tech version of Washington, D.C., devoted to nothing but taxing and regulating the rest of the galaxy. Seldon forecasts that the empire will collapse and Trantor turn into a gigantic ghost town. And of course that's what happens, because it's a novel, and that makes for a good story. It's a good story because it's credible, and it's credible because people know nothing lasts forever, and there is a cyclicality to everything; birth, youth, maturity, senescence, and death. These stages are shared by everything in the material world, whether it's a person, a city, a civilization, or a galaxy. It's just a question of time and scale.
From that point of view everyone knows the future, i.e., we all know that everything eventually dies. But we'd like a bit more precision on the timing of their lifecycles. Some gurus believe, or appear to believe, they can actually predict the details of the future; I consider them knaves. People who actually do believe them should be considered fools. That said – Nostradamus, astrology, channeling, tea leaf reading, and the like aside – I do think the best indicator of what will likely happen in the future is what has happened in the past. That may seem like an obvious statement, but it's not. There have traditionally been three ways of looking at the problem; call them theories of history.
Oldest is what might be termed a chaotic view, which presumes mankind doesn't have any ultimate destination but is wafted on the wings of Fortune or hangs by the thread of Fate. Subject to the arbitrary will of the gods, whether it's the Old Testament's Yahweh, or Homer's Zeus, the future is unpredictable, and prophecy or an oracle gives you as good a read as anything else. I discount this theory heavily.
A second ancient view is that everything is cyclical, and therefore somewhat predictable. History may be viewed like a giant sine wave that's possibly headed somewhere, but the direction is unknown. Or history is really a circle, constantly repeating itself, much like the four seasons of the year. There's a lot of wisdom to the cyclical view.
The third view sees history as a linear sequence, one that's actually headed somewhere. That view holds a special appeal for followers of evangelically oriented religions, particularly Christians (many of whose beliefs have an apocalyptic tinge) and Marxists (who were, until lately, given heart by the "scientific" inevitability their views would prevail). The linear view ties in with the idea of Progress, that (more or less) every day and in every way, things are getting better and better – although there's also a subculture populated mostly by deep ecology, animal rights, and anti-technology types who believe things are headed to hell in a hand-basket. But they all believe we're headed somewhere in a more-or-less straight line. There can be a lot of truth to the linear view, certainly if you look at the technological progress of mankind over the past 10,000 years, and this view prevails today.
My own view is a synthesis of the cyclical and linear theories. I see history evolving towards an incredibly bright future, but cyclically suffering setbacks, cyclically repeating the same patterns along the way. To me history looks like a spiral, heading off in a specific direction, but always covering the same ground in a different way with each revolution.
That's one reason The Fourth Turning, (Broadway Books, NY, 1997) by William Strauss and Neil Howe got my attention; we're all drawn to those who see at least part of reality the way we do. The book is an extrapolation of their last work, Generations, and notwithstanding its literary faults, is simply brilliant. I've never met Howe, but did have lunch with Strauss once about five years ago. The way I see it, although they're both conservatives, neither of them has any particular economic, political, or social philosophy, and they're not trying to grind an ax. Their books are a value-free look at U.S. history, and their conclusions are more credible as a result.
Their basic hypothesis is one I suspect Hari Seldon would recognize, and my thoughts are built on the research Strauss and Howe have done over the years. I suggest you get a copy of The Fourth Turning while it's still in the stores. That's also true for my own Crisis Investing for the Rest of the ‘90s, which has several chapters on related subject matter, and Arthur Herman's just-released The Idea of Decline in the West, which also bears on the subject. With 50,000 new books published every year, very few stay available for more than a few months. If something has appeal, you should buy it now, because it may be hard to come by when you have the chance to get into it. (Of course, I was wrong on that point -- websites such as Amazon and Alibris.com now make it easy to pick up many older books.)
Generations Generational conflict has been recognized since ancient times. The twist here is the discovery of several things that have previously eluded observers. One is that the well- known conflict between fathers and sons is only half the story; there aren't just two generational types that alternate (e.g., liberal and conservative), but four. The reason for looking at it this way is that a human life can be conveniently divided into four stages: Childhood, Young Adulthood, Midlife, and Elderhood. Throughout all of history, a long life might be considered to be 80 to 100 years, with each of the four stages equaling a quarter of it.
Just as each person's life holds four stages of about 20 years each, each generation comprehends a group of people born over about 20 years. Members of a particular generation tend to share values and ways of looking at the world not only because their parents also shared a set of views (which the kids are reacting to), but because every new generation experiences a new set of events in a way unique to them. They hear the same music, see the same events, are exposed to the same books. Members of a generation share a collective persona. There appear to be four distinct archetypal personae that recur throughout American history. And throughout world history as well, although that's a bit beyond what I hope to explore here.
It also seems, throughout history, that there are periodic crises. About once every century, or about when each of the four generational types has run its course, a cataclysmic event occurs. It generally takes the form of a major war, and it generally catalyzes a whole new epoch for society.
The four mature generations alive today each represent an archetype. Let's review them from the oldest now living, to the youngest.
Hero Archetype The "GI" generation, born between 1901 and 1924, includes basically all living people in their mid-70s and older. They grew up and came of age in the midst of the most traumatic years in human history: the 1930s and ‘40s. This was a time of catastrophic financial and economic collapse, world war, political dictatorship, genocide, and virulent ideology, among other unpleasant things; a period of intense turmoil. The times required them to be civic minded, optimistic, regular guys who could be counted on to do the right thing, fit in, and see that everybody got a square deal. As a consequence of what they've been through, they tend to be indulgent parents. As kids they're "good"; as adults they're selfless, constructive, and communitarian. Hero archetypes encounter a Crisis environment in Young Adulthood; assuming they survive it, the odds are the rest of their lives will be lived in growing economic prosperity, leading to a leisurely retirement.
Artist Archetype
Meanwhile, another generation was being born at the height of the Crisis – something that seems to occur roughly every 80-100 years – from 1925-42. This generation, the "Silent," watched these titanic events happen but were too young to take part in them. They were relegated to being protected, while trying to be helpful in the limited ways available to them. They're overprotected as children, when they might be characterized as "placid"; they tend to underprotect their own children as a reaction. As adults they're sensitive, well-liked, sentimental, and caring.
Prophet Archetype
Next came the group we call the "Boomers," born from 1943 to 1960. This was the first generation born after the Crisis was over, and they grew up in an environment where their parents (mostly GIs and early cohort Silents) felt obligated to protect them from all the trauma of the preceding years and were desirous of giving them all the things they never had. As kids they're seen as "spirited.'' Later in life, they tend to be narcissistic, presumptuous, self-righteous, and ruthless. Born after a Crisis, their Childhood years coincide with a rebirth of society, and their Elderhood coincides with another Crisis. More on them below.
Nomad Archetype The fourth generational type is represented by today's "Generation X," born 1961-81, during what might be called an Awakening period when the Boomers were in the limelight. As a consequence, they were overlooked and a bit abandoned. Their reputation as kids can be summed up as "bad." They're oriented toward survival, which is partially a result of their being underprotected as children. When they become parents, they react and become overprotective. They tend to be savvy, practical, tough, and amoral.
The kids born between 1982 and perhaps 2002 should be another Hero archetype. My own experience with them is that they're shaping up that way. Represented by clean-cut, straight-arrow Power Rangers. Quite a reaction to the sewer-dwelling Mutant Ninja Turtles that were analogs for the previous generation. They're "'can do" kids, programmed to do the right thing in a smoke-free, drug-free, eco-sensitive, politically correct world. Like all Hero types, they respect their elders, do what they're told without much questioning authority. That's just the type of person you want to have fighting a war for you, and that's probably just what they'll wind up doing. Just like the last Hero types, the GIs. (Iraq was first. Iran next? Or will it be Saudi Arabia?)
It's risky to characterize everyone born in a certain time frame as sharing a persona; after all, people are individuals, not ants or atoms, each like the other. But it's really no different than characterizing people by the country they're from. There's no question in my mind that people share characteristics by virtue of the milieu in which they live, and that's true of time as well as geography. Take a look at the people you know by age groups, and see if they don't roughly fit the brief descriptions.
The interesting thing is that through about 400 years of American history, it's possible to see these generational types repeating themselves. It's not an accident. The characteristics of each type shape the next generation, as well as current events. And events leave a further imprint on all of them.
Making an Example of the Boomers
Just as every generation has its own persona, the character of each generation evolves as it moves through life. The Boomers are perhaps the most relevant example of this. First they were Mouseketeers and Beaver Cleaver clones. Who could have guessed they would mutate into Hippies and even Yippies as they reached Young Adulthood, reacting against everything they'd grown up with, everything their parents worked so hard to give them.
They came of age during a period that might be called an Awakening, and it's recurred on schedule five times so far in American history. Awakenings are times of religious and moral ferment, when the youth tend to challenge prevailing cultural values pretty much across the board. Young adults were into New Age things this time around, in the 1960s and ‘70s. At the time it seemed utterly shocking and completely new, but that was only because nobody then alive had seen the previous Utopian Awakening in the 1830s and ‘40s, the Pietist Awakening of the 1740s and ‘50s, the Puritan Awakening of the 1630s and ‘40s, or the Protestant Reformation of the 1530s and ‘40s.
Like all the generations before them that grew up in similar times, they eventually put away the things of their youth. But who guessed that their next mutation would be into Yuppies, whose motto was not "Peace and Love" or "Revolution for the Hell of It," but "Shop Till You Drop" and "He Who Dies with the Most Toys Wins" as they moved into midlife.
But even now the acquisitive mania that characterized the ‘80s is ebbing, now that the first cohorts of Boomers are crossing over 50. You can already see the signs of their next stage of evolution, in the judgmental behavior of people like William Bennett (George Bush) and Dan Quayle (Ann Coulter) on the "right," and Al Gore and Hillary Clinton on the "left." They did sex, drugs, and rock ‘n' roll in the ‘60s. They believe they've fought the war of good against evil in both Vietnam and the segregated lunch counters of the South. They know they were the first generation to have traveled widely thanks to the jet, to have been brought up by television, and had the telephone as a given. They've been there, done that, and now that they're getting older, they're going to make sure that everyone else benefits from their wisdom – like it or not.
The Boomers are an archetypal Prophet generation, a type born after a secular crisis, just in time to create another one. Get the image of a grim elder, with a well-defined vision of what's right and wrong, calling down wrath, and laying down the law for a troubled nation in chaotic times. That's the type of person who tends to lead countries into wars, as well as through them. Interestingly, the Boomers in America have their counterparts abroad today, especially in China, where they grew up during the Cultural Revolution. Two ideologically driven, righteous groups running two such powerful and alien cultures is almost a guaranteed formula for a millennial-sized crisis. Which should appear, coincidentally, sometime shortly after the millennium. (We're right on schedule.)
So What's Next?
The real watersheds in history, crises that make or break a civilization, occur roughly every 100 years. The most recent ones in American history that will resonate without looking up the facts in a reference book are the Revolution, circa 1782; the Civil War, circa 1863; and WW II, circa 1943. We've had other wars, and they were traumatic enough; that's the nature of war. But the War of 1812, Mexican, Spanish, World War I, Korean, and Vietnam wars had nothing to do with the country's survival as an entity, as a civilization. They were optional wars, sport fighting, if you will, by comparison. Wars that occur at a secular Crisis, a "Fourth Turning" to Strauss and Howe, when a Prophet generation is acting as elder statesmen, with Nomads as operational commanders, and Heroes as front line soldiers tend to be total wars that have an ideological underpinning. They're life-and-death struggles not just for the individual participants, but for the civilization as a whole.
That major wars occur at such long remove from each other probably isn't an accident. Really catastrophic wars, from at least the days of Troy on down, have usually been the Great Events that resound through living memory. The Great Event of a century forms the thought and character of everyone alive when it happens, influencing them relative to the stage of life they're in at the time. Perhaps that's why a people will collectively do its best to avoid a repeat, at least while there's anyone still alive who saw the last crisis.
(It's been said that war is a force that gives life meaning. And I think that's true, although it's perverse that the most destructive and idiotic activity that it's possible to engage in would just have to be the most important. Maybe, after the orgy of self-indulgence and conspicuous consumption that has characterized the past couple decades, Americans collectively feel they need to prove something. There has to be some rationale for the current war hysteria other than pure stupidity...)
In any event, the way the current generations line up relative to historical analogs, an excellent case can be made the U.S. is approaching another time of secular crisis, a Fourth Turning, with an expected due date of 2005 – seven years from now – plus or minus a few years in either direction. The Stamp Acts catalyzed the American Revolution, the election of Lincoln catalyzed the Civil War, the Crash of ‘29 catalyzed the Depression/WW II era. What might precipitate the elements now floating in solution? The answer is, practically any random event that's sufficiently traumatic. Any of the theses of current disaster/action novels and movies will do nicely. Perhaps the accidental or intentional release of a super plague vector. The crashing of an airliner into the Capitol during a joint session. (Close, but not quite.) An all-out assault on the IRS computers by an armed group – or perhaps the computers just melting down due to the Year 2000 Problem. Perhaps a financial disaster that cascades into the Greater Depression. In any of these, or a hundred other scenarios, the federal government would almost certainly act precipitously and with a heavy hand, which would bring on a whole other set of consequences.
(In the historical context, 9/11 will be viewed as the opening kick-off for the coming Crisis... and the messianic overreaction of Bush and his cronies as the catalyst for turning things from bad to worse. It may be that Hurricane Katrina, for instance, a completely accidental event, may be blamed for providing a pin to burst the financial bubble – which would be a pity, since the neocons could then blame it, not themselves.)
There's no way of telling where the Crisis will lead, or how it will end. That's going to depend not only on exactly who's in control, but what they do, whom they're up against, and a hundred other variables we can't even anticipate. One thing that seems certain is that real crisis brings out strong (although not necessarily wise) leadership. Because of its age and size, it will come from the Boomer generation, and it will be in the mold of Roosevelt or Lincoln – both very dangerous precedents. The Boomers in Elderhood will be dogmatic, harsh, puritanical, and quite willing to burn down the barn in order to destroy whatever rats they see. Admix that attitude to a time resembling the Revolution, the Civil War, or WW II, overlain with today's ethnic strife, urbanization, financial overextension, and powerful, compact new weaponry in the hands of foreign fanatics out to teach the Great Satan a lesson, and it's a real witch's brew.
If things evolve over the next decade as they did in past analogs, it will be a very un-mellow time indeed. That's assuming things end well, and there's no guarantee they will, as many foreign countries have discovered throughout history. We've been uniquely blessed.
What to Do
Strauss and Howe aren't financial types, and their advice is nebulous along those lines. To sum it up, their suggestion is to learn to swim with the tide by not hoping the current good times last forever; the chances of the good times are coming to an end now. They'd also advise not sticking your head up above the crowd, something that is always very risky when times are in turmoil; remember what happened to Japanese-Americans during the last crisis. They suggest that there will likely be a resurgence of nationalism, much as was the case during past crises. It won't be a good time to be a maverick in the U.S., a thought that makes places like Argentina and New Zealand look even more appealing.
(I bought property in both places shortly after this was written, and have been rewarded with a quadruple in both instances – considerably better than would have been the case in the U.S.).
Strauss and Howe suggest you look to diversify in all things, so everything won't go bad at once. Brace for the collapse of public support mechanisms. Set your roots with your family, because people you can rely on will be at a premium. Heed emerging community norms, bond with like-minded people, and return to basic, classic virtues. This is sound advice any time, but critical if you're rigging for heavy weather.
Assuming you wanted to stay in the U.S., you'd rather be on some land near a small town, and far away from a major city. You'd want to be self-sufficient in as many ways as possible – freeze-dried food. etc. Perhaps Howard Ruff will make a comeback with advice like that, which seems quaint today. But then I'm nothing if not a contrarian.
(In hindsight, the original article could have been a bit more specific – other than the suggestions about Argentina and New Zealand. Personally, I believe that unassailable wealth is the best protection against global crisis. For it to be unassailable, your wealth must be at once substantial, free from threat of confiscation, divorced from the whims of the masses, and located in a country or currency that has a good risk/reward profile. Unfortunately, the U.S. doesn't make the cut.
In the first instance, the single best way to build wealth now, while there is still time to do so, is in carefully selected gold and other resource stocks. In order for it to be free from the threat of confiscation, at least some part of your wealth needs to reside in a country where you don't. To state the obvious, I would be very cautious about traditional stocks and bonds until we see how things shake out. Rather, get positioned in gold and silver stocks now, ahead of the curve, then sell out for a big profit to the panicking masses and move an increasing percentage of your wealth into tangibles such as gold, silver, and maybe, as part of a diversified portfolio, real estate in especially attractive areas – but only after the bubble has decisively burst.)
A Parting Parable
In case you have any doubts, I buy the theory outlined above and its many ramifications that there isn't room to explore here. It really is scary to think that we could again experience a real Crisis with a capital C; I'm not talking about just a bear market in stocks. If it happens, I promise you stocks and mutual funds will be about the farthest things from most people's minds.
At the same time, there's no point in feeling terrorized. This stuff has been going on since the dawn of history. So let me leave you with a parable. I could appropriately quote Ecclesiastes (To every thing there is a season, and a time to every purpose under heaven: a time to be born, and a time to die, a time to plant, and a time to pluck up that which is planted, etc., etc.). But everyone knows that reference. Let me rather give you John O'Hara. At the beginning of O'Hara's novel Appointment in Samara, he tells a brief parable, which I'll summarize:
There was a merchant in Baghdad who went to the market with his servant. There they saw Death, who stared at the servant in what seemed a threatening way. Later the servant said "Master, lend me a horse. I shall ride to Samara, and there Death will not find me." The merchant did so, then returned to the market, where he again saw Death, whom he approached and asked why he had stared at his servant in such a threatening way. Death responded, "I wasn't threatening him. I was just very surprised to see him here in Baghdad, since I have an appointment with him in Samara later this afternoon."
(Strange, the location for the proverb, in that this was well before the current war).
***
There is no doubt that we are now in the Crisis stage… which, according to Strauss and Howe’s “Turnings” theory, may last another decade or more. Is there any way to escape this economic tsunami unscathed?
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CHICAGO -- A set of bearish government estimates released Monday reignited concerns about anemic demand amid a world recession and sent Chicago Board of Trade grain and oilseed futures plunging, analysts said.
CBOT corn and soybean markets fell by their exchange-imposed daily trading limits. March corn fell 30 cents to $3.8075 per bushel while nearby January soybeans fell 83.50 cents to $9.54 per bushel.
Editor's Note: Analysts quoted in the article believed soybeans may bounce back faster than corn, due to several supply/demand factors that are favorable to soybeans.
Corn, soybeans, wheat, rough rice all basically closed "limit down" on the day, dropping the maximum allowable amount.
Wheat takes a nosedive after reading the USDA report.
My personal take on this report - in a word, "ouch." Can't say I saw this one coming - grain charts had been looking quite frisky of late, or so I thought - it's probably safe to call the grains bull dead for a little while after reading the supply/demand breakdown. I'm going to try and keep what powder I have left dry for awhile, so that we can reload down the road.
A review of our trades and positions from the previous week:
Sold our mini-gold futures contract - to make way for another grains contract. This was a position sizing move - gold had not yet hit our sell stop.
Also sold our one cocoa futures contract - also for position sizing purposes. Cocoa was not performing as well as wheat, so we decided to add to our wheat position.
Bought one more wheat futures contract - wheat put in a strong performance this week, up $0.20.
Continued to hold one corn futures contract. This was an attempt to "pyramid" our grains position and diversify. Corn was up $0.02 on the week.
And finally, the dunce cap so far goes on our decision to eat our own dog food and short the 10-Year Treasury Note. We haven't lost hope yet, but will have to exit this position if new highs are hit. It won't be the first time we've gotten burned on this trade.
Commodities that appear quite beaten down - but we don't own them...yet...
Marc Faber interviewed on Bloomberg on January 6, 2009. He gives the Bloomberg talking heads a nice lesson on how capitalism works early in the first video.
Comments on the economy:
2009 will be a "write off" economically
The Obama economic plan will be a disaster in the long run - as is all government economic intervention
On gold and industrial metals:
Gold is now extremely overvalued compared with other industrial metals - he would rather buy a basket of oversold industrial metals than gold
Small mining companies have been decimated - he'd look at these also
On world geopolitics:
World War 3 has already begun - he's referring to US occupation of Iraq, Afghanistan, and the potential India/Pakistan conflict
China and Russia want nothing to do with American troops in Central Asia
On market leaders:
He favors the market leaders in each industry (ie. Intel, Cisco, Microsoft, Oracle), as they will be the strongest position when the economy turns up
Especially likes the top names in Asia - names a few examples around the 2:30 mark
On the BRIC's (Brazil, Russia, India, China)
He'd look at buying here as a trading opportunity, because asset prices have come down so much - they now look oversold
Prefers ETFs as the trading vehicle
"You have to buy the tennis balls that rebound."
"The trade of 2009 is to short US Treasury Bonds - big time."
The New York Times reports: China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.
I have no doubt, Dear Reader, that you're way out in front of this story, which is finally hitting the mainstream outlets. I mean c'mon - we've believed that Chinese demand for US debt was likely to slow for months.
Unfortunately positioning ourselves in front of this trend hasn't been a profitable move - at least yet. The 10-Year Treasury Note continues to hold strong, just below historic highs.
Now that we're on the other side of the investment madness that was 2008, Casey Research's Doug Hornig reminds us to keep the big investment picture in perspective. As we've discussed in this space, there were only a few asset classes that gained value in 2008 - the US dollar, US Treasuries, cocoa, and gold - to name the four that come to mind. Which would you bet on having a repeat performance in 2009?
Where Was Your Money in 2008? By Doug Hornig, co-editor of BIG GOLD, from Casey Research
2008 is now in the rear-view mirror, with virtually every investor shouting “Good riddance!” and praying for a better year to come. Forget about making money, just keeping your head above water was an accomplishment over the past twelve months.
Consider the statistics (12/31/07 vs. 12/31/08):
Housing – down 18% nationally, by the Case Shiller index, and 30% or more in most major metropolitan areas.
Domestic stocks? Nope. The Dow Jones Industrial Average – down 33%; Dow Utilities – down 30%; Dow Transports – down 21%. S&P 500 – down 38%. NASDAQ – down 40%. And if you were unfortunate enough to have invested in a financial-sector ETF, you lost at least 55%.
Foreign stocks? The Vanguard Emerging Markets Fund, a typical example, came in at minus 55%.
Bonds didn’t fare well, either, with the yield on 10-year Treasuries dropping 42%, and 30-year T-Bonds off 38%.
Energy. Uh-oh. Crude oil – down 59%. Natural gas – down 37%.
Industrial metals took a whacking, with copper down 55%, nickel 56%, and aluminum 37%.
Food did a little better than most, which isn’t saying a whole lot. Corn – down 17%; wheat – down 24%; live cattle – down 15%.
Enough. You get the idea. Every asset was mired firmly in the red in 2008, right?
Actually, no. The single exception was gold, which was up 5.6%. A modest gain in most times, but a phenomenal performance for a year where everything else tanked.
And if you managed to invest something other than U.S. dollars in the metal, you did even better. Gold rose 12% in euros, 32% in Canadian or Australian dollars, and a whopping 44% in British pounds.
Nor is this an isolated phenomenon. In 2008, gold posted its eighth straight yearly advance. Since the beginning of 2001, it has averaged a better than 16% annual gain vs. the U.S. dollar, 11% vs. the euro, and 17% vs. sterling.
Your financial advisor likely tells you to invest in the stock market and be patient, because over the long haul stocks will yield an average yearly return of 9-10%. Well, maybe so. But it sure depends on how generous your time frame is.
Over the past eight years, gold has added 215% (in U.S. dollars). During the same period, the S&P 500 lost 22%. The DJIA? Down 11%. In order to show a profit with a simple buy-and-hold strategy (ignoring all rallies and dips), you’d have to go back to early 1999 for the Dow, and 1997 for the S&P!
Where was your money in 2008? Or ’07? Or … ?
If you’re a BIG GOLD subscriber, a significant portion of your portfolio was in physical gold and paper proxies tied to the gold price.
Yes, the gold-producing companies that we follow in BIG GOLD did poorly in 2008, as the frenzied stock sell-off spared neither market nor sector, across the globe. But we held on through the storm, and the miners have rebounded sharply in the past month. We expect that they will be stellar performers in 2009, as the coming inflation that’s baked into the American economic cake begins to break out.
And despite the turmoil of ’08, our readers always had something to cushion the blow. Gold. We advised buying it and taking it into their physical possession. When a severe shortage of coins and small bullion bars developed in the second half of the year and premiums skyrocketed, we showed subscribers where to buy at the lowest possible markup. For those with sufficient means, we provided detailed instructions for purchasing 100-oz. gold bars on the New York Comex.
2008 was a rough year, for everyone. But it’s gone, and if you held gold and its proxies, you did better than most.
The important question now is: where should your money be in 2009? That’s the question we address every month in BIG GOLD. Try a risk-free 3-month trial subscription with 100% money-back guarantee… learn more here.
Do we finally have the opportunity that many of us have been waiting for...the mouth watering chance to short US treasuries?
First, a quick review of the fundamental facts, which we have discussed at length in this space.
On October 19, we outlined 7 Reasons to Short US Treasuries - and then we promptly went short long-dated US Treasury Bonds - both via the futures markets, and via ETF's.
Then on November 12th, we were pleased to read a separate analysis about shorting treasuries from Market Folly, one of our favorite sources of financial information, that came to the same conclusion - namely that interest rates are going to the moon.
Everything looked good, and even our buddy Jim Rogers was on the same side of the trade. We were so excited, we shorted a second contract quickly, dreaming of pyramiding our way into riches.
But a funny thing happened on the way to the penthouse - the financial world as we know it temporarily ended, and US Treasuries soared to all-time highs!
So what happened to our master plan? We had to cover our short position - before we ended up in the outhouse - and even Jim Rogers had to cover his!
All because a historic flight to safety sent the world heading for the cozy confines of US Treasury Bonds!
So what now? Today I took a quick peek at the 10-Year Treasury Note chart, and was delighted to see - dare I say it - a potential peak forming?
Is this the beginning of a historic collapse - and shorting opportunity? Or will the flight to safety continue into the 1st half of 2009 - propelling Treasuries to even greater heights!
Has anything changed in this short case fundamentally, since our original thesis was formed? Well, let's see:
I'd say our thesis for skyrocketing interest rates is still intact!
Of course, the market is always the final arbiter of who's right and who's wrong. So, we wait. For 10-year chart to break one way or the other - thus we're not short - just yet!
Editor's Note: You can also read and discuss this article on Seeking Alpha.
Back in February of 2008, tight supplies were forecast in the cocoa market, along with higher prices. Analysts called for a 14% rise in cocoa prices in the U.S., which would have pushed prices up to $2,325/tonne.
They underestimated the move: Despite the broader pullback in financial markets, cocoa in NY was sitting at $2,626/tonne on Friday, December 26. If NY cocoa hangs tight, it could end the year some 30% up - an outstanding performance given the other pricing trends in commodities right now.
A review of our trades and positions from the previous week:
Continued to hold one cocoa futures contract - down on the week, mostly due to a sharp Friday drop.
Continued to hold one mini-gold futures contract. Gold was stuck in the mud for the week - though it did wrap up an 8th consecutive up year vs. the US dollar.
Continued to hold one wheat futures contract - up a bit for the week. Looking to add on further strength.
Bought one corn futures contract. This was an attempt to "pyramid" our grains position and diversify - in hindsight, looking at the charts of each, wheat looks stronger, and we should have added to that position before initiating this one.
What a crappy year 2008 was for commodities! Will they rebound in 2009? If you believe, as I do, that we are in the middle of a secular bull market for commodities, then current prices represent a tremendous buying opportunity.
Jim Rogers has been saying it best lately - that you want to buy assets where the fundamentals are unimpaired. And the only asset class where the fundamentals are currently unimpaired is commodities - in fact, the fundamental story for many commodities has even improved since the financial crisis took hold, as there is a lot of supply coming off the market.
Jim is also fond of referencing the performance of commodities during the Great Depression, where they were the first asset class to turn up because there was no supply.
Since I agree with Jim's point of view, I decided to research specific commodity picks experts are making for 2009. My "expert" criteria is highly biased, based on the two people I've been following the closest during this commodity bull run - Jim Rogers and Marc Faber - because of their prescient calls and knack for spotting commodity trends before the herd.
Also loves oil - says it has been crushed - it's price is below the cost of production - he's been buying more, and believes it will roar back in a big way.
Believes commodities have corrected within a bull market, and there are opportunities to be found there.
Sees significant inflation coming as a result of the Fed's actions.
He continues to like gold and gold miners - believes exploration companies are very depressed with respect to the price of physical gold.
Oil at this level is becoming attractive, as are oil companies.
Shares his specific picks at the 7:45 mark of this interview.
Editor's Note: This article was also published by Seeking Alpha.
Click on their respective names to read more Jim Rogers and Marc Faber coverage.
For more information on investing in gold miners, check out some of our recent coverage of gold and gold stocks. I personally subscribe to BIG GOLD, produced by Casey Research, which is an excellent service.
GoldMoney's James Turk reports that 2008 was the eighth year in a row that gold has climbed against the US dollar. Since 2001, when the streak began, gold has appreciated an average of 16.3% per year with respect to the US dollar.
Turk also lays out gold's performance against the major currencies, where, to my surprise, we see that gold has also been appreciating at a double-digit rate, on average, against the other major currencies over this time period.
Click over to the latest GoldMoney Review for the full chart and Turk's always insightful commentary.
I first got interested in commodities in 2005 after reading Jim Rogers' book Hot Commodities. Since then I've been an armchair trader and blogger.
My "day job" is running a software startup, Chrometa.
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