Wednesday, February 25, 2009

Corn Rallies on Short Covering, Technicals

I thought it was something Komrade Obama said last night, but apparently corn's rally today was due to short covering and buy orders that kicked in on the rally.

According to my broker, corn still sits about $.50 below the cost of production. I've read that for the most part, most grains and softs are currently sitting either below or just at their respective costs of production.

Reading this article reminded me that I completely forgot to roll my 2 March corn contracts - a couple more days and we might have seen a big old truck from Iowa pulling up at my doorstep to drop off a special delivery. Boy the wife would have loved that one.

So I just rolled them, but only picked up 1 May.

CBOT Corn Review: Surges; Short-Covering, Spread Unwinding

Sunday, February 22, 2009

Fiat Currencies are Toast - Weekly Commodities Review

Gold & Silver Up - Everything Else Continues to Circle the Bowl

Gold, silver, and - of course - the US dollar - continued to rally this week. They were about it, as the stock market swooned, commodities got whacked, and every asset class continued to circle the bowl.

Stocks have now gone nowhere in the last 11 years (check out the chart below, courtesy of Agora Financial). I expect they'll go nowhere for at least 5 more. Bear markets in equities typically last 15-20 years. This bear market started in 1999 - just 10 years ago. This bear has got some room to run.

Plus, bear markets rarely start from valuations this high. Although stock prices have been slammed, earnings - or the "E" in P/E, have been falling even faster. In fact, collective stock market earnings are now lower than they were 11 years ago!

Bull markets always start with price-to-earnings ratios below 10 - sometimes closer to 5. We're still north of 15. DOW 3000 anyone?

Meanwhile gold continues to rock and roll, spurred on by a fantastic display of money printing across the world, and a possible end to the fiat currency experiment as we know it.

While everything appears to be lining up in gold's favor, it's important to remember that no asset ever goes straight up. It's very possible that gold could correct from here - quite significantly - and a correction back down towards $700 cannot be ruled out.

However, it's also possible that gold could hit the "mania" phase quite soon, as described in this Financial Times article.

My take is that you should seriously consider having some of your core holdings in gold. In the medium term, today's price should be an attractive entry. However in the short term, you may get a better price to initiate some holdings, and may want to considering keeping some dry powder.

Though if I could time the gold market myself, I'd be drinking a Mai Tai in a hot tub somewhere, instead of blogging from my living room right now.

And don't forget silver - which doesn't typically perform as well as gold in a deflationary environment. In fact, silver often suffers in recessions because of reduced industrial demand. Maybe the recent price action in silver suggests inflation is closer than our wonderful government officials believe.

Silver is historically more volatile than gold - and it could really start to move if the trend of cashing in paper currencies for precious metals continues to accelerate.

Open positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss
01/16/09 Long 1 MAR 09 Corn 374 3/4 355 1/4 ($975.00)
01/20/09 Long 1 MAR 09 Corn 397 1/2 355 1/4 ($2,112.50)
Net Profit/Loss On Open Positions ($3,087.50)

Account Balances

Current Cash Balance $32,886.73
Open Trade Equity ($3,087.50)
Total Equity $29,799.23
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $29,799.23


Cashed out: $20,000.00
Total value: $49,799.23
Weekly return: -5.1% :(
2009 YTD return: -41.3% :(

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

Initial stake: $2,000.00

Ah well - easy come, easy go...

Thursday, February 19, 2009

Blog Not Displaying Properly in Internet Explorer

For some reason, my blog is not displaying properly in Internet Explorer.

I suspect this is a Blogger/Blogspot problem - I've contact them but have not received a reply.

For the meantime, best to view in Firefox, Chrome, RSS, etc. Thanks and sorry for the inconvenience. If it keeps up we may consider switching platforms over to WordPress quite soon.

Please leave a comment if this IE issue is a huge inconvenience for you, so that we can have an idea of the urgency of this technical issue. Thanks.

Update: Looks like the IE bug is a known issue with Blogger:

Wednesday, February 18, 2009

Pull Up a Chair to See Your Recovery Tax Dollars at Work

Come one, come all - taxpayers, pull up a front row seat, to see your tax dollars being squandered away, in real-time, at

But first, a message from our sponsor:

Folks, I hate to piss on this roaring campfire of a good time, but the net multiplier on government spending is zero - it's been proven time and time again.

The government does not actually produce anything. This is a subtle, yet important point.

There are only two ways the government can raise money:
  1. Taxing the private sector
  2. Printing it
So while that nice pie chart on the homepage of may make you feel all warm and fuzzy inside - gee, we're putting $111B in science - that's great, much needed.

Maybe so - but remember that $111B was likely taken out of the hands of the private sector, so that it could be put in the hands of a bureaucratic organization to investigate the feasibility of installing solar powered windmills on the Moon.

Can there be real benefits from government spending? Of course. Would those benefits outweigh those the private sector could have produced on its own? I highly doubt it.

Sunday, February 15, 2009

Jim Rogers' Latest Comments: February 13, 2009

Jim Rogers' latest comments - February 13, 2009.
  • US stimulus packages are throwing "good money after bad"
  • US making the same mistakes as Japan, propping up zombie companies and supporting the incompetent people
  • Financial mess started with the bailout of Long Term Capital Management in 1998
  • Alan Greenspan never let the system work, as he did not let anyone fail
  • Water treatment, agriculture good places to be for the foreseeable future
  • Does not see a great future for the Pound Sterling
  • Has zero respect for the World Bank and the IMF - we should abolish them

Cotton Futures Hit 2009 Low - Weekly Commodities Review

Cotton Futures Hit 2009 Low

Cotton futures slumped to a 2009 low on bearish supply/demand news. Cotton's projected world stocks-to-use ratio hit their highest mark since 2004-2005.

We were stopped out of our position at $0.45, and this one hurt - I hate the idea of selling cotton at these prices - BUT, we always have to respect our stops, no matter how strong the desire to get some of these losses back.

Cotton has been dropping about $0.01 after going "limit down" $0.03 earlier in the week.

Next support for cotton appears to be at $0.41 - we'll continue to watch cotton and see if it retests it's old lows.

Looks like cotton may continue to circle the bowl until demand is able to stage some sort of recovery. I still believe we'll see $1 cotton sooner rather than later, as soon as these stimulus packages begin to take hold. All of this newly printed money will be looking for a home.

Coffee's Rocky Week

Coffee did not fare much better this week. We are holding on to our position right now, with a stop around the 113 mark.

We discussed coffee's long term supply/demand situation last week. We'll soon see if our timing on this trade was appropriate.

Gold Stocks Starting to Catch Some Air

The rally in gold, and gold stocks, continues to look very strong.

Gold set a 100-day high on February 12th at 954.0, and closed Friday at 942.2. While the barbaric relic may be due for a pullback, the chart undoubtedly goes from the "lower left to the upper right", as Dennis Gartman is fond of saying.

Even with gold rallying, gold stocks are following, but somewhat reluctantly. The Gamco Gold fund, where my wife's entire 401K resides, has doubled off its October lows, but is still about 30% below its highs from last spring.

I recently read that last spring's valuation on gold stocks really had $1100 or $1200 priced into them, which may explain why we're not back to that point, even with gold rallying to where it is.

It's also possible that gold stocks are a fantastic bargain right now, and are poised to start doing moonshots when gold takes off. Chris Mayer, my favorite Agora analyst, expects gold stocks to make all-time highs in 2009, partly thanks to lower input costs that will fuel (no pun intended) record earnings.

For more information on gold and gold stocks, I'd recommend checking out some of the articles written by Casey Research and Big Gold editors on our blog, such as this one.

Open positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss
01/16/09 Long 1 MAR 09 Corn 374 3/4 363 1/2 ($562.50)
01/20/09 Long 1 MAR 09 Corn 397 1/2 363 1/2 ($1,700.00)
02/06/09 Long 1 MAY 09 Coffee 'C' 121.95 114.75 ($2,700.00)
Net Profit/Loss On Open Positions ($4,962.50)

Account Balances

Current Cash Balance $36,354.04
Open Trade Equity ($4,962.50)
Total Equity $31,391.54
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $31,391.54

Cashed out: $20,000.00
Total value: $51,391.54
Weekly return: -17.1% :(
2009 YTD return: -38.2% :(

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

Initial stake: $2,000.00

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

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

Why Emerging Markets Appear to be Undervalued

In this guest article, the editors of Casey Research's Without Borders publication make the case that emerging markets are now undervalued. They cite capital outflows as the contrarian indicator to look for in these markets - buy when the blood is in the streets. And right now, it most certainly is.

The Casey folks expect emerging markets to lead the world back out of this recession/depression, and believe they could come roaring back in a big way, when all of this fiscal stimulus money starts looking for a home that is more fundamentally strong than US Treasury Bonds.

Another Look at Emerging Markets
By the editors of Without Borders, Casey Research

After passing much of 2008 standing thankfully on the sidelines, we believe that with current valuations, opportunities have returned for putting capital back into long-term positions in emerging markets. In fact, we believe that emerging markets will recover faster and outperform developed markets over the long term.

In our December 2007 edition of Without Borders we wrote:

“So much money has been sloshing around the globe in search of an "above average" return that even risky assets have been bid up tremendously. At this stage, however, with new holes in the financial dike showing themselves almost weekly – more holes, we suspect, than officialdom has fingers – the money flows are building toward a reversal. This will hammer the emerging markets the hardest because, historically, in times of crisis, capital packs up its bags and goes home. When that happens, shares of good companies get sold at the falling bid simply because the seller must get liquid, whether to calm his fears or to cover his losses elsewhere. Asset prices become screaming passengers strapped into a luge ride.

“This creates opportunity, of course. Even though the economies of all the most prospective emerging-market countries are strong enough to weather any likely storm, their financial systems aren’t. This is emphatically true in India, China, Brazil, and other fast-track economies. Even so, when foreign financial capital has fled, the physical and human capital will remain, it will still be valuable, and good investments will be cheap in the extreme. But the opportunity won’t be available for everyone – just the investors who’ve been patient.”

Then in April 2008, we gave our presentation on “Bottom Fishing for Stocks in Emerging Markets,” during which we highlighted that the single most important factor in emerging-market stock markets is capital flows. In the emerging markets, the time to invest is when capital has fled the country.

We know we disappointed the crowd when we said that there was not one emerging market we found attractively priced and that shorting in emerging markets is almost impossible, so our strongest recommendation was to do nothing.

It’s quite a skill to do nothing and do nothing well. We sidelined ourselves and watched, staying away from emerging markets for most of 2008.

But now… finally, the catastrophic sell-off in global financial markets had the effect that we expected: there was a huge sucking sound coming from public equity and currency markets in Russia, Brazil, China, Taiwan, Malaysia, India, South Korea, Colombia, Chile, etc. Foreign institutional investors came face-to-face with the reality of lower risk tolerance and deleveraging and were forced to sell. Everything.

The ensuing flight to quality left emerging markets and their currencies decimated… but herein lies the opportunity. We just hope the IMF and World Bank will run out of money or leave them alone, thereby preventing the return to the boom/bust cycle of the 1990s.

Bullish long-term outlook

Remember, the sell-off in emerging-market equities, bonds, and currencies reflects a rush for the exit sparked by global deleveraging and a need to raise cash, rather than any change in the fundamentals. When the current turmoil subsides, we believe that emerging markets will fare better than developed markets and will outperform the latter over the long term. As such, we find that current valuations are solid entry points for putting our hard-earned capital into long-term positions. Consider:

  • Emerging-market economies will prove resilient during this economic slowdown and may account for all of world economic growth in 2009 as developed markets slow to zero.
  • Emerging economies are not nearly as dependent on consumer spending and almost not at all exposed to consumer credit.
  • Emerging markets by and large suffer neither the demographic imbalance nor the entitlement imbalance that plague the developed nations.
  • Corporate and personal balance sheets in emerging markets are stronger than those in the developed markets.
  • In many emerging markets (Brazil, most of South East Asia, India) as well as several African nations, domestic or regional demand is now more important than exports for GDP growth.
  • Among stronger economies, high foreign-exchange reserves and lower foreign debt levels act as insurance against the global slowdown; reserves have grown six-fold to over $4 trillion over the last ten years.
  • Over the past ten years, emerging-market companies have produced higher profits with lower (but not necessarily low) leverage, while profits expanded annually by double digits during the past ten years.

Cash Rich, Resource Rich

Compared to the late 1990s Asia crisis, the present situation is much more stable for emerging markets. While we expect current account surpluses to deteriorate given the global slowdown and recessionary pressures, emerging markets will face this challenging period with cash in their bank accounts.

The importance of this change cannot be overstated.

Much like individual households that stash away something for a rainy day, many emerging-market countries now have a greater reserve of wealth with which to buffer financial market headwinds. This gives them the option of taking fiscal stimulus measures to offset the effects of a developed-markets slowdown without having to go into debt. While we decry these neo-Keynesian actions as throwing water on an electrical fire, historically they have boosted share prices.

As part of their fiscal stimulus, we also expect to see higher infrastructure spending by countries with the financial muscle to do so. China, for example, which is projected to have more than 200 cities with populations exceeding one million people by 2025, up from just 23 in 2005, announced in early November 2008 a two-year infrastructure investment and stimulus package of up to 4 trillion yuan ($586 billion). While much of this stimulus will come in the form of strong-arming banks, there will be substantial cash injections in the Chinese economy, and they have the cash to do it: highways, railroads, and airports. The government hopes that this stimulus package will also encourage increased consumer consumption. All this is good news for raw-materials companies, one of which is an undervalued Chinese cement company that is a cornerstone of our portfolio. (Learn more about this company here.)

The turning point

Emerging markets will be the catalyst for global economic recovery, not the West. Like China, many emerging markets that have been saving for a rainy day have the cash and political will to spend on development projects that require raw materials. Others, like Chile and Angola, have the raw materials to sell. Even more so, a few countries like Brazil and Saudi Arabia have both. The economy will get jumpstarted with these countries initiating their own trade without the leadership or consumptive traditions of the Western world.

Perhaps even more pointedly, we foresee a highly inflationary environment over the next several years… all of the dollars with which President Obama will be flooding the world will have to find a home somewhere. This will more than likely spark another commodities boom, which is supported by the world’s ever-growing demographics, resource scarcity, and climate-change legislation.

As such, resource-rich emerging markets are going to find themselves being the future home to foreign investment capital again. Institutional capital will trickle, then gush into these markets as the world wakes up one day and finds oil and copper trading at twice their present levels.

Consequently, today’s emerging markets will be the net recipients of the future inflation that is being created by the West.

Capital Flow Conclusions

We have long said that capital flows are the most important indicator for emerging equity markets. Investor outflows in the second half of 2008 already equal one-third of the total inflows into emerging-market equity funds over the prior five years. This is a positive sign for contrarians looking for a bargain. There has been a bloodbath, and this is a buying signal.

We recognize that the ride will likely be bumpy. Fiscal stimulus, trillion-dollar deficits, and politicoramus bickering may cause a roller-coaster ride to the top… but the evidence strongly suggests that, once institutional funds finally realize that U.S. Treasuries are a fool’s bet, remaining capital will be on the hunt and flowing back into emerging markets. The window is open, and we are dedicating our efforts to finding the most undervalued companies with rock-solid management and balance sheets.


In times of economic crisis, prudent investors are well advised to diversify their portfolio… ideally, some of it in global stocks and real estate. Without Borders brings you the inside scoop from two globetrotting ex-CIA agents with privileged connections around the world. They’ll suggest sound international investments, as well as the most beautiful, stable, safe, and cheap places to live and invest.

Kick the tires of Without Borders risk free for 3 months, for just $49. If you decide Without Borders isn’t for you, we’ll refund every penny – no questions asked! Learn more here.

China to Stick With US Bonds - or Will They?

Earlier this week, Chinese officials commented that they will continue to buy US Treasury bonds, because they have no other viable vehicles to park their cash.

From the Financial Times:

Luo Ping, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

Are Mr Luo's comments to be taken at face value?

Or is it possible that he is giving the US, and the rest of the world, a head fake, as the Chinese quietly diversify away from US Treasuries?

Wednesday, February 11, 2009

Natural Gas Prices Could Stay Low

Matt Badiali writes that demand for natural gas has dried up, and he expects prices could stay low for some time.

Natural gas often rallies this time of year, but has not moved up thus far. Matt cites record recent production - with nat gas reserves at record highs - as another factor that may keep prices down for some time.

It's been a tough tumble for "The Natty".

We advise traders focus on this Natty for the foreseeable future.

Coffee Lower, Still Supported by Supply Concerns

Coffee prices were mixed, although the longer-term outlook for bean values may mean higher prices because of a potential supply crunch.

Source: Reuters

Doug Casey: 2009 Economy a Mess, Inflation on the Way

Please enjoy this insightful guest article by Doug Casey, as he shares his forecasts for the 2009 economy and beyond. I strongly agree with Doug's outlook for gold and interest rates.

The contrarian in me wants to be more optimistic about the economy beyond 2009, so for the sake of the world, I hope Doug's predictions end up being on the extreme side. Though I fear that he's going to be right on the money, as his track record as a successful speculator and prognosticator would indicate.

Doug Casey on 2009: Another Year of Shock and Awe

In their annual forecast edition, the editors of BIG GOLD asked Casey Research Chairman and contrarian investor Doug Casey to provide his predictions and thoughts on issues everyone’s thinking about these days. Read what he has to say on the economy, deficits, inflation, and gold…

The $1.1 Trillion Budget Deficit

My reaction is that the people in the government are totally out of control. A poker player would say the government is “on tilt,” placing wild, desperate bets in the hope of getting rescued by good luck.

The things they’re doing are not only unproductive, they’re the exact opposite of what should be done. The country got into this mess by living beyond its means for more than a generation. That’s the message from the debt that’s burdening so many individuals; debt is proof that you’re living above your means. The solution is for people to significantly reduce their standard of living for a while and start building capital. That’s what saving is about, producing more than you consume. The government creating funny money – money out of nothing – doesn’t fix anything. All it does is prolong the problem and make it worse by destroying the currency.

Over several generations, huge distortions and misallocations of capital have been cranked into the economy, inviting levels of consumption that are unsustainable. In fact, Americans refer to themselves as consumers. That’s degrading and ridiculous. You should be first and foremost a producer, and a consumer only as a consequence.

In any event, the government is going to destroy the currency, which will be a mega-disaster. And they’re making the depression worse by holding interest rates at artificially low levels, which discourages savings – the exact opposite of what’s needed. They’re trying to prop up a bankrupt system. And, at this point, it’s not just economically bankrupt, but morally and intellectually bankrupt. What they should be doing is recognize that they’re bankrupt and then start rebuilding. But they’re not, so it’s going to be a disaster.

The U.S. Economy in 2009

My patented answer, when asked what it will be like, is that this is going to be so bad, it will be worse than even I think it’s going to be. I think all the surprises are going to be on the downside; don’t expect friendly aliens to land on the roof of the White House and present the government with a magic solution. We’re still very early in this thing. It’s not going to just blow away like other post-war recessions. One reason that it’s going to get worse is that the biggest shoe has yet to drop... interest rates are now at all-time lows, and the bond market is much, much bigger than the stock market. What’s inevitable is much higher interest rates. And when they go up, that will be the final nail in the coffins of the stock and real estate markets, and it will wipe out a huge amount of capital in the bond market. And higher interest rates will bring on more bankruptcies.

The bankruptcies will be painful, but a good thing, incidentally. We can’t hope to see the bottom until interest rates go high enough to encourage people to save. The way you become wealthy is by producing more than you consume, not consuming more than you produce.

Deflation vs. Inflation

First of all, deflation is a good thing. Its bad reputation is just one of the serious misunderstandings that most people have. In deflation, your money becomes worth more every year. It’s a good thing because it encourages people to save, it encourages thrift. I’m all for deflation. The current episode of necessary and beneficial deflation will, however, be cut short because Bernanke, as he’s so eloquently pointed out, has a printing press and will use it to create as many dollars as needed.

So at this point I would start preparing for inflation, and I wouldn’t worry too much about deflation. The only question is the timing.

It’s too early to buy real estate right now, although a fixed-rate mortgage could go a long way toward offsetting bad timing. It would let you make your money on the depreciation of the mortgage, as opposed to the appreciation of the asset. Still, I wouldn’t touch housing with a 10-foot pole – there’s been immense overbuilding, immense inventory. And people forget: a house isn’t an investment, it’s a consumer good. It’s like a toothbrush, suit of clothes, or a car; it just lasts a little bit longer. An investment – say, a factory – can create new wealth. Houses are strictly expense items. Forget about buying the things for the unpaid mortgage; before this is over, you’ll buy them for back taxes. But then you’ll have to figure out how to pay the utilities and maintenance. The housing bear market has a long way to run.

The U.S. Dollar and the Day of Reckoning

It’s very hard to predict the timing on these things. The financial markets and the economy itself are going up and down like an elevator with a lunatic at the controls. My feeling is that the fate of the dollar is sealed. People forget that there are 6 or 8 trillion dollars – who knows how many – outside of the United States, and they’re hot potatoes. Foreigners are going to recognize that the dollar is an unbacked smiley-face token of a bankrupt government. My advice is to get out of dollars. In fact, take advantage of the ultra-low interest rates; borrow as many dollars as you can long-term and at a fixed rate and put the money into something tangible, because the dollar is going to reach its intrinsic value.

The Recession

This isn’t a recession, it’s a depression. A depression is a period when most people’s standard of living falls significantly. It can also be defined as a time when distortions and misallocations of capital are liquidated, as well as a time when the business cycle climaxes. We don’t have time here, unfortunately, to explore all that in detail. But this is the real thing. And it’s going to drag on much longer than most people think. It will be called the Greater Depression, and it’s likely the most serious thing to happen to the country since its founding. And not just from an economic point of view, but political, sociological, and military.

For a number of reasons, wars usually occur in tough economic times. Governments always like to find foreigners to blame for their problems, and that includes other countries blaming the U.S. In the end, I wouldn’t be surprised to see violence, tax revolt, or even parts of the country trying to secede. I don’t think I can adequately emphasize how serious this thing is likely to get. Nothing is certain, but it seems to me the odds are very, very high for an absolutely world-class disaster.

Gold’s Performance in 2008

The big surprise to me is how low gold is right now. It’s well known that even if we use the government’s statistics, gold would have to reach $2,500 an ounce to match its 1980 high. I don’t necessarily buy the theories that the government and some bullion banks are suppressing the price of gold. Of course, with everything else going on, the last thing the powers-that-be want is a stampede into gold. That would be the equivalent of shooting a gun in a crowded theatre; it could set off a real panic. But at the same time, I don’t see how they can effectively suppress the price. Either way, the good news is that gold is about the cheapest thing out there. Remember, it’s the only financial asset that’s not simultaneously someone else’s liability. So I would take advantage of today’s price and buy more gold. I know I’m doing just that.

Gold Volatility

Gold will remain volatile but trend upward. I don’t pay attention to daily fluctuations, which can be caused by any number of trivial things. Gold is going to the moon in the next couple of years.

Gold Stocks

Last year, it seemed to me that we were still climbing the Wall of Worry and that the next stage would be the Mania. But what I failed to read was the public’s indirect involvement through the $2 trillion in hedge funds. On top of that, while the prices of gold stocks weren’t that high, the number of shares out and the number of companies were increasing dramatically. Finally, the costs of mining and exploration rose immensely, which limited their profitability.

The good news is that relative to the price of gold, gold stocks are at their cheapest level in history. I still have my gold stocks and the fact is, I’m buying more. I’m not selling, because I think we’re starting another bull market. And this one is going to be much steeper and much quicker than the last one. I’m not a perma-bull on any asset class, but in this case I’m forced to go into the gold stocks. They’re the cheapest asset class out there, and the one with the highest potential.


At a time when equities markets are tanking, 401(k)s and IRAs lose 20%-40% of their value, and Treasuries are the next bubble to burst, gold and gold stocks are safe-haven investments that can help prudent investors get through the economic crisis unscathed. For more on gold, major gold stocks, and other gold-related investments, check out BIG GOLD… our no-risk, 3-month trial subscription with 100% money-back guarantee makes it easy. Click here to find out more.

Sunday, February 08, 2009

Coffee Perking Up? - Weekly Commodities Review

Coffee Perking Up?

Long-time readers know that we've been quite bullish on coffee for some time in this space. So on Friday, when I received an email from my commodity broker, Robert, about possibly initiating a coffee position, I was extremely intrigued.

We wrote this article about coffee for Seeking Alpha last August.

Long-term fundamentals are very favorable for long positions. The world continues to increasingly caffeinate itself with coffee, driven by - you guessed it - China and the rest of East Asia. A small but growing coffee market continues to gain ground on tea, the traditional caffeinated drink of choice.

On the supply side, most of the world's coffee comes from Brazil. So coffee supplies are heavily dependent on the quality of the Brazilian harvest, for better or for worse.

Coffee fundamentals are set up for us to see a super spike over the next 5 years. I firmly believe we'll see $2+ coffee at some point. And coffee has not yet had a major run up, like many of the other agricultural commodities - so it's certainly due.

As you can see from the long-term chart, coffee has been in a bull market since 2001 - due to many of the reasons we've discussed above:

Here are the near term factors that may spur an upcoming coffee rally:
  • Coffee consumption has a tendency to increase during recessions - consumption in coffee shops takes a hit, but people brew more at home
More bullish/bearish factors for coffee:,%202009.html

In summary, expect demand to stay strong, and let's keep an eye on the supply picture for potential shortages. Anyone in Brazil care to share a weather report with us?

Stopped Out of Soybeans - Corn Flat

We were stopped out of our two mini-soybeans positions mid-week. Beans rallied to finish the week, as did corn and wheat.

I like the double-bottom formed by corn this week. Had our stop in at 350 and it held.

Looking at this chart - wow, if this isn't a classic Fibonacci Retracement - gaining back 50-62.5% of the previous move down. If anyone knows how to identify the bottom in real-time, let us know!

Open positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss
01/16/09 Long 1 MAR 09 Corn 374 3/4 377 $112.50
01/20/09 Long 1 MAR 09 Corn 397 1/2 377 ($1,025.00)
12/31/08 Long 1 MAR 09 Cotton 48.52 49.80 $640.00
02/06/09 Long 1 MAY 09 Coffee 'C' 121.95 121.50 ($168.75)
Net Profit/Loss On Open Positions ($441.25)

Account Balances

Current Cash Balance $38,296.35
Open Trade Equity ($441.25)
Total Equity $37,855.10
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $37,855.10
Cashed out: $20,000.00
Total value: $57,855.10
Weekly return: -2.5%
2009 YTD return: -25.5% :(

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

Initial stake: $2,000.00

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

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

Friday, February 06, 2009

Jim Rogers on Upcoming Opportunities in Currency Markets

Jim Rogers, doing some "stand up" commentary on upcoming opportunities in the foreign currency markets:
  • Expects the Japanese Yen to rise another 10-15%
  • The current dollar rally is a forced short covering - not a flight to safety
  • We are going to have "many, many, many" more currency problems this year
  • Owns the Euro, Swiss Franc, Norweigan Krona, Danish Krona, Swedish Krona, Japanese Yen, Chinese Renminbi, Singapore Dollar, Australian Dollar
"Do prepare yourselves, because there are going to be spectacular opportunities in the currency markets as these currency prices unravel in the next year or two."

Wednesday, February 04, 2009

Real Cause of Housing Crisis: Humans Too Much Like Rats

Here's a thought provoking guest post by David Galland, Managing Editor of Casey Research, as he makes the case that the real cause of the housing-led crisis was a failure to appreciate the similarities between humans and rats!

Bait for the Two-Legged Rat
By David Galland, Managing Editor,
The Casey Report, Casey Research

I have often said that humans are like rats in that they are extremely ingenious when it comes to looking after their personal interests. Lock a rat in a metal box and it will almost be able to figure a way out. Almost. A human would actually have a shot at it.

In the debate about what went wrong with the economy and how to fix things, the topic of loose credit standards usually arises early in the discussion. And correctly so. Due to loose credit standards, people without the financial resources to own a home were practically carried across the threshold by predatory lenders.

Well, at least that’s how the outraged political class and their adoring punditry see things.

According to that section of the jeering crowd, these lenders were so avaricious, greedy, and downright dastardly that they would actually hand the keys to a $500,000 house to an individual with not just poor but pitiful credit and with little or no money down. Bastards!

Of course, as a former banker (shudder), I have a somewhat different perspective.

Because no matter how devious or dastardly a lending institution might be, it wouldn’t even contemplate making such loans if it didn’t have a fairly well-reasoned plan in mind to actually get paid back… with interest.

Enter the government in the form of the Federal Housing Administration (FHA) and the quasi-state-owned (and now absolutely state-owned) Fannie Mae and Freddie Mac. Absent their guarantees, the private sector would never, but never, have made the loans just described. That’s because…

(a) loan officers actually take professional pride and go to great lengths in assuring that the money they loan out comes back. In fact, failing to get loans paid back with even a sniff of regularity is quick cause for a pink slip followed by a solemn escort to the front door for the approving loan officer. And…

(b) foreclosing and all the attendant activities are difficult, time consuming, and costly. To wit, trying to get juice out of a rock gets you little more than dust.

As a result, within the acceptable tolerance range for any human endeavor, banks are historically careful in setting lending standards.

But add into the equation a rate-slashing Fed looking to stimulate things a bit, side by side with a bloated Uncle Sam looking to engage in some social engineering by putting people without the credit or means into a house, and the picture quickly changes. The FHA, the world’s largest government insurer of mortgages, whose “loans require small down payments” and provide “more flexibility . . . than conventional loans,” as its website states, has currently 4.8 million insured single-family mortgages.

For the record, there are about 55 million single-family mortgages in the U.S., so the FHA has about 10% covered.

But the FHA is just one of Uncle Sam’s kissing cousins. Others, including the aforementioned Fannie and Freddie, guarantee another 31 million mortgages between them. So, in total, U.S. taxpayers now stand behind about 65% of all home mortgages in the U.S. But it is worse than that, because ever since the credit crisis began, over 80% of all new mortgages generated have been “conforming” in order to go onto the books of a government agency.

Thanks to Uncle Sam’s largess and no-risk lending guarantees – warmly applauded by the nation’s banks and sundry money shoppes, to be sure – since 1992 there has been about a 50% increase in U.S. homeownership.

Is it any wonder, therefore, that until recently you could spot a loan officer by the wide smiles on their faces, as well as their ink-stained fingers, the result of producing prodigious quantities of freshly printed loan contracts?

The way it all worked was very simple. Uncle Sam shouts for all lenders to hear, “Bring me your poor, your unqualified, your liars, and your wannabe speculators, and I will buy up their loans, allowing you to make a quick profit for generating them, and then passing them like a hot potato into my portfolio.”

Given the opportunity to make money by giving money away – not a real hard sale – the lenders rose to the occasion. A rat, sniffing out a crust of bread down an unguarded alleyway, would do much the same.

Likewise the masses, equally quick to discern the opportunity, can hardly be faulted for scrabbling to take the house, oftentimes along with a loan that put extra money in their pockets in the process.

No one was much concerned about paying for the homes; the lender’s risk was assumed by the government and the unqualified buyer didn’t have much of any money in the game, and besides, everyone was certain that house prices could only go in one direction, up. As for the government, well, the government doesn’t really pay much if any attention to the money it spends, because it’s not their money. It’s yours – if you are a U.S. taxpayer, that is.

Of course, as the smell of free cheese and wealth without end spread throughout the ether, more and more two-legged rats acted on what they perceived to be their self-interest, causing a steady influx of new buyers to stream into the alley of homeownership. And the next thing you know, you have a housing bubble of historic proportions.

But you know all this, so why am I repeating history? Well, because this week, I stopped in at a local sandwich shop and, to occupy myself with something other than looking out the window, took hold of a regional real estate guide that, as part of its editorial features, includes a table showing all of the lenders who do business in the area – 16 in all.

Among other information, the lenders’ table displayed whether or not the various lending institutions offer “Mortgages to Buyers with Less Than 20% Down?”... and whether they “Offer Mortgages with Credit Scores Under 600?”

Even today, after all the news and global angst, 9 out of 16 still advertise that they offer loans to individuals with credit scores below 600, and four of them actively promote the fact that they’ll go down to 580 – which is roughly the credit rating of an escaped felon on the run for credit card fraud. But such a loan, each of the listing institutions further qualifies, is available “Only w/FHA.”

And 12 out of 16 will still give you a loan with less than 20% down… in fact, “w/FHA,” the solid majority will still provide a loan with less than 5% down, and one touted the availability of a 103% loan.

Alas, despite the understandable desire of lenders to earn yet more cheese by generating poor-quality mortgages for Uncle Sam, borrowers now believe real estate can only go down. Given the oversupply, they are largely right for the foreseeable future. On that basis, they whiff the downside, spot the trap that waits behind the front door of Home Sweet Home, and scamper away.

The lesson in all of this, other than that once I get pounding away on the keyboard, I seem to have no off-switch, is that the real cause of the housing-led crisis was a failure to appreciate the similarities between humans and rats. Every government interference in the market, no matter how well intentioned, carries the seeds of dangerous unintended consequences. Just ask the twenty-something welfare mothers of the 1980s who, when offered monthly pay for each new offspring, quickly converted their wombs into baby factories.

I wish I could say that this lesson – that humans, like rats, will always figure out a way to pursue their self-interest, even if it requires chewing through a real or proverbial wall – has been understood, thanks to the crash. Chances are it hasn’t.

Fortunately, there is consolation to be had from the current trend towards more and bigger government. Namely, if you can fully understand what’s going on and what’s coming next, you have a rare opportunity to – in the words of a stock promoter who used to speak at conferences some years ago – get “stinky, filthy, sloppy rich.”

Even in a deep crisis like the one we’re seeing right now, windows of opportunity open up all the time – if you only know where to look. Recognizing, analyzing, and profiting from emerging trends in the economy is the objective of The Casey Report. Learn how to get handsome rewards by making the trend your friend – click here now.

Richard Russell: Gold & Silver moving into their third (speculative) phase

Richard Russell's latest comments on the action in the gold and silver markets:

As I said, the gold action is changing -- what's happened to the profit taking? Gold buyers have stopped taking profits, the are buying and sitting with their gold. Physical gold has now been swept off the market. Coins are only sold by dealers with big premiums over spot -- that is, if you can find a dealer who has any gold coins at all.

A few sites ago, I wrote that I believe gold and silver are finally moving into their third (speculative) phase. Seasoned investors are thinking in terms of the demise of the dollar and of all fiat money.

I am also of the opinion that we're going to see one whopper of a bubble in gold and silver before this commodity bull market is all said and done. Maybe $2,000 - $3,000 - even $5,000 gold - anyone care to jump in with a wild guess?

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