Tuesday, March 31, 2009

USDA Planting Intentions Report Sparks Rally in Grains

Corn and soybean futures each jumped roughly 5% today after the USDA released its Planting Intentions Report.

Some quick highlights from the report reveal that there appears to be plenty of corn and beans coming our way, but cotton will continue to be neglected, as we had anticipated.
  • Corn acreage is down 1% from last year, but is still projected to be the 3rd largest acreage in over 50 years.
  • Soybean acreage is on track for a record year, up slightly from 2008.  This is below expectations though, hence the rally.

cotton futures rally
Cotton futures rallied on today's planting intentions report.

Monday, March 30, 2009

Obama Administration Fires GM CEO Wagoner

Rick Wagoner is out as CEO of Government Motors, per an edict handed down from the Obama administration.

Not that Wagoner didn't deserve to be fired (he did - many times over)...but does it bother anyone else that the government is now firing private sector employees?

Sunday, March 29, 2009

Marc Faber: This Rally May Have Some More Legs

Here's a short interview Marc Faber gave for Bloomberg recently (week of March 23rd), where he gave his current thoughts on US equities and Treasuries:

Faber's thoughts:
  • Markets became extremely oversold on March 6, when the S&P touched 666 
  • This rally may have some more legs, because the government is printing money - so asset prices may rise because of that fact alone
  • The S&P could go as high as 880 in the short term
  • The rally in US Treasuries has been very disappointing (to Bernanke and other Fed officials)
  • Many people around the world are concerned about the long term effects of Bernanke's plan to monetize US debt
  • Bernanke's actions will all "end in disaster"

Click here to read more Marc Faber coverage

Coffee Grounds Make Good Biodiesel, Researchers Report

The Economist reports that researchers at the University of Nevada at Reno have found that coffee grounds can be turned into biodiesel that is comparable in quality to top biodiesel on the market today.

Because the biodiesel is made from grounds, no extra land has to be diverted in order to generate the inputs for this type of biodiesel. And if that wasn't green enough for you - the grounds can even be composted after the biodiesel is extracted.

We've discussed before that the long term supply/demand picture for coffee points towards higher prices, and we'll stay tuned to see if biodiesel is able to warp the coffee market that way it was able to send corn up to $8.  I know the process looks green on paper, but never say never, we may get some good crops diverted for biodiesel yet.

Deep Recession or Greater Depression?

Are we in a deep cyclical downturn, or the first few innings of The Greater Depression?

This is the question many investors are trying to answer, because this is what it all gets down to.  If we are "merely" in a deep recession - likely the longest and deepest since the 1930's - then we should expect things will go from bad to less bad in the not so distant future.  

This is key, because this is how you can make a lot of money investing - putting money in when things look really bad, but about to go to "not quite so bad."  You can find some great values, and your downside is limited.  

Problem is, this is the playbook everyone knows and is waiting for.  This is why the stock market typically starts to turn up around the middle of a recession - the stock market, being a forward looking vehicle, is able to detect when things are bleakest and about to become less bleak, and the ascent begins.  By the time sunny skies have reappeared, most of the easy money has been made.

So here we are - the end of March 2009.  We've been in a recession since December 2007.  The stock market began rallying a couple of weeks ago, despite economic news that still looks as bleak as ever.  So is this time to start buying undervalued blue chip stocks, following the play book that has worked so well over the past 25 years of buying good, quality stocks on dips?

I don't think so - because, I believe (and this is just my personal belief) that we are in a depression, not a recession.

IF the government has done nothing since the start of this financial crisis in the summer of 2007, and IF bad banks and bad companies had been allowed to fail, then I think we would indeed be on our way out of this mess right now.  Sure the last 18 months would have been very painful, but we would have taken our medicine, cleaned out the system and excesses, and have transferred assets from the incompetent people to the competent people.

Instead, the market has not been allowed to reset itself.  The incompetent people have been bailed out time and time again, and the competent people have not been able to pick up market share due to one government intervention after another.

So we find ourselves digging deeper and deeper into this hole, with the Federal government determined to "do something" to help the situation.  We are repeating the mistakes of the Great Depression, of Japan in the 1990's, and we are going to have financial hell to pay for it.

Despite the fact that no country has ever devalued it's way to prosperity, the UK, Japan, Switzerland, and now the US are in a race to devalue their respective own currencies as fast as possible to juice their economies.

US Adjusted Monetary Base is skyrocketing (Source: St Louis Fed)

Meanwhile, US government spending is balooning as well.  (Hey why not print it and spend it).  Unfortunately there is no free lunch in life, and this is not really helpful for the economy, because the government does not actually produce anything of value.  

There are only two ways the government can raise money:
  1. Tax the productive private sector
  2. Print it
Right now, we're seeing a liberal applicaiton of both options.

The problem I have with this whole situation is that there doesn't appear to be a free market anymore.  It's more profitable for many businesses to angle for stimulus money than it is for them to build and sell something of value to the marketplace.  That's a problem!

Now recently I've attempted to step back and look at the situation with a level head.  Morality and economic beliefs aside, the tax burden and government size of the US has no doubt been trending up throughout the entire 20th century.  And during that century, the US managed to do well economically.  So are things really that different this time?  

Things looked pretty bleak in the 1970's - how many would have predicted, at that time, the 80's and 90's would be so prosperous?

It's an open question, and one that I think we investors must continue to mull.  Though things may look quite pessimistic now, there will eventually be another dawn, because we know one of the most dominant trends in the history of the world has been the ascent of humans.  

But we also know that no trend goes straight up, trees do not grow to the sky, and right now the world is in the midst of a correction.  It's imporant to remember that corrections can be quite long and nasty, and that markets can remain "irrational longer than you can remain solvent."

As long as we continue to follow the playbook of the 1930's, I think we must expect that we'll get similar results.  As Mark Twain once said, history may not repeat, but it most certainly rhymes.  The past 25 years were an anomaly, a Pax Romana of sorts, where the US and much of the world experienced relatively peaceful, uninterrupted economic growth and prosperity.

History shows, though, that the world is often in turmoil and upheaval, and it's prudent to at least stay mindful of the fact that good times may not return next month, next year, or even next decade necessarily.  

There are glimmers of hope and positive signs to be found, and I'll leave you with a must see video of Daniel Hannan laying the smack down on UK Prime Minister Gordon Brown.  It's enouraging to remember that as bad as things may look, not everyone is asleep at the wheel, and there will eventually be a day for us to dust off our investing playbooks from the 80's and 90's.  Just not yet, though.

Editor's Note: For a spirited debate on this topic, check out the comment stream on Seeking Alpha's publication of this Greater Depression piece.

Current Futures Positions

No trades this week.  Personally I'm dealing with some "traders remorse" on the Japanese Yen trade, as the spike proved to be temporary.  However with the Fed now officially printing dollars, I intend to stay clear of the Forex markets for the foreseeable future.

Date Position Qty Month/Yr Contract Entry Last Profit
02/27/09 Long 1 MAY 09 Sugar #11 13.79 12.65 ($1,276.80)

Net Profit/Loss On Open Positions ($1,276.80)

Current Account Value: $24,450.32

Cashed out: $20,000.00
Total value: $24,450.32
Weekly return: -3.4%
2009 YTD return: -51.9% (yikes)

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

Initial stake: $2,000.00

China Slowly Moving Reserves Out of US Assets

BCA Research reports that China is gradually moving its foreign reserves out of US assets, estimating that China currently has about 64% of its reserves in US assets, down from a high of 84% in 2003.

BCA's report also breaks down the types of US assets the Chinese have been purchasing, which recently has been focused on US Short Term Treasuries.

Central Banks Projected to Sell Less Gold This Year

The world's major central banks are expected to reduce sales and lending of their gold bullion reserves this year, MarketWatch reports.

Because central banks hold a significant portion of above-ground gold in the world - over 15% of it, the article reports - reduced selling by the banks could weigh on gold supplies.

If you are a true contrarian, and a gold bull, this report may be somewhat alarming, as central bank buying and selling is often a classic contrarian indicator of the gold market.  The Bank of England famously sold a signifcant amount of gold in 1999, essentially calling the exact bottom for gold prices.

With central banks respectively printing money at an alarming rate, however, I expect gold prices will be fairly well supported once this new fiat currency makes its way into circulation - though a short term downward correction in gold and silver still cannot be ruled out.

Saturday, March 28, 2009

Coal Stocks Ready to Launch (Again)?

Jeff Clark writes for Growth Stock Wire about his favorite energy trading indicators, and thinks that coal will be the next big trade in energy.

The (coal) index itself is consolidating, and it'll take a move above 200 to spark a bullish uptrend. Several of the individual stocks that make up the index broke out to the upside last week. So the odds are high the index will break out as well.

We're still bullish on oil stocks, and on just about everything else in the energy sector. The run in the coal stocks, though, is just getting started. From a risk/reward perspective, coal stocks are the next place to be.

Congresswoman Tries to Legislate Dollar's Challenges Away

Are the dollar's days numbered as the world's reserve currency?  Not if  Congresswoman Michele Bachmann has her way.

From Rep. Bachmann's website:

In response to suggestions by China, Russia, and other countries around the world calling on the International Monetary Fund to explore a multi-national currency, U.S. Representative Michele Bachmann (MN-6) has introduced a resolution that would bar the dollar from being replaced by any foreign currency.

“Yesterday, during a Financial Services Committee hearing, I asked Secretary Geithner if he would denounce efforts to move towards a global currency and he answered unequivocally that he would," said Bachmann. "And President Obama gave the nation the same assurances. But just a day later, Secretary Geithner has left the option on the table. I want to know which it is. The American people deserve to know."

If you're interpreting her comments the same way I am - then I think that Michele believes the US is considering using a basket of currencies to replace the dollar within our borders.

Ah, you can't make this stuff up (hat tip to Agora Financial for uncovering this gem of a news item).

In fairness to Michele, as I'm right now digging through her website to find more material for, well, jokes, to be quite honest - I found her Twitter feed, which actually impressed me, as she is apparently quite the fiscal conservative.

In fact, here is a video of her calling for the Obama administration to cut the capital gains tax rate to ZERO - along with cutting the business tax rate down to 9%!

And she bashes the Federal Reserve and US Treasury!  Wow, have to admit I'm quite impressed.  What an emotional rollercoaster ride this column has been for me.

I was going to finish this colum with a few cheapshot jokes and call it a morning, and I left with a new fantasy girlfiend - low taxes and libertarianism ideals are always the way to my heart.  Just goes to show, you never know when love comes walking in

Friday, March 27, 2009

Conservative Brit Lays Smack Down on Gordon Brown in Parliament

Daniel Hannan, Conservative MEP for the South East of England, lays the smack down on Prime Minister Gordon Brown in his speech before the European Parliament.

Highly recommended - and wouldn't we love to see someone other than Ron Paul stand up and give a speech like this in our spineless Congress. Enjoy!

Tuesday, March 24, 2009

China Asks For New World Reserve Currency

In an "open letter" on the official website of The People's Bank of China - which I didn't know existed until today - Chinese central banker Zhou Xiaochuan called for a new world reserve currency.

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system

While the US Dollar is not explictly singled out in the letter- it obviously might as well be.  It's a quick read, worth checking out if you haven't already.

The real question, I think, is how much of this letter is posturing vs. genuine intent to act.  I'm not sure yet, but this is an awful lot of noise coming from China recently on this subject, following up Luo Ping's comments about US Treasury Bonds.

Ben Bernanke: The Ultimate Contrarian Indicator

Looking for a contrarian indicator you can take to the bank?  Look no further than our faithful Fed Chairman Ben Bernanke.  In this guest piece, the folks at Casey Research revisit Big Ben's Greatest Hits, while casting an eye towards investment opportunities that arise from taking the opposite of Ben's words at face value.

When Bernanke Says All Is Well, It’s Time to Duck and Cover
By the editors of Casey Research

“We’ve averted” the risk of a depression, Federal Reserve Chairman Ben Bernanke said this week. “Now the problem is to get the thing working properly again.”

Appearing on CBS network’s 60 Minutes, Bernanke told correspondent Scott Pelley that concerted efforts by the government likely averted a depression similar to the 1930s. He also stated the nation’s largest banks are solvent and that he doesn’t expect any of them to fail; and that the U.S. recession will come to an end “probably this year.”

Is this finally the light at the end of the tunnel for the U.S. economy?

We don’t want to appear as perpetual gloom-and-doomers, but fact is, when Bernanke tries to predict the future, he’s usually wrong.

Prediction: The subprime mess is grave but largely contained, Bernanke reassured the Federal Reserve Bank of Chicago in a speech on March 15, 2007.

While rising delinquencies and foreclosures will continue to weigh heavily on the housing market, it will not cripple the U.S. economy, he said. “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.”

Reality: The median price of a home sold in the U.S. fell to $170,300 in January 2009, down 26% from a year and a half earlier, according to the National Association of Realtors. This housing crash has spread pain more widely than any before it. Home prices fell about 30% during the Great Depression, according to calculations by Yale University economist Robert Shiller. But back then, the nation was less concentrated in urban centers, and much fewer Americans owned homes.

Other housing downturns in recent decades have been regional; this one is national. Prices in the fourth quarter of 2008 fell in nearly 90% of the top 150 metro areas, according to the Realtors group. And 5.4 million homeowners, about 12%, were in foreclosure or behind on mortgage payments at the end of last year. The Federal Reserve now estimates home prices could fall 18%-29% more by the end of 2010.

Prediction: “I expect there will be some failures” of smaller banks, said Bernanke in February 2008. “Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system

Reality: IndyMac Bank failed in July 2008, with $32 billion in assets. Washington Mutual failed in September 2008, the largest bank failure in history with $307 billion in assets. Wachovia was sold to Wells Fargo in October 2008, amid concerns about its financial health, and Citigroup still scrambles to raise cash from both the government and private sources.

Fortunately for Bernanke, and unlike us at Casey Research, he doesn’t make a living by being right about the future. If he did, we strongly suspect that by this time, he would find himself without subscribers.

Thus, it is a mystery to us why the mainstream media still seem to eagerly soak up his every word, much like a devout Catholic would absorb a papal ex cathedra proclamation. But until the last American has woken up to Bernanke’s fallibility, that likely won’t change.

In the meantime, we recommend using the Fed chair’s economic outlooks as a contrarian indicator – if he says the market looks good, run for cover as fast as you can.


Bernanke may be wrong more often than not and still keep his job – we at Casey Research cannot afford that luxury. Our subscribers depend on us researching, correctly analyzing, and predicting market currents and emerging trends… which also includes the movements and changing policy decisions of Big Politics.

Our fresh-off-the-presses, FREE special report Obama’s Newer Deal, Part 2 tells you all about the president’s Stimulus Plan, its impact on and implications for your personal life and finances. Don’t miss it – click here now!

Monday, March 23, 2009

Comparison With Last Commodity Bull Market

This chart overlays our current bull market in commodities with the previous one.  If history is any indication, we could have a ways to go here.

Courtesy: Agora Financial

Natural Gas Below Cost of Production

Tom Dyson reports that Natural Gas is now below its cost of production - after having fallen all the way down to $3.50 at a recent low point (sitting currently at $4.31).

Dyson urges readers to "get long" now:

I expect the rise in gas prices is imminent. Gas prices track oil prices. Oil has risen 43% since Christmas. Gas has to catch up. Also, speculators have bet so heavily against natural gas prices, they're breaking historic records. Right now, speculators have huge positions against the commercials (or the actual fuel users). When speculators are all on the same side of the trade, a violent reversal is near.

"The Natty" has fallen upon tough times of late.

Sunday, March 22, 2009

Jim Rogers Believes World is Heading for Depression

Here's an informative, in-depth interview with Jim Rogers recorded in the last month - running time ~28 minutes.  

Rogers reiterates his disgust with the recent government economic interventions, especially in London and Washington DC.  He believes we are making the same mistakes that were made in the 1930s, which led to the Great Depression, and in Japan in the 1990s, which led to Japan's "lost decade" of economic growth.

Some quick hits:
  • Rogers is bearish on the UK economy and the Pound Sterling, as he doesn't see what can fill the economic holes of the depletion of oil in the North Sea and London's imploding finance industry
  • Countries are starting to question whether they should lend money to the UK, US already
  • Capitalism and free markets did not fail - they weren't allowed to work by Central Banks, which wouldn't let people fail (starting with the bailout of Long Term Capital Management)
  • Farming will be one of the best industries in the world for the next decade or two
  • Debasing your own currency has never led to prosperity
  • We're seeing a gradual shift away from the US Dollar as the world's reserve currency, just as there was a slow move away from the Pound Sterling 50-80 years ago
  • Printing money has never, ever worked

Further Jim Rogers reading:
Follow our Jim Rogers updates on Twitter: https://twitter.com/commoditybull

Weekly Commodities Report - Dropping Dollars From Helicopters

Bernanke Fires Up the Printing Presses

Earlier this week, Ben Bernanke announced the US Federal Reserve will buy up to $300 billion of US long-term Treasury securities over the next 3 months.  Where will the Fed get that money?  It will essentially create it out of thin air - also known as "printing money."

Surprisingly, the markets were not amused by Ben's announcement, as the dollar suffered it's largest one-day decline since 1971, while gold got a nice pop, rallying from sub $900, currently sitting around $950 as I type.  

Gold's recent rally may have had something to do with the fact that it, unlike the US Dollar, cannot be created out of thin air.

Amusingly, this accouncement comes on the heels of a key Chinese official lamenting the bad stench emanating from US Treasury Bonds.  Some reports I've seen recently suggest that foreign investment in US debt has fallen precipitiously, and this represents the Fed's last gasp to hold interest rates low - possibly attempting to drive them all the way down to zero.

If you've been thinking that deflation would rule the day, I'd highly recommend revisiting an important guest piece penned for us by Bud Conrad about this epic battle between inflation and deflation.

If You're Short the Yen, You're Long the Dollar - Oops

The past couple weeks I've been on my soap box, calling the demise of the Japanese Yen.  I made the case that the Yen was circling the toilet bowl at a faster rate than the US Dollar.


The Yen spiked sharply, and unfortunately I was stopped out of my short position at a large loss.  After I was stopped out, then Yen continued to rise a bit, and has since corrected back down.

This is why my wife yells at me for trading currencies.

Ah well, sucks, but have to respect your stops.

I have to admit, this trade gone awry may have killed my appetite for currency trading for awhile.  It was easy when the dollar was on a one-way trajectory to the cellar.  

Things are just a bit too crazy in the currency markets right now for an armchair trader like me to figure out.

Depression Economics for Kids

And just when you thought things couldn't get any stranger in the financial world, Disney announces a new exhibit at EPCOT center called "The Great Piggy Bank Adventure".

The exhibit will teach kids such valuable life lessons as staying ahead of inflation, and diversifying your investments.  

You can't make this stuff up.

Current Futures Positions

Date Position Qty Month/Yr Contract Entry Last Profit
02/27/09 Long  MAY 09  Sugar #11  13.79  13.42  ($414.40) 

Net Profit/Loss On Open Positions ($414.40)

Current Account Value: $25,312.72

Cashed out: $20,000.00
Total value: $45,312.72
Weekly return: -12.7%
2009 YTD return: -50.2% (yikes)

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

Initial stake: $2,000.00

Thursday, March 19, 2009

Dollar Hammered After Fed Announces It Will (Actually) Print Money

Yesterday, the US Federal Reserve announced it will buy up to $300 billion of US long-term Treasury securities over the next 3 months.

Where will the Fed get that money?  It will essentially create it out of thin air - also known as "printing money."

Shockingly the markets did not like this announcement from the Fed with respect to the dollar - apparently traders fear that by printing new dollars, each existing dollar in circulation will decrease in value.  Check out these moves just from the past 24 hours in the dollar and gold:

The dollar gets taken to the woodshed.

As traders flock to a form of money that can't be printed.

In a prescient guest article last December, Bud Conrad stated his belief that The Fed would ultimately opt for inflationary policies, rather than risk deflation.  

But the longer-term expectation is that Bernanke’s assertion – an assertion now backed up by action – that the government can and will print new money to any extent needed is the more important force.

Further Reading: Battle of the Flations, by Bud Conrad

Tuesday, March 17, 2009

New Disney Exhibit Focused on Depression Economics

Walt Disney announced the creation of a new exhibit at EPCOT Center entitled called "The Great Piggy Bank Adventure."

According to the press release, The Great Piggy Bank Adventure will offer advice on four key financial themes:
  1. Setting goals
  2. Saving and spending smartly
  3. Staying ahead of inflation
  4. Diversifying your investments
According to my unofficial, imaginary sources, Theme #3 will be focused around kids stuffing money under a mattress as fast as they can as the world around them collapses into a deflationary spiral.

Disney officials are also reportedly toying with the idea of dropping newly printed money from the sky, to show kids that there is nothing you can do when your government decides to debase your own currency.

For Theme #4, I'm going to offer up a suggestion - why not have the kids carefully diversify their hard earned money into uncorrelated asset classes.  Then drop every asset class by 50% at the same time, and ask them how diversification worked out.

Shout out to my friend and regular reader Marc for pointing out this gem of a news story.

Sunday, March 15, 2009

Weekly Commodities Report - Waiting on the Grains and Softs

Grains and Softs Showing Some Signs

With the stock market showing some signs of life this week, many of the agricultural markets followed suit.  Corn put in a particularly strong week, driven by reports of strong export sales of the past couple of weeks, as well as strong equity and oil prices.

Seasonally this is the time of year for corn to rally - as the saying goes, if corn doesn't rally by the Fourth (of July), it's not gonna happen.

We reported earlier this year that farmer's may have a difficult time making money with corn at $4 - and speculated that some may switch their crop to soybeans.  This may be an interesting time to take a flyer on corn and see if it can make a run back up towards $5.

We are in "wait and see" mode across the board with respect to agriculture.  We continue to hold our sugar position, and coffee looks particularly interesting once again, as I continue to see reports of disappointing supply this year.

Update on Japanese Yen Short Position

The Japanese Yen was quite volatile this week - down, then up, then down again - ending the week about where it began.  

Japan posted it's first trade deficit in 13 years, as exports have fallen off a cliff.  But then the man known as "Mr. Yen" made a bullish statement regarding his expectations for the Yen, propelling it above the 104 mark mid-week.  Finally the market refocused on Japan's deteriorating GDP, sending the Yen back down.

Japan seems to be in a real economic pickle.  The country has serious demographic problems, and it's likely that Japan as we know it has entered what will be a long, terminal decline.  Everyone is just getting too old, and there will soon not be enough people left to work.

Since Japan's economy is largely export driven, expect Japan to do whatever it can to weaken the Yen vs. the dollar.

Around the Investing World

Current Futures Positions

Date Position Qty Month/Yr Contract Entry Last Profit
03/02/09 Short 1 JUN 09 Japanese Yen 1.0271 1.0222 $612.50
02/27/09 Long 1 MAY 09 Sugar #11 13.79 12.89 ($1,008)

Net Profit/Loss On Open Positions ($395.50)

Current Account Value: $28,992.67

Cashed out: $20,000.00
Total value: $48,992.67
Weekly return: -0.4%
2009 YTD return: -42.9% (yikes)

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

Initial stake: $2,000.00

Don't Forget About Geothermal Energy Opportunities

Casey Research's Marin Katusa outlines the compelling case for geothermal energy in this guest article.  Though it's not getting a lot of mainstream attention, geothermal is still very much in a bull market itself, and the recent correction in energy stocks leaves many geothermal stocks at attractive valuations, especially the juniors.

Hot Rocks Equals Hot Stocks?
By Marin Katusa, Chief Investment Strategist, Casey Energy Opportunities

Practically every major source of power generation in the world involves the production of heat, which eventually becomes the electricity that we use. Nuclear, coal, natural gas – the direct end result of all of these processes is heat, which is usually then transferred to water. This water is then turned into steam, which drives the turbines that give us our electrical end product.

It’s undeniable that making things hotter is one of our most ancient and reliable methods of getting things done – from cooking food to making cars run, the energy often associated with or directly resulting from an increase in temperature is an old and true friend. As it turns out, so is generating power from one of the biggest sources of heat around – around, not out in space... yes, our own planet.

Mantle, Magma... Money!

The Earth, much like an onion, is layered – chemically, though, rather than physically. The temperature of the inner core has been estimated at values of nearly 7,000 degrees Celsius, or 12,000 degrees Fahrenheit.

Geothermal power is an alternative energy source, and as such claims less than 1% of the world’s energy supply. Understandably, while estimates of globally exploitable geothermal reserves vary, they tend to be fairly encouraging. Total worldwide production of electricity in 2005 was 65 exajoules (EJ); that’s a 65 with 18 zeroes next to it. On the other hand, according to a 2006 report on geothermal power by MIT, the world’s total reserves were calculated to be over 13,000 zettajoules (ZJ) – that’s a 13 with a whopping 24 zeroes! Of this, at least 200 ZJ were estimated to be exploitable, with the potential for a further 1,800 ZJ to be extracted through technological advancements.

Other groups, such as the International Energy Agency (IEA), have figured the numbers differently but come to the same conclusion – there's enough geothermal energy for thousands of years. Current geothermal production is only 0.2 EJ, so there’s clearly plenty of room for geothermal power to grow as an alternative energy source.

Now that we know there’s a future for geothermal energy generation, that brings us to the next most important question: how economic is it? The following chart tells an interesting tale:

Geothermal certainly holds its own with the best of them at about 6.5 cents per kilowatt-hour. Coal and nuclear power are still powering the way ahead with their 4-5 cent/kWh generation costs, but geothermal has already proven itself to be a viable alternative, not just on the environmental front but also the economic one.

So, how does the forecast for geothermal energy look? With 75 new geothermal power projects over twelve states underway in 2007 in the United States alone, the answer is: pretty good.

It’s a Small World After All

Geothermal plants are, perhaps fortunately, nothing special. They don’t require any particular manufacturing concerns or exceptionally location-specific design considerations, much like, say, a coal-fired plant. So it's little surprise that most geothermal companies are already as “vertically integrated” as one can get, offering complete geothermal plant solutions or even getting contracts to drill their own wells and build over them, as a private utility.

That’s more or less the extent of the differences between companies. On one hand, you have the problem solvers, the retailers, the companies that sell and operate geothermal systems as their primary business. On the other hand, you’ve got the utilities, the companies that stake geothermal deposits, get licensed, build plants, and sell their electricity. That’s all there is to the geothermal industry – very simple, no frills attached.

Juniors account for a very large portion of the geothermal pie. Geothermal juniors are all junior utilities, companies with tenements on hydrothermal reservoirs looking to get licensed or raise enough money to build their first geothermal plant.

So out of these three constituents, which one should we be betting our money on? Well, the answer should be fairly obvious; much like with, say, uranium, our best hope of profiting from the market lies with the juniors, the ones looking to develop into full-fledged utilities that sell electricity.

So let’s take a look at how the geothermal market shapes up.

Hot Potato

The United States is currently the largest producer of geothermal energy in the world. Nonetheless, geothermal still accounted for less than 1% of U.S. energy production last year. Perhaps surprisingly, the Philippines come in second place, with Mexico holding up third. Geothermal holds a lot of potential in the United States, China, Hungary, Mexico, Iceland, Australia and New Zealand, but that doesn’t necessarily mean said potential is being exploited.

More so than many of its fellow alternatives, geothermal has kept fairly low-key in the last few years, garnering very little interest despite being a clean and renewable source of energy. As a matter of fact, between the U.S. and Canadian exchanges, there are only ten geothermal companies. Even if you include the Australian exchange, which sees a lot of geothermal action thanks to its abundance of HFR-type deposits, the count only gets brought up to 23 companies.

As we’ve previously seen, most of the companies in the geothermal sector are juniors, a statistic that is reflected in these market cap charts. Many have nothing more than a couple of stakes in the ground as far as development is concerned, but that’s where every junior starts out in this industry.

In any case, the geothermal market is certainly a small one, but even in a small sector there are bound to be winners. And with the increasing demand for clean, green energy, it’s only a matter of time before more people pick up on the fact that geothermal is not a strange and rare form of alternative energy, but rather a source of power just as viable as its cousins hydro or wind – perhaps more so, because geothermal plants tend to stay off the radar screens of nature lovers grumping about their spoiled views or ecosystems. Low-key works both ways.

Getting Warmer

What do we anticipate for geothermal in the future? Will there be a surge in popularity, a sudden eureka as people and governments alike flock to geothermal as the next savior in this current energy crisis?

Probably not. Geothermal has always been one of those technologies with very low public awareness, and we see nothing to indicate how that might change anytime soon. So, barring some kind of strange series of coincidences, a geothermal bull is not in the cards for now.

Still, does that mean that geothermal is a dead-end market? By no means – as previously mentioned, there were 75 geothermal projects being developed last year in the United States alone. With less than 75 plants currently operating in five states, that’s a significant number. Just because there’s no public awareness doesn’t mean it’s not happening.

In fact, it's the plain-Jane doggedness of geothermal that we're counting on: despite lack of knowledge about it, despite the extremely small value of the market as a whole, geothermal still happens. And it will keep on happening because it hits on the three hot buttons of today's energy market: it's tested, economically viable, and environmentally acceptable.


Aside from money, energy makes the world go around... it’s a commodity we can’t do without. Therefore, top-quality energy stocks and ETFs are assets that will only increase in value over time, as emerging markets raise their energy demand and Peak Oil looms on the horizon.

With the right timing, energy stocks can provide huge gains: in 1998, Doug Casey advised to buy uranium stocks – at a time when no one wanted to hear about uranium. Within a few years, Doug’s subscribers were looking at returns of 660% on Strathmore… 895% on Cameco… and 1,333% on Paladin Resources.

Right now, many energy stocks are extremely undervalued. Click here to learn more about how to seize this opportunity and prosper.

Greater Depression Investment Trends - And How to Play Them

Many folks say investing would be quite easy if you had a copy of tomorrow's Wall Street Journal.  In this guest article, Casey Research's David Galland eloquently explores the trends in place to help us forecast what we can expect the next 8 years to look like - and what actions you should take today to protect not only your investments, but also your way of life.

David is one of my favorite investment writers - I always look forward to the Friday afternoon missives he pens for Casey subscribers.  Hope you enjoy.

There’s Always a Silver Lining
By David Galland, Managing Editor, The Casey Report

Here at Casey Research, we are trying not to be overly pessimistic, but there’s no denying the mass of bad news coming to us from all fronts: the forces of collectivism are using the cover of the crisis they largely created, aided and abetted by capitalism’s quislings, to roll over the individual.

Even so, contained within the dire reportage is also some very good news for you personally.

The Bad News

As fully anticipated, with its first budget plan, the Obama administration has fired a salvo into the side of the productive classes. (For those of you who are not U.S. citizens, feel free to use Team Obama as a proxy for what is likely to occur where you reside.)

Yes, we expected the $1.75 trillion budget deficit, which will, by the time all is said and done, come in a lot closer to the $2.5 trillion number anticipated some months ago by our Chief Economist Bud Conrad.

Yes, we expected the government to begin raising taxes, which they are proposing to do with vigor – starting with an increase of $1.4 trillion on the people who earn in excess of $250,000 a year. “Right on!” shouts the mob, on the way out the door to burn Porsches (which, Bloomberg reports, is now becoming something of a trend in Germany’s capital, Berlin).

For no other purpose than to keep the record straight, it’s worth noting that thanks to the government’s steady dose of inflation, $250,000 today will only buy you 77% of what it would have in 1998… and 56% of what it would have in 1988.

A decade from now, given the inflation rate we expect, the dollar’s purchasing power will erode by another 50%, and probably a lot more than that. In fact, at the current rate of money creation, by the time the dust settles, $250,000 might be the annual wage commanded by burger flippers.

But, hey, look at the bright side, at that point everyone will be rich!

The further details of Obama’s budget plan are a hodgepodge of this and that, some of which we even agree with (like cutting business subsidies). On the whole, however, the overarching mandate appears to be to thrust the hand of government, like some motion picture kung fu villain, deep into the heart of American enterprise.

And government’s expansion is far from over. The news continues to pour in…
  • Citigroup to get another $25 billion bailout from the U.S. Treasury. 
  • Treasury officials work on bailout plan for auto parts manufacturers. 
  • President Obama exploring automatic workplace pensions and an expansion of unemployment insurance. 
  • AIG, now a government lap puppy, takes another big loss, and is again looking to its master for another handout. 
  • Speaking of lap puppies, Fannie Mae, has lost another $25 billion and is looking for $15 billion more from the Treasury. The value of this zombie institution’s net assets is now a negative $105 billion, and eroding. Great investment of your tax dollars, eh?
  • Then there’s the new administration’s cap-and-trade green tax… a stunning new initiative that will bring many U.S. businesses to their knees. 
  • There is more, so much more, including a $638 billion reserve fund for healthcare reform in the president’s budget that loudly broadcasts that, “Yes, we’re going there.” There being nationalized health care.
However, there’s also some good news to be found in the way things will be.

The Good News

My fellow citizens of planet Earth, it is now abundantly clear that the trend toward socialism in all its many disguises is about to, once again, shift into high gear.

We’ve been here before, encouraged by the words of Karl Marx, a distinctly unsuccessful individual (to read his life story is to read of almost unending misery, poverty, and discontent) but a decidedly successful phrase-coiner, knocking the world off its axis with his “From each according to his ability, to each according to his need.”

While no one with any real sense of history, not to mention economics, can take any overt joy at the prospect of the dark clouds of collectivism looming high in the sky above us, there is, if you pay close attention, a very big opportunity in all of this.

Namely, we are now presented with a relatively rare chance to see with some clarity into the future.

Imagine if eight years from now you could step into a time machine and zip right back to this very moment. How much money do you think you could make?

Well, just because the chattering masses have the blinders on as they march forward to their collective penury doesn’t mean we need to join them. And, if we are even a little bit careful, we won’t.

So, what is it about the future we can now see? Some broad strokes…
  • Currency depreciation. 
  • More taxes. 
  • Rising interest rates. 
  • A price capitulation in real estate, with a collapse in commercial. 
  • Exchange controls (now that Team Obama is raising your taxes, you don’t really think they’re going to let you pick up your wealth and leave, do you? The window for global diversification will soon be closing.) 
  • The return of mega-labor unions. 
  • Trade wars, shooting wars, and other forms of heightened geopolitical tension.  (This is a topic we are discussing at greater length, backed up with specific recommendations, in the March edition of The Casey Report, released on March 3. Among its many highlights, Doug Casey has contributed an article titled “Street Fighting Man” about the prospects for social unrest.)
Provided you keep your personal wealth profile low (there was a reason Sam Walton, founder of Walmart, drove a beat-up pickup truck), your financial powder dry, and, maybe most important of all, retain your sense of humor, the opportunities in the unfolding crisis will be abundant.

Whatever you do, don’t be complacent about what’s coming.

We are long past the point where doing nothing is an option. Review your personal finances, cut out unnecessary expenses, talk to your accountant about tax planning, and, if you’re a U.S. citizen, consider moving at least some of your wealth out of the country while you still can (but please, don’t try to hide it… that’s a fool’s errand). If you own gold, only you and your spouse, if you have one, should be aware of it.

Ask yourself, “If I just dropped in from eight years in the future, what measures would I take?”

Now, take them.


There is no time to lose in taking the necessary steps to preserve (and multiply) your wealth. The best way to do so is going with the flow and playing the trend… a strategy that can pay off handsomely, even in an economic crisis.

The Casey Report analyzes those market trends and advises subscribers on how to take advantage of them – whether it’s agricultural plays or shorting big-name stocks that are particularly vulnerable to the market decline. You can now kick the tires risk-free, with our 3-month trial subscription with 100% money-back guarantee… click here to find out more.

Jeremy Grantham: S&P is Worth 900 at Fair Value

Jeremy Grantham, one of my favorite investors, often puts out fantastic (and free) articles and editorials about the markets.  Grantham has been extremely bearish since 2000, and has been particularly bearish in 2000 and 2007, which were not bad times to be cautious at all.

I enjoy his analysis because it is extremely pragmatic - he keeps a cool head about him, and is bearish on assets when they are expensive and in a bubble type of mode, and bullish on things that are cheap.

He's got a new article out, where he mentions that he believes the S&P is worth 900 at fair value.

Remember that you will never catch the low. Sensible value-based investors will always sell too early in bubbles and buy too early in busts. But in return, you may make some important extra money on the roundtrip as well as lowering the average risk exposure.

And this analogy is my favorite:

Every decline will enhance the beauty of cash until, as some of us experienced in 1974, ‘terminal paralysis’ sets in. Those who were over invested will be catatonic and just sit and pray. Those few who look brilliant, oozing cash, will not want to easily give up their brilliance. So almost everyone is watching and waiting with their inertia beginning to set like concrete. Typically, those with a lot of cash will miss a very large chunk of the market recovery.

What do you think - is it time to start deploying some cash into stocks now, under the belief that it's always darkest before dawn?

Or - would you wait until you see a clear sign that a new bull market has begun - such as a major publication throwing in the towel on stocks (a la this famous BusinessWeek headline)?

Friday, March 13, 2009

Swiss Quit on Their Own Currency

Today, Switzerland signaled to the world that it will attempt to flush the Swiss Franc down the bowl faster than the other fiat currencies of the world.

Not only did the Swiss National Bank cut it's target rate to 0.25 percent (from 0.5 percent), but the central bank also began selling the currency, marking it's first intervention in the Forex markets since 1992 (source: Bloomberg).

The fact that no country in the history of the world has ever devalued its way to prosperity does not seem to discourage central banks.

It's a sad, sad day when the Swiss - of all people - give up on their own currency.

Jim Rogers Waiting to Short Treasuries...Again

It looks like Jim Rogers, like us, is still waiting for another appropriate opportunity to short US Treasury bonds.  From Bloomberg:

Investor Jim Rogers said the Federal Reserve will probably start buying Treasuries to keep borrowing costs down, postponing a rout in U.S. government debt.

“He’s setting things up for a gigantic fall down the line, but that does not mean he can’t drive long-term interest rates to zero,” Rogers said. “Governments are printing money everywhere, borrowing stupendous amounts. Throughout history that has led to problems in the bond markets, and it will this time too.”

Rogers said he unwound in the fourth quarter so-called short positions that would benefit from declines in Treasuries. He “made a loss” betting notes would decline, he said.

“I am waiting to short them again,” Rogers said. “I have no idea when. U.S. government bonds are going to be one of the great shorts of our time somewhere down the road.”

Monday, March 09, 2009

Yen Falls as Japan Posts First Trade Deficit in 13 Years

Today, Bloomberg reported that the Japanese Yen dropped today against the dollar, euro, and Swiss franc as Japan posted its first trade deficit in 13 years.

“The poor Japanese trade-deficit data are giving further fuel to the idea that Japan, or the yen, is no longer the safe haven as the country’s external position deteriorates,” said Adam Cole, London-based head of global currency strategy at the Royal Bank of Canada.

We continue to follow developments in the Yen as we continue to monitor our short position.

Chuck Butler, my favorite currency analyst, also weighed in this morning on the comments from "Mr. Yen":

I mentioned to Chris Gaffney last week, that I had been seeing more yen selling coming across the trading desk than I had seen in a long time. I said that these people, if they had held it long enough, were probably taking profits. And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!

The guy known as "Mr. Yen", Sakakibara, told the press last night that he believed yen may rise to a record 70 VS the dollar... WOW! He also said that it would range trade between 100 and 70... He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.

Hmmm... I just don't know about all that... For one, I'm not convinced the flight to safety that has underpinned the dollar with buying of Treasuries, will be duplicated in Japan... And two... The only thing I saw pushing the yen stronger in 2008 was the unwinding of the Carry Trade, which I said had come to end about a month ago. So... There you have it... I don't like yen's chances to go to 70, but do agree that it could hold 100... It's darn close to 99 as I type...

Sunday, March 08, 2009

Shorting the Japanese Yen - Weekly Commodities Report

Why We're Shorting the Yen

Last Monday, we shorted the Japanese Yen.  Longtime readers may be wondering what we're smoking, as we've been playing the long side of the Yen (with relative success) on and off over the past couple of years.

My thinking is that the carry trade has been completely unwound, and fundamentals will now start driving the currency markets once again.  It's a tricky environment, as nation-states engage in an escalating battle of competitive currency devaluation.  I do believe that most of the world's currencies are "circling the bowl", just at different rates.

This should ultimately be quite positive for gold and silver, which may continue to regain their status as "sound money" while this plays out.

Back to the Yen - the fundamentals are not good, even worse than the dollar, I believe.  Japan's economy, which is export driven, has seen exports absolutely collapse.  The Bank of Japan has not been shy recently about expressing an interest in halting the Yen's rise.  A weak Yen is in Japan's best short term economic interests.

With the Yen "breaking down" on the chart, it's time to short it.

Source: Barchart.com

Other currencies with poor fundamentals that may be good short candidates are the British Pound and the Euro.  

Recession and Muddle Through Recovery, or Greater Depression?

This is going to be a long, drawn out recession, and a slow slog of a recovery, I believe.  I see one of two scenarios unfolding, and have spent a lot of my recent time and energy figuring out of we'll see:
  1. A deep recession, but only a recession.  Followed by a slow recovery that is drawn out due to the massive government measures we're seeing.  But ultimately, the world, and the US, recover, and we're back on track with a new boom around the middle of next decade.
  2. The Greater Depression, as Doug Casey postures, where things get really ugly, and we see something on par or even worse than the first Great Depression.  Social unrest and upheaval are possible, and perhaps even probable, in this scenario.
Scenario #1, the Muddle Through Economy, is a phrase coined by financial analyst John Mauldin.  If you're not familiar with Mauldin, I'd highly recommend you check him out.  He has a free weekly newsletter that is excellent.

Mauldin has a new service that I subscribe to, where he shares audio recordings of conversations he has with other financial gurus in his rolodex.  The most recent edition, recorded last week I believe, featured Nouriel Roubini, as they discussed the global economic outlook over the next 3-5 years.

While Mauldin and Roubini are both bearish in the short term, both seem to believe that things will eventually get back on track, led by the emerging markets.  Essentially we'll have our deep recession, with a slow L-shaped recovery, but eventually we'll get on with things.  

On the other side of the coin, Doug Casey and the folks at Casey Research believe we are in for some very bad things.  Since they have been relatively on the money regarding the current mess we're in, I can't disregard their opinion that things are going to get flat out ugly.

For the full monty from Doug Casey, check out this guest article he penned for us at the end of 2008 about The Greater Depression.

My conclusion?  I'm cautiously optimistic that Mauldin's view will prevail,  but can't rule out the warnings being issued by the Casey folks.  So I try to be a good trader and keep an open mind to all possible scenarios - so that when the facts change, I can change my outlook accordingly.

As a side note, I've been ruthlessly unsubscribing from most other financial publications I have.  Just too much noise - I don't need to have hundreds of stock ideas, and dozens of different opinions.  I've picked a few voices that I trust, and have gotten things mostly right to date in terms of the current economic situation, and will focus on them moving forward.

What I Do All Day

This blog is really just a fun side project for me.  I would love to spend all day on it if I could - and maybe someday I will if I can develop real business model around it - but for now, it's a labor of love.

These days, my days are quite busy, as my software company just released it's first product to the market.  We've built an automatic time tracking tool that helps people figure out where their time goes, by capturing and categorizing how they spend time on their computer.  

It seems to be most useful for folks who need to meticulously account for their time, such as attorneys and other folks who bill hourly, by serving as a "personal timekeeper" of sorts.

I'd welcome your feedback and thoughts on Chrometa's website and concept.  There's also a free 30-day trial available on the site.  To chat more about this, you can ping me direct: brett - at - chrometa - dot - com.

Hanging Out on Twitter

I have to admit I'm getting more addicted to the strange universe that is Twitter by the day.  You can find me there @brettowens.

Current Futures Positions

Open positions

 03/02/09  Short  1  JUN 09  Japanese Yen      1.0271  1.0204  $837.50 
 02/27/09  Long  1  MAY 09  Sugar #11      13.79  12.79  ($1,120.00)   
Net Profit/Loss On Open Positions($282.50) 

Account Balances

Current Cash Balance$29,388.17
Open Trade Equity($282.50)
Total Equity$29,105.67
Long Option Value$0.00
Short Option Value$0.00
Net Liquidating Value$29,105.67


Cashed out: $20,000.00
Total value: $49,105.67
Weekly return: 0.4%
2009 YTD return: -41.3% :(

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

Initial stake: $2,000.00

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