Where to start on this whacky Friday...
As I write it is approximatels 1:00 P.M central standard time, the Yen is up over 1.5% trading in the 113 range, gold has pushed above the $700 /oz, the DOW is off trading down 180 points, the U.S. dollar index is back below the 80 level which might be the most important thing in the markets going on.
As chaotic as it is, I sit back and smile to myself. It is a glimmer of true capitalism...just a glimmer. All the carry traders continue to get whacked, while gold and the U.S. dollar begin to show their true colors. While I type and scream to the world, "I TOLD YOU SO!!!"
I apologize. Although amazingly stubborn, I am not a self-loving boob, but when you stand on the side of the line that I do, it feels good to be right. Being a doom casting bear takes a lot out of a man. We are constantly reading headlines of, "The bears were wrong again" and today we read, "the bears are back out of their caves."
Anyways, what the heck is going on here? Well recent pay roll figures came out and were very poor indeed.
The funny thing is market irrationality. Just the other day, economic data was rather positive and the headlines read, "The markets sell off due to strong economic data reducing the chance of rate cuts."
Then junk data comes out today, and the market sells off even more sharply. Anyway we look at this, the downward pressure on the markets is great indeed. Any chance for the markets to go down, it seems that they are taking it. While I fully expect the situation regarding coming economic figures as well as the equities market to only get much, much worse.
I understand that some of these posts are spurratic and conver a number of topics. I feel that it is necessary to involve the new readers in some of my thought processes going forward so they understand a little bit more where I am coming from. The other piece of the puzzle is that markets are so intertwined today, that it's hard to discuss one thing without discussing three others. Going forward I will be generalizing less, and sticking more to specific topics. Stay tuned...
Friday, September 7, 2007
Thursday, September 6, 2007
Gold Update
My favorite yellow metal gold has been performing nicely over the past week. It has pushed passed the ever important resistance of 692.50 and is trading at 694.50. These next couple of days will be pivitol in seeing if the move past 692.50 will be a break out or a fake out. I will definitely be watching this going forward.
So why the recent move in price?
Well the easy answer is that the market is pricing in a downward rate cut in the fed funds rate. This may very well be true, but I have a gut feeling that there is someone behind the scenes pulling the trigger on some large gold sales. It very well might be the likes of a foreign central bank...possibly china, or it might just be attributed to the buying of the hated satanic hedge funds.
The Telegraph had some interesting things to say about the market for U.S. Treasuries. The reason I talk about the treasuries market in the context of a gold post is that as treasuries go so go the U.S. dollar. As the U.S. dollar goes, gold goes inversly.
The other reason is that if foreign banks aren't accumulating treasuries they have to accumulate other investment vehicles. In China, how about a $300 sovereign wealth fund. Then you have euros, yen, and of course gold. The notion of a rate cut is beginning to scare foreign investors away from bonds.
Then you have the trade protectionism against bills that are currently flying around congress with the senators and representatives licking their lips at how they will be preaching "I voted for a strong American economy and resentment towards those Chinese cheaters."
Well, I would like to assume that they know that China has about 20 aces up their sleeves. Regarding their foreign excange reserves, they hold the ultimate playing card in these protectionist discussions.
So back to what the UK Telegraph had to report regarding the bond markets. They said that foreign central banks had cut their holdings of U.S. treasuries by $48 billion with $32 billion of that drop coming in the past 2 weeks.
We can't say who is behind the sales until the treasury releases its TIC numbers in November. Any who, this is reason enough to worry. The swoon of the dollar has been fantastic over the past 2 months, and it's inability to break and hold above its 50 day MA is very bearish, not to mention the fact that it can't even come near its 200 day MA. A rate cut, just might seal the fate of the green back.
Going forward, we can't miss a day in the markets. We are one or two events away from seeing fireworks in the currency, PM, and foreign debt markets. These are definitely interesting times, but we haven't seen a scrath $40+ trillion credit derivatives market gets pulled into the mess.
I am an owner of physical gold/silver as well as PM mining stocks. I recomend that you do that same before its too late...
So why the recent move in price?
Well the easy answer is that the market is pricing in a downward rate cut in the fed funds rate. This may very well be true, but I have a gut feeling that there is someone behind the scenes pulling the trigger on some large gold sales. It very well might be the likes of a foreign central bank...possibly china, or it might just be attributed to the buying of the hated satanic hedge funds.
The Telegraph had some interesting things to say about the market for U.S. Treasuries. The reason I talk about the treasuries market in the context of a gold post is that as treasuries go so go the U.S. dollar. As the U.S. dollar goes, gold goes inversly.
The other reason is that if foreign banks aren't accumulating treasuries they have to accumulate other investment vehicles. In China, how about a $300 sovereign wealth fund. Then you have euros, yen, and of course gold. The notion of a rate cut is beginning to scare foreign investors away from bonds.
Then you have the trade protectionism against bills that are currently flying around congress with the senators and representatives licking their lips at how they will be preaching "I voted for a strong American economy and resentment towards those Chinese cheaters."
Well, I would like to assume that they know that China has about 20 aces up their sleeves. Regarding their foreign excange reserves, they hold the ultimate playing card in these protectionist discussions.
So back to what the UK Telegraph had to report regarding the bond markets. They said that foreign central banks had cut their holdings of U.S. treasuries by $48 billion with $32 billion of that drop coming in the past 2 weeks.
We can't say who is behind the sales until the treasury releases its TIC numbers in November. Any who, this is reason enough to worry. The swoon of the dollar has been fantastic over the past 2 months, and it's inability to break and hold above its 50 day MA is very bearish, not to mention the fact that it can't even come near its 200 day MA. A rate cut, just might seal the fate of the green back.
Going forward, we can't miss a day in the markets. We are one or two events away from seeing fireworks in the currency, PM, and foreign debt markets. These are definitely interesting times, but we haven't seen a scrath $40+ trillion credit derivatives market gets pulled into the mess.
I am an owner of physical gold/silver as well as PM mining stocks. I recomend that you do that same before its too late...
Free Market Capitalism
Many folks ask me what my political beliefs are. What I mean is that they ususally ask me what political group I side with. Now my friends and family know the answer to this question, but when asked this question, the individual who has inquired usually is waiting for one of two answers: Democrat or Republican.
Again, for the people close to me, they know that this is like walking on thin ice. The notion of each of these political groups make me vomit. In fact, politics in general tends to make me feel this way.
So when asked my political beliefs, my usual answer to them is that I am a free market capitalist. Sometimes I might refer to myself as a libretarian, but the beliefs of true libretarians often associate themselves with free market capitalists. Believe me dear readers, I'm not talking about the Larry Kudlow's of the world who CLAIM that they are free markets capitalists. And that's exactly what I would like to talk about in this post.
Here is a farse statement that we can often catch on the likes of CNBC of FOX news: Because the U.S. economy is a free market capitalist state, we have created the world's greatest and strongest economy.
This discussion of the U.S. economy often sounds like a discussion about the Titanic minus the final chapter of the story.
I hear all to often that the U.S. and its $11 trillion dollar economy may get rumbled every now and then, but this thing is unsinkable. It's just too big. Like I said, the final chapter hasn't been sung, but I KNOW it's coming.
I've completely disregarded the second statement of the above mentioned statement, but what about the notion of American capitalism.
Bill Bonner once said that in TRUE capitalism, consumers and investors get what they deserve, not what they desire.
For the last 6 years Americans have been getting what they wanted, while Easy Al Greenspan silently shifted one liquidity bubble to another. Ladies and gentlemen, this is not free market. When a 'independent' agency such as the Fed can manipulate markets by changing short term interest rates, we get a situations that couldn't be further from capitalism. This is keeping the U.S. economies head above water...that's all.
The insane amount of subsidies and quotas, and anything else to manipulate the market restricts us from being truly a free market economy. Notice its not called 'manipulated market capitalism.' It's because we have a name for that, and its called socialism.
There's no such thing as a bail out in free market economics, similar to the one that we are seeing enacted in the sub-prime market. If this was true capitalism, we wouldn't need a bail out in the first place.
I really could go on and on regarding this subject, but I truly understand that the philisophical side of economics can be, well...boring. Sometimes something just needs to be said on the subject, but there is one notion that needs to be taken from this...
Free market capitalism is always the path for low unemployment, high GDP growth, technilogical advancement and everything else to progress society along. It is not always the easy answer, or in our case, the politically friendly answer in the short term. But politicians can't think, or don't care beyond their next election. It would be awful easy to put all of the blame on them, but it stems from the ignorance of the American consumer.
Again, for the people close to me, they know that this is like walking on thin ice. The notion of each of these political groups make me vomit. In fact, politics in general tends to make me feel this way.
So when asked my political beliefs, my usual answer to them is that I am a free market capitalist. Sometimes I might refer to myself as a libretarian, but the beliefs of true libretarians often associate themselves with free market capitalists. Believe me dear readers, I'm not talking about the Larry Kudlow's of the world who CLAIM that they are free markets capitalists. And that's exactly what I would like to talk about in this post.
Here is a farse statement that we can often catch on the likes of CNBC of FOX news: Because the U.S. economy is a free market capitalist state, we have created the world's greatest and strongest economy.
This discussion of the U.S. economy often sounds like a discussion about the Titanic minus the final chapter of the story.
I hear all to often that the U.S. and its $11 trillion dollar economy may get rumbled every now and then, but this thing is unsinkable. It's just too big. Like I said, the final chapter hasn't been sung, but I KNOW it's coming.
I've completely disregarded the second statement of the above mentioned statement, but what about the notion of American capitalism.
Bill Bonner once said that in TRUE capitalism, consumers and investors get what they deserve, not what they desire.
For the last 6 years Americans have been getting what they wanted, while Easy Al Greenspan silently shifted one liquidity bubble to another. Ladies and gentlemen, this is not free market. When a 'independent' agency such as the Fed can manipulate markets by changing short term interest rates, we get a situations that couldn't be further from capitalism. This is keeping the U.S. economies head above water...that's all.
The insane amount of subsidies and quotas, and anything else to manipulate the market restricts us from being truly a free market economy. Notice its not called 'manipulated market capitalism.' It's because we have a name for that, and its called socialism.
There's no such thing as a bail out in free market economics, similar to the one that we are seeing enacted in the sub-prime market. If this was true capitalism, we wouldn't need a bail out in the first place.
I really could go on and on regarding this subject, but I truly understand that the philisophical side of economics can be, well...boring. Sometimes something just needs to be said on the subject, but there is one notion that needs to be taken from this...
Free market capitalism is always the path for low unemployment, high GDP growth, technilogical advancement and everything else to progress society along. It is not always the easy answer, or in our case, the politically friendly answer in the short term. But politicians can't think, or don't care beyond their next election. It would be awful easy to put all of the blame on them, but it stems from the ignorance of the American consumer.
Wednesday, September 5, 2007
DOW Answers Our Call
Well, the DOW has answered our question. It is trading down over 170 points as I write this A.M.
The culprit...
Pending home sales fell 12.2% which is the largest drop since the statistic's history. Ouch! I would like to reiterate my belief that the housing market will get much worse before it gets better, and this will drag the economy into recession.
Job growth slowed according two a couple of studies, while lay offs rose. Again, the underlying weakness in the U.S. economy is beginning to rear its ugly head. I expect this to only get worse.
Finanally, as I write, the Yen-Dollar is trading up approxiametly 1% at 115.1. I am very bullish on the yen as the carry trade continues to unwind. I expect this to be a culprit in ripping liquidity going forward.
Where to from here?
In my opinion, as I wrote yesterday, I see the DOW oscillating between its 50 and 200 day MAs. In discussing the DOW a month from now, we have to talk about the Fed, and what they will do.
Now if you ask one of the talking heads on CNBC, they are about 100% positive a rate cut will ensue this September. If you ask me, there is probably over a 50% chance of a rate cut, but I'm not counting my chickens before they hatch.
The Feds achieved their desired goal when they cut the discount rate. This allowed the big investment banks such as Goldman, Bear, Citi, Morgan Stanley, etc. to bring 100's of billions of dollars of morgage backed securities for collateral and get cash.
Now 6 months ago this use to be an OVERNIGHT lending rate. Now its 3 weeks, 60 days, or even 90 days. So what was the Feds goal?
Well you have to realize the helicopter Ben doesn't give a flying rip about Joe Schmoe and the house that he is going to lose. All the Fed cares about is these brokerage houses and keeping them afloat.
Essentially, the lowering the discout rate and changing the rules of this type of lending has allowed the Fed to provide the desired liquidity to the market.
So the Fed doesn't need to cut the Fed funds rate to achieve its desired goal. Now, it is under extreme political and public pressure to do just that.
So going forward, we have to watch the jobs data, and even the financial data leading up to the meeting.
The thing that should worry you is that the market has pretty much priced in a 25 basis point rate cut. Look for the equities market to react accordingly to a rate cut.
Now it's really sickening that these idiots desire a rate cut, being that low interest rates were the problem in the first place, but what if these schmucks don't get what they ask for?
I would expect that if the Fed comes out and holds the Fed funds rate steady that we will see equities take a hard hit.
More on how a rate cut will affect the financial markets coming shortly...
The culprit...
Pending home sales fell 12.2% which is the largest drop since the statistic's history. Ouch! I would like to reiterate my belief that the housing market will get much worse before it gets better, and this will drag the economy into recession.
Job growth slowed according two a couple of studies, while lay offs rose. Again, the underlying weakness in the U.S. economy is beginning to rear its ugly head. I expect this to only get worse.
Finanally, as I write, the Yen-Dollar is trading up approxiametly 1% at 115.1. I am very bullish on the yen as the carry trade continues to unwind. I expect this to be a culprit in ripping liquidity going forward.
Where to from here?
In my opinion, as I wrote yesterday, I see the DOW oscillating between its 50 and 200 day MAs. In discussing the DOW a month from now, we have to talk about the Fed, and what they will do.
Now if you ask one of the talking heads on CNBC, they are about 100% positive a rate cut will ensue this September. If you ask me, there is probably over a 50% chance of a rate cut, but I'm not counting my chickens before they hatch.
The Feds achieved their desired goal when they cut the discount rate. This allowed the big investment banks such as Goldman, Bear, Citi, Morgan Stanley, etc. to bring 100's of billions of dollars of morgage backed securities for collateral and get cash.
Now 6 months ago this use to be an OVERNIGHT lending rate. Now its 3 weeks, 60 days, or even 90 days. So what was the Feds goal?
Well you have to realize the helicopter Ben doesn't give a flying rip about Joe Schmoe and the house that he is going to lose. All the Fed cares about is these brokerage houses and keeping them afloat.
Essentially, the lowering the discout rate and changing the rules of this type of lending has allowed the Fed to provide the desired liquidity to the market.
So the Fed doesn't need to cut the Fed funds rate to achieve its desired goal. Now, it is under extreme political and public pressure to do just that.
So going forward, we have to watch the jobs data, and even the financial data leading up to the meeting.
The thing that should worry you is that the market has pretty much priced in a 25 basis point rate cut. Look for the equities market to react accordingly to a rate cut.
Now it's really sickening that these idiots desire a rate cut, being that low interest rates were the problem in the first place, but what if these schmucks don't get what they ask for?
I would expect that if the Fed comes out and holds the Fed funds rate steady that we will see equities take a hard hit.
More on how a rate cut will affect the financial markets coming shortly...
Tuesday, September 4, 2007
Dow Industrials Coming Move
One of the most frequently asked questions on CNBC, Bloomberg, and by any other simpleton investor who lacks the common sense that would keep him/her from blowing their life savings.
As I go forward with this blog, I will try and fill in some of the blanks for the new readers.
The first notion that I would like to talk about is that I believe we entered a bear market in general equities, such as the industrials, in 2000. This gets us back to the idea of an equities supercycle.
In a nutshell, a full equities supercycle takes about 33 years to run its route. In that time, half the period is spent in a bear market, and the other half in a bull market.
Let's just get rid of a misnomer before we move on. The 17 years of bear market is not a period of great decline in equities. Instead it is an extended period of sideways trading, during which there are shorter periods of serious declines. The losses are experienced in the form of inflationary decay.
So my interpretation is that we are 7 years into the bear half of the supercycle. I believe that the 10% correction we saw just a few short weeks ago is just the beginning. I expect something of a 40-50% correction to ensue.
Now 10 years from now, I expect the DOW to be trading in the range of 12-14k still. With REAL inflation running at an annual rate of 10+%, the amount of wealth lost will be tremendous for the schmucks who have their money in general equities are playing a dangerous game in my opinion.
Again, if you have any questions regarding this topic, or would like a more in depth explanation, you can do one of two things. The first is go to stockcharts.com or bigcharts.com and look at a chart of the S&P or Russel 2000.
These are much broader indexes than the 30 companies that the DOW encompasses. Look at the double top formed in the S&P at 1526, and if you were throwing darts at a board, you would actually have a negative return over the past 7 years if you have been investing in the S&P, not to mention the inflation that has occurred over that period as well.
Now, for those of you who prefer to discus the first question, the short term outlook on the DOW, let's look at the following chart.
As I go forward with this blog, I will try and fill in some of the blanks for the new readers.
The first notion that I would like to talk about is that I believe we entered a bear market in general equities, such as the industrials, in 2000. This gets us back to the idea of an equities supercycle.
In a nutshell, a full equities supercycle takes about 33 years to run its route. In that time, half the period is spent in a bear market, and the other half in a bull market.
Let's just get rid of a misnomer before we move on. The 17 years of bear market is not a period of great decline in equities. Instead it is an extended period of sideways trading, during which there are shorter periods of serious declines. The losses are experienced in the form of inflationary decay.
So my interpretation is that we are 7 years into the bear half of the supercycle. I believe that the 10% correction we saw just a few short weeks ago is just the beginning. I expect something of a 40-50% correction to ensue.
Now 10 years from now, I expect the DOW to be trading in the range of 12-14k still. With REAL inflation running at an annual rate of 10+%, the amount of wealth lost will be tremendous for the schmucks who have their money in general equities are playing a dangerous game in my opinion.
Again, if you have any questions regarding this topic, or would like a more in depth explanation, you can do one of two things. The first is go to stockcharts.com or bigcharts.com and look at a chart of the S&P or Russel 2000.
These are much broader indexes than the 30 companies that the DOW encompasses. Look at the double top formed in the S&P at 1526, and if you were throwing darts at a board, you would actually have a negative return over the past 7 years if you have been investing in the S&P, not to mention the inflation that has occurred over that period as well.
Now, for those of you who prefer to discus the first question, the short term outlook on the DOW, let's look at the following chart.
I've already told you what what my fundamental outlook for the general equities market is. I haven't necessarily told you why I feel that way, but that is a something we can get into at a later date.
So looking at this graph we can take a couple of things from this. Let's view this with a couple of possible scenarios.
The DOW has found strong support at its 200 day MA when it nearly erased a 300+ point intraday decline. After initially breaking below its 50 day MA, it has essentially traded in between its 50 and 200 day MAs.
The DOW is obviously at a fairly critical point if we are talking short term move. Let's assume that the DOW breaks above it's 50 day MA. This would be bullish with the DOW finding its next resistance at the 13690 level. If it continues to push past 13700, its next resistance is at the 14k level.
Looking at the technical indicators, the MACD has remains on a buy signal while the DMI is still on a sell signal and has been for some time. This usually indicats a period of sideways trading, but these indicators have a slight lag to them.
Taking another look, the MACD has taking a recent turn upwards, and the DMI almost appears to be on its way to another buy signal. If the DMI triggers, I would look for the DOW to push past 14k.
Let's look at the other side of this picture. Say the DOW fails to break through its 50 day MA. A couple of things could happen at this point. The first is that it could just break through its 200 day MA and head south from there. This scenario seems unlikely in the immediate future.
The other option is that it could again find support at its 200 day MA. At this point I would expect the DOW to coninue to bounce back and forth between its 50 and 200 day MA while pulling the averages closer and closer together.
Once the MA converge, this usually signifies a strong price move coming. The problem is when the MAs converge, it is often difficult to predict which way, up or down, the price will jump. At this point we would have to reasses the situation from a fundamental stand point, but with the vast amount of option ARMs resetting this fall and winter, I would expect that the DOW doesn't have much life left in it.
So what should we look for?
Well, it is very common that in a bear market in equities, there is usually one final wild move up in price. Was the run to 14k that move? It's hard to say, but I really wouldn't be surprised to see another jump.
I would be watching tomorrow's pending home sales statistic as well as the jobless claims and productivity numbers that are set to come out later this week.
Watch the yen exchange rates. The carry trade is one of, if not the most vital indicators of market volatility.
September happens to be a seasonally bearish month for equitites. We'll have to keep that in mind.
So essentially I have said nothing. You probably think that I have strattled the fence and that I haven't done anything close to throwing my neck out there.
Although it is difficult to judge, here's what I see in the coming months for the DOW. Unles the DOW surpasses 14k by the end of Oct., I find it highly unlikely that it will in the next 5 years.
A driving force in the equities markets is obviously the credit turmoil which I expect to get much worse going forward. This thing is a ticking time bomb, and some great ways to protect yourself are with inverse ETFs and my favorite yellow metal GOLD!
Ready to Rumble
Old readers and new readers alike:
I am back and very excited to start blogging on economics, market analysis, investments, and even the occasional political blurb. I have missed sharing my thoughts with you guys, but some readers have kept in touch with me through my "Bull on Commodities Portfolio Updates." We made some very decent returns amidst a volatile market. But going forward we must be more keen then ever with our resource investments as they have proven to be quite the roller coaster ride.
I would just like to give a quick bit of info about myself for those readers who are new to the website. I am a student at the University of Minnesota double majoring in Economics and Statistics.
That's the logistical part...also the part that doesn't matter. On the other hand, I am a commodities bull government doubting college student who thinks college economics and his professors are academic boobs.
I have an extensive knowledge of the markets for commodities, energy, currencies, foreign debt, bonds, and housing.
I spent the summer doing exactly what I do on this website for a fantastic company-Agora Financial. Some of their other editors that I worked with include Bill Bonner, Addison Wiggins, Kevin Kerr, Dan Denning, and may other unbelievably intelligent and talented individuals in the world of finance.
I had a number of pieces published in the Whiskey and Gunpowder and Penny Sleuth newsletters, which both have a readership of over 100,000 people. I have been hired on to write for them on commodities investments, as well as other tid-bits during the school year. I will post links to my publications shortly.
Just scratching the surface, the main reasons for my bullish stance on commodities are the extensive amount of monetary inflation in the world, our current timing in the commodities/equities supercycles, and the growth in demand from emerging markets.
I will be going into greater detail into all of these notions, as well as other areas of interest going forward.
The last item I would like to discuss in this post is the Bull on Commodities Portfolio. That is my actual portfolio. Every trade I make I post on the website. I don't have one strict method of investments. I invest in each stock and ETF differently. The only consistency I carry is the notion of ripping profits without prejudice. I use a variety of technical and fundamental analysis to achieve this.
I have come a long ways in a short period of time, but I am always learning and adding tools to make me a better analyst and investor. That is the part of the world of finance that amazes me so much. Even after you've been an investor for 40 years, there is always something else to learn.
In closing, I have recently changed my residence. Because of this, I will not have internet at my new house until this Friday. I will continue to watch the markets and post my findings. I absolutely look forward to not only making money, but getting to know some of you along the way. As my current readers know, I strongly encourage you to send me questions or comments whenever you have them. My personal email address is njfinancial@gmail.com. Otherwise feel free to post in the comment section of the website, but please keep it tasteful. You can save your more angry posts for my personal email. Thanks again for reading.
Happy investing,
Nick Jones
I am back and very excited to start blogging on economics, market analysis, investments, and even the occasional political blurb. I have missed sharing my thoughts with you guys, but some readers have kept in touch with me through my "Bull on Commodities Portfolio Updates." We made some very decent returns amidst a volatile market. But going forward we must be more keen then ever with our resource investments as they have proven to be quite the roller coaster ride.
I would just like to give a quick bit of info about myself for those readers who are new to the website. I am a student at the University of Minnesota double majoring in Economics and Statistics.
That's the logistical part...also the part that doesn't matter. On the other hand, I am a commodities bull government doubting college student who thinks college economics and his professors are academic boobs.
I have an extensive knowledge of the markets for commodities, energy, currencies, foreign debt, bonds, and housing.
I spent the summer doing exactly what I do on this website for a fantastic company-Agora Financial. Some of their other editors that I worked with include Bill Bonner, Addison Wiggins, Kevin Kerr, Dan Denning, and may other unbelievably intelligent and talented individuals in the world of finance.
I had a number of pieces published in the Whiskey and Gunpowder and Penny Sleuth newsletters, which both have a readership of over 100,000 people. I have been hired on to write for them on commodities investments, as well as other tid-bits during the school year. I will post links to my publications shortly.
Just scratching the surface, the main reasons for my bullish stance on commodities are the extensive amount of monetary inflation in the world, our current timing in the commodities/equities supercycles, and the growth in demand from emerging markets.
I will be going into greater detail into all of these notions, as well as other areas of interest going forward.
The last item I would like to discuss in this post is the Bull on Commodities Portfolio. That is my actual portfolio. Every trade I make I post on the website. I don't have one strict method of investments. I invest in each stock and ETF differently. The only consistency I carry is the notion of ripping profits without prejudice. I use a variety of technical and fundamental analysis to achieve this.
I have come a long ways in a short period of time, but I am always learning and adding tools to make me a better analyst and investor. That is the part of the world of finance that amazes me so much. Even after you've been an investor for 40 years, there is always something else to learn.
In closing, I have recently changed my residence. Because of this, I will not have internet at my new house until this Friday. I will continue to watch the markets and post my findings. I absolutely look forward to not only making money, but getting to know some of you along the way. As my current readers know, I strongly encourage you to send me questions or comments whenever you have them. My personal email address is njfinancial@gmail.com. Otherwise feel free to post in the comment section of the website, but please keep it tasteful. You can save your more angry posts for my personal email. Thanks again for reading.
Happy investing,
Nick Jones
Sunday, May 13, 2007
Closing Down Shop
Ladies and gentlemen, I am sad to inform you that I will no longer be posting this summer. I am just going to be too busy between working two jobs, researching my own stocks and following the economy. I wouldn't be able to put 100% into it, and if I can't give it my all, I won't sell you, or myself, short. I will not have the time to share these thoughts on this website until Fall rolls around again.
I will be opening up the option of an informal financial newsletter of sorts. The newsletter will cover all the buys, sells, and holds of my personal portfolio. It will also contain the occasional tid bits of economic current events and my personal analysis on them. The more demand there is for the newsletter, the more work and time I will be putting into it, and who knows, I might give it a fancy name or something. So email and let me know if you wish to be put on the list that will be receiving the letter. The email addresses will be held confidential, and will not be rented out to anyone.
Thanks to all of you loyal readers and otherwise. Feel free to contact me via email if you have any questions or comments about anything. My email address is jones973@tc.umn.edu. Happy investing, and I will be picking the website up again at the end of August or beginning of September.
I will be opening up the option of an informal financial newsletter of sorts. The newsletter will cover all the buys, sells, and holds of my personal portfolio. It will also contain the occasional tid bits of economic current events and my personal analysis on them. The more demand there is for the newsletter, the more work and time I will be putting into it, and who knows, I might give it a fancy name or something. So email and let me know if you wish to be put on the list that will be receiving the letter. The email addresses will be held confidential, and will not be rented out to anyone.
Thanks to all of you loyal readers and otherwise. Feel free to contact me via email if you have any questions or comments about anything. My email address is jones973@tc.umn.edu. Happy investing, and I will be picking the website up again at the end of August or beginning of September.
Friday, May 11, 2007
Denison Earnings
Denison came out with its earnings report yesterday. Let's dig into the numbers because they are rather interesting and assuring as an investor. They had a consolidated net loss of $5.06 million or $.03 per share.
Here's the good stuff, net cash used in operation was $5.44 million compared with $4.5 million a year ago. From that less than a million increase, revenue jumped from $660k to $11.72m. The gain can be attributed to increased production as well as increases in the price of uranium.
From that revenue, they more than doubled their exploration expenditures from $2.5m to $5.05m. This is exactly what you like to hear from a mining company. Increased production and increased commodity prices leading to an increase in revenue which they are funneling back into their exploration projects. We are up over 25% on this one in the last 2 months and I will continue to hold.
Here's the good stuff, net cash used in operation was $5.44 million compared with $4.5 million a year ago. From that less than a million increase, revenue jumped from $660k to $11.72m. The gain can be attributed to increased production as well as increases in the price of uranium.
From that revenue, they more than doubled their exploration expenditures from $2.5m to $5.05m. This is exactly what you like to hear from a mining company. Increased production and increased commodity prices leading to an increase in revenue which they are funneling back into their exploration projects. We are up over 25% on this one in the last 2 months and I will continue to hold.
Thursday, May 10, 2007
Gold Update
As you can see, gold is once again approaching the $660 support level. I don't necessarily think the correction was due to gold being enormously over bought because it wasn't. I think it was more the fact that the USD was over sold. In my last update I said that a correction to the $660 level was a possibility. You can also see the support at the 50 day MA. I don't expect this consolidation period to last much longer. I will be adding to my gold stock positions here and will continue to do so when the price bumps up against the 50 day MA.Economic Data
Lot's of data, so lets just dig in...
In March, the trade deficit increased by 10.4% from the April numbers. The numbers came in at $63.9 billion. That's an annual rate of $766.8 billion dollars. Bloomberg reports that the majority of this increase came from oil imports. So what happens to the trade deficit when oil jumps to $80 /barrel this summer? I don't think I need to answer that question. Another quick note on the topic, import prices in general rose 1.3%. Again this is do large in part to oil prices. The issue on a larger scale is that all of these pools of liquidity are trying to find a home, and I expect some of that liquidity to get real cozy in consumer prices.
Bloomberg reports:
U.S. retailers posted the biggest sales decline on record, trailing already-reduced estimates.
Bloomberg blames the cold. I don't buy that for a second. We are starting to see signs that the American consumer is maxed out. Consumers are no longer able to use their declining home equity to buy big ticket items. That hasn't necessarily stopped them, but it has just slowed them down. This is prevalent in the rising amount of credit card debt. Don't forget about the ARMs that are planned to recent in the coming months and years. Look for this to effect GDP for the 2Q, and I promise you that the consumer hasn't come close to bottoming out yet.
The Bank of England raised their overnight lending rates to 5.5% which is a 6 year high. The ECB is likely to follow suit in June. Even as the FOMC holds rates steady, foreign central banks continue to raise rates putting more downward pressure on the USD. I don't like to forecast or predict to much but I am going to do just that for you now:
I think that the rhetoric that Bernanke and company has been using is just that. They are trying to 'battle' inflation with words, but it doesn't really work like that. As long as they can use core CPI measures and manipulate the manufacturing data before the FOMC meetings, they will not be faced with pressure from the general public on inflation. The crazy thing is that the majority of Americans want a rate cut. I think that Bernanke will continue his 'tough' stance on inflation for a good part of this year. He and his cronies at the Federal Reserve will cut rates as GDP growth, or lack there of, continues to fall. Look for a rate cut at the end of this year or the beginning of next year.
In March, the trade deficit increased by 10.4% from the April numbers. The numbers came in at $63.9 billion. That's an annual rate of $766.8 billion dollars. Bloomberg reports that the majority of this increase came from oil imports. So what happens to the trade deficit when oil jumps to $80 /barrel this summer? I don't think I need to answer that question. Another quick note on the topic, import prices in general rose 1.3%. Again this is do large in part to oil prices. The issue on a larger scale is that all of these pools of liquidity are trying to find a home, and I expect some of that liquidity to get real cozy in consumer prices.
Bloomberg reports:
U.S. retailers posted the biggest sales decline on record, trailing already-reduced estimates.
Bloomberg blames the cold. I don't buy that for a second. We are starting to see signs that the American consumer is maxed out. Consumers are no longer able to use their declining home equity to buy big ticket items. That hasn't necessarily stopped them, but it has just slowed them down. This is prevalent in the rising amount of credit card debt. Don't forget about the ARMs that are planned to recent in the coming months and years. Look for this to effect GDP for the 2Q, and I promise you that the consumer hasn't come close to bottoming out yet.
The Bank of England raised their overnight lending rates to 5.5% which is a 6 year high. The ECB is likely to follow suit in June. Even as the FOMC holds rates steady, foreign central banks continue to raise rates putting more downward pressure on the USD. I don't like to forecast or predict to much but I am going to do just that for you now:
I think that the rhetoric that Bernanke and company has been using is just that. They are trying to 'battle' inflation with words, but it doesn't really work like that. As long as they can use core CPI measures and manipulate the manufacturing data before the FOMC meetings, they will not be faced with pressure from the general public on inflation. The crazy thing is that the majority of Americans want a rate cut. I think that Bernanke will continue his 'tough' stance on inflation for a good part of this year. He and his cronies at the Federal Reserve will cut rates as GDP growth, or lack there of, continues to fall. Look for a rate cut at the end of this year or the beginning of next year.
Wednesday, May 9, 2007
New Addition to the Portfolio
Well it's not necessarily a new addition, but more of a reinstatement of one of my favorite companies. I have added Oilsands Quest (BQI) to my portfolio.
If you recall, I unloaded this company on news of the 'green' movement hitting Canadian oilsands. I think that that has been correctly priced into the stock, and at this price, this stock looks very appealing.
Why do I like BQI? They have the largest land holdings of any Canadian oilsands company. The have had great success in the exploratory drilling, and the interest in these oilsands has been accumulating both globally and domestically. Statoil has recently purchased a Canadian oilsands company, and now there's rumors that Canada might be building a nuclear power plant for the oilsands.
Oil also looks poised to explode. It looks technically strong, but what about the geopolitical wild card? There have been a flurry of recent oil related terrorism in the news. Don't forget about the mess in Nigeria. Also, Doug Casey reports that our oil imports from Algeria, Nigeria, and Angola now account for 26% of our total oil imports. These places are hot beds for violence and the oil flow out of these countries is very vulnerable to interruptions. And what about a hurricane? Don't forget we are amidst La Nina, El Nino's less extreme sister. Anyone one of these items would spike the price of oil, but a combination of the above mentioned events could be cataclysmic.
If you recall, I unloaded this company on news of the 'green' movement hitting Canadian oilsands. I think that that has been correctly priced into the stock, and at this price, this stock looks very appealing.
Why do I like BQI? They have the largest land holdings of any Canadian oilsands company. The have had great success in the exploratory drilling, and the interest in these oilsands has been accumulating both globally and domestically. Statoil has recently purchased a Canadian oilsands company, and now there's rumors that Canada might be building a nuclear power plant for the oilsands.
Oil also looks poised to explode. It looks technically strong, but what about the geopolitical wild card? There have been a flurry of recent oil related terrorism in the news. Don't forget about the mess in Nigeria. Also, Doug Casey reports that our oil imports from Algeria, Nigeria, and Angola now account for 26% of our total oil imports. These places are hot beds for violence and the oil flow out of these countries is very vulnerable to interruptions. And what about a hurricane? Don't forget we are amidst La Nina, El Nino's less extreme sister. Anyone one of these items would spike the price of oil, but a combination of the above mentioned events could be cataclysmic.
Tuesday, May 8, 2007
Uranium Futures
I just wanted to let you know that the June futures contract for one lb of uranium already has a bid of $148. There isn't a contract beyond June available yet.
Monday, May 7, 2007
Uranium Update
I've recently heard through the grape vine that uranium has jumped to $120 /lb. My thoughts on this are like a broken record. Demand continues to outstrip supply and there are no signs of that letting up.
I have some great numbers brought to you by Mike Berry. There are currently 448 nuclear power plants in operation. They consume U3O8 at an annual rate of 188 /lb per year. Current production of U3O8 is approximately 100 million pounds of U3O8 per year.
Berry reports that there are currently as far as future plants go, there are 34 new nuclear power plants for the U.S., 40+ for China, 42 for Russia, and 11 for S. Korea to mention a few. It would take a 41,000 tons of uranium mine production globally to catch up with demand.
I guess what I'm getting at is that I still expect prices push higher. How high do I see them going? Well, as you know, I think this question is ludicrous. It will be very easy to tell when supply catches up with demand in this market. If you forced me to make a guess, I would throw something out there like $200-225 /lb.
I feel that there is an important, but often over looked, item to note. As in most commodities, these prices will be unsustainable. There isn't a shortage of uranium in the earth, there's just a shortage of mines and refineries to extract that uranium. In the long run, I see a price of $40-50 /lb. This is how commodity super cycles work.
One final not before I finish this post. I'm sure you've noticed that I have failed to mention anything about the uranium futures market that opened up today. I feel that this is a nice vehicle for both sides of the market to have a more accurate price than a weekly spot price. I wasn't positive how this would effect uranium stocks. Honestly, I thought we might see an initial sell off in these stocks followed by some good strength. Obviously that's not the case. Denison is trading up approximately 9% today and SXR is up around 4%. I look forward to following this futures market and seeing its effect on the price of U3O8.
I have some great numbers brought to you by Mike Berry. There are currently 448 nuclear power plants in operation. They consume U3O8 at an annual rate of 188 /lb per year. Current production of U3O8 is approximately 100 million pounds of U3O8 per year.
Berry reports that there are currently as far as future plants go, there are 34 new nuclear power plants for the U.S., 40+ for China, 42 for Russia, and 11 for S. Korea to mention a few. It would take a 41,000 tons of uranium mine production globally to catch up with demand.
I guess what I'm getting at is that I still expect prices push higher. How high do I see them going? Well, as you know, I think this question is ludicrous. It will be very easy to tell when supply catches up with demand in this market. If you forced me to make a guess, I would throw something out there like $200-225 /lb.
I feel that there is an important, but often over looked, item to note. As in most commodities, these prices will be unsustainable. There isn't a shortage of uranium in the earth, there's just a shortage of mines and refineries to extract that uranium. In the long run, I see a price of $40-50 /lb. This is how commodity super cycles work.
One final not before I finish this post. I'm sure you've noticed that I have failed to mention anything about the uranium futures market that opened up today. I feel that this is a nice vehicle for both sides of the market to have a more accurate price than a weekly spot price. I wasn't positive how this would effect uranium stocks. Honestly, I thought we might see an initial sell off in these stocks followed by some good strength. Obviously that's not the case. Denison is trading up approximately 9% today and SXR is up around 4%. I look forward to following this futures market and seeing its effect on the price of U3O8.
Friday, May 4, 2007
Less Than...Unemployment
Bloomberg Reports:
The 88,000 increase in employment followed a 177,000 gain in March that was smaller than expected, the labor department reported today in Washington.
The estimated increase was supposed to be 100,000. The unemployment level increased to 4.5%, that's if you take those numbers at face value. Recall my previous post on unemployment for a more detailed explanation of the manipulation of this statistic. Anyways, the reasonable amount of unemployment is been the item that has kept this economy from busting. Although I don't think that we have 4.5% unemployment, we still have a reasonable unemployment level. I guess it is what it is, but this is just another forward looking indicator for the economy.
The 88,000 increase in employment followed a 177,000 gain in March that was smaller than expected, the labor department reported today in Washington.
The estimated increase was supposed to be 100,000. The unemployment level increased to 4.5%, that's if you take those numbers at face value. Recall my previous post on unemployment for a more detailed explanation of the manipulation of this statistic. Anyways, the reasonable amount of unemployment is been the item that has kept this economy from busting. Although I don't think that we have 4.5% unemployment, we still have a reasonable unemployment level. I guess it is what it is, but this is just another forward looking indicator for the economy.
Thursday, May 3, 2007
Crisis Prevention
Bloomberg Reports:
Asian finance ministers will this week probably agree to pool part of the region's $2.7 trillion in foreign-exchange holdings to prevent a repeat of the crisis that depleted reserves ten years ago.
This is an interesting story. The first item that jumps out at you is the $2.7 trillion dollars of reserves that are held in Asia, and the majority of those are U.S. dollars.
The other item of importance is that I believe it's different this time. There's the argument that China and India and some of these other countries are overheating economically. This is fine. Here's where I stand. China is growing at this pace for good reasons. There problem lies in their stock market. I believe that they are in for a major correction, and a lot of folks will lose a lot of money. How that plays out in the rest of the economy will be interesting. China will eventually have to let the yuan float. They will need to stop importing U.S. inflation in order to have a sustainable economy.
That's not the biggest threat in my opinion. I believe that the largest threat to Asian growth is a collapsing USD. Here's the deal: China's economy may or may not be overheating. I've read great arguments on both sides, but it is indisputable that it is very hot and very fragile. A collapsing USD will have ripple effects world wide, but it will effect these 'hot' economies more then Europe per say.
I guarantee that when these Asian finance ministers meet in Kyoto this week, they will be discussing their vulnerability to a weak USD.
Asian finance ministers will this week probably agree to pool part of the region's $2.7 trillion in foreign-exchange holdings to prevent a repeat of the crisis that depleted reserves ten years ago.
This is an interesting story. The first item that jumps out at you is the $2.7 trillion dollars of reserves that are held in Asia, and the majority of those are U.S. dollars.
The other item of importance is that I believe it's different this time. There's the argument that China and India and some of these other countries are overheating economically. This is fine. Here's where I stand. China is growing at this pace for good reasons. There problem lies in their stock market. I believe that they are in for a major correction, and a lot of folks will lose a lot of money. How that plays out in the rest of the economy will be interesting. China will eventually have to let the yuan float. They will need to stop importing U.S. inflation in order to have a sustainable economy.
That's not the biggest threat in my opinion. I believe that the largest threat to Asian growth is a collapsing USD. Here's the deal: China's economy may or may not be overheating. I've read great arguments on both sides, but it is indisputable that it is very hot and very fragile. A collapsing USD will have ripple effects world wide, but it will effect these 'hot' economies more then Europe per say.
I guarantee that when these Asian finance ministers meet in Kyoto this week, they will be discussing their vulnerability to a weak USD.
Monday, April 30, 2007
The USD's Downward Trend
The title of this post may be the kindest words you here me say regarding the USD. To call it a downward trend is a compliment. I would like to discuss a few changes in my past opinions regarding this topic.
I'm not changing my overall view of the dollar's trend. I still feel that its eventual collapse is just a matter of time, but I would like to talk about the why of the collapse.
I haven't discussed the 'pillars of support' for a currency in a long time, but let's get back into them. I will first give a list of the pillars and than discuss some of them in greater detail. These pillars are not consistent with all currencies and the list in no significant order.
Support Pillars for the USD
The petrodollar. In other words, the tie of the USD to oil sales.
The USD as the reserve currency of the world.
Controlled money supply.
The ability to finance our debt through foreign investment.
A high Fed Funds rate.
Responsible fiscal/monetary policy.
Now I'm sure that I've missed out on a couple of pillars, but that's a good enough starting point. I need to point out an error in the last post I wrote discussing the pillars of support for the USD. I said the last pillar holding the dollar up was a reasonable Fed Funds Rate. In short, I stated that if the Feds lowered interest rates we would see a sharp decline or the USD. What I've come to realize is that, at this point, the Fed Funds Rate is the least important of the above mentioned factors. Sure at one point it would have been an effective monetary tool, but it's beyond that. Sure if the Feds raise interest rates we might see a brief, and I put emphasis on the word 'brief,' strength in the dollar. That strength will come from the ignorant buyer who feels that this will lead to some longer term strength in the dollar. At this point in time, the future of the USD is essentially independent on whatever the future of the Fed Funds rate.
Let's get into the juicy stuff. The petrodollar is a VERY strong pillar in the support for the USD. The connection of the USD to oil is starting to fade. For example, when Germany buys oil from Russia, they use USDs. That's the equivalent of U.S. buying oil from Canada in rupees or yen. It's ridiculous. How important is this relationship? It was important enough for the U.S. to invade Iraq. I wasn't a coincidence at all that Saddam was threatening to sell his oil in euros right before we invaded. Iran is already waging war on the USD by making it a criminal act to hold USDs.
This topic leads us perfectly into the next couple of pillars. The USD as the reserve currency of the world is an ever important topic. Why do central banks hold USDs? A couple of reasons: The first is that the greenback has been one of the most stable currencies over a long period of time. I'm not saying that that's the case today. In fact, I think it's just the opposite. That's something I will get into at the end of the post. But the other reason that central banks hold USDs is because they have to pay for their oil in USDs. So you can see, how the petrodollar is ever important in keeping the USD as the world's reserve currency. At this point, it is in the best interest for foreign central banks to keep the USD strong for these reasons. I will also dig into that at the end of the post.
The next pillar is again along these lines, and that is the U.S.'s ability to finance its debt through foreign investment in U.S. bonds and treasuries. The U.S. is roughly $9 trillion in debt. 80% of that debt is held by foreigners. We run roughly a $800 billion annual trade deficit which is 100% foreign owned. (Statistics from the guys at the Daily Reckoning) Our ability to sell treasuries and bonds is ESSENTIAL to the value of the USD. If the U.S. can no longer find foreign buyers of treasuries and bonds, we will no longer be able to finance our debt. This leads us right into the next couple of pillars.
I would like to discuss these two topics together. They are controlled money supply along with a responsible fiscal/monetary policy. You can see that they are very intertwined and often used in reference of one another. The value of currencies, like any other commodity or good, is based upon supply and demand. The more USDs in circulation, the less value. At the same time if demand starts to diminish, so will the value of the USD. If you are a reader of this blog you know that M3 money supply is no longer kept track of by the Federal Reserve, but there are other sources to find the statistic. It is currently running at around 12%-13% and it has been running at above 10% annual growth for a number of years now. Like I discussed in my recent post on inflation, money supply growth equals EXACTLY price inflation. How do you think 10%+ inflation would fly with the general public? Not very well, that's why the Fed masks it with core CPI and a bunch of other garbage.
There's the scenario regarding money supply and monetary policy. I touched on our fiscal policy earlier in reference to our current deficit. Please don't get caught in the junk politicians are feeding the public about our deficit decreasing and being ZERO by 2012. The liberals have proposed there new budget plans, and at face value it does appear if it's going down. What they don't tell you is that in that budget are tax increases as well as a repeal of the Bush tax cuts.
So there's a brief over view of some of the pillars that support the USD. Let's look into our current situation of these pillars and how they effect each other. You have to understand that there are tons and tons of USDs abroad. USDs are our main export.
As I mentioned that it, at current, it is in the central banks of the world's best interest to keep the USD at a reasonable valuation. They do this by selling euros or sterling and buying USDs. Again this is simple supply and demand at work. The situation now is that these central banks are starting to hold more euros and gold and less dollars. They understand that the USD doesn't stand a chance in the future. Here's what they plan to do. They want the USD to have a GRADUAL decline and not a free fall, and they are going to do their best to achieve it because a collapse in the USD will result in a collapse in the U.S. economy which will have strong ripples globally.
And here's how everything works. Once one of these pillars falls, the next will fall, and then the next, each breach in support coming faster than the next. Central banks will be unloading there USDs in exchange for physical goods, commodities, energy, euros, and precious metals. They will do this by unloading their dollars on the forex market putting downward pressure on the USD. This will force other central banks, whether they want to or not, to follow suit. Then the USD will no longer be tied to oil because banks will no longer be holding stock piles of USDs.
From there, we have a situation where central banks no longer want our treasuries and bonds because they are denominated in USDs. The U.S. will no longer be able to finance its debt and will be forced to monetize and print money. This will push the dollar further, and this is when we hit free fall stage for the USD. Anyone left holding dollars abroad will rush as fast as they can to get rid of them.
So you can see how this whole thing goes full circle and carries with it a snowball effect. We will see a gradual decline to a point and then it will be a rush to the exit. Ladies and gentlemen this is a transition that we haven't seen since the U.S. economy eclipse Great Britain as the dominate economy in the world. I promise you, this will be a most painful transition for the global economy in its history. Some will be effected more strongly than the others. Here in the U.S., we will see the strongest effects from this transition. This is also the reason why the sky is the limit for gold.
I'm not changing my overall view of the dollar's trend. I still feel that its eventual collapse is just a matter of time, but I would like to talk about the why of the collapse.
I haven't discussed the 'pillars of support' for a currency in a long time, but let's get back into them. I will first give a list of the pillars and than discuss some of them in greater detail. These pillars are not consistent with all currencies and the list in no significant order.
Support Pillars for the USD
The petrodollar. In other words, the tie of the USD to oil sales.
The USD as the reserve currency of the world.
Controlled money supply.
The ability to finance our debt through foreign investment.
A high Fed Funds rate.
Responsible fiscal/monetary policy.
Now I'm sure that I've missed out on a couple of pillars, but that's a good enough starting point. I need to point out an error in the last post I wrote discussing the pillars of support for the USD. I said the last pillar holding the dollar up was a reasonable Fed Funds Rate. In short, I stated that if the Feds lowered interest rates we would see a sharp decline or the USD. What I've come to realize is that, at this point, the Fed Funds Rate is the least important of the above mentioned factors. Sure at one point it would have been an effective monetary tool, but it's beyond that. Sure if the Feds raise interest rates we might see a brief, and I put emphasis on the word 'brief,' strength in the dollar. That strength will come from the ignorant buyer who feels that this will lead to some longer term strength in the dollar. At this point in time, the future of the USD is essentially independent on whatever the future of the Fed Funds rate.
Let's get into the juicy stuff. The petrodollar is a VERY strong pillar in the support for the USD. The connection of the USD to oil is starting to fade. For example, when Germany buys oil from Russia, they use USDs. That's the equivalent of U.S. buying oil from Canada in rupees or yen. It's ridiculous. How important is this relationship? It was important enough for the U.S. to invade Iraq. I wasn't a coincidence at all that Saddam was threatening to sell his oil in euros right before we invaded. Iran is already waging war on the USD by making it a criminal act to hold USDs.
This topic leads us perfectly into the next couple of pillars. The USD as the reserve currency of the world is an ever important topic. Why do central banks hold USDs? A couple of reasons: The first is that the greenback has been one of the most stable currencies over a long period of time. I'm not saying that that's the case today. In fact, I think it's just the opposite. That's something I will get into at the end of the post. But the other reason that central banks hold USDs is because they have to pay for their oil in USDs. So you can see, how the petrodollar is ever important in keeping the USD as the world's reserve currency. At this point, it is in the best interest for foreign central banks to keep the USD strong for these reasons. I will also dig into that at the end of the post.
The next pillar is again along these lines, and that is the U.S.'s ability to finance its debt through foreign investment in U.S. bonds and treasuries. The U.S. is roughly $9 trillion in debt. 80% of that debt is held by foreigners. We run roughly a $800 billion annual trade deficit which is 100% foreign owned. (Statistics from the guys at the Daily Reckoning) Our ability to sell treasuries and bonds is ESSENTIAL to the value of the USD. If the U.S. can no longer find foreign buyers of treasuries and bonds, we will no longer be able to finance our debt. This leads us right into the next couple of pillars.
I would like to discuss these two topics together. They are controlled money supply along with a responsible fiscal/monetary policy. You can see that they are very intertwined and often used in reference of one another. The value of currencies, like any other commodity or good, is based upon supply and demand. The more USDs in circulation, the less value. At the same time if demand starts to diminish, so will the value of the USD. If you are a reader of this blog you know that M3 money supply is no longer kept track of by the Federal Reserve, but there are other sources to find the statistic. It is currently running at around 12%-13% and it has been running at above 10% annual growth for a number of years now. Like I discussed in my recent post on inflation, money supply growth equals EXACTLY price inflation. How do you think 10%+ inflation would fly with the general public? Not very well, that's why the Fed masks it with core CPI and a bunch of other garbage.
There's the scenario regarding money supply and monetary policy. I touched on our fiscal policy earlier in reference to our current deficit. Please don't get caught in the junk politicians are feeding the public about our deficit decreasing and being ZERO by 2012. The liberals have proposed there new budget plans, and at face value it does appear if it's going down. What they don't tell you is that in that budget are tax increases as well as a repeal of the Bush tax cuts.
So there's a brief over view of some of the pillars that support the USD. Let's look into our current situation of these pillars and how they effect each other. You have to understand that there are tons and tons of USDs abroad. USDs are our main export.
As I mentioned that it, at current, it is in the central banks of the world's best interest to keep the USD at a reasonable valuation. They do this by selling euros or sterling and buying USDs. Again this is simple supply and demand at work. The situation now is that these central banks are starting to hold more euros and gold and less dollars. They understand that the USD doesn't stand a chance in the future. Here's what they plan to do. They want the USD to have a GRADUAL decline and not a free fall, and they are going to do their best to achieve it because a collapse in the USD will result in a collapse in the U.S. economy which will have strong ripples globally.
And here's how everything works. Once one of these pillars falls, the next will fall, and then the next, each breach in support coming faster than the next. Central banks will be unloading there USDs in exchange for physical goods, commodities, energy, euros, and precious metals. They will do this by unloading their dollars on the forex market putting downward pressure on the USD. This will force other central banks, whether they want to or not, to follow suit. Then the USD will no longer be tied to oil because banks will no longer be holding stock piles of USDs.
From there, we have a situation where central banks no longer want our treasuries and bonds because they are denominated in USDs. The U.S. will no longer be able to finance its debt and will be forced to monetize and print money. This will push the dollar further, and this is when we hit free fall stage for the USD. Anyone left holding dollars abroad will rush as fast as they can to get rid of them.
So you can see how this whole thing goes full circle and carries with it a snowball effect. We will see a gradual decline to a point and then it will be a rush to the exit. Ladies and gentlemen this is a transition that we haven't seen since the U.S. economy eclipse Great Britain as the dominate economy in the world. I promise you, this will be a most painful transition for the global economy in its history. Some will be effected more strongly than the others. Here in the U.S., we will see the strongest effects from this transition. This is also the reason why the sky is the limit for gold.
DOW 13000
Woohoo, DOW 13k, let's celebrate. I don't think so. I'm sure you've noticed that DOW 13000 is old news by now and I haven't written anything on it yet. That's because it means absolutely nothing to me. I am going to let Peter Shiff do the talking for me. Below is a piece from an article entitled "What Record High?"
"Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000."
There you have it. Here is the URL for the rest of the article. http://www.321gold.com/editorials/schiff/schiff042707.html
It's a good one.
"Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000."
There you have it. Here is the URL for the rest of the article. http://www.321gold.com/editorials/schiff/schiff042707.html
It's a good one.
Friday, April 27, 2007
New Weak Dollar Spin
The latest spin on CNBC is that the weak dollar is good for U.S. businesses. Who wants to know more? I know I do.
The above statement is true in the short run. What it does, is it makes U.S. goods cheaper for foreign nations to buy. It has allowed for an increase in exports. This is exactly what CNBC, and CEOs across the nation have been saying. Their domestic sales have been weak, but global sales, especially to Latin America and Europe have been doing very well. This all makes perfect sense so where's the problem?
Well this problem hits on three different levels. It will carry negative impacts on the U.S. consumers, business, and monetary policy.
First off, the consumer. A weak currency can be looked at in two different ways. The rise in the domestic price of goods, or the decline against foreign currencies. Call it six or a half dozen, it's essentially the same thing. They trend together, but not necessarily at the same exact time.
According to the governments core CPI, inflation is running at around 2%. Well, inflation computed by the pre-Clinton era, would put the CPI at around 6.5-7%, and that wasn't too long ago. CNBC dismisses the whole notion of domestic inflation because of the low core CPI. So, essentially price inflation is very small in the U.S. Well I wonder if Larry Kudlow has been to the grocery store or gas station recently. Listen, the dollars the average Joe holds are becoming worth less and less. His salary is shrinking. HE IS BEING TAXED BY INFLATION.
I would also like to take a look at the domestic stock markets. With the DOW up just 7.5% since 2000, S&P about even, and the same story for the NASDAQ, these are losing bets. Not only is the NYSE a bad investment, but it's not even a good store of value. Inflation has given all of the major indices in the U.S. a NEGATIVE RETURN, over the last 7 years.
Alright onto the corporate level. We have to remember, that from the consumer level we are seeing price inflation. Sure corporate earnings look great right now because of an increased amount of exports due to a weak dollar. Look at base metals and energy prices. They are on the up and up. As the prices of the input rise, the prices of the final good will rise as well. That is how the producers pass on the costs of inflation. In full, initially, a weak currency will lead to increased exports. When the value of the weak dollar begins to creep into the prices of commodities, we see the producers pass on the costs of inflation back to the consumer. This will cause less demand for their goods as wage levels continue be unable to keep up with price inflation.
The final level has to do with the U.S. monetary policy. Let's start out with the good. From a fiscal stand point, a weak dollar equates to less debt. In other words, as the value of the currency falls, so does the real value of the outstanding debt. Already from that brief scenario, you see a counter interest in reference to the U.S. government and its citizens, but that's a story for another day.
In the previous post, I mentioned that the U.S. requires $3 billion dollars in foreign investment just to stay running. Foreign governments and their citizens will be less willing to buy U.S. debt as the USD exchange rate against a basket of currencies continues to fall. So what happens when the USD index breaks the 80 level and begins to free fall? First off, not only will foriegn central banks not be buying treasuries, but they will also be ridding their current forex reserves of USDs. They will use the euro and gold to fill their reserves. The government is left with the choice of pulling out all of its troops, cutting spending and actually running a balanced account, OR printing money and monetizing the debt, which happen to essentially be the same thing. I'm betting on the 'OR'.
Let's bring this whole matter in full circle. Joe Smith's modest factory wage is now worth less because milk, eggs, meat, vegetables, and gas costs are much more expensive than they were a year ago and the year before that. That's even if he's lucky enough to have his job being that all of his factory buddies have been laid off because of the mess that the U.S. manufacturing sector is in.
Higher energy and base metal costs are also whacking the manufacturing sector. Instead of taking a profit loss, they will raise the prices of their final goods. Whack, Joe Smith takes another hit. Now his toasters, shoes, and basic utility bills are getting more expensive.
What Joe Smith doesn't know is that the gears are turning on a global level. China and Russia have publicly stated that they are diversifying away from the U.S. dollar.We are now entering hypothetical land, but a scenario the I figure to be more than likely. Japan will follow suit. As these dollars hit the currency exchange, they will begin to put more downward pressure on the dollar. The Plunge Protection Team is helpless. Foreign central banks no longer find it necessary to buy USDs in order to help the greenback hold its value. The dollar pushes down. The buying of US treasuries and bonds hits multi year lows. The government begins to print more money, pushing inflation higher, just to pay the bills. Now OPEC countries demand euros instead of dollars as payment for their oil. Wham, the dollar dies. We are unable to sell any treasuries and can only print money. We can't raise taxes because they are at ridiculous levels already. If the green back could talk, its dying words would be, "I was dead in 1971, murdered by 40 years of fiscal and monetary irresponsibility." Just think about how Joe Smith is effected by all of this
This piece speaks to a very important economic notion taught in the most basic macro economic class. It is one of the very few items that they discuss that have any relevance to TRUE modern macroeconomics. The notion is that growth in money supply equals the EXACT growth in price inflation.
The counter argument here is, well ethanol demand and corn subsidies have pushed the price of corn, wheat, meat, eggs, and other agricultural goods up. It wasn't monetary inflation. Not true, because if the money supply was held steady, where we see price inflation in one sector, we would see it off set by decreasing prices in another sector, and that is not the case at all.
The above statement is true in the short run. What it does, is it makes U.S. goods cheaper for foreign nations to buy. It has allowed for an increase in exports. This is exactly what CNBC, and CEOs across the nation have been saying. Their domestic sales have been weak, but global sales, especially to Latin America and Europe have been doing very well. This all makes perfect sense so where's the problem?
Well this problem hits on three different levels. It will carry negative impacts on the U.S. consumers, business, and monetary policy.
First off, the consumer. A weak currency can be looked at in two different ways. The rise in the domestic price of goods, or the decline against foreign currencies. Call it six or a half dozen, it's essentially the same thing. They trend together, but not necessarily at the same exact time.
According to the governments core CPI, inflation is running at around 2%. Well, inflation computed by the pre-Clinton era, would put the CPI at around 6.5-7%, and that wasn't too long ago. CNBC dismisses the whole notion of domestic inflation because of the low core CPI. So, essentially price inflation is very small in the U.S. Well I wonder if Larry Kudlow has been to the grocery store or gas station recently. Listen, the dollars the average Joe holds are becoming worth less and less. His salary is shrinking. HE IS BEING TAXED BY INFLATION.
I would also like to take a look at the domestic stock markets. With the DOW up just 7.5% since 2000, S&P about even, and the same story for the NASDAQ, these are losing bets. Not only is the NYSE a bad investment, but it's not even a good store of value. Inflation has given all of the major indices in the U.S. a NEGATIVE RETURN, over the last 7 years.
Alright onto the corporate level. We have to remember, that from the consumer level we are seeing price inflation. Sure corporate earnings look great right now because of an increased amount of exports due to a weak dollar. Look at base metals and energy prices. They are on the up and up. As the prices of the input rise, the prices of the final good will rise as well. That is how the producers pass on the costs of inflation. In full, initially, a weak currency will lead to increased exports. When the value of the weak dollar begins to creep into the prices of commodities, we see the producers pass on the costs of inflation back to the consumer. This will cause less demand for their goods as wage levels continue be unable to keep up with price inflation.
The final level has to do with the U.S. monetary policy. Let's start out with the good. From a fiscal stand point, a weak dollar equates to less debt. In other words, as the value of the currency falls, so does the real value of the outstanding debt. Already from that brief scenario, you see a counter interest in reference to the U.S. government and its citizens, but that's a story for another day.
In the previous post, I mentioned that the U.S. requires $3 billion dollars in foreign investment just to stay running. Foreign governments and their citizens will be less willing to buy U.S. debt as the USD exchange rate against a basket of currencies continues to fall. So what happens when the USD index breaks the 80 level and begins to free fall? First off, not only will foriegn central banks not be buying treasuries, but they will also be ridding their current forex reserves of USDs. They will use the euro and gold to fill their reserves. The government is left with the choice of pulling out all of its troops, cutting spending and actually running a balanced account, OR printing money and monetizing the debt, which happen to essentially be the same thing. I'm betting on the 'OR'.
Let's bring this whole matter in full circle. Joe Smith's modest factory wage is now worth less because milk, eggs, meat, vegetables, and gas costs are much more expensive than they were a year ago and the year before that. That's even if he's lucky enough to have his job being that all of his factory buddies have been laid off because of the mess that the U.S. manufacturing sector is in.
Higher energy and base metal costs are also whacking the manufacturing sector. Instead of taking a profit loss, they will raise the prices of their final goods. Whack, Joe Smith takes another hit. Now his toasters, shoes, and basic utility bills are getting more expensive.
What Joe Smith doesn't know is that the gears are turning on a global level. China and Russia have publicly stated that they are diversifying away from the U.S. dollar.We are now entering hypothetical land, but a scenario the I figure to be more than likely. Japan will follow suit. As these dollars hit the currency exchange, they will begin to put more downward pressure on the dollar. The Plunge Protection Team is helpless. Foreign central banks no longer find it necessary to buy USDs in order to help the greenback hold its value. The dollar pushes down. The buying of US treasuries and bonds hits multi year lows. The government begins to print more money, pushing inflation higher, just to pay the bills. Now OPEC countries demand euros instead of dollars as payment for their oil. Wham, the dollar dies. We are unable to sell any treasuries and can only print money. We can't raise taxes because they are at ridiculous levels already. If the green back could talk, its dying words would be, "I was dead in 1971, murdered by 40 years of fiscal and monetary irresponsibility." Just think about how Joe Smith is effected by all of this
This piece speaks to a very important economic notion taught in the most basic macro economic class. It is one of the very few items that they discuss that have any relevance to TRUE modern macroeconomics. The notion is that growth in money supply equals the EXACT growth in price inflation.
The counter argument here is, well ethanol demand and corn subsidies have pushed the price of corn, wheat, meat, eggs, and other agricultural goods up. It wasn't monetary inflation. Not true, because if the money supply was held steady, where we see price inflation in one sector, we would see it off set by decreasing prices in another sector, and that is not the case at all.
1Q GDP Growth, or Lack there of
How does 1.3% 1Q sound to you? Yeah, that's how I feel, especially when I look at China, India, Brazil, Japan, and the EU. On CNBC, we hear so much about this global growth boom that's occurring, but where is the U.S. in this boom. I'll tell you where we are: We are a country who needs $3 billion dollars a day to stay a float, we are amidst a housing depression, 'official' inflation statistics are rearing their ugly heads, while our GDP growth is crawling ahead at 1.3%.
I'm not going to dig into this too much, because it is what it is. I would like to make an important note. Well maybe not important, but just an 'I told you so.' After 4Q GDP came out at a higher than expected 2.5%, I said it was because of inventory compiling. I also said that would show in the 1Q GDP growth. Among other reasons, I believe inventory stockpiling was the main catalyst for the weak number.
So let's take a look at the market. Uuummmm...maybe...ummmm...dollar heading south...ummmm...yeah. In fact, we have hit a new record against the euro. Gold is up slightly. The yellow metal is trying to correct back to the $660 /oz, but the dollar keeps going down. It has lost a lot of momentum, but as long as the dollar stays weak, look gold to take off.
The stock market doesn't care. The market seems to ignore all of the poor economic news that come out, and soars on any piece of weekly or monthly positive information. I still feel that this is a very dangerous time in the stock market. It is up some 16 of the last 18 days. So what. Well, the S&P was up some 18 out of 19 days in 2000 before it lost almost half of its value. So I repeat to anyone who reads this blog: The general stock market is in for a gut check here real soon and that's just the short run. I still the major indices will lose approximately 45% in the coming years. Buy gold!
I'm not going to dig into this too much, because it is what it is. I would like to make an important note. Well maybe not important, but just an 'I told you so.' After 4Q GDP came out at a higher than expected 2.5%, I said it was because of inventory compiling. I also said that would show in the 1Q GDP growth. Among other reasons, I believe inventory stockpiling was the main catalyst for the weak number.
So let's take a look at the market. Uuummmm...maybe...ummmm...dollar heading south...ummmm...yeah. In fact, we have hit a new record against the euro. Gold is up slightly. The yellow metal is trying to correct back to the $660 /oz, but the dollar keeps going down. It has lost a lot of momentum, but as long as the dollar stays weak, look gold to take off.
The stock market doesn't care. The market seems to ignore all of the poor economic news that come out, and soars on any piece of weekly or monthly positive information. I still feel that this is a very dangerous time in the stock market. It is up some 16 of the last 18 days. So what. Well, the S&P was up some 18 out of 19 days in 2000 before it lost almost half of its value. So I repeat to anyone who reads this blog: The general stock market is in for a gut check here real soon and that's just the short run. I still the major indices will lose approximately 45% in the coming years. Buy gold!
Wednesday, April 25, 2007
Reader Question
I had a very interesting reader question yesterday that I think is worth writing about. He asked something along the lines of, "With the extremely poor U.S. economic data that came out the dollar sold off, base metals sold off, precious metals sold off, oil sold off, while the the U.S. stock market gained. Is this a sign that a U.S. economic slow down, recession, or depression, will lead to lower demand for base metals? Will that equate to a lower price in base metals?" That is not an exact quote because I have deleted the email, but it was along those lines. This is a very good question. Let's dig in.
First off, I believe oil sold off after a $2 /barrel gain. Oil is up this A.M. around $.50. Oil is going up. It's simply supply and demand. The world cannot produce more than 84-85 million barrels /day. While supply is staying unchanged and in the near future will be in the process of decline, demand is picking up.
Alright, back to this notion that a U.S. economic slowdown will lead to lower prices for base metals. This idea was true 10 year ago, but it's not today and let me tell you why. China, India, BRIC, and other developing countries are industrializing, and westernizing at a rapid pace.
China and India alone have 2 billion people, compared to the 300 million here in the United States. With the majority of those 2 billion people on the path of joining a middle class, we see their desire to have thing that the middle class is associated with. Cars, TVs, houses in urban and suburban locations, and many, many other thing that the U.S. has and they don't.
What does that mean? Well a couple of different things: First off, all of these items require base metals. Copper piping for houses, aluminum in toasters, and steel for cars. To take an isolated example, China's imports of these metals is growing at 60%, 70%, and 80%.
Don't forget about the exports of these countries along with China. With cheap labor, and a weak yuan or yen, the companies are exporting a ridiculous amount of goods. All of your our TVs, cars, furniture, clothing, and other goods that come from these countries require base metals and energy to make.
This brings me right to my next point. It also take energy to produce these items. China's imports of oil are running at an annual increase of approximately 100%. They build a new coal power plant every third week and have plans to build 3 nuclear power plants every year until 2020. So along with oil and coal, don't forget about uranium and molybdenum.
Also, China is now in the process of obtaining strategic reserves in base metals and oil. They will hold 30 days worth of oil. They will use their $1.2 trillion (USD) of reserves to buy into base metals, oil, precious metals, uranium, and the companies that mine and refine these goods. Any weakness in prices will be seen as a buying opportunity by China.
Ok back to the main point.
Will a U.S. lead economic slow down effect base metal prices?
No, next question.
Why was there a sell off of base metals amidst poor economic data?
Good question, I believe that there are still a large number of people who feel that answer to the first question is yes. Their selling is based on no economic data. As each year passes, the U.S. will be less influential on a global level. The notion that "if the U.S. sneezes the world catches a cold" is a dying one.
First off, I believe oil sold off after a $2 /barrel gain. Oil is up this A.M. around $.50. Oil is going up. It's simply supply and demand. The world cannot produce more than 84-85 million barrels /day. While supply is staying unchanged and in the near future will be in the process of decline, demand is picking up.
Alright, back to this notion that a U.S. economic slowdown will lead to lower prices for base metals. This idea was true 10 year ago, but it's not today and let me tell you why. China, India, BRIC, and other developing countries are industrializing, and westernizing at a rapid pace.
China and India alone have 2 billion people, compared to the 300 million here in the United States. With the majority of those 2 billion people on the path of joining a middle class, we see their desire to have thing that the middle class is associated with. Cars, TVs, houses in urban and suburban locations, and many, many other thing that the U.S. has and they don't.
What does that mean? Well a couple of different things: First off, all of these items require base metals. Copper piping for houses, aluminum in toasters, and steel for cars. To take an isolated example, China's imports of these metals is growing at 60%, 70%, and 80%.
Don't forget about the exports of these countries along with China. With cheap labor, and a weak yuan or yen, the companies are exporting a ridiculous amount of goods. All of your our TVs, cars, furniture, clothing, and other goods that come from these countries require base metals and energy to make.
This brings me right to my next point. It also take energy to produce these items. China's imports of oil are running at an annual increase of approximately 100%. They build a new coal power plant every third week and have plans to build 3 nuclear power plants every year until 2020. So along with oil and coal, don't forget about uranium and molybdenum.
Also, China is now in the process of obtaining strategic reserves in base metals and oil. They will hold 30 days worth of oil. They will use their $1.2 trillion (USD) of reserves to buy into base metals, oil, precious metals, uranium, and the companies that mine and refine these goods. Any weakness in prices will be seen as a buying opportunity by China.
Ok back to the main point.
Will a U.S. lead economic slow down effect base metal prices?
No, next question.
Why was there a sell off of base metals amidst poor economic data?
Good question, I believe that there are still a large number of people who feel that answer to the first question is yes. Their selling is based on no economic data. As each year passes, the U.S. will be less influential on a global level. The notion that "if the U.S. sneezes the world catches a cold" is a dying one.
Tuesday, April 24, 2007
Iraqi War Post
Don't think that I'm getting political on you again. That is not at all what this post is about. I contemplated putting this attachment on because I don't like to associate myself with the political jazz. I decided to do it so here it is. I'm not going to say much except that there is some rather strong language.
http://www.craigslist.org/about/best/sfo/309485032.html
http://www.craigslist.org/about/best/sfo/309485032.html
Ugly Data
This post is going to be somewhat of a hodge podge of topics, data, and analysis.
No doubt the biggest news was the collapse in home sales. Existing home sales fell 8.4% to 6.12 million homes, from the estimated 6.40 million. That was the biggest one month decline since January 1989. Along with the drop in sales, came a drop in prices. Home prices in the 10 major metro areas fell 1.5%. I don't think I need to get into any further detail on this. Refer to previous posts on housing to hear my thought.
Red Book's same store sales came out today as well. Week over week, there down .3% and year over year, there down .20%. We are starting to see signs that the consumer is getting crunched. I expect big ticket items, such as boats, cars, and TVs, to be the most effected by the slowdown in consumer spending.
And for the icing on the cake, consumer sentiment fell again. It is down to 104 from 108.2 in March. Again the economists missed high on this one. The estimate was 105.
Alright, let's look at the market reactions to all of this messy data. The USD index is down, which can be expected. This is amidst a dollar decline in the price of oil. So gold rallying with the weak data and weak dollar right? Nope. It is doing the exact opposite and is down sharply. I don't always like to say this, but this seems like one of those times the U.S. central bank or some other larger holder with an agenda would strategically dump bullion on the market to keep the price down.
The stock market doesn't seem to care, it's trading up around 44.5 points at 11:30 A.M central time. Some of the strength can be due to the higher earnings number that are coming out. I haven't really talked about these earnings numbers too much yet. Corporate earnings for the most part are soaring and beating the street estimate. Wow, the economy must be strong if all of these companies are making so much money. Wrong again, this is a direct result of all the liquidity that is floating around. It has to go somewhere. These numbers are artificially high.
No doubt the biggest news was the collapse in home sales. Existing home sales fell 8.4% to 6.12 million homes, from the estimated 6.40 million. That was the biggest one month decline since January 1989. Along with the drop in sales, came a drop in prices. Home prices in the 10 major metro areas fell 1.5%. I don't think I need to get into any further detail on this. Refer to previous posts on housing to hear my thought.
Red Book's same store sales came out today as well. Week over week, there down .3% and year over year, there down .20%. We are starting to see signs that the consumer is getting crunched. I expect big ticket items, such as boats, cars, and TVs, to be the most effected by the slowdown in consumer spending.
And for the icing on the cake, consumer sentiment fell again. It is down to 104 from 108.2 in March. Again the economists missed high on this one. The estimate was 105.
Alright, let's look at the market reactions to all of this messy data. The USD index is down, which can be expected. This is amidst a dollar decline in the price of oil. So gold rallying with the weak data and weak dollar right? Nope. It is doing the exact opposite and is down sharply. I don't always like to say this, but this seems like one of those times the U.S. central bank or some other larger holder with an agenda would strategically dump bullion on the market to keep the price down.
The stock market doesn't seem to care, it's trading up around 44.5 points at 11:30 A.M central time. Some of the strength can be due to the higher earnings number that are coming out. I haven't really talked about these earnings numbers too much yet. Corporate earnings for the most part are soaring and beating the street estimate. Wow, the economy must be strong if all of these companies are making so much money. Wrong again, this is a direct result of all the liquidity that is floating around. It has to go somewhere. These numbers are artificially high.
Monday, April 23, 2007
How about those IMFgold sales
I reported a while back about some possible sales by the IMF of its gold sales due to budget shortfalls.
Julian Phillips from www.goldforecaster.com reports:
More support now exists for the International Monetary Fund to sell part of its gold reserves to meet its future financing requirements, U.K. Chancellor of the Exchequer Gordon Brown said. "What I found encouraging today was that there are countries which previously had not been prepared to consider gold sales but were prepared to do so now," Brown said, adding there was "no doubt" that gold sales were potentially part of the I.M.F.'s likely future financing. Brown said that an independent report into future IMF financing had recommended that any gold sales should take place in a "measured way."
IMF Managing Director Rodrigo Rato said the more efficient use of existing Fund resources would form part of a package of proposals on future financing it is now preparing. But Rato said that any gold sales would be limited to around one-eighth of the Fund's total gold resources. "I have to say that some of the gold-producing countries have expressed that this is a way (of future financing) that could be seen as constructive, but nobody has yet given a final position," Rato said.
According to the IMF's Web site, the Fund holds 103.4 million ounces (3,217 metric tons) of gold, valued on its balance sheet at a historical cost of about $8.8 billion. The I.M.F.'s holdings were valued at $68.4 billion at market prices at the end of March.
First off, the IMF is a joke. It's made up of a bunch of clowns with personal agendas that involve their own bank accounts. There idea of creating economic stability by lending and implementing modern macroeconomic theories usually ends up ineffective. Now Paul Wolfowitz in about to get fired for giving his girlfriend, who worked under him, a nice raise and fancy new position. This is the man that the world puts there trust in when there are pressing economic issues. Give me a break.
Is this bearish for gold if the IMF sells of nearly 13 million ounces of gold. Maybe, but I don't think so. I think countries such as China, Russia, and other OPEC nations would love this. I believe they would just gobble up this gold sale. The might have a very short term impact, but I believe this is completely trivial.
Julian Phillips from www.goldforecaster.com reports:
More support now exists for the International Monetary Fund to sell part of its gold reserves to meet its future financing requirements, U.K. Chancellor of the Exchequer Gordon Brown said. "What I found encouraging today was that there are countries which previously had not been prepared to consider gold sales but were prepared to do so now," Brown said, adding there was "no doubt" that gold sales were potentially part of the I.M.F.'s likely future financing. Brown said that an independent report into future IMF financing had recommended that any gold sales should take place in a "measured way."
IMF Managing Director Rodrigo Rato said the more efficient use of existing Fund resources would form part of a package of proposals on future financing it is now preparing. But Rato said that any gold sales would be limited to around one-eighth of the Fund's total gold resources. "I have to say that some of the gold-producing countries have expressed that this is a way (of future financing) that could be seen as constructive, but nobody has yet given a final position," Rato said.
According to the IMF's Web site, the Fund holds 103.4 million ounces (3,217 metric tons) of gold, valued on its balance sheet at a historical cost of about $8.8 billion. The I.M.F.'s holdings were valued at $68.4 billion at market prices at the end of March.
First off, the IMF is a joke. It's made up of a bunch of clowns with personal agendas that involve their own bank accounts. There idea of creating economic stability by lending and implementing modern macroeconomic theories usually ends up ineffective. Now Paul Wolfowitz in about to get fired for giving his girlfriend, who worked under him, a nice raise and fancy new position. This is the man that the world puts there trust in when there are pressing economic issues. Give me a break.
Is this bearish for gold if the IMF sells of nearly 13 million ounces of gold. Maybe, but I don't think so. I think countries such as China, Russia, and other OPEC nations would love this. I believe they would just gobble up this gold sale. The might have a very short term impact, but I believe this is completely trivial.
Friday, April 20, 2007
Silver Update
Here's a new one. I know that I often discuss gold, and give gold updates, yada yada yada. You would think that I would put more commentary in regarding silver being that I have more physical holdings of silver than gold and the same story for stocks.
When I discuss one, I am usually discussing the other, but there are some differences. First off, silver and gold generally trend together, but not exactly. Silver also has many more industrial/medical uses than gold. It tends to follow the price of copper slightly, which is one of the reasons I love silver. Basically, silver is kind of straddling the fence. It is not looked at as pure money like gold, but it is not a base metal either. It's somewhere in the middle.
Let's give this a technical look. Well as of recently, the graph of silver looks a little more disheartening than gold's graph.
There's a couple items of importance to note here. First off, silver recovered the ground regarding the post-May correction much faster than gold and has already tested that high a couple of times now. You can see the obvious resistance level at $14.50-14.75.
I would like to discuss the RSI of this silver chart. It is not trading at the top of its range yet, which signals that there still might be some room to go. Unlike gold, once silver gets to the top level of its trading range, it doesn't tend to stay there too long. The RSI will be a good indicator of a pull back to the up-sloping trend line where it has found infallible support.
After testing that level a couple times we are again approaching it. Like gold, we are coming to a critical junction here. As you know, I like the two scenario outlook.
Scenario 1: Mr. Pessimistic says that a third failure at breaking the $14.50-14.75 trend line will signal a strong correction. First finding support at it trend line at $13.50, and if that support is busted, which it hasn't been since the major up leg started in September 05, it will then find support at $12.50. If that support is broken, which even Mr. Pessimistic doubts, we will find support at $10.50.
Scenario 2: Mr. Optimistic sees silver continuing its uptrend being that it isn't extremely overbought yet. He told me that we will break through resistance at $14.50 head to $15. There we will see brief resistance, and he makes a very important note. He told me that last year at this time, we saw silver jump 50% before correcting. That would put us at approximately $21-22.
Again I feel it's important to note that this is all trivial in the long run. I like to dabble in the technical analysis because I think it is interesting as well as challenging. Otherwise, I'm long my positions.
USD Index
I know my posts as of recently have lacked sustenance, nor have they offered any obscure or unique outlooks on the economy.
After my Wild were eliminated from the playoffs last night it was time for me to do some soul searching. While I recollected the season and thought to myself how young players like Nick Schultz, Pierre-Marc Bouchard, and Brent Burns matured and gave us Wild fans a glimpse into a special future. I thought to myself, 'it's not so bad.' So what does this have to do with anything?
Well, I sort of had an epiphany. After the game ended, I flipped open my laptop to check the USD Index. This has been an all to common occurrence for me as I have been waiting for something 'special' to happen.
Well, nothing has happened yet, but I wait...and I watch...and then I thought...WHO CARES!! Let's face, we have been given a glimpse into the future, just like the Wild gave me. We have seen unnaturally high oil and natural gas prices for this time of the season. Refineries are struggling to keep up with demand, and we aren't even into the driving season yet. And that's just this summer. What about next year, and the year after that? You get the picture
Although it's the time of the year where gold should be getting ready to shoot for the moon...but it looks over bought. The timing doesn't seem quite right. The USD Index is starting to look over sold and defies going any lower. The double bottom, double top scenario that I spoke of in a recent post is looking more and more likely.
Again, as I so eloquently put it earlier, who really cares. I expect oil to push $75-78 /barrel and look for $4 at the pump this summer. If gold corrects back to $660 /oz, it will rearing to go as oil puts downward pressure on the dollar.
The demise of the dollar is imminent. There are too many of them floating around, and the Fed is always adding more. I say this to myself more than anything, patience is a virtue. The fireworks will come.
After my Wild were eliminated from the playoffs last night it was time for me to do some soul searching. While I recollected the season and thought to myself how young players like Nick Schultz, Pierre-Marc Bouchard, and Brent Burns matured and gave us Wild fans a glimpse into a special future. I thought to myself, 'it's not so bad.' So what does this have to do with anything?
Well, I sort of had an epiphany. After the game ended, I flipped open my laptop to check the USD Index. This has been an all to common occurrence for me as I have been waiting for something 'special' to happen.
Well, nothing has happened yet, but I wait...and I watch...and then I thought...WHO CARES!! Let's face, we have been given a glimpse into the future, just like the Wild gave me. We have seen unnaturally high oil and natural gas prices for this time of the season. Refineries are struggling to keep up with demand, and we aren't even into the driving season yet. And that's just this summer. What about next year, and the year after that? You get the picture
Although it's the time of the year where gold should be getting ready to shoot for the moon...but it looks over bought. The timing doesn't seem quite right. The USD Index is starting to look over sold and defies going any lower. The double bottom, double top scenario that I spoke of in a recent post is looking more and more likely.
Again, as I so eloquently put it earlier, who really cares. I expect oil to push $75-78 /barrel and look for $4 at the pump this summer. If gold corrects back to $660 /oz, it will rearing to go as oil puts downward pressure on the dollar.
The demise of the dollar is imminent. There are too many of them floating around, and the Fed is always adding more. I say this to myself more than anything, patience is a virtue. The fireworks will come.
Thursday, April 19, 2007
China GDP
Well, I'm sure that you have heard by now, that China's GDP grew by 11.1% in the first 3 months of the year. This has sparked huge controversy by CNBC and the other jokesters in the media.
The media is using the words 'bubble' and 'inflationary' to describe this growth. I've discussed this in a long gone post, but I will bring back the previous points that I have made regarding China. When you have1 billion plus people coming around and desiring to increase ther quality of life, you get 11% GDP growth. All these people are 'westernizing' (I'm not sure if that's a word, but you get the idea). They want cars, TVs, the internet, and the other items that make the U.S. different from China.
Another item of importance, is that there inflation is only running at around 3%. We might expect that to go a little higher, but that's just fine. As long as the government keeps a reasonably tight monetary policy. Where a problem might occur is 10-15 years from now if China follows the policies of 'Easy' Al Greenspan.
Instead of making a big debacle out of the whole situation why not make money. What are cars, TVs, and all of those other goodies made of? Base metals like nickel, copper, aluminum and others. Don't forget the industrial metals that is needed to make these items such as tungsten and moly. As for energy, China builds a new coal power plant every week, and has plans to build 3 nuclear power plants a year for the next 10 years. China's imports of coal, uranium,
base/industrial metals, oil, and anything else you can think of are going through the roof. With the increase in Chinese imports comes the increase in the prices of these goods. With the increases in the prices of these goods, comes the increase in the profits of the companies that mine, refine, and produce these items.
So that is all I really have to say on that topic. I apologize for the lack of posts as of recent. There hasn't been too much news and I don't feel writing about the latest on corporate earnings and such.
Also, I have been distracted by the combination of watching my precious Wild in the Stanley Cup Playoffs as well as the beginning of Twins baseball.
The media is using the words 'bubble' and 'inflationary' to describe this growth. I've discussed this in a long gone post, but I will bring back the previous points that I have made regarding China. When you have1 billion plus people coming around and desiring to increase ther quality of life, you get 11% GDP growth. All these people are 'westernizing' (I'm not sure if that's a word, but you get the idea). They want cars, TVs, the internet, and the other items that make the U.S. different from China.
Another item of importance, is that there inflation is only running at around 3%. We might expect that to go a little higher, but that's just fine. As long as the government keeps a reasonably tight monetary policy. Where a problem might occur is 10-15 years from now if China follows the policies of 'Easy' Al Greenspan.
Instead of making a big debacle out of the whole situation why not make money. What are cars, TVs, and all of those other goodies made of? Base metals like nickel, copper, aluminum and others. Don't forget the industrial metals that is needed to make these items such as tungsten and moly. As for energy, China builds a new coal power plant every week, and has plans to build 3 nuclear power plants a year for the next 10 years. China's imports of coal, uranium,
base/industrial metals, oil, and anything else you can think of are going through the roof. With the increase in Chinese imports comes the increase in the prices of these goods. With the increases in the prices of these goods, comes the increase in the profits of the companies that mine, refine, and produce these items.So that is all I really have to say on that topic. I apologize for the lack of posts as of recent. There hasn't been too much news and I don't feel writing about the latest on corporate earnings and such.
Also, I have been distracted by the combination of watching my precious Wild in the Stanley Cup Playoffs as well as the beginning of Twins baseball.
Wednesday, April 18, 2007
Housing Update
Bloomberg reports that housing foreclosures, year over year, are up 47%. The states with the highest among of foreclosures are California, Nevada, Colorado, and Florida.
Well CNBC was out yesterday praising the slight gains in housing starts and permits. They love to live in this monthly housing data. You know how I feel. I expect the foreclosures to start increasing, and the housing picture will get real ugly. This is because of the large amount of ARMs that are planned to reset this year.
Well CNBC was out yesterday praising the slight gains in housing starts and permits. They love to live in this monthly housing data. You know how I feel. I expect the foreclosures to start increasing, and the housing picture will get real ugly. This is because of the large amount of ARMs that are planned to reset this year.
Tuesday, April 17, 2007
Stars Aligning
This A.M, it seems that the stars are aligning for a major move in the markets. The DOW has just poked through for an all time record. The USD index is trading at 81.60, dangerously close to the all important 81.50 level, and gold is trading near $690 /oz, which is the last resistance level before $720 /oz.
I know the stock market highs is contradictory to the final two statements. Well the idea here is that, before a market turns down sharply it can be very bullish and often reach new highs. This is true for any market, not just the stock market.
You know the story regarding the USD index and gold. It is also important to note that if the dollar tanks further, it will be quite terrible for the stock market. Also, today the the CPI rose .6% in March which was a very high jump. The reason was given to high food and energy prices. DUH!! I recommend that everyone stay tuned
I know the stock market highs is contradictory to the final two statements. Well the idea here is that, before a market turns down sharply it can be very bullish and often reach new highs. This is true for any market, not just the stock market.
You know the story regarding the USD index and gold. It is also important to note that if the dollar tanks further, it will be quite terrible for the stock market. Also, today the the CPI rose .6% in March which was a very high jump. The reason was given to high food and energy prices. DUH!! I recommend that everyone stay tuned
Monday, April 16, 2007
Gold Update
Gold continues to move up with strength. After a $10.20 gain on Friday, we are trading up $6 /oz at noon on Monday. That puts us at $690 /oz. The next major resistance is $692.50 which was the February high before the market correction. Here is a graph, and I would like to talk about some technicals for gold and the near future actions that could possibly ensue.
This is a nice graph. You can see that the RSI and STO is trading at its top end. This signals that gold is over bought at this point, but you can also notice that gold has a habit at trading near the top ends for a while before correcting down. If you look at the STO, you can see a great example of how it traded in and around the 80 line for a while before correcting.
So this bring us to a couple of possible scenarios for gold.
The first is that gold corrects back down to its 50 day MA at around $660 /oz. This would be fine with me. A little correction and some sideways trading just means that the yellow metal can form a stronger base for its next up leg.
The next scenario, which I find more likely, is that we break through this $692.50 barrier and push past last years May high. As the upward trend line shows, resistance after $692.50 is upwards of $720. I believe this scenario is more likely, but I wouldn't count the first scenario out of the question.
If we bust this resistance, look for a new high in gold, and then a correction back to the $692.50 barrier.
If you read my blog you know that it is all trivial to me. In the long run, I see gold hitting $3000+ /oz. We won't even notice these corrections and breakout if you look at a long run chart in a couple of years. I like to dabble in the technical analysis, because I find it interesting and challenging. Otherwise, I'm long my positions.
Hugo Chavez Update
Just reading the title of the post should lead you to assume this will be at the very least, slightly entertaining.
I would like to make a point before proceeding with the post. Hugo Chavez, Kim Jung Ill, and Mahmoud Ahmadinejad carry a few similar characteristics. They hate the U.S. and its foreign policy. They love to make head lines with big talk, and I think they were the "little guy on the play ground." Meaning, they are making up for something by displaying their "power."
Anyways, back to the news. The Hindu International reports that Hugo Chavez said "Reconciliation with Washington was impossible." He also threatened again to shut off his oil supply to the U.S.
Chavez said that oil was the only reason that the U.S. invaded Iraq. He also stated that the U.S. was behind the coup to over throw Chavez in 2002, again stating that oil was the reason.
He finished by saying that coexistence was possible, but that any further aggression towards Venezuela, by the U.S., would result in a complete cut off of oil supplies to the U.S. It's important to note that Venezuela is the 4th largest supplier to the of crude to the U.S.
The bigger picture here is U.S. oil dependency as a weakness. We have to do whatever Hugo Chavez says because we NEED him and his oil. Energy dependency and our reliance on foreign generosity to finance our debt are two HUGE weaknesses for the U.S. Either one gone bad would have horrendous economics results.
I would like to make a point before proceeding with the post. Hugo Chavez, Kim Jung Ill, and Mahmoud Ahmadinejad carry a few similar characteristics. They hate the U.S. and its foreign policy. They love to make head lines with big talk, and I think they were the "little guy on the play ground." Meaning, they are making up for something by displaying their "power."
Anyways, back to the news. The Hindu International reports that Hugo Chavez said "Reconciliation with Washington was impossible." He also threatened again to shut off his oil supply to the U.S.
Chavez said that oil was the only reason that the U.S. invaded Iraq. He also stated that the U.S. was behind the coup to over throw Chavez in 2002, again stating that oil was the reason.
He finished by saying that coexistence was possible, but that any further aggression towards Venezuela, by the U.S., would result in a complete cut off of oil supplies to the U.S. It's important to note that Venezuela is the 4th largest supplier to the of crude to the U.S.
The bigger picture here is U.S. oil dependency as a weakness. We have to do whatever Hugo Chavez says because we NEED him and his oil. Energy dependency and our reliance on foreign generosity to finance our debt are two HUGE weaknesses for the U.S. Either one gone bad would have horrendous economics results.
Manufacturing Issues
Manufacturing is obviously in a slump, to put it nicely. We are in a manufacturing recession, and I would like to look into this just a little bit. After doing some morning reading on Bloomberg, they made my argument for me.
A couple manufacturing indexes came out today. One is the Empire State Manufacturing Survey, which is a manufacturing index for the state of New York. The other is U.S. business inventories, which is obviously a indicator on the change of monthly inventory levels.
Let's start with the manufacturing survey, which came in at a two year low of 3.8 from an estimated 10. I would guess the survey was grossly over estimated. So what, we have know that manufacturing is a mess for a long time now. When will the sector see a turn around? That's a great question and I'm glad you asked. I know who has an answer, how about Bloomberg:
"Most factory indicators suggest that activity in the manufacturing sector remains subdued, a situation that is most likely to persist until the inventory correction has more full run its course"
That was taken from an article at Bloomberg regarding the analysis of the Empire State Manufacturing Survey. I agree whole heartily with them. Until manufactures can get rid of their excess inventories, there's no need to manufacture anything else.
Well the next statistic mentioned is U.S. Business Inventories which was conveniently released this morning as well. That statistic said inventories, which were already at high levels, increased another .30%. Uh oh. It looks like there's still some time left in the "inventory correction."
So what does this mean? Another great question. I would like to recall my previous post on 4Q GDP. It increased, and I said that the reason for the increase was the increase in inventory levels for manufactures and that I expect the 1Q GDP to decrease for the same reason the 4Q GDP increased.
It looks as if I was spot on with that one. The most recent inventory numbers shows that manufactures are struggling to get rid of their stock piles. This doesn't mean that they will completely shut down, but they will definitely cut production. I expect this to really show up in 1Q GDP growth.
A couple manufacturing indexes came out today. One is the Empire State Manufacturing Survey, which is a manufacturing index for the state of New York. The other is U.S. business inventories, which is obviously a indicator on the change of monthly inventory levels.
Let's start with the manufacturing survey, which came in at a two year low of 3.8 from an estimated 10. I would guess the survey was grossly over estimated. So what, we have know that manufacturing is a mess for a long time now. When will the sector see a turn around? That's a great question and I'm glad you asked. I know who has an answer, how about Bloomberg:
"Most factory indicators suggest that activity in the manufacturing sector remains subdued, a situation that is most likely to persist until the inventory correction has more full run its course"
That was taken from an article at Bloomberg regarding the analysis of the Empire State Manufacturing Survey. I agree whole heartily with them. Until manufactures can get rid of their excess inventories, there's no need to manufacture anything else.
Well the next statistic mentioned is U.S. Business Inventories which was conveniently released this morning as well. That statistic said inventories, which were already at high levels, increased another .30%. Uh oh. It looks like there's still some time left in the "inventory correction."
So what does this mean? Another great question. I would like to recall my previous post on 4Q GDP. It increased, and I said that the reason for the increase was the increase in inventory levels for manufactures and that I expect the 1Q GDP to decrease for the same reason the 4Q GDP increased.
It looks as if I was spot on with that one. The most recent inventory numbers shows that manufactures are struggling to get rid of their stock piles. This doesn't mean that they will completely shut down, but they will definitely cut production. I expect this to really show up in 1Q GDP growth.
Portfolio Update
I have made a move in my portfolio. I have sold off Pacific Rim Mining (PMU) and bought into a company called Pediment Exploration Ltd. (PEZFF).
The main reason why I decided to ditch PMU was because of a labor dispute in one of their mines. I'm not saying that this is a dead company, but it wasn't exactly what I was looking for. I ended up less than 1% up on this one, but let's talk about Pediment.
Pediment is a exploration penny stock with some great upside potential. They are another one of those companies that is in Mexico, exploring historically rich deposits with newer technology.
Like I said, I was looking for some change, and Bob Moriarty presented that opportunity. He has a large stake in the company and has watched since day one. I expect his sway, and his advertising to push the price up.
The main reason why I decided to ditch PMU was because of a labor dispute in one of their mines. I'm not saying that this is a dead company, but it wasn't exactly what I was looking for. I ended up less than 1% up on this one, but let's talk about Pediment.
Pediment is a exploration penny stock with some great upside potential. They are another one of those companies that is in Mexico, exploring historically rich deposits with newer technology.
Like I said, I was looking for some change, and Bob Moriarty presented that opportunity. He has a large stake in the company and has watched since day one. I expect his sway, and his advertising to push the price up.
Friday, April 13, 2007
More Oil News
The latest news regarding crude comes from Venezuela. It is no secret that Hugo Chavez, the president of Venezuela, is not the biggest fan of the U.S. of A.
If it wasn't scary enough that Chavez said he was going to export less oil to the U.S. and more oil to China, he had some more plans for local oil interests. He has plans to take over oil projects in the Orinoco River Basin next month (Ledger-Enquirer).
Guess who owns the majority of projects located in that particular basin. How about Exxon Mobile, BP, Conocophillips, BP PLC, Chevron Corp., France's Total SA, and Norway's Statoil ASA. Chavez has announced that government officials accompanies by armed guards will assist in the takeover.
Chavez said that he will be taking a minimum 60% majority ownership in these companies. He did say that he would be happy if the original companies would assume a minority ownership. All I can say is "ouch." I will be interested to see what the U.S. reaction to this move is.
On another quick note. OPEC has taken 1.2 million barrels a day of production off the market since last September (Telegraph UK). I don't want to focus on the fact that OPEC is manipulating the market. In fact, I don't think this has anything to do with it. I believe that OPEC no longer has the ability to produce oil as it used to. Some of the major oil fields, such as Gwahar, are declining in production. I believe this production "cut" is not desired by OPEC, but instead is forced upon them through peak oil.
If it wasn't scary enough that Chavez said he was going to export less oil to the U.S. and more oil to China, he had some more plans for local oil interests. He has plans to take over oil projects in the Orinoco River Basin next month (Ledger-Enquirer).
Guess who owns the majority of projects located in that particular basin. How about Exxon Mobile, BP, Conocophillips, BP PLC, Chevron Corp., France's Total SA, and Norway's Statoil ASA. Chavez has announced that government officials accompanies by armed guards will assist in the takeover.
Chavez said that he will be taking a minimum 60% majority ownership in these companies. He did say that he would be happy if the original companies would assume a minority ownership. All I can say is "ouch." I will be interested to see what the U.S. reaction to this move is.
On another quick note. OPEC has taken 1.2 million barrels a day of production off the market since last September (Telegraph UK). I don't want to focus on the fact that OPEC is manipulating the market. In fact, I don't think this has anything to do with it. I believe that OPEC no longer has the ability to produce oil as it used to. Some of the major oil fields, such as Gwahar, are declining in production. I believe this production "cut" is not desired by OPEC, but instead is forced upon them through peak oil.
Japan's Decission
Japan is really at a major fork in the road. It's GDP grew at 5.5% this past quarter. Exports and investment spending have been plentiful and it seems that they have finally kicked there 16 year economic slump. So the $64,000 question is what will the Bank of Japan do?
That's a good question and the answer seems fairly obvious, or is it? The ridiculously low interest rates set by the BoJ are having their impacts. The stock market has recently had a major breakout, and home/land prices are red hot. Although this contradicts the recently adjusted "official" CPI which is .1% for the final quarter. I hope that you realize that statistic is bogus. Remember the recent change to the official CPI immediately dropped it by .5%, and if I were a betting man, I would guess the one before it was bogus.
Anyways, I have no official data to prove this, but I'm positive that the BoJ is under extreme pressure from other central banks to hold their interest rates steady at .5%. Let's look at the ultimatum here. Japan has to make the decision between gradually increasing interest rates and sending shock waves to global markets, or raising rates to stabilize their own economy. Don't forget the notion of keeping any credibility from a economic stand point.
Let me make this point very clear, the Japanese Yen is the most undervalued and manipulated currency in the world. The BoJ eventually will HAVE to raise interest rates. We saw the result of the .25 raise which led to the 400+ point decline in the U.S. stock market. The Yen carry trade can not, and will not last. In interest rate hike in Japan will force the carry traders to short their positions. When this happens they will be forced to BUY Yen in order to pay back their loans. If you have access to forex currency trading of any sort, buy Yen, Swiss Franc, and the Euro.
That's a good question and the answer seems fairly obvious, or is it? The ridiculously low interest rates set by the BoJ are having their impacts. The stock market has recently had a major breakout, and home/land prices are red hot. Although this contradicts the recently adjusted "official" CPI which is .1% for the final quarter. I hope that you realize that statistic is bogus. Remember the recent change to the official CPI immediately dropped it by .5%, and if I were a betting man, I would guess the one before it was bogus.
Anyways, I have no official data to prove this, but I'm positive that the BoJ is under extreme pressure from other central banks to hold their interest rates steady at .5%. Let's look at the ultimatum here. Japan has to make the decision between gradually increasing interest rates and sending shock waves to global markets, or raising rates to stabilize their own economy. Don't forget the notion of keeping any credibility from a economic stand point.
Let me make this point very clear, the Japanese Yen is the most undervalued and manipulated currency in the world. The BoJ eventually will HAVE to raise interest rates. We saw the result of the .25 raise which led to the 400+ point decline in the U.S. stock market. The Yen carry trade can not, and will not last. In interest rate hike in Japan will force the carry traders to short their positions. When this happens they will be forced to BUY Yen in order to pay back their loans. If you have access to forex currency trading of any sort, buy Yen, Swiss Franc, and the Euro.
Thursday, April 12, 2007
Reader Question: Energy Metals Corp.
I had a reader question regarding a uranium company called Energy Metals Crop (EMC:TSX). His asked what I thought of the company being that I owned Denison and SXR Uranium One.
The three are very similar companies. All three are current producers still doing heavy exploration. EMC has large property concessions in south western United States.
This company is very fundamentally sounds and I know many folks who own and love EMC. I would put a strong buy out there for this stock.
I am going to give a brief overview of my uranium investment strategy. First and foremost, I'm no millionaire, well not yet at least. I have to be a little more ticky tacky with my investments. I stayed away from the juniors in this sector because they seem to be coming out of the wood work. I really wanted some companies that were producing, but were still looking to expand through acquisitions as well as exploration. For that to be possible, there needed to be significant capital.
Eliminating juniors because I the intermediates were already a good enough risk/reward pay off for my taste. I cut my picks down to 4 companies. Obviously Denison, and SXR, as well as Energy Metals and Cameco. A couple weeks before I purchased into uranium, Cameco's Cigar Lake mine flooded. They were dead money, although they might be a good buy now as I believe the flood has been properly priced into their stock. With the three remaining, and I liked all of them. My favorite was and still is SXR, but Denison and EMC weren't far behind. After discussing with some proven uranium investors and other good friends whose opinions I respect very much, I went with Denison.
As far as your question on my thoughts of EMC, I like it very very much. I think my holdings in uranium won't increase too much here, as I am planning on increasing my oil exposure as I expect oil to push to around $75-$80 this summer.
Thanks for the question and keep them coming. Also, if you wish to send me a question via email, feel free. My address is jones973@tc.umn.edu
The three are very similar companies. All three are current producers still doing heavy exploration. EMC has large property concessions in south western United States.
This company is very fundamentally sounds and I know many folks who own and love EMC. I would put a strong buy out there for this stock.
I am going to give a brief overview of my uranium investment strategy. First and foremost, I'm no millionaire, well not yet at least. I have to be a little more ticky tacky with my investments. I stayed away from the juniors in this sector because they seem to be coming out of the wood work. I really wanted some companies that were producing, but were still looking to expand through acquisitions as well as exploration. For that to be possible, there needed to be significant capital.
Eliminating juniors because I the intermediates were already a good enough risk/reward pay off for my taste. I cut my picks down to 4 companies. Obviously Denison, and SXR, as well as Energy Metals and Cameco. A couple weeks before I purchased into uranium, Cameco's Cigar Lake mine flooded. They were dead money, although they might be a good buy now as I believe the flood has been properly priced into their stock. With the three remaining, and I liked all of them. My favorite was and still is SXR, but Denison and EMC weren't far behind. After discussing with some proven uranium investors and other good friends whose opinions I respect very much, I went with Denison.
As far as your question on my thoughts of EMC, I like it very very much. I think my holdings in uranium won't increase too much here, as I am planning on increasing my oil exposure as I expect oil to push to around $75-$80 this summer.
Thanks for the question and keep them coming. Also, if you wish to send me a question via email, feel free. My address is jones973@tc.umn.edu
Wednesday, April 11, 2007
Global Outlook Vs. U.S. Outlook
The IMF has adjusted its predicted GDP growth regarding the U.S. and Euro zone. The forecast for U.S. GDP growth in 2007 has been retracted from 2.9% to 2.2%. For the 13 countries that use the Euro, the forecast has been raised from 2.2% to 2.3%
They IMF has stated that the reason for the retract in predicted GDP growth for the U.S. of A is stronger than expected housing slump. According to the IMF, the last time the Euro zone out paced the U.S. in GDP growth was the period following 9/11.
The IMF also expects global GDP to grow at 4.9% compared to 5.4% in 2006. According to these numbers, the U.S. is growing at less than half the pace of the world growth.
I would like to touch on a couple points here. The first is the housing market. Again, I spit on the notion that we have hit a soft landing, or that there is one coming soon and let me tell you why.
I believe the second wave of the housing slump is on its way and it will be much worse. Remember when "easy" Al Greenspan dropped the Fed Funds Rate to 1% and said that U.S. consumers should take advantage of ARM mortgages. Well many listened, while lenders encouraged this. The whole idea is that the borrower can experience a couple years of low mortgage payments. In the mean time, they will be able to either increase their income or use their home equity to make payments, being that home prices were going through the roof.
Why would lenders encourage this? First off, the actual mortgage consultant would receive a kick back or commission of sorts for selling these kind of mortgages. Secondly, they would receive a second commission when the borrowers would come back for to refinance to non-ARM mortgage.
So why is the second wave of the housing slump going to be worse than the first? First off, nearly $1 trillion worth of these ARMs are scheduled to reset higher this year. So what, no problem all of these will be able to refinance or use their home equity to make their payments...WRONG!
This is wrong for a couple of reasons. The first is that over 50 of the sub-prime lenders have already gone kaput. So many of these ARM holders can't go to their original lenders that promised them the option of refinancing to a fixed rate.
Next, is that some 40% of these sub-prime ARM holders can't pay more than the bare minimum on their mortgage. Example: A family with a combined $60k income and two kids got was able to buy a $200k home paying just $150 a month because they either lied on their loan application about their income, or the lender just didn't care.
From the lender side, they will lend to just about anyone, because they figure that if the property gets foreclosed on, they will still win because the property will have appreciated in value. WRONG! The same reason that sub-prime borrowers can't use the equity on their homes because of depreciating values, is the same reason we are seeing so may sub-prime lenders go bust.
So how did these sub-prime lenders get the money to make these loans? They were financed by Citibank, Morgan Stanley, Barclays, Goldman Sachs and many others. I have a very important point on this topic that I will discuss at the end of this post. With these investment banks taking losses, they are forced to increase the mortgage lending rates.
This not only decreases the demand for homes, but also makes it much harder for these ARM holders to refinance. This is where the whole things comes circle. With a decrease in demand for homes because of higher mortgage rates, causes home value depreciation. This home value depreciation causes the inability for home owners to use their equity to make payments causing more foreclosures. More foreclosures means a larger market supply. More supply means more home value depreciation.
Let's tie this whole thing back to the beginning and how it will effect the GDP growth of this county.
We are facing home value deflation for the above mentioned reasons. This is a very important note: Japan's extreme deflation in the early 90's started from home value deflation. After 15 years of economic misery, they are just recovering now. The Japanese government ignored the effects of home deflation until it was too late.
I expect the $1 trillion in ARM that planned to reset higher this year to bring a whole new wave of foreclosed homes to the market. That's in addition to the already huge supply of homes in the market.
I promise I'm getting to the consequences of this on the economy. The U.S. has been riding consumer spending over the past 6 years or so, and the consumer has been riding rising home values in order to use equity to purchase cars, boats, and other gizmos. The spending wasn't based on actual money, but instead was based on debt.
Back to the investment banks. The ones who really own the these sub-prime loans and the question of what they do with them. They package them up into nice bonds and sell them to the market. Some of the largest holders of these are pension and investment funds. All though the sub-prime lenders are going bust, it will be the holders of these bonds, which number in the 1oo's of billions of dollars, who will really feel the brunt of these bankruptcies.
In conclusion, as home value tanks, home equity tanks, and consumer spending tanks. That combine with the countless billions of dollars that will be lost when these mortgage securities backed bonds are worth nothing but the paper they are written on, will be the reason housing deflation will get much uglier in the near future, as will the GDP that's based 70% on consumer spending. Among other circumstances, the U.S. will be lucky to experience what Japan experienced in the 90's.
They IMF has stated that the reason for the retract in predicted GDP growth for the U.S. of A is stronger than expected housing slump. According to the IMF, the last time the Euro zone out paced the U.S. in GDP growth was the period following 9/11.
The IMF also expects global GDP to grow at 4.9% compared to 5.4% in 2006. According to these numbers, the U.S. is growing at less than half the pace of the world growth.
I would like to touch on a couple points here. The first is the housing market. Again, I spit on the notion that we have hit a soft landing, or that there is one coming soon and let me tell you why.
I believe the second wave of the housing slump is on its way and it will be much worse. Remember when "easy" Al Greenspan dropped the Fed Funds Rate to 1% and said that U.S. consumers should take advantage of ARM mortgages. Well many listened, while lenders encouraged this. The whole idea is that the borrower can experience a couple years of low mortgage payments. In the mean time, they will be able to either increase their income or use their home equity to make payments, being that home prices were going through the roof.
Why would lenders encourage this? First off, the actual mortgage consultant would receive a kick back or commission of sorts for selling these kind of mortgages. Secondly, they would receive a second commission when the borrowers would come back for to refinance to non-ARM mortgage.
So why is the second wave of the housing slump going to be worse than the first? First off, nearly $1 trillion worth of these ARMs are scheduled to reset higher this year. So what, no problem all of these will be able to refinance or use their home equity to make their payments...WRONG!
This is wrong for a couple of reasons. The first is that over 50 of the sub-prime lenders have already gone kaput. So many of these ARM holders can't go to their original lenders that promised them the option of refinancing to a fixed rate.
Next, is that some 40% of these sub-prime ARM holders can't pay more than the bare minimum on their mortgage. Example: A family with a combined $60k income and two kids got was able to buy a $200k home paying just $150 a month because they either lied on their loan application about their income, or the lender just didn't care.
From the lender side, they will lend to just about anyone, because they figure that if the property gets foreclosed on, they will still win because the property will have appreciated in value. WRONG! The same reason that sub-prime borrowers can't use the equity on their homes because of depreciating values, is the same reason we are seeing so may sub-prime lenders go bust.
So how did these sub-prime lenders get the money to make these loans? They were financed by Citibank, Morgan Stanley, Barclays, Goldman Sachs and many others. I have a very important point on this topic that I will discuss at the end of this post. With these investment banks taking losses, they are forced to increase the mortgage lending rates.
This not only decreases the demand for homes, but also makes it much harder for these ARM holders to refinance. This is where the whole things comes circle. With a decrease in demand for homes because of higher mortgage rates, causes home value depreciation. This home value depreciation causes the inability for home owners to use their equity to make payments causing more foreclosures. More foreclosures means a larger market supply. More supply means more home value depreciation.
Let's tie this whole thing back to the beginning and how it will effect the GDP growth of this county.
We are facing home value deflation for the above mentioned reasons. This is a very important note: Japan's extreme deflation in the early 90's started from home value deflation. After 15 years of economic misery, they are just recovering now. The Japanese government ignored the effects of home deflation until it was too late.
I expect the $1 trillion in ARM that planned to reset higher this year to bring a whole new wave of foreclosed homes to the market. That's in addition to the already huge supply of homes in the market.
I promise I'm getting to the consequences of this on the economy. The U.S. has been riding consumer spending over the past 6 years or so, and the consumer has been riding rising home values in order to use equity to purchase cars, boats, and other gizmos. The spending wasn't based on actual money, but instead was based on debt.
Back to the investment banks. The ones who really own the these sub-prime loans and the question of what they do with them. They package them up into nice bonds and sell them to the market. Some of the largest holders of these are pension and investment funds. All though the sub-prime lenders are going bust, it will be the holders of these bonds, which number in the 1oo's of billions of dollars, who will really feel the brunt of these bankruptcies.
In conclusion, as home value tanks, home equity tanks, and consumer spending tanks. That combine with the countless billions of dollars that will be lost when these mortgage securities backed bonds are worth nothing but the paper they are written on, will be the reason housing deflation will get much uglier in the near future, as will the GDP that's based 70% on consumer spending. Among other circumstances, the U.S. will be lucky to experience what Japan experienced in the 90's.
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