Wednesday, February 28, 2007
The Bernarke Effect
I wonder what it would feel like to have markets jump at the sound of your voice. That's the absolute power that Chairman Bernanke has. He said, "there's no material change in our market economy." He also discussed how GDP growth rates are expected to gradually rise, their isn't a lack of liquidity in the market (no duh), and the sub-prime spill over hasn't been dramatic, and probably won't be. As he was talking, the DOW jumped to +100 points. In fact, they are calling today "The Bernanke rally." So tell me, what happens in a very nervous market place, when he says, "well, a recession might be on the horizon," or, "we are worried about inflation."? Crash, bang, boom. That's what will happen. What a joke.
Geopolitics
The U.S. economy, since the great depression, has been completely dependant on war to survive. We have seen WW2, Viet Nam, Korea, the war on drugs, the war on terror, and now the Iraqi war. I believe this serves a duel purpose. The first is the desire to keep Americans scared and let them know that their government is their to protect them. That's the main reason Bush was even elected. The other reason is for economic growth. $300 million dollars a day goes to war production efforts. Imagine what our GDP would be without that.
Now, it's ironic that the financial cost of war is what will push our economy over the edge. But, let's look at the news and politics of today. We gave N. Korea a 90 day deadline to cooperate. Iran has continued to be non-negotiable in regards to its nuclear problem. I can't say all is fine, but the war in Iraq is slowly fading out of the news. It has lost most support. If I were a gambling man, I would bet on a preemptive strike on Iran from Israel.
Anyways, what I really wanted to get at, is that now that many folks, myself included have all but rid their portfolios of oil, it might be a good time to get back in. I realize this post is rather vague and not based on anything of great significance. I got a gut feeling. I'm nervous as the tensions in the middle-east continues to be nasty at best.
Now, it's ironic that the financial cost of war is what will push our economy over the edge. But, let's look at the news and politics of today. We gave N. Korea a 90 day deadline to cooperate. Iran has continued to be non-negotiable in regards to its nuclear problem. I can't say all is fine, but the war in Iraq is slowly fading out of the news. It has lost most support. If I were a gambling man, I would bet on a preemptive strike on Iran from Israel.
Anyways, what I really wanted to get at, is that now that many folks, myself included have all but rid their portfolios of oil, it might be a good time to get back in. I realize this post is rather vague and not based on anything of great significance. I got a gut feeling. I'm nervous as the tensions in the middle-east continues to be nasty at best.
Gold's Reaction to the Bust
Gold, like every asset in the world, experienced positive gains as a result of the huge amount of liquidity thrown into the economy. And just like all those assets tumbled, gold tumbled with it, as some of that liquidity was ripped from the market.
So what's the difference? First off, I feel it is important to share with you that I have never been invested through an experience like this. This is a first for me, and all I can do is look at historical data and analyze to the best of my ability. Back to the question. What a situation like this tells investors, is that their "paper" investments are vulnerable. This dumping of the markets has even the talking heads on CNBC discussing about the huge amount of liquidity in the market today. This is a topic that they generally tend to avoid, but the average person is starting to get a glimpse of what is going on in the international markets today.
As more and more of these people realize this, they will start to designate a portion of their investments into precious metals as a safe guard from their own governments and central banks.
The problem is that gold is a little different. It is a very volatile market that reacts strongly to resistance and support points. A break out through a major resistance can result in a 10% jump and a break down through a major support can mean a a 10-15% drop. It is very important to remember that this only short term. No matter what happens in the next 6 months or year, gold is still on an overall bull market, and the last leg is always the strongest.
I say this because as assets prices continue to decline it pulls gold near a major support line. Is it different because of the grotesque market conditions? Maybe, maybe not. I honestly don't know and I don't even feel comfortable guessing. This is new to me. What I do know, is that this is an awesome learning opportunity. To me, it is amazing to see how the world markets are tied together today. We have seen declines around the globe in all markets. The only things to come out up after yesterday's trading were the Yen, Swiss Franc, and U.S. bonds. Also watch the carry trade as the yen becomes stronger. It will do nothing but continue to remove liquidity from the market as the carry trade becomes more risky and less profitable. The most important thing that I would like to share with you, is that if gold does retract sharply this will be a MAJOR buying opportunity. It will be a gift to those investors who wished they had a little more time to scrape up some more money (like myself) before the final leg of the gold bull takes off
So what's the difference? First off, I feel it is important to share with you that I have never been invested through an experience like this. This is a first for me, and all I can do is look at historical data and analyze to the best of my ability. Back to the question. What a situation like this tells investors, is that their "paper" investments are vulnerable. This dumping of the markets has even the talking heads on CNBC discussing about the huge amount of liquidity in the market today. This is a topic that they generally tend to avoid, but the average person is starting to get a glimpse of what is going on in the international markets today.
As more and more of these people realize this, they will start to designate a portion of their investments into precious metals as a safe guard from their own governments and central banks.
The problem is that gold is a little different. It is a very volatile market that reacts strongly to resistance and support points. A break out through a major resistance can result in a 10% jump and a break down through a major support can mean a a 10-15% drop. It is very important to remember that this only short term. No matter what happens in the next 6 months or year, gold is still on an overall bull market, and the last leg is always the strongest.
I say this because as assets prices continue to decline it pulls gold near a major support line. Is it different because of the grotesque market conditions? Maybe, maybe not. I honestly don't know and I don't even feel comfortable guessing. This is new to me. What I do know, is that this is an awesome learning opportunity. To me, it is amazing to see how the world markets are tied together today. We have seen declines around the globe in all markets. The only things to come out up after yesterday's trading were the Yen, Swiss Franc, and U.S. bonds. Also watch the carry trade as the yen becomes stronger. It will do nothing but continue to remove liquidity from the market as the carry trade becomes more risky and less profitable. The most important thing that I would like to share with you, is that if gold does retract sharply this will be a MAJOR buying opportunity. It will be a gift to those investors who wished they had a little more time to scrape up some more money (like myself) before the final leg of the gold bull takes off
Tuesday, February 27, 2007
Bubble or Bust
Well, I hate to tell you, but I told you so. I just finished watching the closing bell, whose ringing was drowned out by boos from the crowd. The Nasdaq is down 3.86%, the DOW is down 3.3%, and the S&P is down 3.44%.
Now, I personally don't believe that this is going to be the collapse that I've been talking about. I would love to hype this up and yell at the government and huge amount of liquidity that has been created, but I won't.
I'm fairly confident that this will be more of a harsh market correction than anything, but with consequences, always consequences. This has obviously been a chain reaction started by the 8% decline in the Shanghi index, but that's not it. Another large driver of this correction has been the lending/housing market.
I am going to throw a couple statistics at you just for an interesting point that you can bring up around the dinner table. This is the largest single day drop in the DOW since the first trading day after 9/11. At its lowest point, the DOW was down just over 546 points. The DOW has dropped for its 5th strait day. We saw a record amount of volume traded on the NYSE. The DOW was up 2.5% on the year before today and that was wiped out.
Now I don't want to belabor the markets here too much, but I would rather look at the big picture here. I believe that we will see another 5-8% correction, and I expect the market will continue to drop for the rest of the week and maybe slightly into next week. The thing is, is that most Americans will probably look at this as a buying opportunity.
I tell you what, I'm sitting here watching the talking heads on CNBC try to spin this and it is rather interesting. I mean they are talking about getting into large caps, in the long run corrections are healthy, yada yada yada. Listen this is definitely, in my opinion, just a little bump here. The talking heads are saying this is a bump on the ride up. I say this is a bump on the way down.
Let's look at the big picture. Human beings, myself included, are emotional investors. The more you limit that emotion the better you will be in the long run. This is going to kill consumer confidence, which actually came out this mourning and was higher. I would like to see that statistic reconfigured at the end of the week. If consumers are scared they will save their money, which will lead to less consumer spending, which will lead to lower GDP growth.
As you regular readers know, I believe in a sort of day of reckoning for the world economy. And you know what, this may be it, but I really don't think so. I think we are seeing more and more signs of economic troubles as each week passes. Higher than expected inflation, economists lowering their expected GDP, housing markets not bottoming out like everyone keeps saying, the lending market creating a credit crunch, and now this whack to the stock markets that folks have had nothing but great things to say.
The deck of cards that is the world economy will collapse, but I don't believe that this is it. Look, the cars haven't flown off the track yet, but the ball bearings are starting to wiggle loose.
Now, I personally don't believe that this is going to be the collapse that I've been talking about. I would love to hype this up and yell at the government and huge amount of liquidity that has been created, but I won't.
I'm fairly confident that this will be more of a harsh market correction than anything, but with consequences, always consequences. This has obviously been a chain reaction started by the 8% decline in the Shanghi index, but that's not it. Another large driver of this correction has been the lending/housing market.
I am going to throw a couple statistics at you just for an interesting point that you can bring up around the dinner table. This is the largest single day drop in the DOW since the first trading day after 9/11. At its lowest point, the DOW was down just over 546 points. The DOW has dropped for its 5th strait day. We saw a record amount of volume traded on the NYSE. The DOW was up 2.5% on the year before today and that was wiped out.
Now I don't want to belabor the markets here too much, but I would rather look at the big picture here. I believe that we will see another 5-8% correction, and I expect the market will continue to drop for the rest of the week and maybe slightly into next week. The thing is, is that most Americans will probably look at this as a buying opportunity.
I tell you what, I'm sitting here watching the talking heads on CNBC try to spin this and it is rather interesting. I mean they are talking about getting into large caps, in the long run corrections are healthy, yada yada yada. Listen this is definitely, in my opinion, just a little bump here. The talking heads are saying this is a bump on the ride up. I say this is a bump on the way down.
Let's look at the big picture. Human beings, myself included, are emotional investors. The more you limit that emotion the better you will be in the long run. This is going to kill consumer confidence, which actually came out this mourning and was higher. I would like to see that statistic reconfigured at the end of the week. If consumers are scared they will save their money, which will lead to less consumer spending, which will lead to lower GDP growth.
As you regular readers know, I believe in a sort of day of reckoning for the world economy. And you know what, this may be it, but I really don't think so. I think we are seeing more and more signs of economic troubles as each week passes. Higher than expected inflation, economists lowering their expected GDP, housing markets not bottoming out like everyone keeps saying, the lending market creating a credit crunch, and now this whack to the stock markets that folks have had nothing but great things to say.
The deck of cards that is the world economy will collapse, but I don't believe that this is it. Look, the cars haven't flown off the track yet, but the ball bearings are starting to wiggle loose.
SXR Update
SXR Uranium One continues its path of consolidation. SXR announced today that it has entered agreement with US Energy Corp. and its affiliate, Crested Corp., for the purchases of Shootaring Canyon Uranium Mill, as well as uranium exploration properties in Utah, Wyoming, Arizona, and Colorado.
SXR has offered, in the purchase, 6.6+ million shares, plus $750,000 USD. Also, an additional $20 million USD once the mill reaches commercial production and $7.5 million USD once SXR makes its first uranium delivery to the mill. US Energy will also receive 5% gross procedes from the sale of commodities produced at the mill with a maximum of $12.5 million USD. The Shootaring Canyon Mill is the last conventional uranium mill built in the U.S., and is located near several known uranium deposits.
Like I have said, I expect consolidation to continue, and companies like SXR and Denison will be at the forefront. It's also important to realize that a transaction of this nature is another example of foreign based companies getting their hands on more and more of the U.S.' natural resources.
Side note: Trade Tech has made it official. The spot price of U3O8 has gone to $85 /lb. Wow.
SXR has offered, in the purchase, 6.6+ million shares, plus $750,000 USD. Also, an additional $20 million USD once the mill reaches commercial production and $7.5 million USD once SXR makes its first uranium delivery to the mill. US Energy will also receive 5% gross procedes from the sale of commodities produced at the mill with a maximum of $12.5 million USD. The Shootaring Canyon Mill is the last conventional uranium mill built in the U.S., and is located near several known uranium deposits.
Like I have said, I expect consolidation to continue, and companies like SXR and Denison will be at the forefront. It's also important to realize that a transaction of this nature is another example of foreign based companies getting their hands on more and more of the U.S.' natural resources.
Side note: Trade Tech has made it official. The spot price of U3O8 has gone to $85 /lb. Wow.
Monday, February 26, 2007
More Housing/Lending Statistics
The majority of the coming statistics I am about to share with you are from Bloomberg:
New housing starts are down 14.3% in January. That's an annual rate of 1.408 million. That's the lowest it has been since since 1997. The predicted starts for 2007 were supposed to be around 1.6 million.
The amount of banks tightening lending standards for home loans in the final three months of 2006 than in any quarter since the early 1990's.
The risky sub-prime lending market makes up approximately 13% of the $10+ trillion lending market. Some 20% of the $1.2 trillion dollars in sub-prime loans given out in the last 2 years will end in foreclosure.
More than 20 sub-prime lenders have closed down shop in the last 3 months. The lenders that remain are tightening down lending standards and throttling back on the volume of loans given out.
New Century Financial Corp., the second largest sub-prime lender, expects loan volume to drop by 20% in 2007.
Delinquencies on ARM loans rose to a 3-year high of 3.1% in the third quarter of 2006. That number is up from 2.3% the same time a year ago. Also, approximately $800 billion dollars of ARM's are going to reset higher this year.
Analysis:
Remember, all of these foreclosures and delinquent payments, are coming when the job market is strong and the unemployment rate is at a 6-year low. Also, the risk of the sub-prime market, is often funded by the prime market lenders: Citibank, Morgan Stanley, etc. The prime market is getting rocked through this mess too, because when the sub-prime lenders default, the losses are then taken on by the prime lenders.
These "new" tougher loan standards will continue to hurt the housing market. New, is in quotations, because we are actually just going back to the original lending standards before the era of easy money. With a huge inventory in the housing market already pushing prices down, we will see more downward pressure on prices as lending standards make it tougher for folks to obtain a new/old home.
We also haven't seen the effect on foreclosures due to the resetting of ARMs. Like I said $800 freakin billion dollars of ARMs are going to reset this year, and that's a conservative number. I have seen numbers as high as $1.5 trillion. That will cause more foreclosures and will be the equivalent of throwing gasoline onto the fire.
Now the talking heads on Fox News, MSNBC, and CNBC, refuse to acknowledge any of this. I was watching CNBC the other day and an analyst said that we are heading for a credit crunch. The other analyst called him an extremist and laughed at him. If you've been reading up to this point, I would consider calling the current conditions of the market a credit crunch as an optimistic view.
The most important aspect about this whole post and the housing/lending market is going to be the effects it has on consumers (refer to my previous post regarding the feedback loop). We haven't begun to experience the true effects on consumer spending, and consumer spending makes up 70% of our GDP. Government and independent organizations are all cutting their predicted GDP for 2007. The housing debacle is just like an ice berg. I hope that we can learn our lesson better than the Titanic did. Remember, you can only see the tip of an iceberg making up about 10% of its total mass. Well, we have only seen the tip of the housing/lending/credit iceberg.
New housing starts are down 14.3% in January. That's an annual rate of 1.408 million. That's the lowest it has been since since 1997. The predicted starts for 2007 were supposed to be around 1.6 million.
The amount of banks tightening lending standards for home loans in the final three months of 2006 than in any quarter since the early 1990's.
The risky sub-prime lending market makes up approximately 13% of the $10+ trillion lending market. Some 20% of the $1.2 trillion dollars in sub-prime loans given out in the last 2 years will end in foreclosure.
More than 20 sub-prime lenders have closed down shop in the last 3 months. The lenders that remain are tightening down lending standards and throttling back on the volume of loans given out.
New Century Financial Corp., the second largest sub-prime lender, expects loan volume to drop by 20% in 2007.
Delinquencies on ARM loans rose to a 3-year high of 3.1% in the third quarter of 2006. That number is up from 2.3% the same time a year ago. Also, approximately $800 billion dollars of ARM's are going to reset higher this year.
Analysis:
Remember, all of these foreclosures and delinquent payments, are coming when the job market is strong and the unemployment rate is at a 6-year low. Also, the risk of the sub-prime market, is often funded by the prime market lenders: Citibank, Morgan Stanley, etc. The prime market is getting rocked through this mess too, because when the sub-prime lenders default, the losses are then taken on by the prime lenders.
These "new" tougher loan standards will continue to hurt the housing market. New, is in quotations, because we are actually just going back to the original lending standards before the era of easy money. With a huge inventory in the housing market already pushing prices down, we will see more downward pressure on prices as lending standards make it tougher for folks to obtain a new/old home.
We also haven't seen the effect on foreclosures due to the resetting of ARMs. Like I said $800 freakin billion dollars of ARMs are going to reset this year, and that's a conservative number. I have seen numbers as high as $1.5 trillion. That will cause more foreclosures and will be the equivalent of throwing gasoline onto the fire.
Now the talking heads on Fox News, MSNBC, and CNBC, refuse to acknowledge any of this. I was watching CNBC the other day and an analyst said that we are heading for a credit crunch. The other analyst called him an extremist and laughed at him. If you've been reading up to this point, I would consider calling the current conditions of the market a credit crunch as an optimistic view.
The most important aspect about this whole post and the housing/lending market is going to be the effects it has on consumers (refer to my previous post regarding the feedback loop). We haven't begun to experience the true effects on consumer spending, and consumer spending makes up 70% of our GDP. Government and independent organizations are all cutting their predicted GDP for 2007. The housing debacle is just like an ice berg. I hope that we can learn our lesson better than the Titanic did. Remember, you can only see the tip of an iceberg making up about 10% of its total mass. Well, we have only seen the tip of the housing/lending/credit iceberg.
Uranium Price
UxC consulting posted the new spot price for uranium this week at $85 /lb. That's a ten dollar increase in price and the biggest jump in the history of U3O8. I'm still waiting for Trade Tech to confirm this price jump. If you recall a recent post, I predicted $80 /lb, whoops. I didn't see this coming, because it was such a small auction (only 100k lbs of U3O8. I expect their to be price jumps just about every time any amount of uranium hits the market. This is just the most basic principles of supply and demand continuing to put upward pressure on the price of the yellow cakes.
Friday, February 23, 2007
Housing Update
The DOW had its first down week in sometime. This is primarily due to the effects of the housing and sub prime markets. Lowe's stock is down due to lower earnings, Home Depot's stock is down due to lower earnings, and the companies such as Morgan Stanley and Lehmen are down. Those are companies that, for lack of better words, funded many of these sub prime companies.
New home construction have dropped approximately 40% since the same time last year. Knowing that, there is still a huge overhang of inventory of existing homes and new homes. The talking heads on CNBC and such have finally been forced to acknowledge these things, although they still try and spin it. They have said much of the cool off in the stock market is because of Bernarke's comments regarding inflation and the higher than expected CPI results. This may hold some truth, but definitely the majority of this slump is due to the wreck that is housing and sub prime lending.
Remember, there are $800 billion dollars of ARM mortgages to reset higher this year. I expect this to bring more pressure on the prime and sub prime markets. This thing should continue to unravel bringing with it strong economic troubles.
New home construction have dropped approximately 40% since the same time last year. Knowing that, there is still a huge overhang of inventory of existing homes and new homes. The talking heads on CNBC and such have finally been forced to acknowledge these things, although they still try and spin it. They have said much of the cool off in the stock market is because of Bernarke's comments regarding inflation and the higher than expected CPI results. This may hold some truth, but definitely the majority of this slump is due to the wreck that is housing and sub prime lending.
Remember, there are $800 billion dollars of ARM mortgages to reset higher this year. I expect this to bring more pressure on the prime and sub prime markets. This thing should continue to unravel bringing with it strong economic troubles.
The European Union
A currency that crosses borders and cultures sounds wonderful, and in a lot of situations it is quite convenient. There are some limitations regarding a currency like this. I am going to look at the European Union and then share with you some other news worth noting.
When you have a group of countries such as the European Union, you have lots of different economic situations within that union. Economically, some of these countries are expanding, some are contracting, and some are in the middle. I would like to focus on one country and how the Euro is killing its economic growth...Germany.
Germany is the largest exporter of goods in Europe. Any country who exports looks to value from a weaker central currency. Just look at China for example, they purposely keep the yuan repressed in order to make their goods cheap on an international level. Germany's ability to export goods relies strongly on the euro remaining weaker in value. That is exactly what has NOT happened. The euro has gain 10% in the USD in the last 12 months, and was one of the best performing currencies world wide.
Now, you know my views on fiat currencies, I despise them. But, I believe, in the long run, the stronger a currency the better for that country. It increases its buying power. I'm not going to get into that. I would like to stay focused on Germany.
The Ifo Institute Sentiment Index (IISI) fell from 107.9 in January to 107. This is an index based on 7000 executives confidence in the economy. That is the biggest decline for that index in 6 years. GDP growth is expected to fall a full point from 2.7% to 1.7%. German executives across the nation expect lower earnings this year, and the most important statistic that I am going to share with you is that exports are predicted to 7.9% this year from 13.7% in 2006. This is an economy driven by exports. The strong euro is killing Germany's ability to export goods.
If the Germans still had their own currency, they would be keeping it weaker; hence, driving up exports and they would be amidst a thriving economy. So you can see, a strong euro is good for some countries and bad for others. It is impossible to appeal to the economic situations of all the counties involved.
This brings me right up to my next point. I am going to throw a little something at you. I strongly encourage you to read on even after I say it. Please don't throw your computer and scream, "WHAT A FREAKING MORON!!" Here goes nothing...North American Union. Mexico, Canada, and the United States. Three countries, one currency, no borders. Now, I'm not saying I'm for it, or against it. There are lots of pluses and minuses regarding this idea. I would like to share with you the news and action regarding this idea, so please bare with me.
In 2006, 30 CEO's from Mexico, Canada, and the U.S. formed the North American Competitiveness Council (NACC). Their goal is to advise political leaders on strengthening economic ties between the three countries. The report hasn't been published, but this mourning they said they have the preliminary review and they have derived 51 recommendations. U.S. Secretary of State Condoleeza Rice, Mexican Secretary of Foreign Affairs, Patricia Espinosa, Foreign Affairs Minister Peter Mackay, and Industry Minister Maxime Bernier, will be meeting in Ottawa to discuss these recommendations.
The CEO's have said that they have come to a general consensus on a number of issues. I look forward to reading these reports, but having not read them, I believe it is a positive that CEO's across these three nations were even able to agree on a number of issues. I can tell you some of the issues that were discussed. Mexican workers developing the skills to work in Canada's oilsands, Mexico's need for advanced technology in their oil fields, the production possibilities of the U.S. and Mexico's oil shale operations, an open borders, single currency North American Union, and last but definitely not least, a Security and Prosperity Act that would "fend off economic threats from India and China."
There's a strong belief that you and I, as well as the NACC, believe that we should be spending our money developing North America's production and not funding a war that can't be won.
I believe that the largest issue here would be mass emigration/immigration, mainly from Mexico. These are things being looked into by the NACC, and I don't feel I should comment on them. I will tell you more after I read the reports.
This could be a win/win/win situation, maybe with the U.S. being the biggest winner here. Once again, please don't yell at me for saying that. By the time something like this might happen, the U.S. will be drowning in red ink and such an economic debacle that the surface won't be in near site. Where are all the resources in N. America? Canada and Mexico. Mexico, in my opinion, has the ability to be the largest supplier of silver in the world. Canada has got access to huge amounts of oil, uranium, and other resources. While the U.S. can offer to distribute its higher quality of life, along with advanced mining and drilling technologies.
I don't want to say anything else on this topic until the final reports are published, but I feel this is very interesting stuff. I have pointed out a weakness in an agreements of this nature, and I strongly belive that U.S. citizens would be strongly opposed to this being that they generally thing they are better than everyone else.
When you have a group of countries such as the European Union, you have lots of different economic situations within that union. Economically, some of these countries are expanding, some are contracting, and some are in the middle. I would like to focus on one country and how the Euro is killing its economic growth...Germany.
Germany is the largest exporter of goods in Europe. Any country who exports looks to value from a weaker central currency. Just look at China for example, they purposely keep the yuan repressed in order to make their goods cheap on an international level. Germany's ability to export goods relies strongly on the euro remaining weaker in value. That is exactly what has NOT happened. The euro has gain 10% in the USD in the last 12 months, and was one of the best performing currencies world wide.
Now, you know my views on fiat currencies, I despise them. But, I believe, in the long run, the stronger a currency the better for that country. It increases its buying power. I'm not going to get into that. I would like to stay focused on Germany.
The Ifo Institute Sentiment Index (IISI) fell from 107.9 in January to 107. This is an index based on 7000 executives confidence in the economy. That is the biggest decline for that index in 6 years. GDP growth is expected to fall a full point from 2.7% to 1.7%. German executives across the nation expect lower earnings this year, and the most important statistic that I am going to share with you is that exports are predicted to 7.9% this year from 13.7% in 2006. This is an economy driven by exports. The strong euro is killing Germany's ability to export goods.
If the Germans still had their own currency, they would be keeping it weaker; hence, driving up exports and they would be amidst a thriving economy. So you can see, a strong euro is good for some countries and bad for others. It is impossible to appeal to the economic situations of all the counties involved.
This brings me right up to my next point. I am going to throw a little something at you. I strongly encourage you to read on even after I say it. Please don't throw your computer and scream, "WHAT A FREAKING MORON!!" Here goes nothing...North American Union. Mexico, Canada, and the United States. Three countries, one currency, no borders. Now, I'm not saying I'm for it, or against it. There are lots of pluses and minuses regarding this idea. I would like to share with you the news and action regarding this idea, so please bare with me.
In 2006, 30 CEO's from Mexico, Canada, and the U.S. formed the North American Competitiveness Council (NACC). Their goal is to advise political leaders on strengthening economic ties between the three countries. The report hasn't been published, but this mourning they said they have the preliminary review and they have derived 51 recommendations. U.S. Secretary of State Condoleeza Rice, Mexican Secretary of Foreign Affairs, Patricia Espinosa, Foreign Affairs Minister Peter Mackay, and Industry Minister Maxime Bernier, will be meeting in Ottawa to discuss these recommendations.
The CEO's have said that they have come to a general consensus on a number of issues. I look forward to reading these reports, but having not read them, I believe it is a positive that CEO's across these three nations were even able to agree on a number of issues. I can tell you some of the issues that were discussed. Mexican workers developing the skills to work in Canada's oilsands, Mexico's need for advanced technology in their oil fields, the production possibilities of the U.S. and Mexico's oil shale operations, an open borders, single currency North American Union, and last but definitely not least, a Security and Prosperity Act that would "fend off economic threats from India and China."
There's a strong belief that you and I, as well as the NACC, believe that we should be spending our money developing North America's production and not funding a war that can't be won.
I believe that the largest issue here would be mass emigration/immigration, mainly from Mexico. These are things being looked into by the NACC, and I don't feel I should comment on them. I will tell you more after I read the reports.
This could be a win/win/win situation, maybe with the U.S. being the biggest winner here. Once again, please don't yell at me for saying that. By the time something like this might happen, the U.S. will be drowning in red ink and such an economic debacle that the surface won't be in near site. Where are all the resources in N. America? Canada and Mexico. Mexico, in my opinion, has the ability to be the largest supplier of silver in the world. Canada has got access to huge amounts of oil, uranium, and other resources. While the U.S. can offer to distribute its higher quality of life, along with advanced mining and drilling technologies.
I don't want to say anything else on this topic until the final reports are published, but I feel this is very interesting stuff. I have pointed out a weakness in an agreements of this nature, and I strongly belive that U.S. citizens would be strongly opposed to this being that they generally thing they are better than everyone else.
Thursday, February 22, 2007
Global Liquidity
As I have spoken of in recent postings, the amount on global liquidity is extremely high and rising exponentially. The result of this is bubbles, bubbles, and more bubbles. The U.S. housing bubble, and the most recent speculations of stock market bubbles in Vietnam, China, and India. Liquidity, created by the central banks in the form of low interest rates and the M3 money supply, is growing exponentially.
I would like to talk about a specific example of this, a growing form of particular investments, and how the end is in sight and the implications which will follow.
It is common knowledge that the Bank of Japan (BoJ) has money lending standards of next to nothing. They have recently hiked their interest rates from .25% to .50%. To compare this for you, the U.S. interest rate is set at 5.25%, and the European Central Bank's interest rate is set at 3.5%.
You can see the lax loan standards set by the BoJ. What are investors doing? Let me tell you. An investor takes out a loan from Japan for next to nothing. Realize that this is pretty much free money. They take their free money and go to Australia among other place. Australia seems to be a popular place for these types of transactions because of the stability of the Aussie dollar and the good yield offered on their bonds. Anyways, they take their free money from Japan and take it to Australia. The invest it in the Australian bonds and receive a 6% return on the bonds. It's free money, and Japan is able to spread its liquidity around the world.
Hedge funds, private investors, and even central banks are taking place in these types of transactions. How long can this game be played, and what is the eventual outcome?
That is a very good question. As I mentioned at the beginning of this post, the BoJ has raised its interest rates to .50%. I expect this trend to continue and look to see interest rates raised to around 1% by the first of second quarter of 2008. That means a stronger yen, and brings us to another part of the equation. When one invests in the above mentioned manner, borrowing easy money from Japan and investing it abroad, they are betting on a weak yen. Remember that you eventually have to repay the loan from Japan. In converting your investment back to the yen, the yen has to be weak for the profits to hold.
Rising interest rates equal a stronger yen, equal less liquidity. Also, all of these loans eventually have to be repaid. The money coming back to Japan means even more strength for the yen. Now the types of transactions in this nature that are currently at large is estimated somewhere between 1-3 trillion USD. That's a wide range, but either way, it's a lot of money.
When all of this liquidity dries up, it will yank investments from all over the world. It will pull liquidity out of markets world wide. This will effect some economies harder than others. Obviously, the economies with more yen supplied investments in it will be hit harder than others.
There is a lot of Japanese ties up in the U.S. and Vietnamese economy. This ripping of Japanese liquidity from these markets could cause a local bursting of a liquidity bubbles. Those markets will effect South Africa, and the European Union, and so on. These world wide liquidity bubbles are so closely tied, and so fragile. If one of them pops, it will send currency holders world wide running for the exit door. The metaphor means they will run as fast as they can unloading their currency causing a massive decline in currencies around the world. And that my friends, is when gold will open its great wings and soar.
The world wide implications of a global liquidity bubble of this nature are something that I can just guess at. I see recession in the European Union. I see many markets crashing, but this is when I see a true global transfer of power. India and China will survive. Their economies, well based on a lot of excess liquidity, are truly based on true economic growth.
I would like to talk about a specific example of this, a growing form of particular investments, and how the end is in sight and the implications which will follow.
It is common knowledge that the Bank of Japan (BoJ) has money lending standards of next to nothing. They have recently hiked their interest rates from .25% to .50%. To compare this for you, the U.S. interest rate is set at 5.25%, and the European Central Bank's interest rate is set at 3.5%.
You can see the lax loan standards set by the BoJ. What are investors doing? Let me tell you. An investor takes out a loan from Japan for next to nothing. Realize that this is pretty much free money. They take their free money and go to Australia among other place. Australia seems to be a popular place for these types of transactions because of the stability of the Aussie dollar and the good yield offered on their bonds. Anyways, they take their free money from Japan and take it to Australia. The invest it in the Australian bonds and receive a 6% return on the bonds. It's free money, and Japan is able to spread its liquidity around the world.
Hedge funds, private investors, and even central banks are taking place in these types of transactions. How long can this game be played, and what is the eventual outcome?
That is a very good question. As I mentioned at the beginning of this post, the BoJ has raised its interest rates to .50%. I expect this trend to continue and look to see interest rates raised to around 1% by the first of second quarter of 2008. That means a stronger yen, and brings us to another part of the equation. When one invests in the above mentioned manner, borrowing easy money from Japan and investing it abroad, they are betting on a weak yen. Remember that you eventually have to repay the loan from Japan. In converting your investment back to the yen, the yen has to be weak for the profits to hold.
Rising interest rates equal a stronger yen, equal less liquidity. Also, all of these loans eventually have to be repaid. The money coming back to Japan means even more strength for the yen. Now the types of transactions in this nature that are currently at large is estimated somewhere between 1-3 trillion USD. That's a wide range, but either way, it's a lot of money.
When all of this liquidity dries up, it will yank investments from all over the world. It will pull liquidity out of markets world wide. This will effect some economies harder than others. Obviously, the economies with more yen supplied investments in it will be hit harder than others.
There is a lot of Japanese ties up in the U.S. and Vietnamese economy. This ripping of Japanese liquidity from these markets could cause a local bursting of a liquidity bubbles. Those markets will effect South Africa, and the European Union, and so on. These world wide liquidity bubbles are so closely tied, and so fragile. If one of them pops, it will send currency holders world wide running for the exit door. The metaphor means they will run as fast as they can unloading their currency causing a massive decline in currencies around the world. And that my friends, is when gold will open its great wings and soar.
The world wide implications of a global liquidity bubble of this nature are something that I can just guess at. I see recession in the European Union. I see many markets crashing, but this is when I see a true global transfer of power. India and China will survive. Their economies, well based on a lot of excess liquidity, are truly based on true economic growth.
Is Coal the Solution?
Well the title of this post is really dumb because coal power plants will never be a permanent long run solution to anything, but there will be an influx of coal power plants, in the United States and abroad, to make up for increased energy demand and short comings on the supply side.
It's apparent around the world that nuclear energy will be a huge part of energy in the future of the world. There are large amounts of power plants being built in China, India, Russia, the U.S., and all of Europe. There's a problem with this. We don't have enough uranium to supply all of these projects. Eventually the supply of U3O8 will catch up to the demand, but not for a while here. I little while ago I read some analysis at the EIA and posted that uranium demand would exceed uranium supply to around 2013. Since then, there have been huge reports regarding new plans for nuclear power plants all over the world. First off, the EIA is another agency that I'm a little wishy-washy on. They have been known to spin the oil situation a little bit, but I believe that they are a lot more accurate than any direct government agency. Anyways, I feel that the shortage will last at least till 2015.
So the new question is, how will we meet energy shortfalls in the meantime. Well, it looks like coal is going to be the answer. This is interesting, because it's actually a resource that the United States has. We are sitting on billions of tons of coal. In 2005 (the most recent statistic I could find), the U.S. produced 1.31 billion tons of coal. In terawatts per hour, in the U.S., coal production accounted for twice as much energy as any other energy commodity that was refined on our soil. This is something that I have personally been in the dark about. I wasn't aware of the amount of coal that we have produced in the past, and have the ability to produce in the future.
In the U.S., during the next couple of years, there are plans to build 150 new coal burning power plants. This is the direct result of shortcomings in energy supply according to the EIA. Obviously, coal brings with it some negative environmental impacts. I'm definitely not a tree hugger. I also haven't truly looked into global warming, and I don't have any intentions to do so. Whether global warming is caused by humans, or some other factors, the earth is getting warmer. That fact is not arguable. This will affect agriculture and other industries necessary to human life.
The down side of coal production is that it produces sulfur, carbon dioxide, and mercury particulates. The mercury and sulfur are fairy easily captured by today's technology standards. It's the CO2 that is the problem. Institutions such as MIT and others are working very hard on developing the technology to capture as much CO2 as possible.
This could be a great investment opportunity, both the coal industry, and the technology surrounding it. That is something worth looking into.
But in the mean time, it looks like coal is going to be a part of our immediate future. The greatest positive is that the U.S. is sitting on a huge amount of coal. The negatives are the environmental impacts of such power plants. I believe that there will be many decisions like this, in meeting rising energy demands around the world. Sometimes you just have to pick between the lesser of two evils. Politicians hate this idea, because the public doesn't realize that one negative may be better than a more negative alternative. It will be interesting to see the future decisions in the energy market. You know how much faith I have in politicians.
It's apparent around the world that nuclear energy will be a huge part of energy in the future of the world. There are large amounts of power plants being built in China, India, Russia, the U.S., and all of Europe. There's a problem with this. We don't have enough uranium to supply all of these projects. Eventually the supply of U3O8 will catch up to the demand, but not for a while here. I little while ago I read some analysis at the EIA and posted that uranium demand would exceed uranium supply to around 2013. Since then, there have been huge reports regarding new plans for nuclear power plants all over the world. First off, the EIA is another agency that I'm a little wishy-washy on. They have been known to spin the oil situation a little bit, but I believe that they are a lot more accurate than any direct government agency. Anyways, I feel that the shortage will last at least till 2015.
So the new question is, how will we meet energy shortfalls in the meantime. Well, it looks like coal is going to be the answer. This is interesting, because it's actually a resource that the United States has. We are sitting on billions of tons of coal. In 2005 (the most recent statistic I could find), the U.S. produced 1.31 billion tons of coal. In terawatts per hour, in the U.S., coal production accounted for twice as much energy as any other energy commodity that was refined on our soil. This is something that I have personally been in the dark about. I wasn't aware of the amount of coal that we have produced in the past, and have the ability to produce in the future.
In the U.S., during the next couple of years, there are plans to build 150 new coal burning power plants. This is the direct result of shortcomings in energy supply according to the EIA. Obviously, coal brings with it some negative environmental impacts. I'm definitely not a tree hugger. I also haven't truly looked into global warming, and I don't have any intentions to do so. Whether global warming is caused by humans, or some other factors, the earth is getting warmer. That fact is not arguable. This will affect agriculture and other industries necessary to human life.
The down side of coal production is that it produces sulfur, carbon dioxide, and mercury particulates. The mercury and sulfur are fairy easily captured by today's technology standards. It's the CO2 that is the problem. Institutions such as MIT and others are working very hard on developing the technology to capture as much CO2 as possible.
This could be a great investment opportunity, both the coal industry, and the technology surrounding it. That is something worth looking into.
But in the mean time, it looks like coal is going to be a part of our immediate future. The greatest positive is that the U.S. is sitting on a huge amount of coal. The negatives are the environmental impacts of such power plants. I believe that there will be many decisions like this, in meeting rising energy demands around the world. Sometimes you just have to pick between the lesser of two evils. Politicians hate this idea, because the public doesn't realize that one negative may be better than a more negative alternative. It will be interesting to see the future decisions in the energy market. You know how much faith I have in politicians.
Wednesday, February 21, 2007
Oil
Light crude oil closed today at $60.07. Market analysts and all of the other talking heads on T.V. have been talking about a price ceiling at $60 and how it's this great psychological barrier. Maybe it is, but if you ask me, all this news in neither here nor there. Oil going up or down by a buck means about as much to me as Bernarke telling us that housing is stabilizing and inflation is under control.
Let's look at the big picture. China's demand for oil is growing exponentially at over 10% a year. We have reached maximum world output at around 84 million barrels of oil per day. The actual amount of oil in the earth is past peak, and we are sitting on top of a geopolitical cauldron that could boil over at any second. We are one invasion, bombing, terrorist attack (global or local) from a doubling in the price of oil.
To me, these small changes in the price of oil are pennies on the dollar. This is a large global problem and a great weakness for the U.S.
Let's look at the big picture. China's demand for oil is growing exponentially at over 10% a year. We have reached maximum world output at around 84 million barrels of oil per day. The actual amount of oil in the earth is past peak, and we are sitting on top of a geopolitical cauldron that could boil over at any second. We are one invasion, bombing, terrorist attack (global or local) from a doubling in the price of oil.
To me, these small changes in the price of oil are pennies on the dollar. This is a large global problem and a great weakness for the U.S.
CPI News
The CPI reports came out about an hour ago, and as I expected, it was higher than forecasted. It rose .2% as opposed to a .1% increase which was predicted. I would like to dig into this a little bit. Keep in mind that I think the CPI is a joke and completely underestimates inflation by a large amount. It is still the leading indicator of inflation used by the majority of Americans. It is also apparent to remember that core inflation doesn't include energy or food costs.
The consumer prices rose 2.1% since January '06 while core prices rose 2.7% in the same period. Medical costs rose .8% which is the highest gain since August '91. All of these numbers are higher are higher than they were expected, or at least higher than what they said to the public. Most analysts expect a sizable increase in interest rates to combat these interest rates by the end of the year.
This is very interesting, because it really puts the Fed between a rock and a hard place. The last thing they would like to do it raise interest rates. Historically, interest rates are risen when we are experiencing rapid economic growth. It is used to calm down a raging economy. Now, with the U.S. on the verge of 'public' recession, higher interest rates would be disastrous for the economy. (public is in quotes because I already believe that we are in a recession) The Fed has to make the decision between raising interest rates and taking the recession that is coming one way or another, or lower interest rates, postponing the recession, making it worse, and sending inflation through the roof. The sad thing, is that I firmly believe that they will take option two. That will also be when the floor falls out under the dollar. The feds actions/response in the coming months will be very important in regards to the future economic state of this country.
Let's look at gold for a second. Right now, gold is trading at around $680 /oz, up $22 or so. Silver has the same story, its up about $.45 at $14.25 /oz. With the news of the higher than expected CPI, it appears that gold has rocked through its resistance at $670. I expect another resistance point of $686 /oz, this last July's high. After that, it should be smooth sailing to around $740. At $740 /oz there will be another resistance level, and then new highs in and around $850 /oz. Ladies and gentlemen, this is going to be fun to watch. Stay tuned.
The consumer prices rose 2.1% since January '06 while core prices rose 2.7% in the same period. Medical costs rose .8% which is the highest gain since August '91. All of these numbers are higher are higher than they were expected, or at least higher than what they said to the public. Most analysts expect a sizable increase in interest rates to combat these interest rates by the end of the year.
This is very interesting, because it really puts the Fed between a rock and a hard place. The last thing they would like to do it raise interest rates. Historically, interest rates are risen when we are experiencing rapid economic growth. It is used to calm down a raging economy. Now, with the U.S. on the verge of 'public' recession, higher interest rates would be disastrous for the economy. (public is in quotes because I already believe that we are in a recession) The Fed has to make the decision between raising interest rates and taking the recession that is coming one way or another, or lower interest rates, postponing the recession, making it worse, and sending inflation through the roof. The sad thing, is that I firmly believe that they will take option two. That will also be when the floor falls out under the dollar. The feds actions/response in the coming months will be very important in regards to the future economic state of this country.
Let's look at gold for a second. Right now, gold is trading at around $680 /oz, up $22 or so. Silver has the same story, its up about $.45 at $14.25 /oz. With the news of the higher than expected CPI, it appears that gold has rocked through its resistance at $670. I expect another resistance point of $686 /oz, this last July's high. After that, it should be smooth sailing to around $740. At $740 /oz there will be another resistance level, and then new highs in and around $850 /oz. Ladies and gentlemen, this is going to be fun to watch. Stay tuned.
Commodity Supercycle
Ladies and gentlemen, this is not new news here. We are currently in a bull market of a commodity supercylce. Basically, commodity prices are soaring around the world for ALL commodities.
Let me explain the basis of a commodity supercycle. An upswing in this cyclical pattern is usually due to a demand shock. There is huge demand for commodities in east Asia. This is mainly, due in part to China and India's westernization. They want 'stuff': cars, houses, fast food chains, etc. As more and more Chinese leave their rice farms and urbanize in hopes for a better quality of life, the demand for base metals, oil, uranium, and other commodities grows. Hence, a demand shock.
The supply side is different and here's where the cyclical pattern comes in. A commodity supercycle looks kind of like a basic graph of a business cycle. That roller coaster look is what defines cyclical. It's this pattern that drives my interest in commodities as a whole, and why there's so much easy money to make. When the graph of the cycle is at its low point, or trough, commodity prices are very, very cheap. This drives miners, refiners, and suppliers out of the market. There business profits are directly correlated to the commodity that they are supplying. When supply and prices hit rock bottom, combined with a demand shock sends commodity prices soaring.
The businesses that were able to stick through the low prices, will now prosper. Other companies, new and old, will begin exploration, and attempt to get a piece of the action. Example: uranium was trading at $7 /lb, it is now trading at $75 /lb. This difference came in a rather short period of time and the price of uranium will continue to thrive as it takes time to get more and more U3O8 mined.
This brings me to my next point. Once the upswing of the commodity supercycle begins, it takes time for other suppliers to get in the market. In the case of mining or oil drilling, there needs to be financing, exploration, drilling, setting up the mine or oil rig. This all takes a large amount of time, and happens to be just about where we are at in the commodity upswing.
I feel that this particular upswing is special because of the huge demand shock that is taking place. China's use of natural resources is immense, and increasing exponentially every year. It will be a while for the supply to catch up to the demand. In the mean time we can all pad our portfolios with commodity investments.
Now that I've explained the commodity supercycle, I would like to get into the meat of what I wanted to talk about; how the government reacts to all of this. Historically, there is little action on a federal level at first. In fact, commodity enterprises are often subsidized at the government realizes the shortage of natural resources. It also takes a large amount of capital to set up and produce most commodities. Once they get them up and running, they then take away their subsidy, because the company can survive on its own due to rising commodity prices. As prices keep going higher and higher the government starts to lick their dirty lips, and rub their filthy hands together in anticipation of the large taxes that they are about to stick on these companies, and in many cases, the government might just end up centralizing that industry.
Depending on what part of the world you live in, we are somewhere in the middle of the subsidy, taxation, or centralization of the commodities industry. Lets look at a couple of examples. Rising gas prices has the U.S. producing ethanol. They are heavily subsidizing this industry on every level, from the farmers, to the oil company that mixes the ethanol with refined gas.
The oil sands companies transition from subsidies to taxes is something that I have experienced on a personal note. They were heavily subsidized, being that Canada realized the potential of these companies. Now there are talks of heavy taxes on these companies. Side note: Canada is really shooting themselves in the foot with those taxes. They'll figure it out sooner or later.
Mexico, Venezuela, and Iran have government control over their oil industries. They realize the money involved, but fail to run these industries at optimum levels. This is a trait of the majority of government controlled markets. Just this mourning, I read that Zimbabwe has announced that they are centralizing their diamond market. I expect to here much more news of this nature in the coming years.
Let me explain the basis of a commodity supercycle. An upswing in this cyclical pattern is usually due to a demand shock. There is huge demand for commodities in east Asia. This is mainly, due in part to China and India's westernization. They want 'stuff': cars, houses, fast food chains, etc. As more and more Chinese leave their rice farms and urbanize in hopes for a better quality of life, the demand for base metals, oil, uranium, and other commodities grows. Hence, a demand shock.
The supply side is different and here's where the cyclical pattern comes in. A commodity supercycle looks kind of like a basic graph of a business cycle. That roller coaster look is what defines cyclical. It's this pattern that drives my interest in commodities as a whole, and why there's so much easy money to make. When the graph of the cycle is at its low point, or trough, commodity prices are very, very cheap. This drives miners, refiners, and suppliers out of the market. There business profits are directly correlated to the commodity that they are supplying. When supply and prices hit rock bottom, combined with a demand shock sends commodity prices soaring.
The businesses that were able to stick through the low prices, will now prosper. Other companies, new and old, will begin exploration, and attempt to get a piece of the action. Example: uranium was trading at $7 /lb, it is now trading at $75 /lb. This difference came in a rather short period of time and the price of uranium will continue to thrive as it takes time to get more and more U3O8 mined.
This brings me to my next point. Once the upswing of the commodity supercycle begins, it takes time for other suppliers to get in the market. In the case of mining or oil drilling, there needs to be financing, exploration, drilling, setting up the mine or oil rig. This all takes a large amount of time, and happens to be just about where we are at in the commodity upswing.
I feel that this particular upswing is special because of the huge demand shock that is taking place. China's use of natural resources is immense, and increasing exponentially every year. It will be a while for the supply to catch up to the demand. In the mean time we can all pad our portfolios with commodity investments.
Now that I've explained the commodity supercycle, I would like to get into the meat of what I wanted to talk about; how the government reacts to all of this. Historically, there is little action on a federal level at first. In fact, commodity enterprises are often subsidized at the government realizes the shortage of natural resources. It also takes a large amount of capital to set up and produce most commodities. Once they get them up and running, they then take away their subsidy, because the company can survive on its own due to rising commodity prices. As prices keep going higher and higher the government starts to lick their dirty lips, and rub their filthy hands together in anticipation of the large taxes that they are about to stick on these companies, and in many cases, the government might just end up centralizing that industry.
Depending on what part of the world you live in, we are somewhere in the middle of the subsidy, taxation, or centralization of the commodities industry. Lets look at a couple of examples. Rising gas prices has the U.S. producing ethanol. They are heavily subsidizing this industry on every level, from the farmers, to the oil company that mixes the ethanol with refined gas.
The oil sands companies transition from subsidies to taxes is something that I have experienced on a personal note. They were heavily subsidized, being that Canada realized the potential of these companies. Now there are talks of heavy taxes on these companies. Side note: Canada is really shooting themselves in the foot with those taxes. They'll figure it out sooner or later.
Mexico, Venezuela, and Iran have government control over their oil industries. They realize the money involved, but fail to run these industries at optimum levels. This is a trait of the majority of government controlled markets. Just this mourning, I read that Zimbabwe has announced that they are centralizing their diamond market. I expect to here much more news of this nature in the coming years.
Monday, February 19, 2007
World Price of Gold
I have a tendency to look at the USD and its ties to gold. In this post I am going to write about the price of gold across some of the major currencies of the world, because it is quite bullish news.
Gold right now in USD is fighting a strong resistance point at $670 /oz. As I am writing this post is trading just above that mark, but you know how I feel about gold in USD let's take a trip to some of the major economies of the world. You'll have to forgive me because I don't know how to make the fancy symbols on my computer regarding the foreign currencies.
In the euros, gold just broke back above a strong resistance point of 500 euros. In the Canadian dollar, gold is trading at its highest point since May '06 (which is exactly what gold is doing in USD). In Australian dollars, gold is trading at just above 860, which is the highest its been since mid June '06. Against the Yen, gold has hit a 23 year high at over 81,500 yen.
There is a gold bull going on around the world. This is very bullish for the outlook of gold. Let's look at the main reason why. Gold is the only true testimate for monetary inflation. In South Africa their M3 is raising by more than 20% per annum, India is putting out some 19% more rupees per annum, while the British Sterling, in December rose at an annual rate of 12.8%, and that is a 15-month low. In the U.S. here, since the mid '90s we have been raising the amount of currency in circulation by approximately 10-15% per year. You see, there is world wide monetary inflation and it is showing in the price of gold. Yen, A$, C$, US$, euro, sterling, rupees, rand, who cares. Gold is bullish everywhere.
Things brings me to my final point of this post. The strength of a currency shouldn't be measured against other currencies. They are all inflating so rapidly. That just shows, how weak the dollar is. It is just falling faster than all of the other currencies are falling. A true strength of a currency is the buying power of that currency, or what its worth in good/services. This is impossible to tell because the CPI is a joke. The only true judge of inflation and the buying power of a currency is gold. Gold is a currency in and of itself. The difference is, is that it is free from government/political influence. The true measure of a currency is its value in gold terms.
Gold right now in USD is fighting a strong resistance point at $670 /oz. As I am writing this post is trading just above that mark, but you know how I feel about gold in USD let's take a trip to some of the major economies of the world. You'll have to forgive me because I don't know how to make the fancy symbols on my computer regarding the foreign currencies.
In the euros, gold just broke back above a strong resistance point of 500 euros. In the Canadian dollar, gold is trading at its highest point since May '06 (which is exactly what gold is doing in USD). In Australian dollars, gold is trading at just above 860, which is the highest its been since mid June '06. Against the Yen, gold has hit a 23 year high at over 81,500 yen.
There is a gold bull going on around the world. This is very bullish for the outlook of gold. Let's look at the main reason why. Gold is the only true testimate for monetary inflation. In South Africa their M3 is raising by more than 20% per annum, India is putting out some 19% more rupees per annum, while the British Sterling, in December rose at an annual rate of 12.8%, and that is a 15-month low. In the U.S. here, since the mid '90s we have been raising the amount of currency in circulation by approximately 10-15% per year. You see, there is world wide monetary inflation and it is showing in the price of gold. Yen, A$, C$, US$, euro, sterling, rupees, rand, who cares. Gold is bullish everywhere.
Things brings me to my final point of this post. The strength of a currency shouldn't be measured against other currencies. They are all inflating so rapidly. That just shows, how weak the dollar is. It is just falling faster than all of the other currencies are falling. A true strength of a currency is the buying power of that currency, or what its worth in good/services. This is impossible to tell because the CPI is a joke. The only true judge of inflation and the buying power of a currency is gold. Gold is a currency in and of itself. The difference is, is that it is free from government/political influence. The true measure of a currency is its value in gold terms.
Uranium Auction
There are two small uranium auctions coming up this Tuesdays (Feb. 20). There will be 100,000 lbs of U3O8 going up for sale. Like I said it's not big deal, but I strongly believe that this auction will push uranium to new record highs to at least $80 /lb.
This past week uranium stocks had a big week. Much of this is due to the hype surrounding this small auction, and the other reason is that the Sprott annual conference for institutions will be held this Tuesday in New York, and Wednesday in Toronto. I assume it will be another big week for uranium stocks.
On this news, I would like to make an announcement. If you haven't noticed on the right side of the website, I have liquidated my holdings of Oilsands Quest Inc. (BQI) and purchased into Denison Mining Corp. (DMLCF). The situation regarding BQI is dead money. I still like this company in the long run, but with the tax mess going on in Canada regarding the oil sands and their environmental impact is ridiculous and causing me to lose hair (see previous post on BQI reagarding the tax situation). So screw em. This is the first of probably a couple of moves I will be making to increase my holdings of uranium related companies. Let me tell you why:
1) I can't say that there is zero risk (just look at the flooded Cameco mine situation), but this is the most blatant situation of limited supply and huge demand in the market today.
2) It takes time to explore, drill, start mining, and process U3O8. This supply shortage will be steady for the next 5-10 years.
3) The geopolitical situation regarding oil has created huge demands for uranium.
4) China will drive this market if nothing else. (see my previous post on China's future operations regarding nuclear fuel)
5) I strongly expect to see large amounts of consolidation in the uranium market in the near future, and I expect companies like SXR Uranium One, Denison, and Cameco, to be right in the middle of it.
6) I feel that my prediction of uranium hitting $100 /lb this year is ridiculous. I hold to that, but it's starting to look like it will get closer to $150 /lb.
7) I love these uranium investments more as each day passes.
This past week uranium stocks had a big week. Much of this is due to the hype surrounding this small auction, and the other reason is that the Sprott annual conference for institutions will be held this Tuesday in New York, and Wednesday in Toronto. I assume it will be another big week for uranium stocks.
On this news, I would like to make an announcement. If you haven't noticed on the right side of the website, I have liquidated my holdings of Oilsands Quest Inc. (BQI) and purchased into Denison Mining Corp. (DMLCF). The situation regarding BQI is dead money. I still like this company in the long run, but with the tax mess going on in Canada regarding the oil sands and their environmental impact is ridiculous and causing me to lose hair (see previous post on BQI reagarding the tax situation). So screw em. This is the first of probably a couple of moves I will be making to increase my holdings of uranium related companies. Let me tell you why:
1) I can't say that there is zero risk (just look at the flooded Cameco mine situation), but this is the most blatant situation of limited supply and huge demand in the market today.
2) It takes time to explore, drill, start mining, and process U3O8. This supply shortage will be steady for the next 5-10 years.
3) The geopolitical situation regarding oil has created huge demands for uranium.
4) China will drive this market if nothing else. (see my previous post on China's future operations regarding nuclear fuel)
5) I strongly expect to see large amounts of consolidation in the uranium market in the near future, and I expect companies like SXR Uranium One, Denison, and Cameco, to be right in the middle of it.
6) I feel that my prediction of uranium hitting $100 /lb this year is ridiculous. I hold to that, but it's starting to look like it will get closer to $150 /lb.
7) I love these uranium investments more as each day passes.
Sunday, February 18, 2007
Gold Bull Watering Hole
There has been a very strong resistance for gold at $670. This is proving to be a very tough point to break through. Many gold bugs believe that something is up. I have been hearing a consistent rumor around the gold bull watering hole this last week or so. Word on the street is that there is a large seller selling short at $670 in order to keep the price of gold down. Who is doing this? Well we don't exactly know, but some people say its a government, some say a hedge fund, and others say it may be a miner paying a bank from a previous agreement. It could be some combination of the above mentioned.
Anyways, whoever he/she/they may be keeping gold down, will have a harder time doing this as each week passes. The longer it's held down, the more upward pressure it will experience.
I apologize about reporting on the "rumors" and not facts. I thought that this was an interesting enough story to write about. I personally see some truth to this, because actions of this nature have been taken by central banks over the past several decades. However, it is completely trivial in the long run, even in the short run, for the price of gold. These sell offs, if they are occurring, can only be effective for 1-2 more weeks here at most.
Anyways, whoever he/she/they may be keeping gold down, will have a harder time doing this as each week passes. The longer it's held down, the more upward pressure it will experience.
I apologize about reporting on the "rumors" and not facts. I thought that this was an interesting enough story to write about. I personally see some truth to this, because actions of this nature have been taken by central banks over the past several decades. However, it is completely trivial in the long run, even in the short run, for the price of gold. These sell offs, if they are occurring, can only be effective for 1-2 more weeks here at most.
Friday, February 16, 2007
China Conflict
I have said that China is going to be the future superpower of the world, and I strongly stand by that statement. I would like to talk about a sore spot in China's history that could end up as an economic tragedy here in the U.S. when it all happens.
The name of the game is Taiwan. Taiwan succeeded from China leaving a real sour taste in China's mouth. The U.S. supported Taiwan militarily because Taiwan is a democracy, and China is communist. There have been a couple slight attempts, by China, to reacquire Taiwan. The U.S. supported Taiwan and kept them safe from China's grasps.
Don't think China has forgotten this. China will go after Taiwan, and when they do this they probably aren't going to feel like subsidizing Taiwan's older military brother. This will show that the U.S. has absolutely zero ability to stop China from doing whatever they want.
Now, the Chinese could march right into the U.S. and turn this place communist at the snap of their fingers if they wanted. We would have no means of stopping them. I don't see this happening, but the big bad wolf, that is the United States of America, isn't so big and bad any more. The U.S. government has no means of protecting it citizens anymore. Just think about it.
The name of the game is Taiwan. Taiwan succeeded from China leaving a real sour taste in China's mouth. The U.S. supported Taiwan militarily because Taiwan is a democracy, and China is communist. There have been a couple slight attempts, by China, to reacquire Taiwan. The U.S. supported Taiwan and kept them safe from China's grasps.
Don't think China has forgotten this. China will go after Taiwan, and when they do this they probably aren't going to feel like subsidizing Taiwan's older military brother. This will show that the U.S. has absolutely zero ability to stop China from doing whatever they want.
Now, the Chinese could march right into the U.S. and turn this place communist at the snap of their fingers if they wanted. We would have no means of stopping them. I don't see this happening, but the big bad wolf, that is the United States of America, isn't so big and bad any more. The U.S. government has no means of protecting it citizens anymore. Just think about it.
Selling Cows to Buy Milk
I saw a great analysis the other day, saying that the U.S. is selling cows to buy milk. Allow me to explain:
Recently BHP Billiton and Rio Tinto, two Australian based mining companies, offered to buy Alcoa. Alcoa is an aluminum mining giant here in the U.S.
What does this all mean? It's just more consolidation, why does it matter? Let me tell you. Just holding the U.S. dollar used to be good enough for most foreign investors. For the most part, it would appreciate against most local currencies (except the Swiss Franc). Then folks wanted these bonds and treasuries. They were less liquid but it was a win-win situation in the long run. The investor would receive whatever the yield return happened to be regarding that specific bond/treasury, plus the appreciation of the USD compared to the local currency.
Now the USD is depreciating against most of the major currencies of the world. Foreign investors, if not completely turned off by the whole idea, are nervous about owning any USD denominated investment.
Now foreign investors want to invest in the tangible goods that are being produced in the US. Rising commodity prices are due, in large part, to the monetary inflation here in the U.S. The gold bull market, is a world bull market, but the price of gold, along with other commodities, is rising at a faster rate here in the U.S. than in other countries. There is good money to be made in the commodities market here in the U.S., so foreign investors are now looking to get a piece of the action.
Instead of buying bond/treasuries anymore companies like BHP Billiton and Rio Tinto are purchasing into the U.S.' ability to mine and refine its natural resources. The offers have been in and around $40 billion (USD). I would like to look at this transaction. $40 billion more paper dollars go into the U.S. while BHP or Rio, Australian based companies, get the access to the natural resources here in the U.S. Hence, we are selling our cows to buy milk.
Recently BHP Billiton and Rio Tinto, two Australian based mining companies, offered to buy Alcoa. Alcoa is an aluminum mining giant here in the U.S.
What does this all mean? It's just more consolidation, why does it matter? Let me tell you. Just holding the U.S. dollar used to be good enough for most foreign investors. For the most part, it would appreciate against most local currencies (except the Swiss Franc). Then folks wanted these bonds and treasuries. They were less liquid but it was a win-win situation in the long run. The investor would receive whatever the yield return happened to be regarding that specific bond/treasury, plus the appreciation of the USD compared to the local currency.
Now the USD is depreciating against most of the major currencies of the world. Foreign investors, if not completely turned off by the whole idea, are nervous about owning any USD denominated investment.
Now foreign investors want to invest in the tangible goods that are being produced in the US. Rising commodity prices are due, in large part, to the monetary inflation here in the U.S. The gold bull market, is a world bull market, but the price of gold, along with other commodities, is rising at a faster rate here in the U.S. than in other countries. There is good money to be made in the commodities market here in the U.S., so foreign investors are now looking to get a piece of the action.
Instead of buying bond/treasuries anymore companies like BHP Billiton and Rio Tinto are purchasing into the U.S.' ability to mine and refine its natural resources. The offers have been in and around $40 billion (USD). I would like to look at this transaction. $40 billion more paper dollars go into the U.S. while BHP or Rio, Australian based companies, get the access to the natural resources here in the U.S. Hence, we are selling our cows to buy milk.
M2 vs. M3
In this post I am going to talk about how the M3 is more accurate than the M2.
The main thing that the M2 misses is bonds and treasuries when it accounts for the amount of currency in inflation. For example, we export dollars to china for cheap goods. There is an unwritten rule between China and the U.S. They in turn, use the majority of those dollars to buy U.S. bonds and treasuries. They keep others in store to buy oil, because 70% of the oil traded is still denominated in U.S. dollars. When the dollars that are exported to China are printed or otherwise derived, they are counted in the M2. When they are sent back to the U.S. in exchange for treasuries and bonds, they are then retracted from the M2. That is a huge number of dollars that are sitting in China's bank account, in the form of bonds and treasuries, that aren't counted. Well, the M3 counts this and it explains that the M3 is approximately double that of the M2. The M3 shows that the amount of currency in circulation has been rising an approximate 10% every year since the late 90's, while the M2 has held steady and even retracted a little bit.
The bonds/treasuries market is such a huge part of the U.S. economy, that I feel it is quite necessary, if you want an accurate measure of money supply, to look at the M3.
The main thing that the M2 misses is bonds and treasuries when it accounts for the amount of currency in inflation. For example, we export dollars to china for cheap goods. There is an unwritten rule between China and the U.S. They in turn, use the majority of those dollars to buy U.S. bonds and treasuries. They keep others in store to buy oil, because 70% of the oil traded is still denominated in U.S. dollars. When the dollars that are exported to China are printed or otherwise derived, they are counted in the M2. When they are sent back to the U.S. in exchange for treasuries and bonds, they are then retracted from the M2. That is a huge number of dollars that are sitting in China's bank account, in the form of bonds and treasuries, that aren't counted. Well, the M3 counts this and it explains that the M3 is approximately double that of the M2. The M3 shows that the amount of currency in circulation has been rising an approximate 10% every year since the late 90's, while the M2 has held steady and even retracted a little bit.
The bonds/treasuries market is such a huge part of the U.S. economy, that I feel it is quite necessary, if you want an accurate measure of money supply, to look at the M3.
Thursday, February 15, 2007
Russia's Actions
Russian president Vladimir Putin spoke at the 43rd Munich Security Conference. He spoke to many of the world's assembeled political leaders. He hit on a main point that I have been preching about for a while. He said that the United States is trying to establish a "uni-polar world," which he defined as, "one single center of power, one single center of force, and one single master." He went on to say that this is a "formula for disaster."
He discussed how the Bush's Regime ability to rage war is dependant upon foreign financing. It is financed with red ink. By financing our debts, foreign nations are paying for our war efforts. The U.S. government can't borrow from American citizens because they spend more money than they earn. The U.S. savings rate was negative 1% this last year. That's the lowest number since the great depression. I would note that, it's definetly an interesting coincidence.
Basically by financing our debt, they are basically going along with the whole war in Iraq. The final most important item that Putin spoke of, is that if foreign governments stopped buying U.S. bonds and treasuries, and flooded their USD denominated forex reserves into the market, they could create an economic crisis here in the U.S. and eliminate the U.S.' ability to wage war.
Like I have said before, this is the biggest weakness of the United States of America. Because when one of these countries floods there USD reserves the USD's value will begin to decline forcing all the other countries who hold the USD to follow suit creating a snowball effect. I feel the spark that could set this all into motion could be the Fed's reaction of lowering interest when recession comes later this year.
He discussed how the Bush's Regime ability to rage war is dependant upon foreign financing. It is financed with red ink. By financing our debts, foreign nations are paying for our war efforts. The U.S. government can't borrow from American citizens because they spend more money than they earn. The U.S. savings rate was negative 1% this last year. That's the lowest number since the great depression. I would note that, it's definetly an interesting coincidence.
Basically by financing our debt, they are basically going along with the whole war in Iraq. The final most important item that Putin spoke of, is that if foreign governments stopped buying U.S. bonds and treasuries, and flooded their USD denominated forex reserves into the market, they could create an economic crisis here in the U.S. and eliminate the U.S.' ability to wage war.
Like I have said before, this is the biggest weakness of the United States of America. Because when one of these countries floods there USD reserves the USD's value will begin to decline forcing all the other countries who hold the USD to follow suit creating a snowball effect. I feel the spark that could set this all into motion could be the Fed's reaction of lowering interest when recession comes later this year.
Housing update
I would just like to share some recent statistics that have come out regarding the housing market. In the final three months of the year, sales home sales fell in 40 states. Median home prices dropped on over half of the metropolitan surveyed (149). Nationally sales fell 10.1 % from 4Q last year. The national median price of homes fell 2.7% to $219,300. That is the largest price decline in the 27-year history of the Realtor's Price Survey.
These declines are creating a feedback loop, which will rock this economy. I don't know if you've ever seen the movie "Pay Forward." Well there's this kid who has this idea that if he helps 3 people and they each help 3 people and they each help 3 people, well you get the idea. It's a simple exponential formula (y=3 to the x power). The world will become a better place. Well this feedback loop actually has the exact opposite effect. The construction workers lose their jobs, the realtors cant sell houses, and the mortgage broker can't sell any new mortgages. All these people will now be spending less money at the wal-marts, McDonanlds, and Best Buys. This feedback loop will start to hit consumer spending harder and harder, and for a GDP that 70% based on consumer spending, well, the impact will be heavy.
These declines are creating a feedback loop, which will rock this economy. I don't know if you've ever seen the movie "Pay Forward." Well there's this kid who has this idea that if he helps 3 people and they each help 3 people and they each help 3 people, well you get the idea. It's a simple exponential formula (y=3 to the x power). The world will become a better place. Well this feedback loop actually has the exact opposite effect. The construction workers lose their jobs, the realtors cant sell houses, and the mortgage broker can't sell any new mortgages. All these people will now be spending less money at the wal-marts, McDonanlds, and Best Buys. This feedback loop will start to hit consumer spending harder and harder, and for a GDP that 70% based on consumer spending, well, the impact will be heavy.
Wednesday, February 14, 2007
Oilsands Quest
I would like to talk about Oilsands Quest Inc (BQI). It has been hit and hit hard and I would like to talk about why. The oilsands operations in Canada are a heavily subsidized industry. Canada realizes their potential as do I. I feel that these operations will turn Canada into the biggest seller of oil to the U.S. Recently there has been a public outcry. The Canadian citizens have taken a turn for the "green." They feel that these companies are harming the environment and are calling for eliminating the subsidies and actually taxing these companies that don't meet curtain environmentally friendly standards in their exploration. This is ridiculous. Oil is turning into the most valued commodity around the world, and any potential to discover and extract as much as possible needs to be taken seriously None the less, the Torries have acknowledged these demands and are taking action. This explains for the loss in the stock price of BQI. I feel that this is just a setback in the long run. This is still one of my favorite companies and the Canadians will soon realize that they can't have their cake and eat it too.
Tuesday, February 13, 2007
China's Uranium Demand
China is looking to the future, and in their future lies many new nuclear plants and huge imports of U3O8. China is on track to build two new nuclear reactors every year for the next 14 years. By 2010 its demand for uranium will more than triple from 3 million pounds a year to over 10 million pounds a year. By 2020 China looks to import 5.5 billion pounds of uranium per year just from Australia. At the same time China will be importing roughly 16.5 million pounds of uranium a year. Uranium stocks might be the best long term buy out there right now. That is just China, but many, many nations are partaking in similar activities, just on a slightly small scale.
Apology
I need to make an apology to all of my readers. In my most recent post I made a couple vague solutions or outlooks for the future of the U.S. One of those, regarding farming, was probably, at best, worded incorrectly, but was more wrong than anything. More specifically regarding how farming will entail smaller family owned operations. The point I would really like to get across is how the suberbs will not be a feasible idea in the future with the geopolitical situation that is emminent. People will move to the cities and we will see a resurgance of our small rural towns. Farming will be come a key component in the future economy of this nation. Excuse me for the incorrection and I appreciate the reader who informed me of the falicy in which I wrote. I also would like to greatly incourage comments and/or questions regarding what I write about. So once again, sorry about the mess up.
Monday, February 12, 2007
Solutions...
I have been known to be somewhat pessimistic at times. People often tell me that they would like to hear something positive or a solution to this mess we're in. My most typical solution is gold. Get as much of it as you can to safeguard your investment. The folks looking for condolence shake their head and say, "No, not that. Some people in this world care more about what's going on in the world and want to do their part to help." These are really good people and our world needs more of them, but I promise you that I am not even close to being one of those people. But, although I can't give you the exact solutions to the world's problems I can give you some idea to what I think is to come. We are in for a dramatic social change, and people need to really think out of the box and realize that some of the things we take for granted are just not going to be available in the future:
Cars are not the solution. We need to stop focusing on finding alternative fuels to run our cars and set up more forms of mass transportation similar to that of Europe. The obsession of keeping cars running forever might bury us as a nation.
We are going to have to produce food differently. The ADM, Monsanto, and Cargill models of industrial agribusiness will soon be disastrous. If they continue up at this pace, in order to supply ethanol, they will soon deplete the nutrients of our soil and leave us with sterile dirt. We need to farm for food and only food. I believe that in the future, farming will become a larger part of the American economic system. I also believe that it will be undertaken on a much smaller scale then what exists today.
Suburbia won't work. We will have to change the where and how we locate this nation. This gets back to the car situation. The suburbs are set up so folks can commute to the city by car. Getting kids to school is going to have to reform. The future won't have big yellow buses.
The transportation of goods will have to be partaken in a different matter. More rail roads will need to be built. Semis will prove to be the most expensive mode of transportation in existence.
We will actually have to produce and consumer American goods. It is impossible to live on exports and have a nation built strictly on our sole export of services.
The medical system definitely needs reform. No more government appealing to special groups lobbyists.
I've said some "ideas," but you really have to realize the graveness of our dependency on black gold. I don't know if specifically things are going to happen in the above mentioned ways, but I believe that things are going to start looking a lot more like Europe here in the U.S. What I'm getting at, is we really needed to start mitigating away from our oil dependency 10-20 years ago to really be prepared. I said oil prices will shoot to $100 and above this year. That's just the beginning. In the next 5-10 years we might be seeing $10 /gallon at the pump. Don't sit there and think, oh that's not bad, we can manage. That's only the beginning. What I'm getting at here is that we need a serious lifestyle change here in the U.S.
Cars are not the solution. We need to stop focusing on finding alternative fuels to run our cars and set up more forms of mass transportation similar to that of Europe. The obsession of keeping cars running forever might bury us as a nation.
We are going to have to produce food differently. The ADM, Monsanto, and Cargill models of industrial agribusiness will soon be disastrous. If they continue up at this pace, in order to supply ethanol, they will soon deplete the nutrients of our soil and leave us with sterile dirt. We need to farm for food and only food. I believe that in the future, farming will become a larger part of the American economic system. I also believe that it will be undertaken on a much smaller scale then what exists today.
Suburbia won't work. We will have to change the where and how we locate this nation. This gets back to the car situation. The suburbs are set up so folks can commute to the city by car. Getting kids to school is going to have to reform. The future won't have big yellow buses.
The transportation of goods will have to be partaken in a different matter. More rail roads will need to be built. Semis will prove to be the most expensive mode of transportation in existence.
We will actually have to produce and consumer American goods. It is impossible to live on exports and have a nation built strictly on our sole export of services.
The medical system definitely needs reform. No more government appealing to special groups lobbyists.
I've said some "ideas," but you really have to realize the graveness of our dependency on black gold. I don't know if specifically things are going to happen in the above mentioned ways, but I believe that things are going to start looking a lot more like Europe here in the U.S. What I'm getting at, is we really needed to start mitigating away from our oil dependency 10-20 years ago to really be prepared. I said oil prices will shoot to $100 and above this year. That's just the beginning. In the next 5-10 years we might be seeing $10 /gallon at the pump. Don't sit there and think, oh that's not bad, we can manage. That's only the beginning. What I'm getting at here is that we need a serious lifestyle change here in the U.S.
SXR Uranium One Update
Bloomberg:
SXR Uranium One Inc. agreed to buy UrAsia Ltd. for $31 billion, to form the world's second largest uranium producer as rising demand for nuclear fuel drives price records.
SXR, owner of South Africa's largest undeveloped uranium deposit, offered C$7.05 (6.01 USD) a share in stock for Vancouver based Urasia, which owns uranium mines in Central Asia. That's 13 percent more than UrAsia's Feb. 9 closing price in Toronto, the companies said today. SXR's stock rose 6.8% percent to a record.
The combined company, once all its mines are operating, will trail only Cameco Corp. in production and be the only producer in Kazakhsta, South Africa, Australia, the U.S., and Canada, the five largest holders of Uranium deposits. Uranium prices jumped more than 10-fold in five years as demand from utilities surged and stockpiles fell, spurring exploration and mine development.
"This deal is turning SXR into one of the biggest uranium companies in the world," Nick Goodwin, an analyst at Johannesbyrg based Tlotlisa Securities Ltd., said in an interview. The combined company will have a total resource of about 400 million pounds of uranium, he added.
Uranium One will have estimated production of more than 7 million pounds of uranium in 2008 from five projects, at cash costs of about $10-$12 per pound, SXR's executive vice president for Australia and Asia, Greg Cochran, told reporters in Sydney.
"The new Uranium One will be an exciting, low-cost, growth-orientated uranium company with five mines in operation by the first quarter of 2008," SXR CEO Neal Froneman said in the statement.
Side note: This is good new as things progress in the uranium market. I have it, on a good source that uranium is trading at $80 /lb. We will see if Trade Tech makes it official. SXR is one of my favorite long term hold here.
SXR Uranium One Inc. agreed to buy UrAsia Ltd. for $31 billion, to form the world's second largest uranium producer as rising demand for nuclear fuel drives price records.
SXR, owner of South Africa's largest undeveloped uranium deposit, offered C$7.05 (6.01 USD) a share in stock for Vancouver based Urasia, which owns uranium mines in Central Asia. That's 13 percent more than UrAsia's Feb. 9 closing price in Toronto, the companies said today. SXR's stock rose 6.8% percent to a record.
The combined company, once all its mines are operating, will trail only Cameco Corp. in production and be the only producer in Kazakhsta, South Africa, Australia, the U.S., and Canada, the five largest holders of Uranium deposits. Uranium prices jumped more than 10-fold in five years as demand from utilities surged and stockpiles fell, spurring exploration and mine development.
"This deal is turning SXR into one of the biggest uranium companies in the world," Nick Goodwin, an analyst at Johannesbyrg based Tlotlisa Securities Ltd., said in an interview. The combined company will have a total resource of about 400 million pounds of uranium, he added.
Uranium One will have estimated production of more than 7 million pounds of uranium in 2008 from five projects, at cash costs of about $10-$12 per pound, SXR's executive vice president for Australia and Asia, Greg Cochran, told reporters in Sydney.
"The new Uranium One will be an exciting, low-cost, growth-orientated uranium company with five mines in operation by the first quarter of 2008," SXR CEO Neal Froneman said in the statement.
Side note: This is good new as things progress in the uranium market. I have it, on a good source that uranium is trading at $80 /lb. We will see if Trade Tech makes it official. SXR is one of my favorite long term hold here.
Friday, February 9, 2007
You gotta be kidding me...
I am going to write about some BS that occurred yesterday that really has me absolutely beside myself. The government shipped 363 tons of $100 banknotes to Iraq yesterday. Pardon my language but WHAT THE HELL ARE THEY DOING? The total amount was 12 billion USD. They just print of 12 billion USD and send it. If you think that the dollar is going to be worth anything here, you're experiencing some severe denial. This is nothing short of a crime on the American people, and the funny thing is that the USD index has gone up the last two days. There's some shady business going on and the strength of the dollar can't last long with actions like this.
I try very hard, often to no avail, to stay away from the political side of things. I like to keep things focused on the economic side, but being that the two are often tied together, it can be rather tough. So if you don't want to hear any politics stop reading now. I am not a republican or a democrat. I consider myself pretty much a free market libertarian. That doesn't matter to me though, because I really could care less what the government does. I just want to make money, and help you the readers make money off of their actions. If you expect any high powered officials, here in the U.S., to make ANY decision that is good for this country and the people inside of it, your joking yourself. The only thing that they want to do, is post pone the inevitable and maybe try to inflate their way through this economic mess they've created, protect special interest groups, and put money in their own pockets. I'm in a furious rage right now.
I often say that the democrats screw everything up while they are in office, and the republicans screw everything up for the politicians that follow them. I'll explain. Being that you know I'm a libertarian, I definitely believe in as little economic government influence as feasibly possible. From a microeconomics policy, the more government influence in the form of taxes, subsidies, price floors/ceilings and government programs that there are the more dead weight loss which follows. Those liberals love to spend their money. The republicans, on the other hand, wreck the future. Their lose policies and defense spending has rendered an economic situation in the U.S. that is unsolvable. The problem is that they would rather post pone what is to come than deal with it now. This only makes it worse, much worse.
I believe that Hillary Clinton will be the next president of the U.S. Right now, she can do no wrong and always says the right thing. To me she's just as much of a pig as the next guy/girl in politics, but that's not the point. I also believe that the next president, whoever he/she may be, will take a lot of the blame for the economic mess that will follow. I sure wouldn't want to inherit the office right now. Now, I feel that a woman is just as inclined to the office as any man, and would be a good thing for young women everywhere to look up to. I guarantee that whoever the next president is will "fail" miserably in the public eye. I believe that when the house of cards that our economy is collapses, the next president will take the brunt of the blame. So let me ask you, would it be a good thing if or when the first woman president in the history of the U.S. crashes and burns because of an insolvable situation be a good thing for future women politicians? I doubt it. It will have to take a real special HONEST president to lead us through this mess and take the losses as they come. I'll believe it when I see it. Now that I've gotten all that political garbage written down I can keep it to a bare minimum in the future.
I try very hard, often to no avail, to stay away from the political side of things. I like to keep things focused on the economic side, but being that the two are often tied together, it can be rather tough. So if you don't want to hear any politics stop reading now. I am not a republican or a democrat. I consider myself pretty much a free market libertarian. That doesn't matter to me though, because I really could care less what the government does. I just want to make money, and help you the readers make money off of their actions. If you expect any high powered officials, here in the U.S., to make ANY decision that is good for this country and the people inside of it, your joking yourself. The only thing that they want to do, is post pone the inevitable and maybe try to inflate their way through this economic mess they've created, protect special interest groups, and put money in their own pockets. I'm in a furious rage right now.
I often say that the democrats screw everything up while they are in office, and the republicans screw everything up for the politicians that follow them. I'll explain. Being that you know I'm a libertarian, I definitely believe in as little economic government influence as feasibly possible. From a microeconomics policy, the more government influence in the form of taxes, subsidies, price floors/ceilings and government programs that there are the more dead weight loss which follows. Those liberals love to spend their money. The republicans, on the other hand, wreck the future. Their lose policies and defense spending has rendered an economic situation in the U.S. that is unsolvable. The problem is that they would rather post pone what is to come than deal with it now. This only makes it worse, much worse.
I believe that Hillary Clinton will be the next president of the U.S. Right now, she can do no wrong and always says the right thing. To me she's just as much of a pig as the next guy/girl in politics, but that's not the point. I also believe that the next president, whoever he/she may be, will take a lot of the blame for the economic mess that will follow. I sure wouldn't want to inherit the office right now. Now, I feel that a woman is just as inclined to the office as any man, and would be a good thing for young women everywhere to look up to. I guarantee that whoever the next president is will "fail" miserably in the public eye. I believe that when the house of cards that our economy is collapses, the next president will take the brunt of the blame. So let me ask you, would it be a good thing if or when the first woman president in the history of the U.S. crashes and burns because of an insolvable situation be a good thing for future women politicians? I doubt it. It will have to take a real special HONEST president to lead us through this mess and take the losses as they come. I'll believe it when I see it. Now that I've gotten all that political garbage written down I can keep it to a bare minimum in the future.
Thursday, February 8, 2007
International Monetary Fund
I have talked briefly about the IMF in my posts and if you've read my essay the price fixing of gold you might know a little something about them. In a nutshell these guys hold the true backing of wealth in the world in the form of gold. They are the single largest holder of gold in the world. They own an estimated 3217 metric tons of gold.
Before a couple weeks ago I had never even heard of the IMF, but they are a truly fascinating organization and I can't stop myself from looking into their actions. They are basically the central bank of the central banks. I would like to share with you who their committee board regarding the sales of gold are: Andrew Crockett, former director general of the Bank f International Settlements and currently president of J.P. Morgan Chase International; Mohamed A. El-Erian, president and CEO of Harvard Management Co.; Alan freaking Greenspan; Tiito Mboweni, governor of the South African Reserve Bank; Guillermo Ortiz, governor of the Bank of Mexico; Hamad Al- Sayari governor of the Saudi Arabian Monetary ageny; Jean Claud Trichet, president of the European Centra Bank; and Zhou Xiaochuan, governor of the People's Bank of China.
As you can see its businessmen and central bankers. There's a lot of agendas within that board. I don't know about you, but I don't trust a central banker further than I can throw them, and the same goes for powerful businessmen and CEOs.
They IMF has the ability to render central banks responsible for accounting for the gold loan that are processed. In my paper, I talked about how they are taking some preliminary actions in doing just that. Well, the more I look into them the more I feel that they won't do a darn thing. It still doesn't worry me. The market forces are driving the price of gold up and they can't loan enough gold to stop it. Here is a chart regarding this information. http://www.lbma.org.uk/clearing_table.htm If you compare the numbers of the chart on the page you can see that the less gold loaned the higher the actual price of gold goes. This hold true until 2006, where the correlation seems to fail. The loaned gold seems to go back up to highs near the levels of 1999 when gold was $250 /oz. I believe that the influx of loaned gold was an attempt to once again to artificially lower the price of gold. Their action has failed. So in the long run it won't matter.
Honestly, I haven't said anything that I originally intended to talk about in this post. What I was going to say is that the IMF is selling 400 tonnes of gold from its holdings in order to raise a $400 million dollar a year shortage (until 2010) of funds regarding the current income expenses of the IMF. At current market value, that's $8.4 billions USD. This might have a short, and let me emphasize the word short, negative impact on the price of gold. Nothing has happened yet, and in the mean time gold continues to test that resistance of $650-$655 /oz. Its acting like it wants to break out in a bad sort of way.
Before a couple weeks ago I had never even heard of the IMF, but they are a truly fascinating organization and I can't stop myself from looking into their actions. They are basically the central bank of the central banks. I would like to share with you who their committee board regarding the sales of gold are: Andrew Crockett, former director general of the Bank f International Settlements and currently president of J.P. Morgan Chase International; Mohamed A. El-Erian, president and CEO of Harvard Management Co.; Alan freaking Greenspan; Tiito Mboweni, governor of the South African Reserve Bank; Guillermo Ortiz, governor of the Bank of Mexico; Hamad Al- Sayari governor of the Saudi Arabian Monetary ageny; Jean Claud Trichet, president of the European Centra Bank; and Zhou Xiaochuan, governor of the People's Bank of China.
As you can see its businessmen and central bankers. There's a lot of agendas within that board. I don't know about you, but I don't trust a central banker further than I can throw them, and the same goes for powerful businessmen and CEOs.
They IMF has the ability to render central banks responsible for accounting for the gold loan that are processed. In my paper, I talked about how they are taking some preliminary actions in doing just that. Well, the more I look into them the more I feel that they won't do a darn thing. It still doesn't worry me. The market forces are driving the price of gold up and they can't loan enough gold to stop it. Here is a chart regarding this information. http://www.lbma.org.uk/clearing_table.htm If you compare the numbers of the chart on the page you can see that the less gold loaned the higher the actual price of gold goes. This hold true until 2006, where the correlation seems to fail. The loaned gold seems to go back up to highs near the levels of 1999 when gold was $250 /oz. I believe that the influx of loaned gold was an attempt to once again to artificially lower the price of gold. Their action has failed. So in the long run it won't matter.
Honestly, I haven't said anything that I originally intended to talk about in this post. What I was going to say is that the IMF is selling 400 tonnes of gold from its holdings in order to raise a $400 million dollar a year shortage (until 2010) of funds regarding the current income expenses of the IMF. At current market value, that's $8.4 billions USD. This might have a short, and let me emphasize the word short, negative impact on the price of gold. Nothing has happened yet, and in the mean time gold continues to test that resistance of $650-$655 /oz. Its acting like it wants to break out in a bad sort of way.
Wednesday, February 7, 2007
Oil's tie with the USD
In this post I am going to discuss about the relationship the USD has with oil. 70% of the oil in this world is denominated in U.S. dollars. That's several trillion USD of oil floating around That's basically a monopoly. In other words the world is letting itself get ripped off because the strong majority of oil sold passes through the USD at some point. The U.S. dollar is a middle man. For example, until last year, Russia was using U.S. dollars in oil transactions with Germany. Are you kidding me. That's like the U.S. buying oil from Canada in rubles. More and more countries are realizing the absurdity of this and cutting out the middle man (the U.S. dollar). This means there is more and more dollars floating around the world, without the ties of oil to them. The U.S. is creating a whopping $800 billion of debt a year. Asia giants and the major oil producing countries of the world are mopping up approximately $700 of America's red ink. Why do they do this? They do it to pay for all of their oil transactions that are being done in USD. Otherwise they would have chucked the greenback long ago an d
I don't know if you realize the absolute crazy amount of liquidity regarding the U.S. dollar that is in the world today. Let me try and help. Like I said 70% of the oil in the world is denominated in USD. That's several trillion dollars. More and more countries are realizing that they lose money by conducting their transactions in USD. So, what happens when that 70% drops to 40% or 30%. That's a bunch more U.S. dollars floating around the world. China holds roughy $750 billion USD denominated assets. U.S. citizens took out a record $825 billion dollars of equity out of their homes last year. And there's another several 10s of billion USD in the central banks of the world. This is all made possible because the Federal Reserve has, since 1995, consistently printed a mind boggling 10% more USD every year, and sells billions of dollars in bond on a monthly basis. We now have a national debt of 8.6 trillion dollars. Wow.
And what happens when there are more dollars in the world the people who want them. Well, we are very close to that. The Russian central bank has said they don't want USD any more and want 10% of their reserves to be denominated in gold. The central bank of China says that they are diversifying away from the USD and putting large investments into base metal/precious metal/uranium mining and oil/gas drilling programs. On Monday they started the filling their first oil reserve tanks. China imported a record 145.18 million tons of crude oil last year making them the third largest importer of oil behind the U.S. and Japan.
All this paints a crystal clear picture of downfall for the future of the USD. Let me tell you how this is all going to happen. We are going to get hit on a couple of fronts, but all of the fronts will fuel each other when they get going. Here are some of the things that are happening right now. I have already talked about some. The foreign banks of the world are diversifying away from the USD, less demand for the USD. Countries are quickly wisening up about the USD oil scam and working on conducting their transactions in their own currencies, less demand for USD. Recession hits in the U.S. and the Feds lower the interest rates but it won't work because of the current situation of the housing market. The only other solution that they know how to do is print money, more supply of USD. The 10% that they are printing now will seem small in 5 years. As simple supply and demand says, when demand decreases and supply increases, price falls. The price, or value of the USD will fall. This will cause more and more countries to seperate their oil from the USD. Foreign banks will decrease their holdings of the USD faster. Recession will deepen and more dollars will have to print. And somewhere in this mess, the U.S.'s ability to sell its bonds will cease to exist because the value of dollar is losing its value. The ability for the U.S. to sell its bonds is its last remaining life line. I've said what I came to say and you know my answer to all of this...gold.
I don't know if you realize the absolute crazy amount of liquidity regarding the U.S. dollar that is in the world today. Let me try and help. Like I said 70% of the oil in the world is denominated in USD. That's several trillion dollars. More and more countries are realizing that they lose money by conducting their transactions in USD. So, what happens when that 70% drops to 40% or 30%. That's a bunch more U.S. dollars floating around the world. China holds roughy $750 billion USD denominated assets. U.S. citizens took out a record $825 billion dollars of equity out of their homes last year. And there's another several 10s of billion USD in the central banks of the world. This is all made possible because the Federal Reserve has, since 1995, consistently printed a mind boggling 10% more USD every year, and sells billions of dollars in bond on a monthly basis. We now have a national debt of 8.6 trillion dollars. Wow.
And what happens when there are more dollars in the world the people who want them. Well, we are very close to that. The Russian central bank has said they don't want USD any more and want 10% of their reserves to be denominated in gold. The central bank of China says that they are diversifying away from the USD and putting large investments into base metal/precious metal/uranium mining and oil/gas drilling programs. On Monday they started the filling their first oil reserve tanks. China imported a record 145.18 million tons of crude oil last year making them the third largest importer of oil behind the U.S. and Japan.
All this paints a crystal clear picture of downfall for the future of the USD. Let me tell you how this is all going to happen. We are going to get hit on a couple of fronts, but all of the fronts will fuel each other when they get going. Here are some of the things that are happening right now. I have already talked about some. The foreign banks of the world are diversifying away from the USD, less demand for the USD. Countries are quickly wisening up about the USD oil scam and working on conducting their transactions in their own currencies, less demand for USD. Recession hits in the U.S. and the Feds lower the interest rates but it won't work because of the current situation of the housing market. The only other solution that they know how to do is print money, more supply of USD. The 10% that they are printing now will seem small in 5 years. As simple supply and demand says, when demand decreases and supply increases, price falls. The price, or value of the USD will fall. This will cause more and more countries to seperate their oil from the USD. Foreign banks will decrease their holdings of the USD faster. Recession will deepen and more dollars will have to print. And somewhere in this mess, the U.S.'s ability to sell its bonds will cease to exist because the value of dollar is losing its value. The ability for the U.S. to sell its bonds is its last remaining life line. I've said what I came to say and you know my answer to all of this...gold.
BHP Billiton
BHP Billiton, the No. 1 mining company in the world, announced a record set of earnings along with a freaking 10 billion share buy back. That number up from its original setting of 3 billion. That's absolutely out of this world. It has increased it dividends for the 10th consecutive year and it doesn't stop there either. They announced 29 new projects estimating at $17.5 billion dollars in cost. These numbers sounds like they could be from a small country. It has all been made possible by huge increases in commodity prices. Here's some info about the company:
Leading supplier of core steel making raw materials
World's second largest copper producer
World's second largest exporter of energy coal
World's third largest producer of nickel
World's fourth largest producer of uranium
World's sixth largest producer of aluminum
A significant producer of oil/gas
Has substantial interests in diamonds, silver, and titanium metals
They operate in approximately 25 countries
Pretty amazing stuff and look for these guys to keep pumping up production/exploration.
I would like to mention something. So I was listening to the talking heads on CNBC, as I have been knows to do. I often find it humorous. Anyways, they said the commodity/gold bull is over. They also said that 2007 is going to be a great and prosperous year for the U.S. They went on how the housing bust is over and it didn't have a negative effect in our economy and that Ben Bernarke has been essential in the soft landing "Goldilocks" economy (not too hot but not too cold). In fact, Kudlow asked 3 financial analysts to give a 1-10 rating (10 being the highest) of Chairmen Bernarke. The lowest score he got was an 8.75. I will be really interested to hear what they have to say at the same time next year regarding the Fed Chairmen. These guys are so absolutely ridiculous that one can do nothing but laugh at them. I would like to leave you with a quote by the author Upton Sinclair. He said, "It is difficult to get a man to understand something when his salary depends on him not understanding it"
Leading supplier of core steel making raw materials
World's second largest copper producer
World's second largest exporter of energy coal
World's third largest producer of nickel
World's fourth largest producer of uranium
World's sixth largest producer of aluminum
A significant producer of oil/gas
Has substantial interests in diamonds, silver, and titanium metals
They operate in approximately 25 countries
Pretty amazing stuff and look for these guys to keep pumping up production/exploration.
I would like to mention something. So I was listening to the talking heads on CNBC, as I have been knows to do. I often find it humorous. Anyways, they said the commodity/gold bull is over. They also said that 2007 is going to be a great and prosperous year for the U.S. They went on how the housing bust is over and it didn't have a negative effect in our economy and that Ben Bernarke has been essential in the soft landing "Goldilocks" economy (not too hot but not too cold). In fact, Kudlow asked 3 financial analysts to give a 1-10 rating (10 being the highest) of Chairmen Bernarke. The lowest score he got was an 8.75. I will be really interested to hear what they have to say at the same time next year regarding the Fed Chairmen. These guys are so absolutely ridiculous that one can do nothing but laugh at them. I would like to leave you with a quote by the author Upton Sinclair. He said, "It is difficult to get a man to understand something when his salary depends on him not understanding it"
Tuesday, February 6, 2007
The Real Cost of Ethanol
In this post I would like to go more in depth regarding ethanol. One thing I left out in my first post on the topic, which I would just like to make known, is that ethanol (E85) is s fuel that is created from 85% corn and 15% other gasolines of varying octanes. Anyways, congress is anxious to do anything about the high cost of gasoline, at the taxpayers expense. What congress has done is give the agribusiness a mandate they can't refuse. Corn ethanol production must rise from 4 billion gallons in 2006 to 7.5 billion gallons in 2012. How are they going to do this? Well, I'm glad you asked. The answer is subsidies. The current ethanol subsidy is a flat 51 cents per gallon of E85 paid to the agent that blends ethanol with gasoline (usually an oil company).
Let's look at some other reasons why E85 is a ridiculous idea. It costs money to store, transport, and blend ethanol with gasoline. Ethanol absorbs water. Since water is corrosive to pipeline components, it must be transported by tanker to a distribution point where it is blended with gasoline and readied for the pump. That's expensive transportation. The gasoline that is blended with ethanol isn't the same gas you pump into your car. It has to be able to blend with the E85, and this type of gasoline is more expensive than regular gas. Ethanol is lost through contamination and evaporation during the blending process. Ethanol that has been contaminated by water degrades the efficiency of combustion. E85 ethanol is corrosive to the seals and fuel systems in most existing engines and cannot be dispensed through regular gas pumps. And the icing on the cake, ethanol has about 25% less energy per gallon than regular gasoline.
Believe me when I say that I am all for alternative energy that lowers the price of gasoline and decreases our dependability as a nation on foreign oil. But ethanol is not the solution. I'll tell you what ethanol is. The public is gradually catching on to the energy crisis her and they are starting to demand action. The problem, which I have spoken of before, is that the U.S has started mitigating WAY too late. The problem again is public ignorance. They general consensus was smart enough to identify the problem, but they are still naive to the truth about ethanol. They love to hear the talking heads on CNN and politicians pump up ethanol. So, now you've read this post, and I hope you have read my previous post on ethanol. I would like to sum this scenario up with one question. Do you think that Rudy Jiuliani, Hillary Clinton, or Barack Obama will get elected as the next president of the U.S. if they don't sell to the nation how many ethanol plants they are going to build and how important E85 is to the future of the U.S.? No way. I'm always quick to rag on politicians and maybe they could inform the public on the truth of E85 if they actually know (which I'm not confident that they do). The problem here is the general public. Politicians are going to give them what they want if they wish to be elected/reelected. As long as the U.S. citizen wants ethanol, we're going to give it to them, at the high cost of tax dollars.
Let's look at some other reasons why E85 is a ridiculous idea. It costs money to store, transport, and blend ethanol with gasoline. Ethanol absorbs water. Since water is corrosive to pipeline components, it must be transported by tanker to a distribution point where it is blended with gasoline and readied for the pump. That's expensive transportation. The gasoline that is blended with ethanol isn't the same gas you pump into your car. It has to be able to blend with the E85, and this type of gasoline is more expensive than regular gas. Ethanol is lost through contamination and evaporation during the blending process. Ethanol that has been contaminated by water degrades the efficiency of combustion. E85 ethanol is corrosive to the seals and fuel systems in most existing engines and cannot be dispensed through regular gas pumps. And the icing on the cake, ethanol has about 25% less energy per gallon than regular gasoline.
Believe me when I say that I am all for alternative energy that lowers the price of gasoline and decreases our dependability as a nation on foreign oil. But ethanol is not the solution. I'll tell you what ethanol is. The public is gradually catching on to the energy crisis her and they are starting to demand action. The problem, which I have spoken of before, is that the U.S has started mitigating WAY too late. The problem again is public ignorance. They general consensus was smart enough to identify the problem, but they are still naive to the truth about ethanol. They love to hear the talking heads on CNN and politicians pump up ethanol. So, now you've read this post, and I hope you have read my previous post on ethanol. I would like to sum this scenario up with one question. Do you think that Rudy Jiuliani, Hillary Clinton, or Barack Obama will get elected as the next president of the U.S. if they don't sell to the nation how many ethanol plants they are going to build and how important E85 is to the future of the U.S.? No way. I'm always quick to rag on politicians and maybe they could inform the public on the truth of E85 if they actually know (which I'm not confident that they do). The problem here is the general public. Politicians are going to give them what they want if they wish to be elected/reelected. As long as the U.S. citizen wants ethanol, we're going to give it to them, at the high cost of tax dollars.
Minimum Wage Laws
I honestly can't recall if I have written about this yet. If I have, it's worth talking about again. I am firmly against any sort of minimum wage laws and here's why.
We first need to look at the supposed reason for implementing a minimum wage law. The politicians say the reason is to get more money to the people who work for minimum wage, the lower class. Politically it sounds great, and to most of America it sounds great, but let's look at the impact of such a law here.
If you increase the minimum wage you increase the amount workers are paid. From a business stand point who has people employed for minimum wage, will experience an increase in labor costs to produce whatever good or service it is that they produce. This causes an increase in the cost of production and will be shown on the output side in higher prices for that good. Just because the government increases the minimum wage, doesn't mean that these companies will take profit losses. They will either cut labor costs by firing people or they will or they will increase the price of their good. It's basic economics, as the price of input increases, the price of output increases and that's exactly what happens.
Let's go back to the beginning here with the original goal of the politicians in mind. They wish to be able to give a minimum wage worker more money to they can provide themselves and their family with more goods and services. Now, the type of services and goods that manufactures who have individuals working under them for minimum wage generally produce cheaper goods (fast food, grocery stores, etc.). The minimum wage worker now has to pay more for his/her goods and services or they are out of a job because of labor cuts. So, the politicians now raise minimum wage laws again and we go full circle. It's a snowball effect.
I think that this topic is important because it brings up a variety of important issues. Historically periods when the government raises minimum wage laws we experience higher unemployment and higher inflation. Both are because of the above mentioned reasons. Well then, why do they do it?
There are two reasons and both are quite plausible. The politicians know this because they have economic advisers who aren't idiots, but they choose to go ahead and enact these policies because the general public thinks a minimum wage is a good thing and their only goal in mind is reelection. The other reason is plain and simple. Politicians don't know the effect that minimum wage has on the economy and the lower class. I've said this before and I'll say it again, politicians are not bright educated people. They have B.S. degrees (and I'm not talking bachelor of science here). They tend to be charismatic and ignorant. They don't get elected on what they know, they get elected on appealing to the public. I don't know which reason is worse, but both speak to 99% of the problems here in the United States.
This shows another view point that I believe strongly in, and that's free market. There's no way that the best economists in the whole world could set a market price for wages. A completely free market is a far fetched idea at this point because of the great amount of government influence in the economy has skewed everything so far from market equilibrium that a correction would be disastrous for our economy. But the more of these policies enacted whether it be in the form of subsidies and taxes (all have the reason of influencing price) the closer we move to socialism. As things go down hill in our economy we will continue to see more of these types of ridiculous policies based on curtain agendas.
The final aspect I would like to talk about that I have mentioned before is that the poor are affected first and the worst by inflation. It makes it harder and harder for them to become successful, and I believe it is the main reason why the rich are getting richer and the poor are getting poorer here in the U.S. The middle class is shrinking and it will continue to shrink. There's a fine line in regards to wealth and poverty and it gets finer with every dollar that the Federal Reserve prints.
We first need to look at the supposed reason for implementing a minimum wage law. The politicians say the reason is to get more money to the people who work for minimum wage, the lower class. Politically it sounds great, and to most of America it sounds great, but let's look at the impact of such a law here.
If you increase the minimum wage you increase the amount workers are paid. From a business stand point who has people employed for minimum wage, will experience an increase in labor costs to produce whatever good or service it is that they produce. This causes an increase in the cost of production and will be shown on the output side in higher prices for that good. Just because the government increases the minimum wage, doesn't mean that these companies will take profit losses. They will either cut labor costs by firing people or they will or they will increase the price of their good. It's basic economics, as the price of input increases, the price of output increases and that's exactly what happens.
Let's go back to the beginning here with the original goal of the politicians in mind. They wish to be able to give a minimum wage worker more money to they can provide themselves and their family with more goods and services. Now, the type of services and goods that manufactures who have individuals working under them for minimum wage generally produce cheaper goods (fast food, grocery stores, etc.). The minimum wage worker now has to pay more for his/her goods and services or they are out of a job because of labor cuts. So, the politicians now raise minimum wage laws again and we go full circle. It's a snowball effect.
I think that this topic is important because it brings up a variety of important issues. Historically periods when the government raises minimum wage laws we experience higher unemployment and higher inflation. Both are because of the above mentioned reasons. Well then, why do they do it?
There are two reasons and both are quite plausible. The politicians know this because they have economic advisers who aren't idiots, but they choose to go ahead and enact these policies because the general public thinks a minimum wage is a good thing and their only goal in mind is reelection. The other reason is plain and simple. Politicians don't know the effect that minimum wage has on the economy and the lower class. I've said this before and I'll say it again, politicians are not bright educated people. They have B.S. degrees (and I'm not talking bachelor of science here). They tend to be charismatic and ignorant. They don't get elected on what they know, they get elected on appealing to the public. I don't know which reason is worse, but both speak to 99% of the problems here in the United States.
This shows another view point that I believe strongly in, and that's free market. There's no way that the best economists in the whole world could set a market price for wages. A completely free market is a far fetched idea at this point because of the great amount of government influence in the economy has skewed everything so far from market equilibrium that a correction would be disastrous for our economy. But the more of these policies enacted whether it be in the form of subsidies and taxes (all have the reason of influencing price) the closer we move to socialism. As things go down hill in our economy we will continue to see more of these types of ridiculous policies based on curtain agendas.
The final aspect I would like to talk about that I have mentioned before is that the poor are affected first and the worst by inflation. It makes it harder and harder for them to become successful, and I believe it is the main reason why the rich are getting richer and the poor are getting poorer here in the U.S. The middle class is shrinking and it will continue to shrink. There's a fine line in regards to wealth and poverty and it gets finer with every dollar that the Federal Reserve prints.
Monday, February 5, 2007
What Type of Investor are you?
To me there are three types of investors:
1) The first group is a collection of people we'll call the "go along, get along" group. This is by far the largest group of investors. They invest by their broker's "ideas" and buy into the talking heads on main stream media. There are some problems here. A stock broker is paid to move stock and generate commission. This is a built in conflict of interest. Once a stock gets on Cramer's "Mad Money" or gets written up in Forbes, it's already old news. Chances are all the large profits have been made.
2) The next group is called the "dice rollers." They buy touts from telephone sales people and haunt financial chat rooms looking for the home run. These are the people who are the opportunity seekers and send away for the kit guaranteeing a 6 figure income while sitting in their recliner in the comfort of their homes. There isn't much one can do for them. They will either learn their lesson on the cheap and reform, or they will lose all or most of the capital that they have. The will be a small, and I mean very small, percent of these types of investors who will hit their home run and profit accordingly.
3) The last group is the "rational speculator." This is definitely a rare bread in today's financial market. They realize the risk-reward relationship in what they are buying into. They generally tend to be the contrarian to what is considered "common investing." An example of this is an individual who bought in the uranium market early. The price of U3O8 was beaten so low and next to zero exploration was being undertaken. Supplies of uranium were at critical lows. Even the thought of investing in uranium, to the average investor, was considered ludicrous. When in actuality it was based on the most simple ideas of supply and demand. The folks who got in on the front of the uranium market have experienced exponential gains in their portfolios (there's still a long way to go."
So what kind of invest am I? I consider myself 90% "rational speculator" and 10% "dice roller." I believe to have found several quite positive trends that will carry strong for the next 10-15 years, but at the same time I will be adding something that might seem unique from my other investing soon...stay tuned. Let's talk about gold and why to invest in it (as if I haven't beaten this subject to death yet). I would first like to say that less than 1 in 10 individuals in the whole world own physical gold/silver or gold/silver stocks. There's the contrarian factors, but let's look at the true driving force behind precious metal. If you invest on gold you are betting on curtain factors:
1) The Feds won't be able to manage the Mt. Everest of debt they've created.
2) The deflating housing bubble and its effect it will have on consumer spending and the economy.
3) The stampede of foreign investors away from the U.S. dollar and U.S. dollar denominated investments.
4) For the first time in world history the de-facto un-backed currency of one nation is the reserve currency of the world. I collapsing dollar will lead to a monetary crisis around the world.
5) The U.S. still has a few years left in Iraq, and Iran is next. Hence, increased debt due to high military costs.
6) The geopolitical situation in the world, plus the exponentially increasing demand for oil will cause oil to easily rise to $100 /barrel and beyond.
7) Either because of direct IMF involvement of just market scenarios, the Federal Reserve and other central banks will no longer be able to meddle in the futures market and fix the price of gold. This is probably the most important factor at risk here. (I have written a very detailed analytical paper regarding this topic. E-mail me if you would like a copy jones973@tc.umn.edu).
8) Historically gold bull markets last about 10 years. The current bull market started in 2001, so we are only 5 years into it, and this is going to be a bull market of historic proportions regarding the other issues involved that haven't been involved in previous markets. Also, the second half of the bull has historically experienced higher gains than the first.
9) The ridiculous amount of inflation caused by the Feds increasing the money supply by 10% per annum over that past several years that has taken place and will continue to take place.
I'm sure I missed one or two other good reasons, but for now that will suffice. Just one of those factors coming true is bullish for gold. The more of the factors listed above that come true the better the scenario is for the precious metals market. I truly believe that, not only are all of these factors possible, but they are quite probable to happen either sooner or later . Now it's impossible to predict the future, but precious metals is the SAFEST bet out there. Pad your portfolio with gold stocks and pad your safe with gold bars/coins. It's the only way to protect your investments and profit at the currenct monetary mess that we live in.
1) The first group is a collection of people we'll call the "go along, get along" group. This is by far the largest group of investors. They invest by their broker's "ideas" and buy into the talking heads on main stream media. There are some problems here. A stock broker is paid to move stock and generate commission. This is a built in conflict of interest. Once a stock gets on Cramer's "Mad Money" or gets written up in Forbes, it's already old news. Chances are all the large profits have been made.
2) The next group is called the "dice rollers." They buy touts from telephone sales people and haunt financial chat rooms looking for the home run. These are the people who are the opportunity seekers and send away for the kit guaranteeing a 6 figure income while sitting in their recliner in the comfort of their homes. There isn't much one can do for them. They will either learn their lesson on the cheap and reform, or they will lose all or most of the capital that they have. The will be a small, and I mean very small, percent of these types of investors who will hit their home run and profit accordingly.
3) The last group is the "rational speculator." This is definitely a rare bread in today's financial market. They realize the risk-reward relationship in what they are buying into. They generally tend to be the contrarian to what is considered "common investing." An example of this is an individual who bought in the uranium market early. The price of U3O8 was beaten so low and next to zero exploration was being undertaken. Supplies of uranium were at critical lows. Even the thought of investing in uranium, to the average investor, was considered ludicrous. When in actuality it was based on the most simple ideas of supply and demand. The folks who got in on the front of the uranium market have experienced exponential gains in their portfolios (there's still a long way to go."
So what kind of invest am I? I consider myself 90% "rational speculator" and 10% "dice roller." I believe to have found several quite positive trends that will carry strong for the next 10-15 years, but at the same time I will be adding something that might seem unique from my other investing soon...stay tuned. Let's talk about gold and why to invest in it (as if I haven't beaten this subject to death yet). I would first like to say that less than 1 in 10 individuals in the whole world own physical gold/silver or gold/silver stocks. There's the contrarian factors, but let's look at the true driving force behind precious metal. If you invest on gold you are betting on curtain factors:
1) The Feds won't be able to manage the Mt. Everest of debt they've created.
2) The deflating housing bubble and its effect it will have on consumer spending and the economy.
3) The stampede of foreign investors away from the U.S. dollar and U.S. dollar denominated investments.
4) For the first time in world history the de-facto un-backed currency of one nation is the reserve currency of the world. I collapsing dollar will lead to a monetary crisis around the world.
5) The U.S. still has a few years left in Iraq, and Iran is next. Hence, increased debt due to high military costs.
6) The geopolitical situation in the world, plus the exponentially increasing demand for oil will cause oil to easily rise to $100 /barrel and beyond.
7) Either because of direct IMF involvement of just market scenarios, the Federal Reserve and other central banks will no longer be able to meddle in the futures market and fix the price of gold. This is probably the most important factor at risk here. (I have written a very detailed analytical paper regarding this topic. E-mail me if you would like a copy jones973@tc.umn.edu).
8) Historically gold bull markets last about 10 years. The current bull market started in 2001, so we are only 5 years into it, and this is going to be a bull market of historic proportions regarding the other issues involved that haven't been involved in previous markets. Also, the second half of the bull has historically experienced higher gains than the first.
9) The ridiculous amount of inflation caused by the Feds increasing the money supply by 10% per annum over that past several years that has taken place and will continue to take place.
I'm sure I missed one or two other good reasons, but for now that will suffice. Just one of those factors coming true is bullish for gold. The more of the factors listed above that come true the better the scenario is for the precious metals market. I truly believe that, not only are all of these factors possible, but they are quite probable to happen either sooner or later . Now it's impossible to predict the future, but precious metals is the SAFEST bet out there. Pad your portfolio with gold stocks and pad your safe with gold bars/coins. It's the only way to protect your investments and profit at the currenct monetary mess that we live in.
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