The title of this post may be the kindest words you here me say regarding the USD. To call it a downward trend is a compliment. I would like to discuss a few changes in my past opinions regarding this topic.
I'm not changing my overall view of the dollar's trend. I still feel that its eventual collapse is just a matter of time, but I would like to talk about the why of the collapse.
I haven't discussed the 'pillars of support' for a currency in a long time, but let's get back into them. I will first give a list of the pillars and than discuss some of them in greater detail. These pillars are not consistent with all currencies and the list in no significant order.
Support Pillars for the USD
The petrodollar. In other words, the tie of the USD to oil sales.
The USD as the reserve currency of the world.
Controlled money supply.
The ability to finance our debt through foreign investment.
A high Fed Funds rate.
Responsible fiscal/monetary policy.
Now I'm sure that I've missed out on a couple of pillars, but that's a good enough starting point. I need to point out an error in the last post I wrote discussing the pillars of support for the USD. I said the last pillar holding the dollar up was a reasonable Fed Funds Rate. In short, I stated that if the Feds lowered interest rates we would see a sharp decline or the USD. What I've come to realize is that, at this point, the Fed Funds Rate is the least important of the above mentioned factors. Sure at one point it would have been an effective monetary tool, but it's beyond that. Sure if the Feds raise interest rates we might see a brief, and I put emphasis on the word 'brief,' strength in the dollar. That strength will come from the ignorant buyer who feels that this will lead to some longer term strength in the dollar. At this point in time, the future of the USD is essentially independent on whatever the future of the Fed Funds rate.
Let's get into the juicy stuff. The petrodollar is a VERY strong pillar in the support for the USD. The connection of the USD to oil is starting to fade. For example, when Germany buys oil from Russia, they use USDs. That's the equivalent of U.S. buying oil from Canada in rupees or yen. It's ridiculous. How important is this relationship? It was important enough for the U.S. to invade Iraq. I wasn't a coincidence at all that Saddam was threatening to sell his oil in euros right before we invaded. Iran is already waging war on the USD by making it a criminal act to hold USDs.
This topic leads us perfectly into the next couple of pillars. The USD as the reserve currency of the world is an ever important topic. Why do central banks hold USDs? A couple of reasons: The first is that the greenback has been one of the most stable currencies over a long period of time. I'm not saying that that's the case today. In fact, I think it's just the opposite. That's something I will get into at the end of the post. But the other reason that central banks hold USDs is because they have to pay for their oil in USDs. So you can see, how the petrodollar is ever important in keeping the USD as the world's reserve currency. At this point, it is in the best interest for foreign central banks to keep the USD strong for these reasons. I will also dig into that at the end of the post.
The next pillar is again along these lines, and that is the U.S.'s ability to finance its debt through foreign investment in U.S. bonds and treasuries. The U.S. is roughly $9 trillion in debt. 80% of that debt is held by foreigners. We run roughly a $800 billion annual trade deficit which is 100% foreign owned. (Statistics from the guys at the Daily Reckoning) Our ability to sell treasuries and bonds is ESSENTIAL to the value of the USD. If the U.S. can no longer find foreign buyers of treasuries and bonds, we will no longer be able to finance our debt. This leads us right into the next couple of pillars.
I would like to discuss these two topics together. They are controlled money supply along with a responsible fiscal/monetary policy. You can see that they are very intertwined and often used in reference of one another. The value of currencies, like any other commodity or good, is based upon supply and demand. The more USDs in circulation, the less value. At the same time if demand starts to diminish, so will the value of the USD. If you are a reader of this blog you know that M3 money supply is no longer kept track of by the Federal Reserve, but there are other sources to find the statistic. It is currently running at around 12%-13% and it has been running at above 10% annual growth for a number of years now. Like I discussed in my recent post on inflation, money supply growth equals EXACTLY price inflation. How do you think 10%+ inflation would fly with the general public? Not very well, that's why the Fed masks it with core CPI and a bunch of other garbage.
There's the scenario regarding money supply and monetary policy. I touched on our fiscal policy earlier in reference to our current deficit. Please don't get caught in the junk politicians are feeding the public about our deficit decreasing and being ZERO by 2012. The liberals have proposed there new budget plans, and at face value it does appear if it's going down. What they don't tell you is that in that budget are tax increases as well as a repeal of the Bush tax cuts.
So there's a brief over view of some of the pillars that support the USD. Let's look into our current situation of these pillars and how they effect each other. You have to understand that there are tons and tons of USDs abroad. USDs are our main export.
As I mentioned that it, at current, it is in the central banks of the world's best interest to keep the USD at a reasonable valuation. They do this by selling euros or sterling and buying USDs. Again this is simple supply and demand at work. The situation now is that these central banks are starting to hold more euros and gold and less dollars. They understand that the USD doesn't stand a chance in the future. Here's what they plan to do. They want the USD to have a GRADUAL decline and not a free fall, and they are going to do their best to achieve it because a collapse in the USD will result in a collapse in the U.S. economy which will have strong ripples globally.
And here's how everything works. Once one of these pillars falls, the next will fall, and then the next, each breach in support coming faster than the next. Central banks will be unloading there USDs in exchange for physical goods, commodities, energy, euros, and precious metals. They will do this by unloading their dollars on the forex market putting downward pressure on the USD. This will force other central banks, whether they want to or not, to follow suit. Then the USD will no longer be tied to oil because banks will no longer be holding stock piles of USDs.
From there, we have a situation where central banks no longer want our treasuries and bonds because they are denominated in USDs. The U.S. will no longer be able to finance its debt and will be forced to monetize and print money. This will push the dollar further, and this is when we hit free fall stage for the USD. Anyone left holding dollars abroad will rush as fast as they can to get rid of them.
So you can see how this whole thing goes full circle and carries with it a snowball effect. We will see a gradual decline to a point and then it will be a rush to the exit. Ladies and gentlemen this is a transition that we haven't seen since the U.S. economy eclipse Great Britain as the dominate economy in the world. I promise you, this will be a most painful transition for the global economy in its history. Some will be effected more strongly than the others. Here in the U.S., we will see the strongest effects from this transition. This is also the reason why the sky is the limit for gold.
Monday, April 30, 2007
DOW 13000
Woohoo, DOW 13k, let's celebrate. I don't think so. I'm sure you've noticed that DOW 13000 is old news by now and I haven't written anything on it yet. That's because it means absolutely nothing to me. I am going to let Peter Shiff do the talking for me. Below is a piece from an article entitled "What Record High?"
"Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000."
There you have it. Here is the URL for the rest of the article. http://www.321gold.com/editorials/schiff/schiff042707.html
It's a good one.
"Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000."
There you have it. Here is the URL for the rest of the article. http://www.321gold.com/editorials/schiff/schiff042707.html
It's a good one.
Friday, April 27, 2007
New Weak Dollar Spin
The latest spin on CNBC is that the weak dollar is good for U.S. businesses. Who wants to know more? I know I do.
The above statement is true in the short run. What it does, is it makes U.S. goods cheaper for foreign nations to buy. It has allowed for an increase in exports. This is exactly what CNBC, and CEOs across the nation have been saying. Their domestic sales have been weak, but global sales, especially to Latin America and Europe have been doing very well. This all makes perfect sense so where's the problem?
Well this problem hits on three different levels. It will carry negative impacts on the U.S. consumers, business, and monetary policy.
First off, the consumer. A weak currency can be looked at in two different ways. The rise in the domestic price of goods, or the decline against foreign currencies. Call it six or a half dozen, it's essentially the same thing. They trend together, but not necessarily at the same exact time.
According to the governments core CPI, inflation is running at around 2%. Well, inflation computed by the pre-Clinton era, would put the CPI at around 6.5-7%, and that wasn't too long ago. CNBC dismisses the whole notion of domestic inflation because of the low core CPI. So, essentially price inflation is very small in the U.S. Well I wonder if Larry Kudlow has been to the grocery store or gas station recently. Listen, the dollars the average Joe holds are becoming worth less and less. His salary is shrinking. HE IS BEING TAXED BY INFLATION.
I would also like to take a look at the domestic stock markets. With the DOW up just 7.5% since 2000, S&P about even, and the same story for the NASDAQ, these are losing bets. Not only is the NYSE a bad investment, but it's not even a good store of value. Inflation has given all of the major indices in the U.S. a NEGATIVE RETURN, over the last 7 years.
Alright onto the corporate level. We have to remember, that from the consumer level we are seeing price inflation. Sure corporate earnings look great right now because of an increased amount of exports due to a weak dollar. Look at base metals and energy prices. They are on the up and up. As the prices of the input rise, the prices of the final good will rise as well. That is how the producers pass on the costs of inflation. In full, initially, a weak currency will lead to increased exports. When the value of the weak dollar begins to creep into the prices of commodities, we see the producers pass on the costs of inflation back to the consumer. This will cause less demand for their goods as wage levels continue be unable to keep up with price inflation.
The final level has to do with the U.S. monetary policy. Let's start out with the good. From a fiscal stand point, a weak dollar equates to less debt. In other words, as the value of the currency falls, so does the real value of the outstanding debt. Already from that brief scenario, you see a counter interest in reference to the U.S. government and its citizens, but that's a story for another day.
In the previous post, I mentioned that the U.S. requires $3 billion dollars in foreign investment just to stay running. Foreign governments and their citizens will be less willing to buy U.S. debt as the USD exchange rate against a basket of currencies continues to fall. So what happens when the USD index breaks the 80 level and begins to free fall? First off, not only will foriegn central banks not be buying treasuries, but they will also be ridding their current forex reserves of USDs. They will use the euro and gold to fill their reserves. The government is left with the choice of pulling out all of its troops, cutting spending and actually running a balanced account, OR printing money and monetizing the debt, which happen to essentially be the same thing. I'm betting on the 'OR'.
Let's bring this whole matter in full circle. Joe Smith's modest factory wage is now worth less because milk, eggs, meat, vegetables, and gas costs are much more expensive than they were a year ago and the year before that. That's even if he's lucky enough to have his job being that all of his factory buddies have been laid off because of the mess that the U.S. manufacturing sector is in.
Higher energy and base metal costs are also whacking the manufacturing sector. Instead of taking a profit loss, they will raise the prices of their final goods. Whack, Joe Smith takes another hit. Now his toasters, shoes, and basic utility bills are getting more expensive.
What Joe Smith doesn't know is that the gears are turning on a global level. China and Russia have publicly stated that they are diversifying away from the U.S. dollar.We are now entering hypothetical land, but a scenario the I figure to be more than likely. Japan will follow suit. As these dollars hit the currency exchange, they will begin to put more downward pressure on the dollar. The Plunge Protection Team is helpless. Foreign central banks no longer find it necessary to buy USDs in order to help the greenback hold its value. The dollar pushes down. The buying of US treasuries and bonds hits multi year lows. The government begins to print more money, pushing inflation higher, just to pay the bills. Now OPEC countries demand euros instead of dollars as payment for their oil. Wham, the dollar dies. We are unable to sell any treasuries and can only print money. We can't raise taxes because they are at ridiculous levels already. If the green back could talk, its dying words would be, "I was dead in 1971, murdered by 40 years of fiscal and monetary irresponsibility." Just think about how Joe Smith is effected by all of this
This piece speaks to a very important economic notion taught in the most basic macro economic class. It is one of the very few items that they discuss that have any relevance to TRUE modern macroeconomics. The notion is that growth in money supply equals the EXACT growth in price inflation.
The counter argument here is, well ethanol demand and corn subsidies have pushed the price of corn, wheat, meat, eggs, and other agricultural goods up. It wasn't monetary inflation. Not true, because if the money supply was held steady, where we see price inflation in one sector, we would see it off set by decreasing prices in another sector, and that is not the case at all.
The above statement is true in the short run. What it does, is it makes U.S. goods cheaper for foreign nations to buy. It has allowed for an increase in exports. This is exactly what CNBC, and CEOs across the nation have been saying. Their domestic sales have been weak, but global sales, especially to Latin America and Europe have been doing very well. This all makes perfect sense so where's the problem?
Well this problem hits on three different levels. It will carry negative impacts on the U.S. consumers, business, and monetary policy.
First off, the consumer. A weak currency can be looked at in two different ways. The rise in the domestic price of goods, or the decline against foreign currencies. Call it six or a half dozen, it's essentially the same thing. They trend together, but not necessarily at the same exact time.
According to the governments core CPI, inflation is running at around 2%. Well, inflation computed by the pre-Clinton era, would put the CPI at around 6.5-7%, and that wasn't too long ago. CNBC dismisses the whole notion of domestic inflation because of the low core CPI. So, essentially price inflation is very small in the U.S. Well I wonder if Larry Kudlow has been to the grocery store or gas station recently. Listen, the dollars the average Joe holds are becoming worth less and less. His salary is shrinking. HE IS BEING TAXED BY INFLATION.
I would also like to take a look at the domestic stock markets. With the DOW up just 7.5% since 2000, S&P about even, and the same story for the NASDAQ, these are losing bets. Not only is the NYSE a bad investment, but it's not even a good store of value. Inflation has given all of the major indices in the U.S. a NEGATIVE RETURN, over the last 7 years.
Alright onto the corporate level. We have to remember, that from the consumer level we are seeing price inflation. Sure corporate earnings look great right now because of an increased amount of exports due to a weak dollar. Look at base metals and energy prices. They are on the up and up. As the prices of the input rise, the prices of the final good will rise as well. That is how the producers pass on the costs of inflation. In full, initially, a weak currency will lead to increased exports. When the value of the weak dollar begins to creep into the prices of commodities, we see the producers pass on the costs of inflation back to the consumer. This will cause less demand for their goods as wage levels continue be unable to keep up with price inflation.
The final level has to do with the U.S. monetary policy. Let's start out with the good. From a fiscal stand point, a weak dollar equates to less debt. In other words, as the value of the currency falls, so does the real value of the outstanding debt. Already from that brief scenario, you see a counter interest in reference to the U.S. government and its citizens, but that's a story for another day.
In the previous post, I mentioned that the U.S. requires $3 billion dollars in foreign investment just to stay running. Foreign governments and their citizens will be less willing to buy U.S. debt as the USD exchange rate against a basket of currencies continues to fall. So what happens when the USD index breaks the 80 level and begins to free fall? First off, not only will foriegn central banks not be buying treasuries, but they will also be ridding their current forex reserves of USDs. They will use the euro and gold to fill their reserves. The government is left with the choice of pulling out all of its troops, cutting spending and actually running a balanced account, OR printing money and monetizing the debt, which happen to essentially be the same thing. I'm betting on the 'OR'.
Let's bring this whole matter in full circle. Joe Smith's modest factory wage is now worth less because milk, eggs, meat, vegetables, and gas costs are much more expensive than they were a year ago and the year before that. That's even if he's lucky enough to have his job being that all of his factory buddies have been laid off because of the mess that the U.S. manufacturing sector is in.
Higher energy and base metal costs are also whacking the manufacturing sector. Instead of taking a profit loss, they will raise the prices of their final goods. Whack, Joe Smith takes another hit. Now his toasters, shoes, and basic utility bills are getting more expensive.
What Joe Smith doesn't know is that the gears are turning on a global level. China and Russia have publicly stated that they are diversifying away from the U.S. dollar.We are now entering hypothetical land, but a scenario the I figure to be more than likely. Japan will follow suit. As these dollars hit the currency exchange, they will begin to put more downward pressure on the dollar. The Plunge Protection Team is helpless. Foreign central banks no longer find it necessary to buy USDs in order to help the greenback hold its value. The dollar pushes down. The buying of US treasuries and bonds hits multi year lows. The government begins to print more money, pushing inflation higher, just to pay the bills. Now OPEC countries demand euros instead of dollars as payment for their oil. Wham, the dollar dies. We are unable to sell any treasuries and can only print money. We can't raise taxes because they are at ridiculous levels already. If the green back could talk, its dying words would be, "I was dead in 1971, murdered by 40 years of fiscal and monetary irresponsibility." Just think about how Joe Smith is effected by all of this
This piece speaks to a very important economic notion taught in the most basic macro economic class. It is one of the very few items that they discuss that have any relevance to TRUE modern macroeconomics. The notion is that growth in money supply equals the EXACT growth in price inflation.
The counter argument here is, well ethanol demand and corn subsidies have pushed the price of corn, wheat, meat, eggs, and other agricultural goods up. It wasn't monetary inflation. Not true, because if the money supply was held steady, where we see price inflation in one sector, we would see it off set by decreasing prices in another sector, and that is not the case at all.
1Q GDP Growth, or Lack there of
How does 1.3% 1Q sound to you? Yeah, that's how I feel, especially when I look at China, India, Brazil, Japan, and the EU. On CNBC, we hear so much about this global growth boom that's occurring, but where is the U.S. in this boom. I'll tell you where we are: We are a country who needs $3 billion dollars a day to stay a float, we are amidst a housing depression, 'official' inflation statistics are rearing their ugly heads, while our GDP growth is crawling ahead at 1.3%.
I'm not going to dig into this too much, because it is what it is. I would like to make an important note. Well maybe not important, but just an 'I told you so.' After 4Q GDP came out at a higher than expected 2.5%, I said it was because of inventory compiling. I also said that would show in the 1Q GDP growth. Among other reasons, I believe inventory stockpiling was the main catalyst for the weak number.
So let's take a look at the market. Uuummmm...maybe...ummmm...dollar heading south...ummmm...yeah. In fact, we have hit a new record against the euro. Gold is up slightly. The yellow metal is trying to correct back to the $660 /oz, but the dollar keeps going down. It has lost a lot of momentum, but as long as the dollar stays weak, look gold to take off.
The stock market doesn't care. The market seems to ignore all of the poor economic news that come out, and soars on any piece of weekly or monthly positive information. I still feel that this is a very dangerous time in the stock market. It is up some 16 of the last 18 days. So what. Well, the S&P was up some 18 out of 19 days in 2000 before it lost almost half of its value. So I repeat to anyone who reads this blog: The general stock market is in for a gut check here real soon and that's just the short run. I still the major indices will lose approximately 45% in the coming years. Buy gold!
I'm not going to dig into this too much, because it is what it is. I would like to make an important note. Well maybe not important, but just an 'I told you so.' After 4Q GDP came out at a higher than expected 2.5%, I said it was because of inventory compiling. I also said that would show in the 1Q GDP growth. Among other reasons, I believe inventory stockpiling was the main catalyst for the weak number.
So let's take a look at the market. Uuummmm...maybe...ummmm...dollar heading south...ummmm...yeah. In fact, we have hit a new record against the euro. Gold is up slightly. The yellow metal is trying to correct back to the $660 /oz, but the dollar keeps going down. It has lost a lot of momentum, but as long as the dollar stays weak, look gold to take off.
The stock market doesn't care. The market seems to ignore all of the poor economic news that come out, and soars on any piece of weekly or monthly positive information. I still feel that this is a very dangerous time in the stock market. It is up some 16 of the last 18 days. So what. Well, the S&P was up some 18 out of 19 days in 2000 before it lost almost half of its value. So I repeat to anyone who reads this blog: The general stock market is in for a gut check here real soon and that's just the short run. I still the major indices will lose approximately 45% in the coming years. Buy gold!
Wednesday, April 25, 2007
Reader Question
I had a very interesting reader question yesterday that I think is worth writing about. He asked something along the lines of, "With the extremely poor U.S. economic data that came out the dollar sold off, base metals sold off, precious metals sold off, oil sold off, while the the U.S. stock market gained. Is this a sign that a U.S. economic slow down, recession, or depression, will lead to lower demand for base metals? Will that equate to a lower price in base metals?" That is not an exact quote because I have deleted the email, but it was along those lines. This is a very good question. Let's dig in.
First off, I believe oil sold off after a $2 /barrel gain. Oil is up this A.M. around $.50. Oil is going up. It's simply supply and demand. The world cannot produce more than 84-85 million barrels /day. While supply is staying unchanged and in the near future will be in the process of decline, demand is picking up.
Alright, back to this notion that a U.S. economic slowdown will lead to lower prices for base metals. This idea was true 10 year ago, but it's not today and let me tell you why. China, India, BRIC, and other developing countries are industrializing, and westernizing at a rapid pace.
China and India alone have 2 billion people, compared to the 300 million here in the United States. With the majority of those 2 billion people on the path of joining a middle class, we see their desire to have thing that the middle class is associated with. Cars, TVs, houses in urban and suburban locations, and many, many other thing that the U.S. has and they don't.
What does that mean? Well a couple of different things: First off, all of these items require base metals. Copper piping for houses, aluminum in toasters, and steel for cars. To take an isolated example, China's imports of these metals is growing at 60%, 70%, and 80%.
Don't forget about the exports of these countries along with China. With cheap labor, and a weak yuan or yen, the companies are exporting a ridiculous amount of goods. All of your our TVs, cars, furniture, clothing, and other goods that come from these countries require base metals and energy to make.
This brings me right to my next point. It also take energy to produce these items. China's imports of oil are running at an annual increase of approximately 100%. They build a new coal power plant every third week and have plans to build 3 nuclear power plants every year until 2020. So along with oil and coal, don't forget about uranium and molybdenum.
Also, China is now in the process of obtaining strategic reserves in base metals and oil. They will hold 30 days worth of oil. They will use their $1.2 trillion (USD) of reserves to buy into base metals, oil, precious metals, uranium, and the companies that mine and refine these goods. Any weakness in prices will be seen as a buying opportunity by China.
Ok back to the main point.
Will a U.S. lead economic slow down effect base metal prices?
No, next question.
Why was there a sell off of base metals amidst poor economic data?
Good question, I believe that there are still a large number of people who feel that answer to the first question is yes. Their selling is based on no economic data. As each year passes, the U.S. will be less influential on a global level. The notion that "if the U.S. sneezes the world catches a cold" is a dying one.
First off, I believe oil sold off after a $2 /barrel gain. Oil is up this A.M. around $.50. Oil is going up. It's simply supply and demand. The world cannot produce more than 84-85 million barrels /day. While supply is staying unchanged and in the near future will be in the process of decline, demand is picking up.
Alright, back to this notion that a U.S. economic slowdown will lead to lower prices for base metals. This idea was true 10 year ago, but it's not today and let me tell you why. China, India, BRIC, and other developing countries are industrializing, and westernizing at a rapid pace.
China and India alone have 2 billion people, compared to the 300 million here in the United States. With the majority of those 2 billion people on the path of joining a middle class, we see their desire to have thing that the middle class is associated with. Cars, TVs, houses in urban and suburban locations, and many, many other thing that the U.S. has and they don't.
What does that mean? Well a couple of different things: First off, all of these items require base metals. Copper piping for houses, aluminum in toasters, and steel for cars. To take an isolated example, China's imports of these metals is growing at 60%, 70%, and 80%.
Don't forget about the exports of these countries along with China. With cheap labor, and a weak yuan or yen, the companies are exporting a ridiculous amount of goods. All of your our TVs, cars, furniture, clothing, and other goods that come from these countries require base metals and energy to make.
This brings me right to my next point. It also take energy to produce these items. China's imports of oil are running at an annual increase of approximately 100%. They build a new coal power plant every third week and have plans to build 3 nuclear power plants every year until 2020. So along with oil and coal, don't forget about uranium and molybdenum.
Also, China is now in the process of obtaining strategic reserves in base metals and oil. They will hold 30 days worth of oil. They will use their $1.2 trillion (USD) of reserves to buy into base metals, oil, precious metals, uranium, and the companies that mine and refine these goods. Any weakness in prices will be seen as a buying opportunity by China.
Ok back to the main point.
Will a U.S. lead economic slow down effect base metal prices?
No, next question.
Why was there a sell off of base metals amidst poor economic data?
Good question, I believe that there are still a large number of people who feel that answer to the first question is yes. Their selling is based on no economic data. As each year passes, the U.S. will be less influential on a global level. The notion that "if the U.S. sneezes the world catches a cold" is a dying one.
Tuesday, April 24, 2007
Iraqi War Post
Don't think that I'm getting political on you again. That is not at all what this post is about. I contemplated putting this attachment on because I don't like to associate myself with the political jazz. I decided to do it so here it is. I'm not going to say much except that there is some rather strong language.
http://www.craigslist.org/about/best/sfo/309485032.html
http://www.craigslist.org/about/best/sfo/309485032.html
Ugly Data
This post is going to be somewhat of a hodge podge of topics, data, and analysis.
No doubt the biggest news was the collapse in home sales. Existing home sales fell 8.4% to 6.12 million homes, from the estimated 6.40 million. That was the biggest one month decline since January 1989. Along with the drop in sales, came a drop in prices. Home prices in the 10 major metro areas fell 1.5%. I don't think I need to get into any further detail on this. Refer to previous posts on housing to hear my thought.
Red Book's same store sales came out today as well. Week over week, there down .3% and year over year, there down .20%. We are starting to see signs that the consumer is getting crunched. I expect big ticket items, such as boats, cars, and TVs, to be the most effected by the slowdown in consumer spending.
And for the icing on the cake, consumer sentiment fell again. It is down to 104 from 108.2 in March. Again the economists missed high on this one. The estimate was 105.
Alright, let's look at the market reactions to all of this messy data. The USD index is down, which can be expected. This is amidst a dollar decline in the price of oil. So gold rallying with the weak data and weak dollar right? Nope. It is doing the exact opposite and is down sharply. I don't always like to say this, but this seems like one of those times the U.S. central bank or some other larger holder with an agenda would strategically dump bullion on the market to keep the price down.
The stock market doesn't seem to care, it's trading up around 44.5 points at 11:30 A.M central time. Some of the strength can be due to the higher earnings number that are coming out. I haven't really talked about these earnings numbers too much yet. Corporate earnings for the most part are soaring and beating the street estimate. Wow, the economy must be strong if all of these companies are making so much money. Wrong again, this is a direct result of all the liquidity that is floating around. It has to go somewhere. These numbers are artificially high.
No doubt the biggest news was the collapse in home sales. Existing home sales fell 8.4% to 6.12 million homes, from the estimated 6.40 million. That was the biggest one month decline since January 1989. Along with the drop in sales, came a drop in prices. Home prices in the 10 major metro areas fell 1.5%. I don't think I need to get into any further detail on this. Refer to previous posts on housing to hear my thought.
Red Book's same store sales came out today as well. Week over week, there down .3% and year over year, there down .20%. We are starting to see signs that the consumer is getting crunched. I expect big ticket items, such as boats, cars, and TVs, to be the most effected by the slowdown in consumer spending.
And for the icing on the cake, consumer sentiment fell again. It is down to 104 from 108.2 in March. Again the economists missed high on this one. The estimate was 105.
Alright, let's look at the market reactions to all of this messy data. The USD index is down, which can be expected. This is amidst a dollar decline in the price of oil. So gold rallying with the weak data and weak dollar right? Nope. It is doing the exact opposite and is down sharply. I don't always like to say this, but this seems like one of those times the U.S. central bank or some other larger holder with an agenda would strategically dump bullion on the market to keep the price down.
The stock market doesn't seem to care, it's trading up around 44.5 points at 11:30 A.M central time. Some of the strength can be due to the higher earnings number that are coming out. I haven't really talked about these earnings numbers too much yet. Corporate earnings for the most part are soaring and beating the street estimate. Wow, the economy must be strong if all of these companies are making so much money. Wrong again, this is a direct result of all the liquidity that is floating around. It has to go somewhere. These numbers are artificially high.
Monday, April 23, 2007
How about those IMFgold sales
I reported a while back about some possible sales by the IMF of its gold sales due to budget shortfalls.
Julian Phillips from www.goldforecaster.com reports:
More support now exists for the International Monetary Fund to sell part of its gold reserves to meet its future financing requirements, U.K. Chancellor of the Exchequer Gordon Brown said. "What I found encouraging today was that there are countries which previously had not been prepared to consider gold sales but were prepared to do so now," Brown said, adding there was "no doubt" that gold sales were potentially part of the I.M.F.'s likely future financing. Brown said that an independent report into future IMF financing had recommended that any gold sales should take place in a "measured way."
IMF Managing Director Rodrigo Rato said the more efficient use of existing Fund resources would form part of a package of proposals on future financing it is now preparing. But Rato said that any gold sales would be limited to around one-eighth of the Fund's total gold resources. "I have to say that some of the gold-producing countries have expressed that this is a way (of future financing) that could be seen as constructive, but nobody has yet given a final position," Rato said.
According to the IMF's Web site, the Fund holds 103.4 million ounces (3,217 metric tons) of gold, valued on its balance sheet at a historical cost of about $8.8 billion. The I.M.F.'s holdings were valued at $68.4 billion at market prices at the end of March.
First off, the IMF is a joke. It's made up of a bunch of clowns with personal agendas that involve their own bank accounts. There idea of creating economic stability by lending and implementing modern macroeconomic theories usually ends up ineffective. Now Paul Wolfowitz in about to get fired for giving his girlfriend, who worked under him, a nice raise and fancy new position. This is the man that the world puts there trust in when there are pressing economic issues. Give me a break.
Is this bearish for gold if the IMF sells of nearly 13 million ounces of gold. Maybe, but I don't think so. I think countries such as China, Russia, and other OPEC nations would love this. I believe they would just gobble up this gold sale. The might have a very short term impact, but I believe this is completely trivial.
Julian Phillips from www.goldforecaster.com reports:
More support now exists for the International Monetary Fund to sell part of its gold reserves to meet its future financing requirements, U.K. Chancellor of the Exchequer Gordon Brown said. "What I found encouraging today was that there are countries which previously had not been prepared to consider gold sales but were prepared to do so now," Brown said, adding there was "no doubt" that gold sales were potentially part of the I.M.F.'s likely future financing. Brown said that an independent report into future IMF financing had recommended that any gold sales should take place in a "measured way."
IMF Managing Director Rodrigo Rato said the more efficient use of existing Fund resources would form part of a package of proposals on future financing it is now preparing. But Rato said that any gold sales would be limited to around one-eighth of the Fund's total gold resources. "I have to say that some of the gold-producing countries have expressed that this is a way (of future financing) that could be seen as constructive, but nobody has yet given a final position," Rato said.
According to the IMF's Web site, the Fund holds 103.4 million ounces (3,217 metric tons) of gold, valued on its balance sheet at a historical cost of about $8.8 billion. The I.M.F.'s holdings were valued at $68.4 billion at market prices at the end of March.
First off, the IMF is a joke. It's made up of a bunch of clowns with personal agendas that involve their own bank accounts. There idea of creating economic stability by lending and implementing modern macroeconomic theories usually ends up ineffective. Now Paul Wolfowitz in about to get fired for giving his girlfriend, who worked under him, a nice raise and fancy new position. This is the man that the world puts there trust in when there are pressing economic issues. Give me a break.
Is this bearish for gold if the IMF sells of nearly 13 million ounces of gold. Maybe, but I don't think so. I think countries such as China, Russia, and other OPEC nations would love this. I believe they would just gobble up this gold sale. The might have a very short term impact, but I believe this is completely trivial.
Friday, April 20, 2007
Silver Update
Here's a new one. I know that I often discuss gold, and give gold updates, yada yada yada. You would think that I would put more commentary in regarding silver being that I have more physical holdings of silver than gold and the same story for stocks.
When I discuss one, I am usually discussing the other, but there are some differences. First off, silver and gold generally trend together, but not exactly. Silver also has many more industrial/medical uses than gold. It tends to follow the price of copper slightly, which is one of the reasons I love silver. Basically, silver is kind of straddling the fence. It is not looked at as pure money like gold, but it is not a base metal either. It's somewhere in the middle.
Let's give this a technical look. Well as of recently, the graph of silver looks a little more disheartening than gold's graph.
There's a couple items of importance to note here. First off, silver recovered the ground regarding the post-May correction much faster than gold and has already tested that high a couple of times now. You can see the obvious resistance level at $14.50-14.75.
I would like to discuss the RSI of this silver chart. It is not trading at the top of its range yet, which signals that there still might be some room to go. Unlike gold, once silver gets to the top level of its trading range, it doesn't tend to stay there too long. The RSI will be a good indicator of a pull back to the up-sloping trend line where it has found infallible support.
After testing that level a couple times we are again approaching it. Like gold, we are coming to a critical junction here. As you know, I like the two scenario outlook.
Scenario 1: Mr. Pessimistic says that a third failure at breaking the $14.50-14.75 trend line will signal a strong correction. First finding support at it trend line at $13.50, and if that support is busted, which it hasn't been since the major up leg started in September 05, it will then find support at $12.50. If that support is broken, which even Mr. Pessimistic doubts, we will find support at $10.50.
Scenario 2: Mr. Optimistic sees silver continuing its uptrend being that it isn't extremely overbought yet. He told me that we will break through resistance at $14.50 head to $15. There we will see brief resistance, and he makes a very important note. He told me that last year at this time, we saw silver jump 50% before correcting. That would put us at approximately $21-22.
Again I feel it's important to note that this is all trivial in the long run. I like to dabble in the technical analysis because I think it is interesting as well as challenging. Otherwise, I'm long my positions.
USD Index
I know my posts as of recently have lacked sustenance, nor have they offered any obscure or unique outlooks on the economy.
After my Wild were eliminated from the playoffs last night it was time for me to do some soul searching. While I recollected the season and thought to myself how young players like Nick Schultz, Pierre-Marc Bouchard, and Brent Burns matured and gave us Wild fans a glimpse into a special future. I thought to myself, 'it's not so bad.' So what does this have to do with anything?
Well, I sort of had an epiphany. After the game ended, I flipped open my laptop to check the USD Index. This has been an all to common occurrence for me as I have been waiting for something 'special' to happen.
Well, nothing has happened yet, but I wait...and I watch...and then I thought...WHO CARES!! Let's face, we have been given a glimpse into the future, just like the Wild gave me. We have seen unnaturally high oil and natural gas prices for this time of the season. Refineries are struggling to keep up with demand, and we aren't even into the driving season yet. And that's just this summer. What about next year, and the year after that? You get the picture
Although it's the time of the year where gold should be getting ready to shoot for the moon...but it looks over bought. The timing doesn't seem quite right. The USD Index is starting to look over sold and defies going any lower. The double bottom, double top scenario that I spoke of in a recent post is looking more and more likely.
Again, as I so eloquently put it earlier, who really cares. I expect oil to push $75-78 /barrel and look for $4 at the pump this summer. If gold corrects back to $660 /oz, it will rearing to go as oil puts downward pressure on the dollar.
The demise of the dollar is imminent. There are too many of them floating around, and the Fed is always adding more. I say this to myself more than anything, patience is a virtue. The fireworks will come.
After my Wild were eliminated from the playoffs last night it was time for me to do some soul searching. While I recollected the season and thought to myself how young players like Nick Schultz, Pierre-Marc Bouchard, and Brent Burns matured and gave us Wild fans a glimpse into a special future. I thought to myself, 'it's not so bad.' So what does this have to do with anything?
Well, I sort of had an epiphany. After the game ended, I flipped open my laptop to check the USD Index. This has been an all to common occurrence for me as I have been waiting for something 'special' to happen.
Well, nothing has happened yet, but I wait...and I watch...and then I thought...WHO CARES!! Let's face, we have been given a glimpse into the future, just like the Wild gave me. We have seen unnaturally high oil and natural gas prices for this time of the season. Refineries are struggling to keep up with demand, and we aren't even into the driving season yet. And that's just this summer. What about next year, and the year after that? You get the picture
Although it's the time of the year where gold should be getting ready to shoot for the moon...but it looks over bought. The timing doesn't seem quite right. The USD Index is starting to look over sold and defies going any lower. The double bottom, double top scenario that I spoke of in a recent post is looking more and more likely.
Again, as I so eloquently put it earlier, who really cares. I expect oil to push $75-78 /barrel and look for $4 at the pump this summer. If gold corrects back to $660 /oz, it will rearing to go as oil puts downward pressure on the dollar.
The demise of the dollar is imminent. There are too many of them floating around, and the Fed is always adding more. I say this to myself more than anything, patience is a virtue. The fireworks will come.
Thursday, April 19, 2007
China GDP
Well, I'm sure that you have heard by now, that China's GDP grew by 11.1% in the first 3 months of the year. This has sparked huge controversy by CNBC and the other jokesters in the media.
The media is using the words 'bubble' and 'inflationary' to describe this growth. I've discussed this in a long gone post, but I will bring back the previous points that I have made regarding China. When you have1 billion plus people coming around and desiring to increase ther quality of life, you get 11% GDP growth. All these people are 'westernizing' (I'm not sure if that's a word, but you get the idea). They want cars, TVs, the internet, and the other items that make the U.S. different from China.
Another item of importance, is that there inflation is only running at around 3%. We might expect that to go a little higher, but that's just fine. As long as the government keeps a reasonably tight monetary policy. Where a problem might occur is 10-15 years from now if China follows the policies of 'Easy' Al Greenspan.
Instead of making a big debacle out of the whole situation why not make money. What are cars, TVs, and all of those other goodies made of? Base metals like nickel, copper, aluminum and others. Don't forget the industrial metals that is needed to make these items such as tungsten and moly. As for energy, China builds a new coal power plant every week, and has plans to build 3 nuclear power plants a year for the next 10 years. China's imports of coal, uranium,
base/industrial metals, oil, and anything else you can think of are going through the roof. With the increase in Chinese imports comes the increase in the prices of these goods. With the increases in the prices of these goods, comes the increase in the profits of the companies that mine, refine, and produce these items.
So that is all I really have to say on that topic. I apologize for the lack of posts as of recent. There hasn't been too much news and I don't feel writing about the latest on corporate earnings and such.
Also, I have been distracted by the combination of watching my precious Wild in the Stanley Cup Playoffs as well as the beginning of Twins baseball.
The media is using the words 'bubble' and 'inflationary' to describe this growth. I've discussed this in a long gone post, but I will bring back the previous points that I have made regarding China. When you have1 billion plus people coming around and desiring to increase ther quality of life, you get 11% GDP growth. All these people are 'westernizing' (I'm not sure if that's a word, but you get the idea). They want cars, TVs, the internet, and the other items that make the U.S. different from China.
Another item of importance, is that there inflation is only running at around 3%. We might expect that to go a little higher, but that's just fine. As long as the government keeps a reasonably tight monetary policy. Where a problem might occur is 10-15 years from now if China follows the policies of 'Easy' Al Greenspan.
Instead of making a big debacle out of the whole situation why not make money. What are cars, TVs, and all of those other goodies made of? Base metals like nickel, copper, aluminum and others. Don't forget the industrial metals that is needed to make these items such as tungsten and moly. As for energy, China builds a new coal power plant every week, and has plans to build 3 nuclear power plants a year for the next 10 years. China's imports of coal, uranium,
base/industrial metals, oil, and anything else you can think of are going through the roof. With the increase in Chinese imports comes the increase in the prices of these goods. With the increases in the prices of these goods, comes the increase in the profits of the companies that mine, refine, and produce these items.So that is all I really have to say on that topic. I apologize for the lack of posts as of recent. There hasn't been too much news and I don't feel writing about the latest on corporate earnings and such.
Also, I have been distracted by the combination of watching my precious Wild in the Stanley Cup Playoffs as well as the beginning of Twins baseball.
Wednesday, April 18, 2007
Housing Update
Bloomberg reports that housing foreclosures, year over year, are up 47%. The states with the highest among of foreclosures are California, Nevada, Colorado, and Florida.
Well CNBC was out yesterday praising the slight gains in housing starts and permits. They love to live in this monthly housing data. You know how I feel. I expect the foreclosures to start increasing, and the housing picture will get real ugly. This is because of the large amount of ARMs that are planned to reset this year.
Well CNBC was out yesterday praising the slight gains in housing starts and permits. They love to live in this monthly housing data. You know how I feel. I expect the foreclosures to start increasing, and the housing picture will get real ugly. This is because of the large amount of ARMs that are planned to reset this year.
Tuesday, April 17, 2007
Stars Aligning
This A.M, it seems that the stars are aligning for a major move in the markets. The DOW has just poked through for an all time record. The USD index is trading at 81.60, dangerously close to the all important 81.50 level, and gold is trading near $690 /oz, which is the last resistance level before $720 /oz.
I know the stock market highs is contradictory to the final two statements. Well the idea here is that, before a market turns down sharply it can be very bullish and often reach new highs. This is true for any market, not just the stock market.
You know the story regarding the USD index and gold. It is also important to note that if the dollar tanks further, it will be quite terrible for the stock market. Also, today the the CPI rose .6% in March which was a very high jump. The reason was given to high food and energy prices. DUH!! I recommend that everyone stay tuned
I know the stock market highs is contradictory to the final two statements. Well the idea here is that, before a market turns down sharply it can be very bullish and often reach new highs. This is true for any market, not just the stock market.
You know the story regarding the USD index and gold. It is also important to note that if the dollar tanks further, it will be quite terrible for the stock market. Also, today the the CPI rose .6% in March which was a very high jump. The reason was given to high food and energy prices. DUH!! I recommend that everyone stay tuned
Monday, April 16, 2007
Gold Update
Gold continues to move up with strength. After a $10.20 gain on Friday, we are trading up $6 /oz at noon on Monday. That puts us at $690 /oz. The next major resistance is $692.50 which was the February high before the market correction. Here is a graph, and I would like to talk about some technicals for gold and the near future actions that could possibly ensue.
This is a nice graph. You can see that the RSI and STO is trading at its top end. This signals that gold is over bought at this point, but you can also notice that gold has a habit at trading near the top ends for a while before correcting down. If you look at the STO, you can see a great example of how it traded in and around the 80 line for a while before correcting.
So this bring us to a couple of possible scenarios for gold.
The first is that gold corrects back down to its 50 day MA at around $660 /oz. This would be fine with me. A little correction and some sideways trading just means that the yellow metal can form a stronger base for its next up leg.
The next scenario, which I find more likely, is that we break through this $692.50 barrier and push past last years May high. As the upward trend line shows, resistance after $692.50 is upwards of $720. I believe this scenario is more likely, but I wouldn't count the first scenario out of the question.
If we bust this resistance, look for a new high in gold, and then a correction back to the $692.50 barrier.
If you read my blog you know that it is all trivial to me. In the long run, I see gold hitting $3000+ /oz. We won't even notice these corrections and breakout if you look at a long run chart in a couple of years. I like to dabble in the technical analysis, because I find it interesting and challenging. Otherwise, I'm long my positions.
Hugo Chavez Update
Just reading the title of the post should lead you to assume this will be at the very least, slightly entertaining.
I would like to make a point before proceeding with the post. Hugo Chavez, Kim Jung Ill, and Mahmoud Ahmadinejad carry a few similar characteristics. They hate the U.S. and its foreign policy. They love to make head lines with big talk, and I think they were the "little guy on the play ground." Meaning, they are making up for something by displaying their "power."
Anyways, back to the news. The Hindu International reports that Hugo Chavez said "Reconciliation with Washington was impossible." He also threatened again to shut off his oil supply to the U.S.
Chavez said that oil was the only reason that the U.S. invaded Iraq. He also stated that the U.S. was behind the coup to over throw Chavez in 2002, again stating that oil was the reason.
He finished by saying that coexistence was possible, but that any further aggression towards Venezuela, by the U.S., would result in a complete cut off of oil supplies to the U.S. It's important to note that Venezuela is the 4th largest supplier to the of crude to the U.S.
The bigger picture here is U.S. oil dependency as a weakness. We have to do whatever Hugo Chavez says because we NEED him and his oil. Energy dependency and our reliance on foreign generosity to finance our debt are two HUGE weaknesses for the U.S. Either one gone bad would have horrendous economics results.
I would like to make a point before proceeding with the post. Hugo Chavez, Kim Jung Ill, and Mahmoud Ahmadinejad carry a few similar characteristics. They hate the U.S. and its foreign policy. They love to make head lines with big talk, and I think they were the "little guy on the play ground." Meaning, they are making up for something by displaying their "power."
Anyways, back to the news. The Hindu International reports that Hugo Chavez said "Reconciliation with Washington was impossible." He also threatened again to shut off his oil supply to the U.S.
Chavez said that oil was the only reason that the U.S. invaded Iraq. He also stated that the U.S. was behind the coup to over throw Chavez in 2002, again stating that oil was the reason.
He finished by saying that coexistence was possible, but that any further aggression towards Venezuela, by the U.S., would result in a complete cut off of oil supplies to the U.S. It's important to note that Venezuela is the 4th largest supplier to the of crude to the U.S.
The bigger picture here is U.S. oil dependency as a weakness. We have to do whatever Hugo Chavez says because we NEED him and his oil. Energy dependency and our reliance on foreign generosity to finance our debt are two HUGE weaknesses for the U.S. Either one gone bad would have horrendous economics results.
Manufacturing Issues
Manufacturing is obviously in a slump, to put it nicely. We are in a manufacturing recession, and I would like to look into this just a little bit. After doing some morning reading on Bloomberg, they made my argument for me.
A couple manufacturing indexes came out today. One is the Empire State Manufacturing Survey, which is a manufacturing index for the state of New York. The other is U.S. business inventories, which is obviously a indicator on the change of monthly inventory levels.
Let's start with the manufacturing survey, which came in at a two year low of 3.8 from an estimated 10. I would guess the survey was grossly over estimated. So what, we have know that manufacturing is a mess for a long time now. When will the sector see a turn around? That's a great question and I'm glad you asked. I know who has an answer, how about Bloomberg:
"Most factory indicators suggest that activity in the manufacturing sector remains subdued, a situation that is most likely to persist until the inventory correction has more full run its course"
That was taken from an article at Bloomberg regarding the analysis of the Empire State Manufacturing Survey. I agree whole heartily with them. Until manufactures can get rid of their excess inventories, there's no need to manufacture anything else.
Well the next statistic mentioned is U.S. Business Inventories which was conveniently released this morning as well. That statistic said inventories, which were already at high levels, increased another .30%. Uh oh. It looks like there's still some time left in the "inventory correction."
So what does this mean? Another great question. I would like to recall my previous post on 4Q GDP. It increased, and I said that the reason for the increase was the increase in inventory levels for manufactures and that I expect the 1Q GDP to decrease for the same reason the 4Q GDP increased.
It looks as if I was spot on with that one. The most recent inventory numbers shows that manufactures are struggling to get rid of their stock piles. This doesn't mean that they will completely shut down, but they will definitely cut production. I expect this to really show up in 1Q GDP growth.
A couple manufacturing indexes came out today. One is the Empire State Manufacturing Survey, which is a manufacturing index for the state of New York. The other is U.S. business inventories, which is obviously a indicator on the change of monthly inventory levels.
Let's start with the manufacturing survey, which came in at a two year low of 3.8 from an estimated 10. I would guess the survey was grossly over estimated. So what, we have know that manufacturing is a mess for a long time now. When will the sector see a turn around? That's a great question and I'm glad you asked. I know who has an answer, how about Bloomberg:
"Most factory indicators suggest that activity in the manufacturing sector remains subdued, a situation that is most likely to persist until the inventory correction has more full run its course"
That was taken from an article at Bloomberg regarding the analysis of the Empire State Manufacturing Survey. I agree whole heartily with them. Until manufactures can get rid of their excess inventories, there's no need to manufacture anything else.
Well the next statistic mentioned is U.S. Business Inventories which was conveniently released this morning as well. That statistic said inventories, which were already at high levels, increased another .30%. Uh oh. It looks like there's still some time left in the "inventory correction."
So what does this mean? Another great question. I would like to recall my previous post on 4Q GDP. It increased, and I said that the reason for the increase was the increase in inventory levels for manufactures and that I expect the 1Q GDP to decrease for the same reason the 4Q GDP increased.
It looks as if I was spot on with that one. The most recent inventory numbers shows that manufactures are struggling to get rid of their stock piles. This doesn't mean that they will completely shut down, but they will definitely cut production. I expect this to really show up in 1Q GDP growth.
Portfolio Update
I have made a move in my portfolio. I have sold off Pacific Rim Mining (PMU) and bought into a company called Pediment Exploration Ltd. (PEZFF).
The main reason why I decided to ditch PMU was because of a labor dispute in one of their mines. I'm not saying that this is a dead company, but it wasn't exactly what I was looking for. I ended up less than 1% up on this one, but let's talk about Pediment.
Pediment is a exploration penny stock with some great upside potential. They are another one of those companies that is in Mexico, exploring historically rich deposits with newer technology.
Like I said, I was looking for some change, and Bob Moriarty presented that opportunity. He has a large stake in the company and has watched since day one. I expect his sway, and his advertising to push the price up.
The main reason why I decided to ditch PMU was because of a labor dispute in one of their mines. I'm not saying that this is a dead company, but it wasn't exactly what I was looking for. I ended up less than 1% up on this one, but let's talk about Pediment.
Pediment is a exploration penny stock with some great upside potential. They are another one of those companies that is in Mexico, exploring historically rich deposits with newer technology.
Like I said, I was looking for some change, and Bob Moriarty presented that opportunity. He has a large stake in the company and has watched since day one. I expect his sway, and his advertising to push the price up.
Friday, April 13, 2007
More Oil News
The latest news regarding crude comes from Venezuela. It is no secret that Hugo Chavez, the president of Venezuela, is not the biggest fan of the U.S. of A.
If it wasn't scary enough that Chavez said he was going to export less oil to the U.S. and more oil to China, he had some more plans for local oil interests. He has plans to take over oil projects in the Orinoco River Basin next month (Ledger-Enquirer).
Guess who owns the majority of projects located in that particular basin. How about Exxon Mobile, BP, Conocophillips, BP PLC, Chevron Corp., France's Total SA, and Norway's Statoil ASA. Chavez has announced that government officials accompanies by armed guards will assist in the takeover.
Chavez said that he will be taking a minimum 60% majority ownership in these companies. He did say that he would be happy if the original companies would assume a minority ownership. All I can say is "ouch." I will be interested to see what the U.S. reaction to this move is.
On another quick note. OPEC has taken 1.2 million barrels a day of production off the market since last September (Telegraph UK). I don't want to focus on the fact that OPEC is manipulating the market. In fact, I don't think this has anything to do with it. I believe that OPEC no longer has the ability to produce oil as it used to. Some of the major oil fields, such as Gwahar, are declining in production. I believe this production "cut" is not desired by OPEC, but instead is forced upon them through peak oil.
If it wasn't scary enough that Chavez said he was going to export less oil to the U.S. and more oil to China, he had some more plans for local oil interests. He has plans to take over oil projects in the Orinoco River Basin next month (Ledger-Enquirer).
Guess who owns the majority of projects located in that particular basin. How about Exxon Mobile, BP, Conocophillips, BP PLC, Chevron Corp., France's Total SA, and Norway's Statoil ASA. Chavez has announced that government officials accompanies by armed guards will assist in the takeover.
Chavez said that he will be taking a minimum 60% majority ownership in these companies. He did say that he would be happy if the original companies would assume a minority ownership. All I can say is "ouch." I will be interested to see what the U.S. reaction to this move is.
On another quick note. OPEC has taken 1.2 million barrels a day of production off the market since last September (Telegraph UK). I don't want to focus on the fact that OPEC is manipulating the market. In fact, I don't think this has anything to do with it. I believe that OPEC no longer has the ability to produce oil as it used to. Some of the major oil fields, such as Gwahar, are declining in production. I believe this production "cut" is not desired by OPEC, but instead is forced upon them through peak oil.
Japan's Decission
Japan is really at a major fork in the road. It's GDP grew at 5.5% this past quarter. Exports and investment spending have been plentiful and it seems that they have finally kicked there 16 year economic slump. So the $64,000 question is what will the Bank of Japan do?
That's a good question and the answer seems fairly obvious, or is it? The ridiculously low interest rates set by the BoJ are having their impacts. The stock market has recently had a major breakout, and home/land prices are red hot. Although this contradicts the recently adjusted "official" CPI which is .1% for the final quarter. I hope that you realize that statistic is bogus. Remember the recent change to the official CPI immediately dropped it by .5%, and if I were a betting man, I would guess the one before it was bogus.
Anyways, I have no official data to prove this, but I'm positive that the BoJ is under extreme pressure from other central banks to hold their interest rates steady at .5%. Let's look at the ultimatum here. Japan has to make the decision between gradually increasing interest rates and sending shock waves to global markets, or raising rates to stabilize their own economy. Don't forget the notion of keeping any credibility from a economic stand point.
Let me make this point very clear, the Japanese Yen is the most undervalued and manipulated currency in the world. The BoJ eventually will HAVE to raise interest rates. We saw the result of the .25 raise which led to the 400+ point decline in the U.S. stock market. The Yen carry trade can not, and will not last. In interest rate hike in Japan will force the carry traders to short their positions. When this happens they will be forced to BUY Yen in order to pay back their loans. If you have access to forex currency trading of any sort, buy Yen, Swiss Franc, and the Euro.
That's a good question and the answer seems fairly obvious, or is it? The ridiculously low interest rates set by the BoJ are having their impacts. The stock market has recently had a major breakout, and home/land prices are red hot. Although this contradicts the recently adjusted "official" CPI which is .1% for the final quarter. I hope that you realize that statistic is bogus. Remember the recent change to the official CPI immediately dropped it by .5%, and if I were a betting man, I would guess the one before it was bogus.
Anyways, I have no official data to prove this, but I'm positive that the BoJ is under extreme pressure from other central banks to hold their interest rates steady at .5%. Let's look at the ultimatum here. Japan has to make the decision between gradually increasing interest rates and sending shock waves to global markets, or raising rates to stabilize their own economy. Don't forget the notion of keeping any credibility from a economic stand point.
Let me make this point very clear, the Japanese Yen is the most undervalued and manipulated currency in the world. The BoJ eventually will HAVE to raise interest rates. We saw the result of the .25 raise which led to the 400+ point decline in the U.S. stock market. The Yen carry trade can not, and will not last. In interest rate hike in Japan will force the carry traders to short their positions. When this happens they will be forced to BUY Yen in order to pay back their loans. If you have access to forex currency trading of any sort, buy Yen, Swiss Franc, and the Euro.
Thursday, April 12, 2007
Reader Question: Energy Metals Corp.
I had a reader question regarding a uranium company called Energy Metals Crop (EMC:TSX). His asked what I thought of the company being that I owned Denison and SXR Uranium One.
The three are very similar companies. All three are current producers still doing heavy exploration. EMC has large property concessions in south western United States.
This company is very fundamentally sounds and I know many folks who own and love EMC. I would put a strong buy out there for this stock.
I am going to give a brief overview of my uranium investment strategy. First and foremost, I'm no millionaire, well not yet at least. I have to be a little more ticky tacky with my investments. I stayed away from the juniors in this sector because they seem to be coming out of the wood work. I really wanted some companies that were producing, but were still looking to expand through acquisitions as well as exploration. For that to be possible, there needed to be significant capital.
Eliminating juniors because I the intermediates were already a good enough risk/reward pay off for my taste. I cut my picks down to 4 companies. Obviously Denison, and SXR, as well as Energy Metals and Cameco. A couple weeks before I purchased into uranium, Cameco's Cigar Lake mine flooded. They were dead money, although they might be a good buy now as I believe the flood has been properly priced into their stock. With the three remaining, and I liked all of them. My favorite was and still is SXR, but Denison and EMC weren't far behind. After discussing with some proven uranium investors and other good friends whose opinions I respect very much, I went with Denison.
As far as your question on my thoughts of EMC, I like it very very much. I think my holdings in uranium won't increase too much here, as I am planning on increasing my oil exposure as I expect oil to push to around $75-$80 this summer.
Thanks for the question and keep them coming. Also, if you wish to send me a question via email, feel free. My address is jones973@tc.umn.edu
The three are very similar companies. All three are current producers still doing heavy exploration. EMC has large property concessions in south western United States.
This company is very fundamentally sounds and I know many folks who own and love EMC. I would put a strong buy out there for this stock.
I am going to give a brief overview of my uranium investment strategy. First and foremost, I'm no millionaire, well not yet at least. I have to be a little more ticky tacky with my investments. I stayed away from the juniors in this sector because they seem to be coming out of the wood work. I really wanted some companies that were producing, but were still looking to expand through acquisitions as well as exploration. For that to be possible, there needed to be significant capital.
Eliminating juniors because I the intermediates were already a good enough risk/reward pay off for my taste. I cut my picks down to 4 companies. Obviously Denison, and SXR, as well as Energy Metals and Cameco. A couple weeks before I purchased into uranium, Cameco's Cigar Lake mine flooded. They were dead money, although they might be a good buy now as I believe the flood has been properly priced into their stock. With the three remaining, and I liked all of them. My favorite was and still is SXR, but Denison and EMC weren't far behind. After discussing with some proven uranium investors and other good friends whose opinions I respect very much, I went with Denison.
As far as your question on my thoughts of EMC, I like it very very much. I think my holdings in uranium won't increase too much here, as I am planning on increasing my oil exposure as I expect oil to push to around $75-$80 this summer.
Thanks for the question and keep them coming. Also, if you wish to send me a question via email, feel free. My address is jones973@tc.umn.edu
Wednesday, April 11, 2007
Global Outlook Vs. U.S. Outlook
The IMF has adjusted its predicted GDP growth regarding the U.S. and Euro zone. The forecast for U.S. GDP growth in 2007 has been retracted from 2.9% to 2.2%. For the 13 countries that use the Euro, the forecast has been raised from 2.2% to 2.3%
They IMF has stated that the reason for the retract in predicted GDP growth for the U.S. of A is stronger than expected housing slump. According to the IMF, the last time the Euro zone out paced the U.S. in GDP growth was the period following 9/11.
The IMF also expects global GDP to grow at 4.9% compared to 5.4% in 2006. According to these numbers, the U.S. is growing at less than half the pace of the world growth.
I would like to touch on a couple points here. The first is the housing market. Again, I spit on the notion that we have hit a soft landing, or that there is one coming soon and let me tell you why.
I believe the second wave of the housing slump is on its way and it will be much worse. Remember when "easy" Al Greenspan dropped the Fed Funds Rate to 1% and said that U.S. consumers should take advantage of ARM mortgages. Well many listened, while lenders encouraged this. The whole idea is that the borrower can experience a couple years of low mortgage payments. In the mean time, they will be able to either increase their income or use their home equity to make payments, being that home prices were going through the roof.
Why would lenders encourage this? First off, the actual mortgage consultant would receive a kick back or commission of sorts for selling these kind of mortgages. Secondly, they would receive a second commission when the borrowers would come back for to refinance to non-ARM mortgage.
So why is the second wave of the housing slump going to be worse than the first? First off, nearly $1 trillion worth of these ARMs are scheduled to reset higher this year. So what, no problem all of these will be able to refinance or use their home equity to make their payments...WRONG!
This is wrong for a couple of reasons. The first is that over 50 of the sub-prime lenders have already gone kaput. So many of these ARM holders can't go to their original lenders that promised them the option of refinancing to a fixed rate.
Next, is that some 40% of these sub-prime ARM holders can't pay more than the bare minimum on their mortgage. Example: A family with a combined $60k income and two kids got was able to buy a $200k home paying just $150 a month because they either lied on their loan application about their income, or the lender just didn't care.
From the lender side, they will lend to just about anyone, because they figure that if the property gets foreclosed on, they will still win because the property will have appreciated in value. WRONG! The same reason that sub-prime borrowers can't use the equity on their homes because of depreciating values, is the same reason we are seeing so may sub-prime lenders go bust.
So how did these sub-prime lenders get the money to make these loans? They were financed by Citibank, Morgan Stanley, Barclays, Goldman Sachs and many others. I have a very important point on this topic that I will discuss at the end of this post. With these investment banks taking losses, they are forced to increase the mortgage lending rates.
This not only decreases the demand for homes, but also makes it much harder for these ARM holders to refinance. This is where the whole things comes circle. With a decrease in demand for homes because of higher mortgage rates, causes home value depreciation. This home value depreciation causes the inability for home owners to use their equity to make payments causing more foreclosures. More foreclosures means a larger market supply. More supply means more home value depreciation.
Let's tie this whole thing back to the beginning and how it will effect the GDP growth of this county.
We are facing home value deflation for the above mentioned reasons. This is a very important note: Japan's extreme deflation in the early 90's started from home value deflation. After 15 years of economic misery, they are just recovering now. The Japanese government ignored the effects of home deflation until it was too late.
I expect the $1 trillion in ARM that planned to reset higher this year to bring a whole new wave of foreclosed homes to the market. That's in addition to the already huge supply of homes in the market.
I promise I'm getting to the consequences of this on the economy. The U.S. has been riding consumer spending over the past 6 years or so, and the consumer has been riding rising home values in order to use equity to purchase cars, boats, and other gizmos. The spending wasn't based on actual money, but instead was based on debt.
Back to the investment banks. The ones who really own the these sub-prime loans and the question of what they do with them. They package them up into nice bonds and sell them to the market. Some of the largest holders of these are pension and investment funds. All though the sub-prime lenders are going bust, it will be the holders of these bonds, which number in the 1oo's of billions of dollars, who will really feel the brunt of these bankruptcies.
In conclusion, as home value tanks, home equity tanks, and consumer spending tanks. That combine with the countless billions of dollars that will be lost when these mortgage securities backed bonds are worth nothing but the paper they are written on, will be the reason housing deflation will get much uglier in the near future, as will the GDP that's based 70% on consumer spending. Among other circumstances, the U.S. will be lucky to experience what Japan experienced in the 90's.
They IMF has stated that the reason for the retract in predicted GDP growth for the U.S. of A is stronger than expected housing slump. According to the IMF, the last time the Euro zone out paced the U.S. in GDP growth was the period following 9/11.
The IMF also expects global GDP to grow at 4.9% compared to 5.4% in 2006. According to these numbers, the U.S. is growing at less than half the pace of the world growth.
I would like to touch on a couple points here. The first is the housing market. Again, I spit on the notion that we have hit a soft landing, or that there is one coming soon and let me tell you why.
I believe the second wave of the housing slump is on its way and it will be much worse. Remember when "easy" Al Greenspan dropped the Fed Funds Rate to 1% and said that U.S. consumers should take advantage of ARM mortgages. Well many listened, while lenders encouraged this. The whole idea is that the borrower can experience a couple years of low mortgage payments. In the mean time, they will be able to either increase their income or use their home equity to make payments, being that home prices were going through the roof.
Why would lenders encourage this? First off, the actual mortgage consultant would receive a kick back or commission of sorts for selling these kind of mortgages. Secondly, they would receive a second commission when the borrowers would come back for to refinance to non-ARM mortgage.
So why is the second wave of the housing slump going to be worse than the first? First off, nearly $1 trillion worth of these ARMs are scheduled to reset higher this year. So what, no problem all of these will be able to refinance or use their home equity to make their payments...WRONG!
This is wrong for a couple of reasons. The first is that over 50 of the sub-prime lenders have already gone kaput. So many of these ARM holders can't go to their original lenders that promised them the option of refinancing to a fixed rate.
Next, is that some 40% of these sub-prime ARM holders can't pay more than the bare minimum on their mortgage. Example: A family with a combined $60k income and two kids got was able to buy a $200k home paying just $150 a month because they either lied on their loan application about their income, or the lender just didn't care.
From the lender side, they will lend to just about anyone, because they figure that if the property gets foreclosed on, they will still win because the property will have appreciated in value. WRONG! The same reason that sub-prime borrowers can't use the equity on their homes because of depreciating values, is the same reason we are seeing so may sub-prime lenders go bust.
So how did these sub-prime lenders get the money to make these loans? They were financed by Citibank, Morgan Stanley, Barclays, Goldman Sachs and many others. I have a very important point on this topic that I will discuss at the end of this post. With these investment banks taking losses, they are forced to increase the mortgage lending rates.
This not only decreases the demand for homes, but also makes it much harder for these ARM holders to refinance. This is where the whole things comes circle. With a decrease in demand for homes because of higher mortgage rates, causes home value depreciation. This home value depreciation causes the inability for home owners to use their equity to make payments causing more foreclosures. More foreclosures means a larger market supply. More supply means more home value depreciation.
Let's tie this whole thing back to the beginning and how it will effect the GDP growth of this county.
We are facing home value deflation for the above mentioned reasons. This is a very important note: Japan's extreme deflation in the early 90's started from home value deflation. After 15 years of economic misery, they are just recovering now. The Japanese government ignored the effects of home deflation until it was too late.
I expect the $1 trillion in ARM that planned to reset higher this year to bring a whole new wave of foreclosed homes to the market. That's in addition to the already huge supply of homes in the market.
I promise I'm getting to the consequences of this on the economy. The U.S. has been riding consumer spending over the past 6 years or so, and the consumer has been riding rising home values in order to use equity to purchase cars, boats, and other gizmos. The spending wasn't based on actual money, but instead was based on debt.
Back to the investment banks. The ones who really own the these sub-prime loans and the question of what they do with them. They package them up into nice bonds and sell them to the market. Some of the largest holders of these are pension and investment funds. All though the sub-prime lenders are going bust, it will be the holders of these bonds, which number in the 1oo's of billions of dollars, who will really feel the brunt of these bankruptcies.
In conclusion, as home value tanks, home equity tanks, and consumer spending tanks. That combine with the countless billions of dollars that will be lost when these mortgage securities backed bonds are worth nothing but the paper they are written on, will be the reason housing deflation will get much uglier in the near future, as will the GDP that's based 70% on consumer spending. Among other circumstances, the U.S. will be lucky to experience what Japan experienced in the 90's.
Tuesday, April 10, 2007
U.S. Gold Corp Update
Some very encouraging new for U.S. Gold Corp (UXG) has brought for some very encouraging results for the stock.
The acquisition of White Night Resources, Nevada Pacific Gold, and Tone Resources has given UXG some very promising properties with large potential. These properties, along with the current property on the Cortez trend has given UXG a very good prospect for discovery.
Along the lines of Discovery, UXG has discovered some very high grade gold results. I'm not going to get into the numbers regarding the drill results. You can check those out at their website www.usgold.com.
The exciting part is what their stock did today.
As you can see, UXG traded up $1.16 closing at $5.45. That is a one day increase of just over 27%. In intraday trading, UXG was trading up almost $2 at for a 45% increase. Before today, UXG has been the one stock that has been lagging behind the rest.
This is the very first stock that I have ever bought, and I will continue to hold. It is fundamentally very strong. It has large amounts of capital at its finger tips. It has GREAT management, an awesome location, and now a huge land base. I like this company and I will continue to hold.
Gold Vs. USD
Data/Charts Provided By Jack Chan
Gold is trading up strongly up today $7+ to approximately $678 /lb, while the USD index is down sharply to 82.40. We are coming to critical points in these two items and it's no coincidence either.
You can see the very bearish picture painted by this graph. Some folks were encouraged by the push up in 2005, only to have their hopes shattered when the index failed to break above its 50 day MA. It has been trading well below its 50 day MA for over a year now. The bearish triangle formed gives the last pillar of support at 80.50. Once it breaks below that level we will be in uncharted territories and this will sound the sell alarms across the world.
The gold picture is equal and opposite.
The triangle formed is very bullish here with its next resistance point set around $730-740 /oz. In a previous post I discussed how the USD index will test the 80.50 level a couple times before breaking through it. We've been there once. Is it enough?
I don't know, but I would like to note a couple of items of importance. It is possible that the USD index forms a double bottom and gold forms a double top. This would signal a correction in the price of gold.
On the other side, this is the wedding season. There is a large increase in demand for gold by jewelers. This is also the same time of year we saw the huge break out in gold to its 26 year high.
One can't forget about the wild cards here. First, is the trade tensions between the U.S. and China. It is obviously bearish for the USD. As the U.S. continues to take actions, through the WTO, or on there own, I expect this confrontation to continue to put downward pressure on the USD.
Also, Iran and any other global conflict seems to be hiding around the next dark corner. This would be very bullish for oil and gold.
Anyhow, you know where I stand, as I expect to see a record high in the price of gold. If there is a correction, look for gold to pull back to its 50 day MA and that will be a tremendous buying opportunity.
Monday, April 9, 2007
Uranium Update
Ladies and gentleman, I am pleased to inform you that the price of one pound of enriched uranium (U3O8) rose an astounding $18 to $113 /lb.
As I predicted at the beginning of the year uranium has surpassed $100 /lb. It looks as if that prediction was ridiculous, and I don't see much problem in taking out the $150 mark in 2007.
From what I have read, the bidding was outrageous and wild at this last auction. Passing the $100 barrier should excite all those psychological traders and bring in strong demand for these uranium stocks.
I can't pretend like I was on the front end of the uranium bull when it was trading at $7 /lb, but I have been trading since the U3O8 was trading at $61 /lb. When you see moves in the market like this, and with 6 million pounds of demand for U3O8 out there still, you can see why discussions of a market top, especially around $140, are ridiculous. The only thing that could hinder this market is some sort of drastic government intervention, which I don't see happening at all.
And as long as were discussing the century mark in the price of uranium, I am proud to say that this is my 100th post. Thanks for reading and I don't plan on slowing down.
As I predicted at the beginning of the year uranium has surpassed $100 /lb. It looks as if that prediction was ridiculous, and I don't see much problem in taking out the $150 mark in 2007.
From what I have read, the bidding was outrageous and wild at this last auction. Passing the $100 barrier should excite all those psychological traders and bring in strong demand for these uranium stocks.
I can't pretend like I was on the front end of the uranium bull when it was trading at $7 /lb, but I have been trading since the U3O8 was trading at $61 /lb. When you see moves in the market like this, and with 6 million pounds of demand for U3O8 out there still, you can see why discussions of a market top, especially around $140, are ridiculous. The only thing that could hinder this market is some sort of drastic government intervention, which I don't see happening at all.
And as long as were discussing the century mark in the price of uranium, I am proud to say that this is my 100th post. Thanks for reading and I don't plan on slowing down.
Jobless Creation, Sort of
The Bureau of Labor Statistics came out this past Good Friday and said the amount of jobs created in March increased by 180,000. This pushed the unemployment rate down to 4.4% which is a 5 year low. The dollar was quite strong on this news. Wow, this seems so great, but let's read between the lines here.
Chuck Butler of the Daily Pfennig did just that. He had a lot of good things to say. First off manufacturing jobs, which is a forward looking indicator for the economy, dropped 16,000. So now we need to create 196,000 jobs.
Of that 196,000, 128,000, of 71%, were created via the birth/death model. In other words, retirement and death created the strong majority of jobs in the market. They jobs weren't created by economic growth. This is the explanation being that we can have an official GDP growth of 2.5% (unofficially I still believe it's negative), and a 5 year low in unemployment numbers.
These ideas are opposites. Let's look at this idea for a second. Remember that unemployment is at a 5 year low and wage levels are rising. The rise in wage prices is purely inflationary, but none the less at this point they are just rising. With an economy that absolutely rides the wings of consumer spending which represents 70% of GDP, how can this low level of unemployment and high wage rates lead to mediocre GDP growth? It doesn't correlate, and it shows why these job numbers are really bogus.
(Much of the data was taken from Chuck Butler's Daily Pfennig)
Chuck Butler of the Daily Pfennig did just that. He had a lot of good things to say. First off manufacturing jobs, which is a forward looking indicator for the economy, dropped 16,000. So now we need to create 196,000 jobs.
Of that 196,000, 128,000, of 71%, were created via the birth/death model. In other words, retirement and death created the strong majority of jobs in the market. They jobs weren't created by economic growth. This is the explanation being that we can have an official GDP growth of 2.5% (unofficially I still believe it's negative), and a 5 year low in unemployment numbers.
These ideas are opposites. Let's look at this idea for a second. Remember that unemployment is at a 5 year low and wage levels are rising. The rise in wage prices is purely inflationary, but none the less at this point they are just rising. With an economy that absolutely rides the wings of consumer spending which represents 70% of GDP, how can this low level of unemployment and high wage rates lead to mediocre GDP growth? It doesn't correlate, and it shows why these job numbers are really bogus.
(Much of the data was taken from Chuck Butler's Daily Pfennig)
Friday, April 6, 2007
Uranium Top?
Resource Capital Research acknowledged that they expect uranium to hit $125 /lb this year, and $140 /lb by September 2008. They expect uranium to stay around that $140 /lb a mark until 2010.
Discussing a top in the price of uranium seems a little far fetched to me at this point. This is one of the most transparent markets out there facing a major supply shortage. The whole idea of calling a market top doesn't seem plausible. We will all know when a market top comes, and that will be when supply catches up with demand.
There are a couple items of importance that I will recall from previous posts on uranium.
Uranium minds don't just sprout out of the ground on rainbows and sunshine. It takes financing, exploration, infrastructure, and a mill. This process takes years to undergo and that's assuming the company even finds enough uranium worth mining.
Also, expect there to be unforeseen supply side disruptions such as the Ranger and Cigar Lake operations. We have had two huge mines flood within 6 months of each other. Although it's impossible to predict these things, I am including future possible incidents in my supply side outlook for the market.
The demand side is blowing up world wide. With fossil fuels at a limit and this extreme fear of green house gases and their effect on global warming, there is a huge amount of demand for new nuclear plants. Also, the amount of energy produced by a pound of U3O8 is vast compared to any other form of energy. These buyers will be more than willing to pay higher prices to secure future supplies of U3O8.
There is another aspect that is usually overlooked. Here in the U.S. nuclear power plants are required to have a 5 year supply of U3O8 on site. I'm not familiar with the rules regarding this aspect on a global level, but I assume that they are very similar.
I guess if you want to meddle and try and predict a top in the uranium market, you can go ahead. If I were to guess I would bet that it will be somewhere between $200-225 /lb of U3O8. But it seems so trivial to play this game. The market is so transparent and it will be quite obvious when the top is reached.
Discussing a top in the price of uranium seems a little far fetched to me at this point. This is one of the most transparent markets out there facing a major supply shortage. The whole idea of calling a market top doesn't seem plausible. We will all know when a market top comes, and that will be when supply catches up with demand.
There are a couple items of importance that I will recall from previous posts on uranium.
Uranium minds don't just sprout out of the ground on rainbows and sunshine. It takes financing, exploration, infrastructure, and a mill. This process takes years to undergo and that's assuming the company even finds enough uranium worth mining.
Also, expect there to be unforeseen supply side disruptions such as the Ranger and Cigar Lake operations. We have had two huge mines flood within 6 months of each other. Although it's impossible to predict these things, I am including future possible incidents in my supply side outlook for the market.
The demand side is blowing up world wide. With fossil fuels at a limit and this extreme fear of green house gases and their effect on global warming, there is a huge amount of demand for new nuclear plants. Also, the amount of energy produced by a pound of U3O8 is vast compared to any other form of energy. These buyers will be more than willing to pay higher prices to secure future supplies of U3O8.
There is another aspect that is usually overlooked. Here in the U.S. nuclear power plants are required to have a 5 year supply of U3O8 on site. I'm not familiar with the rules regarding this aspect on a global level, but I assume that they are very similar.
I guess if you want to meddle and try and predict a top in the uranium market, you can go ahead. If I were to guess I would bet that it will be somewhere between $200-225 /lb of U3O8. But it seems so trivial to play this game. The market is so transparent and it will be quite obvious when the top is reached.
More Bullish News for Gold
I have come across a couple, non-technical, tid-bits of information that are bullish for gold.
The first is that gold output has declined to a 10 year low. Gold production declined by 3% last year. Remember that the ration between gold in circulation and global population, in other words, the amount of gold per global capita, has been decreasing. There is less and less gold per person in the world every year. This is amidst a growing global demand for the yellow metal.
Also, Japan could release a gold ETF by the end of the month. It would be released on the Osaka Securities Exchange, which is the second largest Japanese stock market. As the Streettracks gold trust (GLD) has done in the U.S., this should increase the demand for gold, being that it makes it much more convenient for investors to add gold to their portfolios. (Report by the International Herald Tribune)
Also, the wedding season is expected to bring more demand as jewelers increase their orders for the yellow metal. Not everything with the gold market has to do with technical and geopolitical issues, although those tend to be the driving forces.
The first is that gold output has declined to a 10 year low. Gold production declined by 3% last year. Remember that the ration between gold in circulation and global population, in other words, the amount of gold per global capita, has been decreasing. There is less and less gold per person in the world every year. This is amidst a growing global demand for the yellow metal.
Also, Japan could release a gold ETF by the end of the month. It would be released on the Osaka Securities Exchange, which is the second largest Japanese stock market. As the Streettracks gold trust (GLD) has done in the U.S., this should increase the demand for gold, being that it makes it much more convenient for investors to add gold to their portfolios. (Report by the International Herald Tribune)
Also, the wedding season is expected to bring more demand as jewelers increase their orders for the yellow metal. Not everything with the gold market has to do with technical and geopolitical issues, although those tend to be the driving forces.
Natural Gas Cartel Update
The markets are closed today, and the economic news is limited. The new jobs data came out higher than expected pushing the USD index up. The analysts at Bloomberg say that wages are higher and jobs are more plentiful. This is supposed to lead to more consumer spending, and it might briefly. But let's face it the consumer is crunched and this news is purely inflationary, but that's not what I wanted to write about hence the name of the post.
I want to update you on the natural gas cartel that I mentioned in earlier posts. Next week 14 countries are meeting in Qatar and are expected to announce the formation of this natural gas cartel.
Much of the information I am getting on the subject right now is coming from Forbes, which is not the most credible in regards to economic impact in my opinion and I am going to try and sift through the spin. I do believe they are completely accurate when they say the cartel will announce its formation next week.
Forbes says that the impact of such a cartel will be quite limited and quiet. Like I wrote in the previous post on the subject, natural gas contracts are generally long term. In economics, we call them sticky. Like job contracts, they don't necessarily change very quickly with immediate economic indicators. Also, the price of natural gas usually, in one way or another, follows the price of crude. These items are very true.
The other aspect that Forbes is focusing on is that the U.S. gets very little natural gas from the 14 countries (they are not listed, but I will have them soon enough). Forbes says that roughly 80% of natural gas is consumed in the U.S. is domestically produced and the majority of imports come from Canada. Again, I cannot verify this information, but I believe it is true.
Let's do some reading between the lines here. The shear fact that this cartel is being formed speaks to a very important note. That note is that natural gas is in limited supply and is probably dwindling. The idea that natural gas contracts are long term and sticky is very well, and the impact of the cartel may be limited in the next 5-10 years, but I strongly believe that they will be able to maximize by limiting future contracts to a point. In the future, I expect the whole idea of long term contracts to either be adjustable to market rates, or non-existent altogether.
I want to update you on the natural gas cartel that I mentioned in earlier posts. Next week 14 countries are meeting in Qatar and are expected to announce the formation of this natural gas cartel.
Much of the information I am getting on the subject right now is coming from Forbes, which is not the most credible in regards to economic impact in my opinion and I am going to try and sift through the spin. I do believe they are completely accurate when they say the cartel will announce its formation next week.
Forbes says that the impact of such a cartel will be quite limited and quiet. Like I wrote in the previous post on the subject, natural gas contracts are generally long term. In economics, we call them sticky. Like job contracts, they don't necessarily change very quickly with immediate economic indicators. Also, the price of natural gas usually, in one way or another, follows the price of crude. These items are very true.
The other aspect that Forbes is focusing on is that the U.S. gets very little natural gas from the 14 countries (they are not listed, but I will have them soon enough). Forbes says that roughly 80% of natural gas is consumed in the U.S. is domestically produced and the majority of imports come from Canada. Again, I cannot verify this information, but I believe it is true.
Let's do some reading between the lines here. The shear fact that this cartel is being formed speaks to a very important note. That note is that natural gas is in limited supply and is probably dwindling. The idea that natural gas contracts are long term and sticky is very well, and the impact of the cartel may be limited in the next 5-10 years, but I strongly believe that they will be able to maximize by limiting future contracts to a point. In the future, I expect the whole idea of long term contracts to either be adjustable to market rates, or non-existent altogether.
I also want to talk briefly about a subject that I don't like to talk about because I am not well versed or extremely knowledgeable on, and that is global warming. It's such a political subject and probably more spun, by both sides, than any other issue. I just don't wish to confront the why of the topic, but it's impossible to ignore that the earth is getting warmer and warmer, whether it's man made or not.
All of the spin artists love to talk about how warmer winters means less dependency on natural gas. What they forget is that global warming is obviously not limited to winter. We are also experiencing warmer summers, and that means more use of air conditioning. People obviously get the idea that, in the winter, increased heating measures requires more natural gas. What they don't realize is that "most U.S. regions cool by air conditioning powered by gas-fired electrical generators." (Jim Willie)
I guess the point that I am getting at, is that cartel or not, higher natural gas prices are most definitely on their way.
(Jim Willie, Hat Trick Letter)
As this graph show (woohoo there's a graph in my post), natural gas, after breaking below its 50 and 20 day moving average (MA), it has broken back up and the picture looks very bullish. I expect natural gas prices to move up just at the announcement of this cartel, and if the cartel is effective in any way, it will only add to the bullish picture.
Wednesday, April 4, 2007
Go Gold Go
Today, gold has risen sharply trading around $674 /oz, up about $10 dollars.
The mystery again is why? Well it's not so much a mystery, but more a very bullish sign and let me tell you why.
The first hypothesis for the gain in gold is that global investors and technical traders around the world read my post yesterday when I said gold was gearing up. I guessing that idea is not the most likely scenario.
After these strong gains I started searching for a strong indication of why gold moved so strongly. For the most part the news was quite bearish for gold. Iran and the U.K. have come to an agreement on the release of the 15 British sailors/soldiers. After that news the price of oil fell sharply, very bearish for gold.
On the bull side, the news is pretty limited. Some poor economic data came out regarding service industry growth and new factory orders. There was also a rise in the price of natural gas. That pushed the USD index down slightly. The news was not significant enough to cause a major move in the stock market as the DOW is up a rather modest 15 points or so. None of this was significant enough to reason a $10 jump in gold
I think this speaks to a more important point that us gold bulls have been waiting for. I believe that gold is starting to act upon its own fundamentals. Gold is grossly undervalued in regards to inflation, and it was a matter of time before the precious metals market starts to show that. Also, I believe that the central banks gold reserves, which are at their lowest levels since 1948, are no longer capable of supplying the market enough to keep the price down. In other words, the supply from central banks is no longer able to keep up with the growing demand.
I am not saying that we won't give back some of these gains tomorrow. But I do expect to see some significant gains in gold/silver in the coming weeks. Remember this is about the time of year last year that we saw huge gains.
The mystery again is why? Well it's not so much a mystery, but more a very bullish sign and let me tell you why.
The first hypothesis for the gain in gold is that global investors and technical traders around the world read my post yesterday when I said gold was gearing up. I guessing that idea is not the most likely scenario.
After these strong gains I started searching for a strong indication of why gold moved so strongly. For the most part the news was quite bearish for gold. Iran and the U.K. have come to an agreement on the release of the 15 British sailors/soldiers. After that news the price of oil fell sharply, very bearish for gold.
On the bull side, the news is pretty limited. Some poor economic data came out regarding service industry growth and new factory orders. There was also a rise in the price of natural gas. That pushed the USD index down slightly. The news was not significant enough to cause a major move in the stock market as the DOW is up a rather modest 15 points or so. None of this was significant enough to reason a $10 jump in gold
I think this speaks to a more important point that us gold bulls have been waiting for. I believe that gold is starting to act upon its own fundamentals. Gold is grossly undervalued in regards to inflation, and it was a matter of time before the precious metals market starts to show that. Also, I believe that the central banks gold reserves, which are at their lowest levels since 1948, are no longer capable of supplying the market enough to keep the price down. In other words, the supply from central banks is no longer able to keep up with the growing demand.
I am not saying that we won't give back some of these gains tomorrow. But I do expect to see some significant gains in gold/silver in the coming weeks. Remember this is about the time of year last year that we saw huge gains.
New Features!!!
If you are a reader of this blog, you most definitely have realized that I am technologically illiterate, and I have so often promised that "I am working on it."
Unlike politicians, my promises are not empty. As you can see I have added a couple of new features on my website including live 24 hour spot gold/silver charts. Kitco.com is known for its accuracy and consistency. These are the most reliable charts out there.
I am working on getting a USD index as well as incorporating charts into my charts to help give a visual look at the markets that go with the data. I do promise that this website will never be the flashiest around, but I can get some of the bare essentials up and running.
As far as quick random side notes go, my beloved defending A.L. Central Division Champs are 2-0 and looking good. Thank god baseball season has finally come.
Unlike politicians, my promises are not empty. As you can see I have added a couple of new features on my website including live 24 hour spot gold/silver charts. Kitco.com is known for its accuracy and consistency. These are the most reliable charts out there.
I am working on getting a USD index as well as incorporating charts into my charts to help give a visual look at the markets that go with the data. I do promise that this website will never be the flashiest around, but I can get some of the bare essentials up and running.
As far as quick random side notes go, my beloved defending A.L. Central Division Champs are 2-0 and looking good. Thank god baseball season has finally come.
Less Than...Non-Manufacturing Index
"The Institute of Supply Management's Index of non-manufacturing businesses including banks, builders, and retailers slid to 52.4, the lowest in almost four years, from February's 54.3."..."the index was expected to rise to 55."
This statistic makes up approximately 90% of GDP. We continue to get data that shows the consumer is beginning to get crunched. There ability to buy is dropping and dropping fast. You have to realize that a large majority of consumer spending was done with debt. Whether it be credit cards, or home equity, that new boat isn't actually your new boat...it's the bank's.
I would like to take a second and talk about a lesser know problem with loans. The term sub-prime isn't limited to housing loans. There are a large number of sup prime loans for cars, motorcycles, and credit cards. We are seeing these loans go bust more and more every day. The consumer is over spent and broke. I would really like to ask Chairman Bernanke where this moderate growth he keeps talking about is going to come from.
This statistic makes up approximately 90% of GDP. We continue to get data that shows the consumer is beginning to get crunched. There ability to buy is dropping and dropping fast. You have to realize that a large majority of consumer spending was done with debt. Whether it be credit cards, or home equity, that new boat isn't actually your new boat...it's the bank's.
I would like to take a second and talk about a lesser know problem with loans. The term sub-prime isn't limited to housing loans. There are a large number of sup prime loans for cars, motorcycles, and credit cards. We are seeing these loans go bust more and more every day. The consumer is over spent and broke. I would really like to ask Chairman Bernanke where this moderate growth he keeps talking about is going to come from.
Tuesday, April 3, 2007
Breaking Trend
Gold is finally bucking an important and, for gold investors, a stressful trend. That trend is how gold has tracked and followed the general stock market.
I spoke of a couple important items in previous posts. The first is how I believe that the stock market is in a secular bear market, and the other is how it will be important for gold to break free from its ties to the stock market.
Historically, gold performs quite well when the stock market performs poorly. It is obvious that eventually this trend of gold following the stock market would eventually be broken, but the real question was when.
I was starting to get the notion that just that had occurred, but I didn't want to be premature with my claim. I got the idea that when the stock market had a decline that ran 4 consecutive days. During that period, gold rose approximately $10 /oz.
After today's action in the markets I am finally willing to make the claim that the trend is broken and gold is gearing up for a strong vertical move. Today the DOW rose a clean 128 points, while gold lost a few bucks.
I think that this notion is trivial in the long run, but interesting enough in the short run. It is nothing more than a sign that gold is ready to go, and so am I.
I spoke of a couple important items in previous posts. The first is how I believe that the stock market is in a secular bear market, and the other is how it will be important for gold to break free from its ties to the stock market.
Historically, gold performs quite well when the stock market performs poorly. It is obvious that eventually this trend of gold following the stock market would eventually be broken, but the real question was when.
I was starting to get the notion that just that had occurred, but I didn't want to be premature with my claim. I got the idea that when the stock market had a decline that ran 4 consecutive days. During that period, gold rose approximately $10 /oz.
After today's action in the markets I am finally willing to make the claim that the trend is broken and gold is gearing up for a strong vertical move. Today the DOW rose a clean 128 points, while gold lost a few bucks.
I think that this notion is trivial in the long run, but interesting enough in the short run. It is nothing more than a sign that gold is ready to go, and so am I.
Monday, April 2, 2007
4Q GDP
I would like to talk about the 4Q GDP statistics for a second. First off, if you don't know, 4Q GDP ran at 2.5% growth, which was up from the third quarter growth of 3Q at 2.2%.
On a quick side note, those are measly numbers any way you look at them. Remember Japan is growing at 5.5%, India at 8.2%, and China at10.7%.
Anyways the 2.5% was much higher than I expected. I figured this was due in part to manufactures increasing their inventories, and the U.S. Factory Index told us just that. The index, which is made up from the numbers given by 400 manufactures on employment, production, new orders, supply deliveries, and inventories, was below the forecast 51.5.
The producers of this survey said that the increase in March was due, almost completely to increased inventory levels. That is also what happened to contribute to the GDP growth.
This means that the investment spending of these manufactures will decline sharply in the 1Q of this year. They will have to unload these inventories, and cut down on production. When GDP from a previous quarter is increased because inventories are increased, means that the coming quarter of GDP growth related to manufacturing will decline.
The other side of this story is that the index of prices paid by these manufactures jumped to a whopping 65.5. That is the highest its been since August when it was just 59. This is most definitely a leading indicator of inflation to come. Don't think for a second that they aren't going to push the increased cost of production onto the consumer in the form of higher prices of the good it is selling.
On a quick side note, those are measly numbers any way you look at them. Remember Japan is growing at 5.5%, India at 8.2%, and China at10.7%.
Anyways the 2.5% was much higher than I expected. I figured this was due in part to manufactures increasing their inventories, and the U.S. Factory Index told us just that. The index, which is made up from the numbers given by 400 manufactures on employment, production, new orders, supply deliveries, and inventories, was below the forecast 51.5.
The producers of this survey said that the increase in March was due, almost completely to increased inventory levels. That is also what happened to contribute to the GDP growth.
This means that the investment spending of these manufactures will decline sharply in the 1Q of this year. They will have to unload these inventories, and cut down on production. When GDP from a previous quarter is increased because inventories are increased, means that the coming quarter of GDP growth related to manufacturing will decline.
The other side of this story is that the index of prices paid by these manufactures jumped to a whopping 65.5. That is the highest its been since August when it was just 59. This is most definitely a leading indicator of inflation to come. Don't think for a second that they aren't going to push the increased cost of production onto the consumer in the form of higher prices of the good it is selling.
Sunday, April 1, 2007
China Spin
Like I have recently discussed, Bloomberg and other media sources continue play China off as the bad guy. I really had good laugh at this one.
Bloomberg's most recent article has played to the ego of the little guy. This time it was developing countries, more specifically, the owner and operator of a textile plant in Bogota. His name is Freddy Ramero Ramirez and he is worried about diminishing exports because of competition from China.
Poor little Freddy. When I read this article I was actually laughing to myself. Let me ask you a question. Do you think that anyone cared what Freddy had to say when the U.S. was the leading exporter of the world? I don't think so.
Ladies and gentlemen, this isn't communism. In free markets there are winners and losers, and the winners are the ones who have the ability to deliver its goods to the consumers at the cheapest prices. That's how the game works.
The U.S. has been the biggest winner of that game for a long time. Now that the tides are turning we are starting to see the other side of the story and it doesn't look so good.
Bloomberg's most recent article has played to the ego of the little guy. This time it was developing countries, more specifically, the owner and operator of a textile plant in Bogota. His name is Freddy Ramero Ramirez and he is worried about diminishing exports because of competition from China.
Poor little Freddy. When I read this article I was actually laughing to myself. Let me ask you a question. Do you think that anyone cared what Freddy had to say when the U.S. was the leading exporter of the world? I don't think so.
Ladies and gentlemen, this isn't communism. In free markets there are winners and losers, and the winners are the ones who have the ability to deliver its goods to the consumers at the cheapest prices. That's how the game works.
The U.S. has been the biggest winner of that game for a long time. Now that the tides are turning we are starting to see the other side of the story and it doesn't look so good.
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