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Friday, November 30, 2007

A Tale of Two Currencies

The yen buckled and gapped lower (again) today. This is looking bearish ...

Meanwhile, the US dollar closed back above its 20-day moving average. This is short-term oversold. We may be in for a furious short-covering rally.

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Friday Chart Fiesta

First the news.

Help May Be on the Way for the Mortgage Market

A plan being hatched by the Bush administration and the U.S. mortgage industry to temporarily freeze interest rates on some troubled U.S. subprime home loans could provide a lift to financial markets, which have been growing anxious about the more than two million home loans expected to reset to higher rates.

and ...

Bernanke hints Fed is open to more interest rate cuts. WASHINGTON — Federal Reserve Chairman Ben Bernanke said Thursday that the central bank must remain "exceptionally alert and flexible" on policy, given "greater than usual" uncertainty about the outlook and "renewed turbulence" in financial markets that threatens growth. The chairman's comments to the Charlotte Chamber of Commerce appeared to bolster the chances for an interest rate cut when Fed policymakers meet Dec. 11

XX Sean's note -- on CBNC, they're talking confidently of a 50-basis point cut at the next meeting.

So what effect does this have on gold, which has been under pressure lately?

I like to look at monthly charts from time to time, as do other analysts. This next chart shows why technicians have been selling gold recently ...

I don't agree with their view, but they're entitled to it. Now, how about gold stocks?

We often see gold stocks lead the metal higher, and I think that's what we could see this time. Finally, let's look at oil ...

I'm on wait-and-see with crude.

Have a great Friday

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Thursday, November 29, 2007

News You Can Use for Thursday

#1) The one everyone is talking about ...
Oil Surges More Than $4 After Crude Pipeline From Canada to U.S. Explodes Oil surged more than $4 a barrel, the most in a month, after an explosion cut Canadian oil shipments through Enbridge Inc. pipelines that typically provide about 15 percent of U.S. crude imports.

XX The good news, if there is any, is that oil was only up $2.33 at 8:22 am. Pipeline disruptions are usually fixed in a matter of days, though I don't know the details on whatever fix will work for this explosion.

#2) Dollar Rises Against Euro, British Pound on U.S. Economic Growth Outlook The dollar rose against the euro and the pound as global stocks rallied and Goldman Sachs Group Inc. said the U.S. currency's decline is coming to an end.

XX The US dollar looks like it's trying to rally. Let's see if it can get through its 20-day moving average ...
#3) You might think a rising greenback would send gold lower, but that's not the case. Why? Probably because everyone is starting to price in another rate cut, which is inflationary ...

U.S. Treasuries Climb on U.S. Stock-Index Losses, Bets Fed Will Cut Rates Treasury notes rose as U.S. stock- index futures declined, boosting demand for the safest assets, and as traders bet the Federal Reserve will cut interest rates further to help the U.S. economy weather a housing slump.

Gold, Silver Advance in London on Outlook for Fed Rate Cut, Weaker Dollar Gold gained in London on speculation the U.S. Federal Reserve may lower interest rates, which would weaken the dollar and fuel demand for bullion. Silver rose.

XX In other words, the US dollar may be rising now, but traders expect it will be weakened by further rate cuts down the road.

#4) And how about those grains?
Wheat Price Gains to Eight-Week High on Drought Concern; Soybeans Advance Wheat futures in Chicago rose for a third day to the highest in almost eight weeks on speculation a lingering drought in the U.S. Southern Plains will damage crops about to go dormant for the winter. Soybeans also extended gains.

The stocks in my agriculture boom report are doing great!
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Wednesday, November 28, 2007

Songs of the Doomed

#1) Does this news on Wells Fargo really surprise anyone? Especially because one talking head after another on CNBC has been telling us how smart Wells Fargo was to avoid this subprime fiasco ...

Wells Fargo Plunges into Mortgage Muck
SAN FRANCISCO (AP) -- After avoiding major trouble most of the year, Wells Fargo & Co. has finally bogged down in the mortgage muck that's muddying one major bank after another. Wells Fargo, the fifth-largest U.S. bank, waded into the mess by saying it will recognize $1.4 billion in losses in the fourth quarter on home equity loans that aren't being repaid as the real estate slump deepens in California, the Midwest and other major markets.

#2) Oh, and that OPEC hike we heard about yesterday that sent oil prices skidding? Don't hold your breath ...

Crude Oil Trades Little Changed as OPEC Ministers Downplay Output Increase Crude oil was little changed in New York as OPEC ministers said the group is doing all it can to control prices, countering reports of a plan to raise output.

#3) Will China unpeg its currency from the US dollar? You tell me. Obviously, the French have no clue ...

Trichet Says China May Let Yuan Rise; Wen Backs `Gradual' Changes to Rate European Central Bank President Jean-Claude Trichet said China may allow the yuan to rise more against the euro even as Chinese officials signaled faster gains are unlikely.

#4) You'd have to think this next piece of news would affect gold prices in a bullish way (less supply) ...

Gold Fields Says Output Halted at Africa's Biggest Gold Mine on Safety Gold Fields Ltd. said production at Driefontein, Africa's biggest gold mine, was halted because of restrictions imposed by a safety inspection ordered by the government after a fatal accident.

#5) Is Cameco suffering some weird kind of Egyptian curse? That's all you can think as ANOTHER of its uranium mines is facing hell or or high water ...

Cameco Reduces Mining at Rabbit Lake on Water Flows in Saskatchewan Mine Cameco Corp., the world's biggest uranium supplier, said ``temporarily reduced'' underground mining at its Eagle Point mine at Rabbit Lake in Saskatchewan because of an increase in water flows into the mine.

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Dazzle 'em With Diamonds -- My Latest Money and Markets Column

Dazzle 'em with Diamonds
by Sean Brodrick

- November 28, 2007, 7:15 AM

The price of polished diamonds is rising at a rate of about 10% year over year, and the falling dollar could accelerate that surge. However, most diamond mining and exploration stocks haven't ... [more ...]

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Tuesday, November 27, 2007

What I'm Reading Now ...

Story #1: This is why I don't recommend stocks in Mongolia (anymore) ...

Khan Resources Inc. stock fell 18% to $1.78 after the Toronto-based mining company (TSX:KRI) warned that political changes in Mongolia could jeopardize its majority stake in the Dornod uranium project.

Story #2: Jellyfish Attack Like a Biblical Plague: Marine biologists are struggling to explain a series of bizarre jellyfish attacks which destroyed the entire fish stocks of a salmon farm in Northern Ireland. "The sea was red with these jellyfish and there was nothing we could do."

Click through on the link and you'll see how the attack is described as "unusual" and "unprecedented" and yet a "natural phenomenon" all in the same sentence. As I've mentioned before on this blog, one of the symptoms of global warming is a massive increase in the jellyfish population.

Story #3: Is Relief on Oil Prices in Sight? The most recent data from the U.S. Energy Information Administration only go through August, at which point Saudi Arabian oil production was still estimated to be at 8.6 million barrels per day. But the latest report from the International Energy Agency estimates that production climbed to 8.75 mb/d in September and 8.85 mb/d in October. And today Reuters quotes Saudi Oil Minister Ali al-Naimi as claiming that November production is up to 9 mb/d. Reuters also reports that the private tanker tracker Petrologistics estimates November Saudi production at 9.15 mb/d.

You know my view on this: Words mean nothing in the oil market. Let's wait and see before we start celebrating.

UPDATE: The new IEA oil market report is out, and it says oil production up by 1.41 million barrels per day in October for new record of 86.43 million barrels per day.

Story #4: Minyanville (a financial site that is also a fun read) is giving a double-sell signal on gold ... based on appearances of Mr. T. I wish I was making that one up. Alternately, you might want to read: Gold: The Crash Market Stock

Story #5: Consumer confidence is falling off a cliff. U.S. consumer confidence fell to its lowest level since Hurricane Katrina in the fall of 2005, the Conference Board reported Tuesday. The index fell almost seven points, to 87.3 from 95.2, well below the 90.2 economists had forecasted. It was also the biggest one-month decline in two years.

Story #6: Fuel Quest May Create Food Crisis. THE world is in danger of running out of basic foodstuffs, according to a leading Australian economist. The shortage will create further dramatic price rises in essential grains such as wheat and corn, accompanied by a tightening of supply, says ABN Amro Morgans chief economist Michael Knox. In the 2004 financial year, corn consumption was 647 million tonnes; this financial year it is expected to be more than 760 million tonnes – an increase approaching 20 per cent in just four years.


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Busy Day

I'm in meetings all morning, so I won't post until later. I find it interesting that the Dow is following the US dollar into correction territory even as oil pulls back. Those consumer confidence numbers could be crucial today. Look for a blog update this afternoon.

UPDATE: The Dow is bouncing hard today, and many of the major averages along with it. Good thing we grabbed gains on bearish positions in RHR yesterday and half-gains on a bearish hedge in RCS today. But we'll see what tomorrow brings.
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Monday, November 26, 2007

Have the Saudis Lost All Credibility?

This morning, on CNBC, we heard that the Saudis are strongly suggesting they are about to start pumping more oil. What's more, we learned that Saudi Arabia, which is OPEC's largest producer and the world's top oil exporter, pumped an average 8.75 million barrels a day in October, the highest since November 2006. Right now, according to CNBC, Saudi Arabia is producing more than 9 million barrels a day.

You'll remember that OPEC agreed in September to raise production targets for the 10 members with quotas by 1.9% starting Nov. 1. So that's increase on top of increase.

Oil prices tanked by over a dollar a share on the news. But right now, oil has recovered and is trading about flat.

Why is that? Maybe it's because of THIS.

OPEC oil exports fall 340,000 bpd in First Half of November

OPEC seaborne oil exports, excluding Angola, fell 340,000 barrels per day (bpd) in the first half of November versus the last two weeks of October, crude oil loading data released by Lloyd's Marine Intelligence Unit (LMIU) showed on Monday.

The London-based consultancy said oil shipments from 11 OPEC members, including Iraq, averaged 22.48 million bpd on a moving average basis to Nov. 11, down from 22.82 million bpd for 15-28 October loading.

So why is OPEC shipping less AFTER it says it raised production quotas? Part of it could be the outage of major oilfields in the United Arab Emirates. But that doesn't explain everything.

Maybe it's as simple as OPEC likes higher prices, so it's going to spread soothing words around while keeping a lid on production.

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Stories and Charts for Monday

10 Stories You Should Read This Morning …

1) 1000% hedge fund wins subprime bet

The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulson’s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.

However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: “The risk/return characteristics are far less attractive than in the past.”

In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.

“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.

2) Sovereign wealth funds on Monday indicated a hunger for Asian assets, with China’s state investment agency hiring Japanese market strategists and Dubai International Capital kicking off its Asian shopping trip with a small stake in Sony Corp.

Oil exporters, including Norway, Russia and the Middle East, held up to $3,800bn in foreign financial assets through sovereign wealth funds, central banks and wealthy individuals at the end of 2006, according to McKinsey Global Institute. Asian central banks, part of whose foreign exchange reserves have been split off into more actively managed vehicles, held a total of $3,100bn. That is more than double the total assets managed by hedge funds and roughly quadruple that held by global private equity. These numbers, measured at the end of last year, already look out of date. So far this year, Asian FX reserves are up 20 per cent to $3,700bn. As for petrodollars, MGI calculates that if oil prices remain above $70 a barrel, nearly $2bn of new petrodollars will enter global financial markets every day.

3) While the news for Detroit gets worse and worse, there are plenty of American car makers who are working on the next big thing. Here are some of the cars you may be driving 10 years from now

4) Holiday Sales in U.S. Climb on Discounts; Individual Shoppers Cut Spending Sales gained in the days after the U.S. Thanksgiving holiday as retailers lured more customers with discounts even as individual shoppers spent less on average.

5) Worst Month for Stocks Since 2002 Shows Smallest Companies May Be Cheapest The cheapest small-cap stocks in four years are luring equity investors battered by the biggest monthly losses since 2002.

6) BHP Billiton Bid for Rio Tinto Loses Confidence of Investors, Steelmakers BHP Billiton Ltd., the world's largest mining company, is losing the support of investors and steelmakers for its proposed $128 billion takeover of Rio Tinto Group.

Also … Australia's S&P/ASX 200 Index rose the most for more than two months, led by Rio Tinto Group on reports China Investment Corp. may counter BHP Billiton Ltd.'s takeover bid for the world's third biggest mining company.

7) Dollar Displaces Yen, Franc as Favorite for Carry Trades With Rand, Real Using the dollar to pay for purchases of currencies with higher yields is proving to be the most profitable trade in the foreign-exchange market.

8) Areva Wins Record $11.9 Billion in Nuclear Reactor Contracts From China Areva SA won an 8 billion euro ($11.9 billion) agreement from China to build nuclear reactors, a record for the French company, as the fastest-growing major economy diversifies energy supplies.

XX Sean’s note – Areva often sells reactors with the agreement that if you buy their reactor, they’ll supply you the fuel. Look for Areva to make more mining acquisitions.

9) Gold Gains for Third Consecutive Day on Weaker Dollar, Stronger Crude Oil Gold climbed for a third consecutive day in London as oil rose and the dollar declined against the euro, spurring demand for the metal as an alternative investment.

10) Soybeans Rise to 34-Year High in Chicago on Demand Outlook; Soy Oil Gains Soybeans in Chicago rose to the highest in 34 years on speculation a weaker dollar and rising oil prices may compound surging Chinese demand.

Here's a note, from currency analyst Boris Schlossberg: “Tuesday could prove to be a more exciting day for dollar traders, as the Conference Board’s consumer confidence survey for the month of November is expected to support more cynical retail sales predictions, as the index may drop for the fourth consecutive month to a two-year low of 91.0 in the face of record high gasoline prices and declines in the stock markets. If this is indeed the case, fed fund futures will likely continue to suggest that investors are ramping up speculation of a December rate cut by the Federal Reserve, leaving the US dollar open to further declines.”

On a holiday note: The cost of 5 golden rings, bought over the internet, is up 20% year over year.




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Thursday, November 22, 2007

Stuff to Talk About on Thanksgiving

Thanksgiving is a holiday where you often have to talk to people you usually avoid, including members of your family. In case you run out of topics, here are a few things you can discuss…

Taj Mahal No Longer Accepts US Dollars. Foreign tourists to many of India's most famous landmarks will no longer be able to pay the entrance fee in dollars, the government says.

Giant sea scorpion bigger than man
I'm thinking this has SciFi channel movie written all over it.

A new planet has been detected around a nearby sun-like star, orbiting at a distance where water would exist in liquid form

According to Congress' Joint Economic Committee, the Iraq War has cost $1.6 trillion dollars, or, (and this is supposed to be the clinching argument) $20,000 for every American family.

Astronomy Nerds Need to Get Out More. These guys say that we've hastened the universe's demise by looking at it. Seriously, do they think God is going to punish us for being the Peeping Toms of the universe?

Last Thanksgiving, I was very bullish on uranium. Obviously, I was a little ahead of the game, but I doubt I'm wrong. In fact, I'm getting very bullish again.

Have a wonderful and happy Thanksgiving.
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Wednesday, November 21, 2007

News You Can Use For Thanksgiving Eve

Deere Profit Jumps 52%, Beating Estimates, on Demand Outside North America Deere & Co., the world's largest maker of tractors and harvesters, said fourth-quarter profit climbed 52 percent, beating analyst estimates, as demand outside North America countered slowing sales of construction equipment.

Note -- this is exactly the kind of thing I'm talking about in my recent Agriculture report. Demand from farmers -- especially outside the US -- should remain strong even if other parts of the economy slump.

Yen Rises as Widening Subprime Losses May Spur Investors to Reduce Risk The yen rose against all of the world's 16 most-actively traded currencies as losses related to subprime mortgages widened, prompting investors to sell higher- yielding assets funded by loans made in Japan.

BHP May Fail to Fulfill Promise of More Iron Ore With Rio, Analysts Say BHP Billiton Ltd., the Australian mining company bidding to buy Rio Tinto Group, may fail to convince customers concerned about a duopoly of the iron ore trade that the combined company will be able to overcome labor and port constraints hindering production, analysts said.

Corn Price Rises as Dollar Drops, Crude Oil Gains; Wheat Up on Weather Corn futures in Chicago rose for a second day on speculation record oil prices will boost demand for grain to produce biofuels. Wheat futures also rose.

Shell Pitches `Several Hundred Billion' Dollar Arctic Gas Project to Putin Royal Dutch Shell Plc and partners told Russian President Vladimir Putin that developing Arctic gas fields big enough to supply global demand for a decade may cost ``several hundred billion'' dollars.

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Money and Markets -- Full Metal Merger Mania

Here is my latest Money and Markets column ...

Full Metal Merger Mania!
by Sean Brodrick

- November 21, 2007, 7:15 AM
Miners have been merging like crazy. Sean Brodrick tells you why this is just the beginning, and how you can profit ...
[More ...]

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Tuesday, November 20, 2007

Chart of the Day -- S&P Earnings

Here, from Standard & Poors' data, is a visual representation of earnings projections by sector. I've plotted the year-over-year change in the second and third quarters of 2007 (Q2 2007 and Q3 2007)

Click on the chart for a larger image. Some important points ...

Standard & Poor's U.S. corporate earnings projections for Q3 has slipped from prior levels, and are now negative for the quarter. On a year-over-year basis, the S&P 500 earnings are expected to decline 8.48% from Q3 2006, marking the first such negative quarter since 2001 (-24.2%).

As recently as October, the consensus estimates were for a gain of 3.3%.

Consumer discretionary is the big loser, down 38.94%. Financials are a close second, down 33.15%. I'd expect those financials earnings to continue to deteriorate.

But even sectors you think would be immune are getting hit. Check out energy -- in the second quarter, earnings were up 8.7% year over year. In the third quarter, earnings are projected to fall 9.92% year over year.

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Monday, November 19, 2007

OPEC "Whoops!" of the Day ...

On Friday night, during what the participants thought were private talks, Venezuela's oil minister Venezuela Rafael Ramirez and his Iranian counterpart Gholamhossein Nozari, argued that pricing — and selling — oil using the crippled dollar was damaging the cartel.

They said OPEC should formally express its concern about the weakness of the dollar when the cartel makes its official declaration at the close of the summit today. But the Saudis, the world's largest oil producers and de facto head of OPEC, vetoed the proposal. Saud al-Faisal, the Saudi foreign minister, warned that even the mere mention to journalists of the fact that leaders were discussing the weak dollar would cause the US currency to plummet.

Unfortunately his words and those of everyone at the meeting were being broadcast via a live television feed to a group of astonished reporters.

'Kill the cable, kill the cable,' shouted the security guard as he burst through the double doors into the media room at the Intercontinental Hotel in Riyadh, followed by Saudi police. It was too late.

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Monday Is Chart Day

Let's start with the news everyone is talking about ...

“The Dollar Peg Is Doomed!”

Here’s an update of the story I had on my blog yesterday …

Arabs' Dollar Losses Increase Pressure to Sever Pegs (Update4)
Merrill Lynch & Co. predicts either the United Arab Emirates or Qatar will cut their dollar peg within half a year. Standard Chartered Plc says the six Gulf Cooperation Council nations need to raise the value of their currencies 20 percent. The difference between the price of the Saudi Arabian riyal and the cost of buying it in a year using forward contracts has widened 10-fold since October as traders bet the kingdom will sever its 21-year-old link to the dollar, according to data compiled by Bloomberg.

``The dollar peg is doomed,'' said Jim Rogers, chairman of New York-based Rogers Holdings and a former partner of hedge fund manager George Soros.

Here are some other news stories of interest ...

Not surprisingly …

OPEC Comment Drives Oil Close to $95
Oil prices rose Monday with more talk among OPEC members about converting their cash reserves to the euro and away from the U.S. dollar. There is also doubt a possible OPEC output hike next month would get more supplies to market in time for the northern winter.

Gold higher on firm oil; capped below $800
Some analysts said turmoil in financial markets caused by problems in the credit sector could have a negative impact on gold, which is sometimes bundled in with other commodities as an investment to be sold when investors trim exposure to risk.

Recession in U.S. Increasingly Likely Next Year, Economists Say in Survey The number of economists forecasting the U.S. will slip into recession almost doubled over the last two months, according to a survey by the National Association for Business Economics.

Premier Wen Says `Massive' Foreign Reserves Putting China Under Pressure China's ``massive'' foreign-currency reserves were placing its government under unprecedented policy pressure, Premier Wen Jiabao said.

Global Stocks, U.S. Futures Drop; UBS, Swiss Re, BHP, Newmont Mining Fall Stocks fell in Europe and Asia, led by banks, exporters and mining companies, on concern the U.S. will slip into recession next year and growth in China may slow. U.S. index futures retreated.

Soybeans Advance to 19-Year High on Increasing Demand; Wheat, Corn Rise Soybeans rose to a 19-year high in Chicago on speculation that demand for the oilseed for vegetable oil and biofuels will surpass global supplies. Corn and wheat futures also gained.

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Sunday, November 18, 2007

About That Strong Dollar ...

The US has an official "strong dollar" policy, but that may be tough to maintain if OPEC pulls the Petrodollar out from under our feet like a cheap Persian carpet ...

OPEC Interested in Non-Dollar Currency- AP

Iranian President Mahmoud Ahmadinejad said Sunday that OPEC's members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a "worthless piece of paper."

I'll post a chart of the dollar when blogger gets over its snit fit.

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I hope you're having a good weekend. Here's what I'm reading ...

Doctor Tim Kazurinsky of Saturday Night Live Fame gives the best explanation I've seen so far of what the Writer's Strike is about (because to me, at first, it looked like a bunch of millionaires going on strike against billionaires)



Barry Ritholtz over at The Big Picture has a great roundup of last week's market action along with a very good linkfest. I always read him on the weekend; maybe you should too.

Good news on energy (finally!) BP and Norway's Statoil have double the reserves they initially estimated at a huge offshore Azerbaijan natural gas field.

Uranium prices are going higher -- due to a shortage of battery acid?!! I'd heard this in general terms, but Uranium One's Neal Froneman says this will help drive uranium prices above $138 per pound in the next 12 to 18 months. Now, he runs a uranium company, so take what he says with a large grain of salt (or dash of battery acid).

Indian gems, jewellery exports up 21.5% At a time when the Indian exporting community is feeling the heat of rupee appreciation, gems and jewellery export that recorded a poor growth of 2.7% in 2006-07 is witnessing a turnaround, said a Reserve Bank of India (RBI) analysis on the country's foreign trade.

Will China and India Return to Their Science Glory Days? China and India comfortably led the world in scientific exploits before the 15th century. China surpassed Europe in its understanding of chemicals, industry and shipbuilding while India leapt ahead in mathematical ingenuity. Why did they both lose their steam? And now that they have regained their mojo, what impact will technology have on their economies and stock markets tracked by exchange-traded funds like the iShares China (FXI) and the Morgan Stanley India (IIF) and China (CAF) funds?


The behind-the-scenes story on Blackwater, the mercenaries that the US has hired in Iraq. I especially like their billing cycle: Blackwater only pays their security people $600 a day, as it moves up through the contractors it goes from $600 to $815 to $1250 to Halliburton billing the government $1500 per day. I'll have to remember that for future accounts.
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Friday, November 16, 2007

Foreigners Flee US Markets

The latest Treasury International Capital (TIC) data shows that foreigners continue to pull their money out of the US market in September:

Monthly net TIC flows were minus $14.7 billion. Of this, net foreign private flows were negative $27.8 billion, and net foreign official flows were positive $13.1 billion.

This is an improvement over August, when foreigners pulled $69.3 billion out of the US market. Still, it's not good news for broad equities. It should put more downward pressure on the US dollar, which in turn puts upward pressure on gold.

Why are foreigners pulling their money out? Well, other economies are growing much faster than the US, so why not invest your money there? For example, the World Bank has raised its forecasts for China twice this year, predicting Asia's second-largest economy will grow 11.3%. For now, the World Bank is forecasting that the US economy will grow 1.9% this year. Add that to the fact that the US dollar is trending down against most major currencies, and you can see why people might want to put their money to work elsewhere.

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News You Can Use for Friday

The US faces roadblocks ...

Wells Fargo Exec: Housing at worst point since Depression Wells Fargo & Co. Chief Executive Officer John Stumpf said the current housing market is the worst since the Great Depression. The leader of the second-largest U.S. mortgage lender said the company is "not immune" to the housing-market slowdown that has forced banks and securities firms to write down the value of more than $45 billion of debt.

Goldman Sachs: U.S. could face $2 trillion lending shock (Reuters) - The impact of the U.S. mortgage market crisis on the underlying economy could be "dramatic" as leveraged investors may need to scale back lending by up to $2 trillion, according to investment bank Goldman Sachs

U.S. Risks Recession on Subprime Losses, Greenspan's Legacy, Stiglitz Says Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the subprime crisis and a ``mess'' left by former Federal Reserve Chairman Alan Greenspan.

...while the global economy accelerates ...


China Factory Spending Surges 26.9 Percent, Adding Pressure to Boost Rates China's growth in factory and property spending unexpectedly accelerated, stoking speculation the central bank will raise interest rates for a sixth time this year to cool the world's fastest-growing major economy.

Soybeans, Corn Futures Advance as Inflation Concerns Spur Commodity Buying Soybeans rose to a 19-year high, heading for their sixth weekly gain, on speculation investors may boost holdings of commodities to hedge against inflation.

Crude Oil Advances After Venezuela Minister Rejects OPEC Output Increase Crude oil rose after Venezuela's oil minister said OPEC shouldn't increase production at its next meeting in December.

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Thursday, November 15, 2007

CPI Analysis

The talking heads are saying that today’s CPI data from the Bureau of Labor Statistics (BLS) shows tame inflation. And at first glance – the headline number in October was up 0.3% compared to September – they seem correct.

But some simple analysis will show you that inflation is there, just invisible to the BLS. And the longer they ignore it, the bigger the bull market will be in gold and silver.

Let’s lift the hood a bit.

The October level was 3.5% higher than the year-earlier period. In fact, unadjusted year-over-year inflation clocked just 2% in August, then 2.8% in September, and now 3.5% in October. If this same rate of acceleration continues, headline unadjusted CPI should be over 4% year-over-year in November. And there’s every indication that CPI will continue to accelerate.

Why? Well, the BLS says consumer energy prices rose just 1.4% in October. Looking at that number, you have to wonder what country they’re talking about. Energy prices went up more than that. How could they be so wrong from what our eyes tell us?

We’ll have to look at yesterday’s PPI Index for a clue. The PPI showed that gasoline prices fell 3.1% in October, and energy prices fell 0.8% overall. That’s simply not based in reality. Instead, it’s a quirk of how the BLS collects its PPI data.

The BLS methodology for measuring PPI is flawed: It measures prices on a single day of the month. BLS samples for energy prices on the Tuesday of the week that contains the 13th of the month. In other words, BLS’ methodology essentially ignores all energy prices paid except for one day of the month.

Energy prices roared higher late in October, but the BLS missed that. These prices are already passed along and should be incorporated into November's CPI.

The BLS page explaining how it measures price changes for motor fuels in the CPI doesn’t explain how many days it incorporates into the sample. However, considering its flawed methodology for the PPI, the CPI collection data methodology should be suspect until proven otherwise.

This lays the groundwork for rising energy prices to arrive in the CPI in one huge rush. Likewise, food prices, which officially only clocked a 0.3% rise in October, could also be in for a sudden surge. I think December could be shocking indeed. Brace for impact – higher prices are on the way.

More importantly, the CPI data was “tame” enough that it clears the way for the Federal Reserve to lower interest rates again. That should send an already wounded US dollar even lower. Since gold, silver and other commodities are priced in dollars, as the dollar goes down, they go higher. And that should supercharge commodities that are already on a rocket ride.

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Weekly Chart Action

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News You Can Use for Thursday

Jim Rogers Urges Investors to Sell U.S. Dollar Holdings as Currency Slumps Investor Jim Rogers urged people to get out of the dollar and says he expects to be rid of all his U.S. currency assets by summer next year.

China's Industrial Output Growth Sparks Concern Economy May Be Overheating China's industrial production grew 17.9 percent in October as automobile and electronics output accelerated, underscoring government concern that the world's fastest-growing major economy risks overheating.

Indonesia's Economy Expands 6.5 Percent, Fastest Pace Since 1997 Crisis Indonesia's economy expanded 6.5 percent in the third quarter, the fastest pace since the 1997 Asian financial crisis, spurred by bumper harvests and rising sales of cars, motorcycles and homes.

World Bank Raises East Asia's Economic-Growth Forecast as China Expands East Asia's economies will expand at the fastest pace in more than a decade in 2007 as China's accelerating growth offsets a slowdown in U.S. demand for the region's exports, the World Bank said.

Rupee Gains a Second Day as India's Growth May Keep Luring Overseas Funds India's rupee rose for a second day on speculation economic growth that is the fastest among major economies after China will keep drawing overseas investment.

U.A.E. Considering Ending Dollar Peg for Currency Basket, Suwaidi Says The United Arab Emirates may consider pegging its dirham to a basket of currencies, consisting mostly of dollars, said central bank Governor Sultan Bin Nasser al- Suwaidi.

Murdoch Intends to Drop WSJ.com Fee "Rupert Murdoch, the chairman of the News Corporation, said today that he intended to make access to The Wall Street Journal’s Web site free, trading subscription fees for anticipated ad revenue.

Hunan Nonferrous Metals Corp, China`s biggest zinc and tungsten producer, may spend as much as US$673 million next year buying stakes in mining companies and mines in Australia and Canada

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Wednesday, November 14, 2007

Today's PPI Numbers

The Producer Price Index clocked a 0.1% rise in October, which was less than expectations of 0.3%. However …


There was something funky with the gasoline number. Gasoline prices fell 3.1%, which must have been a quirk of when the data was collected – that is, it must have missed the big rise that started at the end of October. I can tell you that gasoline prices are certainly rising now.


And the year-over-year rise in headline PPI was 6.1%, versus 4.4% in September. That means the annualized pace of PPI growth has hit a 2 year high! Look at this chart I’ve made of the year-over-year rise in the headline producer price index. That sure looks inflationary to me.


Producer prices ex- food and energy (the core number) looks tame, but looking at prices without food and energy doesn’t work for me. Show me someone who lives without consuming food or energy.


Still, the stock market futures are reacting very postively to this number, because traders this PPI number gives the Fed more room to cut interest rates in December.


If the Fed follows the market’s wishes (the probability of a quarter point rate cut next month is 80%), that means more downward pressure on the US dollar. And THAT should mean more upward pressure on gold and silver.

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Money and Markets -- Cotton, Sugar, and New Orleans

I wrote one of my historical pieces for MoneyandMarkets.com, but it also has some current investment recommendations.

Where Tech and Hot Commodities Meet!
by Sean Brodrick

- November 14, 2007, 7:15 AM

Sean Brodrick explains how technological innovations catapulted cotton and sugar into cash crops, and how the same thing is happening again right now ...
[More ...]

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Through the Looking Glass on the US Dollar

Then ...

"Why sometimes, I've believed as many as six impossible things before breakfast" -- The Red Queen, Through the Looking Glass.

And now ...

Asked whether he was satisfied with current exchange rates, Bush replied: "I am satisfied with the fact that we have a strong dollar policy and know that the market ought to be setting the exchange rate."

So we have a strong dollar policy, Bush is satisfied with this, and he knows "that the market ought to be setting the exchange rate." Does that even BEGIN to make sense? Tell me, when did we adopt the Chewbacca Defense as official US dollar policy?

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Tuesday, November 13, 2007

India Gets Yellow (Gold) Fever

Interesting story ...


An unprecedented consumer spending boom across India is making the yellow metal glitter. Yes, the gold market is dazzling in the country and analysts have predicted that gold consumption will rise to a record 900 tonnes this year.

The strengthening of rupee against US dollar and rising consumer spending have raised India's gold demand by as much as 72 per cent in the first half of the year. A report from the World Gold Council says demand for gold in India reached an all-time high of 317 tonnes in the second quarter of 2007. The figures are nearly double of what was sold last year

Meanwhile, worldwide,
according to the data from the World Gold Council, gold production dropped 3.1% to a 10-year low of 2,471 metric tonnes in 2006.

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Our Troubles in a Nutshell

I recommend you read this excellent post at Information Arbitrage on a layman's guide to the current economic crisis.

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News You Can Use

Stocks are rallying hard in the pre-market. Earnings news from Wal-Mart seems to be the driver ...

Wal-Mart Stores 3Q Profit Up 8 Percent BENTONVILLE, Ark. (AP) -- Wal-Mart Stores Inc., the world's largest retailer, said Tuesday its fiscal 2008 third-quarter profit grew 8 percent to top Wall Street expectations on strong international growth and improved performance in its U.S. operations.

My question for Wall Street: Why the hell is this good news? It just means consumers are getting so stressed financially that they're biting the bullet and going to Wal-Mart. That's not a good sign for the economy. I see it as a bad sign.

There is a Wal-Mart near us that I visit every few months -- either because I forget how bad it is or because there is something "Wal-Mart Specific" that I can only buy there. The best way to describe this Wal-Mart is "soul-sucking." No one wants to be there -- not even the people who work there. They'd probably rather be working at Target or Publix.

We'll see how the market likes the Pending Homes Sales data that comes out today. It could be good (better than expectations), it could be bad, and it will probably set the tone for the afternoon. it comes out at 10 am. The market expects a 2% drop, and the prior drop was 6.5%.

In other news ...

The economic costs to the United States of the wars in Iraq and Afghanistan so far total approximately $1.5 trillion, according to a new study by congressional Democrats that estimates the conflicts' "hidden costs"-- including higher oil prices, the expense of treating wounded veterans and interest payments on the money borrowed to pay for the wars.

Gee, I remember when Deputy Defense Secretary Paul Wolfowitz dismissed estimates of $60 to $65 billion as the cost of the war as too high. The war would pay for itself, he said. Obviously, he's the kind of fiscal genius you want to put in charge of the World Bank.

The official total cost of the Iraq war is $611.5 billion. From the Boston Globe, here's what that would buy you ...

• "U.S. drivers consume approximately 384.7 million gallons of gasoline a day. Retail prices averaged $3.00 a gallon in early November. Breaking it down, $611 billion could buy gasoline for everybody in the United States, for about 530 days."

• "In fiscal 2008, Medicare benefits will total $454 billion, according to a Heritage Foundation summary. The $611 billion in war costs is 17 times the amount vetoed by the president for a $35 billion health care benefit program for poor children."

• "According to World Bank estimates, $54 billion a year would eliminate starvation and malnutrition globally by 2015, while $30 billion would provide a year of primary education for every child on earth. At the upper range of those estimates, the $611 billion cost of the war could have fed and educated the world's poor for seven years."

My choice would be to not spend it at all and pay down the debt. Fat chance!

Treasury Bond Anxiety of Runaway Inflation Spurred by Bush Dollar Collapse For the first time in 18 months, the U.S. government bond market is showing growing anxiety that the plummeting dollar will result in runaway inflation.

China's Inflation Accelerates to Decade High of 6.5 Percent on Food Prices Inflation in China, the world's fastest-growing major economy, accelerated in October as food prices jumped, increasing pressure on the central bank to raise interest rates for a sixth time this year.

Lundin Mining Profit Rises After Buyouts Boost Output of Gold and Copper Lundin Mining Corp., which has bought more than C$2 billion ($2.1 billion) in base-metal assets this year, said third-quarter profit rose fourfold after the acquisitions increased output.

IEA Reduces Global Oil for 2008 Demand Forecast as Prices Curb Consumption The International Energy Agency, the adviser to 26 oil-consuming nations, cut its forecast for global demand for the rest of this year and 2008 as prices near $100 a barrel slow consumption in the U.S., Europe and Japan.

Soybeans Gain to 3-Year High in Chicago on Speculation China May Buy More Soybeans rose to a three-year high in Chicago on speculation that China, the world's biggest oilseed consumer, may boost imports of the commodity to help ease decade-high inflation partly caused by edible oil shortages.

The Wall Street Journal had a good story on the declining US dollar yesterday.

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Monday, November 12, 2007

Today's Chart

I was busy with issues today and I had to suddenly change tracks on my MoneyandMarkets.com column for Wednesday. Anyway, check out this chart of the small-cap Russell 2000 Index ...
I think we're in for a pullback. I added an ETF to Red-Hot Canadian Small-Caps today that aims to track 200% of the INVERSE of the Russell 2000 Index. We'll see how it does.

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Sunday, November 11, 2007

Sunday Night – Songs of the Doomed?

Here are some news stories/opinion pieces that worry me …

Currency Controls Return as Central Banks Fight US Dollar Freefall
Nov. 12 (Bloomberg) -- Central banks from Bogota to Mumbai are imposing foreign-exchange curbs to take control of their soaring currencies from traders dumping the dollar.

CDOs: The Ticking Time Bomb The equity markets seem to have finally realized that conditions are ugly in the credit markets, due to get uglier, and the mess will pull down the real economy. And the bad news continues. The dollar index fell to a new low. Wachovia said the value of its subprime securities, largely "super senior" tranches of CDOs, fell $1.1 billion and it was witnessing sharp falls in housing prices in some areas of the US.

We had questioned the optimistic assumption of a few weeks ago, that investment banks were taking deep enough writedowns to put their woes behind them. How can you possibly do that unless a market is at or near bottom? Wall Street analysts have indicated that they expect further writeoffs at the Wall Street firms.

Oil Price Rise Causes Global Shift in Wealth
Iran, Russia and Venezuela Feel the Benefits High oil prices are fueling one of the biggest transfers of wealth in history. Oil consumers are paying $4 billion to $5 billion more for crude oil every day than they did just five years ago, pumping more than $2 trillion into the coffers of oil companies and oil-producing nations this year alone.


Barclays bankrolls Mugabe's brutal regime BARCLAYS is bankrolling President Robert Mugabe's corrupt regime in Zimbabwe by providing substantial loans to cronies given land seized from white farmers.


The Worst Economy of Our Lifetime, pt III
The Republicans are spending social security money now, hoping no one will notice. And so far they're getting away with it. But intra-governmental debt is still debt. It has a legal priority claim on government revenue and must eventually be paid.


Scientists say get ready for a hotter planet
"There is medium confidence that approximately 20-30 per cent of species assessed so far are likely to be at increasing risk of extinction if increases in global average warming exceed 1.5-2.5 degrees Celsius." Warming of at least two degrees is considered a near certainly this century based on IPCC climate models.


And here's a story about the Arizona housing bubble that makes the South Florida housing bubble look like a walk in the park.

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Miami Nice

Here, I look out from our balcony at the DoubleTree Hotel in Miami.My wife and I drove down for the Miami Book Fest. It was great -- I got to talk to Paul Krugman (well, ask him a question), listen to Wesley Clark, Dave Barry, and a bunch of other authors.
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Saturday, November 10, 2007

Get Your Weekend On

I'm at the Miami Bookfair this weekend. Note to Burglars -- my house IS occupied. Anyway, here's some music to get your weekend rocking.


And here's another one, more Miami-ish, and a great trip down Nostalgia Lane to boot ...

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And Another Thing on the Trade Deficit

And another thing on the September trade deficit -- it came in at –56.45 billion, down from August’s revised number of –56.85 bln. The August number was revised from –57.6 bln. Analysts were expecting the September reading to come in at –58.5.


So, it's party time, right? Not so fast. The big deficit that worries us is the deficit with China. But the deficit with China actually grew to –23.77 billion from –22.53 billion. With China accounting for such a large percentage of the trade deficit and it rising, as my friend and commodities broker Charlie Nedoss says, "it is like putting lipstick on a pig to say that this is a positive number."

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Friday, November 09, 2007

Something Wicked This Way Comes

UPDATED: See below.

The VIX is a widely used measure of market risk. Its full name is the Chicago Board Options Exchange (CBOE) Volatility Index. How does it work? It shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts.

VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets. That's why the Vix is also known as "The Fear Index."

So what is the Vix telling us now? Let's look at a daily chart ...
The Vix seems to be at a crossroads right now. However, its momentum, as measured by MACD on the bottom of the chart, is bullish. This tends to be market bearish.

Now, let's look at a WEEKLY chart of the SPY, which tracks the S&P 500 ...

We are seeing a weekly sell signal on the SPY. If it closes at these levels, that will be very bearish.

I mention all this because CNBC has had one tout on after another today to say there are great buying opportunities in the market right now, especially in tech and financials. Maybe. But I think while things may look cheap now, they can get a lot cheaper.

How do you play it? Well, You can always buy the ProShares UltraShort S&P 500 ETF (SDS). In Red-Hot Resources, we're targeting tech with the QID, which is designed to return 200% of the inverse of the QQQQs. That position is up over 5% from our tracked entry point yesterday. And a few days ago, I recommended Red-Hot Resources subscribers buy the ProFunds UltraShort Real Estate Fund (SRS).

You can also use options on the indices, or on your favorite weak stocks. And in the futures market, you can play the Vix itself -- the CBOE has futures and futures options on the Vix Index.

I may look at inverse funds as short-term protection for Red-Hot Canadian Small Caps and Red-Hot Global Small-Caps as well. But I want to see how the markets close today. That should let us know where we stand.

Good luck, and good trades

UPDATE: The S&P 500 closed below that weekly support line. If we see a bounce early next week, I'll probably use it to get short, using some of the ultra-short ETFs, as protection in Red-Hot Canadian Small-Caps and Red-Hot Global Small-Caps.
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Import Prices Jump

You can read the latest import/export prices here: http://www.bls.gov/news.release/pdf/ximpim.pdf

Man, we are seeing import inflation big time. It’s bad news for consumers, and bad news for Ben Bernanke.

By the numbers, the price of imports jumped 1.8% in October, up from

1% in September, and the biggest change in over a year (since May of 2006). The year-over-year change is 9.6%. I’ll say that again, 9.6%!!!! That’s up from 5.2% in September.

Petroleum products jumped a whopping 6.9% in October, and are up 41.4% year over year. I heard one of the CNBC talking heads today saying ignore that number, focus on imports ex- oil and ex-food (food and beverage import prices are increasing at 9.8% year over year). Well, Joe Six-Pack isn’t going to ignore it – not when he’s paying $4 for a gallon of gas and his grocery bill is going through the roof. In other words, I think this import price number is going to weigh on consumer confidence.

There is some good news -- the trade gap narrowed – to $56.45 billion in September, from $56.8 billion in August. That’s the smallest trade deficit since May and it will ratchet up GDP growth.

However, the inflation in import prices is getting so hot that Ben Bernanke may not be able to ignore it much longer. And then he’ll face a conundrum if he raises interest rates to keep in inflation in check, he risks kneecapping an already stumbling housing market and sending the major stock indices down with it.

As for the export numbers, they were an improvement, but Joe Six-Pack won’t care about that, either. I look for a potential big impact on consumer confidence down the road and an even gloomier Christmas than is already being predicted.

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News You Can Use for Friday

Rising Demand for Oil Provokes New Energy Crisis

With oil prices approaching the symbolic threshold of $100 a barrel, the world is headed toward its third energy shock in a generation. But today’s surge is fundamentally different from the previous oil crises, with broad and longer-lasting global implications.
...
At the root of the stunning rise in the price of oil, up 56 percent this year and 365 percent in a decade, is a positive development: an unprecedented boom in the world economy.

India’s Solution for Oil Prices: Ban Speculation by Banning Trading
What analysts cannot agree on is how much of the increase is attributable to the investors — estimates vary from $10 a barrel to over $30 a barrel — and what, if anything, should be done about it.

Yuan Heads for Biggest Weekly Gain Since End of Peg After Paulson Speech The yuan had the biggest weekly advance against the dollar in two years, after U.S. Treasury Secretary Henry Paulson said China is ``out of step'' with the rest of the world's calls for faster appreciation.

Wheat Set for Sixth Weekly Loss as U.S. Export Sales Fall on Cancellations
Wheat declined for a third day and is poised for a sixth straight weekly drop, the longest losing streak in more than three years, after some countries that bought U.S. supplies at near-record highs canceled their orders.

Mining Stocks Surge on Speculation BHP Offer For Rio Will Spur More Bids
Fortescue Metals Group Ltd., building a A$2.6 billion ($2.4 billion) iron ore project, led Australian mining stocks higher on speculation BHP Billiton Ltd.'s approach to buy Rio Tinto Group may fuel more takeovers.
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