Red-Hot Resources

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Monday, March 31, 2008

Monday Is Chart Day

This morning, Larry Edelson describes the commodity markets as having a "lot of dust." In other words, we can't see the short-term clearly, even though we know where the trail is. I agree completely. We know the long-term trend is up, but in the short-term it's hard to find your bearings.

Personally, I'd love a big pullback, a second leg down to the sell-off we saw recently. THAT would make it easy -- the long-term trend remains up, so we could buy-buy-buy.

But it's never easy. If it was, everyone would be millionaires.

Let's look at some charts ...

Dollar Falls to Near Record Low Against Euro as Inflation Accelerates The dollar headed for its biggest quarterly loss against the euro since 2004 after inflation accelerated in the common-currency bloc, giving the region's central bank more reason to keep interest rates unchanged while the Federal Reserve lowers borrowing costs.
Gold headed for a third quarterly gain on expectation the U.S. currency would decline as reports may show that the world's largest economy is slowing, boosting the metal's appeal as an alternative investment to the dollar.
XX Sean's take -- the outlook on gold is particularly mixed. It seems to have failed its recent rally, and yet it is firmly above price support. Watch the US dollar closely for clues.
Crude Oil Declines a Second Day on U.S. Economic Slowdown, Iraqi Exports Crude oil fell for a second day in New York on speculation slowing economic growth in the U.S., the world's biggest energy consumer, will curb demand.
XX Sean's take -- US oil demand is at its lowest level since 2004, but geopolitical concerns -- which this morning are in Gabon and Nigeria -- keep pushing oil around. The short-term price range on this seems to be somewhere between $85 and $120, which is no help at all.

Soybeans in Chicago Rise on China Demand Expectation, Wheat, Corn Advance Soybeans advanced, heading for a sixth quarterly increase, on expectations China, the world's largest buyer of the oilseed, will step up purchases after damage to its rapeseed crop. Wheat fell and corn climbed.

XX Here is the crop report that everyone was waiting for.

Palladium Market May Have Supply Deficit Next Year, Societe Generale Says Palladium production will fall 65,000 ounces short of demand next year, the first deficit in at least five years, partly because jewelers and automakers will switch from more expensive platinum, Societe Generale SA said.

XX Sean's take -- palladium is the metal everyone has been using as a substitute because platinum is in short supply. If palladium has a shortfall as well, that's very bullish for BOTH metals.

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Saturday, March 29, 2008

Weekend Chart Action

Gold, Silver Fall in N.Y. as Oil Slides, Cuts Demand for Inflation Hedges Gold fell in New York after crude oil and other commodities declined, reducing the appeal of the precious metal as an inflation hedge. Silver also slid.
Dollar Falls Most Versus Euro Since 2006 as Traders Bet Rates Will Diverge The dollar dropped the most against the euro in more than two years as traders increased bets the Federal Reserve will cut borrowing costs further to avoid a recession while the European Central Bank holds rates steady.

OPEC Oil Supply Rose 100,000 Barrels a Day in March, PetroLogistics Says OPEC's crude-oil supply has probably increased by 100,000 barrels a day, or 0.3 percent, in March, according to preliminary estimates from PetroLogistics Ltd.

Bush Seeks Financial Regulation Overhaul The Bush administration is proposing a sweeping overhaul of the way the government regulates the nation's financial services industry from banks and securities firms to mortgage brokers and insurance companies.

The Mega Commodity Move: Why it's Happening So are commodities the new bubble? Have they replaced the real estate bubble, which replaced the tech stock bubble, as investors move from one bubble to another? It sure looks like it. But the big difference is that this metals and commodities bubble has a lot further to go. Why?
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Thursday, March 27, 2008

Hooray for Rick Santelli

Rick just took out time to explain that the CME raising the margin on corn and soybean futures has nothing to do with credit everything to do with raising the trading limits. Earlier, CNBC mangled the story to a ridiculous degree.

Here is a Wall Street Journal story explaining (correctly) the facts and implications of the rise in corn and soybean margins.


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Thursday Charts and News

Sorry I'm running a bit late, here ya go ...

Crude oil surges after Basra pipeline bombing The price of crude oil surged this morning after saboteurs bombed one of Iraq's main oil pipelines in what was feared to be a backlash attack by powerful Shia Muslim militias. The attack is being seen as an act of retaliation for the Government's campaign to crack down on the Shia private armies, many of them Iranian-backed, which have exerted a powerful and violent influence over the south and centre of Iraq.

Dollar Strengthens Against Euro as U.S. Consumer Spending Beats Forecast The dollar rose against the euro, after the biggest two-day drop since January 2001, as a report showed fourth-quarter consumer spending rose more than forecast.Gold, Silver Futures Fall in New York After Dollar Rebounds Against Euro Gold fell in New York after the dollar rebounded against the euro. Silver also declined.

Greenland Thaw May Replace Dog Sleds With Oil Drills as Exploration Rises In Greenland, locals hunt reindeer for food and use dog sleds to traverse the ice sheet. Soon they may be working on offshore rigs and counting their money.

Chinese Stocks Drop to Eight-Month Low on Concern Profit Growth Will Slow China's stock index fell to the lowest in more than eight months, led by Baoshan Iron & Steel Co. after its profit dropped because of higher raw-material costs.

Gulf Arabs to Own Assets Valued $3.8 Trillion by 2012, Oliver Wyman Says Wealthy Persian Gulf Arabs will boost their collective assets 81 percent to $3.8 trillion by 2012, according to research by a unit of Marsh & McLennan Cos., the world's largest insurance brokerage.
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Wednesday, March 26, 2008

Wednesday News Bump

Taxpayers May Be Liable for Billions in Fed, Treasury Mortgage-Rescue Bid Even as the Bush administration insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.

Oil Rises a Second Day on Iraqi Clashes, Lower Gasoline Supplies Forecast Crude oil rose for a second day on speculation U.S. gasoline stockpiles declined last weak and concern that fighting in southern Iraq may disrupt supplies.

Soybeans Climb on Farmer Protests in Argentina; Gold, Oil Rally on Dollar Soybeans jumped by the daily limit in Chicago, leading a commodity rally, as farmers in Argentina blocked ports and threatened to plant fewer crops to protest rising export taxes.

Thai Rice Exports Soar on Scarce Supplies as Chicago Prices Reach Record Rice exports from Thailand, the world's biggest exporter of the commodity, jumped 72 percent this year as prices rose to records on scarce global supplies.

Japan's Export Growth Quickens to 8.7% as Asian Markets Cushion U.S. Slump Japan's export growth unexpectedly accelerated in February as demand from emerging markets helped automakers ride out the U.S. slump.

Floridians Forgo Beer, Long Hair, Take $200 Vacations as Home Prices Fall Miami-area homeowner Richard Welch is spending $70 less on groceries a week after his house lost $145,000 in value. Rita Roland cut off 11 inches of hair to save on salon trips, and Victor Parris stopped drinking his favorite brands of dark ale.

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Two Interesting Factoids

Two interesting factoids I learned while researching my "Dust in the Wind" piece.

1) Hard Red Winter wheat is a Russian import. It came here with ethnic German immigrants from Russia, who were escaping the Czar's persecution. The Germans sewed the Hard Red Winter wheat into their clothes, so they wouldn't be robbed along the way. Winter wheat is especially adapted to growing in "borderline" agricultural areas like the western Great Plains.

2) Tumbleweeds are a Russian import, too. When the Germans sewed wheat seeds into their clothes, they brought tumbleweeds along by mistake. This weed is especially suited to growing in dry, windy places, and spread all over the western Great Plains.

UPDATE: The version of "Dust in the Wind" is posted now. I think I found better art to illustrate the story on my own. And the M&M version is cut too short. Other than that, it's fine, lol!

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Tuesday, March 25, 2008

Dust in the Wind

XX Sean's note -- my column for Wednesday is being trimmed a lot because I am too darned windy. I can see my editor's point. However, if you have an interest in history, especially the Dust Bowl and Great Depression, you might like the longer, uncut version. Here you go ...

A huge bull market in commodities suddenly takes a downturn. Equities are getting clobbered. The nation is groaning under insurmountable debts after the banks throw caution to the wind.

It’s an election year, and some people say the market is over-regulated – others that it’s not regulated enough. And weird weather is making headlines – in fact, some people think the weather could herald the beginning of the end.

It may sound like the U.S. in the 21st Century, but it’s also our country on the brink of the Great Depression. It’s a story told in the book “The Worst Hard Time,” by Timothy Egan. I highly recommend this National Book Award winner to you. It is a fascinating glimpse of a time that has vanished from all but the longest memories. And it offers great insights into today’s markets and economic climate.

Does that mean I think that America is on the slippery slope of a Depression? No, there are differences, too. But the similarities make for great lessons that can help all of us today.

A Shot at the American Dream

Egan’s story starts in the last free land in America – the Oklahoma panhandle. After the original (native) inhabitants were chased off, settlers could stake out up to 640 acres and take their shot at the American dream.

That part of the country – including surrounding areas of Texas, Colorado and Kansas – was marginally farmable land that marketers palmed off on unsuspecting new arrivals, the kind of folks who believed in tomorrow because it was all they had in the bank. As Egan explains …

“Hope died the first time people laid eyes on Boise City, Oklahoma. It was founded on fraud. Even the name itself was a lie … from the French word le bois – trees. Except there was not a single tree in Boise city. Nor was there a city. On Boise City’s imaginary streets, the buyers found stakes in the ground and flags flapping in the wind. No railroads. No tracks. No plans for railroads. No fine houses. No businesses. Worst of all, the company did not even own the land that it sold.”

Despite this inauspicious start, people did scratch a living from the land in Boise City and other towns and hamlets in the panhandle. Home was often a hole dug out of the sod, covered with boards and shared with tarantulas, snakes and so many centipedes that they crunched underfoot.

“The flattest, driest, most wind-raked, least arable part of the United States was transformed by government incentive, private showmanship, and human desire from the Great American Desert into Eden with a haircut. Settlement was a dare, on a grand scale, to see if people could defy common sense.”

But it was a life, and for many, the only home they knew. And for a while it seemed that heaven smiled on this venture – a decade of wet years made farming in the panhandle a breeze.

New technology reshaped the world of the 1920s – for farmers, the ride of choice was the tractor. In the 1830s, it took 58 hours of work to plant and harvest a single acre. By 1930, it took only three hours for the same job. A tractor did the work of 10 horses and took a lot less maintenance.

In their eagerness to reap as much of a profit as they could, the farmers plowed the tough prairie grass under and planted wheat. With the price of wheat at 80 cents a bushel, they reaped profits.

The problem started in 1915, when, with a war in Europe raging, the government guaranteed the price of wheat at $2 a bushel. The person in charge of this program was named Herbert Hoover. You may have heard of him. Thanks to Hoover’s government largesse, soon every idiot who could scratch a stick in the ground was trying to wrest his fortune from prairie soil.

This was no flash-in-the-pan bubble. It lasted 14 years.

By 1926, the self-described Wheat Queen of Kansas, Ida Watkins, told everyone she made a profit of $75,000 on her two thousand acres – bigger than the salary of any politician, and more money than any star athlete but Babe Ruth himself.

“Life in America in September 1929 was almost too sweet, too bountiful, too full of riches,” Egan writes.

Before the wheat boom, banks refused to lend to farmers west of the 98th meridian on the grounds that it was “too dry.” Then Congress passed the Federal Farm Loan Act in 1916, and banks offered 40-year loans at 6% interest to any man who had a farm to work.

The farmers turned around and used that money to buy tractors, which in the good times provided more than enough income. And more and more land went under the plow.

All good things must end. By 1929, America had a grain surplus. Prices crashed … but the farmers still had loans to pay.

The only way for someone who made $10,000 in 1925 to duplicate his earnings in 1929 was to plant twice the amount. At least, that was the theory. Soon, unsold wheat piled up next to the railroad track. By 1930, land that once brought an income of $4,000 now brought only $400!

What’s the Worst That Can Happen?

And things got worse! The price of wheat actually went to ZERO – that’s what farmers were told they would get if they brought any more of that damned grain near the station.

Since farmers had no income, they couldn’t repay loans. 1930 saw the first widespread bank failures. The town thrifts closed their doors forever, taking what little money farmers had left with them. And then, that same year, the weather changed. The marginally farmable land of the panhandle could produce a crop of wheat during wet years, but that part of America tipped into a full-scale drought. The land simply dried up and blew away.

But it didn’t go peacefully. Instead, dust storms raged across the landscape. From the first-hand descriptions, the best I can come up with is a dust storm is like being forcibly stuffed into an industrial clothes dryer and tumbled around with a load of dirt … only 100 times worse.

The clouds of dirt would pile up 10,000 feet high and march across the prairie, looking, as one eyewitness recalled, like a range of mountains on the move. The storms blew out windows, buried cars and tractors, fried food with static electricity caused by all that dirt rubbing together, suffocated animals where they stood and filled the lungs of every living thing. The storms were killers of animals, men, women and children.

Black Sunday

One storm, in 1934, blew up a great rectangle of dust from the Great Plains to the Atlantic, 1,800 miles wide, and laden with 350 million tons of dust – three tons of dust for every American alive at the time.

The worst storm, known as Black Sunday, hit on April 14, 1935, and carried twice as much dirt as was ever dug out of the Panama Canal.

Faced with nature’s furious onslaught, many people ran for their lives. Ten thousand people a month fled the Great Plains, the biggest single exodus in American history. Still, many others stayed … either too stubborn or too poor to move along.

The Dust Bowl was the physical manifestation of the nation’s financial and emotional sickness, problems that turned the election of 1932 into a lightning rod for “change.” The candidates talked about being the real agent of change. Sound familiar?

Vote for me, I’m an Agent of Change!

The Republicans stuck by their President, Herbert Hoover. Hoover believed the cure for the Depression was to prime the pump at the producer end, helping factories and business owners get up and running again. Goods would roll off the lines and prosperity would follow.

The Democrats had two main candidates.

One, William "Alfalfa Bill" Murray (right) was born in Toadsuck, Texas, but rose to become Governor of neighboring Oklahoma by railing against what he called “The Three C’s – Corporations, Carpetbaggers and Coons.” With the Presidential election looming, populist Democrat Murray ran for the nomination on the “Four B’s – Bread, Butter, Bacon and Beans.” The problem, he said, was that America had gone soft.

Half the country was going hungry – Murray’s message resonated. They also liked that Murray hated socialists even more than he hated corporations.

The other Democratic candidate was an East-Coast swell named Franklin Delano Roosevelt. FDR’s platform was to give people jobs with a huge public works program to build America’s infrastructure.

FDR beat Murray on the third ballot at the convention. Outraged, the titan from Toadsuck switched party affiliations to Republican. But he found himself on the wrong side of history.

FDR is famous for getting America through the Depression. Along with Social Security and other landmark programs, much of his energy was focused on stopping the Dustbowl, which spread like a cancer in America’s heartland.

At its peak, the Dust Bowl covered one hundred million acres. By the end, some scientists estimated that more than 80 million acres in the southern plains were stripped of their topsoil.

But with FDR’s leadership, the problem wasn’t insurmountable.

  • Four million acres of farmland were abandoned – the farms bought up and the people moved away.
  • Young men were paid a dollar a day in the Civilian Conservation Corps to plant trees from the North Dakota border with Canada all the way to Amarillo, Texas.
  • A government program taught farmers a new way to till the soil and farmers agreed to abide by strict soil conservation standards.
  • New technology allowed those farmers who remained to tap the Ogallala aquifer – a subterranean body of water as large as Lake Superior – in even the driest times.

By these combined efforts, the Dustbowl was tamed. Thanks to these and other new programs, the country emerged from its economic slumber. Here’s what I think we can learn from history

Lessons from the Dustbowl

Good laws are good for business. Hoover said regulation was the wrong thing at the wrong time, and would slow down the recovery. His opponent, FDR railed against crooked bankers and called for more regulation. The public weighed the facts and sided with FDR. His bank holiday and subsequent regulation restored America’s faith in his banks.

Last week, we just saw the government pony up $30 billion of taxpayer dollars to enable one bunch of sharks in pinstripe suits to buy another. Some of the financial instruments that got Bear Stearns in trouble are so complicated that ordinary people can’t understand them. I think it’s time for more regulation, not less.

Not all change is good! Can you imagine what this country would have been like if racist demagogue William Murray won the 1932 election?

All the candidates in the current Presidential election say they’re agents of real change. Senator John McCain is relying on former Senator Phil Gramm as his chief economic advisor. Gramm, a long-time foe of regulation, is one of the people responsible for letting unregulated institutions — the “shadow banking system” – take over the roles traditionally filled by regulated banks. In other words, the current banking crisis has his fingerprints all over it.

Sen. McCain may want to reconsider his reliance on Sen. Gramm. That kind of change we don’t need.

Bull markets can end with a bang. The 1929 bull markets in both grain and equities ended rather suddenly, when everything looked GREAT. This is a reminder to all of us to keep one eye on the exit even in the best markets.

That said, I don’t think we’re anywhere near the end of the current grain bull market. After falling hard and fast last week, grain prices are moving higher again.

Why? This time around, US farmers aren’t just feeding America. They’re feeding the world. And the world has never been hungrier.

World wheat inventories are expected to fall to 110.4 million metric tons in the year ending May 31, the lowest since 1978, the U.S. Department of Agriculture said on March 11. U.S. supplies may drop to 6.6 million tons, down 47 percent from a year earlier, the USDA said.

Meanwhile, floods in the nation’s midsection are delaying soybean and corn crops. And out in the old Dustbowl, parts of western Kansas, the Oklahoma Panhandle and West Texas received so little rain in the past month that the winter wheat crop may be hurt.

And it’s not just grains that are looking good. Check out this chart of the CCI Index, an equally weighted basket of commodities. It shows the bull market that began in 2001 is still going strong.

This bull market will end someday – all bull markets do – but bull markets in commodities last an average 15 years. I think our commodity bull has a long way to go.

And that makes the pullback we’re seeing now one heck of a buying opportunity.

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DBA Chart

Due to technical difficulties at Weiss Central -- my guess is squirrels have gotten into the Mainframe -- this chart of DBA was not able to be posted in a Red-Hot Commodity ETF issue going out this morning ...Stocks are down this morning on a rash of bad news, so commodities should be volatile. Be careful out there today
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Strong Argument for the Commodity Supercycle

A friend sent this to me today, calling it "the strongest arguments ever published in the Wall Street Journal for the commodity supercycle." Wow! Coming from that guy -- a bear's bear -- that's really something.

It's actually an article from yesterday. You'll need a subscription to the Wall Street Journal to read it. I recommend you read the whole thing -- here are a few excerpts:

As the world grows more populous -- the United Nations projects eight billion people by 2025, up from 6.6 billion today -- it also is growing more prosperous. The average person is consuming more food, water, metal and power. Growing numbers of China's 1.3 billion people and India's 1.1 billion are stepping up to the middle class, adopting the high-protein diets, gasoline-fueled transport and electric gadgets that developed nations enjoy.

The result is that demand for resources has soared. If supplies don't keep pace, prices are likely to climb further, economic growth in rich and poor nations alike could suffer, and some fear violent conflicts could ensue.

In 2005, China had 15 passenger cars for every 1,000 people, close to the 13 cars per 1,000 that Japan had in 1963. Today, Japan has 447 passenger cars per 1,000 residents, 57 million in all. If China ever reaches that point, it would have 572 million cars -- 70 million shy of the number of cars in the entire world today.

China consumes 7.9 million barrels of oil a day. The U.S., with less than one quarter as many people, consumes 20.7 million barrels. "Demand will be going up, but it will be constrained by supply," ConocoPhillips Chief Executive Officer James Mulva has told analysts. "I don't think we are going to see the supply going over 100 million barrels a day, and the reason is: Where is all that going to come from?"

Read the whole thing.


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Tuesday Chart Action

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News You Can Use


US Home Prices Drop 11.4 Pct. in January
The broader 20-city composite index is also down, falling 10.7 percent in January from a year ago. That is the first time both indexes dropped by double-digit percentages.

In other news ...

World Markets Rally on Easing US Worries
European and Asian markets surged Tuesday as investors returned from the Easter holiday in a mood to buy, encouraged by upbeat U.S. housing numbers and overnight gains on Wall Street.

Crude Rises, Snapping Three-Day Decline Crude oil rose, snapping a three- day decline, amid escalating violence near one of Iraq's main oil producing regions.

Gold Climbs in London Trading as Dollar Declines; Silver, Platinum Rise Gold rose the most in more than two weeks in London after the dollar fell before a U.S. consumer confidence report that may indicate slower economic growth, spurring demand for precious metals as an alternative to stocks.

Copper Rebounds From Worst Weekly Slide in 10 Months Copper gained the most in three weeks in London, rebounding from the worst drop in 10 months, on expectations stockpiles of the metal will decline and production costs will rise. Aluminum and zinc gained.

White Sugar Climbs Most in Six Weeks in London After India Cuts Forecast White sugar climbed the most in six weeks in London on speculation less Indian supply will erode a forecast global glut. Robusta coffee also advanced.

Soybeans, Corn Increase as Rising Food Prices Boost Demand From Importers Soybeans in Chicago rose for a second day on speculation declines in prices of agricultural commodities may attract buyers as governments seek to boost imports to curb food prices.

Morgan Stanley Raises Corn, Soybean Forecasts by 20% on Food, Fuel Demand Morgan Stanley, the second-biggest U.S. securities firm, raised its price forecasts for corn and soybeans by 20 percent on higher demand for food and ethanol.

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Monday, March 24, 2008

Monday Is Chart Day

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Commodities ... Up or Down?

Here are some views from around the world that I find interesting ...

There are 361 commodity funds with $98 billion in assets as of Feb. 28, compared with 345 funds with $80 billion at the end of 2007, James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference in Geneva.

XX In other words, while hedge funds may be rushing for the exits, ordinary investors are thronging in.

The correction in commodities is actually a sign of how profitable they’ve been lately. The trend actually is a fallout of the crash in equity markets. Funds are booking their profits in commodities so that they will have the necessary liquidity and can overcome any loss in equities, of which there are many (“hello, Bear Stearns!”)

The IMF warns against any expectation of a large decline in commodities prices, cautioning that markets remained tight and demand in countries such as China, India or Brazil was strong.

Volatile downdrafts lasting for a few days have been a common occurrence during the rise in commodity prices over the past two years, Barclays Capital (BARC) noted in a report after markets closed on Mar. 20. "There has been little change in underlying fundamentals, which on the whole remain very positive for a wide range of different commodities and even after recent declines the prices of most commodities are still a long way above month-ago levels," the firm wrote.

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News You Can Use for Monday

Recession in U.S. Sows Slow-Growth Economy, Weak Dollar, Faster Inflation The U.S. may pay a steep price to free itself of its economic and financial travails: bigger government, faster inflation and a poorer country.

Oil, Gold Decline as Dollar Rallies; Wheat, Corn Rise on Lower Stockpiles Crude oil and gold extended declines as the dollar rebounded on speculation the Federal Reserve's efforts to combat a housing slump and a shortage of funds in credit markets may restore investor confidence.

Gasoline at Record High Price Never Been a Better Buy, Say Citigroup, FBR Gasoline that's going for a record $3.29 a gallon at the pump is actually cheap, the way Citigroup Inc. and Friedman Billings Ramsey & Co. look at it.
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Saturday, March 22, 2008

Saturday News and Reading Round-up

Oil and Gold Prices Continue to Slide
Oil, gold and other major commodities fell sharply on Thursday, capping their steepest weekly drop in a half-century, as investors fled what many had believed to be the last safe haven in turbulent markets.

XX My take -- Oh ye of short memories. Remember the last time that commodities crashed, in 2006? And it was supposed to be THE END OF EVERYTHING!!!!! How did that turn out?Sure, we can have more downside in commodities. But the big commodity supercycle is real. Some speculative money rushing for the exits won't change that.

Bernanke Vindicated as Fed Lending Spurs Commodities Drop, Rally in Stocks The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms.

XX My take -- Revived confidence in financial firms how? Certainly not in earnings ...

Bank of America May Report $6.5 Billion Loss Provision, Punk Ziegel Says Bank of America Corp., the second biggest U.S. bank by assets, may take a record $6.5 billion loan- loss provision in the first quarter to cover possible future losses in its home equity and mortgage portfolios, Punk Ziegel and Co. analyst Richard Bove wrote.

XX in fact, the outlook has turned so bearish on commodities so quickly, I think some good news is being overlooked ...

Rush back to gold by Eastern jewellery markets suggests price may have bottomed.
Reports from Asia in particular suggest that jewellery sector buyers and investors have been climbing back into the market for the yellow metal in a big way in the past few days after virtually boycotting it in the run up to the recent higher price levels. The jewellery market tends to be pretty shrewd in its assessment of price levels, and this activity suggests an underpinning of the gold price at or around current levels and further suggests, perhaps, that the upward momentum will come back into effect before too long.

XX especially in uranium ...

Nearly 350 new nuclear reactors on horizon
These will be introduced in addition to 439 uranium-using nuclear reactors already operating in 41 countries, which, collectively, produce 16% of the world’s electricity requirement

Denison expects boost in '08 from uranium prices despite lower forecast “We expect the spot price to recover and see (uranium) trading much closer, or even above, the long-term price later this year, and believe the long-term price may increase also,” CEO Peter Farmer said during a call with analysts early Wednesday.

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Friday, March 21, 2008

Down Under Take on the Subprime Crisis

More humor to get your long weekend started. Here's an Australian take on the subprime crisis.
(hat-tip: The Big Picture)

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Thursday, March 20, 2008

One More Chart

Can't ... stop ... working ...(har-har).

Anyway, the hand-wringing has started on commodities. "The sky is falling, the sky is falling!"

Don't believe it. These are the same guys who told you to buy Bear Stearns last week.

Anyway, here's a chart ...
This weekly chart of the CCI, an equally weighted index of commodities. You can see that despite the big pullback, the CCI hasn’t even tested its recent weekly uptrend.

And if it breaks below that, it is still supported by its big uptrend.

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The Two Johns on Iraq

The Trading Week draws to a close. Here's some humor to start your long weekend. Comedians John Bird and John Fortune are called collectively "The Two Johns". More importantly, this British comedy duo makes my mother laugh out loud.

The Two Johns' standard skit is an interview of a businessman or a government official -- always named George Parr -- who tries very hard to dodge the questions.

Since I'll be seeing Mom for Easter, I thought I'd give her an early present.

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My Latest Interview

Here you go ...

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News to Make the Bears Smile

Dollar Advances Against Commodity Currencies as Oil, Gold Extend Declines The dollar rose against the currencies of commodity-producing nations from Australia to South Africa amid speculation a global economic slowdown will reduce demand for raw materials.

Gold, Oil Will Extend Declines on `Risk Reduction,' Deutsche Bank Says Gold and oil will extend declines into April as investors are likely to continue selling commodities as a part of ``risk reduction,'' said Michael Lewis, Deutsche Bank AG's head of commodities research.

Copper Leads Decline in Industrial Metals as Commodities Slump on Dollar Copper fell for a second day on the London Metal Exchange, extending a decline to the lowest in more than a month on speculation the dollar's slump is near an end.

Denison Mines Falls After Cutting Output Forecast on Delays Starting Mill Denison Mines Corp., owner of the McLean Lake uranium mine in Canada, had the biggest decline in almost two months after cutting its production forecasts because of delays in starting up a mill in Utah.

XX My take -- nothing goes up or down in a straight line. A pullback in commodities is not that unexpected, and will give us some great entry opportunities.
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More Gold Charts

Here is a daily chart of gold. You can see the test of support has turned into a real breakdown.
And here is a weekly chart of gold.

This doesn't mean the long-term bull market in gold is over -- far from it. But in the short-term, the charts are telling us to something else.
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Wednesday, March 19, 2008

Charts to Ponder While We Nurse our Bruises

Investors had their eyes glued to the price of oil as it went higher and higher these past weeks. But just to show how quickly things can change, oil got creamed on Wednesday – along with the rest of the commodity sector. Still, even with that one-day plunge, the 19-member Reuters/Jeffries CRB Index is still up 8.31% since the beginning of the year. Compare that to the 8.6% LOSS in the S&P 500 index.

And oil is still being outperformed by most of the rest of the OTHER commodities in the Reuters/Jeffries CRB Index.

Crude oil is #11, behind #10 gold and #9 corn. The top three
performing commodities this year have nothing to do with energy – cocoa, silver and aluminum.

Meanwhile, the U.S. dollar index, which compares the greenback to the world's major currencies, has fallen about 6% this year and is near its lowest levels ever. Recession fears are driving the greenback lower as jobs disappear, home prices fall and consumer confidence plummets.

That was the trend that was holding until Tuesday, when the dollar started going up, and commodities peaked.

The question facing us now -- Is this top in commodities a short-term correction, or the start of something bigger?

Here are some charts to look at while we ponder that question ...

Oil and gold often move together. Will that continue?

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A Long Wait Pays Off

Here's a chart for subscribers to Red-Hot Canadian Small-Caps ...Patience pays off as Wavefront goes ballistic. You'll find the news in today's issue of Red-Hot Canadian Small-Caps.


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2 Charts for Thursday

Issues going out today -- Red-Hot Commodity ETFs and Red-Hot Canadian Small-Caps. Stay tuned.
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Tuesday, March 18, 2008

After a Crash, an Opportunity

Man, did commodities fall on their face yesterday ...As Bloomberg tells us ...
Commodities Head for Record Decline on Slowing Growth
March 17 -- Crude oil, copper and coffee led a decline in commodities that may be the biggest ever recorded on speculation that a U.S. recession will stall demand for raw materials.

The UBS Bloomberg Constant Maturity Commodity Index fell 4.5 percent to 1,458.597 at 3:56 p.m. in New York, the biggest drop since Oct. 3, 1997, when the data starts. Oil retreated from a record, copper plunged the most in eight weeks and coffee dropped 11 percent. The Reuters/Jefferies CRB Index plunged the most since at least 1956.

XX Well, that was yesterday. Today, commodities are rebounding as investors figure the Fed is going to cut rates (duh!). So, it's time to get back to work. Stay tuned.


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Monday, March 17, 2008

Kicked In The Teeth, Come Back Smiling

Oh, man, what a tough day. But it could be worse. I just got off the phone with a friend who trades commodity futures. There are guys in Chicago who are (metaphorically speaking) walking out of the building without their shirts.

But no matter how bad I or they feel about ourselves, at least we're not Jim Cramer. Here's Cramer telling his viewers last week NOT to sell their shares of Bear Stearns ...

I watched a guy on CNBC today who bought Bear Sterns on Friday at $32 a share. Not a happy man.

Yeah, it could be worse. And tomorrow is another day.
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Commodity Crunch

We're having problems putting charts in our issues today. Here are two I wanted to include in the Red-Hot Commodity ETF issue ...
A trader friend tells me: Counterparty risk is a real issue for the ETNs. If Barclays were to go belly-up, everybody who owns iPath notes is at risk. ETFs are a different structure that are not as vulnerable in this way.
NOTE: No one says Barclays is going belly-up. It's just that ETNs have (a very small) risk that ETFs don't.

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Monday Is Chart Day

The stock market seems to be on the Slip 'n' Slide of Doom, but select commodities are another story. Take a look at these charts ...
Put on your crash helmets, folks, it's going to be a wild ride today!

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Holy Monday Meltdown, Batman!

Fed Takes Broad Action to Avert Financial Crisis
The Federal Reserve took dramatic action on multiple fronts last night to avert a crisis of the global financial system, backing the acquisition of wounded investment firm Bear Stearns and increasing the flow of money to other banks squeezed for credit.

XX This Washington Post story reads like a freaking financial horror story -- the kind of thing Wall Street bankers tell their children to give them goosebumps. And it's happening now! Check out some of these lines ...

  1. The Fed's moves were meant to reverse a rising tide of panic...
  2. The extraordinary measures were made necessary, in the view of the policymakers, by the most dire threat facing world financial markets in years....
  3. It took 85 years to build Bear Stearns and four days for it to dissolve....
  4. Starting today, and lasting for at least six months, this new operation will allow "primary dealers," which are 20 major Wall Street firms, access to cash in exchange for assets in which the market is not currently functioning.
XX P.S. The Fed also approved a cut in its benchmark interest rate to 3.25 percent from 3.50 percent. The Washington Post now calls this the Fed's "emergency lending rate".
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Saturday, March 15, 2008

Could the Credit Markets Seize Up?

And what would that mean for the stock market and the economy?

It’s something that worries me. Could the credit markets seize up? I mean, there are TRILLIONS of dollars of derivatives out there. And as you know, Bear Stearns is a market maker in mortgage bonds, a primary dealer in U.S. Treasury notes and clears or settles securities transactions for other brokers and investment funds.

Bloomberg had an interesting story this morning ...

Bernanke's Bear Stearns Bailout Breaks With Four Decades of Fed Policies

“As a governor, you never want to be placed in this position,'' said former Fed governor Laurence Meyer, who served during the central bank's coordination of the rescue of hedge fund Long-Term Capital Management LLC in 1998.

``Everybody has to be uncomfortable with this. But it is always, compared to what? Just imagine what would have happened today if this action hadn't been taken.''

I wonder just what Laurence Meyer is imagining.

By the way, remember how the market rallied Thursday when S&P announced that the big banks were near the end of their writedowns? Obviously, S&P’s statements can be trusted on this about as much as their ratings, which have shown to be completely untrustworthy.

And I point you to another story in the Wall Street Journal …

Debt Reckoning: U.S. Receives a Margin Call

The U.S. is at the receiving end of a massive margin call: Across the economy, wary lenders are demanding that borrowers put up more collateral or sell assets to reduce debts.

The unfolding financial crisis -- one that began with bad bets on securities backed by subprime mortgages, then sparked a tightening of credit between big banks -- appears to be broadening further. For years, the U.S. economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.

Interestingly, further down in the story …

while cash continues to pour into the U.S. from abroad, this flow has been slowing. In 2007, foreigners' net acquisition of long-term bonds and stocks in the U.S. was $596 billion, down from $722 billion in 2006, according to Treasury Department data. Americans, meanwhile, are investing more of their own money abroad.

And could we be approaching the zero hour for the dollar?

Pressures in one market spread rapidly to other, often more distant markets. "The dollar and subprime -- they're two sides of the same coin," says Princeton University economist Hyun Song Shin. Many U.S. hedge funds and financial institutions were speculating in mortgage-related securities with money that was ultimately borrowed in Japan, where interest rates have been low for years. He notes foreign banks' net liabilities in the yen interbank market surged between April 2006 and April 2007. As investments bought with money borrowed in Japan get sold and converted back into yen, he says, "we see both a fall in asset prices and a fall in the dollar."

Jimmy Rogers has an opinion on that

"No country in the world has ever succeeded by debasing its currency," he said. "That's what this man [Bernanke] is trying to do. He's trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term."

Back to the Wall Street Journal for one more comment ...

The resulting blow to confidence threatens to further weaken lending, borrowing, spending and investment in the U.S. economy. "Hedge fund blowups have so far been one-off situations. One worry is that we'll cross some line and there'll be a systemic wave of fund failures. It's a reason why the market is so nervous," says John Tierney, credit derivatives strategist at Deutsche Bank.

Here's a question for you: Could we be approaching the kind of financial crisis that forced Britain off the world stage after World War II. In its death struggle with Germany, Britain really spent itself into the poorhouse. Germany may have lost the war, but Britain lost the peace.

The US stepped into the vacuum created by Britain’s exit. Who will step into the vacuum if we leave? China, probably. Meanwhile, the US continues a slow slide into quiet desperation. Could China survive a global credit crunch; could India for that matter? There are too many variables, and I don’t know the “worst-case scenario” that Laurence Meyer has in mind.

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