Red-Hot Resources

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Friday, January 30, 2009

Gold Soaring … And So Is Cost of Bailout

Gold soared this morning, so I feel vindicated, if not fine.
You saw the gold chart I posted yesterday. Today’s chart is more of the same, only with surging volume, as
gold rises to a 3-month high.

That’s usually a bullish sign. The question before us now is, is this a real breakout or the mother-of-all fakeouts? Remember, this is happening when the U.S. dollar is also very strong, and currency markets are much bigger than the metals markets.
I think it’s a risk worth taking. We’ll have to move fast if gold is lying to us, though, so if you’re one of my subscribers, stand by.
Now, here is news you can use for this Friday …
Goldman Sachs says the cost of shoring up banks
could run as high as $4 trillion. That’s up from the $1.5 trillion already spent specifically on banks. Why, why, WHY aren’t we proceeding with a Resolution Trust Corporation solution to this? Like the one we used in the Savings & Loan Crisis in 1989. Instead, we keep pouring good money after bad. Yes, an RTC solution would cost money but not as much money as this cockamamie bailout we’re seeing now, and it would mean an end to the whole mess. Right now, the bailout is open-ended. How are we supposed to pay back another $4 trillion? The US economy is shrinking, tumbling the most since 1982.
And that, my friends, is one reason why gold is taking off.
Meanwhile, California — the world’s eight largest economy – is so broke that
the state is going to start sending out IOUs. This despite the fact that the governator is going to furlough ALL of the state’s rank-and-file employees for two months. He’d better not furlough the prison guards, because once you stop sending poor people their food stamps, what else do they have to lose? I have to think the chance of riots in California is rising. Meanwhile, California is dealing with the worst drought in its history.
Another sign of impending apocalypse —
scientists have invented carnivorous robots. It’s only a hop, skip and a jump to Skynet and the Rise of the Machines.
On the lighter side, here are some
cool electric concept cars. Let’s hope we don’t end up too bankrupt to afford them.

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Thursday, January 29, 2009

A Lot Happened While I Was Away

Chart of the ever-lovin’ day …
This chart is just the beginning of the new report I just sent to my Red-Hot Global Small-Caps subscribers, “3 Red-Hot Picks From Vancouver.” If you’re a subscriber, look in your in-box. If you’re not a subscriber, you can change that pretty quickly and act on these three recommendations immediately: click here.
Anyway, I’m back from Vancouver. Here are some of the things that caught my eye while I was away …

First, the Guardian in the UK gives us
“25 People at the Heart of the Meltdown.” It’s a bit British-heavy, but that’s understandable for a paper published in London. But why’d they leave out Robert Rubin? Maybe I should make my own list.

Meanwhile, John Hempton at Bronte Capital believes the
Fed should literally try throwing money out of helicopters. I have to believe there are aspects to that plan that he is just not thinking through.

Now for the story that caused steam to come out of my ears in my Vancouver hotel room. Remember how the US taxpayers have bailed out Citigroup (
C: 4.06 -0.14 -3.33%) with $45 billion of our hard-earned money? Well, Citi turned around and was going to buy a $50 million corporate jet from France.

Citigroup is one of the biggest recipients of TARP funds. It received $25 billion under the original payout late last year and received another $20 billion after its stock started to sink in November. It also got the government to backstop some $306 billion in troubled assets on its books. <>So, naturally, buying a $50 million corporate jet is the only thing to do <>

Perhaps I missed it because I was running around Vancouver like a crazy man, but I didn’t see this story on CNBC. Maybe that’s because back in 2007 — almost exactly two years ago – CNBC’s
Maria Bartiromo got in some hot water for taking Citi’s corporate jet with then Citi-executive Todd Thomson.

Oh, wait, look here: CNBC prints an AP story that
Citi will not take possession of the new jet. That story ran at 8:04 pm the day the scandal broke. Yeah, hot on the trail of that one!

And it’s not that Citi suddenly developed a sense of shame.
ABC News reports that Obama administration officials called Citi execs about the jet and told them to “fix it.”

Now, don’t you go feeling sorry for the Citi execs. Even after reducing the size of their air fleet, they STILL have two jets.

In other news, the
Congressional Budget Office compared the economic downturn we’re experiencing today to the Great Depression. Does that make it official? Someone find out for me.

Now for three non-business stories that interested me and may interest you …

1) Here is some comic relief if you have a weird (gallows) sense of humor:
An Interview With The Central Banker of Zimbabwe. And if you think a trillion is a large number when applied to currency, brace yourself for “sextillion.” I assume the central banker of Zimbabwe didn’t scream that number while spitting blood and tearing his hair out in clumps, so you’ve got to admire his coolness in crisis.

2) It will surprise many leaders in the business community (but should surprise no one) that
Free Monty Python Videos on Youtube Lead to 23,000% DVD Sale Increase. Why does that work? Because no one wants to watch bad-quality YouTube videos for very long.

3) The headline says it all:
Pakistani Taliban Turns Honeymoon Spot into Slaughterhouse. Such lovely people. And yes, that was sarcasm.

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Friday, January 23, 2009

Friday Morning Roundup

I’m busy getting ready for my trip to Vancouver and the 2009 Vancouver Resource Investment Conference this weekend. So I’ll keep this brief.

First, a chart of Agnico-Eagle Mines (AEM: 54.18 +2.92 +5.70%). This will be of interest to my Red-Hot Global Small-Caps subscribers as well as anyone who bought by “Golden Parachute for 2009″ report …

Gold Hits 3-Week High on Safe-Haven Demand Gold has breached well above its 200-day moving average against both the euro and the dollar, but the metal remains 11% lower than its 200-day moving average in yen terms. “Since there remains ample upside in yen terms, Japanese investors may deem this as an opportunity to drive up the metal to next key targets, thus prompting global investor demand further higher,” Laidi said.

In other news, I was just on the radio talking to The Big Money Show out of Denver Colorado and promised to put up a chart of vehicle miles driven year over year … which right now are falling off a cliff.
Here you go …

Briefly, the decline in miles driven is worse than during the early ’70s and 1979-1980 oil crisis. Miles driven in November 2008 were 5.4% less than November 2007, so the YoY change in the rolling average may get worse.

Now for a few Weekend ReadingLinks …

Macroblog takes a look at charts showing Presidents and where they started with GDP, unemployment, CPI and industrial production. Needless to say, President Obama has his work cut out for him. The charts are eye-popping. Here is one …

Now take a look at the rest.

Here are three (probably) good books about how Wall Street Bankers got us into the mess we’re in. The details in the book review alone will set your teeth on edge.

It turns out the NSA spied on everyone — EVERYONE — during the Bush administration. Who could have predicted that if you lifted the restraints on America’s internal spying apparatus, they would suddenly turn into the KGB? Well, just about everyone to the left of Pat Buchanan could have predicted it, but we were written off as fools and liars by the mainstream media. Now, I predict a boom for security software.

Finally, in a lighter note, apparently, some dung beetles are sick of eating crap and have decided to turn carnivore. It’s evolution in action. Fascinating. Go, beetles! Make sure you get a cool new name. I’d suggest Velociraptor Beetle. That’ll get you more respect at the bug club.

That’s it for this Friday. The broad indices are down, oil is sliding and gold and the dollar are up. We’ll see where we go from here.

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Thursday, January 22, 2009

Gold Near Make-or-Break Point

The gold stock I recently recommended in Red-Hot Global Small Caps is doing well, but be careful. I’m watching gold like a hawk as it pushes up against overhead resistance …

Looking at a weekly chart, we can see that gold is still in a downtrend. It needs to break out of that downtrend for gold stocks to really take off.

As I explained in the RGS issue that went out today …

“Investors around the world are scared out of their pants by the financial crisis. So, they’re rushing into the U.S. dollar, even though the U.S. Treasury is printing money so fast I’m surprised the presses don’t catch on fire. And people are rushing into gold because you can’t print more of it. It is a flight from risk to safety. This is good for gold and big gold miners with plenty of cash that are leveraged to the price of gold.”

In other news …

Chinese Growth Plunges China’s economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth. Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today.

The Chinese Devil Wears Prada: Why 0% Growth is the New Size 6.8% Indeed if one were to convert the 6.8% y-o-y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative.

Gold, Precious Metals Climb in New York as Investors Seek Out Safe Harbors Gold rose, along with silver, platinum and palladium as investors sought a store of value amid tumbling New York and European equity markets.

Potash Corp. Fourth-Quarter Profit More Than Doubles as Prices Increase Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, said fourth-quarter profit more than doubled because of higher potash prices.

Summary of Weekly Petroleum Data for the Week Ending January 16, 2009 U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased 6.1 million barrels from the previous week. At 332.7 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 6.5 million barrels last week, and are at the upper limit of the average range. Both finished gasoline inventories and gasoline blending components inventories increased last week. Distillate fuel inventories increased by 0.8 million barrels, and are above the upper limit of the average range for this time of year.


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Wednesday, January 21, 2009

Wednesday Roundup

Here’s a scary chart from the Council on Foreign Relations, showing that foreigners are buying far fewer long-term US bonds than they used to.

You can draw your own conclusions.

Meanwhile, just how bad off is Chrysler? So bad off that, when Fiat basically gets a third of the company for no money, we still have to loan them $3 billion to make it happen.

For the record, I would take a third of Chrysler off someone’s hands if they would loan me $3 billion to do it. And here’s a suggestion: Why don’t we put Fiat in charge of our entire auto industry? They obviously know how to swing an advantageous deal.

Here’s a link to an amazing satellite image of yesterday’s crowd on the Mall in Washington D.C. at the Presidential inauguration. The dark clumps on the mall are people clustered around the Jumbotron TV screens.

One of our analysts, Amber Dakar, attended the inauguration. She, her mom and friends had to get up at 2 am to get to the Mall at 4 am. They then stayed through the bitter cold till the end. She told me this morning: “Now, we’re all sick, but it was GREAT!”

Here’s another meaningless Election/Politics/Market statistic/chart. I only link to it because it will likely be popular and one of your friends may buttonhole you and start yapping about it. The correct response: “It’s meaningless.”

It’s not that I hate Thomas Friedman — it’s hard to hate a person you haven’t even met in the flesh — it’s that I hate the fact that my otherwise-brilliant friends and family are snookered by such a pompous bag of wind. Matt Taibbi sums up my feelings on Friedman’s latest book.

I wrote a piece about oil. In the short-term, I think it’s going lower. The longer-term forces are still there, but when will the next push higher begin? That’s the trillion-dollar question.


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Tuesday, January 20, 2009

Momentous Day

Great speech by President Obama today. See how he addressed the core crises facing America today …

That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet. These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land - a nagging fear that America’s decline is inevitable, and that the next generation must lower its sights. Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met.

Aside from politics, there is plenty of interesting news …

Story #1– Why GM shouldn’t get another dollar of bailout money. GM Using Bail Out Money to Invest in Brazil!”

General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker. According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.”

Story #2 — Chrysler is selling a third of itself for NO MONEY. I guess that means we should be able to go buy new Chrysler cars for a bag of chips and the coins I can find under my sofa cushions. “Fiat Nearing a Deal for Chrysler Stake

The deal could give Fiat control of 35 percent of Chrysler by later this year and possibly raise its stake in the American company to as much as 55 percent.

Story #3 — Failing Upwards. Check out the executive compensation of notorious Wall Street CEOs in a piece from EconBrowser called “Executive Compensation”

  • Bear Stearns: $34 million for CEO James Cayne. The acknowledged direct cost to the taxpayers from Bear’s demise so far is $2.7 billion; ten times that number may be a more reasonable assessment of the actual cost.
  • Lehman Brothers: $27 million for CEO Richard Fuld. The financial freeze that followed the collapse of Lehman is seen by many as the key event that turned the recession of 2007-08 into the frightening freefall currently under way.
  • Citigroup: $25 million for CEO Charles Prince. Citi’s stock price has since fallen from $50 a share to $3.50.
  • Countrywide Financial: $43 million for CEO Angelo Mozilo. According to Ashcraft and Schuermann, Countrywide was at that time the nation’s leading issuer of subprime mortgage-backed securities and the third biggest originator of subprime mortgages.

Other News I’m Reading …

Putin Orders New Budget with $41 Oil The Finance Ministry must base the budget on the price of $41 per barrel, or less than half of the $95-per-barrel estimate that is a cornerstone of the existing budget…A Finance Ministry spokesman said the prices were for Russia’s main Urals blend.

Analysts Cut Estimates by Record as S&P 500 Gets Off to Second-Worst Start

The Standard & Poor’s 500 Index is off to its second-worst start, shattering the biggest rally since World War II, as analysts cut earnings estimates by a record 83 percentage points and companies signal worse to come. The benchmark index for U.S. equities fell 5.9 percent in the first 11 trading days of 2009, second only to last year’s 6.5 percent drop, according to data compiled by Bloomberg going back to 1928. The decline erased about half of a 24 percent rally since Nov. 20 as optimism that government spending would revive the economy evaporated.

Roubini Predicts Bank Losses May Reach $3.6 Trillion as System ‘Insolvent’ U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.

Pemex’s Crude Oil Production Declines at Fastest Rate Since World War II Petroleos Mexicanos, Mexico’s state oil company, will probably report its fastest drop in production since 1942, eroding revenue as plunging crude prices limit the amount of cash available to drill for new reserves.

China Faces Worst Unemployment in Decades as Economy Cools, Exports Slump China’s official urban unemployment rate jumped for the first time since 2003 and may climb to an almost 30-year high as exports slump and a slowdown deepens in the world’s third-biggest economy.

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Friday, January 16, 2009

Getting Ready for a 3-Day Weekend

What a busy day! And the market couldn't make up its mind which way to go. Monday, the market is closed. We prepared for this by grabbing some gains and also adding a new position in Red-Hot Global Small-Caps.

Here is a link to my latest video on MaM-TV

And here is my latest interview on (it went live yesterday)

Have a great weekend.
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Thursday, January 15, 2009

Oil Drop -- Quicker Than I Thought

I thought we were getting to $33 oil, I just didn't think it would happen so fast. Oil is trading at $33 and change, down $3.67 as I write this. Traders are blaming a lower demand outlook from OPEC, but I think it's a combination of deflation, demand destruction and too much oil in storage, as I mentioned in yesterday's post.

From the Bloomberg story:

OPEC said that demand for its crude will decline 4.2 percent this year as the recession in the U.S., Europe and Japan curbs fuel use.
Consumption of OPEC supplies will shrink 1.4 million barrels to 29.5 million barrels a day, according to a monthly report released today. U.S. fuel demand fell 6 percent
last year, the biggest drop since 1980, as prices touched records and the economy contracted, the industry-funded American Petroleum Institute said today.

In Other News ...

Oil Collapse Forces Gulf Nations to Run Deficits, Cut Foreign Investment Tumbling oil prices are forcing many of the richest Persian Gulf states to record budget deficits and limit a critical source of foreign investment for poorer Arab countries.

Gold mine production down but costs up 24% world-wide Producers' total cash costs rose by 22% year-on-year to an average of $472/ounce for the nine months of 2008, while total production costs were also up by 22% at $591/ounce. The figures for the third quarter of 2008 alone record an increase of 25% year-on-year in cash costs and a 24% in production costs.

S.Africa gold output falls 8.7 pct yr/yr in Nov. South African gold output has fallen since state-owned power utility Eskom 1/8ESCJ.UL 3/8 suffered a near collapse in the electricity grid last January.

Four Bad Bear Markets Update
When looking at this chart, be aware that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Sean's note: The S&P as of yesterdy was down 45.2% in the current bear market (and up 12% from its November low). I think we're going back to visit the November low.

Food Prices Overcooked Given Corn's Decline, Fuel Group Says: Chart of Day Food prices should be lower, given the decline in commodities such as corn and crude oil the past six months, according to Robert Dinneen, president of the Renewable Fuels Association.

China Passes Germany to Become Third-Biggest Economy Gross domestic product expanded 13 percent from a year earlier, more than a previous estimate of 11.9 percent, to 25.731 trillion yuan ($3.38 trillion), the statistics bureau said on its Web site today. That topped Germany’s 2.424 trillion euros ($3.32 trillion), using average exchange rates for 2007.

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Wednesday, January 14, 2009

Why Oil Should Go Lower

I think oil will go lower from here. I was supposed to go on FOX Business to talk about it but got pre-empted by endless videos of Bernie Madoff going to and from court. So, here is the case I was going to make … My current oil target is $33.

Oil for delivery in future months usually costs a few dollars more than near-term delivery. That’s called Contango. A barrel of oil that costs you $36.72 today is priced at $52.35 in July. That’s over a $15 difference -- “super-contango.”

This is why so much oil is in storage. People are taking delivery, storing it and selling it later.

Obviously, oil producers could do this by just pumping less now (and “storing” oil in the ground). Instead, many OPEC countries continue to pump near flat-out.
I believe this shows that OPEC producers are desperate for cash. This should keep downward pressure on oil prices.

Other points:
  1. The US Energy Information Administration lowered its 2009 World Oil Demand Forecast. The EIA says world oil demand will drop by 810,000 barrels per day in 2009 compared with last year, down 200,000 bpd from its estimate in December.
  2. Crude oil, gasoline and distillate inventories continue to rise. Today, crude inventories at Cushing, Okla., the delivery point for crude futures traded on the New York Mercantile Exchange, rose 2.5% (1.2 million barrels) to 33 million barrels, up 20% in four weeks. While this is less than estimates, the inventories level is approaching Cushing’s operable storage capacity of about 34 million barrels, as estimated by Platts.
  3. The last four week running average net import number was 11.5 million barrels per day (mbpd). This was 700,000 bpd below the annual average number for 2007, and 400,000 bpd below the net import number for second week of January, 2007 and January, 2008 (all four week running averages). But it’s not enough to raise prices! It’s pretty clear that the decline in demand is outpacing the long term decline in net oil exports.
And that should keep downward pressure on prices. But it also gives us potential signal as to when the downward spiral will end. We’ll probably see the super-contango end before prices go higher again.


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Tuesday, January 13, 2009

Following Up on Some of Yesterday’s Trades

Yesterday I added some positions to play a potential rally in the U.S. dollar and short-term decline in gold. Let’s look at some of those trades …

UUP aims to track twice the daily movement in the U.S. dollar versus a basket of currencies. Yesterday was a good day to add it. It gapped higher today and should keep running.
Now, let’s look at the DRR, which tracks twice the INVERSE of the movement in the euro …
This one also gapped higher, naturally, because the euro has been acting like the “anti-dollar” lately. Notice how it went even higher this morning, then banged its head on its 50-day moving average and pulled back. It could take a few days to work through that 50-day MA, and I’ll keep an eye on it.
Now, let’s look at gold, as tracked by the GLD …

The GLD gapped lower yesterday. It tried to rally today, but that rally seems to be running out of steam. In the short-term, I expect it to go lower, and the 50-day moving average makes a good initial target.
Actually, gold is holding up pretty well considering the rally in the U.S. dollar. It just goes to show that nothing correlates perfectly in this market.
In one service, I also recommended getting short banks by buying the SKF. That is in slightly negative territory so far today, but I still think it’s a good bet.

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Monday, January 12, 2009

More Thoughts on Unemployment

Most economists ridicule the idea that what we're experiencing now could ever become anything like the Great Depression. And, says Reuters, they all point to the same statistic: 25% of Americans were out of work in the worst of the 1930s and we're nowhere near that level of disaster.
But the definition of joblessness has changed since then. Since 1994, the official rate is what the BLS has called U3. It now stands at a
16-year high of 7.2%.
But the BLS provides an alternative measure of unemployment, which rarely gets mentioned. That particular measure is labeled U6, which the BLS categorizes as "Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers."
So what's U6 currently? As of Friday, it's 13.5%, which is a 0.9% rise over last month. Last year at this time it was 8.7%.Nobel prize-winning economists says that U6 measures far more accurately than U3, and is closer to the historical measure than U3. The good news is U6 is not at 25%. However, the nation lost 524,000 jobs in December. And job losses in November were huge, too.
And that’s starting to
scare some of the smart people

“These numbers, back to back, of more than a half million a month suggest that the U.S. economy is in a freefall,” said Nariman Behravesh, chief economist at IHS Global Insight. “It’s scary, and it indicates that unless something is done and done quickly to turn this economy around, we’re looking at an awful situation this year.”
Also …
“This is unprecedented,” said Mark Zandi, chief economist of Moody’s “It’s coast to coast. It’s everywhere. There’s really no refuge in this job market. There’s no safe place.”Here are some charts of interest …

But all is not lost. The Canadian dollar seems to be holding up well, as are some other currencies.

It sure looks like the Canadian dollar could be poised to break out to the upside. How can this be when the global economy seems to be spiraling deeper into recession?

That disconnect is something I'll be exploring in future issues.


Saudi to cut output below OPEC target: Reuters
Top exporter Saudi Arabia plans to cut oil output by up to 300,000 barrels per day below its agreed OPEC target – a pro-active step to prop up a collapsing market, industry sources said on Sunday.
OPEC's most influential member has lowered supply this month to 8 million bpd, meeting its target under OPEC's pact to reduce overall production by a record amount from Jan. 1.
“We've been told Saudi Arabia will cut to about 7.7 million in February,” said a senior oil executive. “They want to prevent a huge stock build up and a further decline in the oil price.”

Exposing the Myth of Clean Coal Power
The "clean coal" campaign was always more PR than reality — currently there's no economical way to capture and sequester carbon emissions from coal, and many experts doubt there ever will be. But now the idea of clean coal might be truly dead, buried beneath the 1.1 billion gallons of water mixed with toxic coal ash that on Dec. 22 burst through a dike next to the Kingston coal plant in the Tennessee Valley and blanketed several hundred acres of land, destroying nearby houses. The accident — which released 100 times more waste than the Exxon Valdez disaster — has polluted the waterways of Harriman, Tenn., with potentially dangerous levels of toxic metals like arsenic and mercury, and left much of the town uninhabitable.

U.S. Consumers Keep Autos Longer, Shun Showrooms as Cuts in Payrolls Mount
Drivers rattled by the worst U.S. labor market since World War II are hanging on to old autos longer instead of buying new models, threatening to crimp sales again in 2009 after demand plummeted to a 16-year low.

India Industrial Output Gains 2.4%, Rebounding From First Drop in 15 Years India’s industrial production unexpectedly rose in November, after declining in the previous month for the first time in 15 years amid a global recession.

Oil Drops Below $40 on Speculation Slump in Demand Will Outpace OPEC Cuts Crude oil fell below $40 in New York on concern production cuts by the Organization of Petroleum Exporting Countries will fail to counter a slump in demand.


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Friday, January 09, 2009

Smoke and Mirrors

Today, everyone will be talking about the fact that the U.S. lost 524,000 jobs in December. While this means 2008 saw the most job losses since 1945, 524,000 is way, way lower than traders on the floor were expecting. Numbers like 700,000 or even 800,000 jobs lost were bandied about.
Chart source: Calculated Risk.

So today's number is good news, right? Not exactly. The umployment rate now clocks at 7.2% versus a forecast of 7%. That's because of upward revisions to previous months' jobs lost figures.

And that brings up the next problem. December's number is so low that many people (including me) don't believe it. It could be smoke and mirrors from a government that doesn't think we can handle the truth. I expect we'll December's number revised in the future. After all, state unemployment claims systems are being overwhelmed by new filings. Things are so bad in Michigan that people are waiting in line four hours to file for unemployment. I think a lot of unemployed got left out of last month's number.

In other news, Citigroup has agreed to a "cramdown" of existing mortgages. This is probably a necessary step in the ongoing adjustment of the housing market.

And December's retail numbers are in and were worse than predicted. Even discount chains like Wal-Mart missed their targets. Driving this, a huge decline in consumer credit. Consumer credit shrank at 16 TIMES what was predicted! And the debt to income ratio has dropped by 2.5% in just 4 months!

Consumer credit fell $3.6 billion in October, split between a $0.2 billion decline for revolving credit and a $3.4 billion decline for nonrevolving debt.

In the long run, consumers shedding debt is a good thing. We may be seeing the first steps in a re-alignment of our system from one that is based on debt to one that is based on savings. But in the short run, for a capitalist system that thrives on credit, it's a very bitter pill to swallow.


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Wednesday, January 07, 2009

What I'm Reading Today

No sooner do I say that gold may go lower (and the U.S. dollar higher) than gold ramps up again and the greenback stumbles badly. Sigh. Well, my longer-term (and bigger) bets are on the right side.

Here is news I'm reading ...

Dollar Falls From Three-Week High Versus Euro as ADP Says Job Cuts Rose The dollar fell from a more-than three-week high against the euro after a private report showed U.S. job market deteriorated last month, reinforcing expectations for a long recession.

XX Sean's note -- does the ADP news surprise anybody? Yes, the loss of 693,000 jobs was higher than analysts' expectations of a loss of 495,000 jobs. But everyone I talked to thought the real number would be higher than estimates. So again, who is surprised?

Oil Traders Seek Another 10 Supertankers for Storage
Frontline Ltd., the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to stockpile crude to take advantage of higher prices later in the year. About 25 supertankers were already hired for storage and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.

Sean's note: Note the relevance of this to my column today, "Gold and Oil Short-Term Trends".

Here Comes the Commodity Index Rebalancing
I consider these contra-indicated: In a time of massive Fed credit creation and Treasury money printing, they oddly want less exposure to Gold. And with the worldwide recession getting worse, they want more exposure to Oil. Both of these are poorly timed macro-trades.

December auto sales "could have been worse"
On a seasonally adjusted basis, U.S. light vehicle sales remained deeply depressed in December. But at least things don't seem to be any worse than they had been the previous month.
Data source:

XX Sean's note: Gasoline prices are starting to go higher again, just in time to torpedo a potential auto recovery. It's like pistol-whipping a blind kid.

Robert Reich: The Need and the Size of the Stimulus Plan

In my judgment, this will require a stimulus of about 6.5 percent of gross domestic product, or a total of some $900 billion, spread over two years. That’s my estimate for the shortfall in private demand. But the federal government should stand ready to spend larger sums if necessary to get the economy back on track toward full capacity. The danger is not that the government will do too much; the danger is that it will do too little, too late.
Without such action, I estimate that another 3 million jobs will be lost in 2009, unemployment will rise to 10 percent of the workforce by the end of this year, and under-employment – including people working part-time who would rather be working full time, and those too discouraged even to look for work – will reach 15 percent.

Sean's note: The best quote from Reich in this column: "The goal should be not to save meaningless jobs but to create meaningful ones."

More Bad News Out of China, Including Capital Flight
China faces a threat of "abnormal" cross-border capital flow because of global financial tumult, the country's foreign exchange regulator said Tuesday...More money flowing out of the border could increase the risk of liquidity strain in the country, which is especially dangerous amid the global financial crisis...China's foreign exchange reserves had fallen for the first time since December 2003, Cai Qiusheng, a SAFE official, told a conference last month. He didn't give specific data of when that happened or by how much.

Copper Gains to 1-Month High in London on China, Obama Stimulus
Copper jumped to a one-month high in London on speculation China, the world’s largest user of the metal, will increase purchases this month as U.S. President-elect Barack Obama’s stimulus plan revives demand. Industrial metals including copper have advanced 9.1 percent this year, the best annual start since at least 2001, according to the London Metal Exchange.

The boss of Satyam, India's fourth-biggest software firm, has resigned after revealing financial irregularities in the firm's accounts.
"What started as a marginal gap between actual operating profits and the one reflected in the books of accounts continued to grow over the years," said Mr Ramalinga's statement, which was sent to the stock exchange. "It was like riding a tiger, not knowing how to get off without being eaten," he said.

Alcoa to Eliminate 15,000 Positions
Acknowledging that earlier cost-cutting moves are insufficient due to the sustained economic downturn, aluminum maker Alcoa Inc. announced deeper work-force cuts, more plant closures and a 50% reduction in capital expenditures.
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Tuesday, January 06, 2009

Is Gold Poised for a Pullback?

It sure looks like gold is poised for a pullback. Here are two charts that illustrate my point ...The rally in the U.S. dollar is weighing on gold just as it bumps its head on overhead resistance. It should head lower from here. The longer-term picture for gold is still good, and corrections are a normal part of any market.

In Wednesday's Money and Markets, I'll have some ideas on how to play a potential gold pullback.


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Saturday, January 03, 2009

Saturday Morning Reading

I hope you're having a good weekend. I didn't have time to post yesterday, as I was caught up with meetings, interviews and work, work, work.

There was a wonderful smackdown on CNBC on Friday. Michelle Caruso-Cabrera was on her usual rant that Washington shouldn't use the Madoff scandal (or any failure by Wall Street) to over-regulate Wall Street. Newsweek's Dan Gross delivers a fine rebuttal, and educates Caruso-Cabrera on stuff she should know. You can see the whole thing at:
The interesting part of the video starts at 7:35. As usual, most of the content at CNBC is fluff and distraction. But that segment running from 7:35 to 9:39 is must-see TV.

In other news, US factory activity slumped to 28-year low. Wall Street took this news by rallying 250 points and going to the first close above 9,000 in two months. In fact, all the major indexes shot up more than six percent for the week. I know it makes no sense -- blame it on light volume if you want to, but the market's recent pattern has been to take bad economic news in stride, a pattern that began to emerge after it touched multiyear lows on Nov. 20. That doesn't mean we've seen THE bottom. But probably a bottom for awhile, until the "Obama Inauguration Rally" runs out of steam.

Meanwhile, Jim Rogers is still bullish on commodities. No big surprise there, but his argument is worth reading.

Also, Wall Street "leaders" continue to enrich themselves at the expense of everyone else. I'll let Talking Points Memo explain this one ...

Last Fall PIMCO chief Bill Gross was on the airwaves raising the alarm bell about how the backlog of toxic mortgage-backed securities were on the brink of crushing the US economy. And he certainly had some unique insight into the problem since over 60% of his firm's $830 billion in holdings were made up of those mortgage-backed securities. At the time, Gross was on the airwaves (on CNBC in particular) pledging that just out of a sense of patriotic duty he'd be willing to have his firm manage the government bail-out (i.e., government purchase of the crap CDOs) for free. Just for the sake of patriotism.
So now that his firm is one of the four that got a contract to run the program from the Fed, is he following through on the pledge? Doesn't seem like it. So far we've gotten through to three of the four firms, each of which has declined to comment on the fees the four companies are making for administering the program. PIMCO is the only one that hasn't responded at all. So it's seeming like the patriotic do-it-for-free plan hasn't panned out.
Finally, when I press "publish" on this post, I'm then going to go for a bike ride. Maybe it's time I buy a new bicycle, because bike sales are TERRIBLE.

After a summer of their dreams, bicycle store owners are facing a grim reality this winter.
Big increases in business this year led some shop owners to think that they were largely insulated from a slowing economy. But the economy has continued to spiral downward, taking bicycle sales and much else with it.
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