Thoughts From The Road

I’m still traveling (I’m in Colorado) and not watching a lot of news, but I thought I’d jot down some thoughts. Oil prices dropped below $120 per barrel yesterday as traders worried that high prices are affecting consumer spending, and the markets are probably waiting on the latest from the Energy Information Administration.

Since the markets are in a bearish mood, even news that would normally be seen as bullish will probably not push prices higher. Oil’s next support is around 116, and I’d expect that to be tested (perhaps this week).

So what kind of bullish news will traders ignore? Maybe the fact that rising oil prices haven’t hurt demand in China and India one bit. That, in fact, the EIA expects global oil demand to grow this year despite everything, even as supplies remain flat.

Or that car sales are soaring in China. In fact, GM sells twice as many Buicks in China as it does in the US — more than 330,000.

How about the fact that the bottom seems to be falling out of the ethanol market, with ethanol refineries closing their doors. While ethanol doesn’t replace a lot of gasoline in the US (ethanol provides less than 5% of our transportation fuel), remember that prices are made on the margins.

And then there are geopolitical forces the market is ignoring right now. On Monday, Iran announced that it has tested a new weapon capable of sinking ships nearly 200 miles away, and Tehran threatened (again!)that if it is attacked, it will close the Strait of Hormuz. Up to 40% of the world's oil passes through that strait.

But in the short term, the price of oil will go down until it finds support. I think oil is oversold to the downside right now, but that doesn’t mean it can’t get more oversold. The more oversold it gets, the better the bargains will be for the snap-back surge to the upside.

Check out my new gold and energy blog at MoneyAndMarkets.com

Bear-Feeding Time in Energy

It just figures that commodities would hit the skids just as I’m going on a trip (I’m writing this while waiting for my plane to board). The long-term uptrends are intact, but in the short-term, we could be in for even more of a correction. Here is the bearish news I’m seeing today …

Energy, Mining Shares Fall Into Bear Market as Oil, Copper Drop From Peaks Global energy and raw-materials stocks fell into bear markets after plunging oil, gold, copper and wheat prices spurred declines in last year's best-performing industries.

Deutsche calls the top of the commodity cycle
XX This article is so-so, but the comments are really interesting

Oil Falls Below $120 on Demand Concerns
Oil prices fell nearly $2 a barrel Tuesday on expectations the economic downturn in the U.S. will erode consumer demand for crude products

The market is ignoring this bullish news …

Oil majors face wider security risks in Nigeria
Nigerian rebels siphoning valuable crude oil in Nigeria have been on the scene for years, but the oil and gas majors are eyeing a new threat with the first significant attacks on an offshore oil platform.

But I think that shows the phase of the market we’re in. When traders want to sell, they’ll ignore bullish news and focus on bearish news.

When those all around you are losing their heads, it's important to focus on the fact that we'll have some great buying opportunities once this correction has run its course.

Check out my new gold and energy blog at MoneyAndMarkets.com

Money and Markets -- For a Fistful of Silver

"For a Fistful of Silver" was my original name for today's MoneyandMarkets.com column. My editors replaced that with "Finding Attractive Mexican Miners," which sounded to me more like a Craiglist personal ad than a financial piece.

We were able to compromise on "Once Upon a Time in Mexico." I can live with that.

Once Upon A Time in Mexico
by Sean Brodrick
Wednesday, June 04, 2008 7:30 AM
In the mid-1500s, legend has it that Spanish explorers were traveling through the Guanajuato region of Mexico when they camped for the night by the side of a river. They piled stones in a ... [More...]

Other News You Can Use ...

South African Gold Output falls 15.6% in Q1

South Africa's Chamber of Mines said on Tuesday the country's gold production fell 15.6 percent to 52,228 kg in the first quarter of 2008 compared to the fourth quarter of 2007, owing to a power shortage. On a year-on-year basis, the rate of decline in gold production was 16.8 percent in the first quarter of 2008.

Oil Inventory Numbers Come Out Today

Today's inventory report will be delayed by 5 minutes. It will be released at 10:35 AM Eastern time until further notice. At any rate, the the consensus analysts' estimates are ...

Crude Oil, UP 2.7 million barrels.
Gasoline, UP .9 million barrels.
Distillates, UP 1.6 million barrels.

We'll see how things work out.

United Will Shrink Fleet by 70 Planes, Eliminate 1,100 Jobs, Scuttle Ted UAL Corp.'s United Airlines, the world's second-largest carrier, will ground 70 additional planes, cut as many as 1,100 more jobs and shut its low-fare Ted unit to help counter record fuel costs.

Commodities to Be `Much, Much Weaker' as Dollar Strengthens, Gartman Says Commodities will become ``much, much weaker'' after Federal Reserve Chairman Ben Bernanke signaled support for the U.S. dollar, Dennis Gartman, economist and editor of the Gartman Letter, told clients.

XX Sean's note -- Gartman's view can sway the markets, so he's usually right for about three days. Then again, with Bernanke coming out and supporting the dollar with strong words yesterday, I do expect the US dollar to bounce anyway. Much bigger worries are that 1) Asian governments are limiting oil, gasoline and diesel subsidies and 2) the US government may restrict commodity markets ...

1) India and Malaysia raise price of subsidized fuel With no end in sight to high world oil prices, India and Malaysia on Wednesday became the latest Asian countries to risk the wrath of voters by raising the price of subsidized fuel, a highly unpopular measure that could further weaken the governments of both countries made fragile by recent electoral setbacks.

The moves follow similar price increases in Indonesia, Pakistan and Sri Lanka and are a recognition by governments that they can no longer shelter their populations from the spike in energy prices.

2) Corn Falls on Dollar's Rally, U.S. Government Investigation; Wheat Gains Corn futures declined for a second day in Chicago on speculation the dollar's recovery and a government investigation of U.S. futures trading may reduce investment demand. Soybeans were little changed and wheat rose.

Check out my new gold and energy blog at MoneyAndMarkets.com

News You Can Use for Thursday -- Silver, Gold, Oil and More

Potentially HUGE news for platinum (and not good news) ...

New Mitsui Mining Autocatalyst Uses Silver, Not Platinum

Mitsui Mining and Smelting Co Ltd said on Wednesday it has developed a new catalyst for diesel engine cars that replaces the use of platinum with silver, a less conventional but much cheaper metal.

By substituting platinum with silver, the cost of precious metals in the production of autocatalysts, which clean car exhaust fumes, would be cut by more than 90 percent, the company said.

Bloomberg has MORE. However, the company won't start selling these new autocatalysts until 2012.

Rice Climbs Above $25 For First Time as Wal-Mart's Unit Limits Purchases Rice advanced above $25 for the first time as Wal-Mart Stores Inc.'s Sam's Club warehouse unit restricted purchases of some types of rice in the U.S.

XX a friend of mine with connections at Costco (!!) tells me that the price of Basmati rice at that retailer is going up on April 28th.

Soybeans Rally on Concern of Reduced Supply in Argentina as Strike Resumes
Farmers went on strike last month for three weeks leading to food shortages across the South American nation. Argentina is the world's third largest soybean supplier and leader in the sale of animal feed and vegetable oil made from soybeans.

Farmers need dry weather or food costs could go even higher
Experts said prices could rise more if a wet spring continues across the nation's midsection and further delays farmers from planting crops in muddy fields. Supplies already are tight and worldwide demand for grain shows no sign of letting up.


Gold Falls for a Sixth Day in London as Dollar Strengthens Against Euro Gold declined for a sixth trading session in London as the dollar strengthened against the euro, eroding demand for the precious metal as a hedge against further drops in the U.S. currency.

Brazil Oil Finds May End Reliance on Middle East, Forecaster Zeihan Says Brazil's discoveries of what may be two of the world's three biggest oil finds in the past 30 years could help end the Western Hemisphere's reliance on Middle East crude, Strategic Forecasting Inc. said.

Check out my new gold and energy blog at MoneyAndMarkets.com

News You Can Use for Friday

First, the biggest bull market of all -- Agriculture ...

Commodities to Rise This Year, Led Up by Agriculture, Merrill Lynch Says Agricultural commodities and precious metals may gain in 2008 as demand from emerging economies surges and investors look for alternatives as the dollar and equities decline, Merrill Lynch & Co. said.

Soybeans, Soybean Oil at Record After Storms Ravage China Rapeseed Crop Soybean and soybean oil futures in Chicago soared to a record on speculation demand from China will climb after winter storms damaged the nation's rapeseed crop.

Asia

China January Trade Surplus Up 22.7 Pct
China's trade surplus grew by 22.7 percent in January over the same month last year as foreign demand for exports stayed strong despite worries about slowing global growth, according to data reported Friday.

India Can Sustain Close to 9% Economic Growth, Prime Minister Singh Says India, Asia's third-largest economy, can sustain close to 9 percent economic growth, Prime Minister Manmohan Singh said, reiterating the government's target for average expansion in the next few years.

Metals

NMDC Plans to Buy Iron-Ore Mine in Canada to Secure Supply of Raw Material NMDC Ltd., India's biggest iron-ore producer, plans to buy a deposit in Canada in its first overseas venture, as it seeks to increase supply of the steelmaking raw material.

Britons Pray for Lead Price Drop to Stop Plunder of Historic Church Roofs Peter Bramley stands in the tower of Hemingbrough Minster and looks down at the plastic sheeting that covers a hole in the church's roof from which thieves ripped 20 square meters of lead.

Energy

Crude Oil Trades Little Changed on Signs of Asia Demand, Less OPEC Supply Crude oil was little changed after rising to a one-month high in New York on signs of sustained economic growth in Asia and reduced OPEC output.

Check out my new gold and energy blog at MoneyAndMarkets.com

Oil -- The Disappointment of Great Expectations

The EIA’s weekly petroleum data is out. And it shows us that market sentiment is a funny thing.

We saw U.S. crude inventories drop by 6.8 million barrels in the latest week, much more than the 2.1 million barrel drop expected by analysts. Even so, oil prices fell on the news.

Why? It’s an expectations game. We’ve seen bigger-than-expected drawdowns week after week, so traders are starting to price a “surprise” in. And they sell on the news, whatever the news is – even when it’s bullish.

Meanwhile, here’s something I find interesting. Motor gasoline demand over the last four weeks has remained 9.3 million barrels per day. Not only is this unchanged from recent trends, it’s up 0.4% from the same period last year. So much for economic weakness and higher gasoline prices affecting Americans’ driving habits. It may be that in our car-centric society, Americans are finding it impossible to drive less, even if they have to pay more at the pump.

In this case, rising gasoline prices will quickly lead to cutbacks in other purchases, as consumers direct more of their money toward gasoline purchases. That could translate into bad news for retailers.

My target for oil this year is $150, as you can read here. And it may be on the low side.

Check out my new gold and energy blog at MoneyAndMarkets.com

Oil Chart

Short-term, anyway, oil is starting to look bearish. We could get down to the lower-$80 range pretty quickly, and I wouldn't be surprised to see $75.So why are energy stocks rallying so hard? Beats me. Maybe investors are thinking a pullback in oil is just short-term.

Check out my new gold and energy blog at MoneyAndMarkets.com

2 Charts

Short-term trends are dollar bullish and commodity bearish. Longer-term trends remain intact.

Check out my new gold and energy blog at MoneyAndMarkets.com

Venezuelan Voters Tell Chavez to Take a Hike, and Other News

Good News for a Change! Venezuelan voters narrowly rejected a constitutional referendum that would have bolstered President Hugo Chavez's embrace of socialism and granted an indefinite extension of his eligibility to serve as president, the National Electoral Council reported early Monday. About 51 percent of voters opposed the amendments, while approximately 49 percent were in favor of them.

Treasury Rally, Oil, Gold May Foreshadow Bear Market After Yields Tumble For only the fourth time since Gerald Ford's presidency, oil is threatening to push the rate of inflation above 10-year Treasury yields. For bond investors basking in the biggest bull market since 2002, that's bad news.

Recession Is Already Here for U.S. Corporate Profits; Economy May Be Next U.S. corporate profits are in a recession, and the entire economy may not be far behind.

Dollar Falls Against Yen; Moody's Prepares Rating Cuts on Subprime Losses At a time when everyone from billionaire investors such as Warren Buffett and Bill Gross to celebrities want nothing to do with the dollar, a growing number of strategists say the stage is being set for a rally in 2008.

Target, J.C. Penney, Dillard's Profit Prospects Dim on Slow Holiday Sales The slowest holiday shopping season in five years may signal disappointing earnings well into next year for U.S. retailers including Target Corp., J.C. Penney Co. and Dillard's Inc.

Housing Slump Enters Third Year in `Deepest Correction' Since World War II As the U.S. housing slump enters its third year, there is no sign of dawn in the darkness that is paralyzing home building, home buying and home lending.

Check out my new gold and energy blog at MoneyAndMarkets.com

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.

Check out my new gold and energy blog at MoneyAndMarkets.com

Monday Is Chart Day

I'm focused on oil after my trip last week, but let's look at gold as well ...

This chart comes from OPEC’s Monthly Oil Market Report for October 2007, and shows how crude oil prices tapered off in September of 2005 and 2006 (the green and black lines) along with seasonal demand. Not this year. The red line shows that global demand this September was strong and getting stronger . As the report says: “In recent years, oil prices have tended to ease with the end of the driving season and the start of the autumn refinery maintenance. This year, however, prices have exhibited unusual strength and high volatility even beyond the end of the driving season.”

The OPEC report goes on to say: “Over the last few years, product markets experienced a sharp downward correction in September, adversely affecting the entire petroleum complex. However, this trend has been significantly diminished this year … With the approaching winter season, the momentum of the product markets may improve further, providing support for refinery economics and crude prices. However, the major wild cards continue to be weather conditions, particularly in Atlantic Basin, and the refinery operation level in the US.”

In other words, OPEC says prices are strong and getting stronger. That sure sounds like a recipe for triple-digit oil to me.

Discovery of new fields peaked in 1965 and production has outpaced new discoveries every year since the mid 1980s. Production is falling hard in the North Sea, Mexico … and Saudi Arabia.

Oil has a negative correlation to the US dollar of over 80%. We’re already seeing this effect on oil and the dollar. You can see it when you look at oil in other currencies. While US oil prices have surged 50% since the start of the year, the price rise in euros is up just 38%. Meanwhile, the once-mighty greenback recently fell to its lowest level versus the 13-nation common currency – ever – since the euro was introduced in 1999.
Gold is also negatively correlated to the US dollar. I'm more bullish on gold than I am on oil right now (my target on gold remains $872), but Tropical Storm Noel could change that in a hurry. Strap on your safety belts, it's going to be a wild ride!

Check out my new gold and energy blog at MoneyAndMarkets.com

Two Sizzling Hot Charts

Recently, I posted potentially bullish charts of Endeavour Silver (for Red-Hot Canadian Small-Caps) and EOG (for Red-Hot Resources). Let's follow up on those, shall we?
Now that I've shown you these terrific charts, let me mention a potential fly in the ointment. If the jobs number is a good one tomorrow, it could spark a rally in the US dollar (because the market will take that as a sign the Fed will be less likely to cut rates again). A rising US dollar would hurt both precious metals and energy stocks. So keep your eyes peeled.

Check out my new gold and energy blog at MoneyAndMarkets.com

News You Can Use

China Economy Expands 11.9 Percent in Second Quarter, Fastest in 12 Years China's economy grew at the fastest pace in 12 years in the second quarter and inflation surged, prompting speculation the government will raise interest rates and push the currency higher to cool growth.

Australian Dollar Trades Above 88 U.S. Cents for First Time Since 1989 Australia's dollar traded near an 18-year high versus the U.S. currency and the strongest in 16 years against the yen on demand for the higher yields offered by the nation's financial assets.

Pure Trading Exchange to Start Next Month to Compete With Toronto Exchange Canadian Trading and Quotation System Inc. may start its new electronic stock market in August, after nine months of delays, to compete with the Toronto Stock Exchange.

Husky Says Ohio Refinery Reduces Output by 75 Percent After Morning Fire Husky Energy Inc., the Canadian oil company controlled by Hong Kong billionaire Li Ka-shing, said a fire early this morning reduced production by 75 percent at its newly acquired refinery in Lima, Ohio.

Mexico Guerrilla Group Says Pemex Pipeline Bombings Were `In Self-Defense' A Mexican guerrilla group that claimed responsibility for bomb attacks on natural gas pipelines owned by Mexico's state oil company this month said it acted ``in self defense'' in a new statement.

Nymex Gas Rises After Report of Smaller-Than-Expected U.S. Inventory Gain Natural gas futures in New York rose after a U.S. Energy Department report showed supplies rose less than analysts expected, forecasts for hotter weather in key consuming regions and as crude oil surged to an 11-month high

U.S. Leading Indicator Falls More Than Forecast; Manufacturing Gauge Slows A measure of the economy's future fell more than forecast in June, pulled down by a slump in building permits that signals housing will remain the biggest drag on growth.

U.S. Department of Energy to Auction Uranium in August The U.S. Department of Energy (DOE) announced today it was soliciting proposals to sell eight lots of Natural Uranium Hexafluoride (UF6) – up to 200 metric tons (MTU). Proposals are due August 17th and the anticipated award date of the sales agreement is August 31st. Delivery will be made at the Paducah (Kentucky) gaseous diffusion plant. Full payments for the eight lots are due by September 21, 2007. The amount being offered for sale, in terms of U3O8 equivalent, represents less than 520 thousand pounds. The auction comes at a time when the spot uranium price has retreated.

Massive spending for US infrastructure? The American Society of Civil Engineers estimates that it will take $1.6 trillion over the next five years to get the nation's roads, bridges, dams, water systems and airports into good condition.

Check out my new gold and energy blog at MoneyAndMarkets.com

My latest Interview on HoweStreet.com

We talk about uranium and oil. They seem to be recurring themes this week.

http://tinyurl.com/3xrusq

Check out my new gold and energy blog at MoneyAndMarkets.com

My Latest Interview on Market Matters Radio

Tom and I talk about uranium and oil.

http://tinyurl.com/3xca3m

Check out my new gold and energy blog at MoneyAndMarkets.com

Cyclone Gonu Hammers Oman

The forecast coming out of Oman about Cyclone Gonu last night was for the potential for a serious human impact. My heart goes out to anyone caught in the path of the storm. The good news ... so far ... is that the worst people have been dealing with is serious flooding ... including inside their houses, and brother, I know what that's like.

Will the impact be worse as Gonu clears the area and we get on-the-ground reports? I sure hope not. One hopeful sign -- oil futures are down a tad as I write this. One would hope that the world's big energy traders -- many of whom have Persian Gulf connections -- would have better information on this than I.

Or perhaps they're waiting to see the impact on Omani operations/shipping in the Gulf/Iranian oil and gas operations before they move on the price of oil and gas.

This is a roundup of things I found on the web ....

From theOilDrum.com ...

KAC/UCF and Chuck Watson are forecasting, based on their damage models, that the Qalhat (Sur) LNG terminal will be out for 25-30 days and the Mina al Fahal oil terminal will be down for 15-20 days--all of this assuming they are built to US standards. (NB: These damage estimates have increased with each successive model run...and assume US construction standards.)

WEATHER UNDERGROUND

From TheWeatherUnderground.com (a good source for US hurricane data, by the way) ...

This is sad -- the very area that I documented last night, at the extreme southeastern tip of Oman, is going to be the hardest hit area from Gonu. The cyclone has moved slowly northwest during the day, approaching Oman, and the latest track has it making landfall right at the southeast corner that juts into the Arabian Sea, and then sliding along the coastline, up towards the capital, Musqat, and dissipating against the mountainous terrain.(click to Enlarge)

A FIRST-HAND ACCOUNT

Here is a blog from Muscat, Oman: Sleepless in Muscat.

The most recent post on the blog (as I write this) ...

The rain has not stopped since last night 1am Oman Main Time accompanied by strong winds. It seems as though that the sea has come out to join in on the calamity party by going inland up to 300 meters in Athaiba, Seeb and Shatti Al Qurum.

So far, there is no damage report about the situation but it has been rumored that some 16 Indian nationals have been saved from drowning somewhere on the coast. Airport flights have been cancelled mostly but hopefully all will be restored when the storm brews over.

We've had some power disconnections during the night which is the reason why I haven't slept at all in addittion to the sound of the downpour outside on the street.

There have been reports also that now the storm is moving along directly to Iran. But will pass by the coast of Muscat around 12 noon (around 2 and a half hours from now). With all this rain there is a certainty that there has been floods around the Muscat area but unknown even now.

The Royal Oman Police has warned the residents of Muscat to go further inland and preferrably to higher grounds before the eye of the storm passes by Muscat to lessen the casualties to a minimum. They have also asked everyone in Muscat not to venture the street amidst the stormy weather during this period unnecessarily for fear over their lives.

EXPAT FIRST-HAND ACCOUNTS

Finally, my friend Kevin Kerr sent me some emails from foreigners living in Muscat ...

It's absolutely tipping down here. The windows in our house are leaking like mad. We're running round with mops but it just won't stop. Outside our garden is flooding!! 2 of our trees have fallen down almost hitting our neighbour's car. Tomorrow when the wadis fill up its going to be chaos. School has been cancelled today but by the end of the weekend I think we'll be really bored. From Amy, 12 years old.
Amy McGuigan, Muscat

I have lived in Oman for nearly 10 years and I have never experienced something like this. The schools are closed, we have been told the water and power is going to be cut. We have also been told to fill buckets and bathtubs with water and to stock up on food supplies for at least 5 days! The houses in Oman are not strong enough to withstand the winds and the rain is pouring down inside our homes. Even though we know we are going to be safe, there will be a lot of damage done and it is not safe outside the house.
Andre Waerness-Vold, Muscat, Oman

Check out my new gold and energy blog at MoneyAndMarkets.com

Charts and More for Tuesday

First, let's look at oil ...
Next, here is a chart of gold versus the US dollar. The dollar remains in its downtrend.

Gold Advances in London After Dollar's Decline Against Euro; Silver Climbs Gold advanced in London as a drop in the dollar against the euro revived demand for the metal as an alternative investment. Silver climbed.

S.African Q1 gold output falls 7.6 pct yr/yr South African gold output fell 7.6 percent to 2.02 million ounces (62,807 kg) in the first three months of 2007 compared to the same period last year as ore grades declined, the Chamber of Mines said.

It used to be that silver outperformed gold. No longer ...
Finally, uranium...

Denison sees $150 uranium, pricey takeovers The price of uranium could reach $150 this year or next, but should ease over the longer term, the chief executive of Denison Mines Corp. Speaking at the Reuters Global Mining and Steel summit, Peter Farmer also said his company has had talks with potential takeover targets, although high stock valuations are a deterrent to making moves, he said.

Russia and China Battle over African Uranium
Does interest by China National Nuclear in UraMin signal an era of more acquisitions and consolidations in Africa? Russia has developed ties in Namibia. Which would be the logical next acquisitions in Africa if UraMin is bought out? [XX Sean’s note – guess who has UraMin in its portfolio?]

Other News You Can Use ...

Short Sales Break Record on NYSE, Making Market Bulls Even More Bullish Short sellers are betting against U.S. stocks like never before as the Standard & Poor's 500 Index approaches an all-time high. That's making some of the biggest bulls even more optimistic.

India Poised to Grow Faster Than China Among World's Top Carmaking Nations A cacophony of horns, revving engines and squealing brakes fills Jagdish Khattar's 11th-floor office in Connaught Place, New Delhi's central business district.

China's Stocks Rise to Record for Third Day; Datong Coal, Gemdale Advance China's CSI 300 Index rose to a record for a third straight day as households poured more money into equities, drawn by a rally that's made the benchmark the world's best performer this year.

Consumers in U.S. Gained Confidence in May on Jobs, Stocks, Survey Shows Consumer confidence in the U.S. rose in May from its lowest level in eight months, as wage and stock market gains put Americans in a mood to spend, economists said before a report due today.

Copper Gains, Lead Climbs to Record in London After Stockpiles Decline Copper gained for a second day and lead traded at a record in London on speculation that falling stockpiles may signal stronger-than-expected demand for industrial metals.

Check out my new gold and energy blog at MoneyAndMarkets.com

Monday Is Chart Day

Here is some news.

Gold Declines as Rallying Stock Markets May Erode Demand; Silver Advances Gold declined as rallying stock markets eroded investor demand for the precious metal. Silver declined.

Gold Prices May Peak Next Year on India and China Demand, Westpac Says Gold prices may peak in the first half next year driven by rising demand for luxury goods in India and China, according to Westpac Banking Corp.

Crude Oil Rebounds, Climbs Above $65 on U.S. Gasoline-Inventory Concerns Crude oil climbed above $65 a barrel in New York amid concern the U.S. won't have enough gasoline when the summer driving season starts next week.

Corn, Soybeans May Rise as U.S. Crops Fall Short of Demand, Survey Shows Corn and soybeans may rise in Chicago on speculation production in the U.S., the world's largest grower and exporter, will fall short of record demand for livestock feed and crop-based fuels.

S&P/ASX 200 Stock Index Rises to Record, Led by BHP on Metals; CSL Gains Australia's S&P/ASX 200 Index rose to a record high, led by BHP Billiton Ltd. and Rio Tinto Group, as prices of copper and nickel climbed.

Energy Metals Discloses Talks That May Lead to Sale of Uranium Explorer Energy Metals Corp., a developer of uranium deposits in the U.S., said it is in talks that may lead to the sale of the Canadian company. The shares earlier surged to a 12-year high before trading was halted in Toronto. [XX Sean's note – yes, I recommended this! Sweet]

China Growth, Not Paulson, May Force Government to Accept Yuan Revaluation China faces growing pressure to increase the value of the y1uan, and Henry Paulson has nothing to do with it.

And now, on with our show (the charts) …

Last week (on my blog, anyway), I talked about how Chinese gold demand is soaring. That's the good news. The bad news is this (from Resource Investor):

Gold ETF bullion holdings drop substantially The substantial drop in bullion holdings by StreetTRACKS gold shares, the world's largest gold-backed exchange traded fund (ETF), could be signalling reduced exposure by investors due to weaker prices.

Analysts cautioned that a continued outflow could be an indication that further liquidation in the gold market might be on its way.

Bullion held by StreetTRACKS fell 16.6 tonnes, or more than 3%, to Thursday's 469.15 tonnes, which marked the level last seen in mid-February, compared with 485.8 tonnes on Tuesday. The decline came after the bullion ETF saw its metal holding peaked at a record 500.7 tonnes just on April 19.

All in all, I think it's best to wait and see what happens when gold hits its next level of support before buying again.

Silver looks more bullish …

It's hard to imagine silver going up when gold goes down. So maybe this support silver is finding is bullish for gold as well.

Next, let's look at a metal we don't look at as often as we should – copper.

This is a classic decision point, and it should happen this week. Kind of exciting, unless you're long copper, in which case it could be brown trousers time.

So what's the news today …

Copper Advances After Largest Weekly Decline in Three Months; Nickel Falls Copper rallied in London after its biggest weekly decline in more than three months, as a drop in stockpiles signaled growing demand. Aluminum and zinc rose.

So don't buy those adult diapers yet!

Enough metals. On to the energy complex …

Oil could break out. If it doesn't, we could see more indecision as it bounces along in a range. What does gasoline have to say about this? …

Gasoline is accelerating. This is mainly due to lack of refinery capacity. Personally, I think gasoline prices have gone up too far, too fast. When I hear endless bitching about gasoline prices in line at the grocery store, it tells me people are ready to cut back on driving (as I detailed on my blog last week, so far consumers haven't changed driving).

A downward change in driving habits should ease back the throttle on gasoline prices. Indeed, that's part of why I think ALL US corporations should go to mandatory telecommuting twice a week. It would kick al Qaeda right in the wallet.

But let me put that soapbox aside for a minute while we look at one more chart – natural gas …

It looks like a setup for a major breakout. If hurricane season comes early and hard, look out!

Check out my new gold and energy blog at MoneyAndMarkets.com

Blind Men, Meet Elephant

I've said before that I'm one of the most bullish people you'll meet at Weiss Research. Everything is relative; I work with a lot of bears. I also read lots of bearish stuff on the web. I think this is very healthy. I am bullish, so reading the bears keeps me honest. It gives me a reality check. Reading people who only agree with you is a way to get sucker-punched.

So I was over at DailyKos.com and I read Jim Kingsland's diary: "The U.S. Is Just About Bankrupt, Yet No One Seems To Care." In it, Jim writes:

"What concerns me, because of lack of coverage, is the growing financial storm that's occuring in this county with so many (unless they've lost their house) unaware. While subprime meltdown has made the nightly news, something that doesn't make the news to give widescale sense of appreciation and urgency is the sagging fortunes of the U.S. dollar and the near insolvency of our country."

Jim then links back to the following chart of the US dollar on his blog:
Jim says: "You will see that the chart of the dollar looks like a bankruptcy chart. The next 3 to 6 months will be crucial. In all likelihood, we're headed for recession. How many realize that?? Most are so overly complacent, really clueless, and thus feel they have the luxury or being able to engage in the usual partisan discourse when they should be removing the wool from their eyes provided by liars like Bernanke and Paulson that all is well. All is not well. Will the body politic do something?"

Now let's go look at a chart by my good friend and crackerjack currency trader Jack Crooks. In today's Black Swan Currency Currents, he charts the US dollar versus the S&P 500 Index...


Jack writes of this chart:

"It’s always interesting to us to listen to people tell us how much they hate the dollar, but love US stocks. We do understand the earnings translation thing, helping multi-national company earnings, but to be so confident on one side of the US fence and so negative on the other still has us confused. It’s just one of many things to add to the growing list of things that confuse us on a regular basis.

"Okay, what is this “major” decoupling telling us? For one, it is telling us relative to the value of the dollar, based on the US dollar index, stocks have NEVER been more expensive."

So these are two VERY bearish views. Now, let me give you some bullish factoids.

For Crude oil ...

Soaring Chinese imports. China’s imports of crude oil increased 6.8% in the first quarter compared to the year-earlier period. And the pace is shifting into higher gear – China’s crude imports rose at an 8.9% rate in March compared to a year earlier.

Mexico’s big oil field is tapping out! From January 2006 through February 2007, Mexico’s supergiant oil field, Cantarell, lost a staggering one-fifth of its production, with daily output falling from two million barrels per day to just 1.6 million.

In fact, the Wall Street Journal reports that Cantarell is fading so fast that Mexico may become an oil importer within eight years. Mexico is our second biggest supplier of imported petroleum, below Canada and above Saudi Arabia – accounting for more than 11% of our imports. We could feel the squeeze from Cantarell as soon as this summer.

US demand is running hot, too! US gasoline demand is up 2.5% over the same period last year. Past experience has shown that demand usually slacks off when gasoline goes over $3 per gallon. But consumers are getting more used to higher prices, and more and more analysts are calling for $4 gasoline this summer.

For Gold ...

China can't get enough gold. According to the China Gold Association, China's gold production hit 19.9 metric tonnes in January, up 25.7% from a year earlier. At this rate, China should produce 260 tonnes this year. And it's STILL not enough to meet Chinese demand - it falls about 100 tonnes short.

Gold production is falling around the world. In South Africa, the US, Australia, Peru, Russia and Canada, gold production is going down, depite more spending by miners and despite rising gold prices.

Investment demand is exploding. ETFs have made it easier than ever for US investors to buy gold, and two gold ETFs just made their debut in India.

These are just some of the forces I name pushing gold higher in my Dow Jones Marketwatch article, "7 Reasons Why Gold Should Surge," and there are more than that!

For Uranium ...

Supply just can't keep up with demand. In fact, some analysts say mine production won't catch up to demand until 2017 -- if then! We're looking at AT LEAST a 10-year bull market in uranium.

Uranium futures. The New York Mercantile Exchange (NYMEX) said on Monday that it signed an agreement to introduce uranium futures on its electronic platforms next month.

Global Warming: If we think uranium supply is hot now, just wait until global warming motivates the public into forcing more and more utilities to switch from coal to nuclear power (nuclear power plants emit ZERO greenhouse gases). It's already happening. Texas utility TXU has said it's going to NOT build eight coal-fired power plants and build America's BIGGEST nuclear power plants instead.

So from my perspective, I'm seeing very bullish stuff. I haven't even told you about how Chinese demand should keep copper prices soaring for years to come, or how US steelmakers are laughing off talk of a recession.

It's like the bulls and the bears are the blind men and the elephant. Each describes what he feels right in front of him, but no one can see the whole picture.

So what's going on here? I refer you back to something else Jack Crooks wrote in his Currency Currents this morning:

"It’s interesting to see such a dichotomy, or decoupling, among major asset classes in the same country—both of which are supposed to express some degree of confidence in said country."

Indeed it is. This is when I wish our lawyers would allow reader comments on my blog -- I'd love to get your feedback and take on what's going on. I really enjoy talking to subscribers at the Money Show because that's when we can have this exchange of ideas.

In sum, I don't know what the big picture is. I think anyone who tells you he knows with certainty has a fool for an analyst. This could be a very interesting year. But I have to play it the way I see it, and what I'm seeing in front of me now is bullish for commodities.

Check out my new gold and energy blog at MoneyAndMarkets.com

Canadian Breakout!

Red-Hot Canadian Small-Caps subscribers know I’m bullish on oil, and I wrote on that theme in my MoneyandMarkets column this week – a column that was originally titled “Peak Oil and The Nuclear Option” before my editors got a hold of it.

Anyway, I recently (March 28) added a Canadian oil stock to the Red-Hot Canadian Small Caps portfolio to ride what I expect will be surging oil prices this summer. And here’s the good news – the stock just broke out to the upside.

The open gains are still small, but my target on this is $24 – a 53% rise from recent levels.

Oh, and that oil sands stock that is in the Red-Hot Canadian Small Caps portfolio -- about the only oil sands company worth buying if you ask me -- hold on to that one, too. It's on the launch pad.

Check out my new gold and energy blog at MoneyAndMarkets.com