The week, information from www.prudentbear.com
For the week, the Dow was pounded for 4.2% (down 14.5% y-t-d), and the S&P500 sank 3.0% (down 12.9%). Economically-sensitive issues were under pressure, with the Transports hammered for 5.5% (up 7.4%) and the Morgan Stanley Cyclicals 5.4% (down 14.2%). The Utilities declined 2.7% (down 7.3%), and the Morgan Stanley Consumer index fell 2.9% (down 12.1%). The small cap Russell 2000 sank 3.8% (down 8.9%) and the S&P400 Mid-Caps 3.6% (down 4.1%). The NASDAQ100 fell 3.6% (down 11.0%), and the Morgan Stanley High Tech index dropped 4.0% (down 10.1%). The Semiconductors declined 3.7% (down 9.5%), the Street.com Internet Index 4.1% (down 9.3%), and the NASDAQ Telecommunications index 7.3% (down 7.6%). The Biotechs lost 1.7% (down 6.5%). The Broker/Dealers were hit for 5.6% (down 28.2%) and the Banks 5.5% (down 33%). With Bullion surging $26, the HUI gold index rallied 8.6% (up 10.2%).
Following dear reader you find a list from www.jsmineset.com. I believe that the list is very interesting. It shows that stocks were not such a good investment so far. With the risk to move down the year end comparison might even be more in favor of other investments. Interesting as well is the fact that Gold has underperformed most commodities. To me it seems that the chances that Gold will pick up are high.
Score Board -- percentage change for the year, so far, in various items:
Crude oil up 42.5%
Ethanol up 20.7%
Heating oil up 43.9%
Natural gas up 76.5%
Unleaded gas up 39.5%
Cattle up 1.0%
Corn up 58.8%
Soy beans up; 26.4%
Coffee up 5.9%
Aluminum up 32.7%
Copper up 25.7%
Platinum up 33.4%
Gold up 6.0%
Silver up 13.4%.
S&P 500 down 10.24%
Frankfurt DAX down 18.32%
London FTSE down 12.23%
Paris CAC down 19.64%
Hong Kong Hang Sang down 18.33%.
Tokyo Nikkei down 9.47%
Singapore Straits down 14.04%.
Seoul Composite down 9.57%
Sydney All Ordinary down 15.76%
Taipei Telex down 7.40%
Water the Oil of tomorrow
Well dear reader in my last musings I mentioned already that oil in fact is still cheap, comparing the price of oil with beer or whiskey. Well dear reader not only compared to beer or whiskey is oil still relatively cheap the same is true if one compares the price of oil with the price of water, especially bottled water. Yes dear reader, water is more expensive than oil and it seems that the prices for water will increase a lot more. So water has already been a good investment for some time and it certainly seems to be a good investment for considerable more time. Following some information about today’s water situation.
Bloomberg
Drought in California Forces Farmers to Spend on `Fire Water'
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQHnfaaeWKCs
From the article;
Santariano goes on the reveal how the perilously low H2O reserves have forced California Governor Arnie Schwarzenegger to declare nine counties disaster areas. Fresno County, caught smack-bang in the middle of the crisis, is the largest agricultural county in the U.S. and serves up around $4.8 billion in crops to American plates every year.
Will the situation in California improve?
About 7,050 feet above sea level, high in the snowy Sierra Nevada Mountains, lies a little frozen meadow called Gin Flat. It got its name from a speak-easy that closed long ago. Nestled amid a forest of pine and cedar, a little scientific outpost measures snowfall - and has done so since the 1930s.
This is important work, because the melting snow from the Sierra Nevada provides water for millions of Californians. The size of the snowpack at Gin Flat gives us clues to how much water will flow from the mountains. With the data gathered at Gin Flat, scientists can divine the future of California's water supply.
The latest reading this year is that the snowpack is only 67% of normal. So California looks like it will have more water troubles this year. "I have not seen a more serious water situation in my career," opined one official. "And I've been doing this 30 years." Some scientists think that we're overstating the water content at Gin Flat by 20% or more. If so, we have even less water than we think.
Water scarcity in the West is not new. At least since the time of Mark Twain, people have been fighting over it. ("Whiskey is for drinking and water is for fighting over," goes the old saying often attributed to Twain.)
But what's new this time is the sheer amount of water needed to support the fastest and largest population growth in the union. In Arizona and Nevada (and Colorado and Idaho), population grows at a pace double the national average. Yet water is scarcest in these places.
Following a comment from a CEO of a company invested in the water business.
For all that's demanded of it, water is too cheap. "Market prices [for water] have started to appreciate dramatically in recognition of the actual economic cost of developing new supplies." Despite constant threats of shortages, there is a reluctance to allow the price of water to rise. Lastly, the company's CEO chides the public's irrational view of water as something that ought to be a "free… public resource, not subject to market forces."
"Paradoxically, this same public is willing to pay exceptionally high prices for bottled water," he writes, "rather than drink inexpensive tap water, in part due to the often mistaken belief that bottled water is safer to drink."This water scarcity issue does not only affect America's dry Western half. It's a global issue affecting many other parts of the globe. In a water-constrained world, conserving water becomes top priority. Treating existing water supplies when new supplies are not available becomes especially important.
And around the world?
Across the globe, scientists look to the world's mountains and watch carefully… The snow is melting earlier this year. That means water will flow less freely this summer, when people need it most. The areas most at risk of lack of fresh water include parts of the Middle East, southern Africa, the United States, South America and the Mediterranean.
the following article is from last year but nevertheless interesting
Water Outperforms Oil
http://www.bloomberg.com/apps/news?pid=10000082&sid=a823kgVOs5Zo&refer=canada
Is water an investment idea? Well it does look like. If you are able to make direct investments in a company with business related to water it might be worth considering it. Buying stocks related to companies in the water business might be worth a consideration too. However I would be careful for the moment being because I think a stock market crash could impact these stocks as well although the long term outlook seems to be very bright. It might very well be that you could buy these stocks at lower prices sometime in the future.
Apart from that I believe that the investment idea of investing in water is not going away anytime soon. Many trends in energy and agriculture make the water situation only worse. Take a recent Tampa, Fla., development. Officials got a shock when the state's first ethanol facility put in its request for water - 400,000 gallons per day! That instantly made it one of the top 10 consumers of water in Tampa, yet there are plans to double its capacity. All the while, Florida's rivers and lakes are at or near record lows
Some more information about water
Money Week — Clean water is quietly becoming one of the most critical resource issues in the world economy.
Researchers at the Center for Strategic and International Studies predict that by 2025 water will be the most grave resource problem in the global economy.
In many parts of the world, it is already an undeniable problem of growing importance.
First, there is the issue of polluted water. This is already the biggest cause of sickness and death in the world. Second, there is the problem of getting it where it needs to be. Investing in water: the threat to China and India
Population growth has not followed the location of water resources. The most obvious example is China, which has more than 20% of the world’s population and only 7% of its water. And a good chunk of China’s population is in the dry northern regions.
China is not alone in this. India is no better off. The southern city of Chennai (once known as Madras) is a typical example. Technology companies are setting up shop here and money is flowing in from abroad. This rapid growth hides a festering problem below the surface prosperity. As the Financial Times reports:
“Anyone who stands at the edge of Marina Beach and watches the stinking, black and lifeless water of the Cooum River befoul the blue-green sea at the river mouth can hardly fail to notice that Chennai has a problem with its water.
“Only a third of the city’s waste is treated. The rest flows into the rivers and to the sea. These polluted waters pose enormous health risks. And Chennai is typical of Indian cities, and of cities in other emerging markets.”
The World Bank’s recent report on India warned, “Unless dramatic changes are made - and made
build new infrastructure, nor the water required for the economy and its people.”
Graft Sapping Precious Water Resources
UNITED NATIONS, Jun 25 (IPS) - The world's growing water crisis -- with nearly 1.2 billion people lacking a steady water supply and more than 2.6 billion without adequate sanitation -- is fundamentally a crisis of governance, with corruption as one root cause, says a new report by Transparency International.
http://www.ipsnews.net/news.asp?idnews=42962
and following an interesting analysis. Please read on
http://www.water-stocks.com/Water-Stocks/Articles/AguaCalienteTruncated.pdf
well dear reader water is without doubt a very important topic today and even more so in the future. Of course lack of water has an impact on food production. So the lack of water increases the already existing problems like deterioration of soil and so on. Let’s move to food with some more information.
Food
Part from a comment from James Kunstler
Behind that magic is an agribusiness model of farming cranked up on the steroids of cheap oil and cheap natural-gas-based fertilizer. Both of these “inputs” have recently entered the realm of the non-cheap. Oil-and-gas-based farming had already reached a crisis stage before the flood of Iowa. Diesel fuel is a dollar-a-gallon higher than gasoline. Natural gas prices have doubled over the past year, sending fertilizer prices way up. American farmers are poorly positioned to reform their practices. All that cheap fossil fuel masks a tremendous decay of skill in husbandry. The farming of the decades ahead will be a lot more complicated than just buying x-amount of “inputs” (on credit) to be dumped on a sterile soil growth medium and spread around with giant diesel-powered machines.
Like a lot of other activities in American life these days, agribusiness is unreformable along its current lines. It will take a convulsion to change it, and in that convulsion it will be dragged kicking-and-screaming into a new reality. As that occurs, the U.S. public will have to contend with more than just higher taco chip prices. We’re heading into the Vale of Malthus – Thomas Robert Malthus, the British economist-philosopher who introduced the notion that eventually world population would overtake world food production capacity. Malthus has been scorned and ridiculed in recent decades, as fossil fuel-cranked farming allowed the global population to go vertical. Techno-triumphalist observers who should have known better attributed this to the “green revolution” of bio-engineering. Malthus is back now, along with his outriders: famine, pestilence, and war.
Some more from the same source
The yet-more-ominous thing here is that shortages of food and oil are two fiascos that are pretty clearly predictable for the second half of the year. That’s bad enough without figuring in the “unknowns” that could kick up American hardship a few more notches. The hurricane season just got underway – obscured for the moment by the bigger weather story in Iowa. The fate of the banks is a train wreck still waiting to happen. As it occurs – also heading into the high political and hurricane seasons – we could find ourselves not only a nation wet, hungry, and out-of-gas, but also completely broke. I’m sorry that Tim Russert will not be here to talk us through it all.
Well dear reader the next topic is certainly one that fits into the same kind of information
Peak Oil
Rethinking the country life as energy cost go up
The following article, dear reader, is in my opinion very interesting. The US housing, infrastructure and the whole lifestile as such as been built on cheap oil. Basically nobody has expected higher oil prices that would force them to change their way of life.
http://www.nytimes.com/2008/06/25/business/25exurbs.html?_r=2&partner=rssyahoo&emc=rss&oref=slogin&oref=slogin
How is the situation in your home town? Well high fuel prices have shown already their impact in many countries. I was told that for example in Guatemala the traffic is down almost 30%. Visiting Panama it seemed to me that traffic is a lot less than it used to be up to January this year. Well as always there are two sides to everything. On one side there are many who cannot afford to use their cars on a daily basis anymore. Of course this reduces their flexibility. On the other side the reduction in traffic is a blessing for many because the problem of cities with too much traffic has been a problem in many places. So dear reader, not being able to move around with your own car is one thing but not being able to move goods or food is definitely another problem. The strikes of the Spanish and Portugese truck drivers showed us already what it could mean if food is not moved to the supermarkets. Especially in a world where the stocks at the supermarkets are kept at the absolute minimum in order to save costs. Well just a couple of days can result in empty shelves. So dear reader, we do not only have the situation that food production as such is more expansive but we will have to see that we can guarantee the transport of the produced food to the point of sale. If that cannot be guaranteed we will see many unhappy people. What that can mean we have seen in countries like Haiti.
Well dear reader lately we were told that speculators are responsible for the high oil and food prices. Honestly I do not buy this. Statistics show rather a different picture and thus all the talk about curbing commodity speculation is misplaced, especially in oil. According to the stats, there are as many specs short as long, and the more physical oriented market (Brent) is only trading 30 cents under our WTI market. Well dear reader as the problem in fact is a structural problem and as our governments have not done anything so far, it is of course easier to point your finger at others that to accept the mea culpa. Well of course some people could say that governments possibly could not have known what lies ahead. Well the truth most probably is different. At least some of the ruling parties have known what lies ahead. But of course talking honestly about what the future will bring us in the form of hardship, does not buy many votes.
Well dear reader with higher prices in the most important items like water, food, oil and so on, there should not be a surprise that inflation is picking up. Well here I must of course mention that the root is not increasing prices of many items but the increase of the monetary base by printing new money or increasing credits.
Inflation
Now consumer prices are set by the 3 billion consumer in Asia and not the 300 million Americans anymore
Faster Inflation May Unleash `Financial Tsunami': Chart of Day
June 24 (Bloomberg) -- Rising consumer prices will leave more U.S. consumers unable to pay their debts and may lead to a``financial tsunami,' according to Bennet Sedacca, president of money manager Atlantic Advisors LLC in Winter Park, Florida.
``Whether it is anecdotal or statistical evidence, I see inflation everywhere, and this is where the financial tsunami cometh,' Sedacca wrote in a report published yesterday. ``A battered, over-indebted consumer, if forced to retrench, could create even more problems for the banking system as loan delinquencies would begin to rise even further. All sorts of delinquencies are rising. This is now a systemic issue.'
Dear reader the following article is about the increasing inflation in Asia. Higher prices in Asia will result in higher prices of the products Asia exports to the rest of the World. Therefore get ready not only for high prices in oil and food but for processed goods as well. Important to know is that not only the US has been increasing their monetary base but the Asians too. According to a statistic from last year, China alone increased their monetary base by almost 20%,
http://www.reuters.com/article/ousiv/idUSHKG27391820080625
more about inflation
June 25 – Financial Times (Francesco Guerrera, Krishna Guha and Javier Blas): “The spectre of inflation returned to haunt the global economy on Tuesday as companies ranging from Dow Chemical of the US to South Korea’s Posco unveiled sharp price rises to combat the soaring cost of energy and raw materials. The moves by Dow, the biggest chemical group in the US, and Posco, the world’s fourth largest steelmaker, came as Charles Holliday, chief executive of… DuPont, warned of rising inflationary pressures… ‘Inflation is here big time,’ Mr Holliday told the Financial Times, adding that companies such as DuPont faced ‘tremendous cost pressures’ and had the ‘obligation’ to raise their prices to offset higher costs.’”
Well dear reader it seems that higher prices of many products are in the cards. So far many producers tried to keep prices stable by reducing their profit margin. But it seems that we got to the point where they will have to increase prices.
Talking about inflation, once again, the real problem lies at the way the central banks increase their monetary base. Printing money is what really leads to inflation. Seems that we have to expect higher inflation in Europe too (maybe, like in the US, the official numbers do not show the real situation).
June 26 – MarketNews International): “Contrary to most forecasts, eurozone M3 money supply growth did not slow in May after a pick-up to 10.5% in April, remaining at a rapid double-digit annual pace for the 18th month in a row… Growth of loans to the private sector slowed for the fifth-straight month to 10.4% while remaining over 10% for the last two years… Lending to corporations slowed for the second month in a row to an annual rate of 14.2% from 14.9%... growth in loans to households slowed as well, posting an annual rise of 4.9% in May after 5.2% in April.”
Well dear reader higher inflation may impact many other topics. Let’s have a look at equities first.
Equities
Well dear reader last week I posted information about people who believe that we might see a summer rally and to be balanced, I posted information of those with a contrary opinion too. Well as Oil hit a new all time high markets tumbled. So shorting the stock market would have been a good strategy this week.
this week the fellow above won
But dear reader don’t forget that the PPT will try everything to keep things under control. Well at some point the will not be able to do so I therefore I expect the stock markets to crash sooner or later. The question is when? Are we already there? Maybe so, maybe not. What is for sure is that the PPT has a lot of work to do. I suppose they work around the clock. Following another report from a bank saying that markets might crash.
Barclays warns of a financial storm as Federal Reserve's credibility crumbles
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml
Unfolding Financial Meltdown on Wall Street
http://www.globalresearch.ca/index.php?context=va&aid=9343
Commercial Real Estate
Well dear reader, you might remember that I mentioned in one of my past musings that the situation in the commercial real estate will worsen soon. Following some information I found on www.lemetropolecafe.com. Reading the following information pieces, one certainly can ask how do some people still believe that investments in commercial real estate is a safe thing.
Ann Taylor closing 117 stores nationwide A company spokeswoman said the company hasn't revealed which stores will be shuttered. It will let the stores that will close this fiscal yr know over the next month.
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Eddie Bauer to close more stores Eddie Bauer has already closed 27 shops in the first quarter and plans to close up to two more outlet stores by the end of the yr.
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Cache closing stores Women's retailer Cache announced that it is closing 20 to 23 stores this yr.
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Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide The owner of retailers Lane Bryant, Fashion Bug, Catherines Plus Sizes will close about 150 underperforming stores this yr. The company hasn't provided a list of specific store closures and can't say when it will offer that info spokeswoman Brooke Perry said today.
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Talbots J. Jill closing stores About a month ago Talbots announced that it will be shuttering all 78 of its kids and men's stores. Now the company says it will close another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill another chain it owns. The closures will occur this fiscal yr according to a company press release.
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Gap Inc. closing 85 stores In addition to its namesake chain Gap also owns Old Navy and Banana Republic.The company said the closures all planned for fiscal 2008 will be weighted toward the Gap brand.
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Foot Locker to close 140 stores In the company press release and during its conference call with analysts today it did not specify where the future store closures all planned in fiscal 2008 will be. The company could not be immediately reached for comment.
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Wickes is going out of business Wickes Furniture is going out of business and closing all of its stores Wickes a 37-yr-old retailer that targets middle-income customers filed for bankruptcy protection last month.
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Goodbye Levitz The furniture retailer which is going out of business. Levitz first announced it was going out of business and closing all 76 of its stores in Dec. The retailer dates back to 1910 when Richard Levitz opened his first furniture store in Lebanon, PA. In the 1960s the warehouse/showroom concept brought Levitz to the forefront of the furniture industry. The local Levitz closures will follow the shutdown of Bombay.
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Zales,Piercing Pagoda closing stores The owner of Zales and Piercing Pagoda previously said it plans to close 82 stores by July 31. Today it announced that it is closing another 23 underperforming stores. The company said it's not providing a list of specific store closures. Of the 105 locations planned for closure 50 are kiosks and 55 are stores.
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Disney Store owner has the right to close 98 stores The Walt Disney Company announced it acquired about 220 Disney Stores from subsidiaries of The Children's Place Retail Stores.The exact number of stores acquired will depend on negotiations with landlords. Those subsidiaries of Children's Place filed for bankruptcy protection in late March. Walt Disney in the news release said it has also obtained the right to close about 98 Disney Stores in the U.S. The press release didn't list those stores.
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Home Depot store closings ATLANTA Nearly 7+ months after its chief executive said there were no plans to cut the number of its core retail stores The Home Depot Inc. announced Thurs that it is shuttering 15 of them amid a slumping U.S. economy and housing market. The move will affect 1,300 employees. Its the first time the world's largest home improvement store chain has ever closed a flagship store for performance reasons. ts shares rose almost 5 percent. The Atlanta-based company said the underperforming U.S. stores being closed represent less than 1 percent of its existing stores. They will be shuttered within the next two months.
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CompUSA clarifies details on store closings Any extended warranties purchased for products through CompUSA will be honored by a third-party provider Assurant Solutions. Gift cards, rain checks and rebates purchased prior to Dec 12 can be redeemed at any time during the final sale. For those who have a gadget currently in for service with CompUSA the repair will be completed and the gadget will be returned to owners.
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Macy's - 9 stores
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Movie Gallery - 160 stores as part of reorganization plan to exit bankruptcy. The video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall.
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Pep Boys - 33 stores
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Sprint Nextel - 125 retail locations New Sprint Nextel CEO Dan Hesse appears to have inherited a company bleeding subscribers by the thousands and will now officially be dropping the ax on 4,000 employees and 125 retail locations. Amid the loss of 639,000 postpaid customers in the fourth quarter Sprint will be cutting a total of 6.7% of its work force (following the 5,000 layoffs last year) and 8% of company owned brick and mortar stores while remaining mute on other rumors that it will consolidate its headquarters in Ks. Sprint Nextel shares are down $2.89 or nearly 25% at the time of this writing.
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J. C. Penney, Lowe's and Office Depot are scaling back
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Ethan Allen Interiors: The company announced plans to close 12 o f 300+ stores in an effort to cut costs.
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Wilsons the Leather Experts-158 stores
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Pacific Sunwear will close its 154 Demo stores after a review of strategic alternatives for the urban apparel brand.74 underperforming Demo stores closed last May.
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Sharper Image The company recently filed for bankruptcy protection and announced that 90 of its 184 stores are closing. The retailer will still operate 94 stores to pay off debts but 90 of these stores have performed poorly and also may close.
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Bombay Company The company unveiled plans to close all 384 U.S. based Bombay Company stores. The company's online storefront has discontinued operations.
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KB Toys posted a list of 356 stores that its closing around the US as part of its bankruptcy reorganization. To see the list of store closings go to the KB Toys Info web site and click on Press Info
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Dillard's to Close More Stores Dillard's Inc. said it will continue to focus on closing underperforming stores reducing expenses and improving its merchandise in 2008. At the company's annual shareholder meeting CEO William Dillard II said the company will close another six underperforming stores this yr.
Well less sales will lead to less production of these items and to less need for shipping. As you can imagine this will not only have an impact on any business related to give transportation services but as well to infrastructure. Following an article from the Panama newspaper La Prensa about the enlargement works of the Panama Canal.
Panama Canal
Canal tonnage to level off
Tonnage transported through the Canal is expected to stay the same for the next 2 years.
Experts now say the Canal will not operate at maximum capacity until 2012, not 2010.
The uncertain future of the U.S. economy has prompted forecasters to predict that the volume of material shipped through the Panama Canal will remain flat over the next two years.
The Canal has a maxcapacity of between 340 million and 350 million tons. In 2007, 312 million tons were transported through the waterway. Analysts had predicted that the Canal would be operating at full capacity in 2010, but the revised forecast indicates that the maximum will not be achieved until 2012.
The main reason for revising the tonnage figures is the slowdown of the U.S. economy. The U.S. is the principal user of the Canal, with 66 percent of the total cargo shipped through the waterway headed for American ports. In 2007, the U.S. accounted for 137 tons of traffic through the Canal.
Economists are predicting that the U.S. economy will grow less than 1 percent in 2008, leading to a decrease in demand for some goods. The U.S. economy is expected to grow by little more than 1 percent in 2009.
The U.S. housing crisis, which has diminished demand for building materials and items such as imported furniture, items commonly found aboard ships transiting the waterway, is hurting Canal business.
While tonnage is expected to remain the same in 2008 and 2009, the Canal should see an increase in revenues due to fare increases approved last May.
The Autoridad del Canal de Panamá (ACP) is considering another toll increase that would go into effect in 2010.
The Canal is currently undergoing a $5.25 billion expansion that will greatly increase its capacity by allowing more and larger ships to pass through it. That expansion is expected to be completed in 2015.
The expansion is not expected to be impacted by the short-term economic slowdown in the United States, though an extended recession could impact the ACP’s ability to finance the project, since it will be paid for through revenue generated by tolls.
To see the webcam of the Panama canal click on below link
http://www.pancanal.com/eng/photo/camera-java.html
Well dear reader this is an interesting article indeed. I remember well when the folks in Panama had to vote for the new project. Already at that time it was in my opinion clear that the projected future income due to the flow of business has been by far to optimistic. The way the government presented the project using very optimistic income calculations and price projections could be best described as gross negligent. They never even considered an economic slowdown (maybe in their history books the word recession was by mistake omitted). Well dear reader I was at that time telling many people that the project will have a negative long-term impact on the country. Why? Because of Peak Oil, the projected income streams will not flow as expected and thus they will not be able to repay the debt. That means it will be a burden for the Panamas children of today. Well it seems that what I expected in a couple of years is maybe already now having its impact. It seems that the project everybody saw as a blessing might end up as a mess for the taxpayers and as mentioned, especially for their children.
Well dear reader you certainly remember that in one of m past musings I mentioned that I expect sales of luxury items to slow down considerably over the coming months. A good friend of mine argued that people with money will not stop consuming luxury items. To be honest when writing my ideas I was musing about the same. However I finally got to the conclusion that there will be many professionals who did earn nice salary and bonuses which possibly they will not earn anymore. This will have certainly an impact. Furthermore when the lower income will not be able to buy goods and services as they used to, it will have an impact on other business up the chain. Well dear reader speaking to some people over the last days confirmed my conclusion. In fact there is already less consumption in many countries. Reduction of consumption, according to what I have been told, is already a fact.
FED
The markets are expecting,” writes John Williams , “no change in the targeted fed funds rate out of Tuesday’s FOMC meeting… Mr. Bernanke has been spouting nonsense about the lessened risk of a serious recession (it already is in place) and taking the position of the new champion of the U.S. dollar and defender against inflation.
“Anecdotal evidence remains strong, however, of ongoing difficulties in the banking system. Thus, it is worth reiterating that the primary drivers of Fed policy and activity remain the salvation and stability of the banking system. In the continuing banking solvency crisis, inflation and recession concerns remain secondary or tertiary matters for the Fed. The U.S. dollar usually is also of secondary concern, unless dumping the greenback poses risk to domestic systemic liability. Such a crisis remains in the offing.
“Under such circumstances, having the potential to influence the reporting of key headline economic data remains an extremely powerful and inexpensive tool for the Fed.
Market Manipulation
Information found on www.lemetropolecafe.com
The best I can tell July Silver traded below 16.50 for a total of 30 seconds so far this week. It is amazing how that coincidentally was the time the July option expired. The CFTC should be ashamed of themselves.
Mysteriously there is a 20,000 share volume spike in SLV during that 30 second window of expiration. It would take a lot of work to come up with who was responsible for that volume spike. If they happened to be short the options the case of manipulation would be pretty clear.
Well dear reader apart from showing how prices are manipulated it shows me as well and in a very clear way, that investing in precious metal ETF be it GLD SLV or for example the ETF from the Zuercher Kantonalbank is a clear no go for any gold investor. Why? Well dear reader all of these ETF can short their underlying. That means if you buy GLD you want to be invested in Gold. This is the reason why one buys GLD. So being invested in Gold it goes absolutely and without any doubt against your interests if the same ETF is shorting the underlying and thus driving the price of your investment down. So dear reader do NOT invest in ETFs. If you want to invest in precious metals and do not know how, send me a mail.
More about manipulation
As a result of the gold price suppression scheme, interest rates which were taken too low for too long, and the propping up of the DOW by the PPT, the American public was lured into a false sense of complacency ... also for too long. The Orwellians set in motion STEPFORDVILLE, where everything would always be FINE. These same Orwellians destroyed the American free market system, with its checks and balances, in the process. Now they have created a growing nightmare with no solution in sight. The American public can sense their standard of living is deteriorating. That is bad enough. But Heaven help us if a derivatives neutron bomb goes off on Planet Wall Street. The likelihood of such an event is becoming more probable ... seemingly on a weekly basis. Should one go off, it could implode 23, or so, Bear Stearn's type firms at the same time.
Source www.lemetropolecafe.com
Derivatives
June 23 – Bloomberg (Shannon D. Harrington): “More than 2,000 collateralized debt obligations made bets on the creditworthiness of bond insurers and some now may face a fresh wave of downgrades. Ratings warnings may be on the horizon for so-called synthetic CDOs linked to corporate bonds after Moody’s… last week stripped MBIA Inc. and Ambac Financial Group Inc. of their top insurer ratings and slashed units of FGIC Corp. and Security Capital Assurance Ltd. to below investment grade… The insurers were common components of synthetic CDOs, which pay noteholders from the fees generated by credit-default swaps linked to a basket of companies.”
June 27 – Bloomberg (Christine Richard): “MBIA Inc. faces a ‘tenuous situation’ as the bond insurer seeks to cover payments and collateral calls on $7.4 billion of securities triggered by a credit-rating downgrade, Fitch Ratings analyst Thomas Abruzzo said. MBIA may need to tap assets pledged to back other commitments as it comes up with the money, potentially opening the company up for further downgrades…”
Gold
Well dear reader what does the above Gold Chart from Monday tell you? Well of course one could mention all arguments that the pundits normally use to tell us why gold should be lower. But what was the real reason for this free fall of the Gold price? The hint is that the FED meeting was scheduled for the next day. So what does it mean? Well dear reader, when I saw the chart on Monday I was happy for everybody who wanted to buy gold and had the chance to buy an ounce for 20 dollar less. Furthermore the action told me that the news out of the FED meeting will not be good at all. Whenever the FED message or any official statistic to be published will be mediocre, you can count on the PPT because they will hit the precious metals hard one or two days before. Yes this is not the first time. It happened time and time again. So when you see an action as last Monday you know what can be expected.
But anyway, Gold has been extremely stubborn and resists downside movements in spite of countless attempts to sell it off. In fact it has formed a series of higher lows and higher highs which compress it into a tighter and tighter trading range. We have seen this same exact pattern back in August 2007 and it led to a huge upside breakout. This is a bull market and the odds heavily favor the same type of upside breakout with the only difference that it could/should occur earlier this year. Maybe a lot earlier!
Well dear reader when you saw a price of above USD 5,000 per ounce in my last musing you might have been surprised. Well although the source of this information was Schroders, I can say that I agree with their opinion completely. I do remember when some of you dear readers were surprised when I mentioned a price target of 850 USD some 8 years ago. Some of you told me that you thought that I was out of my mind. Well dear reader the truth is that my price target 8 years ago was in fact USD 1,500 and not the 850 per ounce. Of course if I would have mentioned my real target price, you certainly would have doubted seriously my mental health and thus you most probably would not have invested in gold at all. Well dear reader USD 5,000 might seem as crazy as my prediction of a price of USD 1,500 seemed when we were at the level of around 300 USD. Nevertheless as crazy as it seems it is not only my price target over the next 3 to 5 years but it is a very down to earth price target. Why, well if you take an ounce price of, let’s say USD 500 in 1980 and you adjust it to inflation, of course taking the real inflation according to shadow.stats and not he official bogus inflation, we should already today be at a price of above USD 5,000. My expectation is that the 6,000 years of history will repeat again and that we will get to my target sooner than many expect. Although there is of course no guarantee at all, I feel absolutely comfortable keeping almost all our assets in precious metals. By the way an investment in precious metals is in my opinion the most conservative investments in the universe. Why? Well gold has kept its purchasing power over a period of 6,000 years. If that is not conservative than I certainly do not know what else is conservative. The great thing about investments in precious metals is that it is not only a conservative investment but it has a lot of upside potential because it has to make up for past inflation. If I say that precious metal investments in my opinion is the most conservative investment I must of course say that most professional would not agree with this statement and that risk profiles used at banks do qualify such an investment as risky. Of course that might change at some point.
Commodities
Well dear reader there are many pundits claiming that the commodity bubble will burst soon. What do you think dear reader? Well I found on the net an interesting essay. Please read
http://www.financialsense.com/editorials/casey/2008/0623.html
Well dear reader, as you possibly already know I have my serious doubts that the commodities prices will come down soon. First of all we are in my opinion far away from being in bubble area. Why? Well in a bubble you see clear indications of excesses. This is something I cannot see in the commodity sector. Secondly history, at least the history of last 200 years, shows clearly that commodity bull cycles lasted normally between 15 to 25 years. So dear reader, the question is at what point we are in the actual bull market cycle. Are we already at year 8 or maybe year 5 or maybe year 3? What is your guess dear reader? Well I think if your guess has been 2 or 3 you are certainly right. Well you certainly ask me know why. Didn’t commodities prices start to rise approximately 8 years ago? Well dear reader it is correct that 8 years ago the commodities started to go up but only partially. Why? Well first of all not all commodities started to rise 8 years ago. Secondly the commodities that started to rise 8 years ago only went up if you looked at their USD price level. Looking at a barrel of oil in Euros or CHF or an ounce of Gold in Euro or CHF, prices stayed quite stable up until 2 to 3 years ago. Therefore dear reader, the actual, real commodity bull cycle did in my opinion start 3 years ago when all commodities started to rise and as an important fact, started to go up against all currencies. Well dear reader I think you can imagine that I strongly believe that this bull cycle will last at least another 12 years in the worst case. My estimation is that this bull market will last longer than any previous one. That means we will have to face increasing prices for many years to come. Why? Well, because in my opinion, we have a fundamental change on the production/extraction side. That means I strongly believe that we will not be able to find and bring online new sufficient resources for many years to come. What could make commodity prices fall? In the case that all Central Banks would stop immediately to increase their monetary basis, it would have a negative impact on commodity prices. The questions is will the Central Banks stop printing money? I have my doubts. Well if they would do it, it would mean that there would not be more money chasing the same limited amount of goods. Furthermore a crisis worse than the 1930 one could change the picture too. Is that possible? I am afraid yes. There are unfortunately at this precise moment in our history, a lot of risks that could lead to such a situation. How about war? How about an escalation of an armed conflict in the Middle East? Well dear reader, unfortunately wars of the last 200 years have let rather to higher commodity prices. Therefore an armed conflict in the Middle East possibly will lead to higher commodity prices. Well lets hope and pray that this scenario will not happen. Such a conflict cannot be in the interest of anybody (except of course a few individuals with specific interests). For the world as a whole if would be disastrous.
Uranium
Well dear reader a few musings ago I mentioned that I believe that Uranium is again a interesting investment idea. I might have been a bit too early. However the following information seems to confirm my idea.
June 23 – Bloomberg (Yuriy Humber): “The uranium industry’s worst year is about to collide with a nuclear construction program in India and China that rivals the ones undertaken during the oil crisis of the 1970s. The result is likely to be a 58% rebound in uranium to $90 a pound from $57 now, according to Goldman Sachs JBWere Pty and Rio Tinto Group… Uranium plunged 57% in the past year…”
I am holding a very small position (1% of total assets) in the following ETF
http://www.tsx.com/HttpController?GetPage=DetailedQuotePage&SelectedSymbol=U&RowNumber=1&DetailedView=DetailedPrices&Market=T&QuoteSymbol_1=U&QuoteSymbol_2=&QuoteSymbol_3=&QuoteSymbol_4=&QuoteSymbol_5=&QuoteSymbol_6=&QuoteSymbol_7=&QuoteSymbol_8=&QuoteSymbol_9=&QuoteSymbol_10=&QuoteSymbol_11=&QuoteSymbol_12=&Language=en
Well folks that’s it for this time. Wish you all an excellent fulfilling week.
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