For the week, the Dow slipped 0.5% (down 14.9% y-t-d), and the S&P500 declined 1.2% (down 14.0%). Economically-sensitive issues were hammered. The Morgan Stanley Cyclicals sank 5.0% (down 18.3%), and the Transports fell 4.9% (up 2.4%). Defensive issues fared better. The Morgan Stanley Consumer index dipped only 0.2% (down 12.2%), while the Utilities gained 1.9% (down 5.5%). The broader-market played some downside catch-up with the major averages. The small cap Russell 2000 dropped 4.9% (down 13.1%), and the S&P400 Mid-Caps sank 4.6% (down 8.3%). The NASDAQ100 declined 2.2% (down 12.9%), and the Morgan Stanley High Tech index fell 2.1% (down 12.0%). The Semiconductors dropped 4.1%, increasing y-t-d losses to 13.1%. The Street.com Internet Index declined 0.8% (down 10.0%), and the NASDAQ Telecommunications index fell 3.5% (down 10.7%). The Broker/Dealers dropped 3.4% (down 30.6%), and the Banks shed another 3.4% (down 35.3%). Although Bullion added about $5, the HUI gold index declined 3.5% (up 6.5%).
The winner of this week:
What is hot and what not
Water
Dear reader last week I started with the topic water. There is much information about the topic on the net. If you are interested, please read the information on the following links
http://www.worldchanging.com/archives/008166.html
video on water and energy, please click on the link below
http://video.energypolicytv.com/displaypage.php?vkey=3a8d6aa2308357a268a7&from_search=1
Ambrose Evans-Pritchard
Water crisis to be biggest world risk
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/05/ccwater105.xml
Peak Oil
Well dear reader, I think the article on the following web page is particularly interesting. Matt Simmons is certainly not just a dummy who wants to have his name in the headlines. He is a very successful Investment Banker with an broad knowledge of the energy sector in general terms and oil in particular. He is the author of a book called Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Paperback)
http://www.amazon.com/Twilight-Desert-Coming-Saudi-Economy/dp/0471790184/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1214798215&sr=1-1
The article is quite interesting indeed.
In the article Simmons says:
“It is not beyond the pale of imagination to see oil at $300, $400, $500 or even $600 a barrel within a relatively short time, much less than 20 years. It is not speculators who are driving oil prices. It’s simply about supply and demand.”
Please read on
http://www.pressandjournal.co.uk/Article.aspx/711224/?UserKey=0
have you ever wondered how industry insiders see the problem?
http://www.aspo-usa.com/index.php?option=com_content&task=view&id=404&Itemid=91
Well dear reader how will it be when you want to fill up your tank and there is no gas? The world is already facing shortages in several places. Please read on
Largely unreported in the American media is the growing frequency of electricity, diesel, and gasoline shortages around the world. Only in the OECD and oil producing countries is the situation normal. The reasons for these shortages vary somewhat from country to country but the common denominator is the growth of a middle class that has purchased appliances such as air conditioners, TVs, computers, and refrigerators at a pace far faster than the infrastructure can be built to keep up with demand. Droughts across the world are killing the production of hydro-electricity and in many places countries can no longer afford to import $140 oil to sell at subsidized prices.
South Asia--Pakistan, Bangladesh, India, and Vietnam--seems to be in the worst shape, but parts of Africa, Latin America, and many island states are not far behind. In many regions, these shortages are not just inconvenient but are life-threatening. Reports of water pumps being shut down for lack of fuel or electricity and limited fuel for the spring planting are becoming more frequent. As global temperatures rise, life in the world’s megacities, with limited air conditioning and refrigeration, is becoming unbearable. The better-off are increasingly turning to small generators for personal comfort or to keep business functioning in the 21st Century. The din, pollution, and increased fuel consumption is growing worse all the time. There is no end in sight.
Major economic projects are being cancelled due to the shortages. Last week a $2.7 billion aluminum smelter in South Africa was put on hold until there is enough power to operate the facility. The project would have created 1,000 jobs.
The shortages are not without complaint. Demonstrations and in some cases riots are happening with increasing frequency by people protesting their plight.
Well oil was a nice to have. However looking at the chart below, one can see clearly that over a long period of time it was rather insignificant
Well dear reader if there is a place you always wanted to visited but so far for what ever reason have not done it yet, it might be the time to do it. I have no doubts that traveling will become a lot more expensive soon. At some point we will be back to travel by boat. As everything in live, traveling by boat has its advantages and of course as well disadvantages. One disadvantage might be that it takes a lot more time to travel from point A to B but we might get used to that again. A huge advantage, at least in my opinion is that traveling by boat will be a lot more relaxing that hurry around the world by jet.
Well dear reader I am seriously thinking of traveling to New Zealand again. If you are interested, I might organize a group travel to see a few interesting places. Please let me know.
Some more about oil.
FROM OIL GLUT TO OIL DROUGHT
Peter LeGuillou
Peter LeGuillou
July 01, 2008
Two years from now, in 2010, a large percentage of interstate travel, shipping and air carrier service will cease to function. I will explain that in a minute. The exact percentage is unknown, but I would think it is over 50 percent. Also, a massive failure of the banking system of the United States will put most business in dire jeopardy. Furthermore, without interstate trucking there will be sporadic food shipments in the United States. In short, 2010 is the year that the US ceases to function as a nation and splinters into dozens of isolated regions without energy or food or work. The outcome is rioting, looting, murder and fear of everything. The local, state and federal governments will be helpless because they cannot respond to the scene or enforcement is overwhelmed.
The causes are several including rapid declines in oil imports. Lately, the price of a barrel of oil has doubled in one year. By 2010 it may cost over $300 a barrel. Oil is less plentiful when more nations import more and more each year. And drilling for new oil has been a complete failure in the sense that oil production remains the same while demand soars. Comments from OPEC to increase production are simply lies.
http://www.americanchronicle.com/articles/66891
from www. shadowstats.com
Oil, Inflation and the Dollar. Overhanging the markets for a number of years has been the question as to when the major holders of excess U.S. dollars in the global financial system might look to dump those holdings. An opportunity for that dumping is at hand. Most central banks know that their unwanted dollar hoards are going to generate long-term losses, but the oil markets have opened up an opportunity to mitigate some of those losses. For the rest of the world, dollar dumping now would reduce inflation risks outside the United States.
With oil trading above $140 per barrel, serious inflation consequences are in store for those economies that have been propping the greenback against their own domestic currencies, either by not selling unwanted dollar holdings or by intervening in the markets to maintain the dollar’s market value. From a perspective outside the United States, an offset to oil-price-based inflation risk is available in dollar depreciation, which reduces the cost of oil in the currency of the purchasing country. The effects of a declining dollar, however, do tend to spike dollar-based oil prices further, but not fully, in something of a self-feeding cycle.
The system, though, tends to be self-correcting. The current oil price problem in many ways is a dollar problem — tied to the weakness of the U.S. currency. At some point, oil producers likely will be forced to abandon oil pricing based in U.S. dollars. The broad effect of that would be an intensified inflation spike in the United States, with the energy-inflation impact much mitigated in the non-U.S. dollar world,
The current circumstance results from years of deliberate debasement and neglect of the U.S. currency by the political miscreants in that former malarial swamp on the Potomac. Contrary to the popular policies of political gratification of the moment — seen for a number of administrations and various Fed chairmen — the dollar does matter, and so does the budget deficit. The dollar issues are coming to a head. The deficit issues are related but still are smoldering in the background.
And the strikes go on
July 2 – Bloomberg (Brian Lysaght): “Hundreds of U.K. truckers were converging on London to protest diesel fuel prices, meet with government officials and tie up traffic in the city's center.”
July 2 – Bloomberg (Kartik Goya): “Indian truckers, who haul the majority of the nation's goods, went on strike today to protest against taxes and rising fuel costs, a union official said. More than 4 million heavy and light commercial vehicles are staying off the nation's roads from today after talks with the government to avert the strike failed last night, said Charan Singh Lohara, president of the All India Motor Transport Congress, an umbrella organization representing the truckers.”
Peak Food
Well dear reader the situation still looks quite unfriendly. Following an article about food
A single grain of rice symbolizes the breakdown of the global food system. In recent months, prices of staples have jumped and millions have joined the ranks of the marginally fed
More out of the article
Global consumption has exceeded production in seven of the last eight years. A 30-year era of cheap, limitless food is over, say economists, and high prices will likely last for years, maybe decades.
Why? Because they signal a structural meltdown in the way food is grown, traded and supplied around the world.
Please read on
http://www.thestar.com/News/World/article/451023
The global agriculture boom is still in its early stages. On the surface, the global population is growing at a seemingly small slow 1.1% per year. That works out to about 203,900 new mouths to feed each day.
Over the past 50 years, that’s been sustainable growth. There has been enough food, water and shelter for almost everyone. That’s all changing.
As you can see in the chart above, the amount of arable farmland available per capita is falling. Arable land per capita has fallen 37% in 50 years. Farmland will have to produce more and more. After all, though food demand is rising, they’re not making any more farmland.
The world population is continuing to grow, and we need more food. Every acre of farmland will need to produce as much as it can. The only near-term solution is more fertilizer. That’s why the smart money has been buying up fertilizer stocks.
Regrettably, all the easy money has been made in fertilizer stocks. Now, it’s time for the big money to be made. The next generation of fertilizer companies is just getting started. And you know what? They need a lot of money to get the ball rolling.
Following a chart of arable land per capita
IMF
BIS: Global economy could face deeper downturn
Monday June 30, 7:35 am ET
By George Frey, AP Business Writer
Central banks' banker says world economy could see deeper, longer downturn than most expect
BASEL, Switzerland (AP) -- The global economy could face a deeper downturn than many currently expect amid rising inflation and the turmoil on financial markets, the Bank for International Settlements said at its annual meeting Monday.
"In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation," the BIS said in its annual report.
"While difficult to predict, their interaction does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect."
The Basel-based bank added that the current "consensus view is still that the global economy will slow only modestly further in 2008" and that growth continued to be strong in the euro zone, Japan, and major emerging market economies.
Often called the central bank of central banks, the BIS said during its last fiscal year central banks worldwide reacted to the financial and monetary policy situation differently, and that given their countries' different economic situations, a "one size fits all" monetary policy can't necessarily be predicted or suggested…
http://biz.yahoo.com/ap/080630/switzerland_central_banks.html
Well dear reader following some more information from the BIS
LBO Defaults May Rise as About $500 Billion Comes Due, BIS Says
By Neil Unmack
July 4 (Bloomberg) -- Leveraged-buyout loan defaults may be ``significantly higher'' than ratings companies' estimates as about $500 billion of debt used to fund the takeovers comes due, the Bank for International Settlements said.
Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010, the Basel, Switzerland-based bank said in a report today, citing Fitch Ratings data. They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans, BIS said.
Real Estate
Well dear reader it has been some time since I mentioned Real Estate (exception commercial real estate). Following an update of the still ugly situation that in my opinion is for from being over the worst.
L.A., Miami Home Foreclosure Rates More Than Double July 2 (Bloomberg) -- New foreclosures almost quadrupled in Los Angeles and doubled in Miami in the second quarter, with as much as $5 billion worth of loans going bad in L.A. alone, the online real estate data company PropertyShark.com reported. The number of homes scheduled for auction in Los Angeles rose 14,505 compared with 3,797 in the same period a year earlier, PropertyShark said in a report distributed by e-mail. In Miami-Dade County, the number climbed to 2,677 from 1,282. ``The foreclosure chart for Los Angeles is unfortunately starting to look like a ski jump,' Adina Dumitru, a member of PropertyShark's foreclosure products team, said in the statement. The percentage of U.S. homes in foreclosure more than doubled since December 2006 to about 2.5 percent this March, according to the Washington-based Mortgage Bankers Association. Defaults among subprime borrowers with poor or limited credit histories are driving the increase, along with the rising number of people unable to make payments on adjustable-rate mortgages that started out with low ``teaser' interest rates that increase after two or three years.,,,
Did you have plans to buy a house in Spain or Ireland? Wait for a few months more because it really looks like you will be able to buy at bargain prices. Following some information
For homeowners in Spain and in Ireland, struggling to stay afloat amid the wreckage of a decade-long real-estate boom, those prayers are going unanswered. The European Central Bank yesterday increased its benchmark rate to 4.25 percent to fight inflation, pushing both economies a step closer to recession.
The two countries are particularly vulnerable to higher lending costs because their housing industries account for about 10 percent of their economies, twice the EU average. Montalvo's family has seen its monthly mortgage payment leap 50 percent to 2,080 euros since the ECB began raising rates in December 2005.
http://www.bloomberg.com/apps/news?pid=20601110&sid=a_PqhUStacAg
Well dear reader I mentioned the problems that could arise form the downgrading of the monoline insurers. Well following some more information.
The coming US financial market catastrophe is actually a tsunami…
Municipal Market `Fire in the Disco' Burns Borrowers July 3 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc. lost their AAA credit ratings. The biggest hospital in Sarasota, Florida, is paying the price. David Verinder, chief financial officer of the Sarasota Memorial Health Care System, received daily e-mail messages last month informing him that interest costs on an $83 million bond issue were rising to 1.45 percent, to 1.75 percent, to 3.25 percent, to 5.9 percent, and finally to 9 percent by June 24, a more than fivefold increase. ``When rates started going up as quickly as they were, it certainly caused a great deal of stress,' Verinder said. The daily increases by Wachovia Corp. had nothing to do with the financial health of Sarasota Memorial. Hospitals, airports, school districts and local governments around the country have been socked with spiraling interest bills on many of the $80 billion of insured variable-rate bonds. When units of MBIA and Ambac, the two largest bond insurers, lost the top ratings from Standard & Poor's and Moody's Investors Service last month, the institutions they insured did too. The downgrades are the latest blow to the $2.66 trillion municipal bond market, which is on track to have its worst yearly performance since 1999, according to Merrill Lynch & Co.'s Municipal Master Index. The index fell 0.08 percent in the first half of 2008, taking reinvested income into account. In March, the Sarasota health network had tried to escape high rates by converting the bonds from auction-rate securities. The February collapse of the $330 billion market where rates are determined through periodic bidding drove interest costs as high as 11 percent. Band-Aid ``We really believed we would be able to put this band-aid on it,' said Verinder, who is now grappling with $32,000 a day in unexpected costs that may force him to delay spending on new CT scanners and magnetic resonance imaging machines….
Equities
Last week, the U.S. stock market finished the worst first half of the year since 1970. The Dow has plunged 14.4% since the new year, the 10th worst first half since its inception and the worst in the last 38 years.
Stocks ended yesterday with a flat day of trading. The Dow finished unchanged, saving its entry into a technical bear market for another day. The S&P 500 did largely the same, while the Nasdaq fell 1%.
Well Agora Financial has the following comment
Quote
Welcome to a bear market…
The Dow closed down 1% yesterday and is officially 20% below its record high… the textbook bear market. The Nasdaq followed suit and is in official bear territory as well. The S&P 500 is “just” 19.4% off its high.
So what does that even mean? Well, aside from 2008 earning an asterisk or footnote in the pages of U.S. market history, it means that worse times are likely ahead. Historically, markets rarely rebound after first breaching bear market territory. Data varies, but the typical U.S. bear market falls 29-33% below its high and takes an average 1-1.3 years to return to prebear market levels. And these averages, we hasten to add, don’t include the mother of all bear markets -- the Great Depression (shares declined 86% then and took around three years to recover).
Unquote
Inflation of 4,000,000%
Yes dear reader it’s 4 million, of course it is not (maybe yet) in the US or in the country where you live. It is the inflation of Zimbabwe. Well dear reader 10 years ago nobody would have thought that that could happen and now? Well you see when the pundits and the masses do not expect it to happen that does not automatically mean that it will not happen.
Fixed income
Well dear reader my shorting the treasury did not yet work out
Over in the world of paper, US Treasuries have firmed somewhat with the 10-year yield at 4% and the 30-year yield at a miniscule 4.5%. Whoever is buying US Treasuries at the current yields must not live on this planet because in the real world, inflation is running a lot higher than the interest available from the US Treasury. In my view, US Treasuries are in a secular bear-market which commenced in the summer of 2003 so I would advise you to liquidate your positions (unless you require regular income at the expense of purchasing power). Finally, the US Dollar has resumed its south-bound journey and the world's major currencies are on the rise. At present, the Canadian Dollar looks very attractive as Canada's interest-rate cuts are over, it has surpluses and massive reserves of oil and gas. In the months ahead, I expect a significant rally in the Canadian Dollar against the US Dollar.
USD
Shorting the USD? Maybe we should. Please reade the following article of James Turk
http://www.goldmoney.com/en/commentary.php#current
and following the opinion of Jim Rogers. Just to let you know, I couldn’t agree more.
Avoid Dollar `At All Costs,' Investor Rogers Says
June 30 (Bloomberg) -- Jim Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, said investors should steer clear of the dollar as the U.S. economy slows and favor commodities this year. The dollar has slipped 7.7 percent against the euro and 5.9 percent versus the yen in 2008 as the Federal Reserve cut interest rates to stave off a U.S. recession. Oil prices have doubled in the past 12 months, while gold is up 44 percent. Avoid the dollar ``at all costs,' Rogers, chairman of Rogers Holdings, said in a speech in Shanghai today. ``The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything, including seeds.' Oil and metal prices in New York have surged as a slumping U.S. currency made them cheaper for non-dollar investors to buy as a hedge against inflation in a slowing global economy. The dollar has stabilized in recent weeks, with currency volatility falling by the most since 1999 this quarter. The comments from Rogers, 65, come two days after he told investors at a conference in Nanjing not to ``give up' on Chinese shares, which have made China the world's second worst performers this year. Rogers, who first started buying Chinese stocks in 1999, said he hadn't sold any of his holdings.
Gold
Well dear reader if you have had the chance to read my last musing you certainly remember the chart I showed you to comment about the market manipulation that is going on. In my text I let you know that almost always before something important happen in a negative way, gold is bombed down. So what happened? Do you remember? What happened that made the PPT bomb the market. Well first of all the European Central Bank increase rates by .25% which of course is negative for the USD. Furthermore the employment numbers that were made public the same day were real bad, especially taking into account that even these numbers are not correct and the real situation is far worse. More on that below.
So dear reader it seems that the Gold Cartel (PPT) has won a little victory but that’s all. Gold will head much higher. If not I would be really surprised.
Please have a look at following chart from july 4, 2008, does it seem like deja-vu?
Manipulation of official statistics
From www.shodowstats.com. Dear reader following the real picture about employment
The June 2008 seasonally-adjusted U.3 unemployment rate showed a statistically-insignificant firming to 5.50% +/- 0.23% from 5.49% in May. Unadjusted, U.3 increased to 5.7% in June versus 5.2% in May. The broader U.6 unemployment rate rose to an adjusted 9.9% (10.3% unadjusted) in June versus 9.7% (9.4% unadjusted) in May. Refigured for the bulk of the
"discouraged workers" defined away during the Clinton Administration, actual unemployment, as estimated by the SGS-Alternate Unemployment measure, rose to 13.9% in June from 13.7% in May.
For more details, please check www.shadowstats.com
Coal
Dear reader coal investments have done very well over the past months. Fording Canadian Coal or example has more than doubled. Is it time to take profits? Maybe. Remember nobody ever got poor by taking profits from time to time. While the same cannot be said for people who waited to long.
Natural Gas
Dear reader I have no doubt that natural gas prices will raise a lot more. However as natural gas has gone up considerably over the past 3 months it too might be the moment to take profits. Therefore I might reduce or close my position this coming week.
To finish todays musings some information about derivatives
July 3 – Bloomberg (Shannon D. Harrington): “The amount U.S. commercial banks have at risk in derivatives markets jumped 50% during the first quarter as the credit crisis triggered an increase in the value of contracts that protect against borrower defaults and changes in interest rates. The amount of money banks would be owed if all derivatives contracts were liquidated, known as ‘net current credit exposure,’ rose $156 billion in the first quarter to $465 billion, the Office of the Comptroller of the Currency said… That’s up 159% from a year earlier… ‘Continued declines in interest rates coupled with widening credit spreads resulted in a significan
t increase in counterparty credit risk during the quarter,’ Kathryn Dick, deputy comptroller for credit and market risk, said…”
July 4 – Bloomberg (Neil Unmack): “Leveraged-buyout loan defaults may be ‘significantly higher’ than ratings companies’ estimates as about $500 billion of debt used to fund the takeovers comes due, the Bank for International Settlements said. Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010… They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans… Investors are shunning structured debt instruments such as CDOs, the main buyers of leveraged loans, after the credit-market seizure caused by the U.S. subprime mortgage collapse, the BIS said. The ability of LBO firms to refinance may be crimped further as banks tighten lending criteria after reporting $402 billion of credit losses and asset writedowns. ‘We’ve come out of an egregiously lax period in lending,’ said Jamie Stuttard, who manages $13bn… at Schroders Plc… ‘We expect an increase in defaults because of the wave of very leveraged LBOs.’”
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