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Showing posts from January, 2007

Solar powers business

Solar power got another much-needed boost recently when Wal-Mart announced that it would plan on adding solar equipment to a number of its U.S. stores.

The company has asked potential solar equipment suppliers to bid on initial projects and to include costs for possible build-out and expansion over the next five years. If the plans are carried out, it could make Wal-Mart America's largest user of solar power.

The Financial Times reports that a move to solar and other forms of renewable energy is taking place due to rising electricity costs and a desire to bolster corporate images:

The new US enthusiasm for solar power reflects both the impact of rising electricity bills, and concerns over reputational or brand identity issues.

Wal-Mart, for instance, says it wants its stores to be entirely powered by renewable energy, and has committed itself to reducing the greenhouse gas output from its existing global network by a fifth by 2012, while Staples has said it intends to get its emiss…

Inflation and War Finance

I hope everyone will take a minute to read Ron Paul's latest article, "Inflation and War Finance", which is posted up at Safehaven.

Here's an excerpt:

Congress and the Federal Reserve Bank have a cozy, unspoken arrangement that makes war easier to finance. Congress has an insatiable appetite for new spending, but raising taxes is politically unpopular.

The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department. In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny. Monetary policy is utterly ignored in Washington, even though the Federal Reserve system is a creation of Congress.

The result of this arrangement is inflation. And inflation finances war.

Give the full article a read (it is brief), and pass it on to a few friends and associates.

Ill health: America's new cultural legacy

Fascinating article from Bloomberg that highlights the toll America's cultural hegemony has taken on the rest of the world. It seems that in some parts of the world, diabetes and heart disease are now among our leading exports.

From, "Fries, GIs, Beef Bring Diabetes to Japan's Isle of Centenarians":

Jan. 30 (Bloomberg) -- Tomomi Inose is overweight and diabetic. Her poor health is a result of six decades of U.S. influence on Okinawa. Until a generation ago, residents of Japan's southern island were the world's longest-lived.

Growing up in postwar Okinawa alongside the U.S. military's largest overseas bases, Inose developed a bigger appetite for American-style barbecue, hamburgers and sodas than the fish and vegetables that sustained prior generations.

``My body instinctively craves for succulent meat,'' Inose, 46, said during a visit to the hospital where her blood-sugar level is tested monthly to monitor the type-2 diabetes that's impaired her …

How speculators exploit commodity markets

I use the word "exploit" because it was part of the original title of John Dizard's recent Financial Times article on speculators gaming the commodity markets.

Specifically, the charge put forth by Dizard's article is that locals on the exchange floors have been betting against commodity index funds by taking advantage of their need to roll contracts over in a timely and predictable manner. This, the article shows, costs money for investors in these types of funds. Says Dizard:

Speculators on the floors of commodities exchanges have been called many things, but sensitive, or solicitous of the interests of public investors, are not among them.

So it shouldn't be surprising that one of the ways they have of profiting from the passively investing public is called "date rape". In the pits, physical or electronic, that means betting against the certainty that commodity index investors' positions are rolled in a mechanistic manner every month, in known pat…

Tocqueville's John Hathaway on gold

Earlier in the week, Dow Theory Letters writer Richard Russell reprinted some interesting remarks from John Hathaway of Tocqueville Asset Management on gold. I'd like to include some of those comments here.

From Hathaway's 2006 essay, "Trivial Pusuit?":

The idea that all “hard” assets provide a safe haven from depreciating currencies is a dangerous one. It might seem valid for a while based upon the power of common belief to generate capital flows, but it will inevitably fall apart during periods of severe economic distortion caused by monetary imbalances.

Efforts to trivialize gold’s monetary significance are a key to the present day money illusion, that more paper equals more prosperity. It is far more palatable to the political and economic establishment to explain away the strength in the price of gold as a consequence of growing Asian prosperity or the reflection of an extreme fringe of investment thought (as suggested by Greenspan) than to read it as a reflectio…

Inflation and interest rates

A couple of interesting reads on the topics of inflation and interest rates. Thought I'd post them together here, as these issues are interrelated. Overlooked in the minds of many investors maybe, but interrelated nonetheless.

First off, Barry Ritholtz at the Big Picture discusses some of the most ridiculous assertions embedded in the whole inflation debate (what is inflation, what isn't it?). Read, "Your personal inflation rate", and, "The Sordid Truth About Inflation", to find out how inflation is understated while growth is overstated.

Next, we have an article from Mike Shedlock that takes a long term view of the world's experiment in money printing and nonstop credit creation and the resultant asset bubbles.

A brief passage from Shedlock's article, "Gold, M3, and Willingness to Lend", in which Mike discusses the rampant monetary expansion that has taken place in recent years:

This was the biggest experiment in fiscal madness the world h…

Double down on commodities?

Goldmand Sachs and Deutsche Bank are advising clients to double down on their commodities bets this year, Bloomberg reports. From Bloomberg.com:

Anyone who followed the advice of Goldman Sachs Group Inc. last year and invested $10 million in the Goldman Sachs Commodity Index would have lost 15 percent, or $1.5 million.

Like so many of Wall Street's best and brightest, Goldman, the biggest securities firm by market value, says it wasn't wrong, just early, and to expect an 8.1 percent return in 2007.

``The long-term secular story is very much intact,'' Jeff Currie, global head of commodities research at New York-based Goldman, told customers in London earlier this month. That's the same outlook provided 13 months ago by Arun Assumall, the firm's London-based head of commodities sales.

Like Goldman, Deutsche Bank AG isn't discouraging anyone from doubling down in what increasingly looks like a bear market. Germany's largest bank in September said oil will tra…

FSO Newshour updates

Been catching up with the last couple of weeks of Financial Sense Newshour broadcasts. Lots of topics covered here - definitely give the broadcasts a listen if you haven't already.

Some of the highlights from the recent January 13 and January 20 broadcast:

Jim Puplava and his panel of Newshour experts and guests cover the outlook for the economy, a technical overview of the markets, forecasts on weather trends and the resulting impact on commodity markets (with guest Evelyn Garris of the Browning Newsletter), and opinions on energy and metals markets.

While listening to the first hour of this week's broadcast, I hear energy panel expert, Richard Loomis make some interesting comments on our nation's "energy literacy". This is a competency that Loomis feels is lacking in most individuals, despite the fact that many of us are influencing energy outcomes through politics, investment, and even our daily use of fuel and electricity.

Give a listen and hear Loomis' v…

Falling Empires and Their Currencies

I came across a couple of really great articles I'd like to share with you. It should be especially interesting to those interested in monetary history, world history, and politics.

For those who haven't already seen it up at Financialsense.com, there is a two part article series written by Rolf Nef entitled, "Falling Empires and Their Currencies, Part 1" and "Falling Empires and Their Currencies, Part 2".

I've read part one and I'll be rereading it before moving onto part two. Lots of interesting graphs and commentary that explains the history behind the rise and fall of nations/empires and their currencies.

Definitely give this a look.

Jim Rogers sees opportunity in ags, oil

Jim Rogers spoke recently with Bloomberg News, voicing his continued optimism for overlooked agricultural commodities such as soybeans and cotton.

Rogers says he sees the most opportunity in depressed agricultural commodities, many of which are well below their inflation adjusted highs.

As for the metals segment of the commodities market, Rogers acknowledges that prices for copper and aluminum are at or near significant highs and that they will need to correct at some point.

However, he see a continued bull market for commodities and noted that metals such as copper could continue to move higher after undergoing a normal correction period.

Check out the video, and be sure to also check out Rogers' continued bullish call on oil, detailed in the Bloomberg.com article, "Rogers Says Oil Will Rise to $100 After `Correction'".

Altucher on ETFs

James Altucher's latest FT column gives the low down on some new fangled ETFs that might help individual investors with their investment strategy.

In "ETFs with no fund managers", Altucher describes why the ETFs he has selected are a good choice for enterprising investors looking to divorce themselves from indexing and the world of hedge funds.

These are ETFs that are fundamentally oriented, focusing on building baskets of stocks that Wall Street has incorrectly priced according to academic research, backtesting and experience.

The jury is still out on how these ETFs will perform over time but I, for one, think they are at the very least great alternatives to the standard fare. In the best case, they will significantly outperform.

Check out the article to read up on James' picks. All standard disclaimers apply; remember to perform your due dillegence and consult your trusted advisor when selecting investments.

Energy makes the world go 'round

Looking at the world of energy and hydrocarbon fuel supplies, we see a couple of interesting news items out today.

Bloomberg jumps into the ongoing critique of Putin's Russia and Chavez's "21st century socialism" in, "Chavez, Putin Use Power Gained From Open Markets to Close Them".

The article argues that revenues brought about by high resource prices will not be sufficient to drive the Venezuelan and Russian economies forward, as actions against foreign companies have driven away much needed investment and foreign expertise. An excerpt:

State takeovers have made foreign companies reluctant to increase spending or production, Aslund says. ``Russia doesn't need foreign direct investment for the sake of the money,'' he says. ``They need it for the technology, for the management it brings.''

A continued plunge in oil prices, which reached a 19-month low of about $52 a barrel last week, would rob governments of revenue as production stagnates. …

Ron Paul seeks presidency

Texas Congressman Ron Paul has filed papers to create a presidential exploratory committe, which will allow him to raise money for a presidential campaign.

The Associated Press and Guardian Unlimited report:

HOUSTON (AP) - Rep. Ron Paul, the iconoclastic, nine-term lawmaker from southeast Texas, took the first step Thursday toward a second, quixotic presidential bid - this time as a Republican.

Paul filed papers in Texas to create a presidential exploratory committee that will allow him to raise money. In 1988, Paul was the Libertarian nominee for president and received more than 400,000 votes.

Kent Snyder, the chairman of Paul's exploratory committee and a former staffer on Paul's Libertarian campaign, said the congressman knows he's a long shot.

``There's no question that it's an uphill battle, and that Dr. Paul is an underdog,'' Snyder said. ``But we think it's well worth doing and we'll let the voters decide.''

Paul limits his view of the ro…

World's financial assets valued at $140 trillion

Thanks to Barry Ritholtz at the Big Picture for highlighting this story from the Wall St. Journal.

From, "World's assets hit record value of $140 trillion":

The world's financial system is overflowing with stocks, bonds and other financial assets -- $140 trillion worth, to be precise.

The figure was released in a study by McKinsey & Co. that maps financial assets around the globe and seeks to track the flows of these assets as they move from one region to another, putting hard numbers on the oceans of capital washing up around the globe.

At $140 trillion in 2005, the value of the world's financial assets hit a new peak and was more than three times as large as the total output of goods and services produced across the planet that year.

The study, released today, paints a picture of a world in which investors and the banks that manage their money are spreading their bets more broadly. Flows of investment across borders hit $6 trillion in 2005, McKinsey said, abov…

Investment firms boycott Thai debt

In the ongoing fallout over recent currency controls imposed on foreign investors, Bloomberg reports that some fund managers have stopped buying Thailand's debt.

Jan. 12 (Bloomberg) -- Global bond fund managers are boycotting Thailand's debt because of government curbs on foreign investors, raising borrowing costs in Southeast Asia's second-biggest economy.

ING Investment Management, part of the largest Dutch financial services company, won't buy Thai bonds after the central bank said Dec. 18 it will fine investors who sell assets within a year of purchase. Aberdeen Asset Management in Bangkok, part of the Scottish fund group focused on Asia, sold half its Thai bonds due in 10 years or more, said Pongtharin Sapayanon, who helps oversee $1.6 billion.

``We won't be investing,'' said Joel Kim, a Hong Kong-based fund manager who helps oversee $10 billion at ING. ``There's going to be very little foreign involvement.''

Fund managers are wary because the…

Banker's patents: locking down financial innovation

You've heard of patents on inventions and intellectual property.

Now the financial industry is looking to march in step with the trend towards patenting ideas and innovations, as bankers get ready to seize control over newly created financial products and service methods with patent protection.

The Financial Times reports on a possible sea change in the financial and investment industries in "Banks lay traps for copycats".

Bankers have historically been highly aggressive in protecting their turf – and profits – but surprisingly bad at stopping rivals from copying ideas. While patents are a vital tool for, say, pharmaceutical companies, their use has not been widespread in finance.

As a result, whenever a bank produces a startling innovation, it is quickly copied elsewhere. When ABN Amro, for example, came up with a product called a “constant proportion debt obligation” last summer, other banks replicated the scheme within days.

In recent years, however, attitudes to intell…

Update on commodity index reweightings

A bit of an update to yesterday's news on reweightings in the Goldman Sachs Commodity Index (GSCI).

While we were searching to find the large changes in energy weigtings reported by the NY Post (see update in yesterday's GSCI post), we came across some notable shifts in the makeup of the Dow Jones-AIG Commodity Index.

The print edition of today's Financial Times reported notable changes in the Dow Jones-AIG's weightings for base metals and natural gas.

Base metal prices extended their slide, with nickel and zinc prices falling after an announcement by Dow Jones that it is adjusting the weightings of the 19 futures contracts in its Dow Jones-AIG Commodity Index. It said nickel would be cut to 2.7 per cent from 5.7 per cent and zinc would be cut to 2.8 per cent from 4.9 per cent.

Dow Jones said it would boost the weighting of US natural gas to 13 per cent from 7.3 per cent. The company rebalances its benchmark commodity index at the start of each year. Historically it redu…

Marc Faber warns of asset market corrections

See this Bloomberg News video segment of Dr. Marc Faber giving a big picture overview of the US and world economy.

Within the first few minutes, Faber takes the viewers and program anchor to school on a multitude of economic/financial issues.

His response to the anchor's assertion that the Fed has done very well in keeping money and liquidity tight and curtailing the easy money policies of the past:

"Well, I think that the Fed, since June 2004, has increased the Fed Funds rate from 1 percent to 5.25 percent. But money hasn't been tight, because the definition of tight money is that credit/debt...credit market volume, or the debt growth, slows down considerably. That is tight money.

And believe me, when you have tight money the art market doesn't go up by 27 percent like in the US last year. And you don't see new highs in stocks, and you don't see new highs in asset markets like commodities and real estate..."

Don't miss this.

Retooling the GSCI

We heard today some more about rejiggering in the Goldman Sachs Commodity Index.

Some component weightings have been changed, and though the changes seem to be far more slight than the energy weighting changes that occurred last summer, they still may have played a great role in last week's commodities drop, according to Joe Duarte and the Bear Mountain Bull.

The NY Post reports:

Goldman cut the energy portion by as much as 50 percent in some of the sub-indexes that comprise the widely followed Goldman Sachs Commodity Index, tamping down moves to buy them by large investment funds who mimic Goldman's index.

The changes took effect this month and apply for all of 2007, a Goldman spokesman said.

Crude oil futures plunged 9 percent Wednesday and Thursday to $55 a barrel, before settling Friday at $56.31. The two-day decline was the sharpest since December 2004.

I took a look at the component tables earlier today, and like Joe Duarte, I'm unable to see the large percentage cuts i…

Reads of the week

Some of the day's top news items to lead off some of the week's most interesting stories.

From the Financial Times, "Thailand stocks fall as anxieties deepen".

The New Year's bombings and the ensuing confusion over who is responsible for these acts of terror are adding to worry over Thailand's stability. This drama follows closely on the heels of December's market drop, when Thailand's military government decided to impose - and quickly withdraw - restrictions on foreign share investment.

"Bush claims power to open Americans' mail without warrants", the Christian Science Monitor reports. It was wise to hand over our remaining freedoms to this cabal. Makes Nixon look better everyday.

Onto more positive news. The Australian and FT Business report, "Falling births not a wealth hazard". I found this interesting because this is something I've been mulling over lately.

How many times have you heard someone say, "the demograph…

Emerging market shares tumble

Yesterday's story, that of weakness in copper & base metals affecting shares of metals producers, is followed by today's news of a continued drop in metals prices and a slump in emerging market shares.

Bloomberg reports:

Jan. 4 (Bloomberg) -- Emerging-market stocks tumbled, led by Poland's biggest copper miner and a Brazilian iron ore producer, as the prospect of slower global economic growth pushed down metals prices.

The Morgan Stanley Capital International Emerging Markets Index, which tracks 25 developing markets, fell 1.6 percent, the biggest decline since September. Stock indexes in Poland, Hungary, Brazil and India all lost more than 1 percent.

Economic reports today showed demand for services in the U.S. slowed and pending sales of existing homes declined, adding to evidence growth is cooling. Copper fell to an eight-month low in New York, while aluminum, lead and tin also declined. Shares of Poland's KGHM Polska Miedz SA, Europe's biggest copper miner, dr…

Resource related: copper & uranium

We've seen the copper price breaking down a bit over the past couple of weeks. Now Reuters reports that the ongoing slide in copper prices is, predictably, showing its effect on the shares of copper producers.

The price of copper in New York has erased nearly 16.5 percent of its value since the start of December as steady builds in stock levels, coupled with softer demand in the United States and China, and receding threats of supply disruptions out of Chile, have all contributed to the market's bearish tone, analysts said.
The lower copper price, coupled with higher inventories, predictably sent copper mining company stocks down when the markets opened again after four days.
In morning trading on the New York Stock Exchange, Freeport stock was down $4.92, or 8.83 percent, at $50.81. Phelps Dodge Corp. (PD.N: Quote, Profile , Research), another U.S. copper producer, which Freeport is in the process of acquiring in a $25.8 billion deal, saw its stock fall 2.9 percent to $116.25.

I…

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