Wednesday, July 1, 2009

McAlvany Report: An Interview With Alan Abelson

Alan Abelson is a veteran financial journalist, and has long written the influential Up and Down Wall Street column in Barron’s Magazine. He was editor of Barron’s in the 1980s and early 1990s. Mr. Abelson appeared on a national television network “morning show” in the 1980s and offered his amusing and witty insights about investments and world economic conditions. One of his memorable comments: “Gold is the apocalyptic investment. If you think the world is going to end soon, then buy gold!”Abelson’s columns have sometimes spawned controversy because of his often harsh critiques, and in the 1980s he was sued by some targets of his column. However, the suits were unsuccessful, and Abelson is widely viewed as a pioneer of tough coverage of Wall Street.

icon for podpress

China Has Stopped Stockpiling Metals

China has stopped stockpiling metals, according to reports in the Chinese media. Will this put the cap on the recent strength in base metals prices? The AFP reports that, "China has been building its inventories of metals, including 235,000 tonnes of copper, over recent months, Caijing magazine reported on its website over the weekend, citing Yu Dongming, an official with the state economic planner."

"China also bought 590,000 tonnes of aluminium, 159,000 tonnes of zinc, 30 tonnes of indium and 5,000 tonnes of titanium, said Yu, who works in the National Development and Reform Commission's industry department." Now that metals prices have rebounded, though, will the stockpiling continue, even at high prices? Or was it a case of bargain shopping at everyday low prices? (more)

Citizens Easily Coerced Into UsingGovernment Currency

Citizens can be easily coerced into using the government's currency. Usually it is enough to demand that taxes be paid in that currency. Today, most governments make it illegal to use a foreign currency within their borders.

People in other countries are beyond such simple mechanisms of control. For an international currency, there must be reasons to use the currency voluntarily.

The best currency is the one that is most stable in value. Historically, the premier international currencies, whether the US dollar after World War II, the Dutch guilder in the seventeenth century, or the Athenian owl in the fourth century BC, were those reliably pegged to gold. Gold has been the superlative monetary standard for thousands of years. (more)

Fed’s Yellen Says Interest Rates May Stay Near Zero for Years

July 1 (Bloomberg) -- Federal Reserve Bank of San Francisco President Janet Yellen said the prospect that policy makers will leave the benchmark U.S. interest rate near zero for the next several years is “not outside the realm of possibility.”

“We have a very serious recession, we have a 9.4 percent unemployment rate,” and inflation possibly falling over time below the Fed’s preferred level, she told reporters yesterday after a speech to the Commonwealth Club of California in San Francisco. Given the recession’s severity, “we should want to do more. If we were not at zero, we would be lowering the funds rate.” (more)

Banks Falling 23% Since May Foreshadow S&P 500 Slump

July 1 (Bloomberg) -- Declines of more than 20 percent in regional banks and homebuilders and the failure of transportation companies to erase their annual loss may be signs the rally in the Standard & Poor’s 500 Index is about to fizzle.

Smaller lenders in the gauge lost 23 percent since climbing to a four-month peak on May 8, while builders tumbled 26 percent from May 4, when they reached the highest level since October. Concern that mortgage rates, credit losses and foreclosures are increasing spurred retreats in the companies forecast to be among the biggest beneficiaries of $12.8 trillion in government stimulus spending. (more)

Chart Presentation: Commodities vs. Equities

We are going to get ‘macro’ once again today. At right we show a chart comparison between the CRB Index (commodity prices) and the share price of Coca Cola (KO). Coke has been scaled in semi-log.

Following the commodity bull market of the 1970’s the trend shifted in the early 1980’s away from inflation. From roughly 1980 through into 1998- 99 the share price of Coke rose at very close to a constant and compounding rate.

The point is that once the trend for commodity prices turned lower the offset was a protracted positive trend for large cap consumer-type stocks.


Top 5 Trading Mistakes

Over the years I have seen some repeated mistakes new traders make, and most are relatively easy to avoid if you are disciplined. Before I get into my list of the top five trading mistakes, I’ll mention one more that applies to trading as we move closer to the 4th of July holiday and the summer doldrums. In holiday markets, volume tends to be quiet at times, and that means markets can whipsaw, especially overnight. One large order can move a market significantly. We often see a lot of “noise” going on as we head into a holiday that might not be a true reflection of market fundamentals. It’s a time that’s harder to trade, and might not be the best time to initiate new positions if you aren’t an experienced trader. But if you do want to trade, avoiding the pitfalls is even more important. (more)