Friday, October 15, 2010

Is the Canadian dollar headed to US$1.20?

A currency war is raging around the world as central banks attempt to keep their country’s exports competitive by letting the value of their nation’s money collapse.

The Canadian dollar (a.k.a the loonie) is one of the few exceptions and is rising in value almost daily against the falling U.S. dollar.

So where is the loonie, which just a few years ago was trading at US$0.62, headed in a world where most of its competitors seem determined to devalue their currencies?

Many leading analysts believe the dollar is actually at a crossroads that could see it shoot has high as US$1.20 over the next year.

On the one side, demand for Canadian exports like oil, copper and potash are rebounding.
And with Canada’s national finances and banking system in great shape compared to many countries, the loonie is increasingly in demand as a safe-haven currency. (more)

Totalinvestor Chart of the Day: T-Bonds

Are we finally topping out in the T-Bonds?

The double top formation in the price with a lower high in the MACD and the Stochastics shows us that it is a possibility the uptrend is running out of steam.

Keep a close watch.

Jim Grant: The World Is Abandoning the US Dollar

The United States has piled on so much debt that world is going to abandon the dollar, says Jim Grant, founder and editor of "Grant’s Interest Rate Observer."

“By the numbers, we are more encumbered now than we have ever collectively been,” Grant tells the Business Insider.

The United States debt has soared to the point where people can expect to see the dollar get the same reaction as in the 1970s, Grant tells the Business Insider. He said that European hoteliers in the Carter years would ask American tourists if they could pay in anything but greenbacks.

“The world has expressed preference for currencies not called the dollar. It’s happened,” he told the Business Insider.

Economists often grab headlines disagreeing with one another about the fate of the U.S. economy, with some experts such as Paul Krugman arguing for more stimulus to kick-start a recovery while others, such as Niall Ferguson, arguing debt is already out of hand. (more)

How Far Can Corn Go?

This trading week started just as it ended last week; with a bang. On Sunday night, corn futures prices advanced near the limit price of 45 cents or close to it for most of the night. It would have been one for the record books if corn had stayed limit up throughout the trading day Monday, since the daily limit for corn futures would have been 60 cents on Tuesday.


December Corn Futures - Daily

Chart provided by APEX

However, corn still made a new 2-year high of 588 on Wednesday. This was due to an extremely bullish USDA report last Friday morning. The USDA pegged the corn bpa at 155.8 and production at 12.664 billion bushels. Trade expectations were much higher at 160 bpa and production to be at 12.95. The number that has the biggest potential price impact on the market down the road is 2010/11 corn ending stocks. The USDA pegged it at just 902 million bushels, compared with trade expectations near 1.116 billion bushels. This is the fifth consecutive month that ending corn stocks have decreased. This results in a stocks/usage number of 6.7%, which is the second lowest in history, next to the 5% back in 1995/96. Global ending stocks for corn were also down by about 3 million tonnes from last month to 132.36 million tonnes. Due to the Columbus Day holiday on Monday, the USDA gave us our weekly export inspections Tuesday morning, which came in at 30.7 million bushels. This is down from 37.8 million bushels last week. The trade was looking for a range of 30-34 million.

Crop progress came out Tuesday after the close. The U.S. corn harvest came in at a record pace of 51% complete. This is well above last year's mark of 13% and above the 10-year average of 34%. With the weather being ideal for harvesting last week, this might have been a little lower than expected due to farmers concentrating on soybeans and waiting for their corn to dry. The key number this week will be tomorrow's weekly export sales report. The trade is looking for a potentially large corn export number tomorrow of between 1.5-1.8 million bushels, which will give additional support to the corn market. (more)

The Coming Collapse of the Real Estate Market

The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.

Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets. As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs--Fannie, Freddie and FHA--and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.

There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.

The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.

But then the private owners and managers of the "too big to fail" banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.

Could anything be sweeter for the big banks? No. (more)

More on the Case for Silver Markets

by David Galland

Warming up the digits today, I can’t help but note that gold broke in to new record territory – above $1,380 in the overnight markets.

A new record in nominal terms, that is. To top the previous high in inflation-adjusted dollars, gold will have to approximately double from here.

Silver, however, hasn’t even made it halfway back to its prior nominal high of $49.45 an ounce, achieved on January 21, 1980. In order to break in to new territory in inflation-adjusted dollars (using the same CPI calculation methodology used in 1980), silver would have to rise to over $250 an ounce – five times where it is today.

Since I’ve strayed into the topic of silver, I want to briefly expound on the silver stats I mentioned in passing following our recently concluded Gold & Resource Summit. Urged on by one dear reader, I dug a bit deeper to come up with the following overview I hope you’ll find useful.

Due to the fact that silver’s industrial applications result in destroying the stuff, there is currently a total of only 1,234,590,000 “investable” ounces of silver in aboveground supplies. At $21 per ounce, the total value of aboveground silver comes to only about $26 billion dollars. (more)

Russia's Currency Reserves Exceed $500 Billion for First Time Since 2008

Russia’s international reserves rose to the highest in two years last week as the strengthening euro bolstered the world’s third-largest foreign currency stockpile.

Reserves jumped $6.7 billion to $501.1 billion, Russia’s central bank said in a statement on its web site today. It’s the first time the reserves have broken $500 billion since mid- October 2008, a month after the collapse of U.S. brokerage Lehman Brothers Holdings Inc. triggered the global credit crisis.

“This is only because the euro moved so much,” Alexey Moiseev, chief economist and head of research at VTB Capital, the investment banking arm of Russia’s second-largest bank, said by phone in Moscow today. “Russia will give up the 500 level as soon as the euro starts to pare back its gains.”

The euro climbed 1.1 percent against the dollar last week, its fourth straight week of gains, as investors shunned U.S. assets amid concern the economic recovery will slow and the Federal Reserve may ease monetary policy further. Euros account for 41 percent of Russia’s reserves, while dollars constitute 47 percent, British pounds 10 percent, Japanese yen 2 percent, along with a small amount of Swiss francs, First Deputy Chairman Alexei Ulyukayev said in June. (more)

A 3-part strategy for successful investing

Many investors start out thinking that the way to make money in the stock market is to “buy low and sell high”. This, though, is hard to do. You can only spot a ‘low’ or a ‘high’ in hindsight. No one succeeds at it routinely. But you can make a big improvement in your investment results by following these three simple rules, which are the core of my approach to investing.

1. Invest mainly in established companies

These companies have a proven business concept, and a history of earnings if not dividends that stretches back through one or more recessions or economic downturns. When the economy goes into a lengthy downturn, established stocks inevitably hold up better than average, and recover quicker than the average stock. In contrast, the most vulnerable companies in a downturn are those that were losing money or only marginally profitable, even when times were good. (more)

China and the Future of Rare Earth Elements

A recent diplomatic spat between China and Japan has heightened territorial tensions and called attention to China’s growing forcefulness with foreign powers. One of the more intriguing aspects of this development was China’s suspension of the export of “rare earth” elements (REE) to Japan. REE comprise 17 metallic elements with a variety of modern industrial and commercial applications ranging from petroleum refining to laptop computers to green energy applications to radar. China produces roughly 95 percent of the global supply of REE and Japan is the largest importer. China’s disruption of REE shipments to Japan has caused alarm among other importer countries, bringing new urgency to the search for new supplies and substitutes.

The China Factor

Chinese control of the base of the REE supply chain has increasingly made China the go-to location for the intermediate goods made from REE. In time, China hopes to extend production into the final products as well. As new REE supplies cannot be brought online overnight, the Chinese will enjoy a powerful position in the short term. The Chinese Ministry of Commerce reports that China has ratcheted down REE export quotas by an average of 12 percent per year over the past five years, further leveraging this position. Reflecting that and the current China-Japan spat, the average price for REE has tripled in the year to date.

Rare earth elements are not as rare as their name suggests, however. Before the Chinese began a dedicated effort to mass-produce REE in 1979, there were several major suppliers. Pre-China, the United States was the largest producer. Appreciable amounts of REE were also produced in Australia, Brazil, India, Malaysia and Russia. Any sort of real monopoly on REE, therefore, is not sustainable in the long-run. But before one can understand the future of the REE industry, one must first understand the past. (more)

BNN: Top Picks

Don Lato, managing director, equities, Goodreid Investment Counsel Corp., shares his top picks.

click here for video