Tuesday, January 18, 2011
Niall Ferguson On Whether The Financial Crisis Will Lead To America's Decline And A Glimpse Of The "Post-Pax Americana" Dark Ages
1. Winmark Corp (WINA): This is the only stock that underperformed last week. Winmark returned only 0.5%.
2. Trailer Bridge Inc (TRBR): Trailer Bridge was last week’s best performer; it returned 19% vs. 1.7% for the S&P 500 index.
3. Cogent Communications Group Inc (CCOI): There have been recent insider purchases at Cogent Communications around $14 per share. On January 7th the stock closed at $13.74- less than what the insiders paid for it. After we highlighted this stock, it returned 10.4%. (more)
The mainstream media is spinning the latest consumer price numbers as good news, but inflation 2011 is here. The Associated Press called inflation “tepid.” The story went onto say, “The Labor Department said Friday that consumer prices rose 0.5 percent last month, the largest increase since June 2009. Roughly 80 percent of the increase was due to higher gas prices. . . . Without food and energy costs, consumer prices only increased by 0.1 percent for the second straight month. This “core” inflation rate has gained 0.8 percent in the past year, evidence that prices are not rising too quickly.” (Click here to read the entire AP story.) It would be nice to live in a world where you don’t need food or energy, but that simply is not the case. (more)
Despite the best efforts by the American mainstream financial media, the eager PR division of the United States Dollar Ponzi Scheme, to paint the rosiest of rosy pictures for blindly optimistic readers, the stubborn image of a debt-swollen jobless behemoth economy slowly toppling persists. No matter how much U.S. departmental data is primped, polished, and primed, no amount of lipstick is going to transform this fat pig into a princess.
This week's top harbinger headline points to the fact that the United States is once again bumping its fat head on the ceiling of its spectacularly stratospheric debt ceiling of $14.3 TRILLION dollars. That means an act of congress is once again necessary to lift that limit. The alternative is either a) a revaluation of the U.S. Dollar to reflect the depreciation inherent in Quantitative Sleazing as part of a debt restructuring, or b) default.
Default? Could it be?
Never, according to bright-eyed Harvard educated economists and Forexperts.
"The likelihood of a restructuring of US sovereign debt is zero," says MF global currency and fixed income analyst Jessica Hoversen. "As for a downgrade, while it's theoretically possible, it is still extraordinarily unlikely."
Well that's one opinion. (more)
As oil prices approach $100 a barrel, a level the market hasn't seen in over two years, there is growing concern that it could hamper the global economic recovery.
Analysts said the UK and Europe's weakest economies were most at risk from a surge in crude oil to near $100 a barrel.
The higher costs of everything from gasoline to heating oil, jet fuel and the myriad of products that have an oil component is a tax on growth at a time when prospects for recovery in these countries are so fragile.
While few analysts see oil returning to its high of $147 hit in 2008 because of oil producers' excess capacity, crude prices do represent a threat to the global economy and particularly to Europe at levels even well below that.
"Whenever the size of the energy sector in the global economy reached 9 percent, we went into a major crisis," said Sabine Schels, a commodity analyst at Merrill Lynch.
"It was in the 1980s and it was the same in 2008. Right now we are at about 7.8 percent and if you go above $100 per barrel to $120 per barrel, you get to that 9 percent level."
Rising oil prices may increase pressure on the Bank of England to raise interest rates to offset already high inflation, some economists said.
The weakness of the euro due to the euro zone's debt crisis will also make the higher oil price more difficult to swallow in weak economies such as Greece, Ireland, Portugal and Spain. (more)
Batten the hatches: continue shorting gold stocks, and buy . . .
JOHANNESBURG - By now, anyone or anything not predicting that the gold bullion price will continue rising has been hunted off the face of the planet. Never mind a decade of bull markets for the yellow metal (and a near fivefold rise in prices), GFMS this week reckoned the metal could broach $1 600/oz by year-end.
An all time record of $1 431/oz was seen less than two months ago. The strange thing, for which there is no ready explanation, is that investors (and speculators, as always) are broadly selling off listed gold stocks. The metal is currently trading just 4% below its record level, but listed gold stocks have been clobbered for more than a month.
The US-quoted SPDR Gold Shares ETF, the world's biggest gold exchange traded fund (ETF) (market value: $56bn), tracks the bullion price, as ever, and is just 4% off its highs.
For miners of the metal, stocks prices look painfully out of synch. Toronto-based Barrick, the world's biggest gold digger by value and output, has surrendered 15% of its NYSE-quoted market value, now at $47.4bn, since early December, when dollar gold bullion most recently peaked. (more)
Gold has hit its lowest closing level (but not yet its intra-day level) in almost two months. The intermediate term momentum indicator is at its lowest level since early August. The price action seems to be developing a weaker and weaker strength, not usually a good sign.
I mentioned the intermediate term momentum weakness in the introduction. Even the long term momentum is showing greater weakness than the price action. The indicator is well below recent levels while the price is still holding its own, but weakening. The long term weekly price/momentum chart shows the two year old up trending channel in the price action and the support line in the momentum. The momentum support appears ready to be breached but the price action is still some distance from its channel support line. The weakening momentum may be more of a sign of intermediate term reversal than a long term reversal. There is still a long way to go for the momentum to get into its negative zone (below 50%). The one thing that this action DOES suggest is that one should hold off on new purchases until things get a little stronger or if one just must buy then one should understand that one is doing so at a time of much greater risk of reversals. Since the indicators are not yet bearish one would not be on the sell or short sell side as far as long term commitments are concerned. Most likely what lies ahead may be a very good new buying opportunity but not yet. The daily and weekly action should tell us when it’s ready to start new purchases again. (more)
Early in November of 2010, the Canadian Government made a landmark decision regarding the purchase of Potash Corp. [POT - TSX] by BHP Billiton, opting to reject the transaction on the basis of it providing “no net benefit to Canada.” Since the announcement was made, much speculation erupted over what were the true reasons behind the feds' intervention. Potash Corp. currently reigns as the world's largest fertilizer producer, and thus wasn't particularly an entity the government wanted to see handed over to the BHP group from down under. The implied future control over our own food supply is apparently more important to the feds than the foreign entities entering into Alberta's oil sands.
But in the aftermath of the ordeal, potash as an investment focus has gained a lot of steam. The price for the big players such as Potash Corp. or even its provincial rival Mosaic are a little too high for those who follow the higher-yield, higher-risk TSX Venture Exchange. Here are some of the stocks we're following closely as impacts from the global food market weave their investment magic.
Marifil Mines Ltd. [MFM – TSX.V]
Current Price: $0.21
52wk Range: $0.06 - $0.25
Market Cap: $10.88M
Instead of dabbling in the rolling prairie fields of Saskatchewan, Marifil snapped up 47,150 hectares of potash lands in Argentina. The K3 Project as it is called has good potential for salt horizons at depths ranging from 500m to 2,000m, while further analysis in the works from local abandoned oil wells. The site is nearly 50kms NW of Brazilian giant Vale's massive Rio Potasio potash mine, which has a resource of 2 billion tons of potassium chloride. On top of the potash upside of K3, Marifil also has further prospective amounts of uranium, sulfur, lead, zinc and asphaltites on the property. All in all, the company holds over 20 properties that also focus in precious metals, copper, nickel and an oil and gas target called Mina El Carmen. (more)
For obvious reasons, there has been a great deal of discussion about actual, formal “defaults” in the gold and silver markets. Among those “obvious reasons” is that informal defaults are apparently already taking place in both markets.
Beginning in the London gold market over a year ago, and now rumored to be occurring in New York’s “Comex” silver futures market, buyers who have legally contracted to take “physical delivery” of the metals they have purchased are said to be accepting large, paper bribes to accept a “cash settlement” instead.
There are many reasons for investors to take such “rumors” seriously. Empirically, we see the premiums being charged for physical bullion (even from large, established dealers) rising to levels never before seen (around the world). This strongly suggests a very tight market for bullion. This is confirmed through the anecdotal reports of both industrial users and large institutional investors (such as Sprott Asset Management) that they are having a great deal of difficulty locating any large quantities of bullion available for sale.
In theoretical terms, we are merely seeing the culmination of arrogant bankers attempting to defy the elementary laws of supply and demand for over a quarter of a century. Even those with no training in economics know the basic rule (since it is merely an expression of common sense): when prices rise, demand falls; when prices fall, demand rises. (more)
Investors in mainland China are clearly expressing concerns over inflation and slowing growth that the USA and much of the rest of the world is comfortable ignoring for now. The Shanghai Composite fell -3% on Monday to close almost -16% off its November highs. Investors are increasingly concerned over the government’s ability to contain inflation and steer the economy towards a soft landing.
The Shanghai composite has served as a reliable leading indicator of both commodities and equity prices over the course of the last 5+ years. US equity futures are trading down marginally on the news, however, exchanges are closed for trading on Monday.
For his first-ever speech as Britain’s new Minister of Trade & Industry last week, Lord Green faced a formidable audience of 400 Chinese and British business delegates.
The former chairman of HSBC declared that China’s economic growth figures over the past five years represented an “extraordinary historic event”.
Green didn’t need to go over Britain’s experience during the same period for most to agree that plugging into China’s blistering growth - predicted by the IMF to be 10.5pc this year - was of “vital importance” to the UK.
But even as he spoke a hedge fund manager in Mayfair was poring over spreadsheets of sovereign and corporate credit default swaps, interest rate and foreign exchange options with one aim: to “get short on China”.
The manager, who wanted to remain anonymous, said: “The Chinese delegation has said all week that there will be double-digit growth for years to come and the Brits have lapped it up. But the data doesn’t add up. We think we’ve experienced credit bubbles over the past few years, but China is the biggest. And yet the global economy is looking to China as not just a crutch but a springboard out of the recession. It’s crazy.” (more)