[Video] Marc Faber Predicts that China will Fall into "Technical Recession" in a Year

Pretty interesting commentary from Marc Faber in this Bloomberg video, considering he is usually a mega Asian bull.  While his terminology for a recession is different than what is commonly used (two quarters of negative GDP growth) we saw what even a mild slowdown in China did post 2008 Olympics spending spree.   If this comes to bear, the impact on the commodity market would be of course enormous as China is the world's marginal buyer of everything, dominating some markets to the tune of 50% of all global purchases.  Ironically lower commodity prices would be helpful to the strained U.S. consumer, but I don't think the stock market would be looking that far ahead.  Anyhow, just one man's opinion but someone I enjoy listening to. His indicators of why he is seeing bubble activity on the ground in China are also quite interesting. 

As for the Chinese market? It's not acting well at all lately.

Marc also touches on the long term implications of the soaring inequality of wealth distribution in the U.S. - something I've been flagging from day one on this site.  

6 minute video - email readers need to come to site to view.

Are Uranium Stocks Already Carving Out a Bottom?

In late January, I wrote a guest article for Hard Assets Investor that profiled the recent breakout in uranium, and discussed potential ways to profit from the long side.
Then on cue, Japan was rocked by an earthquake that caused the largest nuclear accident in recent memory, and the price of uranium crashed.  Thus thrusting my article into the contrary indicator pantheon!  (Look out, BusinessWeek “Death of Equities” cover – I’m coming for you!)
In all seriousness – fundamentals WERE looking quite positive before the accident.  The three-year breakout had some good old fashioned “rising demand and limited supply” characteristics that appeared to be in place for years, even decades to come.
But has this changed?
Legendary fund manager Felix Zulauf weighed in on uranium earlier this month – he thought that uranium was a BUY.  Though unlikely to move up in the next two or three years, he liked the idea of using this downturn in prices to accumulate some radioactive portfolio exposure, because he doesn’t see any way for the world to meet its future energy needs without uranium.
Checking in with Mr. Market, it appears that uranium stocks, after falling out of the 50th story window, may already be carving out a bottom of sorts:

Time to accumulate some URA? (Source: StockCharts.com)

While it may be too early to declare that a bottom in uranium has been put in, it is interesting to see this fallen angel attempt to regain its composure.  Now may not be a bad time to start accumulating some good uranium stocks.

The traditional way to play uranium is to buy Cameco (NYSE: CCJ), the largest and most well-known uranium miner.  For some diversification, other large-cap miners to consider are Paladin Energy Ltd. (TSX: PDN) and Uranium One (TSX: UUU).

However, buying individual miners can still introduce unnecessary risk into an otherwise solid trade. There’s nothing worse than watching bad management screw up a bull market.
Therefore you can further diversify your miner-specific risk by picking up the new Global X Uranium ETF (NYSE: URA). Here’s a full list of URA’s holdings (which, not surprisingly, features our three aforementioned large-caps as its three largest holdings).

Bullish Consolidation for Agricultural ETF

From its Feb high at 58.25 through today's action, the iPath DJ-UBS Grains TR Sub-Idx ETN (NYSE: JJG) has carved out a high-level bullish consolidation area atop its powerful 7-month uptrend.

When I analyze the Feb-May period via my hourly work, I can make a compelling argument that the consolidation period is complete. Moreover, the price structure is starting a new upleg that will thrust prices above key resistance at 55.85-56.50 towards a projected optimal target of 60.00/30 and possibly an overshoot target zone of 63.60-64.40 thereafter.

At this juncture, only a decline that breaks and sustains beneath 53.35 will begin to compromise the timing of the anticipated upside breakout.

By Mike Paulenoff

Long Euro Speculator Exodus Continues As Dollar Short Covering Pushes USD To First Net Positive Level Since January

The most recent CFTC data is out and the results are in: momentum chasing FX speculators continue to retrench to exit positions, as the Euro long orgy, which as recently as May 3 hit a multi year record at 99.5k net long non-commercial contracts. Fast forward 4 weeks, and the recent plunge in the EURUSD has brought the exposure to just 19.1K contracts, the lowest since January 18, and a level prevalent in October and November of 2010. The 4 week drop is the biggest one month drop, as the momentum to the downside accelerates. Although it may still have a ways to go: the recent "support" is around -50k contracts. At this rate it will be hit in about 3 weeks. In the other camp we have the USD which saw short covering bring it to net non-spec exposure climb from -1,270 to 2,485, the first net positive exposure since January 2011. That said, with the EURUSD on the verge of breaching of 1.43, it seems that the great unwind is now over. A complete historical chart of non-commercial specs, and several other products, can be seen below.

And for those curious, here is the latest weekly update of the 2, 5 and 10 Year treasury exposure: there was some modest 10 year covering even as the net 2 Year position rose to a new high.

Lastly, here's the speculative bonanza in silver. As always, purely in the eye of the beholder.

5

The Economist May 28, 2011

The Economist [May 28, 2011]
English | 120 pages | PDF | 116.3 Mb

download it here


The Economist Audio Edition [May 28, 2011]
English | MP3@48 kbps | 8 hrs 52 mins | 187.53 Mb


download audio here

Food Prices Rise on Higher Wholesale Costs

U.S. food-price inflation may top the government’s forecast as higher crop, meat, dairy and energy costs lead companies including Nestle SA, McDonald’s Corp. (MCD) and Whole Foods Market Inc. (WFMI) to boost prices.

Retail-food prices will jump more than the U.S. Department of Agriculture’s estimate of 3 percent to 4 percent this year, said Chad E. Hart, an economist at Iowa State University in Ames. Companies will pass along more of their higher costs through year-end, said Bill Lapp, a former ConAgra Foods Inc. chief economist. The USDA will update its forecast today.

Groceries and restaurant meals rose 2.4 percent in the four months through April, the most to start a year since 1990, government data show. During the period, rice, wheat and milk futures touched the highest levels since 2008, and retail beef reached a record. Yesterday, J.M. Smucker Co. announced an 11 percent price increase for Folgers coffee, the best-selling U.S. brand, after the cost of beans almost doubled in a year.

“It’s going to be a tough year” for U.S. shoppers, said Lapp, who is president of Advanced Economic Solutions, an agriculture consultant in Omaha, Nebraska. “You’re looking at an economy where a lot of consumers are under some serious pressure from food and fuel costs.”

Even after a drop in commodities this month, seven of eight tracked by the Standard & Poor’s GSCI Agriculture Index are higher than a year earlier as adverse weather damages crops, rising demand erodes inventories and a weak dollar boosts demand for U.S. exports. Corn futures are up 98 percent, wheat gained 67 percent, raw sugar advanced 44 percent, and rice jumped 25 percent.

Crop Damage

Dry weather during this year in Europe, China and the southern Great Plains of the U.S. may cut crop yields, while floods along the Mississippi River this month may slow planting of corn, soybeans and rice. The U.S. is the world’s largest agricultural exporter.

The United Nations Food and Agriculture Organization said May 23 that price swings will persist in coming years because of mismatches between supply and demand. The FAO said May 5 that global food costs rose in April for the ninth time in 10 months, near the record reached in February. Signs of inflation have prompted at least two dozen central banks, including in China and Europe, to raise interest rates this year.

Higher wholesale costs over the past two years are still working their way through the supply chain, and companies including foodmakers and grocers are showing more willingness to pass along the increases to consumers, said Hart, the Iowa State agricultural economist.

Delayed Retail Increases

Surging prices for corn, used mostly as livestock feed, have contributed to the rally in wholesale beef and pork costs during the past year, as livestock producers limited herd expansion to limit expenses on feed.

“The biggest impact is six to 12 months out” for meat prices, Hart said.

Whole Foods, based in Austin, Texas, and the largest U.S. natural-goods grocer, said vendors have increased food prices this year. “Right now, we’re able to pass it all on,” Co-Chief Executive Officer Walter Robb said May 4 in a telephone interview.

Oak Brook, Illinois-based McDonald’s, the world’s biggest restaurant chain, raised U.S. menu prices 1 percent in March to help offset higher commodity costs, Chief Financial Officer Peter Bensen said during an April 21 conference call. The company expects food expenses to increase as much as 4.5 percent in the U.S. and Europe this year.

‘Alarming’ Gains

Double-digit gains in pork, butter, coffee and lettuce costs during the three months ended April 29 led Lebanon, Tennessee-based Cracker Barrel Old Country Store Inc. to raise restaurant menu prices by 1.5 percent in March. Commodity inflation has been “above our expectations,” Chief Executive Officer Michael Woodhouse said yesterday on a conference call.

A prolonged economic slowdown would curb demand and may halt further price increases, said Lapp, the former ConAgra economist. Unlike in 2008, when food rose at the fastest pace in 28 years, consumers are quick to seek cheaper alternatives, he said.

Some of the retail-food increases, including meats, fruits and vegetables, are “alarming,” he said. “The consumer’s ability to absorb higher prices isn’t as robust at this point,” and companies may be less willing to charge more because they don’t want to forfeit market share, he said.

Paul Bulcke, the chief executive officer of Vevey, Switzerland-based Nestle, the world’s largest food company, said May 19 that food-price increases should be gradual and that companies would try to absorb commodity expenses by reducing costs in other areas.

Competitive Environment

Earlier this month, San Diego-based Jack in the Box Inc., a fast-food chain with restaurants mainly in the western U.S., raised its prices 1.5 percent, saying it was being cautious about increases because of the competitive environment. BJ’s Wholesale Club, a discount grocery retailer based in Westborough,Massachusetts, said May 18 that consumers were trading down to less-expensive brands.

The USDA, which bases its forecast on price gains that have already occurred and projections of how increases will play out over the rest of the year, tends to be conservative in its estimates, according to Iowa State’s Hart.

The department last raised its projection in February. Since then, adverse weather has limited prospects for crop supplies more than the government expected, and crude oil is up 42 percent from a year earlier, putting more pressure on agricultural prices, Hart said.

Food prices measured by the Bureau of Labor Statistics rose 0.3 percent in April, bringing this year’s gain to the highest since a 3 percent increase in the first four months of 1990.

Meat Costs Rise

In the first four months of 2011, meat and fish prices rose 4.3 percent, according to the bureau. Consumers paid about $2.722 for a pound of ground beef, a 14 percent increase, while a fresh whole chicken cost $1.261 a pound, slightly lower than $1.28 at the start of the year.

The price of a pound of field-grown tomatoes last month reached $2.27, the highest since 2004 and up 43 percent from the beginning of the year, the bureau said. Fresh fruit and vegetables, which are more volatile because of weather, fell 1.3 percent in April. They have already risen 3.4 percent this year, according to government data.

Jim Rogers on BBC Hardtalk

While I find many of his rhetorical tricks maddening — repeating something doesn’t make it truer; food inventories are not uniform; nothing interesting is monocausal; and reflexive contrarianism is exhausting — but this interview with Jim Rogers on BBC Hardtalk is worth a watch/listen.

UN sees risk of crisis of confidence in U.S. dollar

The United Nations warned on Wednesday of a possible crisis of confidence in, and even a “collapse” of, the U.S. dollar if its value against other currencies continued to decline.

In a mid-year review of the world economy, the UN economic division said such a development, stemming from the falling value of foreign dollar holdings, would imperil the global financial system.

The report, an update of the UN “World Economic Situation and Prospects 2011” report first issued in December, noted that the dollar exchange rate against a basket of other key currencies had reached its lowest level since the 1970s.

This trend, it said, had recently been driven in part by interest rate differentials between the United States and other major economies and growing concern about the sustainability of the U.S. public debt, half of which is held by foreigners.

“As a result, further (expected) losses of the book value of the vast foreign reserve holdings could trigger a crisis of confidence in the reserve currency, which would put the entire global financial system at risk,” it said.

The 17-page report referred at another point to the “still looming risk of a collapse of the United States dollar.”

Rob Vos, a senior UN economist involved with the report, said if emerging markets “massively start selling off dollars, then you can have this risk of a slide in the dollar.

“We’re not saying the collapse is imminent, but the factors are further building up that we could quickly come to that stage if other things are not improving quickly on other fronts — like the risk of the U.S. not being able to service its obligations,” he told Reuters.

UN economists have for some time queried whether the dollar should continue to be the world’s sole reserve currency. Others have also expressed concerns about U.S. finances.

Standard & Poor’s threatened on April 18 to downgrade the United States’ prized AAA credit rating unless the Obama administration and Congress found a way to slash the yawning federal budget deficit within two years.

A downgrade would erode the status of the United States as the world’s most powerful economy and the dollar’s role as the dominant global currency.

Treasury Secretary Timothy Geithner said on Wednesday the U.S. government would “never default on its obligations.”

ASSET BUBBLES

Assessing the broader global economy, the UN report said recovery from the 2008 financial crisis continued to be led by China, India and Brazil, but that their growth outlook was moderating due to fears of inflation and domestic asset price bubbles.

It took a slightly more optimistic view of world growth prospects than it did six months ago, forecasting 3.3% expansion this year and 3.6% in 2012, compared with 3.1% and 3.5% respectively.

The United Nations uses a different exchange rate calculation than the International Monetary Fund and the Organization for Economic Cooperation and Development, making its global growth figures slightly lower.

It boosted its forecast for U.S. gross domestic product growth this year from 2.2% to 2.6% but kept next year’s estimate steady at 2.8%.

The report cut Japan’s growth outlook this year by more than a third to 0.7% following March’s catastrophic earthquake, tsunami and nuclear plant crisis. It put damage to buildings and infrastructure at about 25 trillion yen (US$305-billion) or 5% of GDP.

Despite a recent surge in oil prices, it predicted that barring major disruptions from political unrest in the Middle East, they would level off at an average $99 a barrel this year — close to the price of U.S. crude on Wednesday — and fall to an average of US$90 next year.

“Supply and demand conditions do not warrant a continued upward trend,” it said.

Food prices have also been soaring but the report said better harvests were expected to moderate them in the second half of this year.

Copper, Coal to Lead Commodities, Standard Chartered Says

Copper, gold, iron ore and coal will lead a rally in commodities over the next two to three years as demand for raw materials from China and India outpaces supplies, according to Standard Chartered Plc. (STAN)

“There is a lag between the supply and the demand and that’s going to drive these commodities higher over the next three years,” Ashish Mittal, the bank’s global head of commodity sales, said in an interview in Mumbai. “During the global financial crisis a lot of investments got postponed.”

The Standard & Poor’s GSCI Index of 24 raw materials beat stocks, bonds and the dollar for five straight months through April, the longest run in at least 14 years, as investors sought a haven against accelerating inflation. Goldman Sachs Group Inc. said this week it’s turning “more bullish” on raw materials and suggested buying oil, copper and zinc, reversing its call last month to sell commodities.

The Group of Eight leaders yesterday singled out the surge in commodity prices as a significant threat to the global economic rebound and pledged to cut the debt built up in the wake of the 2008 financial crisis. Food costs may extend gains as it will take time for producers to catch up with demand driven by the rapid growth of emerging economies, the Bank of Japan’s assistant governor Hiroshi Nakaso said yesterday.

Increases in commodity prices kept global food costs near a record in April, prompting central banks from Brasilia to Beijing to raise interest rates and helping spur conflict and riots in the Middle East and North Africa.

Population Unrest

“People can manage with high fuel for cars but they can’t manage with high food prices,” Mittal said. “That is the biggest problem that governments are facing, because what you don’t want is unrest amongst the population.”

Mittal says agricultural commodities will move with crude oil prices, as gains in oil will spur demand for alternative fuels made from crops such as sugar, corn and palm oil.

An index of 55 food commodities rose to 232.1 points last month from 231 points in March as grain costs advanced, according to the United Nations’ Rome-based Food and Agriculture Organization. The gauge climbed to a record 237.2 in February.

The S&P GSCI Index plunged 11 percent in the week ended May 6, the most since December 2008. Still, it’s gained 10 percent this year, led by gasoline, gas oil and silver. Silver for immediate delivery has jumped 22 percent this year, while crude oil has advanced 10 percent. Gold for immediate delivery reached a record $1,557.57 an ounce on May 2, while copper futures in New York rose to an all-time high of $4.6575 a pound on Feb. 15.

‘Pretty Steep’

“It’s good the correction happened because the run-up was pretty steep and it was one-way,” Mittal said. “We will see some of these commodities rally back up again.”

Commodity assets climbed $5.8 billion in April, bringing total assets under management to record $451 billion, according to Barclays Capital. Flows from the start of 2011 gained almost $23 billion, or $6.8 billion more than in the year-earlier period, the bank said in a report yesterday. Precious metals had inflows of $3.2 billion over the month, the largest since June 2010, and agriculture received $1.1 billion, it said.

Demand for commodities from India, the second-most populous nation, will increase, Mittal said.

“Consumption of commodities in India is still quite low,” he said. “As power plants develop, the road network develops, you see development happening in the hinterland. There will be an increase in consumption, an increase in demand from the current levels in India, and it’s going to be pretty substantial.”

India’s commodity demand has reached a tipping point and growth is set to accelerate significantly, with metals demand likely to increase 80 percent in the next five years, Barclays Capital said last November.

Coal demand in India may more than triple to 2 billion metric tons in the next two decades asAsia’s second-fastest- growing major economy seeks fuel to generate electricity and run steel and cement plants, according to the government.

The Same Patterns, Over and Over...

Technical analyst Chris Kimble starts off the last day of the business week with some musings about the market in the context of one of my all-time favorite films, Groundhog Day.

Click for a larger image

Chris comments: Markets of late remind me of the "Groundhog Day" movie: The same thing (patterns all look alike) and the same action (back and forth between support and resistance), over and over and over. 

In the movie, Bill Murray's day finally changed. Likewise in the markets, these patterns will finally end as the bulls and bears finally create either a breakout or a breakdown.

Rising consumer confidence lifts stocks

Maybe American consumers are better off than everybody thought.

A key measure of consumer confidence rose unexpectedly this month. Meanwhile, Americans' spending and income rose in April, giving stocks their third straight day of gains on Friday. The market was still down slightly for the week.

The Thomson Reuters/University of Michigan Consumer Sentiment index rose to 74.3 in May, above analysts' estimates of 70. Concerns about higher gas prices and inflation knocked the gauge down in March and April.

Gas prices have come down in May after reaching nearly $4 last month, giving a lift to the closely watched measure of how people feel about the economy. That raised hopes that people might be willing to spend more.

"That's what a 25-cent drop in gas prices will do," David Ader, bond strategist at CRT Capital Group, wrote in an email to clients.

Both personal income and spending rose 0.4 percent in April, in line with what economists expected, according to the Commerce Department. Still, higher prices for food and gas ate up most of the gains in income. The report from the Commerce Department lags by a month, so the recent decline in gas prices isn't reflected in those figures.

The Dow Jones industrial average rose 38.82 points, or 0.3 percent, to 12,441.58. The Standard & Poor's 500 index rose 5.41 points, or 0.4 percent, to 1,331.10. The Nasdaq composite rose 13.94 points, or 0.5 percent, to 2,796.86.

All three major stock indexes fell slightly for the week, the fourth week in a row of declines. The Dow lost 0.6 percent, and the S&P 500 and Nasdaq each lost 0.2 percent. The last time stocks fell for four weeks in a row was February 2010. Still, the Dow is up 7.5 percent for the year. The S&P 500 is up 5.8 percent, the Nasdaq 5.4 percent.

The week started with a batch of bad news from Europe. Another downgrade of Greece's already weak credit rating, a warning on Italy's debt and a defeat of Spain's ruling party deepened worries about Europe's fiscal crisis. The Dow fell 131 points on Monday after the news.

U.S. stock indexes hit their highest levels of the year April 29 following a strong run of corporate earnings. The S&P 500 has lost 2.4 percent since then as Greece struggles to avoid default and U.S. economic forecasts were revised lower, partly due to high gas prices.

Marvell Technology Group Ltd. jumped 11 percent. The maker of chips for data-storage and Blackberry's smartphones reported a slight drop in earnings. But Marvell's CEO forecast higher sales in the current quarter.

Another chipmaker, Broadcom Corp. rose 5 percent. FBR Capital Markets said Broadcom should benefit from growing demand for smartphones. FBR put the company on its list of top picks.

CVS Caremark Corp. rose 2 percent after the pharmacy benefits company won a three-year contract from the Blue Cross Blue Shield Federal Employee Program.

Nearly three stocks rose for every one that fell on the New York Stock Exchange.

Trading was thin ahead of the Memorial Day holiday. Consolidated volume on the NYSE was 2.8 billion shares. Markets will be closed Monday.