President Obama‘s budget, released Monday, was conceived as a blueprint for future spending, but it also paints the bleakest picture yet of the current fiscal year, which is on track for a record federal deficit and will see the government’s overall debt surpass the size of the total U.S. economy.
Mr. Obama‘s budget projects that 2011 will see the biggest one-year debt jump in history, or nearly $2 trillion, to reach $15.476 trillion by Sept. 30, the end of the fiscal year. That would be 102.6 percent of GDP - the first time since World War II that dubious figure has been reached.
And the budget projects the government will run a deficit of $1.645 trillion this year, topping 2009’s previous record by more than $230 billion. By contrast, 2007’s deficit was just $160 billion altogether.
Still, amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large. (more)
Tuesday, February 15, 2011
Bear Season In The S&P 500 & Oil
Mr. Market has had an appetite for S&P 500 bears for several months now. In each instance in which the bears think they are going to get away, Mr. Market draws up his high powered rifle and drops the bears just before they can comfortably return to their caves. Just when the bears think they have escaped and are home free, Mr. Market reminds them who is in charge. However, Mr. Market’s appetite for oil bears has diminished tremendously over the past week as the U.S. Dollar and geopolitical news coming out of Egypt pushed oil prices lower. Mr. Market’s appetite is always changing it would seem, but right now he is enamored with S&P 500 bear meat and not really that interested in the oily bear meat. The question remains whether his tastes will change in the near term, or if he will continue to turn S&P 500 bears into fodder and steak.
S&P 500
With all metaphors and short stories aside, the price action in the S&P 500 for the past several months has been devastating for bears. Going back to November of 2010, every key resistance level ended up being taken out by the bulls and prices pushed higher and they push higher still. Last Friday’s close pushed prices to new recent highs and in time prices may challenge long term overhead resistance levels. The table below shows just how extended the equity market is: (more)
Copper at record high on China trade data Silver atop $30, its best since early January
Copper futures settled at a record high Monday as China trade data surprised the market and pushed prices higher while gold made small advances.
Gold futures settled in with modest gains, a reversal following two sessions of losses, and silver closed at a six-week high, inching closer to $31 an ounce.
Copper for March delivery /quotes/comstock/21e!f1:hg\h11 (HGH11 462.80, -0.05, -0.01%) rose 9 cents, or 2%, to settle at $4.63 a pound on the Comex division of the New York Mercantile Exchange.
“Chinese trade data for January showed a robust increase in copper imports which took the market by surprise,” said Gayle Berry, an analyst with Barclays Capital in London.
Traders had expected imports to fall. “China had been a drag on prices for the past 6 months or so as it destocked but this recent recovery in imports has removed some of the drag, propelling prices higher,” Berry added. (more)
Monday, February 14, 2011
Philip Williams: Uranium to Cross $100 Threshold in 2011
The Energy Report: In January, Macquarie Research said it expects the uranium spot price to reach $75/lb. in the first half of 2011 with the main driver being China's growing energy demands. Where does Pinetree Capital Ltd. (TSX:PNP) see uranium trading at in 2011 relative to Macquarie's forecast?Philip Williams: We continue to be very bullish on the price of uranium. It's had a very good run of late and we see that continuing for many of the same reasons that Macquarie does. I think for the early part of the year $75 is a good number, but it could surpass that substantially by year-end. By then, we think that the price will be at the $100 level and maybe even higher. We've got China doing quite a lot of stockpiling, especially on the spot market. We see the producers as being overcommitted right now. We also think that financial-speculator activity will come back to the market. All those events will culminate in a much higher price.
TER: The last time we saw a similar price spike in uranium was in 2007, when prices for yellowcake rose above $130 per pound. After that, prices dropped off dramatically. If these financial speculators are just looking for short-term money and getting out again, could we see a similar price drop?
PW: I think there are two things to think about. In 2006–2007, the uranium price was driven up mostly by financial speculators and I think they're coming back into the market. When the run-up in the price was on, in some cases, a very small amount of uranium actually changed hands. With China's recent uranium stockpiling, we've seen quite a lot of material go through the market at these prices. I think we'll probably get a spike similar to the last one and it could be even higher, and then it will pull back. But I think we're going to have a much higher base price this time than we did last time. After 2007, the price came back to about $40. I think it's going to be substantially higher; it could be a price that falls back into the $80–$100 range. (more)
Wheat’s Rally to Fuel Gains in Rice, Zeigler Predicts
The price of rice, the staple food for half the world, may advance as wheat’s rally drives consumers to seek alternatives, according to Robert Zeigler, director general of the International Rice Research Institute. “Rice typically tracks wheat increases,” Zeigler said in an interview on Bloomberg Television today. “Wheat prices started to spike in last July, and rice prices followed them up,” Zeigler said, describing it as a “follow-on effect.”
Wheat climbed to the highest level in more than two years this week on concern drought in China may curb output, boosting competition for dwindling global supplies. The world’s neediest people are most affected by food costs, which reached a record last month, World Bank President Robert Zoellick said yesterday.
“We’re dealing with staple foods here and a price rise in one should lead to some degree of substitution towards another,” Michael Creed, an agribusiness economist at National Australia Bank Ltd. in Melbourne, said today. “There’s good reason to be bullish about rice prices.” (more)
Major Currency Trends For Major Gain – YEN and Dollar
Over the past few years Forex traders have really had to step up their game in order to continue making money in the currency market. Back in the day before currency trading was main stream, currencies used to trend in a direction for a long period of time with a low level of volatility. But with so many individuals now involved speculating on price action coupled with international concerns in most countries, the once slow and steady currency market now moves like the stock market with large price swings on a weekly and even daily basis.
With currency trading growing at an incredibly fast rate, stock traders have been giving tools to trade currencies using ETFs. If you are familiar with leveraged ETFS then you have most likely seen the huge opportunities (100,200 even 400% gains) which they can provide during major trends. Below are a couple major trends that both Forex and ETF traders should be keeping their eye on.
Japanese Yen – 30 year Monthly Chart
Over the last couple years China has taken most of Japan’s manufacturing, creating some terrible fundamentals overall for the Yen. With a weakening economy and the Yen making a major top in 1995, I feel we could be seeing a 16 year double top forming. This means shorting the Yen for a multiyear correction (bear market). This could generate some serious gains in the coming 2-5 years with very little work.
YCS 200% Short Yen Exchange Traded Fund – Daily Chart Setup
This fund allows stock/ETF traders to play the currency market within a regular trading account. The YCS fund is a 200% leveraged inverse fund, meaning this fund goes up in value as the Yen declines. For example, if the Yen drops 10% in value YCS will rise 20%.
Everyone has seen that infomercial to cook food with the saying “Set-It-And-Forget-It!” Well that’s more or less what this position will be like if we get a setup to buy this fund. This trade could easily last 5+ years with the potential to generate 150% – 400% gain.
US Dollar Weekly Chart Setup
Taking a look at the more common currency “The Dollar”. It has been forming a similar price pattern and is trying to form a base and bottom. The dollar does have one major issue which will most likely cause a breakdown thus an even lower value in the coming year. The problem is that the fed reserve constantly prints money increasing the money supply and devaluing the dollar (quantitative easing).
Currently, the dollar is trading within a large range and is poised for a short term bounce. There will not be any major trends until a breakout of this trading range to either the up or down side.
Major Currency Trends for Major Gains
In short, while playing shorter term trends is exciting and rewarding and keeps us busy on a daily/weekly basis, it is nice to have some long term positions at work which slowly mature into large percentage gains which boost you’re overall portfolio value each year with little work. Both the Yen and Dollar look like there is big potential just around the corner using the buy and hold mentality.
Each year I find 3-5 major opportunities where I can put some money to work, not tie up much capital and if they move 150% or more in my favor then those small investments boost my overall yearly portfolio gains substantially.
I do have another major trend setup forming which I’m calling the “Holy Cow” setup… which could be a real money maker this year. The exciting thing about it is that I have not seen ANYONE talk about this investment in years…
Chris Vermeulen
Russian Debt May Reach 585% of GDP on Demographic Woes
Russia’s debt may surge to 585 percent of gross domestic product by 2050 as the population declines and the government ramps up spending, pushing the credit rating below investment grade, Standard & Poor’s said.
The population will probably shrink to 116 million by 2050 from 140 million last year, forcing the government’s age-related expenditures to rise to 25.5 percent of GDP from 13 percent in 2010 in the rating agency’s “base-case scenario,” S&P credit analysts led by Frank Gill in London said in a research note e- mailed today and dated Feb. 8.
The demographic decline will lead to “prolonged fiscal imbalances,” putting Russia’s credit rating under “rising pressure” after 2015, according to S&P. Russian government debt is rated BBB at Standard & Poor’s, two notches above junk. The country’s state debt made up 9.5 percent of GDP, Finance Minister Alexei Kudrin said on Feb. 2.
“Russia’s aging population will likely place substantial pressure on economic growth performance and public finances,” the analysts wrote. “By 2035, we expect that Russia’s fiscal indicators will have weakened such that they would be more in line with sovereigns currently rated in the speculative-grade category, because, in our view, the projected improvement in GDP per capita would not be able to offset the potential fiscal deterioration.” (more)
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