4 Industries Profiting from Deflation

October 23rd, 2010

4 Industries Profiting from Deflation

Deflation has become a central concern these days. The Federal Reserve sweats the notion of falling prices across the economy, as it tends shrink asset values even as debts against those assets remain constant. And companies hate deflation, because it usually signals weakening revenue, margins and profits. For many firms, it's simply impossible to even think about raising prices. But in a few industries, pricing power has come back, and investors may be underestimating the future earnings power that can result.

Fewer planes means more pricing power
When the airlines experienced the turbulence of 2008, they took a lot of planes out of commission. And as soon as the economy rebounded and demand for air travel started to build, many assumed that the airlines would simply bring all those mothballed planes back on line. It hasn't happened. Instead, airlines saw this as an opportunity to not shoot themselves in the foot, which they had done every time before.

A quick glance at Delta's (NYSE: DAL) recent quarterly results spells out the benefits of restrained capacity. The nation's largest carrier boosted the number of planes in service by 2%, but demand was more robust than last summer, helping Delta to boost revenue per passenger from $12.22 per mile flown to $14.22 — a +16% jump.

The payoff: Analysts at Bank of America note that the publicly-traded U.S.-based airlines likely earned a record $2.4 billion in the third quarter, up from a $260 million loss last year. Industry laggard AMR (NYSE: AMR) even managed to post its first quarterly profit in two years thanks to surging yields and slower-to-rise costs.

Industry watchers expect airline carriers to only slowly add more planes back into the service, below the rate that would lead to price wars. American Express just issued a report predicting that tight supply will enable airfares to rise another +2% to +6% in the United States next year, and +5% to +10% in the rest of the world. That's a real positive for Delta, AMR and United Continental (NYSE: UAL), as these carriers are most heavily exposed to international travel. The weak dollar may impede some Americans from traveling abroad, but could trigger a fresh surge of foreign tourism to the U.S.

Fewer discounts mean higher prices
Auto makers are also benefiting from restrained supply to help firm prices. Advertised prices for new cars and trucks are rising only modestly, but auto makers are finally able to stop the rebate game, which often took $1,000 to $2,000 off of the listed price. They can afford to do that since many auto plants were shuttered during the downturn, and few will be re-opened. Domestic auto plants are now producing two million fewer cars than a few years ago, and similar cutbacks have been made in Europe.

Even as industry sales still remain in a funk, pricing power is already in evidence. Goldman Sachs expects U.S. auto and truck sales to be around 11.5 million this year, well below the 17 million unit levels seen back in 2006 and 2007. Yet they expect that figure to rebound to 13 million next year, 14 million in 2012 and 15 million in 2013. As long as the auto makers expand output at levels in line or below industry sales, they should see continued improvements in pricing power.

As an example, Ford Motor (NYSE: F) has produced about -10% fewer vehicles in the third quarter than the second quarter. That means fewer cars will pile up on dealers' lots, and Ford will not need to resort to profit-sapping rebates to move the metal. We're typically bombarded with year-end closeout specials from car dealers in September and October, but that's not happening as much this time around, as inventories remain quite lean.

Reversing the freight pricing trend
When economic activity slowed, major publicly-traded trucking firms such as Arkansas Best, Con-Way, J.B. Hunt, Knight Transportation, and Heartland Express had to take a number of trucks out of service. Nowadays, demand for freight carriers is increasing, and thanks to better control of supply, these firms are finally able to push through some badly-needed price increases. As Dahlman Rose's Jason Seidl recently wrote, “the industry, whose recovery has lagged that of other modes of transportation, is experiencing a gradual return of pricing power, resulting from dwindling capacity and improved demand.”

As this is a business with high fixed costs, moderate revenue growth can lead to much faster profit growth. For example, J.B. Hunt (Nasdaq: JBHT) is expected to boost sales +12% next year (half from volume increases, half from price increases), though per share profits are expected to rise +28%. Arkansas Best (Nasdaq: ABFS) is expected to swing from a $1.31 a share loss in 2010 to a $0.67 per share profit next year.

Alcoa's upturn
Sometimes, an industry giant can set the tone for a whole industry. Alcoa (NYSE: AA), one of the world's largest aluminum producers, has severely reduced output, and management insists that the company will be slow to rebuild output when the industry rebounds. It helps that Chinese aluminum producers are cutting output. I discussed Alcoa's newfound discipline in this recent article.

Alcoa's management discussed the improving industry dynamics in great detail on its recent conference call. Other industry players such as Century Aluminum (Nasdaq: CENX) stand to benefit from Alcoa's leadership on the supply front. Then again, that's bad news for companies like Noranda Aluminum (NYSE: NOR) and Kaiser Aluminum (Nasdaq: KASU), which count on cheap prices to boost their profit margins on manufactured aluminum goods.

Action to Take –> Many of these supply-induced pricing gains are impressive enough in a weak economy. They'll look even more impressive when the economy rebounds, as long as supply growth lags demand growth. These sectors have already posted decent gains, but investors are likely under-estimating their impressive earnings power when the economy is back in growth mode.

Of the companies mentioned here, Ford Motor, Aloca, AMR (because it's much cheaper than the other airline stocks) and Arkansas Best are my favorite names to consider.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
4 Industries Profiting from Deflation

Read more here:
4 Industries Profiting from Deflation

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3 Reasons Platinum Could Outperform Gold in the Months Ahead

October 23rd, 2010

3 Reasons Platinum Could Outperform Gold in the Months Ahead

Back in the heady pre-recession days, all was right with the world. Global production was booming and precious metals prices were through the roof.

Since then, gold has punched through to reach record prices, as producers work furiously to get it out of the ground and investors continually snap up the metal on the hopes that won't go into a freefall. [Is Now the Time to Short Gold?]

If you bought into platinum back in the spring of 2008, when it hit a high of $2,252 on the spot market, you weren't so lucky. It was a rough ride, watching that metal tumble down to a low of $774 later in the investment doldrums of 2008. The roller-coaster is climbing the next hill, but it's a steep one, to reach that peak again.

Platinum has recovered substantially in the past two years, and it has followed an historical trend of outperforming gold, as the pace of production picks up and industrial demand increases. Still, platinum is -25% below its record spot price.

Amid fears that the gold bubble is going to burst, some investors might wonder if platinum could be in for a similar meltdown, should gold beat a hasty retreat.

Platinum, and its sister precious metal palladium, share several traits with gold. Investors crave them and manufacturers need them for a variety of purposes. For many people, their stash of platinum is found in the catalytic converter attached to their car or truck.

Let's look at three factors that could determine where platinum is headed in debating whether it can climb back up to those pre-recession levels.

1. Consider the source
Platinum is one of the rarest of the precious metals, often a byproduct of nickel and copper mining, with annual production of around 7 million troy ounces.

While platinum can be found in many regions including South America and parts of the western United States, South Africa is the world's leading producer, with almost an 80% market share in 2009. Russia was a distant second, with 11%.

Relying primarily on one source for platinum is worrisome. Every miners' strike, political tremor or other production disruption triggers a ripple in the trading pits. Labor problems in South Africa pose a real threat to the world's supply, and the mining companies are facing increasing worker costs.

2. Consider the uses
As mentioned, platinum is needed for catalytic converters in automobiles. Current fuel cell technology also uses platinum, which unlike many metals, is non-magnetic.

While about half the platinum production is used for vehicle emissions control, about one-sixth goes toward jewelry, with smaller percentages used in electronics and other industrial uses. Some even is needed for certain cancer-fighting drugs.

Platinum's unique properties make it popular for jewelry. Fine watches often have platinum cases, because unlike gold, it never tarnishes and doesn't wear.

Recycling of catalytic converters is leading to the recovery of a substantial amount of platinum. But demand continues to rise, especially as China's demand for automobiles continues to increase.

Concerns over climate change are also expected to lead to increased use of the antipollution devices in more industrial equipment. But production isn't expected to drastically increase, in the near term, to meet the rising demand.

ETF, OPTIONS, Uncategorized

What’s Next: Dow 12,000 or Dow 10,000?

October 23rd, 2010

What's Next: Dow 12,000 or Dow 10,000?

Four years ago this week, the Dow Jones Industrial Average hit an important milestone: 12,000. A year later, in October 2007, the venerable index moved past 14,000. But by October 2008, headlines blared “Dow 8,000″ before eventually bottoming at 7,200 in March of 2009. A furious rebound has the Dow back on the rise, surging +54% in the past 19 months to a recent 11,100.

A continued march back to 12,000 is no sure thing, as serious headwinds remain, leading some to expect we'll see “Dow 10,000″ before “Dow 12,000.” One thing's for sure: recent history tells us that the Dow is unlikely to stay put where it is right now. Volatility is the name of the game these days, so let's look at three positive and three negative catalysts that could push or pull the Dow to the next milestone. Any of these factors may play out over the next six months.

The positive catalysts:
1. Sustained profit growth. Earnings season is off to a robust start. Thus far, more than 80% of companies that have reported have surpassed profit forecasts, according to Credit Suisse. This coming week will be crucial, as more than 150 companies in the S&P 500 will report results. How the market responds to what looks to be impressive earnings results will lead strategists to suggest whether the market can rally from here.

Heading into Friday's trading, the Dow finished up in eight of the first 10 trading sessions of earnings season. The other impressive factor this earnings season is that sales are largely coming in ahead of forecasts for most companies, so this isn't simply about cost-cutting.

2. The beginning of the capital spending and hiring cycle. In past economic cycles, robust cost-cutting, which has then led to surging profits, has typically led to a fresh investment cycle in terms of equipment and jobs. This time around, it hasn't happened. The trauma of 2008 was so deep that chief financial officers have been wary of taking any risks.

But history has also shown that companies tend to take action once they see rivals doing so. So it only takes one or two companies in any sector to announce robust expansion plans before others feel compelled to do so. And that creates a positive feedback loop as falling unemployment and higher spending on equipment stimulates the economy onto a higher plane. If this scenario comes to pass, we'll see Dow 12,000 pretty quickly, and begin talking about Dow 13,000.

3. The impact of the Fed's imminent Quantitative Easing. The robust market rebound in September and October is most likely due to an expected boost from the Fed, which reportedly plans to buy back hundreds of billions of dollars worth of U.S. Treasuries in a program dubbed “QE2.” Proceeds from the bond sales would lead companies and consumers to deploy their cash elsewhere in the economy, hopefully stimulating growth. The S&P 500 has tacked on $1 trillion in value since late August when the plan was first floated, according to market strategist Ed Yardeni. [See: "The Fed Is About to Smile on Income Investors"]

The negative catalysts:
1. QE2 doesn't work. The Fed's economy-boosting plans are no sure thing. Providing banks and businesses with more liquidity doesn't mean they'll actually put any new funds to use. Some believe that the Fed is “pushing on a string,” using the wrong levers to get the economy going. In the context of that $1 trillion spike in the S&P companies' value, we could see that evaporate over the winter if QE2 proves unsuccessful. Moreover, the Fed would be printing so much more money that inflation hawks might get newly-spooked.

2. Massive public sector layoffs impede any rebound. State and local governments are in the process of shedding employees, and in some places, in very large numbers. [Read: "12 States in Financial Distress"]

Sometime in 2011, Washington may also decide to conduct widespread layoffs at the federal level as well. A steady reduction in unemployment is crucial for markets to power well higher, but if the private sector fails to create enough jobs to more than offset public sector layoffs, then rising unemployment may well take the Dow down below 10,000 once again.

3. An unexpected exogenous shock. This is always the wildcard, and the adage “expect the unexpected” applies. From the global currency crisis of 1998 to the events of September 11th to the rapid collapse of major Wall Street firms in 2008, the market gets a severe jolt every few years that no one saw coming.

Right now, we can think of a few unsettling situations that can spiral out of control: China's aggressive moves to limit certain mineral exports could set off a trade war; the recent foreclosure mistakes by big banks could lead to a big hit to their income statements and balance sheets; government revenue could come in very weak in the upcoming tax season, leading to concerns of even higher deficits; several high-profile state or local governments could declare bankruptcy in light of their fiscal distress; and tensions in the Middle East could explode into violence, especially between Iran and Israel.

Action to Take –> If I was a betting man on Dow 10,000 or Dow 12,000, I would simply step away from the gaming table. Stocks are not expensive and we may be on the cusp of a long-awaited investment cycle from corporate America. Then again, the market has recently rallied in part on an expected Fed program that may or may not help the economy.

In times like these, it makes sense to sell winners and hold higher levels of cash, as either a capital preservation tool or as a source of funds to buy if the market has a major pullback. But if you have a longer time horizon, the balance is clearly tilted in favor a more robust economy and higher stock markets, though the path from here to there may prove choppy.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
What's Next: Dow 12,000 or Dow 10,000?

Read more here:
What’s Next: Dow 12,000 or Dow 10,000?

Uncategorized

An Economic Standoff to Save the Neighborhood

October 21st, 2010

I was in the living room, happily reading as the kids quietly watched a show on TV that was even more insipid than their usual choice of mesmerizing mindless pap.

I was thinking to myself, “How pleasant! No noise! No strife! No arguing! No social workers telling me I have to do this for the kids, or do that for the kids, or stop doing this to the kids, or stop doing that to the kids!”

Of course, this makes me think of having police cars lighting up the whole neighborhood with their many blinking lights and their banging on my door to “investigate” reports of a deranged old man who has been disrupting the peace by yelling at his neighbors that they were stupid for not buying gold, silver and oil as a strategy of desperation against the raging inflation that is Super Freaking Guaranteed (SFG) because of the creations of massive amounts of money by the Federal Reserve to finance buying the of massive amounts of T-bonds that pay for massive amounts of federal government deficit-spending!

Parenthetically, if this police-action thing ever happens to you, then here’s an Invaluable Mogambo Tip (IMT): Don’t say anything. Say nothing. Wait for a lawyer.

Do not respond with the truth and say, “It’s true! The Federal Reserve is destroying the buying power of the dollar by simply creating so much of them, year after year, and the dollars are being jammed into the economy via astonishing, cataclysmic amounts of federal government deficit-spending, which means that ruinous, catastrophic, excruciatingly painful inflation in prices and economic collapse are 100% guaranteed, and thus it is true that anybody who doesn’t buy gold, silver and oil is doomed! Including my stupid neighbors!”

Looking back on the whole sorry episode with the advantage of 20/20 hindsight, I can see that my mistake was in continuing on, donating my Valuable Mogambo Time (VMT) trying to be helpful and educational to the police, who I thought would appreciate me going out of my way for them. Try to be a nice guy, and look what happens to you!

I say this because transcripts and recordings show, and thus I can prove, that I graciously and generously went on to patiently explain to them, “You stinking, police-state, goon squad storm-troopers are here to silence the Mogambo Voice Of Truth (MVOT) as it rings out – loud as a bastard! – the truth, as is implied in the unforgettable acronym MVOT, which is that We’re Freaking Doomed (WFD)!

“And we are doomed because of such massive, crushing debt, accumulated by people to buy massive amounts of final-user goods and consumption, and to foster a monstrous Frankenstein of an ever-inflating government-centric economy created by a calamitous continually deficit-spending federal government, a seemingly impossible feat made completely possible only by the calamitous, disastrous, treacherous Federal Reserve creating outrageous amounts of new money that will cause inflation in prices!”

The transcript doesn’t show it, but it is at this point where everyone for blocks around was gathered outside, chanting, “Shoot! Shoot! Shoot!” at the police, and I could hear the kids whispering, “Hear that, mom? They are going to shoot!” and how they wanted to go outside, too!

My wife whispers back, saying, “But what if they miss? We had better just hide in the kitchen!” which is where, I suddenly realize, the last piece of fried chicken was that I was saving for myself, and now somebody will eventually get the idea to look in the refrigerator, and they’ll see it, and they’ll decide to eat it, probably figuring that my bullet-riddled corpse would have no use for fried chicken, which, I have to agree, is impeccable logic. But still!

Anyway, the audio record shows that the crowd is now chanting, “Shoot to kill! Shoot to kill!” over and over while the cops are explaining that they can’t just shoot me because there are “hostages” in here with me, which surprised me, but I assume they mean the wife and kids hiding in the kitchen.

Meanwhile, I am clearly yelling through the door, “It is an insane, disgusting, bizarre, despicable display of monetary and fiscal incest that always produces a mutant economy and inflation in prices, a destructive arrangement which can only be maintained by more – always more and more! – deficit-spending and money creation to maintain a constantly rising inflation, year after year, yea unto hyperinflation and total ruination!”

I thought I had made a dramatic closing when I opened the door, stepped out into the bright, blinding glare of lights, threw my arms up and out in a grand gesture, and said, “And all of this is manifestly, indisputably true because that is Exactly The Way (ETW) that it has worked out every time – and I mean Every Freaking Time (EFT)! – in the last 4,500 freaking years of history, which is a sad, sickening story of one corrupt government after another borrowing and spending, and borrowing and spending, and borrowing and spending until it had borrowed more than it could repay, and always for the suicidal, live-for-today privilege of temporarily enjoying the growth of a twisted, bloated, dysfunctional, government-centric economy, which the recognition of, and problems of, seem to be the sole province of the Austrian school of economics, which you dumb cops would know if you had ever been to mises.org and gotten a nice, free, easy education in the One True Economic Theory (OTET), instead of harassing a misunderstood prophet of doom, who is just trying to save his ungrateful and stupid neighbors from the inflationary, catastrophic doom of a corrupt government and a filthy Federal Reserve that is going to befall this country and its people, including you dumb cops!”

Well, the police immediately settled down at the appearance of a seemingly incoherent, unarmed old man. And while they were hustling me away, you could hear me on the recording, my voice growing fainter and fainter, saying, “So buy gold, silver and oil to protect yourselves, you morons! Gold, silver and oil! And if you don’t, then you actually are dumb cops, and about whom I implied as much at the end of the previous paragraph!”

You can see that it is difficult to get the message out about buying gold, silver and oil as a defense against the government and Federal Reserve destroying us with overspending and over-creation of money, respectively.

But you will be happy to know that buying gold, silver and oil stocks is so easy that you will say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

An Economic Standoff to Save the Neighborhood originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
An Economic Standoff to Save the Neighborhood




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

An Economic Standoff to Save the Neighborhood

October 21st, 2010

I was in the living room, happily reading as the kids quietly watched a show on TV that was even more insipid than their usual choice of mesmerizing mindless pap.

I was thinking to myself, “How pleasant! No noise! No strife! No arguing! No social workers telling me I have to do this for the kids, or do that for the kids, or stop doing this to the kids, or stop doing that to the kids!”

Of course, this makes me think of having police cars lighting up the whole neighborhood with their many blinking lights and their banging on my door to “investigate” reports of a deranged old man who has been disrupting the peace by yelling at his neighbors that they were stupid for not buying gold, silver and oil as a strategy of desperation against the raging inflation that is Super Freaking Guaranteed (SFG) because of the creations of massive amounts of money by the Federal Reserve to finance buying the of massive amounts of T-bonds that pay for massive amounts of federal government deficit-spending!

Parenthetically, if this police-action thing ever happens to you, then here’s an Invaluable Mogambo Tip (IMT): Don’t say anything. Say nothing. Wait for a lawyer.

Do not respond with the truth and say, “It’s true! The Federal Reserve is destroying the buying power of the dollar by simply creating so much of them, year after year, and the dollars are being jammed into the economy via astonishing, cataclysmic amounts of federal government deficit-spending, which means that ruinous, catastrophic, excruciatingly painful inflation in prices and economic collapse are 100% guaranteed, and thus it is true that anybody who doesn’t buy gold, silver and oil is doomed! Including my stupid neighbors!”

Looking back on the whole sorry episode with the advantage of 20/20 hindsight, I can see that my mistake was in continuing on, donating my Valuable Mogambo Time (VMT) trying to be helpful and educational to the police, who I thought would appreciate me going out of my way for them. Try to be a nice guy, and look what happens to you!

I say this because transcripts and recordings show, and thus I can prove, that I graciously and generously went on to patiently explain to them, “You stinking, police-state, goon squad storm-troopers are here to silence the Mogambo Voice Of Truth (MVOT) as it rings out – loud as a bastard! – the truth, as is implied in the unforgettable acronym MVOT, which is that We’re Freaking Doomed (WFD)!

“And we are doomed because of such massive, crushing debt, accumulated by people to buy massive amounts of final-user goods and consumption, and to foster a monstrous Frankenstein of an ever-inflating government-centric economy created by a calamitous continually deficit-spending federal government, a seemingly impossible feat made completely possible only by the calamitous, disastrous, treacherous Federal Reserve creating outrageous amounts of new money that will cause inflation in prices!”

The transcript doesn’t show it, but it is at this point where everyone for blocks around was gathered outside, chanting, “Shoot! Shoot! Shoot!” at the police, and I could hear the kids whispering, “Hear that, mom? They are going to shoot!” and how they wanted to go outside, too!

My wife whispers back, saying, “But what if they miss? We had better just hide in the kitchen!” which is where, I suddenly realize, the last piece of fried chicken was that I was saving for myself, and now somebody will eventually get the idea to look in the refrigerator, and they’ll see it, and they’ll decide to eat it, probably figuring that my bullet-riddled corpse would have no use for fried chicken, which, I have to agree, is impeccable logic. But still!

Anyway, the audio record shows that the crowd is now chanting, “Shoot to kill! Shoot to kill!” over and over while the cops are explaining that they can’t just shoot me because there are “hostages” in here with me, which surprised me, but I assume they mean the wife and kids hiding in the kitchen.

Meanwhile, I am clearly yelling through the door, “It is an insane, disgusting, bizarre, despicable display of monetary and fiscal incest that always produces a mutant economy and inflation in prices, a destructive arrangement which can only be maintained by more – always more and more! – deficit-spending and money creation to maintain a constantly rising inflation, year after year, yea unto hyperinflation and total ruination!”

I thought I had made a dramatic closing when I opened the door, stepped out into the bright, blinding glare of lights, threw my arms up and out in a grand gesture, and said, “And all of this is manifestly, indisputably true because that is Exactly The Way (ETW) that it has worked out every time – and I mean Every Freaking Time (EFT)! – in the last 4,500 freaking years of history, which is a sad, sickening story of one corrupt government after another borrowing and spending, and borrowing and spending, and borrowing and spending until it had borrowed more than it could repay, and always for the suicidal, live-for-today privilege of temporarily enjoying the growth of a twisted, bloated, dysfunctional, government-centric economy, which the recognition of, and problems of, seem to be the sole province of the Austrian school of economics, which you dumb cops would know if you had ever been to mises.org and gotten a nice, free, easy education in the One True Economic Theory (OTET), instead of harassing a misunderstood prophet of doom, who is just trying to save his ungrateful and stupid neighbors from the inflationary, catastrophic doom of a corrupt government and a filthy Federal Reserve that is going to befall this country and its people, including you dumb cops!”

Well, the police immediately settled down at the appearance of a seemingly incoherent, unarmed old man. And while they were hustling me away, you could hear me on the recording, my voice growing fainter and fainter, saying, “So buy gold, silver and oil to protect yourselves, you morons! Gold, silver and oil! And if you don’t, then you actually are dumb cops, and about whom I implied as much at the end of the previous paragraph!”

You can see that it is difficult to get the message out about buying gold, silver and oil as a defense against the government and Federal Reserve destroying us with overspending and over-creation of money, respectively.

But you will be happy to know that buying gold, silver and oil stocks is so easy that you will say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

An Economic Standoff to Save the Neighborhood originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
An Economic Standoff to Save the Neighborhood




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Orwell Targets Bernanke: An Unteachable Hole in the Air (Part One of Two)

October 21st, 2010

On Friday, October 15, 2010, Federal Reserve Chairman Ben S. Bernanke delivered a dishonest speech: “Monetary Policy Tools and Objectives in a Low-Inflation Environment.” What follows is not a critique of the talk, since that would be redundant. Please see one of my recent articles “Exploiting Bernanke” (September 21, 2010), which discussed the anticipated speech of October 15, 2010. Also see,  “Central Bankers are Paid to Lie – Buy Corn” (October 5, 2010), which showed how Federal Reserve Chairman Arthur Burns fibbed his way through the 1970s. Investors who either believed him or were not adept at translating signals from the real world suffered.

Bernanke’s mendacious speech confirmed my general investment advice in “Central Bankers are Paid to Lie”: “Courses of protection include buying farms (including machinery companies, grain commodity funds, water rights, and desalinization companies), as well as precious metals, mining and drilling companies, and freeze-dried food.” As a guess, Bernanke’s current intention (this will change, and change often) is to add a trillion dollars to the economy. Such a wild, mad experiment has never been attempted before, outside of Argentina, Zimbabwe, and such.

The reason last Friday’s speech could be analyzed three weeks before it was delivered is Bernanke’s predictability. He will do nothing that veers from the course he found convenient for personal advancement three decades ago. He has neither said nor would dare process a thought that deviates from his doctoral thesis.

Even the title of his latest speech is a lie or stupid, as you wish – broadcasting as he did our “Low-Inflation Environment.” Inflation is practically everywhere that counts: food, insurance premiums, utility bills, tuitions. (“Where it counts” does not include the deflation of what really counts: wages, net wealth, house prices. This is why the “inflation vs. deflation” question is false.) Commodity prices keep rising, partially because there is greater demand than supply; partially because we are used to seeing oil and corn quoted in dollars. Producer and consumer prices generally lag commodity prices. The length of the lag differs. Anywhere from three months to one year captures most instances, under normal conditions. (When further depreciation of the dollar against commodities is anticipated, the lag will be compressed.) The dollar has fallen against a basket of currencies by 13% over the past 18 weeks. It is prudent to at least hedge for a contraction of this lag.

Bernanke’s speech was characteristic. He turned logic on its head and ignored the most debilitating consequences of his past actions. The Fed chairman used official government numbers to claim inflation was too low. Homage to government inflation calculations should have, alone, been enough for the media to ignore anything else he said. Of course, he was dutifully quoted and taken at his word.

It was not that long ago when an economist who claimed inflation was too low would have lost credibility. Bernanke stated “that FOMC participants generally judge the mandate-consistent inflation rate to be about 2 percent or a bit below.” The FOMC is the Federal Open Market Committee – the body that has absolute authority to act upon such inverted thinking as 2% inflation being good for the country.

A step back, to 1957: This was a time when academic economists were learning that theories manipulated to satisfy politicians could put themselves in positions of power. Most from this guild never dreamt anyone outside a college classroom noticed their existence. They miscalculated, as is the rule for these humbugs.

Politicians want money and credit to fulfill their constituents’ every wish. A Harvard economist told Congress that the U.S. needed a 2% rate of inflation to defeat communism. Washington loved him.

On August 13, 1957, William McChesney Martin, the Federal Reserve chairman at the time (and not an economist – he had been a Latin scholar at Yale, so understood that shortcuts destroy empires), lectured the Senate Banking Committee on the specific topic of the Federal Reserve “targeting” (Bernanke’s word – not Martin’s) a 2% rate of inflation: “Consumers are encouraged to postpone saving and instead purchase goods which they do not immediately need, and the incentive to strive for efficiency no longer governs business decisions…and speculative influences impair reliance upon business judgment.” Of utmost importance, groups struggle to insulate themselves from the loss of purchasing power, then “fundamental faith in the fairness of our institutions and our government deteriorates.”

The Bernanke Fed has stated its current policy is to chase consumers out of savings and into speculative ventures. That is exactly the recipe for the Fed to accelerate its impoverishment of the American people. Alan Greenspan, of course, was the master at jumbling a few words to distract attention from this long-running plan to prevent the Fed’s extinction. Bernanke also resorts to nonsense. From his October 15, 2010, speech: a 2% rate of inflation is to “attain… price stability” and to “bring the unemployment rate down significantly.” He is doing exactly the opposite of what he pretends.

Regards,

Frederick Sheehan,
for The Daily Reckoning

[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]

Orwell Targets Bernanke: An Unteachable Hole in the Air (Part One of Two) originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Orwell Targets Bernanke: An Unteachable Hole in the Air (Part One of Two)




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Orwell Targets Bernanke: An Unteachable Hole in the Air (Part One of Two)

October 21st, 2010

On Friday, October 15, 2010, Federal Reserve Chairman Ben S. Bernanke delivered a dishonest speech: “Monetary Policy Tools and Objectives in a Low-Inflation Environment.” What follows is not a critique of the talk, since that would be redundant. Please see one of my recent articles “Exploiting Bernanke” (September 21, 2010), which discussed the anticipated speech of October 15, 2010. Also see,  “Central Bankers are Paid to Lie – Buy Corn” (October 5, 2010), which showed how Federal Reserve Chairman Arthur Burns fibbed his way through the 1970s. Investors who either believed him or were not adept at translating signals from the real world suffered.

Bernanke’s mendacious speech confirmed my general investment advice in “Central Bankers are Paid to Lie”: “Courses of protection include buying farms (including machinery companies, grain commodity funds, water rights, and desalinization companies), as well as precious metals, mining and drilling companies, and freeze-dried food.” As a guess, Bernanke’s current intention (this will change, and change often) is to add a trillion dollars to the economy. Such a wild, mad experiment has never been attempted before, outside of Argentina, Zimbabwe, and such.

The reason last Friday’s speech could be analyzed three weeks before it was delivered is Bernanke’s predictability. He will do nothing that veers from the course he found convenient for personal advancement three decades ago. He has neither said nor would dare process a thought that deviates from his doctoral thesis.

Even the title of his latest speech is a lie or stupid, as you wish – broadcasting as he did our “Low-Inflation Environment.” Inflation is practically everywhere that counts: food, insurance premiums, utility bills, tuitions. (“Where it counts” does not include the deflation of what really counts: wages, net wealth, house prices. This is why the “inflation vs. deflation” question is false.) Commodity prices keep rising, partially because there is greater demand than supply; partially because we are used to seeing oil and corn quoted in dollars. Producer and consumer prices generally lag commodity prices. The length of the lag differs. Anywhere from three months to one year captures most instances, under normal conditions. (When further depreciation of the dollar against commodities is anticipated, the lag will be compressed.) The dollar has fallen against a basket of currencies by 13% over the past 18 weeks. It is prudent to at least hedge for a contraction of this lag.

Bernanke’s speech was characteristic. He turned logic on its head and ignored the most debilitating consequences of his past actions. The Fed chairman used official government numbers to claim inflation was too low. Homage to government inflation calculations should have, alone, been enough for the media to ignore anything else he said. Of course, he was dutifully quoted and taken at his word.

It was not that long ago when an economist who claimed inflation was too low would have lost credibility. Bernanke stated “that FOMC participants generally judge the mandate-consistent inflation rate to be about 2 percent or a bit below.” The FOMC is the Federal Open Market Committee – the body that has absolute authority to act upon such inverted thinking as 2% inflation being good for the country.

A step back, to 1957: This was a time when academic economists were learning that theories manipulated to satisfy politicians could put themselves in positions of power. Most from this guild never dreamt anyone outside a college classroom noticed their existence. They miscalculated, as is the rule for these humbugs.

Politicians want money and credit to fulfill their constituents’ every wish. A Harvard economist told Congress that the U.S. needed a 2% rate of inflation to defeat communism. Washington loved him.

On August 13, 1957, William McChesney Martin, the Federal Reserve chairman at the time (and not an economist – he had been a Latin scholar at Yale, so understood that shortcuts destroy empires), lectured the Senate Banking Committee on the specific topic of the Federal Reserve “targeting” (Bernanke’s word – not Martin’s) a 2% rate of inflation: “Consumers are encouraged to postpone saving and instead purchase goods which they do not immediately need, and the incentive to strive for efficiency no longer governs business decisions…and speculative influences impair reliance upon business judgment.” Of utmost importance, groups struggle to insulate themselves from the loss of purchasing power, then “fundamental faith in the fairness of our institutions and our government deteriorates.”

The Bernanke Fed has stated its current policy is to chase consumers out of savings and into speculative ventures. That is exactly the recipe for the Fed to accelerate its impoverishment of the American people. Alan Greenspan, of course, was the master at jumbling a few words to distract attention from this long-running plan to prevent the Fed’s extinction. Bernanke also resorts to nonsense. From his October 15, 2010, speech: a 2% rate of inflation is to “attain… price stability” and to “bring the unemployment rate down significantly.” He is doing exactly the opposite of what he pretends.

Regards,

Frederick Sheehan,
for The Daily Reckoning

[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]

Orwell Targets Bernanke: An Unteachable Hole in the Air (Part One of Two) originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Orwell Targets Bernanke: An Unteachable Hole in the Air (Part One of Two)




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Time to Buy Uranium Miners In Wyoming?

October 21st, 2010

Uranium miners that are close to production in Wyoming are gaining a lot of enthusiastic interest from investors over the past few weeks.   Some of the miners out of Wyoming have made huge percentage gains such as Uranerz (URZ), UR Energy (URG), Cameco (CCJ) and Uranium One (UUU:TSX) as more mines are expected to receive permits to begin operation. There are thirteen mines being developed in Wyoming.  Wyoming produces the largest amount of domestic uranium with Cameco’s (CCJ) Smith Ranch Mine which is also the largest U.S. facility.

There have been recent developments with the recent issuance of the Moore Ranch project to Uranium One which is partially owned by the Russian Government.  Just recently Uranium One’s Moore Ranch received its NRC license, which is the first uranium mine to be permitted in several years and was a major milestone for the industry.  Unfortunately for them due to Uranium One being largely owned by the Russian government, congressional members wrote a letter that shows their concern of U.S. uranium possibly supplying Iran. America is one of the largest consumers of uranium and a lot of the supply of uranium comes from nuclear warheads from Russia.  More than 90% of uranium used in this country is imported.  However, that program with Russia is coming to an end by the end of 2013 and the U.S. will need to find alternate supplies.  Investors realizing this crunch are buying these miners with great enthusiasm.  Right now the new mines from Wyoming are key to the future of power generation in the United States.  Investors are seeing this concern about future local uranium supply.  A concern is that many foreign countries are controlling U.S. uranium which is vital to this countries future power generation.  These small miners will be acquired at premiums or be subject to hostile takeovers in 2011 as they move closer to production.  Cameco (CCJ) recently had an off take agreement with China which will also put pressure on supply over the next few years.  I expect more agreements with miners to be announced as foreign investors scramble for future supply.

I believe these assets provide dollar diversification in low risk mining jurisdictions.  Uranium could move parabolic as more power plants are built and there is not enough uranium available.

Wyoming is a friendly mining jurisdiction and many of these projects are in-situ mining, which means they have to dispose of water.  Groundwater contamination is the greatest concern for local residents.  Investors must research which projects have local support and permits for water disposal as the Environmental Protection Agency could hold a project up for this reason.

Although many commodities have reached new highs the uranium stocks are just beginning its major move.  The growth in nuclear and the supply demand constraints will drive uranium prices very high.  These uranium miners who will progress into production  The U.S. has over 20% of its power comes from nuclear power plants.  There has also been bilateral political support to increase nuclear energy to reduce carbon emissions and is an essential component of the clean energy push.  Expect to hear more news of acquisitions as miners make progress and move closer to production.

Read more here:
Time to Buy Uranium Miners In Wyoming?

Commodities

Three ETFs To Play Coffee’s Supply Concerns

October 21st, 2010

Heavy rainfall have many concerned about coffee supplies, pushing the agriculturally-based commodity to its highest levels in more than 13 years giving positive price support to the iPath DJ-UBS Coffee TR Sub-Idx (JO), the PowerShares DB Agriculture Fund (DBA) and the iPath DJ-UBS Agriculture TR Sub-Idx ETN (JJA).

Coffee futures for December delivery recently broke $2 per pound as a string of storms in the Caribbean dumped huge amounts of rain over South and Central America resulting in lower crop yields and destruction of the quality of existing coffee beans.  This shortage in coffee beans, more specifically Arabica beans, is causing many to shore up on stockpiles to meet demand.

In fact, according to Adam Cancryn of the Wall Street Journal, stockpiles certified as deliverable against futures contracts have declined by 44% compared with the same period last year.  Additionally, firms who purchase raw, green coffee have started to mix new beans with older beans to keep up with coffee demand, eating away at inventories.

In a nutshell, there is likely to be a large supply and demand imbalance of java, enabling the previously mentioned ETFs to reap the benefits.

  • iPath DJ-UBS Coffee TR Sub-Idx (JO), which is a pure play on coffee futures.
  • PowerShares DB Agriculture Fund (DBA), which boasts December coffee futures as its top holding at 15.29% of total assets
  • iPath DJ-UBS Agriculture TR Sub-Idx ETN (JJA), which allocates 9.58% of its weightings to coffee futures.

Disclosure: No Positions

Read more here:
Three ETFs To Play Coffee’s Supply Concerns




HERE IS YOUR FOOTER

ETF, Uncategorized

Brazilian Real Estate is a Buy

October 21st, 2010

Someone once said that if LA threw up on New York, it would resemble São Paulo. That’s an imaginative way to describe the sprawling Brazilian metropolis. São Paulo is a bustling, congested city of 11 million people, with another 9 million in the suburbs. Greater São Paulo ranks as the third largest urban area in the world, according to the United Nations, after only Tokyo and Mexico City.

For many, it’s an ugly city, but I loved it right away. While gloom and doom hover over the economies of the US and Europe, it is impossible to maintain a sense of pessimism in São Paulo – or even in Brazil, for that matter. It’s a showcase for the kind of changes sweeping over the emerging markets.

São Paulo had a humble beginning. Jesuits founded it on the banks of the little Tietê River in the 16th century. It was for hundreds of years an insignificant settlement. Even as late as the 1870s, it had only 26,000 inhabitants, cobbled around narrow streets.

But it would go on to put up perhaps the greatest population growth curve of any major city in human experience (as the Fernand Braudel Institute maintains). A great coffee boom in the 19th century was the kindle that sparked São Paulo’s growth. By the 1890s, the population tripled. And today, there are 20 million people in greater São Paulo.

The state of São Paulo has 45 million people and makes up nearly a third of Brazil’s economic output. Half of the country’s tax base is here. If it were its own economy, the state of São Paulo would be the second largest in South America – behind only Brazil and ahead of Argentina and Colombia. It is also home to Brazil’s stock market, the fourth largest in the world by market cap.

São Paulo did not grow up slowly around a center, as did the cities of Europe. Rather, it grew hastily and in an improvised manner. You can see the consequences of that process today. Traffic is horrendous. It can take more than an hour to move only a handful of blocks. The subway system is not up to the task of serving the entire city. And record car sales overwhelm the construction of new roads.

There is also an acute housing shortage, which is where an interesting investment opportunity lies. There are a lot of ways to show the data on housing. One common way to measure housing shortages is to look at how many families have three people per bedroom. This measure shows about 13% of families live in substandard housing. Expressed as a number of units, Brazil needs nearly 6 million new homes.

That’s really not surprising when you think of the swelling ranks of the middle class. Millions of people have become consumers in the last decade. Housing has not yet caught up with that demand. By some estimates, Brazil needs to build about 1.6 million homes every year just to keep up with new families entering the market.

In São Paulo, you can also see the shortage in the price of homes. New construction often takes three years. People now taking delivery for housing units bought three years ago find that the value of their dwelling doubled. A recent edition of The Daily Reckoning provided an illuminating contrast between São Paulo’s housing market and that of the United States.

Existing Home Sales in Sao Paulo, Brazil

Clearly, the São Paulo housing market is in the midst of a boom. All that frothiness has some people worried about a housing bubble. Brazil’s mortgage market, too, is in hyper-growth mode. Take a look at the total loans to homebuilders and buyers.

Lending to Brazilian Homebuyers

It looks impressive, but the starting base was very low. Brazil’s home lending market is still only a fraction of that found in other Latin American countries, such as Mexico or Chile. Brazilians also have much more equity invested in their homes. Typically, loan-to-value is 70-75%.

Eventually, supply will catch up with demand, and maybe even exceed it. Then you’ll have a correction. But that day seems years away.

The best and easiest way to cash in on Brazil’s housing boom (other than to buy a property directly) is to buy Gafisa, which trades on the NYSE under the ticker GFA. It is the only Brazilian real estate company trading on the NYSE.

Gafisa has built and sold nearly 1,000 developments and more than 11 million square meters of housing in its 55-year run. Traditionally focused on the high-end market, Gafisa recently bought Tenda to tackle the low end of the housing market.

The stock looks cheap at $16.80 per share, which is only 11 times next year’s earnings guess. That’s not much for a company that looks to grow at least 20% annually for the next several years. Sales are up eightfold since 2005. Sam Zell, the US real estate mogul, bought his first shares then. Though he sold some recently, he still owns 6% of the company.

Replacement value is about R$5.6 billion, or $3.3 billion at the current exchange rate of 1.69 reais to US$1. The current market cap is $3.5 billion. I’d be more interested in buying the stock below replacement value (about $15.40 per share). Perhaps we’ll get that price on a correction.

Gafisa has a good track record, nationally recognized brand names and a strong balance sheet. It looks like a good speculation on the long-term demand for housing in Brazil. I have not officially recommended the stock to my subscribers, but the housing story in Brazil is a very compelling one.

Regards,

Chris Mayer
for The Daily Reckoning

Brazilian Real Estate is a Buy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Brazilian Real Estate is a Buy




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

US Manufacturing Still Struggling as Economy “Recovers”

October 21st, 2010

No matter how many times the Conference Board reports dismal consumer confidence, or the Institute for Supply Management reports anemic manufacturing activity or the National Association of Realtors reports abysmal home sales, some economist somewhere will track down a hopeful data point and force-feed it into his “improving economy” scenario.

When, for example, the Census Bureau reported a steep 1.3% drop in durable goods orders last month, the chief US economist at Barclays Capital, Dean Maki, crowed, “This is reassuring news. Capital goods spending still seems to be on a very solid underlying trend.”

Ah yes, capital goods spending – the sub-sector of the durable goods report that is believed to correlate closely with private-sector business activity.

It’s true that capital goods orders rebounded 4.1% in August…after plunging 5.3% in July. Nevertheless, according to Maki’s perspective, investors should ignore July’s drop in capital goods orders (and also ignore the drop in overall durable goods orders in August). It is the August increase in capital goods orders that matters most, says he, and it is this data point that establishes a “very solid underlying trend.”

But as the chart below shows quite clearly, this “solid trend” is looking a bit shaky.

Non-defense Capital Goods Orders

Capital goods orders may have bounced off the bottom of very depressed levels, but they are stalling well below optimal levels. The same could be said for the overall American economy. It is bouncing off of depressed levels. But this bounce seems to contain a strange and unhealthy mix of losers and winners.

Fifteen months after the official end of the 2008-9 recession, America’s big metal-bending corporations still aren’t bending very much metal. Meanwhile, America’s big regulation-bending corporations like Goldman Sachs have returned from the brink of extinction to convert leveraged trading into record profits…or at least record bonuses.

Despite a financial crisis that nearly doomed Goldman Sachs for all-time, the reviled financial firm recently reported all-time record profits. Goldman’s third quarter result pulled the company’s trailing 12-month profit down from record territory. But that “disappointing” $1.9 billion quarterly profit owed much of its disappointment to the hefty $3.8 billion bonus expense that Goldman set aside during the quarter. For the first nine months of the year, Goldman has booked a net profit of $6 billion, while setting aside $13.1 billion in bonus expense.

Bravo for Goldman shareholders! Double bravo for Goldman insiders!

Elsewhere on Wall Street, a similar story has been unfolding. “Pay on Wall Street is on pace to break a record for a second consecutive year,” The Wall Street Journal reported recently. Even though net profits at the top financial firms remain about 20% below the peak levels of 2006, the Journal relates, compensation has increased more than 20% over the same timeframe. And just like that, you’ve got record compensation. “Financial overhaul has affected the structure [of Wall Street compensation],” says the Journal, “but not the level.”

But while prosperity has been quick to return to Wall Street, it has been slow to return to the American manufacturing sector. In the chart below, the yellow line tracks the combined earnings growth of four big “dirty fingernails” American companies: Dupont, Alcoa, Home Depot and 3M. The blue line tracks the same trend for Goldman Sachs. The two lines do not look very similar, do they? The yellow line is downward-sloping and remains well below the high-water mark of 2007. The blue line is upward-sloping and has exceeded the high-water mark of 2007.

Goldman Sachs Net Income

And the red line? That’s Bank of America’s dismal profit trend. The big bank doesn’t bend metal, of course, but it does operate in almost every corner of American commerce, both industrial and consumer. Res ipsa loquitur.

And yet, despite the fact that Bank of America is still struggling and most of the manufactures of America are merely kicking the can down the road, quirky signs of apparent economic resurgence appear from time to time.

During a brief jaunt up to San Francisco last weekend, your editor encountered a sold-out city. On Saturday night, every single 4-star and a 5-star hotel in San Francisco was sold out. Not a single luxury hotel room available – which meant that the few available 3-star hotels were asking 4-star prices. Two-star hotels, for their part, were trying to extract three-star prices. But your editor declined the price-gouging and took his lodging dollars up across the Golden Gate Bridge to Marin County.

For less than the price of an overpriced three-star hotel in San Francisco, your editor took a room at the delightful San Anselmo Inn. And with the money he saved, he purchased a fantastic meal at Insalata, a restaurant across the street from the Inn. The restaurant was full, though not jam-packed.

Elsewhere in Barbara Boxer-land, the story was the same. From Carmel to Los Gatos to San Francisco, your editor and his entourage strolled into restaurants that were full, without being jam-packed. They waited 15 to 20 minutes for a table in almost every venue.

But these random, narrowly focused anecdotes do not square with most of the evidence from the front lines of capital formation. A lifelong friend of your editor’s – whose family has been operating a very successful specialty steel business in Southern California for the last several decades – is enjoying much less success today than in years past. This steel business that once threw off hundreds of thousands of dollars per month in profit, now throws off red ink every once in a while. On an annual basis the business is still profitable, but topline sales remain about 40% below the peak levels of three years ago.

“Can you see any signs of a pickup in activity?” Your editor asked his friend last week.

“Nope. Nuthin’… We’ve got the same customers we’ve always had – at least the ones who haven’t gone out of business – but they’re all placing much smaller orders than they used to. So the guys who used to place $100,000 orders are placing $10,000 or $20,000 orders. Everyone is cautious. No one wants to hold any inventory. And everybody I know is telling the exact same story.”

Busy trading desks in Manhattan and busy restaurants in San Francisco are not signs of recession. But neither are barely profitable manufacturing businesses the signs of recovery.

Eric Fry
for The Daily Reckoning

US Manufacturing Still Struggling as Economy “Recovers” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
US Manufacturing Still Struggling as Economy “Recovers”




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

G-20 HEADS UP: Losing battle to stem CURRENCY WARS!

October 21st, 2010

Martin D. Weiss, Ph.D.

I’m getting ready to put my $1,000,000 portfolio into a series of new investments, using an approach that could have generated a 2,478% total return in all types of market environments.

Just be aware that we’ve decided to make our move well ahead of the November 2nd elections, and we also want to give you a chance to act before we do. That doesn’t give you much time. So click here now for our newest presentation.

The reason timing is so critical is because of TWO game-changing events coming within the next two weeks — not only the elections but also a landmark Fed decision coming on the day after elections.

Plus, there’s a THIRD decision being debated right now in Gyeongju, South Korea: The G-20 countries are desperately trying to end the most frightening new phenomenon of our times — CURRENCY WARS!

According to Larry Edelson, one of the first to predict the currency wars …

No guns are fired, and no enemies are killed. Instead, each country tries to outdo the other with bigger and bigger money printing or devaluations.

But a failure of the peace talks in South Korea this weekend could be almost as impactful on the world economy as the peace talks that failed to stop two world wars in the last century.

What’s the biggest weapon of
mass destruction in this war?

The answer should be obvious: It’s the Fed’s high-powered money printing presses that can create hundreds of billions in new paper dollars with just a few clicks of a mouse. Moreover …

Bernanke & Company say they’re probably going to deploy this weapon in less than two weeks. And, at the same time, U.S. officials in South Korea are pushing hard for a truce!?

That blatant contradiction is not going to get much sympathy from the other G-20 countries.

Yes, you may see some rhetoric that hints at currency cooperation among the G-20 nations. And sure, Treasury Secretary Geithner may even claim that the U.S. has “no plans to devalue its currency.”

Don’t believe a word of it!

The officials at this weekend’s meeting will pose for group photos … head back home … and probably go back to doing what they’ve been doing all along — take major measures to DEVALUE or hold down their currencies!

Our view: The sweeping changes coming to Washington will be used as another major opportunity for the Federal Reserve and its Chairman to grab more power away from Congress and the President … and USE that power to ACCELERATE the devaluation of the U.S. dollar.

I categorically deplore that policy. It’s ultimately unfair to our children or grandchildren and IMMEDIATELY unfair to seniors right now.

But the dollar decline is also the engine that creates a whole series of unprecedented profit opportunity in a host of assets that soar when the dollar plunges.

Our newest presentation shows you how we do it and how you beat us to the punch.

Good luck and God bless!

Martin

Related posts:

  1. Homebuilders losing confidence in the recovery
  2. China’s Currency War: Enemy #1 for Global Economy
  3. Is China’s Currency Manipulation Coming to a Head?

Read more here:
G-20 HEADS UP: Losing battle to stem CURRENCY WARS!

Commodities, ETF, Mutual Fund, Uncategorized

VXX Monthly Performance

October 21st, 2010

Yesterday I asked for some input in What Do You Want to Know About VXX? and was pleased to see all the comments and emails. Reflecting on the situation, since I have received literally hundreds of questions about VXX in the last month or two, I have elected to go ahead with a multi-part series on VXX starting next Monday, rather than trying another “Ten Things Everyone Should Know…” post like I did with Ten Things Everyone Should Know About the VIX. Frankly, limiting myself to just ten facts/issues/misconceptions could not possibly do VXX justice and this time around I will do a much deeper dive than I did with the VIX.

That being said, I feel obliged to give readers something to chew on before this week is over and have therefore attached a chart of the monthly performance of VXX going back to the launch of this ETN. The chart lays out the VXX conundrum in monthly terms, but the issue is similar across all time frames: do you want to take a long position which has a low probability of success, but a high potential reward? Of course, the longer the holding period, the more contango will lower the probability of success, but the better chance there will be that an investor will catch a big spike in volatility, like we had in May.

In some respects, a long VXX position resembles a long out-of-the money option position.

Once again, if you have a specific question about VXX, feel free to add it to the comments section in the first link below and I’ll see if I can work it into next week’s series.

Related posts:

[source: ETFreplay.com]
Disclosure(s): short VXX at time of writing



Read more here:
VXX Monthly Performance

ETF, Uncategorized

VXX Monthly Performance

October 21st, 2010

Yesterday I asked for some input in What Do You Want to Know About VXX? and was pleased to see all the comments and emails. Reflecting on the situation, since I have received literally hundreds of questions about VXX in the last month or two, I have elected to go ahead with a multi-part series on VXX starting next Monday, rather than trying another “Ten Things Everyone Should Know…” post like I did with Ten Things Everyone Should Know About the VIX. Frankly, limiting myself to just ten facts/issues/misconceptions could not possibly do VXX justice and this time around I will do a much deeper dive than I did with the VIX.

That being said, I feel obliged to give readers something to chew on before this week is over and have therefore attached a chart of the monthly performance of VXX going back to the launch of this ETN. The chart lays out the VXX conundrum in monthly terms, but the issue is similar across all time frames: do you want to take a long position which has a low probability of success, but a high potential reward? Of course, the longer the holding period, the more contango will lower the probability of success, but the better chance there will be that an investor will catch a big spike in volatility, like we had in May.

In some respects, a long VXX position resembles a long out-of-the money option position.

Once again, if you have a specific question about VXX, feel free to add it to the comments section in the first link below and I’ll see if I can work it into next week’s series.

Related posts:

[source: ETFreplay.com]
Disclosure(s): short VXX at time of writing



Read more here:
VXX Monthly Performance

ETF, Uncategorized

Creeping Inflation Reveals Recession’s Trapdoor

October 21st, 2010

As the Fed’s stated intention to execute QE2 lurks ever closer — plans to resume asset purchases, including Treasuries, are slated for the November 2nd FMOC meeting — even a few more than average regional Fed bank presidents are breaking rank.

According to Bloomberg, Philadelphia president Charles Plosser said unemployment is a “terrible problem,” but he flat out prefers it “to monetary-policy solutions at this point,” that increase inflation. Even more plainly, he said, “I am less inclined to want to follow a policy that is highly concentrated on raising inflation and raising inflation expectations.”

Nonetheless, QE2 will likely proceed as planned, and many already hard hit by recession will find their remaining dollars even less valuable.

Creeping Inflation Reveals Recession’s Trapdoor originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Creeping Inflation Reveals Recession’s Trapdoor




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

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