Tuesday, February 28, 2006
Monday, February 27, 2006
Sunday, February 26, 2006
Friday, February 24, 2006
For those who believe that inflation is primarily a monetary event, often fueled by excessive money and credit creation, the figures regarding the broader measure of money supply growth reveal an undeniably large pool of liquidity sloshing through the system. This seems to be the pattern lately throughout the world, as money supply figures have increased at notable rates (often well above national GDP growth) in nations across the globe.
Asset prices have been buoyant in many of these economies during the past few years. After the post-2000 bust in American stocks, and the ensuing retrenchment of 2001-2002, a new wave of liquidity (brought about, in part, by a pronounced lowering of interest rates) flooded the nation's economy and found its way into a new asset class: real estate.
This phenomenon was not limited to America; it has been observed in the other English speaking nations of England and Australia and in many other nations besides. Building booms in Dubai and Shanghai reveal the extent to which money is rapidly being put to work in some of the superheated economies.
While the Chinese work to convert their dollar denominated holdings into tangible commodities and a secured share of energy resources, stock markets have boomed in the Middle East due to a flood of new money and a post 9/11 repatriation of funds held abroad.
All this speaks to the trend of global liquidity finding its way to commodity and asset prices, rather than the usual result of increased goods prices, a theme that is discussed in Marc Faber's book "Tomorrow's Gold". While a huge shift to manufacturing in low cost nations such as China and Vietnam has held down prices of manufactured goods, prices for assets, energy, and a broad array of services have gone kiting upwards.
Increased demand can surely be a contributing factor in some areas of prices increases, as in the case of energy, but there also seems to be more going on. Companies are raising prices on goods in the hope of staying one step ahead of rising input costs and the effects of inflation on their bottom line. Investors increasingly flock to precious metals in hope of finding a store of value, and buyers of art in London, New York and Russia seem to be looking to do the same with their purchases. Meanwhile, demand for investments stays strong despite high market valuations and the questionable benefits of purchasing long term bonds at prevailing interest rates.
All this comes back to money supply and our ability to discern, through available data, how the levels of money existing in the economy are growing in relation to the demand for it. If excessive amounts of money and credit are continually pumped into the economy, the sure result will be an increasing level of inflation and malinvestment, leading to longer term disruptions that will negatively affect our standard of living, our freedom, and our faith in free markets.
As Congressman Ron Paul questions the claims of transparency said to be a hallmark of the new Fed Chairman's administration, some of us are left to wonder: does the announced disappearance of M3 matter? The shuffling, renaming and reintroducing of figures has occurred in the past and will likely continue into the future. Perhaps the mass of Fed watchers and economists will be weaned on a new, "improved" number, much in the way that we have been overtaken by a new and improved gauge of inflation (the much loved, "Core" CPI). But maybe this series of events will help push economic reporting back into the private realm, where politically disinterested economists attempt to assemble and report the numbers on their own.
Shall I include the standard disclaimer? This is for general educational purposes, and should not be construed as investment advice. Please see the disclosure points within the article regarding Sprott Asset Management's positions in companies mentioned.
Thursday, February 23, 2006
Tuesday, February 21, 2006
See also his comments regarding the energy group's leadership in the market and its history of movement in relation to overall market movements. Lots more besides energy discussed, and I thought it was a very sharp interview. Part of the interview can be viewed here on Barron's online site.
Sunday, February 19, 2006
What is truth in an age of relativism? It seems that there are an ever growing number people and institutions dedicated to dealing with the issues of the day by means of obfuscation. In other words, the issues are not being dealt with properly at all; they are being clouded over.
The Financial Times weekend edition (Feb 18/19 2006) carried an article by Jurek Martin entitled, "The truth and a state of incredibility", in which the author declares, ''truth now appears to be relative''. In his commentary, Martin briefly surveys the scene, from the halls of academia and science to the spheres of politics and business, and wonders if truth has been relegated to a mere point of convenience.
A quote from Martin's article on truth in present day Washington: ''It baffles me why reporters turn up daily to hear a White House press secretary who knows nothing and says less, true or not''.
Friday, February 17, 2006
See the article, "China upgrading pollution fight" for more info.
Analyst Rob Edwards said the actual figures were about 10% lower than his estimates but still implied a mine life of 25 years or more. Norilsk's publishing of this data is said to have ended "decades of secrecy" surrounding these reserve amounts. Here is a link to a seperate source that carried this story.
For anyone who might have any interest in the guy, I'd recommend reading it. I was kind of surprised to see the article actually, as I know that he was pretty publicity shy (for good reason). I really liked the personal edge that the story writer honed in on towards the end of the piece, it was pretty revealing and I think bringing Lampert's mom into the picture really helped bring that out.
For those who'd like to see it online, here's a link to the story.
Wednesday, February 15, 2006
This news strikes as ironic on several levels. First, the money and credit creation that the Federal Reserve employs to guide the economy is the source of inflation. In other words, inflation is a sure byproduct of undisciplined money creation. The assertion that low inflation is "key to central banking success" is akin to stating that low farm runoff levels are key to agricultural success. A central bank creates money and credit, in turn fueling inflation, just as a farm produces crops or livestock, releasing runoff of nitrogen and other pollutants in the process.
The only way a low inflation level can reflect success on the part of a central bank is as a management tool; it is an indication that relatively sound policies are being pursued and that public expectations about inflation and soundness of our monetary system can be sustained. So in effect, the news regarding inflation can be seen as public relations event. Little wonder then, that great care is taken in computing and presenting this data for public consumption.
It takes a little bit of skill and ingenuity, but negatives can be turned into positives. To push the farm analogy a little further, witness the manner in which the problem of runoff and pollutants is handled by farmers and resource councils. In order to mitigate negative environmenal effects from farming, a New Zealand regional council aligns the interests of the environment with those of commercial farmers. Under the banner exclamation, "Clean water is good for our economy", the council's text goes on to exhort the positive benefits accrued from runoff management. "A big part of marketing our agricultural products to overseas customers is our high environmental standards and clean, green image...keeping our streams and rivers clean can help promote our agricultural products." So the lesson here is the importance of putting a positive spin on the sometimes negative byproducts of commercial endeavors.
Getting back to the commercial endeavor that is the Federal Reserve Bank: while Bernanke's public stance on inflation may seem unsurprising to current observers of the Fed, it is significant in one regard. The current spotlight on American central bank officials is so glaring that a man in Bernanke's high post is almost obliged to pronounce his intentions to the markets and the public at large. This, in spite of the fact that the Federal Reserve is an independent organization, unaccountable to American voters or the legislative branch in its decision making.
So why does the Fed Chairman bother to make these statements at all? Perhaps it has something to do with speaking to the court of public opinion. That could be the motivation behind Bernanke's "deliberate bid to counter fears" that he is "soft" on inflation. Furthermore, Chairman Bernanke took the opportunity during his testimony before the House of Representatives Committee on Financial Services Wednesday to reassert his support for the policies of the Greenspan Fed. To quote further from the afore mentioned Reuters article, "My intention is to maintain continuity with this and the other practices of the Federal Reserve in the Greenspan era. I believe that, with this approach, the Federal Reserve will continue to contribute to the sound performance of the U.S. economy in the years to come."
Could it be that the Federal Reserve, a once avowed non-political structure, is assuming the politically pleasing glaze of transparency in order to help advance its ever evolving and expanding role in the economy?
Monday, February 13, 2006
Another article, titled, "Investors Pin Hopes on Sustained China Gold Rush", looked at investment and jewelry demand from countries such as Japan & India but focuses on the role China might play in the future. Here's a brief passage from the end of the article:
"China's influence on gold prices will also be limited by surging domestic gold production. According to [analyst Matthew Turner], even if consumption continues to boom, the investment in new mines is likely to mean China will be a net exporter over the next few years."
Interesting. Is this expected supply from China a bear omen or will it be met with growing investment demand and central bank holdings?
Sunday, February 12, 2006
This definately seems to be part of a larger trend towards finding sensible energy solutions that take advantage of natural bounties (an abundance of wind, sun or geothermal energy) to fit regional needs.
By the way, I found the above article link on the 321energy site.
Thursday, February 09, 2006
Wary of the overall trend in housing prices, he notes that a downturn could lead to a noticeable slowdown in consumer spending (which currently makes up 70% of GDP). Mr. Grantham feels that a drop in home prices could be the largest negative impact on consumption, outweighing even high oil prices. As he puts it: "Housing has been the easy way to get money". Lofty home values have renewed the "wealth effect" for Americans in recent years, but much of the money extracted from home equity loans has already been spent or put into savings.
Grantham's comments echo the sentiments expressed recently by Richard Russell of the Dow Theory Letter.
Wednesday, February 08, 2006
He recognized that there are instances when an idea or comment may seem rude, ignorant, or even deplorable, but that those ideas should exist so that they might be freely accepted or rejected. Conversely, statements within the bounds of free speech might be held back out of some sense of pragmatism (a desire to avoid inflammatory devices) or a regard for others. With freedom comes (hopefully) maturity. A quote from Wolf's commentary:
"Freedom of speech is a way to thruth, a bulwark against tyranny and a sign of the value we place in the human capacity to judge...There is no courage and little benefit in telling society what it wants to hear."
Tuesday, February 07, 2006
I looked it up and here is what the USGS says about methane hydrates on its website :
Hydrates store immense amounts of methane, with major implications for energy resources and climate, but the natural controls on hydrates and their impacts on the environment are very poorly understood.
Gas hydrates occur abundantly in nature, both in Arctic regions and in marine sediments. Gas hydrate is a crystalline solid consisting of gas molecules, usually methane, each surrounded by a cage of water molecules. It looks very much like water ice. Methane hydrate is stable in ocean floor sediments at water depths greater than 300 meters, and where it occurs, it is known to cement loose sediments in a surface layer several hundred meters thick.
The worldwide amounts of carbon bound in gas hydrates is conservatively estimated to total twice the amount of carbon to be found in all known fossil fuels on Earth.
This estimate is made with minimal information from U.S. Geological Survey (USGS) and other studies. Extraction of methane from hydrates could provide an enormous energy and petroleum feedstock resource. Additionally, conventional gas resources appear to be trapped beneath methane hydrate layers in ocean sediments.
So from what I'm seeing from a quick overview of the subject, it seems that methane hydrates are seen as a possible source of energy (although there is some debate concerning the economic feasability of exploiting such a resource) and as a devastatingly powerful source of greenhouse gas. See also this 2005 article, "US in race to unlock new energy source" , as well as this Wikipedia entry for more info.
Monday, February 06, 2006
I think the attempt to illustrate the value of these asset classes in "real terms" is a worthwhile endeavor. In judging the value of an asset or investment over time, measuring the purchasing power of the currency in which it is priced is an important consideration. I believe that Marc Faber and Jim Rogers have also made this point before; I recall Faber making a case for commodities a few years ago based on their low price in real terms. Let's see if I can dig up a link to document that... here we are. And here is the quote from that link:
"I may add that by 2001, commodity prices had been in a bear market for the last 25 years, and had reached in real terms (adjusted for inflation) the lowest level in the history of capitalism. In other words, even taking a negative view of the world's economic outlook, it would seem that the secular bear market in commodities, which began in 1980, has come to an end and that from here on we shall rather see higher than lower commodity prices."
Sunday, February 05, 2006
"if gold were really and truthfully hitting a 24 year high in real terms it would have to be over $1000 in U.S. “dollars.” This is the crux of the issue and the one principal that once understood becomes the strongest point for gold ownership."
In making this point, Morgan is also drawing attention to a larger issue: that the purchasing power of paper money is eroding over time. Therefore, the hoped-for profits we register in current dollars often prove illusory when measured correctly over time in real terms.
Saturday, February 04, 2006
Friday, February 03, 2006
After discussing this sort of thing briefly with a couple I met yesterday, I am still wondering. What is best option for people seeking intelligent, impartial advice suited to their needs? By impartial I mean that product selling is not guiding the advisor's recommendations. Does such a thing exist?
And what is more likely to be the determining factor in securing good advice: having a lot of money or the investor's level of education & awareness? I wonder how many savers and investors get access to quality "wealth builders/planners" that can think for themselves and are committed to the people that have entrusted them with their money.
Thursday, February 02, 2006
For more on ethanol and the role it might play in our future, see this USA Today article.
Also, I found it interesting that many of the reports on Brazil's successful use of sugar based ethanol have ommited the fact that croplands used to grow the ethanol producing plants were created out of swaths of Amazon jungle (aka rain forest). I did find reference to it in this article, "Study Boosts Ethanol as Fuel".
Wednesday, February 01, 2006
Incidentally, I see they decided to end the online article on a different note than the print edition I read yesterday.