Sunday, April 30, 2006

John Kenneth Galbraith

John Kenneth Galbraith has passed away at the age of 97. Galbraith was a prolific writer and well known economist who had a long standing association with Harvard University, where he had taught as an economics professor. From BBC News:

He was not a great man for numbers or complex mathematical theories and models, but more of a social economist, whose accessible and prolific writing did much to popularise the subject.

"He was arguably one of the most famous economists outside of his profession for the way he was able to communicate complex ideas in a compelling way to non-economists," says the London Business School's Dominic Swords.

Although I'm not sure I would agree with many of his views (Galbraith was a self-avowed "evangelical Keynsian"), I must say that I respect the man's questioning nature and his willingness and ability to publicly pose questions about issues that seemed to evade the attention of many. Here was a man obviously dedicated to his work, not afraid to speak his mind and speak out on issues he believed in. With all respect - John Kenneth Galbraith, Rest In Peace.

Washington Post online feature on the life of John Kenneth Galbraith.

Friday, April 28, 2006

A bet on agricultural commodities

A recent article from the globeandmail.com highlights investor Jim Rogers' interest in agricultural commodities, an area which he feels might provide the next crop of opportunity (no pun intended, seriously) in the resource sector.

Investor and economic commentator Marc Faber has made similar recommendations in the not too distant past. I remember Faber highlighting some of these commodity picks in some of the past Barron's Roundtables, and I have a written note of Marc recommending Ags/Softs such as Sugar, Orange Juice & Coffee in a 6/24/04 interview with Financial Sense.

We've seen in recent months how the price of sugar has been propelled to higher levels, partly on the strength of the fundamental story, "sugar as energy". Will the other agricultural commodities rise on the back of increased Asian consumption or various new demand stories that will be revealed in time?

Thursday, April 27, 2006

Silver ETF to begin trading

Barclays Global Investors silver ETF, iShares Silver Trust, is set to begin trading Friday on the American Stock Exchange (AMEX). The proposed ticker symbol is "SLV". The ETF shares will represent 10 ounces of silver held in vaults. For more info see Thursday's Marketwatch article.

Oddly enough, I haven't heard much on the progress of a seperate silver tracking fund that was to be launched on the London Stock Exchange. ETF Securities was preparing to launch an unbacked silver ETF back in March. Now that I'm searching around for info, I've found these recent comments from ETF Securities chairman, Graham Tuckwell:

Graham Tuckwell, chairman of ETF Securities, the firm that helped launch Gold Bullion Securities, said: 'We are going to be bringing a silver ETF on to the London stock market within the next month or so.'

See the full article here.

Wednesday, April 26, 2006

Chicago Natural Resource Conference

For those interested, the Chicago Natural Resource/Technology Conference will take place April 29, 2006, Saturday from 7am to 6pm. The event is held at Rolling Meadows Holiday Inn. Address and phone: 3405 Algonquin Road Arlington Heights, IL. (847) 259-5000.

There is no charge for admission, but you might contact organizers as space is limited. Here is the info contact that appears on my admission postcard: (317) 502-5828 richradez@yahoo.com

Keynote speaker is Joseph Granville, well known technical analyst and editor of "The Granville Market Letter". Other noted metals and resource analysts/newsletter writers will speak, along with representatives from participating resource/mining companies. At past conferences I had the pleasure of hearing commentary from the likes of Bill Powers, Jim Rogers, Clyde Harrison and David Morgan up close.

From what I gather, the Chicago conference seems to be one of the smaller resource events, at least judging by attendance numbers for similar conferences. I don't know if that's due to the location they've selected (not a major convention spot) or the promotion, but it tends to be a fairly tight knit affair. In any case, I'm glad to be able to hear and meet the guests in a smaller setting.

Monday, April 24, 2006

Anatomy of bear markets

Dr. Marc Faber's recent article, An Anatomy of Bear Markets, takes a look at the way we define bull and bear markets and offers an insightful view as to how we might judge asset prices in real terms. In the following passage, Faber gives us a view as to how we might judge price movements in an inflationary period:

"In case we should experience continuous monetary inflation, which could lift, over time, all asset prices such as stocks, real estate, and commodities, some asset classes will increase more in value than others. This means that some asset classes while rising in value could deflate against other asset classes, such as happened with the Dow against gold since year 2000."

For this article, Dr. Faber draws on the work of Russell Napier, author of Anatomy of the Bear, to further his discussion about the manner in which markets/asset classes shift from overvaluation to undervaluation.

I would also suggest that anyone interested in these discussions listen to Russell Napier's recent interview on the Financial Sense Newshour. Some very interesting perspectives of how stock market bottoms unfold, from a researcher who obviously knows how to uncover important data through study of market history.

Sunday, April 23, 2006

Confessions of a Wall Street Analyst

I'm going to provide a link to this weekend's Financial Sense Newshour interview with Dan Reingold, author of Confessions of a Wall Street Analyst. Reingold was a telecom analyst on Wall Street who has drawn on his career experiences and observations to paint a picture of conflicts and corruption within the financial industry.

Listen especially to the section around 50 min. in when Dan and interviewer Jim Puplava discuss the pervasiveness of accounting fraud and the lack of concern over these widespread practices. It seems a sad illustration of just how far the "ends justify the means" philosophy extends in modern society.

How boxed containers changed shipping & trade

An interesting article called, "A sea change in shipping", discusses what could be perceived as a very plain topic: boxes. As it turns out, box containers have had a profound impact not only on the shipping industry, but the very nature of trade. The advent of box container shipping has helped transform the type of goods the world sends and receives, and the efficiency with which they come to market.

Friday, April 21, 2006

Jim Rogers on $1000 gold

Jim Rogers is sticking to his story; the commodity bull market will continue to unfold as a long running secular move, with gold eventually reaching $1000. ``The shortest bull market for commodities lasted 15 years, the longest 23 years,'' Rogers, 63, said in an interview. So if history is any guide, ``they've got a long way to go.''

See the full Bloomberg article here.

Thursday, April 20, 2006

Hu Jintao's visit to US

Hu Jintao, China's president, began his visit to America by meeting with business leaders in Seattle. Mr. Hu kicked off his tour with a visit to Microsoft's headquarters, and later dined at the home of Microsoft founder Bill Gates.

Yesterday's Financial Times coverage centered largely on the leader's recent stance towards intellectual property rights, and what that could mean for Microsoft. "China has made a series of announcements on IPR issues in the lead up to Mr. Hu's visit issuing a directive for computers to be pre-loaded with legitimate software and for governments not to use pirated versions."

This is very good news for Microsoft as they will probably serve up one the main pre-loaded options. Lenovo has announced a deal to sell computers in China w/ Microsoft software pre-loaded. Lenovo's chairman said the policy has already had a big impact in China. 70 percent of customers are now buying comps pre-loaded with Windows XP, up from 10 percent before November.

Today's visit to the White House did not go as smoothly as planned, as ceremonies for the visiting leader were interrupted by a woman protesting against persecution of Falun Gong practitioners. According to the Financial Times, the woman's outburst went on for five minutes before secret service agents were able to lead her away. The footage of the interrupted ceremony has been censored by Chinese media outlets, but was seen by internet users checking into US news sites.

Tuesday, April 18, 2006

Strike at Newmont

There was a bit of news yesterday regarding the worker strike at Newmont Mining's Yanacocha gold mine in Peru. Here are the Reuters and Business News Americas stories. Peru's Buenaventura also owns a large stake in the mine.

June gold was up $4.50 to close at $623.30 an ounce, according to a recent CBS Marketwatch update.

Monday, April 17, 2006

Metals action and notes on palladium

Tuesday's update: June gold was up $4.50 to close at $623.30 an ounce, according to a recent CBS Marketwatch update.

Gold hit 25 year highs in Asian trading on Tuesday. June gold closed at $618.80 in Monday's session on the Comex in New York. Here's a bit of what appeared in a Bloomberg story on commodities Monday:

Gold for June delivery rose $18.70 to $618.80 an ounce on the Comex division of the New York Mercantile Exchange, after reaching $619.30. The 3.1 percent gain was the biggest since Sept. 14, 2001, the first day of trading after the terrorist attacks.

Meanwhile, silver keeps defying expectations and has extended its move above the $12 area. May silver was up 51 cents to close at $13.365 an ounce. Platinum closed Monday at $1,120.10 an ounce, and palladium was up $12.95 to close at $362.45.

Monday was definitely a standout day for the precious metals. I'm very interested to see how this recent move in palladium plays out. There's been some very good momentum building up for the metal, as it seems to be slowly climbing out of its post 2000 doldrums.

Widely regarded as an industrial metal, palladium's role as an autocatalyst provided a demand backdrop for the supply shortage that fueled its 2000-2001 price spike. At that time palladium was priced higher than its complementary metal, platinum, leading many manufacturers to return to platinum as their emission control ingredient of choice. An atmosphere of shortage soon gave way to one of oversupply as shipments from Russia were resumed and palladium stockpiles were liquidated. Palladium prices soon sunk back below platinum prices, and the discount persists today at a 3:1 ratio in favor of platinum.

Palladium use in autocatalysts seems to be coming back and increasing especially among North American manufacturers. In addition to its role in emissions control, there are more applications for palladium on the horizon. Palladium's potential as a water treatment agent, particularly in the area of groundwater contamination, is being further explored.

Jewelry demand can now be added to the growing list of uses for palladium. I was interested to learn not too long ago that palladium has long been used as jewelry in certain parts of Asia. I wondered if this trend would soon extend to American markets, and it seems that this may take place sooner rather than later.

These trends seem to be driving a resurgence in palladium demand. Will they move the price of palladium higher over time, narrowing the price discount to platinum?

Saturday, April 15, 2006

NYSE discusses "strategic transaction".

Reuters reports that the New York Stock Exchange is currently reviewing a strategic transaction, one that could include the hotly pursued London Stock Exchange. Nasdaq has recently acquired a stake in the LSE, but some have criticized the logic of the move in light of how it will affect the Nasdaq's balance sheet.

Consolidation continues to move forward in the financial exchange sector. For an earlier look at the trend, please see the following post from March 15.

Wednesday, April 12, 2006

"Net-Zero" buildings

Interesting article from 321energy called, "Constructing a Foundation for 'Net-Zero' Buildings". A bit of an introduction to what is possible today in the field of building design. The goal is to construct homes and buildings that "use zero net energy" and are "carbon neutral", having found some ways to offset their carbon emissions.

Interesting. The "carbon neutral" jargon seems to be a point of contention from what I've found off the cuff. Here are two points of view on how mitigating emissions might work:

How to become a carbon neutral organisation.

Why 'Carbon Neutral' May Mean Nothing at All.

In any case, I do find the efforts towards "green building" intriguing and exciting.

Tuesday, April 11, 2006

Oil ETF

Oil backed ETF United States Oil Fund (USO) made its trading debut on the AMEX Monday, giving investors and speculators an exchange-listed proxy on crude oil futures price. The fund will track the West Texas Intermediate crude oil contracts traded on the New York Mercantile Exchange (NYMEX). See the full story at FT.com.

Included in FT's coverage was mention of the Brent crude oil ETF listed on the London Stock Exchange. Apparently, this earlier oil ETF has not been as successful as some would have hoped, given recent demand for oil related investments. For a bit more background on the oil ETFs, please see this article from the Resource Investor website.

Some of the coverage of this newly listed American ETF has been less than gushing. From a Google News search, I uncovered a few pieces whose titles suggest the ETF is not for most retail investors. Interesting. There was a pretty interesting commentary in today's Financial Times regarding the USO ETF and the possibilities for hedging and the like that might arise out of its issuance. Wish I had a link to the full commentary, but that is a subscriber feature.

Thanks Stockblogs

Thanks to Stockblogs.com for adding Finance Trends Matter to its list of market related blogs.

The Stockblogs directory seems a good stop for anyone looking to uncover some new market related musings. A variety of perspectives here, from fundamental analysis and technical analysis blogs to those focused on commodities and forex. Have a look, you might find something you like.

Iran joins nations possessing nuclear technology.

From Reuters: "Iranian President Mahmoud Ahmadinejad said on Tuesday Iran had joined the group of countries possessing nuclear technology and was determined to achieve industrial-scale uranium enrichment."

Iran's failure to convince much of the international community that the nuclear work was focused on generation of electricity led to their February referral to the UN Security Council.

According to a recent Reuter's article, even current levels of uranium enrichment achieved by Iran's program are unsettling to diplomats and onlooking Western powers.

"164 centrifuges is still well short of producing enriched uranium in a significant quantity over a sustained period. But the more they do it, the more they learn the technology. So any form of enrichment is a red line for us,"

It would take Iran years to yield enough highly enriched uranium for one bomb with such a small cascade. But Iran has told the IAEA it will start installing 3,000 centrifuges later this year, enough to produce material for a warhead in a year.

Sunday, April 09, 2006

Banking and the Business Cycle

I was reading Doug Noland's recent article, "Banking and the Business Cycle", and I'll briefly mention the section of the article from which the title is drawn.

Noland mentions an article he has seen in which a Federal Reserve Bank President (Richard W. Fisher) mentions research that suggests globalization helps to contain inflation. Noland takes issue with this view and cites the overlooked role that credit inflation has in creating asset price booms. He also notes the irony that "Global Credit Inflation" is precisely what is driving the over-investment in manufacturing capacity that helps keep down the cost of goods.

"Reminiscent of the late-nineties view that extraordinary productivity gains empowered the Greenspan Fed to let the economy (and financial markets!) run hotter, today it is "globalization" that supposedly keeps "inflation" in check, thereby bestowing the Federal Reserve and global central bankers greater latitude for accommodation."

"There is a great irony in the fact that U.S. led Global Credit Inflation and attendant Asset Bubbles of unprecedented dimensions are fostering (over)investment in global goods-producing capacity, a backdrop that is perceived by the New Paradigmers as ensuring ongoing "slack" and quiescent "inflation." This is dangerously flawed analysis, and I find it at this point rather ridiculous that policymakers cling to such a narrow ("core-CPI") view of "inflation." I suggest Mr. Fisher, Dr. Bernanke, Dr. Poole and others read (or, perhaps, re-read) the classic, Banking and the Business Cycle - A Study of the Great Depression in the United States, by C.A. Phillips, T.F. McManus, and R.W. Nelson, 1937."


Has anyone read Banking and the Business Cycle? I did a search on Amazon and Bookfinder but didn't find much. There is a listing of it Amazon.com, but no one's reviewed it, so I'm left to believe that it is well out of print and one of those useful economic texts that has only been read by a small number of dedicated economists.

Thursday, April 06, 2006

Recent gold action

Gold traded over $600 during Thursday's session, closing at $599.70 in New York. Since $600 gold has been getting a fair amount of news coverage, let's examine the reasons being trotted out to explain the rising gold price.

A Bloomberg article points to investment fund buying as a main factor driving recent price strength. Also discussed was the "inflation risk" that makes holding gold more attractive for investors, especially in an environment of low real rates. A surprisingly credible argument for gold's strength managed to make its way into the article: ``The market perceives an inflation risk, although it hasn't shown up in some of the government statistics,'' said Michael Cuggino, portfolio manager of Permanent Portfolio Fund in San Francisco. ``Low to negative real interest rates after inflation are generally bullish for gold.''

Unfortunately, Bloomberg's report did not end on such a sensible note. Another source weighed in with the following remarks, ``We're entering bubble territory,'' said Christoph Eibl, head of commodities trading at Zug, Switzerland-based Tiberius Asset Management AG., which has holdings in energy, metals and agricultural commodities. ``Prices have moved away from reality, and are no longer linked to fundamentals.''

I find that last comment to be a bit absurd if it was made in specific reference to gold. Certainly, one could say that commodities in general have undergone an astounding advance, and it is possible that certain commodities now carry a speculative premium in their price (as discussed by Dr. Marc Faber in a recent howestreet.com interview). However, I think it is odd to declare, in a discussion centered specifically on gold, that prices are "no longer linked to fundamentals" when the recent chain of events (and the metal's current strength against most major currencies) clearly suggests the opposite.

As mentioned in the Bloomberg article, investment demand has come on strongly, and investment purchases of gold have outstripped jeweler purchases so far this year. This in itself is huge. Where was investment demand for gold just a few short years ago? Not long ago, most people looked at you cross-eyed or at least gave you the third degree questioning when an investment in gold was suggested. Since gold crossed $500, a new attitude has begun to replace the former stance of suspicion. The small cadre of dedicated goldbugs hoarding bullion and gold coins has been enlarged to include an investor class that gets its exposure to gold through ETFs and precious metals-focused funds. A change in sentiment is clearly underway as the investing public and investment professionals increasingly warm to gold.

Not only is investment demand up in North America, it is profoundly evident in Asia and the Middle East. The people of India and China have traditionally been buyers of gold, in the form of jewelry and as a store of savings. Their purchases will only increase over time, as their economies continue to develop and prosperity levels rise among the masses. Middle Eastern demand is pronounced as ever, with the Gulf economies prospering from a recent oil boom and the resulting flood of new money. An ongoing repatriation of funds previously held abroad, and the establishment of the Dubai Gold Exchange, have no doubt also encouraged gold purchases. Meanwhile, a sizeable increase in Gulf central bank holdings of US dollar reserves have led some to consider diversifying out of the dollar and increasing the region's central bank gold reserves as Russia, Argentina and China have done.

There will not be an easily mineable influx of supply to meet this demand. Gold mining companies face a dwindling resource base and rising costs in extracting gold from the ground. Consider the environmental hurdles and permitting difficulties associated with bringing on new mines in many jurisdictions, along with the increasing push for nationalization of "strategic resources" in Latin American countries, and it becomes a little unclear as to where all this gold will be found.

These facts are not being expressed in the mainstream US business press. Rather than give due weight to the big picture trends driving the gold price, most coverage derides the advance as being speculative in nature. But is that a surprise? A current CNN Money article reads, "$600 gold: Want in? Think twice". While the article dutifully describes several options for prospective gold investors and the risks associated, it ends in a dissuading tone. "Not everybody could handle losing 40 percent in one year...Most people probably don't need an investment in precious metal funds."

I guess it's just one more brick in a wall of worry.

Wednesday, April 05, 2006

Rick Rule interview that I missed

I was going through some interview archives at howestreet.com and I came across a pretty good interview with investor/speculator and resource pundit Rick Rule. It was originally taped at the start of 2006, but I missed it the first time around. In this audio interview, Rule gives his opinions on markets, government intervention, and the outlook for natural resources.

Update: For a more recent (August 2007) interview with Rick Rule, see, "Rick Rule: The Golden Rule".

Tuesday, April 04, 2006

Will Gulf nations diversify away from US dollar?

There has been a good deal of discussion, for some time now, about the desire central banks have to "diversify" out of some of their large dollar holdings. Foreign central banks often hold dollar denominated assets as reserves, and some feel that certain banks may have far too many dollar reserves, given the US government's current financial condition.

It is with this theme in mind that I include today's article from Ame Info. What I liked about this piece was its take on the timing aspect of central bank decisions. It has often been noted that in retrospect, key moves by central banks often come at the exact wrong moment in terms of market advantage. When central banks across the globe were dumping gold in the late 90s and the early part of this decade, their sales actually coincided with the ending stage of the metal's bear market. Could widespread sentiment about the death of the dollar actually signal its return to form, thereby giving central banks a "head fake", or will the the dollar bear market prove to be a lasting trend?

My only quibble with the piece is that its author seems to take solace in the idea that inflation and dollar weakness will be averted by the current cycle of interest rate raising. While quarter point rises in interest rates may lead some to believe that central banks in US and Europe are tightening money conditions, the relationship between inflation and expanding money supply across the globe has gone largely unnoticed. Can "easy money" conditions really turn into tight money while measures of broad money supply show no shortage of money creation across the globe? It will be interesting to see how this plays out over the longer term; that much can be said.

In the meantime, officials from Gulf Cooperation Countries say they will consider moving a sizeable portion of their foreign reserves into euros. Will central banks be rewarded for their trading acumen or simply be duped into favoring one problematic fiat currency over another? Only time will tell.

Monday, April 03, 2006

Richard Russell on World War II

Damn glad to see they posted this on 321gold. Remarks from Richard Russell's Dow Theory Letters on WWII and Russell's own experiences during that time. I read this in the daily remarks of his letter the other day, and it is now posted on 321gold for everyone to see. Check it out.

Saturday, April 01, 2006

How to run a newspaper

Publishing magnate T. Herman Zweibel discusses his management philosophy and his refusal to capitulate to the demands of censorship. Words of wisdom from a courageous individual: lily-livered readers are forewarned.