Wednesday, May 31, 2006

James Turk interview

For any one who hasn't seen it, James Turk was interviewed in the latest Barron's.

I see that someone has posted it to the Stockhouse Bullboards forum, so you can go there to read it. Or you can buy/borrow/steal a copy of the latest Barron's and see it in newsprint with the gold/oil chart included.

Either way, give it a read because Turk makes more sense in two pages of print than most "economic commentators" will make in a lifetime.

Update: new link to Barrons' May 29, 2006 interview with James Turk.

Tuesday, May 30, 2006

Commodity bull over?

Is the commodity bull market over? Or will the recent drop in prices result in a months-long consolidation phase that sets up the next advance of a secular bull move?

It seems a lot of attention has been focused on the overheated metals sector and the recent drop in prices. The precious metals, gold and silver, have pulled back from their recent highs(from around $730 gold & $15 an ounce silver). Palladium has pulled back from its recent move up to $400 and even Platinum's recent strength has ebbed slightly.

The base metals seem to be the real focus of attention, as observers debate over the possibility of a "commodity bubble" in the wake of copper's recent surge. Now that some prices are starting to drop, a large number of commentators are coming out of the woodwork to proclaim the end of "the commodity bubble". Forgetting, for a moment, the fact that there are other commodities outside of the precious metals and base metals sectors, and that some of the agricultural commodities have yet to enjoy their day in the sun, let's take a look at some of the reasons why commodities might be vulnerable here.

Of course, the first thing that comes to mind is the idea that commodity prices ran up largely on the story of increased Asian demand (you could certainly include energy in this discussion). So let's look at this aspect of the commodity boom. A recent piece on the commodities correction at forextv.com cites recent comments from Morgan Stanley analyst Stephen Roach regarding the fuel provided to the commodity boom from the "China juggernaut story". Roach seems to be saying that the commodity boom is just the latest of recent bubbles in the world economy, that at some point the bubble will burst, and that even the China story has its limits. An excerpt:

The key here is to realize that China is not going to keep increasing the commodity-intensity of its GDP growth. In fact, in the just-enacted 11th Five-Year Plan, the Chinese leadership announced explicit targets to reduce its energy content per unit of GDP by 20% over the next five years. China’s concerns go well beyond oil. Potential bottlenecks of industrial materials, together with sharp increases in input prices such bottlenecks trigger, are viewed as a serious threat to sustainable economic growth.

It is not that difficult for China -- or any country in the developing world -- to improve the commodity efficiency of its economic growth China has lagged in deploying oil and other commodity-conserving production technologies. The Chinese do not have to develop new technologies to enhance commodity efficiency -- they merely need to copy those already in existence elsewhere in the world.

Recently, Paul van Eeden was interviewed at Howestreet.com and was asked if he shared similar views to those expressed by Mr. Roach. Paul, who is now stating that the commodity bull market is over, seemed to agree in one sense when he said, "you cannot just look at Chinese consumption of metals and draw conclusions about commodity markets, but that is what the market did - and it was wrong." The full interview can be heard at Howestreet's interview page.

Just above the Paul van Eeden May 26 interview link, you will find a May 27 interview with Jim Rogers. I find it interesting to see the two interviews juxtaposed, as Rogers is probably the most visible and publicly recognized commodities bull. Since the turn of the millennium, he has been one the earliest and most outspoken proponents of the view that the current price cycle is part of a longer term, secular bull market for tangible assets. I'd have to guess that, given Jim's prior statements, he would interpret a commodity market drop as a correction within that larger cycle. In fact, I have heard him suggest repeatedly that any fallout over an economic slowdown in China could prove to be a buying opportunity for commodities.

I would love to hear a debate between Rogers and van Eeden on this topic. I'm sure it would prove fascinating and I think both would press and challenge one another with their differing viewpoints and arguments. For now, I will listen and sift through their reasoning and try to make sense of it all. For anyone interested in the commodity market, I suggest you try and do the same by learning from the knowledgeable participants such as van Eeden and Rogers who have attempted to study this market seriously and have their own money invested in it.

Monday, May 29, 2006

Gee, I missed this one

But then, I don't think we were supposed to notice it. Toni Straka of the Prudent Investor blog pointed out a recent Business Week story that I'd like to include here. It says that John Negroponte, the "White House's top spymaster", has been given broad authority to excuse publicly traded companies from reporting certain disclosure obligations.

Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.

Securities-law experts said they were unfamiliar with the May 5 memo and the underlying Presidential authority at issue.

Pretty under-the-radar stuff, no? Even the experts are faced. See the article link for the full story.

Saturday, May 27, 2006

Words of the Mogambo Guru

Just finished reading some of the interesting comments (maniacal ravings?) put down to electronic paper by Richard Daughty, aka the Mogambo Guru. Daughty, the self described "angriest guy in economics", is a bit unsettled at the prospect of our having to rely on the inflationary machinations of the world's central banks/financial institutions to keep the world financial system afloat. Here's a taste of the Mogambo's ire:

we have an economic system where the definition of debt = money, then thus less debt= less money. This is not so chilling until you realize that less money = losses.

But the decline in the value of the dollar is currently being met with an equal, and off-setting, infusion of credit into the banking system. The idea is (and follow along closely here), that this new credit will be borrowed, used to buy stocks and bonds and dollars, which drives their prices higher (thanks to the new demand), and this increase in money-wealth offsets your losses in real wealth (inflation-adjusted dollars) plus the cost of the new debt! Hahahaha! They actually believe this! Hahaha!

This mind-blowing sop to the owners of assets is at the inflationary expense of those who cannot afford to live day to day as it is, much less accumulate assets, is the cause of the huge disparity of wealth evident in the world.

Read all of it here.

Friday, May 26, 2006

This week's financial innovations

There's been some interesting news lately of innovations in the financial markets. A number of new and previously unseen products were released onto the markets over the course of the past year, and during the week the just ended.

The rise of exchange traded funds, coinciding with the accelerating popularity of commodities, has brought about the creation of several new ETFs based on assets once relegated to the futures exchange. Market particpants can now take positions in gold, silver or oil as though they were buying a stock, but that is not all. Soon it may be possible for some intrepid souls to speculate in an asset class new to financial exchanges: residential homes.

Flipping houses, bacon

Just one of the week's recently launched products, the Chicago Mercantile Exchange housing futures began trading May 22. The CME housing contracts are based on ten different city markets and a composite housing index.

So far the market has been slow to take off; a total of 52 contracts traded the first day. A Globeandmail.com story reported that not only are some skeptical about the market's ability to catch on, but that it can claim to accurately represent something so diverse as residential housing. Chicago real estate mogul Sam Zell offers his take:

"Houses are not the same," said Sam Zell, chairman of Chicago-based Equity Office Properties Trust and Equity Residential, the biggest U.S. apartment owner.

"It's very hard to come up with a kind of trading instrument that would truly reflect the risk and the reward when in fact the basic asset is not the same."

Despite pessimism from some observers, the CME and its partners are hoping that the contracts, based on the repeat sales analysis of the S&P/Case-Shiller Home Price Indices, will prove to be a reliable gauge of home price activity and a useful hedging instrument for property owners, builders and investors.

Leveraged ETFs

Reuters reported on Wednesday that ProFunds Advisor won approval to introduce 12 new ETFs, some of which will employ leverage. From Reuters:

The new funds, which would be known as ProShares, seek to offer double the daily performance of a market index, or double the inverse, or opposite, daily move of an index. Four of the 12 will not use leverage but seek to offer the inverse daily move of an index.

The ProShares funds will use borrowing, futures contracts and various other methods to create the desired leverage. While some mutual funds have used leverage for several years (some of the Rydex funds come to mind), industry insiders mentioned in Reuter's story say leveraged ETFs are an entirely new product. Apparently these ETFs have been long in the coming, with Index Funds Advisor's Jing Sun reporting on their development back in 2002.

A Gold Miner's ETF

Also new on the ETF front is the Market Vectors-Gold Miner's ETF (symbol:GDX), which began trading earlier this week. While previous gold-related entrants to the ETF market focused on tracking the metal, the new Gold Miner's ETF will actually follow an AMEX index of gold mining stocks. The AMEX Gold Miners Index (^GDM) and its components can be seen at Yahoo! Finance. The Gold Miner's ETF was brought out by Van Eck Global, who introduced America's first gold-mining stock mutual fund in 1968.

More to come?

All this and we have yet to mention the expanding horizons being explored by the financial exchanges in their round of merger mania.

Should Euronext accept a merger bid from the New York Stock Exchange, it will create the first transatlantic share market and give the NYSE entry into the European derivatives market (via Euronext-owned Liffe).

Meanwhile, the Swiss Exchange is looking to guard its independance but has teamed up with Deutsche Boerse in a venture that will expand their joint offerings of securitized derivatives. According to a recent report in the Financial Times, the suite of offerings grows ever more complex but this does not hinder demand.

Led by banks in Germany, Switzerland and Italy, investors have been confronted by a bewildering range of structured products. While some, such as warrants, are familiar, others, such as highly complex synthetics with exotic trademarks, are harder to grasp.

But whatever their characteristics, demand is booming, whether from retail investors seeking guaranteed returns along with some downside capital protection, or institutions looking for more arcane products. The number of monthly new listings on the SWX alone doubled from 700 in the autumn to more than 1,400 in March.

That's all for this installment. Have a great week, everyone.

Wednesday, May 24, 2006

Demand for gold and silver

Financial Times looks at demand for gold and silver in two seperate articles found at FT.com.

Chris Flood's report, "Investment demand for gold soars", takes a look at the latest numbers from World Gold Council's Tuesday update. While higher prices sent jewelry demand down, the increased popularity of gold ETFs helped fuel an increase in investment demand. Excerpt:

Investment inflows into gold ETFs rose by 23 per cent to the equivalent of 496 tonnes at the end of the first quarter as long-term investors such as pension funds bought bullion to aid portfolio diversification.

For a couple related items, see this post on jewelry demand from Asia and the role played by investment demand in fueling the gold price rise. This year's investment demand was also raised in April's post, "Recent gold action".

The topic of recent silver price action, as raised by FT's Chris Flood and Kevin Morrison, also touched on the investment demand brought about (largely) by introduction of the iShares silver ETF. Their article pointed out that while investor demand has helped fuel an upward move in the silver price, the ease of selling the exchange traded funds could bring about downward pressure just as easily. See the article for more details on silver's supply and demand picture.

Insanity is prevalent

I happened to be reading an editorial by Sol Palha written in 2003 for Financialsense.com. The name of the piece is "Insanity is Prevalent" and it contains some interesting points regarding gold, fiat money, savings, and the value of what we are commonly taught in our "learning" institutions. Here is an excerpt:

The modern education system is slowly but surely stripping our self-identity. We don’t know who we are, what we are capable of doing and what it is we really want. All we know now are values that are being force fed through subtle means via so-called higher-level education systems. It's truly sad that very few young people have any idea about the concept of money management. It is even sadder to find out that "saving" is an alien term to them.

I've read some of Sol's articles in the past, and while I don't always agree with his arguments, I find that he makes some very interesting observations about the markets and the human condition. It is in that spirit that I recommend reading this article.

Tuesday, May 23, 2006

Euronext shareholders vote against merger with Deutsche Bourse

New developments in the arena of exchange mergers. This news just in from Euronews.net:

Euronext investors have voted against backing a merger with Germany's Deutsche Boerse.The vote, at the AGM in Amsterdam, came hours after the Frankfurt exchange had unveiled a merger bid worth more than the one from the New York Stock Exchange.

Euronext CEO Jean-Francis Theodore has referred to the offer from NYSE as, "the most attractive combination". NYSE chief John Thain would also like to pursue a merger with Euronext, as the deal would give the NYSE entry into the European derivatives market (via Euronext-owned Liffe) and European share listings. It would also create a trans-atlantic market, solidifying the New York Stock Exchange's position as the world's preeminent financial exchange.

The above report noted that although the latest investor's vote makes NYSE the leading candidate to merge with Euronext, it is not binding. At some point a general meeting will have to formally vote after reviewing both bids.

Monday, May 22, 2006

For "G-Rock", who liked to bet the ponies.

Some of you speculators out there may have read, or at some point seen reference to the book, Secrets of Professional Turf Betting, by Robert Bacon.

Steve Saville gives an overview for those of us who have never read it. In a discussion entitled, "Secrets of Professional Speculation", Saville comments on the book and the parallels drawn between the methods of professional horse gamblers and succesful market speculators. Very insightful bit on the role of data/information spread in the markets and the principle of ever-changing cycles, as well.

Sunday, May 21, 2006

More on exchange merger front

They were talking like the NYSE deal for Euronext was a done deal earlier today; let's check the latest news to add to what's been said so far. From the ABC News site:

Euronext and the New York Stock Exchange are set to announce a merger that will create the world's first trans-Atlantic bourse, a British newspaper reported Sunday.


The all-stock merger will create the biggest trading platform in the world, valued at $20 billion, the Sunday Times reported.


So that latest story seems to be consistent with what's out there from Bloomberg, Reuters and the like. Euronext will choose its suitor: either NYSE or Deutsche Bourse, which proposed a merger with Euronext on Friday.

I know that NYSE's John Thain has remarked on his desire
to get a foothold in the derivatives business and Euronext is sure to provide that entry. Meanwhile Nasdaq is floundering, having spent quite a bit to acquire a stake in LSE, a strategy that seems to be going nowhere at the moment. Nasdaq's recent credit rating downgrade by S&P seems to have given NYSE the opportunity to pounce and seize leadership among the newly public American exchanges.

Sometime the joke reveals the truth

For some reason, I was thinking of that offensive and patronizing brokerage commercial that ran on TV a few years ago. You know, the one where Charles Schwab tells investors to take a deep breath and relax as they face worries about the plunge in their investment portfolios.

Well, that led me to remember the Saturday Night Live sketch based off that commercial, and lo and behold, I just happened to come across that link today while glancing through Bill Cara's blog. Here is the link to that sketch, for a laugh.

Buying resource shares

I wanted to include a link to an article that I read the other day. It's by Steve Saville and the subject is buying resource shares on foreign stock exchanges. Saville examines the supposed added benefit of a "currency kicker", the notion that buying shares of a company trading on a non-US exchange will provide the shareholder with the means to profit from a strengthening foreign currency.

In the article entitled, "Can you profit from a falling US$ by buying resource shares on non-US exchanges?", Saville offers his own analysis regarding this idea and any weight it may hold.

I thought the piece made an interesting argument, well thought-out and to the point. This material would be especially interesting and useful for anyone speculating or investing in resource shares listed on non-US exchanges.

Friday, May 19, 2006

Marc Faber's latest

Marc Faber's latest post for AMEinfo.com is a take on Federal Reserve Chairman Bernanke's options as economic overseer. Faber sees Bernanke following in the footsteps of Alan Greenspan, inflating the money supply wildly at any hint of crisis. Only now, the rate of money printing and credit creation is to proceed at an accelerated rate, leading purchasing power of the US dollar to erode at a similarly increased pace.

As Mr. Faber points out, official reports of "low inflation" may have fooled many up to now, but these claims will fall apart when the value of the dollar and dollar denominated asset prices are measured in terms of gold:

Whereas Mr. Bernanke can print as much money as he likes and, therefore, support the inflated US stock and housing market, he cannot prevent US assets from declining against gold, and over the last one and five years, gold has significantly out-performed US equities.

By the way, I love that he referred to the Bureau of Labor Statistics as the "Ministry of Truth". Classic.

Wednesday, May 17, 2006

LME and Platts to develop steel contracts?

Also saw this in an article in the May 17th Financial Times print edition. Word is that LME has appointed Platts to develop reference prices for the development of a possible steel contract. Here's an excerpt from that article:

Meanwhile, LME has appointed Platts, the energy and commodity information provider, to develop reference prices for a possible steel futures contract. The LME hopes that a new steel reference price will be established by the end of the year. If it is adopted by the industry, the LME would look to launch a steel futures contract some time next year.

Steel, which is a $500bn a year industry, is the largest commodity market still dominated by producer pricing, but has no successful futures contract.

With recent news of iron ore price hikes, which China is now balking at, I wonder if a contract for ore is possible as well or is it too tied up by those three main suppliers (CVRD, Rio Tinto and BHP Billiton)? Here's a couple of links I found on the subject for anyone interested in that question. One piece from China Economic Net late last year and a bit from one of CVRD's old SEC filings (from 2003). It said:


Because of the wide variety of iron ore and pellet quality and physical characteristics,iron ore and pellets are less commodity-like than other minerals. This factorcombined with the structure of the market has prevented the development of an iron ore futures market.

Trouble down South America way

From FT: a pair of stories regarding Ecuador's decision to revoke Occidental Petroleum's operating contracts and assign another company to take control of its operations. Article 1 and companion article 2 can be read in full at the links provided.

It seems that this President Palacio was given a very strong signal that he must go forward with the actions against Occidental. From the second article, "Palacio bows to populism in confiscating oil assets
:

Several factors appear to have influenced the Ecuadorean authorities to take a hard line. First, Occidental has become a cause célèbre for radical trade unions and indigenous organisations that have attached almost as much weight to their campaign against the company as to their opposition to the country's pursuit of a trade agreement with the US.

Second, Occidental's presence has become a controversial issue in the run-up to October's presidential elections, and Ecuadorean politicians are more than willing to pursue their opponents through the courts.

Colleagues of Mr Palacio say he and other ministers feared they would have been prosecuted had they not acted against Occidental. "The probability that this would happen has become greater in recent weeks because the legal issue has become a threat to different people," said one Ecu­adorean diplomat yesterday.

Earlier this week, mining company Cambior had to shut down its Rosebel gold mine in Suriname due to a strike. The country has also been hit by recent flooding.

Nasdaq credit rating junked.

S&P cut Nasdaq's credit rating to junk status citing debt burdens and its questionable strategy to buy a controlling interest in the London Stock Exchange. Financial Times reported that the exchange's counterparty credit & bank loan rating were lowered fromm BBB- (lowest investment grade rating) to BB+. The change will increase Nasdaq's borrowing costs should it wish to pursue aquisition targets.

For an earlier look at the exchange consolidation trend that brought about Nasdaq's push for a stake in the LSE, please see "Exchange fever".

A more defensive stance

Paul Van Eeden takes a defensive stance on gold and gold related investments. Van Eeden writes about his decision to reduce his exposure to junior exploration shares, an area in which he has long held a considerable proportion of his money. In "A More Defensive Stance", Paul gives a brief summation of his reasoning for doing so.

Paul can also be heard discussing this subject in a recent Korelin Economic Report interview. See segment 4 of the May 13th program for Paul's comments.

Tuesday, May 16, 2006

Two energy articles from FT

I came across two alternative-energy related articles today that I wanted to share. Both from the May 16th Financial Times. Alan Beattie writes about Brazil's successful ethanol program and how the export of this fuel and adoption of its production methods abroad might help the country regain political influence. No comments on how the crop raising program might be directed away from exacerbating Amazon deforestation though, unfortunately.

The second article, by James Altucher, focuses on opportunities in alternative energy investment. James attended an energy investment conference in New York which centered around the release of the Next Generation Energy Index, which has recently begun trading on NYSE Archipelago (symbol: NGE.X). Incidentally, I couldn't find the proper symbol to look it up on Yahoo! Finance, but I did manage to get a quote from Excite Finance (symbol: ^NGE.X).

Getting back to the subject of the article, all of which can be read here, James shares some of what he learned from the conference and gives us his views on a few possible investments in the NGE arena. Enjoy!

Monday, May 15, 2006

That booming art market

The contemporary art market boom continues unabated, as a wave of liquidity washes over the globe, lifting prices of assets and collectibles along the way. Last week, as a series of contemporary art auctions were set to hit New York, Barron's featured another article by Suzanne McGee chronicling the rising tide of art prices that has helped fuel some artists' rising stars.

How did the action unfold? Artnet reports, "The day sale of contemporary art at Sotheby’s New York on May 11, 2006, totaled $56,348,201, almost double the $23.8 million presale high estimate."


In fact, Sotheby's was not the only auction house that fared well in recent days. Phillips capped off the week with a crowded contemporary sale that collected $29.5 million dollars. High prices were also seen at Christie's, where works by contemporary artists such as Mike Kelly and Damien Hirst achieved noteworthy prices. According to the International Herald Tribune, Christie's Tuesday evening sale of "Post War and Contemporary Art" brought in $143 million dollars.

Refco was able to get a small piece of financial relief, thanks to their "long position" in one hot segment of the art market, contemporary art photography. From Chinapost.com:


Refco Inc., the bankrupt futures trader, may have done better collecting art than trading futures.

The cream of its corporate art-photography collection sold Friday night for US$5.4 million at Christie's International Plc in New York. A confluence of big-name photographers and a mania for contemporary art provided a smidgen of relief for Refco's creditors, who were owed more than US$16 billion as of October. The results more than doubled the presale low estimate and bodes well for future contemporary art auctions at Christie's and Sotheby's Holdings Inc. in New York.

"It's a taste of things to come next week," said Matthew Carey-Williams of the Gagosian Gallery.

Meanwhile, seasoned collectors and advisers were quietly muttering about lunatic prices paid by naive collectors with more money than sense.

The art craze is not limited to Western works or the appetites of Western buyers. Russian buyers continue to emerge as a formidable buying bloc, and interest in Russian art has spurred organizers to try and build on Moscow's reputation as an art capital. Interest in the art market has also extended to Asia; Christie's will sponsor an upcoming Asian contemporary art sale in Delhi later this month. Excitement over some of the region's contemporary art was evident at recent New York sales. As reported in a recent New York Times article,

"Works by emerging Chinese artists have recently received a lot of attention; in April Sotheby's devoted most of an Asian art sale to them. Last night Phillips included several works by some of these artists to see how they measured up alongside their American and European colleagues. Their performance was staggering."

Some observers expressed continued amazement over the appeal surrounding currently in vogue artists such as Donald Judd, whose box sculpture arrangements were a hit in Christie's contemporary sale last Tuesday. Reviewing a catalogue description of the artist's work, International Herald Tribune reporter Sourem Melikian noted that the value of some works seem to hang precariously on current fashionable interpretations of their meaning and importance.

Interestingly, some segments of the market continue to be ignored. Following Christie's evening sale of Modern and Impressionist art, The Jerusalem Post's Meir Ronnen remarked, "The lovely late Gauguin flower piece, a true masterpiece, was knocked down at $4m., even though Christie's had flashed an estimate of $7m.-$10m." The writer also noted that although sales totals for that evening's auction had approached 1990 highs, the equivelant value may not have been approached due to the decline in the dollar since that time.

While auction totals may not have surpassed their highs in terms of real dollars, individual works from sought-after artists might be doing the trick. Of course, it would be difficult to isolate how much of the return from a sale price is a by product of inflation and how much is a function of increased demand for a particular item. Market observers and academics have often preferred to track artworks by classification groups and judge performance of art indices or constructed "portfolios" over various time periods. For a past look at art's ability to perform as an inflation hedge and investment class, please see "Art as Investment, Inflation Hedge".

Will the booming art market continue to surprise observers and sceptics alike? While currently favored contemporary artworks could suffer from a dropoff similar to one that befell the Impressionist market after 1990, prices for artworks in areas of relative value might be kept aloft in an inflationary tide. As a continually surprised onlooker, I think I'll leave it to hindsight and art experts to figure this one out.

TSX to create new gold index

The Toronto Stock Exchange, home to many of North America's publicly traded mining companies, will introduce a new gold index by the end of the year. From Reuters:

The TSX and Standard & Poor's, which manages the indexes for the TSX, said the S&P/TSX Global Gold Index will be launched by the end of the year amid hopes it will be a "leading global benchmark for gold portfolios."

Once established, the index will be the first real-time global gold index and will track the top gold mining companies from around the world.

The exchange hopes to attract attention to its position as a premier listing spot for resource companies. Globeandmail.com reports the index "will pave the way for the development of index-linked investment vehicles", possibly an index-based ETF.

It seems the TSX could be looking to increase its standing among global companies, positioning themselves as an alternative to the London Stock Exchange, maybe? LSE's AIM market has been a desirable listing destination for smaller resource companies in recent years, as foreign small cap firms look to avoid the onerous listing requirements of American exchanges. Maybe TSX's global gold index will lend a little added cache?

Sunday, May 14, 2006

From Freedom to Fascism - interview

Jim Puplava interviews movie maker Aaron Russo, creator of the new movie From Freedom to Fascism during hour 2 of the Financial Sense Newshour.

Russo started out making a movie about the federal Income Tax system and ended up making a film with a larger theme - America's alarming descent into something resembling a police state, with all its accompanying madness.

Check it out and hear what he has to say.

Friday, May 12, 2006

Commodities update: Soybean, Wheat, Corn

Quick update on agricultural commodities. News of possible land nationalization/reorganizing in Bolivia has me wondering what impact there might be on soybeans. Tensions still exist over Brazilian/Bolivian land disputes and may affect farmers working land in Bolivian lowlands bordering Brazil. From Bloomberg:

Brazilian farmers in Bolivia are concerned they may be the next target of a campaign by President Evo Morales to seize foreign assets.

``I'm very apprehensive,'' said Brazilian-born Ener Sanches, 46, who has 2,000 hectares (5,000 acres) planted with soybeans and owns a fertilizer company in the southern city of Santa Cruz de la Sierra. ``They are trying to pit one group against the other.''

There is a great deal of concern over gas disputes between Bolivia and its largest consumer of natural gas, Brazil. Now, a new source of tensions could emerge:

The second concern is illegal or undocumented occupation of Bolivian land, especially land within 50 kilometers (31 miles) of the Brazilian border, territory that Bolivia's constitution prohibits foreigners from owning, Colanzi said.

Brazilian farmers, who have helped make Brazil the world's second-largest soybean producer and exporter after the U.S., found it easy to move across the border and open up land in Bolivia.

According to Farm Futures news, the Chicago Board of Trade will launch a South American Soybean contract on Monday. South America produces over 50% of the world's soybeans.July soybean contract ended the day unchanged at $6.13 a bushel.

July Wheat ended up 9.4 cents at the CBOT to close at $401.4. Corn futures also closed higher, with the July corn contract up 11.2 cents to close at $2.58. Business Week reported an Agricultural Department study finds ethanol demand will push corn prices higher this year. News regarding wheat and soybeans were also included in the report.

Thursday, May 11, 2006

Spying on American (Idols)

One of the leading news stories today on Google News was the USA Today report regarding the government's continued support for NSA phone monitoring. See full story at Forbes.

Shocking example of just how far these "terror-fighting" efforts will spread throughout Americans' lives. Not as shocking, though, as a recent American Idol upset. Apparently that story is dominating the minds of Americans, as this Columbia Journalism Review article relates. Thanks to the Magpie blog for that entry and article link.

I checked out Technorati throughout the day and "American Idol" has consistently turned up in the top of the search rankings. I see Qwest, one of the phone companies who did not turn over records to the NSA, is now popping up #15 in their keyword search ranking. Fear not, Founding Fathers, the Republic is safe!

The silver question: an update.

The purpose of this entry is to provide an update for the recent post regarding Warren Buffet's silver position and the silver ETF. I thought I'd do that by including links to the latest commentaries from Ted Butler and David Morgan, since I cited their some of their earlier ruminations in the last Buffett silver post. Readers interested in the Barclays silver ETF or the matter of Berkshire Hathaway's recently closed-out silver position should read on.

First, we'll start with an excerpt from Ted Butler's May 8 commentary, the first part of which is titled, "Buffett Loses His Silver".

The recent revelation that the renowned investor Warren Buffett sold his silver was a mega-event. It was big news when Mr. Buffett bought silver some 8 or 9 years ago, and its sale is also big news. Let me state the facts as I know them, and then I’ll speculate.

Mr. Buffett always said he would make it known when he sold his silver and he kept his word, using the occasion of his company’s annual meeting to tell of the sale. While he did not reveal the exact amount, time and price of the sale, he indicated that he "sold too early" and did not profit from the sale. I found that very surprising and particularly unusual for Buffett.

Read more of Butler's commentary at the link included above.

Next I'd like to include a section from David Morgan's most recent submission to Financial Sense. In this article, David looks back at some of his earlier thoughts on the silver ETF and the role that Berkshire Hathaway's silver position might have occupied in backing the (at that time) proposed ETF. Here is an excerpt:

What the proposed Silver ETF requires is real silver, but not necessarily new purchased silver. In fact the proposed amount for this issue is about 130 million ounces of silver to begin. This is almost exactly the amount reportedly purchased by Berkshire Hathaway in 1997. We have absolutely no inside knowledge but wish to illustrate a point. Suppose a large holder of real silver were to “pledge” the metal under some type of derivative scenario. The ETF would be up and running, and real metal would be “behind” the transaction.

Well, if you've read the commentaries of Butler and Morgan, you will have an idea as to what might have happened to Berkshire Hathaway's silver position. From what I gather, Butler's opinion seems to be that Berkshire's silver was called away as a result of their leasing, while Morgan seems to support the notion that Berkshire's silver provided the backing for the Barclays Silver ETF.

Interesting, and if we haven't exactly solved this bit of intrigue, we do have some interesting information regarding less-discussed aspects of the precious metals ETFs, thanks to both Morgan and Butler.

Tuesday, May 09, 2006

Gold crosses $700

June gold contracts on the COMEX rose $21.60 to close at $701.50 an ounce. One of the big fundamental stories for the metal is the possibility that China may significantly increase its gold reserves. Full story at Reuters.

And in the "you must be joking" file, CNN Money has dusted off its negatively slanted gold story, "$600 gold: Want in? Think twice" and replaced it with a fresh new title: "$700 gold: Want in? Think twice". I think we've seen this film before. There's mention of that earlier article (published only last month) in a $600 gold piece I wrote for Financial Sense April 7th.

Recent writings from Marc Faber

Marc Faber, writing in the Whiskey & Gunpowder letter, recently set down his thoughts on a few major, often interrelated, economic themes. In "A Simpleton's Guide to Economics and Investment Markets, part I", Faber gives us his two cents on the worldwide economic expansion, debt and money growth, economic imbalances, the commodities boom and the shifting of wealth from developed economies to emerging nations.

Part two of "A Simpleton's Guide" can be read here.

Bolivia looks to mining nationalization

Bolivian president Evo Morales wants to follow up last week's nationalization of the gas industry with a similar grab for control over the mining sector. Morales said that if he did not enact the nationalization by August, members of an assembly to rewrite the constitution would be charged with doing so. From the Financial Times:

Mr Morales's comments have exposed the divisions within government ranks. "Some on the left want to nationalise mining, while others are just pushing for tax increases," said Carlos Arze of Cedla, a La Paz think-tank.

Vice-President Alváro García and Walter Villaroel, the mining minister, have both ruled out expropriating foreign-owned mining assets, although Mr Villaroel said last week: "It would be irresponsible not to make the most of the rise in the price of minerals."

The following excerpts come from a Mineweb article entitled, "Is Bolivian seizure a resource nationalism trend?":

Bolivian Vice President Alvaro Garcia Linera recently told a Las Paz radio station, that no mining companies shall be expropriated, nevertheless, adding that the state "shall assume a high level of control."

Meanwhile, Newmont Mining President Pierre Lassonde told reporters recently that he is nervous regarding the events in Bolivia, Ecuador and Venezuela. Lassonde noted that "it's every foreign investor's nightmare that you invest billions of dollars and all of a sudden you find that your investment has been nationalized."

Barrick Chairman Peter Munk declared last week that he would rather put his investment dollar in Pakistan rather than Bolivia and Venezuela.

Companies are retreating and taking their investment dollars with them.

Monday, May 08, 2006

Guantanamo Bay to close?

An article in the Hindustan Times Monday declares "Bush wants Guantanamo closed, detainees tried." Excerpt:

Unites States President George W Bush said he wanted to see the camp at Guanatamo Bay in Cuba closed and the prisoners held there put on trial.

"I very much would like to end Guantanamo; I very much would like to get people to a court," Bush said in an interview on the German television channel ARD on Sunday.


US Attorney General Gonzales had recently maintained that the detention camp was essential, despite widespread calls for its closure.

Britain's Attorney General, Lord Goldsmith, has recently made public his view that the Guantanamo Bay center violates international standards of law and should be shuttered.

Sunday, May 07, 2006

The end of cheap energy

Jim Puplava interviews Matthew Simmons, energy investor and author of the book, Twilight in the Desert, on the Financial Sense Newshour. Their talk centers on the current state of energy use and demand in the world, and the mistaken notions held by many regarding cheap, abundant hydrocarbon energy. Audio interview and transcript available at the above link.

Saturday, May 06, 2006

Buffett sees speculation in commodities

Warren Buffett says speculation is evident in commodities such as copper and that he no longer holds a position in silver. From Reuters:

"We had a lot of silver at one time but we don't have it now," Buffett said, speaking at Berkshire Hathaway's (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) annual meeting.

Berkshire Hathaway has apparently disposed of its once formidable position in physical silver. Although the company's investment in silver was quoted at 129 million ounces and represented a significant percentage of all above ground supply, it represented only 2% of Berkshire Hathaway's investment portfolio. Interestingly, 129 million ounces is exactly the amount of physical silver that was required to launch the new silver ETF (SLV).

It would seem that Buffett & Co. have found, in this recent upsurge in demand, an opportunity to unload the remainder of their silver position. At the very least they have selected an appropriate time to announce that their foray into the silver market has been wrapped up. How was Berkshire's silver position liquidated? At this point, I don't know so I'll defer to the best guesses of those who have followed the silver market in depth for some time. The following exchange between Ted Butler and Jim Cook comes from an interview published in March, before the Barclays silver ETF was approved by the SEC.

Cook: From time to time somebody mentions Warren Buffett’s silver. What’s the story with this silver?

Butler: While it’s not surprising that people speculate about the silver purchased by Berkshire Hathaway, the truth is that it’s just that – speculation. Mr. Buffett has kept his promise and not mentioned it for years. That doesn’t stop folks from inventing stories. The most recent is that his silver will be made available to the proposed ETF.

Cook: No truth to that?

Butler: Not that I can tell. I’m sticking to my speculation that the Berkshire silver no longer exists in physical form, but only as a paper claim. I think it was all leased out many years ago.

I've also just found this past article of Butler's where he discussed the logistics of purchasing the amount of silver needed to back Barclays' silver ETF. Well, in spite of what he thought at the time, the ETF was approved, but I don't know if they've answered the question of where the physical silver came from or if it is numbered and allocated.

Friday, May 05, 2006

Rumsfeld confronted by former CIA analyst

Donald Rumsfeld's speech before a pre-screened audience in Atlanta was punctuated by protests Thursday. Former CIA analyst Ray McGovern apparently decided to call Rumsfeld out during a question and answer session, accusing him of lying to build support for a war in Iraq.

Video is available from CNN, although Rumsfeld's questioner is not shown for most of the segment. Accounts of the event describe security officials moving in to remove McGovern from the conference room, only to be waved off at the last moment by Rumsfeld. From CNN.com:

When security guards tried removing McGovern, the analyst, during his persistent questioning of Rumsfeld, the defense secretary told them to let him stay. The two continued to spar.

"You're getting plenty of play," Rumsfeld told McGovern, who is an outspoken critic of the war in Iraq.

Apparently Rumsfeld is so charming and truth so elusive a concept that some mainstream reporters have accepted his claim that he did not lie, despite all evidence to the contrary.

Transcript of McGovern's challenges to Rumsfeld.

A valuable look at IRA accounts

I would like to include a link to what I consider to be a very valuable article. Paul Paulson has written an article about the limitations inherent to popular savings/investment vehicles such as the IRA and 401k. His article, entitled, " 'It Depends' A Problem With An IRA Account", focuses on the limited choice of investment options & strategies available to people investing through these vehicles.

Given the expectation of continuing (and underreported) inflation, Paulson examines the toll of eroding purchasing power on cash held in these "tax-deferred" accounts. Specific attention is focused on the options available to investors looking to draw cash out of their accounts in order to invest in physical precious metals.

Thursday, May 04, 2006

I read the news today (oh boy...)

Taking a glance at some of the news stories today, we've got celebrities, nationalization and human rights as some of today's themes. We'll let Google News sell Tom Cruise above the fold, I want to take a look at some of the stories further down the page.

Does Democracy ensure peace, human rights?

Here's one from the VOA News site headlined, "US Vice-President Criticizes Russia's Human Rights Record". Cheney has taken the now widely recognized idea that Russia is using its energy supplies as a political weapon and used it as the fulcrum for his attack on Russia's turn towards authoritarianism. Quite right, but I'd say that's more than a little ironic coming from a man who has stood behind our country's relentless march to war against enemies real or imagined, helping to ensure the resulting decay in liberty.

Illegal detentions of suspected terrorists or "enemy combatants", secret courts and prisons, a widely publicized disregard for principles of prisoner treatment as set forth by Geneva Conventions, unconstitutional pre-emptive war declarations, programs for spying on American citizens, must I go on? A decent overview of this administration's actions in a piece such as this one, by Robert Parry, should put things into perspective.

Senate passes spending bill

Elsewhere in the news, the U.S. Senate has approved a $109 billion emergency spending measure, largely related to the war and operations spending in Iraq and Afghanistan. There are some notable chunks of money earmarked for other causes - here's a passage from Bloomberg's report on the subject:

The legislation provides $66 billion for operations in Iraq and Afghanistan; $28 billion for Hurricane Katrina related- relief; and as much as $4 billion in farm assistance. It would also provide $650 million for port security, $1.1 billion for the Gulf Coast seafood industry and $1.9 billion for border security programs.

The total figure exceeds the $94.5 billion that the Bush administration is willing to spend, but I say, "hey, what's a few billions between friends?". By the way, Iraq & Afghan war costs have totaled $439 billion to date, according to World Peace Herald.

Kind of differs from the official govt. estimates I remember flashing across the news tickers in the run up to the Iraq war. I believe at the time (late 2002), the official estimates had the Iraq war costs pegged at $9-$13 billion and this was counter to an independant organization's estimate of at least $100-$200 billion in total war costs. I've got to retrace those figures.

Bolivia

Bolivia's nationalization of the gas sector has mostly gone according to plan, with "renegotiations" being scheduled between the country and the major foreign oil & gas companies that are invested in its resources. However, Petrobras seems to not want to play a part in this unfolding drama. According to a recent report by Forbes, Petrobras chief Gabrielli is suspending the company's business in Bolivia.

So far Repsol seems to be biding their time and playing the game. We'll see how this plays out. I wonder if some of these companies seem to think it might be worth their while to bite the bullet and wait out the situation. Unfortunately for them, I think the nationalizing countries will want to try and hold on to the resource rights as long as commodity prices remain high. That seems to be the pattern in which these resource grabs/nationalization efforts play out, at least to my limited knowledge. I wonder what an industry insider would say. Perhaps I'll have to try and find one and get an opinion.

Wednesday, May 03, 2006

Hydrogen and Solar

Today's renewable energy articles, pulled from the 321energy site. Great source of information and news on a variety of energy sources, by the way.

Here we go, one on hydrogen, entitled, "Hydrogen fuel far from ready for prime time" and an article about a proposed solar plant in New Mexico that if completed, will be the world's biggest in terms of size and generation capacity.

Hopefully, solar will one day become efficient enough that the headlines will read, "World's smallest solar plant planned", but that is a story for another day!

Tuesday, May 02, 2006

Fleckenstein on the Fed

An article from Bill Fleckenstein's MSN Money column, entitled, "Does the Fed really 'know' what's going on?". Here's a taste:

Current Fed members have left an enormous paper trail of their thoughts, almost none of which inspires confidence. Yet, confidence has been conferred on them. It's confidence in the Fed that underpins the stock market, the economy and the dollar. That confidence is going to be shattered at some point, unleashing enormous damage to all three. The clock is ticking. We just don't know exactly when the end-game will start.

Read the whole article (and some of his past articles) to find out why Bill feels the way he does. By the way, the above article link came from Safehaven.com.

Despite Bolivian gas nationalization, oil & gas shares trade higher

President Evo Morales has instituted nationalization of Bolivia's natural gas resources, making good on earlier promises to increase state control over the country's natural resources. From a CTV.ca article:

Soldiers guarded natural gas fields and refineries after Bolivia's leftist president ordered the nationalization of the sector, threatening to evict foreign companies unless they give Bolivia control over production within six months.

President Evo Morales announcement Monday fulfils an election promise to increase state control over Bolivia's natural resources, which he says have been "looted'' by foreign companies.


The action, announced Monday, is the latest sign of a Latin American backlash against foreign companies profiting off the region's resource sector. As a wave of protectionism sweeps the globe, countries are beginning to strive for increasing control over "strategic assets" such as energy.

In order to solidify control over resources perceived as being increasingly scarce, some European countries are rewriting laws regarding ownership and control of power and energy sources. In the case of Bolivia and Venezuela, leftist national leaders have resorted to outright nationalization of resources and industry assets. As a Reuters article explains,

The government decree says "the state recovers ownership, possession and total and absolute control" of hydrocarbons.

This means the state will own and sell these resources, relegating foreign companies to operators. Previously, Bolivian law said the state no longer owned the gas once companies extracted it from underground.


The article also explains that the military and officials from state energy company YPFB have taken control of "dozens of installations, including gas fields, pipelines and refineries". In order to appease some of his indigenous voters and strengthen ties with Venezuela's Hugo Chavez, Morales may keep the ball rolling in this direction:

"This is just the start ... tomorrow or the day after it will be mining, then the forestry sector, and eventually all the natural resources for which our ancestors fought," Morales told a jubilant crowd in La Paz's main plaza.

Among the companies affected by Monday's action are Petrobras, Repsol YPF, Total, BP, Exxon Mobil and BG Group PLC. News of the nationalization decree came late Monday (On Yahoo! Finance, I see the first headlines were coming in at around 4:25 PM). Let's see how this news affects shares in some of the companies mentioned tomorrow.

Tuesday's trading day update:

Shares of Major Integrated Oil & Gas companies are up about 1.86% on the day, according to data from Yahoo! Finance. Repsol and Petrobras had opened lower in European trading on news of Bolivian gas nationalization. Repsol, the company most exposed to the Bolivian gas sector, closed down 0.63%.

Shares of companies with slight Bolivian exposure managed to shake off the news of nationalization, and powered higher on news of $74 a barrel oil. Shares of Petrobras are up 1.87% currently in American trading. France's Total SA is up $1.96 or 1.41%. Shares of BP also up on the day, with a 2.34% advance so far. Exxon Mobil and Britian's BG Group are also included among the firms higher today despite the nationalization.

Oil & Gas shares trading up.

Shares of Major Integrated Oil & Gas companies are up about 1.86% on the day, according to data from Yahoo! Finance. Repsol and Petrobras had opened lower in European trading on news of Bolivian gas nationalization. Repsol, the company most exposed to the Bolivian gas sector, closed down 0.63%.

Shares of companies with slight Bolivian exposure managed to shake off the news of nationalization, and powered higher on news of $74 a barrel oil. Shares of Petrobras are up 1.87% currently in American trading. France's Total SA is up $1.96 or 1.41%. Shares of BP also up on the day, with a 2.34% advance so far. Exxon Mobil and Britian's BG Group are also included among the firms higher today despite the nationalization.

Monday, May 01, 2006

Bolivia nationalizes natural gas, assets

President Evo Morales has instituted nationalization of Bolivia's natural gas resources, making good on earlier promises to increase state control over the country's natural resources. From a CTV.ca article:

Soldiers guarded natural gas fields and refineries after Bolivia's leftist president ordered the nationalization of the sector, threatening to evict foreign companies unless they give Bolivia control over production within six months.

President Evo Morales announcement Monday fulfils an election promise to increase state control over Bolivia's natural resources, which he says have been "looted'' by foreign companies.


The action, announced Monday, is the latest sign of a Latin American backlash against foreign companies profiting off the region's resource sector. As a wave of protectionism sweeps the globe, countries are beginning to strive for increasing control over "strategic assets" such as energy.

In order to solidify control over resources perceived as being increasingly scarce, some European countries are rewriting laws regarding ownership and control of power and energy sources. In the case of Bolivia and Venezuela, leftist national leaders have resorted to outright nationalization of resources and industry assets. As a Reuters article explains,

The government decree says "the state recovers ownership, possession and total and absolute control" of hydrocarbons.

This means the state will own and sell these resources, relegating foreign companies to operators. Previously, Bolivian law said the state no longer owned the gas once companies extracted it from underground.


The article also explains that the military and officials from state energy company YPFB have taken control of "dozens of installations, including gas fields, pipelines and refineries". In order to appease some of his indigenous voters and strengthen ties with Venezuela's Hugo Chavez, Morales may keep the ball rolling in this direction:

"This is just the start ... tomorrow or the day after it will be mining, then the forestry sector, and eventually all the natural resources for which our ancestors fought," Morales told a jubilant crowd in La Paz's main plaza.

Among the companies affected by Monday's action are Petrobras, Repsol YPF, Total, BP, Exxon Mobil and BG Group PLC. News of the nationalization decree came late Monday (On Yahoo! Finance, I see the first headlines were coming in at around 4:25 PM). Let's see how this news affects shares in some of the companies mentioned tomorrow.

Asia's search for fuel crops

Just wanted to quickly add this article from MSNBC.com. Asian countries are searching for an alternative fuel source to meet growing demand for diesel & gasoline. Will they find a ready supplement in the fuel producing properties of palm oil and jatropha plants? Or will the large scale efforts towards growing these fuel crops put stress on native environments and food production capabilities?