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Meanwhile, whilst Labor govts in Oz are killing farmers in NSW…

January 8, 2010 Leave a comment

Jim Rogers is screaming that soft commodities are the Buy of the Century and that arable land will be as precious as gold in coming decades.

Speculation in agricultural commodities may not have reached fever pitch yet but with food shortages expected in 2010, it could.

Jim Rogers, one of the world’s most astute investors has been bullish on commodities in general for several years. On agricultural (or soft) commodities, he says: ‘Food inventories worldwide are at the lowest in decades as the world continues to consume more than it produces. We even have a shortage of farmers now since agriculture has been such a terrible business for three decades. We should all hope prices go higher or there may soon be a time when there will be little or no food at any price.’

Mr Rogers, who created his own commodities indices, has put his name to several index funds. The Elements Jim Rogers International Commodity Index Agriculture Total Return which is listed on the New York Stock Exchange has, for instance, risen by about 6 per cent since the start of 2009.

Interest in soft commodities has had an impact on prices.

‘Whenever there are buyers of anything, it affects the prices. For example, if you live in an apartment or house, you are affecting the price of housing in Singapore,’ adds Mr Rogers.

There are several ways to invest in soft commodities including the futures contracts on commodities exchanges like the Chicago Board of Trade (CBOT).

The index funds alluded to by the FAO include the more rarefied market of exchange traded funds (ETFs) that typically attract institutional investors.

There are more prosaic ways as well.

In China, the bubble people are talking about now is not in real estate but in garlic.

Worries about persistent swine flu prompted a spike in garlic consumption in 2009 and soon, everyone was hoarding it in hopes of making a quick buck. Prices are said to have gone up by 50 per cent in the last few months.

Rice could be next. Barclays Capital Research economist Leong Wai Ho says: ‘The bigger problem for food prices is an old one – physical hoarding that can limit physical availability, unlike derivative trading.

‘Rice prices are now at levels that are likely to induce physical hoarding in Vietnam and Thailand. And also in stricken countries – authorities in Southern Guangdong have introduced anti-hoarding measures in the wake of the ongoing drought.’

And Mr Leong also believes the significance of food prices may not have been factored into inflation either.

For 2010, the Singapore government’s inflation forecast has been revised from 1-2 per cent to 2.5-3.5 per cent. Citing rising Thai fragrant rice prices, the prospect of El Nino weather conditions, higher import demand from Asian countries, Barclays’ 2010 inflation forecast for Singapore is higher at 4 per cent, up from 1.5 per cent previously.

Still, the verdict is out on how this will impact the economic recovery.

‘I don’t think there will be a meaningful impact on growth,’ says Mr Leong. ‘While the monetary policy stance will be tightened from where it was before, the overall policy stance will still be largely accommodative in 2010. The exchange rate will be used to lean into imported inflation, while liquidity will still remain flush and fiscal policy still expansionary,’ he added.

Economists will nevertheless be ‘keeping an eye’ on food prices.

What a great move for the Labor govts in Oz to grant mining rights to the barbarians at BHP and the other Neanderthal low-IQ Big Miners over the most fertile arable land in both NSW and Qld, just at the time when sugar prices are at historic highs and every astute investor is screaming that farmland is a buy.  If we had any brains we’d be hoarding our minerals until prices spiked in a decade, and we’d be focusing on innovation in solar power and recycling technologies instead of digging dirty ditches and selling our precious metals for worthless paper.

But no, let’s sell everything we’ve got RIGHT NOW!  What forethought, what genius, what planning, what brilliance!  Well done, Rudd, well done Bligh, well done what’s-her-name-puppet-of-the-Labor-Right-in-NSW!

This proves conclusively to me that (1) there is no God and (2) the NSW and Cth govts are infested with the dumbest people on this God-forsaken planet.

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Jack Douglas says what I just said: Retiring baby boomers = fiscal Armageddon

January 6, 2010 Leave a comment

I just spent a whole blog post talking about Old People!  And now Jack Douglas has exactly the same thoughts! 

Amazing.  Perhaps I’m not as mad as the doctors say I am?  I hope no one is copying my stuff out there in the blogsphere!  Give me attribution if you’re going to copy my stuff, please!

James Quinn’s predictions for 2010: Double dip by year’s end

January 6, 2010 Leave a comment

James Quinn (he of TheBurningPlatform.com) has some interesting predictions for 2010 here at MarketOracle.

Essentially, he’s predicting a double dip. higher unemployment, broken ARMs blowing up all over America, a massive CRE bust, higher interest rates and a surge in gold and silver as the US dollar tanks.  He also predicts the fringes of Europe will be on fire by the end of the year and the big EU banks will start to melt in the heat. 

I also predict a Japanese boa-constrictor-style double dip and a CRE bust in Oz and the US, but don’t see a big hike in interest rates coming up in the US, where the bond market is controlled as tightly as the price of milk in the old Soviet Union.  I suspect the Marxist central planners at the Fed would prefer to let go of the US dollar rather than kill the economy through a spike in real interest rates.  They’ve shown themselves to be completely gutless on controlling growth in the money supply over the past decade.  What will give them the requisite courage this year?  I doubt they’re going to get religion and allow the market for bonds for fall freely without intervening to save at least the short end of the market.

Let’s see what happens.  I thought it couldn’t get any worse than the last two years, but the blindness, the short-termism, the venality, the stupidity, the plain madness of govt can never be underestimated, and it looks like we’re in for another downdraft from the idiot-savant govt’s “good intentions” this year.  The only thing this idiot-savant is good at is lying and displaying extraordinary amounts of chutzpah.

There is no God.

Peter Schiff’s predictions for 2010: The worst is yet to come!

January 6, 2010 1 comment

Peter Schiff’s predictions for the U.S. economy in 2010: higher unemployment, higher interest rates, and higher inflation (oil and gold higher, possibly much higher).  A dollar crash (a drop of 50-70%) is inevitable and will possibly occur in 2010 rather than 2011.

Nice.

[Note: You can watch the full video here if the embedded video below doesn’t work due to blocking by YouTube.com]

Stop press! Gerald Celente’s Top 10 Predictions for 2010

January 5, 2010 2 comments

When Gerald Celente talks, I listen.

Karmaisking’s Trade of the Decade

January 5, 2010 Leave a comment

Having thought through Bill Bonner’s Trade of the Decade, I don’t like it.

The “market” for US debt is a controlled market.  If bond prices fall, the Fed simply buys its own issuance.  So yields can stay low indefinitely.  The market is rigged so analysing supply and demand dynamics makes no sense in this market.  The US dollar itself may tank, but I don’t see bond yields being allowed to spike up.  A doubling of interest rates any time in the next decade would spell disaster given the debt loads most corporations and individuals in the Anglo-sphere now routinely carry.

A more interesting question that Bill Bonner doesn’t seem to recognise is a demographic one.

I have to ask the question “What do Old People do?”

With a massive wave of ageing Baby Boomers retiring this coming decade, their investment decisions will still matter a great deal.

I suspect they’ll gradually get out of stocks and into annuities and other bond-like instruments for security.  They’ll also curb their spending and do what old people generally do – fuss around the supermarkets comparing the discount prices of oranges and milk and incontinence pads.

Given this, I tend to think that stocks will continue to go down, bonds will hold up with remarkable resilience, and soft commodities will continue to climb.  There will be fewer able-bodied people in the West pulling stuff out of the ground and growing food, but old people will still want to be fed.  Real estate in hotter climes will continue to go up and real estate in colder climes will continue to go down.  Old people tend to feel the cold and seem to like the heat, so they will tend to sell up and move to where their arthritis doesn’t hurt as much. 

So, my Trade of the Decade is:

Sell stocks.  Indiscriminately.  Doesn’t matter where.  Doesn’t matter what.  Just sell them or short them or get out of them.  Get ahead of the Old People in cashing in your retirement funds.

Buy commodity futures (soft commodities in particular).  Buy retirement villages in hotter coastal areas that were vacation destinations in previous years.

Hold short-term bonds and cash.  Hold (don’t accumulate) gold and silver.

I think these trends will continue well beyond 2010.  Why go against a trend when it continues to make sense?

Sell stocks.  Buy commodities (especially soft commodities).  Simple.

 

Big news! Bill Bonner’s NEW Trade of the Decade

January 5, 2010 Leave a comment

When Bill Bonner talks, I listen.  In 2000, he recommended you get out of stocks and buy gold.  He dubbed this the “Trade of the Decade”.  And he was so right, it’s unbelievable how much money you would have made had you followed his advice.

Now, he’s just issued his new Trade of the Decade.  Here it is, hot off the electrons spinning around the internet:

Sell US debt/Buy Japanese stocks.

That’s right – buy Japanese stocks! 

Unlike Ambi-Pur below, he still believes Japan will produce good Toyotas and great Lexus models and the Nikkei can’t go much lower than it’s dived already.  I had the same thoughts.  I’m also unsure of myself, which is when I make the most money, because the investment is fraught with uncertainty which makes everyone nervous and therefore the price appealing.

I might buy the Nikkei today, especially given Ambi-Pur predicts that the Japanese economy faces Armageddon.  The only comment I would make is that this Deal of the Decade doesn’t look like it’s going to make as much money as the last Deal of the Decade.  And I still like gold, I still like cash, and I don’t think US bonds will collapse just yet.

To quote Bill Bonner:

As long-suffering Daily Reckoning readers will recall, we announced our ‘Trade of the Decade’ in 2000: Sell Stocks; buy gold.

“It turned out to be a good plan,” observes colleague, Merryn Sommerset, in a recent Financial Times story. “In 2000, you could buy an ounce of gold for $280 (the average price over the year). Now, it will cost you about $1,100. At the time, Bonner saw what most others did not. He saw the US not as an economy carefully and cleverly managed by then Federal Reserve chairman Alan Greenspan and his passion for low interest rates, but as a massive credit bubble waiting to burst.

“He also saw the massive and growing national debt, the trade and budget deficits, and fast growth in the money supply as factors that would naturally debase the dollar over the long term. He also saw the credit bubble as global rather than peculiar to America. So it made sense to him to hold the only non-paper currency there is – gold.”

So what’s next? What’s the trade of the coming decade? Well, your editor has decided not to double-down on the identical trade. Gold will remain in our core holdings, but not in our Trade of the Decade for the next 10 years. Why? Because we think the US economy is going the way of Japan.

Japan went into a slump in 1990. It has come out…and gone back in…and come out again…and gone back in again. In terms of the amount of wealth destroyed – at least, on paper – it was the worst disaster in human history. The value of real estate went down 87% in some cities. Stocks fell from a high of 39,000 on the Nikkei Dow down to the 7,000 range in 2009…their lowest point in 27 years.

Why such a bad performance? As we keep saying, if you really want to make a mess of things you need taxpayer support. The Japanese put more taxpayer money into the effort to prevent the correction than any nation theretofore ever had. The result: the correction was stalled, delayed, and stretched out over more than two decades.

And now, US economists are looking at Japan…not with alarm, but with admiration. They are beginning to believe that the Japanese model is the way to go…because it prevented widespread unemployment and a deeper slump.

Here’s our best guess:

Now that the US economy is caught in the same sort of de-leveraging process that gripped Japan, the same sort of “remedies” will inevitably be employed…leading to the same results, more or less.

We’ll skip the details for this morning. You’ll hear plenty of them in the days, weeks, and months ahead – promise!

Instead, this morning, we’ll turn to our Trade of the Decade for the next 10 years. There are, of course, two sides to this trade…the long side and the short side. We had no trouble finding things to put on the short side. In a de-leveraging period almost everything goes down. We could have stuck with US stocks, for example. They’ll probably continue to come down…just as they did in Japan.

But who knows? US stocks just had their worst decade since the ’30s. What are the odds that they’ll have another bad decade? We don’t know. But what we look for in our Trade of the Decade, for the sell side, is something that has just had its best decade ever…something that has been going up for so long people think it will go up forever…something that everyone wants.

What does that describe? Well, the thing that comes closest is US Treasury debt. Yields have been going down (meaning, the price of debt is going up) since 1983. And now, despite a supply that seems to be going off the charts, demand for Treasury bonds, notes and bills has never been stronger. What’s more…if our analysis of the US economy is correct…the supply of Treasury debt is going to continue to rocket upward for many years. Deficits of $1 trillion to $2 trillion per year are going to become commonplace.

How long will it be before the market in Treasury debt crashes? How long will it be before hyperinflation…or a debt default…sends investors running for cover? We don’t know…but it seems a likely bet that it will happen sometime in the next 10 years.

So, on our sell side…we’ll put US Treasury debt.

How about the buy side? Ah…that is something we’ve struggled with. While there are many things that seem likely to go down, there aren’t many that seem destined to go up. Let’s see, what has been beaten down, dissed, battered, and abused for the last 20 years or more? What is it that people don’t want? What is it that they expect to go down…possibly forever?

Of course…Japanese stocks!

So there is our Trade of the Decade:

Sell US Treasury debt/Buy Japanese stocks.

Crazy, right?

Maybe not. Treasury debt has been going up for the last 27 years. Japanese stocks have been going down for the last 20 years.

Does this mean we’re giving up on gold? Not at all. We’re sticking with gold. Aurus eternis, or something like that. The yellow metal is what you buy when you think the financial authorities are making a mess of things. We have little doubt about it. So we’ll continue to buy and hold gold…until the financial system blows up.

But gold at $1,100 an ounce is fully priced. It is not cheap. It’s been going up for the last 10 years! At this level, it is insurance against a monetary catastrophe and a speculation on when and how the blow-up will finally come. It is definitely worth having. And holding. And using to protect your wealth.

But the trade of the decade is a way of making money…by buying/selling two opposing assets that are at extraordinary valuations. It is not a speculation on what MIGHT happen. It is merely a bet on the phenomenon known as “regression to the mean.” Things that are out-of-whack tend to go back into whack…

If we’re right, over the next 10 years, the most popular investment of 2009 – Treasury debt – will go out of fashion. The least popular investment of 2009, on the other hand – Japanese stocks – will surprise everyone by finally showing signs of life.

In any event, the trade is fairly low risk. What are the odds that US Treasury debt will go up? What are the odds that Japanese stocks will go down? Of course, we don’t know…things that are out-of-whack can get farther out-of-whack. But we count on time to sort it out. And hope we live long enough to be able to say, “we told you so.”