Energy and Natural Resources Market Radar (April 9, 2012)

Sunday, April 8th, 2012

Energy and Natural Resources Market Radar (April 9, 2012)

Strengths

• Saudi Arabia is likely to maintain high oil production in the event consumer countries release emergency stocks, but it will not seek to lure buyers for more oil by discounting its crude, industry sources said. Spare capacity has fallen below 2 million barrels per day which typically is a sign of a tight oil market.
• Palm oil gained to the highest level in more than a year on speculation that buying from China, the biggest user of cooking oils, may increase when local markets reopen this week after a three-day holiday. June-delivery palm oil rose as much as 1.2 percent to 3,574 ringgit ($1,167) a metric ton on the Malaysia Derivatives Exchange, the highest for a most-active contract since March 9 last year. Financial markets in China were closed from April 2 for public holidays. Palm oil advanced 2.9 percent in two days after a U.S government survey showed soybean acreage in the world’s largest producer will decline. Palm oil and soybean oil are substitutes in food and fuel uses.
• Also in agriculture, soybeans jumped 3.5 percent after the U.S. Department of Agriculture cut the acreage to 73.9 million acres which is the lowest since 2007. Soybeans advanced 17.1 percent in the first quarter and were the best-performing agriculture commodity year to date as dry weather conditions in South America hurt crops.
• The Sun reports that stores are hiking the price of Easter eggs — even though the cost of producing them has fallen. Since peaking two years ago, cocoa prices have plunged by a third. But Easter egg favorites are still up in price.

Weaknesses

• A slump in coal exports contributed to another monthly trade deficit for Australia. Exports were down to their lowest level in a year at A$24.4 billion as coal exports plunged 21 percent to A$3.4 billion, the lowest since March 2011. Hard coking coal exports were down $597 million, 27 percent, hurt by volumes down 27 percent. Thermal coal export volumes were down 16 percent and prices were down 4 percent, implying a 19 percent drop in dollar terms.
• While gold producers in Mali signal mining operations have so far gone unaffected by a recent military coup d’état and an ongoing rebel insurgency in the country’s north, juniors, intermediates and majors alike have suspended work at Malian exploration projects citing, among other reasons, fuel-supply risk and flight of foreign personnel. The latest notice of suspension of exploration operations comes from intermediate producer IAMGOLD.
• Bloomberg news reported waning demand for gasoline is putting the U.S. on course to miss a target for ethanol use for the first time, signaling no let-up in the slide in prices. A 2007 U.S. law requires refiners to mix 13.2 billion gallons of renewable products with motor fuels in 2012, up 4.8 percent from last year. Gasoline demand averaged over four weeks fell 3.8 percent from a year earlier, the U.S. Energy Department reported this week.

Opportunities

• Global food prices rose in March for a third successive month, driven by gains in grains and vegetable oils, the United Nations’ Food and Agriculture Organisation (FAO) said on Thursday, putting food inflation firmly back on the economic agenda. Food prices hit record highs in February 2011 and stoked protests connected to the Arab Spring wave of civil unrest in some north African and middle eastern countries. They then receded but started to grow again in January. An FAO index that measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 215.9 points in March, up from a revised 215.4 points in February, FAO data showed. Its Cereal Price Index averaged 227 points in March, up from February, with maize prices showing gains, supported by low inventories and a strong soybean market, the FAO said. “You can see prices in the near term rising even further,” FAO’s senior economist and grain analyst Abdolreza Abbassian told Reuters before the index update.
• China is mulling a new round of subsidies for the home appliance sector that may help support copper demand this year according to Hu Xiaohong, an official with China Household Electrical Appliances Association. Subsidies for the purchase of energy-saving models of air conditioners and televisions are being considered. Last year, air-conditioner manufacturers were the second-largest consumers of copper in China, behind the power sector comprising 15 percent of consumption.
• Chinese aluminum producer Chalco is said to be buying a controlling stake in a Mongolian coal miner. Chinese aluminum producer Chalco has agreed to buy 56-60 percent of SouthGobi Resources at $4.89/share (a 29 percent premium over SouthGobi’s closing price) from Ivanhoe Mines. Chinese miners have increased initiatives to acquire overseas natural resources assets as the deal suggests. Chalco is diversifying its exposure out of aluminum and is investing in other resources as well; however, this coal will help in securing coal for its aluminum production, too.
• In coking coal, BHP Billiton has declared force majeure on coal shipments from its Bowen Basin coal mines in Australia due to a continued workers’ strike and heavy rainfall. The industrial action at the BHP Billiton-Mitsubishi Alliance (BMA) operated Bowen Basin coal mines has clearly intensified, adding to the rolling work stoppages experienced since June 2011. BMA-operated coal mines together produced 38.2 million tonnes of coking coal, accounting for 14 percent of the global coking coal trade and 29 percent of Australian coking coal exports in 2011.

Threats

• Despite some confusion, an industry ministry official said this week that Indonesia plans to impose a 25 percent export tax on coal and base metals this year, jumping to 50 percent in 2013, as the major producer of raw materials looks to boost domestic investment and take a bigger slice of mining profits. If imposed, the tax would add to a raft of regulations announced this year that have caused confusion in Indonesia’s mining sector and worried foreign investors. It would hit the profits of both national and foreign-owned companies and could also raise costs for importers. India, a major buyer of Indonesian coal, said it would raise concerns about the proposed tax with Jakarta.
• States hoping to capitalize on their energy booms are running into resistance from local officials who want to be able to police the noise and industrialization that accompany oil-and-gas drilling. Last Thursday, seven towns collectively sued Pennsylvania in state court to overturn a law passed in February that prevents them from using their zoning authority to regulate oil-and-gas development. The day before, an Ohio state senator introduced legislation to grant local officials more control over where companies can drill. The municipalities are fighting laws that bar them from regulating drilling, enacted by state lawmakers who feared towns would stunt job-creation and a stream of tax revenue.
• Agrimoney reported that “U.S. corn stocks may fall over 2011-12 up to 50 percent more than officials are currently factoring in,” analysts said, as they reacted to data showing inventories weaker-than-expected at the mid-year stage. The U.S. Department of Agriculture has forecast a 327 million bushel drop in inventories, to 801 million bushels, over the current season, depleted by resilient domestic and export demand following a disappointing harvest. However, investors expected the figure to be revised after inventory data, released on Friday, showed stocks as of March 1 at a multi-year low of 6.0 billion bushels, and below market forecasts.
• Argentina’s Neuquen Province has revoked oil and gas concessions held by three companies, Tecpetrol, Argenta Argentina and Petrobras, because the companies had not invested enough in production at the oil fields, the province said in a statement. The concessions will be given to the provincial government’s oil and gas company, Gas y Petroleo del Neuquen.

Tags: Agriculture, China, Coal Exports, Cocoa Prices, Coking Coal, Consumer Countries, Cooking Oils, Department Of Agriculture, Dry Weather Conditions, Easter Egg, Easter Eggs, Food And Fuel, Gold, Government Survey, India, Industry Sources, Market Radar, Metric Ton, Mining, Oil Market, Palm Oil, Public Holidays, Soybean Acreage, Soybean Oil, Sun Reports
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Energy and Natural Resources Market Radar (April 2, 2012)

Sunday, April 1st, 2012

Energy and Natural Resources Market Radar (April 2, 2012)

Strengths

• Recent data trends support the Global Resources Fund (PSPFX) managers’ long-term investment theme of higher food, agricultural commodity and land prices. After surging over 6 percent on Friday, corn futures closed flat for the week at $6.44 per bushel. The Friday surge came after new government data was released showing a drop in the amount of corn in storage. This raised concerns that corn supplies will remain tight and prices high in the near term.
• Iraq’s central government has approved payment of close to $560 million to oil producers in the autonomous Kurdish region after Kurdish authorities threatened to halt exports due to a lack of payments from Baghdad. Meanwhile, Iraqi oil sales are heading toward a post-war high this month as a new Persian Gulf shipping outlet provides a long-awaited boost to export capacity.
• Indian oil consumption increased by 67 thousand barrels per day (2.1 percent) on a year-over-year basis in February, the second-highest level on record. This was the fifth-straight month where demand totaled more than 3 million barrels per day, highlighting the country’s steady increase in oil consumption. Driven by improving industrial activity and continued penetration of diesel in the automobile sector, diesel sales, which make up over one-third of Indian demand, increased by 8 percent year-over-year to 1.423 million barrels per day, the second-highest level ever.
• U.S. crude consumption is holding up at around 14.55 million barrels per day, a 3 percent year-over-year rise so far this year. Despite high gasoline prices, growth is expected to rise by 1.9 percent quarter-over-quarter and 5 percent year-over-year.

Weaknesses

• The supply-side of the aluminum market has experienced a sharp bifurcating trend between China and the rest of the world so far in 2012 following several capacity cutbacks in North America and Europe at the turn of the year. Data from the International Aluminum Institute (IAI) showed that global aluminum output excluding China fell to 68,900 tons in February, the lowest level since December 2010 and the first year-over-year decline since the beginning of that year.
• Barclay’s Commodities Research visited China last week and met with a range of copper market fabricators, smelters and physical traders. Their key takeaway was that spot demand for copper is weak and improvement in the second quarter may be tepid. Sentiment among copper fabricators is negative because orders have been slow to improve. Inventories of copper cathodes are low, but inventories of finished product are higher than usual for this time of year.

Opportunities

• The government of Tanzania plans to invite oil operators to bid for 16 new offshore blocks under a new licensing round scheduled for September 2012.
• There are a number of analysts who now believe soybeans can increase to $14-$15 per bushel by late May, due to South America’s harvest progress and result. This drove Oil World to refine its forecast, saying that there was a “high probability that soybeans will exceed $14 per bushel for the July 2012 contract.” The comments came in a report that forecasted world soybean inventories to plunge 20 percent to 60.6 million tons in 2011-12. This is a much steeper drop off than the 12.5 percent tumble expected by the U.S. Department of Agriculture.
• Despite price declines, Indonesia’s coal production is expected to rise up to 5 percent from a year earlier to 390 million tons in 2012. “This year we estimate that production will reach 380-390 million tons even though prices have gone down,” said Supriatna Suhala, deputy chairman and executive director of the APBI-Indonesia Coal Mining Association. Indonesia, the world’s top thermal coal exporter, produced 370 million tons of coal in 2011. Suhala also forecasted that Indonesia’s domestic coal consumption would jump 15 percent to 75 million tons in 2012.

Threats

• On Tuesday, the Obama administration announced long-awaited rules to limit carbon-dioxide emissions from new power plants. The rules will effectively block the construction of new coal-burning plants and make natural gas even more attractive as a fuel for generating electricity. The rules, which have been in the works since late 2009, will add more stress to the beleaguered coal-mining sector while encouraging development of renewable energy. The rules will also certainly add to Republican complaints of regulatory overreach by the Obama administration ahead of the November elections. The rules face serious opposition in Congress and the legal underpinnings are already being challenged in court.
• The proposed Volcker rule crackdown on trading and investing by banks could cause gasoline, electricity and natural gas prices to rise, according to a new report from IHS. With the report, HIS is seeking to gauge the rule’s impact on energy companies and markets, including oil refineries, natural gas producers, and electricity providers. The report’s authors said large banks play a key role in helping a variety of energy companies’ hedge risk and engage in timely trades on commodity exchanges. According to the report, any reduction in the banks’ ability to play this role because of the Volcker rule will cause the cost of doing business to rise and that will lead to higher energy prices for consumers.
• Four weeks before the country’s presidential election, France is in talks with the U.S. and Britain on a possible release of strategic oil stocks to push fuel prices lower.
• Barclay’s Commodities Research also noted that although imports of copper are likely to remain strong in March and possibly April, they will likely trail off until later in the year. Overall, they believe that short-term Chinese demand is likely to disappoint before beginning on a recovery trajectory later in the second quarter. They also believe that imports will weaken until bonded stocks are run down, possibly in the third quarter of this year.

Tags: agricultural, Agricultural Commodity, Agriculture, Automobile Sector, Bushel, Commodities, Commodity, Corn Futures, Data Trends, Diesel Sales, Gasoline Prices, Global Resources, Government Data, India, Indian Oil, Iraqi Oil Sales, Kurdish Region, Long Term Investment, Market Radar, Mining, Oil Consumption, Oil Producers, Persian Gulf, Resources Fund, S Central, Shipping Outlet
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Emerging Markets Radar (March 26, 2012)

Sunday, March 25th, 2012

Emerging Markets Radar (March 26, 2012)

Strengths

• China has cut the required reserve ratio (RRR) for 379 branches of the Agriculture Bank of China to boost rural area loan volumes, signaling fine-tuning monetary easing. The market is currently expecting further RRR cuts for all the banks this year.
• China has raised gasoline and diesel prices by 7 percent and 7.76 percent, respectively. After the increase, the downstream refinery business is closer to breakeven.
• Singapore’s Consumer Price Index (CPI) rose 4.6 percent in February, unexpectedly slowing as communication costs fell in the city state. In Malaysia, consumer prices also slowed, rising 2.2 percent year-over-year in February, down from 2.7 percent in January and well below the market estimate of 2.5 percent. The key reason for the decline in inflation was a drop in food price inflation.
• The Philippines’ budget deficit narrowed to 15.9 billion pesos ($370 million) in January from 101.5 billion pesos the previous month. In Thailand, the Bank of Thailand left its benchmark rate at 3 percent, pausing after two recent reductions. The result was widely expected.
• Nouriel Roubini turned more positive on Colombia, revising his 2012 and 2013 growth forecasts to 5 and 4.5 percent, respectively, citing a dissipation of downside risk from the global economy and a cool-down in domestic economic activity.
• The Brazilian labor market is showing that conditions are getting better for consumers. Although the February unemployment rate inched up to 5.7 percent from 5.5 percent in January and 4.7 percent in December, after stripping out seasonality, the unemployment rate remained at the series’ record low of 5.6 percent for the fourth consecutive month. Employment grew 0.6 percent month-over-month (while the number of unemployed workers dropped by 0.5 percent), which coupled with the 0.7 percent increase in real wages, pushed the real wage bill up by 1.3 percent month-over-month or by 17 percent in annualized terms.
• The number of people employed in South Africa’s formal sector inched up 0.3 percent in the fourth quarter of 2011, with the manufacturing sector primarily adding the jobs. Employment rose by 23,000 people during the last quarter of 2011, to 8.381 million, and was up 1.6 percent on a year-over-year basis, Statistics South Africa said.

Weaknesses

• HSBC March China Flash Purchasing Managers’ Index (PMI) was 48.1, down 1.5 from February’s 49.6, indicating industrial activities are further contracting, particularly in export-oriented manufacturers.
• Bloomberg news reports today that CBRC said China banks misclassified RMB1.8 trillion (20 percent) of local government loans as fully-cash-flow-covered due to the inclusion of government subsidies. CICC bank analysts will check whether CBRC people have said this or not, but bank analyst Mao Junhua does not believe the 1.8 trillion number is correct.
• Lending by China’s four biggest banks was less than RMB 50 billion from March 1 to 15, the Economic Information Daily reports.
• BCA research reported recently that India’s capital rationing is deterring growth, and predicts a financial crunch in 2012, which will hamstring much-needed capital spending. The firm suspects that India’s potential growth rate is declining because of slowing productivity gains, which in turn are due to lower savings and investment rates.

Opportunities

• The South African rand gained for the first time in four days on Friday, trimming its worst weekly loss in six weeks, before data forecast to show U.S. sales of new homes rose last month, dampening demand for the dollar as a haven.
• Following a severe contraction in the fourth quarter of 2011, Thailand is in the midst of a solid rebound that should bring back a growth trend by the end of the year with a 5.3 percent annual expansion, Nouriel Roubini said this week.
• Verbal intervention from governments to bring down the price of crude has increased, in addition to rumors of an agreement between the U.S. and the U.K. to tap into strategic reserves. In fact, France has officially said that it and other industrialized nations are considering a strategic reserves release. Furthermore, Saudi Arabia has called present prices “unjustified,” citing a global supply surplus of 1-2 million barrels per day, signaling that it is prepared to increase production by 25 percent to bring prices down if needed.
• Indonesia’s stock market has lagged its peers this year, primarily due to the overhang of rising inflation risk. This is the result of the removal of government subsidies in fuel and power prices, and wage increases this year. However, the drivers of the economy in Indonesia (i.e., rising foreign direct investment, infrastructure construction, and rising middle class consumption) are intact and, therefore, the stock market appears to be a long-term play.

Threats

• The Chinese economy is still in the process of a soft landing, which may cause uncertainties for the economy.
• Poland’s shale gas reserves are about one-tenth the size of previous estimates, a government report showed this week, denting hopes for an energy source that could play a key role in weaning Europe off Russian gas. The long-awaited study estimated Poland’s recoverable shale reserves at 346 to 768 billion cubic meters, far less than the previous estimate of 5.3 trillion from the U.S. Energy Information Association.
• South Africa’s foreign affairs ministry said it is reducing Iran oil imports, as its largest supplier of crude oil faces international sanctions. The industry awaits further detail, as a national oil industry group said it hadn’t been informed of the plan.

Tags: Agriculture, Agriculture Bank Of China, Bank Of China, Bank Of Thailand, Benchmark Rate, Brazil, Budget Deficit, Communication Costs, Consumer Price Index, Diesel Prices, Downside Risk, Food Price, Global Economy, Growth Forecasts, Index Cpi, Price Inflation, Reserve Ratio, Rrr, Rural Area, Russia, Seasonality, Unemployed Workers, Unemployment Rate
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The Audacity of Bonuses at MF Global (Nomi Prins)

Tuesday, March 13th, 2012

Submitted by Nomi Prins

The Audacity of Bonuses At MF Global

In the spirit of George Orwell’s Animal Farm commandment: “all animals are equal, but some animals are more equal then others” comes the galling news that bankruptcy trustee, Louis Freeh, could approve the defunct, MF Global to pay bonuses to certain senior executives. This, despite the fact that nearly $1.6 billion of customer funds remains “missing” or otherwise partially accounted for, yet beyond the reach of those customers, perhaps forever, since before the firm declared bankruptcy on October 31, 2011.

Another commonality between the MF Global incident and Animal Farm is the abject rewriting, or re-interpretation, of rules. At the farm, the rule ‘No animal shall drink alcohol” was ultimately ‘re-remembered’ as ‘No animal shall drink alcohol to excess.’ Absent opposition to this particular fact alteration, the pigs got drunk. It wasn’t pretty.

The Orwellian nature of finance is spiraling out of control. It was acutely demonstrated during the fall 2008, merge-and-be-bailed period, and subsequently, through mainstream acceptance that “too big to fail” validates the subsidization of reckless banking practices (bail first, ask questions or consider tepid regulation later), and the European debacle.

Three wrinkles of audacity underscore the potential MF Global bonus approvals. First, there is the moral responsibility layer. MF Global, classified as a broker-dealer wasn’t specifically subject to the investment-advisor fiduciary rule that requires ‘systemic safety and soundness’’ with respect to retail customers. But, comingling customers’ funds inappropriately with the firm’s, as former chief, Jon Corzine’s European bets were blowing up, was an abject misinterpretation of the rule’s intent.

Aside from that, MF Global lied about funds segregation to its customers, which constitutes fraud. The final page of the firm’s brochure touts “the strict physical separation of clients’ assets from MF Global accounts.”

Separately, MF Global broker-dealer activities were subject to SEC oversight and restrictions on its use of client funds. During any normal investigation, like say for embezzlement, funds should be frozen until issues are resolved. Releasing any bonus pay until this matter is settled is just plain wrong.

The reason for possibly allowing bonuses for MF Global chief operating officer, Bradley I. Abelow, finance chief, Henri J. Steenkamp, and general counsel, Laurie R. Ferber follows the same twisted logic pervading Wall Street: no one else can do the job as well.

These people are apparently so special that despite incompetence, negligence or potential malfeasance in diverting customers’ funds away from their rightful spots, their expertise is critical to the bankruptcy proceeding. In that realm, their ‘job performance’ will help Freeh “maximize value for creditors of the company”. Translation: it will ensure banks like JPM Chase keep their cut, since customers are not creditors. Again, plain wrong.

But forget simple matters of right and wrong for a moment. After all, this is Big Finance: what’s most important is what’s not necessarily what’s legal or illegal, but more practically, what you can get away with and what you can’t. In that regard, the sheer impotence of regulators, the Department of Justice, and the FBI are enabling factors in perpetuating financial crimes.

In early 1933, during the Depression that followed the 1929 Stock market Crash, Democratic president, FDR and Republican Treasury Secretary, William Woodin, declared a bank holiday, during which Treasury Department agents examined banks’ (which included at the time, broker-dealers) books to determine solidity and solvency.

Today, our regulatory bodies are incapable, or simply don’t want to be bothered with, tracing money and returning it to the public customers to whom it belongs. The inability to independently examine MF Global’s books, without its executive involved, reveals the sorry state of our financial system.  In this post-Glass-Steagall-repeal world, the mixing of customer money and speculative betting – whether at a super-market bank or broker-dealer, whether involving subprime loans packages or European Sovereign debt, poses too dangerous a level of complexity. If regulatory bodies can’t, or won’t, diminish the related risk, more concrete Glass-Steagall boundaries throughout the financial framework should be resurrected.

Meanwhile, two senators have taken on the bonus-pay fight. Senator Amy Klobuchar (D., Minn.), member of the Senate Agriculture Committee investigating MF Global, wrote to Freeh that the plan is “unacceptable.” Senator Jon Tester (D., Mont.), whose constituency includes a number of farmers with funds in the ‘missing’ category, called it “outrageous.”

On Sunday, Freeh’s spokesperson released a statement saying the senators’ concerns were ‘noted’ and a final decision on the bonuses hadn’t been made. But to the extent that the money trails shrouding MF Global’s final moments remain more apparent to its former employees than external examiners, it’s likely the people involved in the wreckage, will be paid extra for sorting thru it. And, that’s an expensive, outrageous, shame.

Copyright © Nomi Prins

Tags: Agriculture, Animal Farm, Audacity, Bankruptcy Trustee, Broker Dealer, Comingling, Commonality, Customer Funds, George Orwell, Investment Advisor, Jon Corzine, Louis Freeh, Mainstream Acceptance, Mf Global, Misinterpretation, Moral Responsibility, Nomi Prins, Retail Customers, Senior Executives, Subsidization, Systemic Safety
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Energy and Natural Resources Market Radar (March 12, 2012)

Sunday, March 11th, 2012

Energy and Natural Resources Market Radar (March 12, 2012)

Strengths

• Barclays Capital highlighted robust oil figures out of China this week. Refinery runs touched a record high of 9.368 million barrels per day in January, up 6.7 percent year-over-year. February refinery runs were buoyant and stayed close to those record levels at 9.304 million barrels per day. The record refinery runs come on the back of new processing facilities starting up with Sinopec and PetroChina starting a combined 360 thousand barrels per day of new crude processing units in the last quarter of 2011.
• This week The Silver Institute demonstrated that a steady increase in demand has driven the price of silver up 20 percent in the first 10 weeks of the year, ahead of gold, platinum and palladium. The strength in silver demand has come via a surge in buying of silver-based ETFs, which now represents 586 million ounces of silver, up 10 million ounces year-to-date. In addition, there has also been increased demand for physical silver bars. Global industrial silver demand is expected to contribute to strong silver demand going forward. Total silver demand is forecast to grow 36 percent from 2010 to total 666 million ounces in 2015 due to new applications in industry and lack of substitution.
• Reuters reports that China’s daily crude steel runs reached 1.926 million tons in February, up from 1.83 million tons in January. The increase came as mills began ramping up operations ahead of a projected recovery in demand during March and April.
• The U.S. Energy Information Administration (EIA) released data that supports current crude prices. Despite indicating that crude inventories were up, the numbers also showed that stockpiles of refined products were down.
• Preliminary port data shows Brazilian iron ore exports totaled 23.3 million tons in February. The pace equals 294 million tons per year (mtpy) on an annualized basis, an increase from January but still down 8.7 percent year-over-year. Exports to China totaled 165 mtpy, down only 1.4 percent year-over-year. This put China’s share of Brazilian exports at 56 percent, the third-largest amount since 2009. On the other end of the spectrum, exports heading to South Korea were at the volume in over 10 years.
• Iraq oil production is now over 3 million barrels per day, the country’s highest output since 1979, according to Deputy Prime Minister Hussein al-Shahristani.

Weaknesses

• Preliminary Australian port export figures for February show a month-over-month dip in both met and thermal coal export volumes as a combination of weather-related issues and industrial action hindered shipments during the month. Met coal exports were 139 million tons per annum, down 14 percent month-over-month and the lowest since July. However, the amount of exports was still well above the 107 million tons per annum level seen in February 2011. Thermal exports were 135 million tons per annum, down 13 percent month-over-month but up 14 percent from the previous year.
• The Central Bank of Chile reported that the country’s copper export revenue totaled $3.37 billion in February, slipping nearly 20 percent from $4.17 billion in January. The drop in copper export revenue comes despite a 5 percent month-over-month increase in the average copper price in February and supports our view that Chilean mine production has struggled so far in 2012 with January production reflected in February exports.
• Natural gas futures on NYMEX touched a 10-year low this week as mild winter weather across North America has reduced heating demand. Natural gas inventories were 2.433 trillion cubic feet as of March 2 which is 46.2 percent above the five-year average and 45.3 percent above a year ago. On average, this winter has been 21 percent warmer than last year.

Opportunities

• South Sudan plans to build a temporary underwater oil pipeline along the Nile as part of a project to deliver crude oil for export from ports in Kenya and Djibouti. The pipeline would extend from oilfields to the capital of Juba, where the crude would be transferred to trucks and taken on to Kenya and Djibouti.
• According to the International Oil Daily, China will increase the storage capacity for the second-phase expansion of its strategic petroleum reserves (SPR) program to 32.9 million cubic meters. This would allow the country to store almost 210 million barrels of crude, 24 percent higher than initially planned. At the end of last year, China had built a total of 362 million barrels of crude oil storage capacity including 142 million barrels of SPR capacity and 220 million barrels of commercial oil storage capacity; equivalent to 40 days of the nation’s oil consumption.
• On the supply side, production is expected to finally resume at Freeport McMoRan’s Grasberg copper mine in Indonesia after clashes with workers delayed the restarting of production. Grasberg produces roughly 550 thousand tons of copper per year but Bloomberg says the company is reviewing its full-year production forecast following the disruption. Newmont Mining is also reviewing the economics of its $4.8 billion Minas Conga copper and gold project. The project, which at peak production expected in 2014-15 would yield around 70-105 thousand tons per year of copper, is still on suspension following protests by local residents and politicians. The dispute is predominantly over water usage and environmental concerns and the Peruvian government has undertaken an environmental impact review of the project, the results of which are expected to be ready in a few weeks.
• The Chevron Phillips Chemical Co. said its industry may spend $30 billion to build U.S. factories that convert natural gas into plastics because shale gas has made American production the cheapest outside the Middle East. Output from shale formations will yield enough natural gas liquids (NGLs) such as ethane to support about five new plants that produce ethylene and related plastics, an executive said. Each facility will cost $5-$6 billion and will be built over more than a decade. In addition, U.S. plastics exports may surge as new plants start, creating the need for new infrastructure to handle the increased shipments, the executive said.
• After Colombia’s coal production reached 84.7 million tons in 2011, the government forecasts its coal production to reach 97 million tons in 2012 and grow to 120 million tons by 2014. Colombia expects production to stabilize beyond 2014. The nation is seeing increased investment in the coal and gold mining sectors recently with the two evenly splitting $4 billion worth of investment in 2011.

Threats

• A one-day nationwide strike in South Africa led by the Congress of South African Trade Unions in protest of new road tolls and short-term contract labor agencies hit the mining sector, in particular gold and coal, this week. Gold Fields and Harmony Gold said that their operations were brought to a halt, as most of the workers took part in the strike. Anglo American’s local coal unit also took a hit. However, platinum mining remained unaffected as Impala Platinum and Anglo American Platinum continued to operate normally. Though Impala’s Rustenburg mine is recovering from a six-week long strike, the platinum group metals (PGM) sector remains at risk in our view due to the increasing frequency of labor-related disruptions this year.
• The Times of India reports that Indian Railways on Tuesday decided to increase freight rates by up to 20 percent for several commodities. The move is expected to increase prices of an array of goods, ranging from coal to fertilizers. With inflation, led by food, at a comfortable level, the freight hike won’t spare food grains. However, the agriculture ministry will pay a higher subsidy to ensure that consumers are not adversely affected. As part of the freight rationalization drive, railways increased the rate to be charged per ton per kilometer and changed the distance band to increase its earnings. The hike comes at a time when railway minister Dinesh Trivedi is under pressure to raise resources to drive the state-run transporter out of a financial mess created by his political party boss Mamata Banerjee.
• Bloomberg reports that China’s National Administration has decided to cap coal usage at about 4.1 billion tons of standard coal, a cap that would come into effect starting 2015, according to unconfirmed reports. China may announce the details of the plan around the middle of the year. China consumed a total of 3.48 billion tons of standard coal during 2011, up 7 percent year-over-year.

Tags: Agriculture, Barclays Capital, Crude Inventories, Crude Steel, Current Crude Prices, Energy Information Administration, ETF, ETFs, Gold Platinum, Industrial Silver, Iron Ore Exports, Market Radar, Petrochina, Price Of Silver, Processing Units, Refined Products, Refinery, Reuters Reports, Silver Bars, Silver Institute, Sinopec, Stockpiles, U S Energy
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Emerging Markets Radar (March 12, 2012)

Sunday, March 11th, 2012

Emerging Markets Radar (March 12, 2012)

Strengths

• The Global Emerging Markets Fund (GEMFX) has benefited from a bias toward small-caps in 2012. On a relative basis, the fund has benefited from choosing stocks that pay more than twice the dividend yield of the Russell 2000 Index and those companies which have a low price-to-earnings ratio.
• China’s February Consumer Price Index (CPI) was up 3.2 percent in February, lower than the estimate of 3.5 percent and below January’s 4.5 percent figure. With inflation expectations tamed, the market expects the People’s Bank of China (PBOC) to further cut the reserve requirement ratio (RRR).
• China’s fixed asset investment (FAI) growth came in stronger than expected at 21.5 percent year-over-year during the first two months of 2012, up from 18 percent in December. Interestingly, residential FAI rose 27 percent, the same pace as last year. This indicates that the housing market may not collapse as many worried last year.
• New bank deposits rebounded strongly in February to Rmb 1.6 trillion, enabling Chinese banks to lend more in March. In addition, M2 money supply growth was near expectations, right at 13 percent.
• Philippine CPI rose 2 percent in February. This is well below the 3.2 percent increase that was forecasted.

Weaknesses

• China’s retail sales and industrial production growth came in weaker than expected. Retail sales rose 14.7 percent, down from 17.1 percent in 2011. Industrial production rose 11.4 percent, slowing by 1.4 percentage points from December. These data points indicate that China had probably over tightened its monetary and industrial policies and needs to loosen up these policies during the first half of the year.
• China has lowered the country’s GDP growth target to 7.5 percent this year, 50 basis points lower than in the past eight years. Many believe Chinese policymakers will try to slow down the country’s economic growth by curbing housing market growth and postponing some infrastructure growth. However, China has consistently beaten its own GDP target every year over the last decade and the country will still encourage growth in consumption and industrial enhancement.
• Malaysia’s exports grew 0.4 percent in January, the slowest pace in 15 months.
• After a good run, Turkish industrial production faltered in January. Industrial production was up by 1.5 percent year-over-year in January, weaker than the market expectations. Turkey’s Purchasing Manager’s Index (PMI) also deteriorated in February as a result of poor weather conditions.

Opportunities

• Droughts from Mexico to Argentina are shrinking corn stockpiles to a five-year low. This raises the prospect of a bull market in the U.S., as farmers are expecting to see the biggest crop ever.
• Corn demand in China, the biggest consumer after the U.S., may decline after Premier Wen Jiabao lowered the annual growth target to 7.5 percent. Prices fell 16 percent in the last four months of 2011 as the U.S. Department of Agriculture (USDA) predicted Brazil and Argentina would produce their biggest crops ever. The two countries currently account for almost 10 percent of global corn supply. While prices may keep rising for now, analysts anticipate declines by the end of the year as U.S. growers harvest the most acres planted since 1944.
• This chart shows China’s inflation has come down notably since July 2011. Food prices, the largest contributor to the rise in inflation last year, have come down since the fourth quarter after the supply chain and logistics were improved. The market expects the PBOC to cut RRR again in order to support economic growth and liquidity in the economy.

Threats

• While investment flows pour into most of the largest emerging markets, foreign investors are selling South African equities at the fastest pace in four years over growing concern that policy makers will seek a larger share of the nation’s mining profits. International investors sold $933 million of South African equities in the first two months of this year and are on track for the biggest first-quarter outflow since 2008.
• A study commissioned by President Jacob Zuma’s ruling African National Congress party proposed increasing taxes on the mining industry last month. In addition, the party’s youth wing has lobbied for a government takeover of gold and platinum mines to boost employment in Africa’s biggest economy.
• China’s February retail sales rose 14.7 percent, below the expectations of policymakers. In order to reach the stated consumption growth target near or above 18 percent, Chinese policymakers need to loosen the country’s monetary policy or begin a fiscal subsidy, such as a new home appliance incentive.

Tags: Agriculture, Asset Investment, Bank Deposits, Bank Of China, Chinese Banks, Consumer Price Index, Dividend Yield, emerging markets fund, GDP Growth, Gemfx, Growth Target, Index Cpi, Industrial Policies, Inflation Expectations, Infras, Money Supply Growth, Pboc, Price To Earnings Ratio, Relative Basis, Russell 2000 Index, Small Caps
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Emerging Markets Radar (February 27, 2012)

Sunday, February 26th, 2012

Emerging Markets Radar (February 27, 2012)

Strengths

• To spur lending, China cut the amount of cash that banks must set aside as reserves for the second time in three months. Reserve requirements will fall by 50 basis points effective February 24, the People’s Bank of China stated on its website, freeing up approximately RMB 400 billion. Experts have found out that China will further cut reserve rate depending on the direction of the Purchasing Manager’s Index (PMI) and Consumer Price Index (CPI). The required reserve ratio is lowered to 20.5 percent for large banks and 18.5 percent for medium and small banks.
• China’s Central Huijin aims to be an active investor in institutions it takes holdings in and ensure the smooth development of those companies, the official Xinhua News Agency reported on Tuesday.
• The China HSBC Flash PMI is 49.7 for February, improving 9 basis points from 48.8 in January.
• Xiangshan County in China’s eastern province of Zhejiang canceled restrictions on buying homes starting this year, National Business Daily reports, citing an unidentified source from the local property industry. Just last week Shanghai Securities News reported that Shanghai had eased some restrictions, and subsequently the city denied it was a new measure, claiming that it had always been on the books. This is the pattern in China now where the local governments don’t like the headline news saying they have relaxed housing curbs.
• Poland sold a further stake in the country’s largest power utility, raising the most from asset sales in eight months to help finance the budget deficit. The budget deficit in 2011 was 25.1 billion zloty, much lower than the projected 40.2 billion, due to lower government spending and higher revenues.
• Malaysia’s inflation appears to have peaked, with the CPI falling slightly to 2.7 percent year-over-year in January from 3 percent in December. RGE Monitor is predicting that slow GDP and demand growth will keep inflation subdued throughout 2012, despite higher food prices.

Weaknesses

• China’s January home prices recorded their worst performance in at least a year, with none of the 70 cities monitored by the government posting gains, as Premier Wen Jiabao reiterated his determination to maintain property curbs. Nevertheless, the market expects the government to relax curbs in some ways after Liang Hui, the two annual congressional conferences.
• Thailand’s fourth quarter GDP shrank 9 percent, the first contraction in more than two years. The median Bloomberg estimate was for a decline of 5 percent, due the flooding last fall. However, this is one-off event and the country is in the process of recovery.
• Taiwan’s fourth quarter GDP was up 1.89 percent, closely in line with the estimated 1.9 percent.
• Singapore’s industrial production declined 8.8 percent in January, falling the most in eight months due to reduced electronics demand and overall lunar New Year effects.
• Liquidity measures announced by the Hungarian central bank are aimed at alleviating the ongoing credit. The two-year lending facility will provide support for sovereign debt prices, but RGE Monitor expects only limited pass-through to household and corporate credit due to higher risk aversion and sluggish growth.
• According to Brazil’s monthly activity indicator, the economy grew 2.7 percent year-over-year in 2011, short of Roubini’s 3 percent forecast. This can be attributed to the combination of Brazil’s business cycle, tighter macroeconomic conditions (both fiscal and monetary) and a depressed global economy, which has made the deceleration much sharper than originally expected.

Opportunities

• McKinsey Global Institute highlighted in its latest quarterly piece that in order for Vietnam to continue on a strong GDP growth trajectory, the country faces a number of challenges. According to official Vietnam statistics, growth in the country’s labor force will probably decline to about 0.6 percent per year over the next decade, down from 2.8 percent between 2000 and 2010. The larger challenge long-term for the country is that the robust growth, which stemmed in the past from a young, growing labor force and the transition from agriculture to manufacturing and services, will be challenged as Vietnam needs new sources of growth to replace them. The demographic tailwind responsible for driving a third of Vietnam’s past growth is slackening. Some companies already report labor shortages in major cities, and by 2020, the share of the population aged 5 to 19 is projected to drop to 22 percent, from 27 percent in 2010 and 34 percent in 1999.
• South Africa will report fourth quarter GDP on February 28. Stronger output data in the fourth quarter suggests that growth expanded by 3.1 percent in 2011 overall, driven mainly by domestic demand.
• The chart below shows an increasing number of cities that see home prices declining. Many believe declining home prices are the triggers for the Chinese central government to ease the housing restrictions.

• While earnings for 2012 are estimated to be 37 percent higher than they were in 2007, the Russian equity index is 25 percent below the 2007 level – the largest gap among emerging markets.

Threats

• As of February 20, big 4 banks’ new deposit in February was CNY 310 billion, 150 billion lower than that of February 10, which indicates a cash outflow at banks in the past ten days which is causing tight liquidity.
• Riding a populist wave, Russian Prime Minister Vladimir Putin suggested that rising loan rates are fanning inflation and ordered his finance minister to intervene. VTB’s CEO Andrey Kostin responded through an article in the Financial Times stating that without additional liquidity from the central bank, VTB will stop increasing its loan book.

Tags: Agriculture, Asset Sales, Bank Of China, Basis Points, Budget Deficit, Consumer Price Index, Eastern Province, government spending, Index Cpi, Local Governments, National Business, Purchasing Manager, Reserve Ratio, RGE Monitor, S Central, Shanghai Securities News, Smooth Development, Unidentified Source, Xiangshan, Xinhua News Agency, Zhejiang
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Charlie Munger: A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business

Tuesday, February 21st, 2012

I’m going to play a minor trick on you today because the subject of my talk is the art of stock picking as a subdivision of the art of worldly wisdom. That enables me to start talking about worldly wisdom—a much broader topic that interests me because I think all too little of it is delivered by modern educational systems, at least in an effective way.

And therefore, the talk is sort of along the lines that some behaviorist psychologists call Grandma’s rule after the wisdom of Grandma when she said that you have to eat the carrots before you get the dessert.

The carrot part of this talk is about the general subject of worldly wisdom which is a pretty good way to start. After all, the theory of modern education is that you need a general education before you specialize. And I think to some extent, before you’re going to be a great stock picker, you need some general education.

So, emphasizing what I sometimes waggishly call remedial worldly wisdom, I’m going to start by waltzing you through a few basic notions.

What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.

You’ve got to have models in your head. And you’ve got to array your experience—both vicarious and direct—on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.

What are the models? Well, the first rule is that you’ve got to have multiple models—because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine.

It’s like the old saying, “To the man with only a hammer, every problem looks like a nail.” And of course, that’s the way the chiropractor goes about practicing medicine. But that’s a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So you’ve got to have multiple models.

And the models have to come from multiple disciplines—because all the wisdom of the world is not to be found in one little academic department. That’s why poetry professors, by and large, are so unwise in a worldly sense. They don’t have enough models in their heads. So you’ve got to have models across a fair array of disciplines.

You may say, “My God, this is already getting way too tough.” But, fortunately, it isn’t that tough—because 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.

So let’s briefly review what kind of models and techniques constitute this basic knowledgethat everybody has to have before they proceed to being really good at a narrow art like stock picking.

First there’s mathematics. Obviously, you’ve got to be able to handle numbers and quantities—basic arithmetic. And the great useful model, after compound interest, is the elementary math of permutations and combinations. And that was taught in my day in the sophomore year in high school. I suppose by now in great private schools, it’s probably down to the eighth grade or so.

It’s very simple algebra. It was all worked out in the course of about one year between Pascal and Fermat. They worked it out casually in a series of letters.

It’s not that hard to learn. What is hard is to get so you use it routinely almost everyday of your life. The Fermat/Pascal system is dramatically consonant with the way that the world works. And it’s fundamental truth. So you simply have to have the technique.

Many educational institutions—although not nearly enough—have realized this. At Harvard Business School, the great quantitative thing that bonds the first-year class together is what they call decision tree theory. All they do is take high school algebra and apply it to real life problems. And the students love it. They’re amazed to find that high school algebra works in life….

By and large, as it works out, people can’t naturally and automatically do this. If you understand elementary psychology, the reason they can’t is really quite simple: The basic neural network of the brain is there through broad genetic and cultural evolution. And it’s not Fermat/Pascal. It uses a very crude, shortcut-type of approximation. It’s got elements of Fermat/Pascal in it. However, it’s not good.

So you have to learn in a very usable way this very elementary math and use it routinely in life—just the way if you want to become a golfer, you can’t use the natural swing that broad evolution gave you. You have to learn—to have a certain grip and swing in a different way to realize your full potential as a golfer.

If you don’t get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one-legged man in an asskicking contest. You’re giving a huge advantage to everybody else.

One of the advantages of a fellow like Buffett, whom I’ve worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations….

Obviously, you have to know accounting. It’s the language of practical business life. It was a very useful thing to deliver to civilization. I’ve heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double-entry bookkeeping was a hell of an invention.

And it’s not that hard to understand.

But you have to know enough about it to understand its limitations—because although accounting is the starting place, it’s only a crude approximation. And it’s not very hard to understand its limitations. For example, everyone can see that you have to more or less just guess at the useful life of a jet airplane or anything like that. Just because you express the depreciation rate in neat numbers doesn’t make it anything you really know.

In terms of the limitations of accounting, one of my favorite stories involves a very great businessman named Carl Braun who created the CF Braun Engineering Company. It designed and built oil refineries—which is very hard to do. And Braun would get them to come in on time and not blow up and have efficiencies and so forth. This is a major art. And Braun, being the thorough Teutonic type that he was, had a number of quirks.

And one of them was that he took a look at standard accounting and the way it was applied to building oil refineries and he said, “This is asinine.”

Tags: Agriculture, Array, Art Of Worldly Wisdom, Carrot, Carrots, Charlie Munger, Dessert, Educational Systems, Extent, General Education, Grandma, Human Psychology, Investment Management Business, Latticework, Models, Modern Education, Notions, Psychologists, Stock Picker, Stock Picking, Topic That Interests
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Byron Wien’s “Ten Surprises for 2012″

Thursday, January 5th, 2012

Byron Wien, Vice Chairman of Blackstone (BX 14.25 �“-1.45%) Advisory Partners, today issued his list of “The Ten Surprises for 2012″. This is the 27th year Byron has given his predictions of a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event which the average investor would only assign a one out of three chance of taking place but which he believes is “probable”, having a better than 50% likelihood of happening.

Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. He joined the Blackstone Group in September 2009.

Firstly, how did he fare last year? In short, he hit bulls-eye with three items, was partly correct with five, and got it wrong with three. Here is a short summary, courtesy of Business Insider:

Right:

• Gold tops $1,600 an ounce.
• Oil tops $115 a barrel as demand surges in emerging markets.
• Angela Merkel works to reform Europe, provides substantial financing, but cannot solve long-term problems.

Wrong:

• The S&P 500 rises to 1,500 level.
• The yield on the 10-year Treasury Note tops 5%.

Partly right:

• China’s GDP slows on currency intervention. The U.S. dollar will become a less central currency.
• President Obama removes troops from Afghanistan, even against a violent backdrop.
• Housing situation improves as oversupply declines, housing starts exceed 600,000.
• Agriculture prices swell as global demand ramps higher.
• Unemployment falls below 9% while GDP growth hits 5%.

Surprises for 2012

1. The extraction of oil and gas from shale and rock begins to be a game changer. The price of oil drifts back to $85 a barrel and the United States becomes less dependent on Middle East supply. Deposits in Poland, Ukraine and elsewhere prove promising as well. Increased production from Libya and Iraq and reduced demand resulting from the slowdown in world-wide economic activity contribute to the price decline.

2. Earnings for American corporations continue to move higher driving the Standard & Poor’s 500 above 1400. Raw material prices continue soft and business leaders successfully adjust to slower economic growth by using technology to reduce the labor and logistical component of goods and services sold; profit margins stay high.

3. The U.S. economy gets its second wind. Real growth exceeds 3% and the unemployment rate drops below 8%. Recession fears and even “the new normal” view of prolonged slow growth are called into question. Capital spending, exports and the consumer drive the economy, overcoming fiscal drag. The drop in the price of oil and the rise in the stock market improve both consumer confidence and spending patterns.

4. The recovering economy and the declining unemployment rate help President Obama convince the voters that he didn’t do such a bad job in his first term after all. He is viewed as a good speaker but a poor leader who is running against Mitt Romney, viewed as uninspired and whose positions on many issues are unclear. Democrats take back the House of Representatives but lose the Senate in an anti-incumbent wave.

5. Europe finally develops a broad plan to deal with its sovereign debt problem and moves closer to fiscal cohesion. The European Central Bank, the International Monetary Fund, the European Financial Stability Facility and the European Union band together to keep all the countries within the Union and to continue the euro as the Continent’s currency. Greece has a major restructuring of its debt; Spain and Ireland strengthen their finances during the year, but Italy suffers a “voluntary” restructuring. A meltdown of the banks is avoided, but imposed austerity causes Europe to suffer a recession.

6. The computer replaces conventional armaments as the principal weapon of terrorists and geopolitical adversaries. Eastern European and Asian hackers invade the data banks of major international financial institutions causing temporary bank closures. An alarmed G-20 meets to address the problem.

7. Concerned over rapid money supply growth in the developed world, investors buy the currencies of countries that seem to be managing their economies sensibly. Scandinavian currencies, the Australian and Singapore dollar and the Korean won benefit.

8. Congress decides its dysfunctionality is harmful to both parties and acts before the November election to deal with the failure of the Super Committee to develop a program to reduce the U.S. budget deficit by $1.2 trillion over ten years. Both defense and Medicare are cut significantly; subsidies for agriculture are reduced and tax deductions for oil, gas and real estate partnerships are modified. Obama pledges to let some aspects of the Bush tax cut program continue if he is reelected.

9. The Arab Spring finally overcomes Bashar al-Assad and his family’s rule over Syria ends. While Assad’s fall might have been inevitable, it has important ripple effects throughout the region weakening Hamas, Hezbollah and further isolating Iran.

10. After two years of poor stock market performance while their economies came through with high single-digit real growth the emerging markets finally have a good year. Growth slows somewhat but favorable valuations enable China, India and Brazil indexes to appreciate 15-20%.

“Also Rans”

11. Housing starts to pick up significantly. The strength in the economy coupled with record affordability encourages the consumer to come back into the market and make long term commitments. The overhang of vacant homes begins to be absorbed.

12. The yield on the 10-year U.S. Treasury Note rises to 4% as China continues to invest heavily in hard assets and raw materials and pulls back from putting reserves into the bonds of developed nations.

13. After correcting sharply toward the end of 2011, gold rebounds to $1,800 during the year. Accommodative monetary policies throughout the developed world cause a renewed migration to hard assets by individual investors and sovereign wealth funds. Silver benefits also, rising to $40.

14. Fiscal discipline at the state and local level allows the drop in yields for municipal bonds to continue.

Byron also shared his “surprises” in the CNBC interview below.

Sources: Blackstone and CNBC, January 4, 2011.

Tags: Agriculture, Agriculture Prices, Angela Merkel, Blackstone Bx, Blackstone Group, Bulls Eye, Business Insider, Byron Wien, Central Currency, Currency Intervention, Extraction Of Oil, GDP Growth, Global Demand, Housing Starts, Investment Strategist, Morgan Stanley, Oversupply, Price Decline, Price Of Oil, Violent Backdrop, Year Treasury Note
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Jim Rogers: Why He’s Shorting Stocks and Favouring Commodities

Friday, December 30th, 2011

Jim Rogers discusses his outlook for the economy, stocks, and commodities.

Call Notes:

Jim Rogers: I’m not optimistic about 2012, and maybe even not 2013.”

JR: “I don’t see much reason to own stocks, when one can own commodities. If the world gets better, i’m going to make a lot of money in commodities because of the shortages, and if the world doesn’t get better, governments will print money. Whenever governments have printed money, the only way to protect one’s self is to own real assets.”

China: Hard or Soft Landing?

JR: “Some parts of the Chinese economy will have a very hard landing; the Chinese government has been trying to kill the real estate boom for 2 1/2 years. They’ve raised interest rates 6 times, raised reserve requirements a dozen times; they’re gonna pop the real estate bubble, but that’s not the whole China story. There’s gonna be parts of the Chinese economy that are gonna boom no matter what happens to real estate in Shanghai and Beijing.”

How about beaten down stocks like Potash and Mosaic?

JR: “I’m not familiar enough to give you a good comment; I just remember in the 70s, stocks went down and did nothing, and economies did nothing, and yet commodities themselves went through the roof. Some commodities stocks did well in the 70s; A recent Yale study showed that you would have made 300% more investing in commodities themselves rather than commodities stocks, unless you were a very good stock picker. So I’m sticking with the real commodities.”

Comment: Jim Rogers travels everywhere in the world with his family, and he eats his own cooking.

What about the other BRIC nations? What about Brazil and its dependency on China? Would you short Brazil?

JR: “I’m short India, I’m short Russia. Brazil is a huge natural resource based economy, and in commodity bull markets they do well. Fortunately, I’m not long, I don’t have any positions – Unfortunately, the new Brazilian government is starting to do some pretty foolish things which I think will not make them participate as much as they could.”

Jim Rogers is long gold, long silver, expects correction to continue down to the $1300/oz. level.

JR: “I’m a terrible market timer, I’m a terrible trader. It would not surprise me if gold went down to $1,300-$1,200. If it goes that low, I’m going to buy a lot more. I’m not selling any ofo my gold or silver, but I’m not a good market timer. I’m just saying that gold has been up 11 years in a row, it deserves a substantial correction. Substantial corrections are not unusual in bull markets. If it goes that low, I’ll buy a lot more.”

Source: CNBC, December 28, 2011.

Tags: agricultural, Agricultural commodities, Agriculture, American Technology, Chinese Economy, Chinese Government, Cnbc, December 28, Economy Stocks, European Stocks, Gonna Pop, Good Stock, Investing In Commodities, Jim Rogers, Outlook, Potash, Real Assets, Real Estate Boom, Real Estate Bubble, Real Estate In Shanghai, Shorting Stocks, Stock Picker, Stocks And Commodities, World Doesn, Yale Study
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