Tuesday, October 27, 2009

Oil Prices Are Headed to $90...

When it comes to the energy sector, this market is the undoubted leader of the pack in terms of making large intraday moves and the effect it has on the broader economy and other markets.

And right now, it's moving like a wildfire.


Sure enough, December 2009 crude oil futures (the front-month contract right now) has just tagged the $82 per barrel level. What's more, it came after hitting a recent low of $65.55. Even for the oil market, a two-week, $16.50 non-stop run is an impressive move.

Two Ways to Take Advantage of Oil's Continued Rise

With the perception that the U.S. economy is finally moving out of the doldrums, all the hedge fund and speculative money that has sat on the sidelines for months is finding a home in the oil market. Depending on which report you read, world demand for oil is expected to pick back up, and this is adding fuel to the fire.

Since hitting its lows in March, you can see the unabated move higher. Oil is trading above all three popular moving average levels, which just adds to the bullish momentum.

Once oil moved above $76 per barrel, it was off to the races. But we should see a touch of consolidation here, as all markets need to take a breather after such a strong move.

After that, we don't see any reason why oil shouldn't continue to keep moving higher. The $90 level is next in line and we could even see $100 again by the end of the year.

To play the move, you could do the following...

  • Buy shares or options of exchange-traded fund (ETF) like United States Oil(NYSE: USO). It tracks the movements of the crude oil market, but allows you to trade it directly from your stock brokerage account.
  • Go directly to the source - the trading pits of the New York Mercantile Exchange (NYMEX). This is where a majority of the trading volume still takes place and it offers a safe forum for buying and selling futures and futures options contracts. Although you'd need to conduct a trade through a commodity broker, you can access these markets electronically. Stick with limited-risk option strategies.

Four Reasons Why Natural Gas Has Set a Low... and is Ready to Rise

Having hit major new highs in the summer of 2008, it has been a long ride down for natural gas.

Simply put, that's because natural gas supplies are reaching maximum capacity. With the Energy Administration Information's announcement last week that supplies reached a record 3.734 trillion cubic feet, there's not much room left to hold all the supplies, which are reaching full U.S. storage capacity.

Naturally, traders have jumped on this huge supply as a "no-brainer" shorting opportunity. But as we've seen over the last few weeks, natural gas prices have only gone up. This leads to a few conclusions:

  1. Shorting the natural gas market was a great strategy for a year, but it's finally reached an end.
  2. No matter how bad the fundamentals may be, all the news finally gets factored into prices.
  3. Winter is approaching and colder weather could draw down supplies.
  4. Those who were too late to short to the market are being forced to buy back their positions.

At this point, I believe this market has finally put in a solid bottom and should see higher moves going forward. It looks like the technical side of the market is the driving force right now and with the price holding above key moving averages, we should continue to see it move upward.


There are two ways to play the natural gas market...

  • The United States Natural Gas (NYSE: UNG) ETF. Like USO, you can play UNG directly via regular shares, or options contracts through your stock brokerage account. Be warned though: UNG is undergoing potential changes to its holdings profile, as the Commodity Futures Trading Commission (CTFC) is discussing possible regulatory legislation that would curtail futures contracts purchases by large speculators and impose caps on the number of futures contracts they can hold.
  • Futures and futures options contracts in the commodity trading pits at the NYMEX. Once again, we recommend sticking with limited-risk option purchases or option spread purchases.


These Two Grains Are Making Gains

Like natural gas, corn and wheat have remained stuck in the doldrums since hitting highs in the summer of 2008.

However, over the past month, both have tacked on impressive gains. I profiled both markets on August 25 and October 13 and noted how higher prices could ensue, given that crop sizes could be lower this year.

In addition to the fact that it's tough for corn and wheat to move much lower, we've got cold, wet weather starting to hamper prime growing areas in the Midwest. This coaxed bullish speculators into the market and the upward moves began.

Corn: We pegged $3.90 per bushel for the December 2009 corn futures as a first upside resistance point, as that coincides with the 200-day moving average. Not only has corn hit that mark, it has powered through it, hitting $4.05 late last week.

Although there is no quality exchange-traded fund for the corn market, you can still participate through the use of futures options contracts that trade on the floor of the CBOT (Chicago Board of Trade). The March 2010 and May 2010 options contracts are the best choices.

Wheat: We've seen an equally impressive move in the wheat market. It has tacked on a solid $1.10 per bushel move ($5,500 per contract) and looks set to continue its trek higher.

Based on the December 2009 futures contract (the most active contract), we could see wheat move up to $5.70 before it tackles the next psychologically important level of $6.00. We could easily see this occur, especially if the weather continues to hamper the harvest.


Like corn, wheat futures and options trade on the CBOT. Again, focus on the March 2010 and May 2010 expiration periods. Grain options are worth $50 per cent, so if you bought an option for 10 cents, it would cost you $500 per option. That's a small investment for a potentially unlimited upside.

Sunday, October 25, 2009

The Lone Refinancer

Andy is refinancing his house. Yes, it is still possible. But, as Andy points out, rarely done.

"I've lived in the same house in Catonsville (a southwest suburb of Baltimore) for 25 years. My wife and I refinanced once before, back in 2002," says Andy. "I'm going to give a lot of business to local construction and remodeling companies. But I'm in the minority. The days of rampant refinancing are behind us."

The real estate bust made getting a home equity line of credit or second mortgage almost impossible. Gone are the days when Americans could go to their local bank and simply pull the equity out of their homes.

That's where the government comes in. What the banks have taken away, the government has given back ... to the tune of a $787 billion stimulus-spending package.

But the math doesn't add up. Economist magazine recently reported that 1.25 trillion in credit lines have already been cut. And another $1.5 trillion will vanish by the end of 2010.

I've got a bad feeling about this. The little growth we have is from the stimulus spending. Take it away and we're right back in the throes of a bad recession fed by falling demand.

I predict the government will be throwing us another stimulus-spending "lifeline." In the short run, it'll keep demand from falling off a cliff. But our $11 trillion-plus debt hole is getting deeper and deeper.

It's too early to declare the death of the dollar. But it's not too early to buy gold. (I've been recommending gold for years now.) Our economic policies stink. I hate bad government and bad policies. But gold loves this stuff ... and it's going up.

If you have trouble falling asleep and staying asleep, the problem may be related to additives in your food. Substances like aspartame, MSG, artificial coloring, nitrates, and even soy contain "excitotoxins," chemicals that can alter your brain chemistry.

Hormone levels can drop significantly as you age or as a result of lifestyle factors. And when they do, your sex drive plummets, you start putting on extra weight, and you tire out faster.
Hormone deficiencies can also cause serious health problems. In men, for example, low testosterone levels can cause metabolic syndrome. This leads to high cholesterol, high blood pressure, and insulin resistance. And in women past menopause, low levels of DHEA can cause musculoskeletal pain.  

It's not just the levels of your sex hormones that you need to be aware of. Chronic stress increases the hormone cortisol in your blood. And too much cortisol can cause inflammation, high blood glucose and insulin levels, low thyroid function, and even impaired immunity.

I talk regularly about the restaurant business because:

* I used to be in the business.
* I know half a dozen people who are restaurateurs.
* I am aware that opening a restaurant is the number one fantasy of people looking for a retirement "job."

My advice has always been the same: Don't do it -- unless you have money to burn or are willing to start small and work your ass off for less than a hundred grand a year.

These days, I'd say don't do. Period. Here's why.

A recent survey by a restaurant trade organization asked its members how their restaurants performed during the first six months of 2009 compared to the first six months of 2008.

Of the 628 respondents, only 25 percent reported an increase in 2009 sales.

That's not good. But most of those who are in trouble are working hard to survive. Some of the things they say they are doing:

* Reducing staff and cross-training to improve productivity
* Training dishwashers to be pantry cooks on slow nights
* Renegotiating credit card processing fees
* Shopping insurance policies and waste removal services
* Cutting out low-margin specials
* Tracking their numbers much more closely
* Eliminating non-essential employees
* Tying management compensation to food, labor costs, and profitability
* Reducing ads in newspapers and the Yellow Pages
* Tracking the usage of their top 10 inventory products
* Reducing inventory levels to reduce waste
* Putting more focus on portion control
* Getting rid of unprofitable services (mostly breakfast M-F)
* Converting to new sources for electricity and phone service
* Replacing high-priced managers
* Getting lease concessions
* Closing on slow nights
* Eliminating menu items that don't sell

It occurs to me that all or most of these actions make sense for any business that's in trouble.

Cutting expenses is always a good strategy -- if, that is, doing so does not denigrate your product or service. Before you make a proposed cut, consider how it will impact your customers. Any change that could diminish their experience with your product or their perception of your company is probably NOT worth the potential savings.

In the long run, you'll be better off focusing on building your customer base, no matter what the economy is doing.

Two recent news items caught my attention:

* In Charleston, West Virginia, the tap water is toxic. Bathwater burns sensitive skin. Drinking water takes enamel off teeth. Tests show that the local water has concentrations of arsenic, barium, lead, manganese, and other chemicals that cause cancer, damage kidneys, and wreck the nervous system. The cause? Local coalmines that were pumping illegal amounts of these pollutants into the ground. And what did state regulators do about it? Nada.

* On Wall Street, unemployment is at 7 percent. That is three percentage points lower than the national average. Executives at Goldman Sachs and other bailed-out brokerages are getting million-dollar bonuses. (The average bonus, including those for middle-level executives, is $700,000!) Meanwhile, the regulations meant to cut down on all the cheating and stealing have not been implemented. For brokers and bankers, it's business as usual -- but with taxpayers' dollars.

Government is supposed to protect its citizens -- not only from bodily harm but from this kind of thievery. Trillions are spent fighting wars against people who never attacked us. Yet little or nothing is spent to put a stop to the financial damage being done to us. That is a shame. Oh, well.

Saturday, October 24, 2009

20 reasons why American Economic collapse is inevitable

Has capitalism lost its soul? Guys like Bogle and Faber sense it. Read more about the soul in physicist Gary Zukav's "The Seat of the Soul," Thomas Moore's "Care of the Soul" and sacred texts.

But for Wall Street and American capitalism, use your gut. You know something's very wrong: A year ago, too-greedy-to-fail banks were insolvent, in a near-death experience. Now, magically, they're back to business as usual, arrogant, pocketing outrageous bonuses while Main Street sacrifices, and unemployment and foreclosures continue rising as tight credit, inflation and skyrocketing federal debt are killing taxpayers.

Yes, Wall Street has lost its moral compass. It created the mess, but now, like vultures, Wall Streeters are capitalizing on the carcass. They have lost all sense of fiduciary duty, ethical responsibility and public obligation.

Here are the Top 20 reasons American capitalism has lost its soul:

1. Collapse is now inevitable

Capitalism has been the engine driving America and the global economies for over two centuries. Faber predicts its collapse will trigger global "wars, massive government-debt defaults, and the impoverishment of large segments of Western society." Faber knows that capitalism is not working, capitalism has peaked, and the collapse of capitalism is "inevitable."

When? He hesitates: "But what I don't know is whether this final collapse, which is inevitable, will occur tomorrow, or in five or 10 years, and whether it will occur with the Dow at 100,000 and gold at $50,000 per ounce or even confiscated, or with the Dow at 3,000 and gold at $1,000." But the end is inevitable, a historical imperative.

2. Nobody's planning for a 'Black Swan'

While the timing may be uncertain, the trigger is certain. Societies collapse because they fail to plan ahead, cannot act fast enough when a catastrophic crisis hits. Think "Black Swan" and read evolutionary biologist Jared Diamond's "Collapse: How Societies Choose to Fail or Succeed."

A crisis hits. We act surprised. Shouldn't. But it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

Warnings are everywhere. Why not prepare? Why sabotage our power, our future? Why set up an entire nation to fail? Diamond says: Unfortunately "one of the choices has depended on the courage to practice long-term thinking, and to make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions."

Sound familiar? "This type of decision-making is the opposite of the short-term reactive decision-making that too often characterizes our elected politicians," thus setting up the "inevitable" collapse. Remember, Greenspan, Bernanke, Bush, Paulson all missed the 2007-8 meltdown: It will happen again, in a bigger crisis.

3. Wall Street sacked Washington

Bogle warned of a growing three-part threat -- a "happy conspiracy" -- in "The Battle for the Soul of Capitalism:" "The business and ethical standards of corporate America, of investment America, and of mutual fund America have been gravely compromised."

But since his book, "Wall Street America" went over to the dark side, got mega-greedy and took control of "Washington America." Their spoils of war included bailouts, bankruptcies, stimulus, nationalizations and $23.7 trillion new debt off-loaded to the Treasury, Fed and American people.

Who's in power? Irrelevant. The "happy conspiracy" controls both parties, writes the laws to suit its needs, with absolute control of America's fiscal and monetary policies. Sorry Jack, but the "Battle for the Soul of Capitalism" really was lost.

4. When greed was legalized

Go see Michael Moore's documentary, "Capitalism: A Love Story." "Disaster Capitalism" author Naomi Klein recently interviewed Moore in The Nation magazine: "Capitalism is the legalization of this greed. Greed has been with human beings forever. We have a number of things in our species that you would call the dark side, and greed is one of them. If you don't put certain structures in place or restrictions on those parts of our being that come from that dark place, then it gets out of control."

Greed's OK, within limits, like the 10 Commandments. Yes, the soul can thrive around greed, if there are structures and restrictions to keep it from going out of control. But Moore warns: "Capitalism does the opposite of that. It not only doesn't really put any structure or restrictions on it. It encourages it, it rewards" greed, creating bigger, more frequent bubble/bust cycles.

It happens because capitalism is now in "the hands of people whose only concern is their fiduciary responsibility to their shareholders or to their own pockets." Yes, greed was legalized in America, with Wall Street running Washington.

5. Triggering the end of our 'life cycle'

Like Diamond, Faber also sees the historical imperative: "Every successful society" grows "out of some kind of challenge." Today, the "life cycle" of capitalism is on the decline.

He asks himself: "How are you so sure about this final collapse?" The answer: "Of all the questions I have about the future, this is the easiest one to answer. Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline." Success makes us our own worst enemy.

Quoting 18th century Scottish historian Alexander Fraser Tytler: "The average life span of the world's greatest civilizations has been 200 years" progressing from "bondage to spiritual faith ... to great courage ... to liberty ... to abundance ... to selfishness ... to complacency ... to apathy ... to dependence and ... back into bondage!"

Where is America in the cycle? "It is most unlikely that Western societies, and especially the U.S., will be an exception to this typical 'society cycle.' ... The U.S. is somewhere between the phase where it moves 'from complacency to apathy' and 'from apathy to dependence.'"

In short, America is a grumpy old man with hardening of the arteries. Our capitalism is near the tipping point, unprepared for a catastrophe, set up for collapse and rapid decline.

15 more clues capitalism lost its soul ... is a disaster waiting to happen

Much more evidence litters the battlefield:

  1. Wall Street wealth now calls the shots in Congress, the White House

  2. America's top 1% own more than 90% of America's wealth

  3. The average worker's income has declined in three decades while CEO compensation exploded over ten times

  4. The Fed is now the 'fourth branch of government' operating autonomously, secretly printing money at will

  5. Since Goldman and Morgan became bank holding companies, all banks are back gambling with taxpayer bailout money plus retail customer deposits

  6. Bill Gross warns of a "new normal" with slow growth, low earnings and stock prices

  7. While the White House's chief economist retorts with hype of a recovery unimpeded by the "new normal"

  8. Wall Street's high-frequency junkies make billions trading zombie stocks like AIG, FNMA, FMAC that have no fundamental value beyond a Treasury guarantee

  9. 401(k)s have lost 26.7% of their value in the past decade

  10. Oil and energy costs will skyrocket

  11. Foreign nations and sovereign funds have started dumping dollars, signaling the end of the dollar as the world's reserve currency

  12. In two years federal debt exploded from $11.2 to $23.7 trillion

  13. New financial reforms will do little to prevent the next meltdown

  14. The "forever war" between Western and Islamic fundamentalists will widen

  15. As will environmental threats and unfunded entitlements

"America Capitalism" is a "Lost Soul" ... we've lost our moral compass ... the coming collapse is the end of an "inevitable" historical cycle stalking all great empires to their graves. Downsize your lifestyle expectations, trust no one, not even media. There is a high probability of a crisis and collapse by 2012. The "Great Depression 2" is dead ahead. Unfortunately, there's absolutely nothing you can do to hide from this unfolding reality or prevent the rush of the historical imperative.

Friday, October 23, 2009

Crossing China’s “Great Wall” Barrie

China Can Chew You Up

From my days in international business, I learned that Asia can make you a lot of money. It can also chew you up and spit you out.

I remember as if it were yesterday, hanging out with a couple of my favorite clients, Ben and George, in Singapore. Ben was in the fuel-tank business. He and I would hop over to China to catch some business meetings. George worked for an environmental firm. He was always pushing China with his CEO. He once told me that China would give his company tons of business and make him rich.

After about two years of traipsing back and forth between Baltimore and China, George closed just one tiny project. He had spent a bundle and the CEO wasn’t happy. George was fired. Ben’s products went viral after the first couple of years.

Crossing the “Great Wall” Barrier

The big difference between the two guys? George never got beyond the “Great Wall” barrier. And Ben did.

What is the “Great Wall” barrier? It’s the line of respect and reciprocity.

Until you cross the “Great Wall” barrier, it really doesn’t matter how much demand there is for your services or products. It doesn’t matter how well funded you are. Nor does it matter how bright your prospects are.

None of it matters until you get the respect and cooperation you need from the Chinese government. Until then your business is completely speculative.

But once you cross this “Great Wall” barrier, your success is almost inevitable. You’ve been admitted into their system. Instead of fighting you every inch of the way, the bureaucracy has your back. It’s like you’ve been given an official stamp of approval to do business in the country...

Only there’s nothing “official” about it. It’s invisible to the outside. But if you know how the “system” works, it’s obvious when your sales will explode.

So, how do you figure out if companies are on one side of the “Great Wall” barrier or the other? Well, take it from an old China hand, I can tell you when a western company has been “greenlighted” by the Chinese government.

One of China’s “Untouchables”

Some companies are too big and important for China to mess with. It doesn’t happen very often. Even in such cases contracts aren’t signed the first time you show up in China. But the cooperation you get from crossing the “barrier” is evident almost from the beginning. It helps when you’re one of a handful of companies in the world that can help the country modernize certain critical sectors.

China is woefully behind the curve in its aerospace development. The Chinese government was more than happy to usher this company past the “Great Wall” barrier to get the help it needed. In no time at all, the company got big-buck contracts to help develop...

  • China’s helicopter-producing industry
  • Its passenger planes- manufacturing industry
  • And hundreds of its airports

Due to the surge in bank failures, the Federal Deposit Insurance Corporation – the government insurance fund designed to protect consumer bank deposits – is out of money. And it will likely be in the red until at least 2012.

But don’t worry! In a prepared statement before the Senate Banking Committee last week, FDIC Chairman, Sheila Bair said, “The problem we are facing is one of timing.”

A problem of timing? Hmmm… I’ve had that problem before. When I was young and broke, I used to run out of money about two weeks before my next paycheck was due. “Don’t worry,” I told the landlady. “It’s just a problem of timing… I don’t get paid for two more weeks.”

The truth is that a fractional reserve banking system can never be insured. Banks today can loan out $10 for every $1 on deposit. As we have pointed out before, the idea of “deposit insurance” is a confidence scam. It holds up only as long as the depositors have confidence in the system.

How the FDIC Is Solving Their “Problem of Timing”

Part of their plan is to ask the nation’s already under-capitalized banks to prepay their deposit insurance premiums for the next three years. In other words, the “insurance company” is asking its own customers for a bailout.

How would you feel about your homeowners insurance if the company that wrote it asked you to pre-pay for three years of coverage… because they were running a little short on funds?

At the end of June, the FDIC had $10.4 billion to insure some $4.5 trillion of reserves. Now the FDIC is broke. That doesn’t exactly inspire confidence, especially considering that some analysts – including the Royal Bank of Canada – are predicting another 1,000 U.S. banks will fail in the next few years.

But the US Government Will Never Let the FDIC Go Bankrupt…

They will simply charge the member banks exorbitant fees...

And print up more dollars...

And the taxpayers will foot the bill by way of inflation.

While your bank deposits might be relatively safe… the dollar is not.

The government will print as many dollars as it needs to fund their programs – FDIC “insurance” included.

And that’s why you should protect your wealth and savings by holding a percentage of your assets in gold and silver bullion. Bullion is for savings and a store of wealth. To grow your savings, look to the precious metals miners, royalty companies and select exploration outfits.

Wednesday, October 21, 2009

FII Activity

DateEquity/DebtGross Purchase
(Rs in Crs)
Gross Sale
(Rs in Crs)
Net Investment (Rs in Crs)Cumulative Investment US $m at monthly exchange ratio