Commodities / Raw Materials

[Mick100]

Crude oil supply/demand

http://www.financialsense.com/fsu/ed...2007/0711.html
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[Mick100]

Long term bull market in resources

Puru Saxena

http://www.financialsense.com/editor...2007/0713.html
,

[airedale]

Three interesting posts, Mick, with gold now back at $US660, it looks as if the market has moved up faster than Sol Paha has anticipated.
Cheers...

[Mick100]

Hi airedale
I sold out of my gold miners last yr due to major operational problems - HIG, BGF (not because I lost faith in the gold bull)
I have had a couple of gold miners on my watchlist for about 6 months now looking to take a position. I'm not convinced that it's time to jump on board yet but I'm getting very tempted.
I watch the gold/oil ratio closely - it's currently at 9. I'm looking for a spike down to 7
Assuming that oil will keep rising to say $85 by aug/sept then with a gold/oil ratio of 7 would put gold at 595
If it was later in the yr I wouldn't be waiting for a new low in gold but from past experience I don't expect gold to enter into a sustained uptrend just yet - more likely this will happen in sept/oct.
The USD is currently testing it's alltime lows - if it breaks lower then I expect gold will take off. If the USD holds above 80 I will continue to wait for a lower low in gold.
It's certainly getting interesting!
,

[Mick100]

COAL EARNINGS
by Elliott H. Gue
Editor, The Energy Letter
July 27, 2007


We’re now in the heart of earnings season for the energy patch. By and large, energy companies have reported impressive numbers, but there are some clear winners and losers.

Some of the losers this quarter were the coal stocks, which have seen unprecedented selling pressure during the past two weeks and haven’t reacted well to their earnings releases. I think the weakness is vastly overdone.

When evaluating coal stocks, it’s useful to divide the sector into two pieces: the Eastern-focused miners and those focused on mining in the Powder River Basin (PRB) or other markets in the Western US. The Appalachian coal region in the East has been a prolific coal producer for more than a century.

But this region has seen a growing list of problems of late. It’s getting harder and more expensive to mine these reserves as seams become thinner; that’s why many miners in the region have missed their production targets in recent years.

The bear case for the coal mining stocks is simple and, in fact, very similar to the bearish case for natural gas. Because of the hangover from the warm winter of 2005-06, stockpiles of coal at utilities have risen to excessive levels.

This is the same basic reason that natural gas storage levels are so much higher than normal right now. Because the utilities are well supplied, demand for coal has fallen and so have prices.

Adding to that are concerns regarding climate change policy. Coal is public enemy No. 1 when it comes to global warming, and a few plants that had been slated for construction have been delayed or canceled because of uncertainty surrounding the future of US environmental regulations governing carbon emissions.

These two points were discussed ad nauseam on every one of the five coal miner conference calls that I’ve listened to so far this season. The question-and-answer sessions have become an endless debate over these factors.

As I’ve stated before, these are valid points. However, the weakness in coal is massively overdone. The fact is that the US needs more generation capacity soon, and as I’ve outlined on numerous occasions, alternative energy and conservation efforts just won’t meet those needs.

Nuclear plants take a long time to build, so they’re also not a great candidate for meeting near-term (two to three years out) needs. Coal and gas are the only realistic solutions, and coal is far and away the cheaper alternative--even with natural gas prices at depressed levels.

Although it’s clear that uncertainty over climate change policy will affect new coal plant construction, new coal plants will be built in the US. In fact, about 9 gigawatts of new coal-direct capacity is already under construction, and an additional 10 gigawatts have received permits and are close to breaking ground. Assuming just the 9 gigawatts of plants under construction are built, that’s another 35 million tons of coal demand annually.

Outside this broader argument, a few additional points surrounding shorter-term production trends are worth noting.

New regulations being imposed on East Coast miners are starting to have a dramatic impact on coal production from the region. Recently, the Mine Safety and Health Administration (MSHA), part of the US Dept of Labor, drastically changed the regulations governing how mines are sealed.

Basically, in underground mines, abandoned sections of mines are sealed off from the rest of the mine. This is to prevent any dangerous gases from moving to areas that are being mined.

During the past year and a half, MSHA has changed regulations governing the way mines are sealed on a few occasions. The end result is that about 372 of the 670 active underground mines in the US will need to make changes. MSHA estimates that this will cost the industry some $40 million annually to comply. According to the management team over at International Coal Group--a stock I recommend avoiding--some mines in the East have more than 100 seals in them.

No one really

[Mick100]

IS THE END NIGH?
by Puru Saxena
Editor, Money Matters
August 7, 2007


Over the past few days, the ongoing credit-crunch in the US has grabbed all the media attention and the capital markets have responded with sharp declines. At present, there is an ongoing debate as to whether the sub-prime debacle will sink the US into the next “Great Depression”. Not surprisingly, the bears are out of their dens again, forecasting the very end of capitalism! So, what should we make of the current situation and more importantly, how should we invest during these volatile times?

There is no doubt in my mind that the US economy is past its prime. Gone are the days when the international markets used to shudder in fear at the very thought of American investors withdrawing their capital from overseas. Remember, not so long ago, financial crises used to spawn in some far-flung “emerging” nations in Asia, Latin America and Eastern Europe. And the US establishment used to stand firm as the lender of last resort. This time around, however, it is ironic that the world’s most influential nation is weighing down on the global economy and causing a mini-panic in the markets. A few years ago, the US was a creditor nation, but today it is the largest debtor nation the world has ever seen. Previously, Americans used to fund other less fortunate nations, however these developing nations are now funding the American way of life by financing those horrendous deficits! Based on these facts, it is clear to me that over the coming years, the over-leveraged American society will have to undergo some sort of adjustment. Moreover, I suspect that this adjustment will not be easy. In other words, I expect the standard of living in the US to gradually decline in the years ahead.

Now, I am aware that there are a number of well-respected economists and analysts out there who are forecasting the end of the world due to the ongoing problems in the credit-markets. I tend to agree with their assessment that the US economy is in a bad shape but I do not expect a deflationary collapse in global asset-prices due to the sub-prime mess for the following reasons:

Firstly, it is worth noting that the size of the US economy is roughly US$13.5 trillion, global exports are over US$13 trillion, global non-gold foreign exchange reserves are above US$5 trillion and under the worst-case scenario, sub-prime mortgage losses could amount to US$300-400 billion. No doubt, these losses would be a total disaster for the effected households, but they are not big enough to cause a major recession at least in nominal terms.

Secondly, I believe that with its ability to print an unlimited quantity of Dollars, the Federal Reserve will come to the “rescue” at the cost of the American currency. After all, we are in the third year of the US Presidential cycle (historically, the best year for stocks) and you can bet your bottom Dollar that the American establishment will do everything in its power to avoid a major bear-market or recession prior to the elections next year.

Now, I can almost hear some of you say that this era of endless prosperity cannot go on forever and that a deflationary bust is inevitable. For sure, this fantasy “fix” through even more inflation and a further debasement of the US Dollar cannot continue ad infinitum. However, as long as the public remains oblivious to the inflation menace and keeps buying into the low-inflation propaganda, our current “monopoly-money” system could easily continue for several more years.

I happen to believe that the US Dollar will be sacrificed in order to avoid a painful contraction in the economy and asset-prices. The necessary adjustment in the US economy will be stealth and is likely to occur through a weakening currency rather than an outright crash in asset-prices. Already, since 2002, American savings have depreciated by 50% against the major European currencies and even more so against the major commodity-producing economies (Canada, Australia and New Zealand). In the period ahead, I expect the US Dollar to diminish in value against the Asian and Latin American currencies, which are still grossly undervalued against the greenback.

The final reason why I do not expect a deflationary collapse is due to the fact that despite the ongoing credit-problems in the US, the emerging economies of Asia, Eastern Europe and Latin America continue to expand rapidly. This should act as a cushion against any major financial set-back in the US.

So, given the current economic outlook, how should investors position themselves? First and foremost, I suggest that investors continue to avoid exposure to US financial assets as the risks far outweigh the potential for return. Moreover, if my assessment is correct, after some additional near-term weakness in the markets, I expect the up-trends in natural resources and emerging-markets to continue. As a money-manager with the capability to invest in global assets, I have allocated our clients’ capital to these sectors.

Despite the rally over the past 5 years, stocks in the emerging-markets are reasonably priced in terms of valuations (with the exception of China) and commodities remain extremely cheap when adjusted for inflation. After the big run-up over the past several months, these markets had become somewhat over-stretched and are now in the process of consolidating their recent gains. Such periodic pull-backs are normal within long-term bull-markets and should be used as a buying opportunity. Accordingly, I would urge investors to shake-off their sub-prime blues and take advantage of the ongoing panic by buying solid resource-producing companies positioned to benefit immensely from the ongoing growth in the emerging-nations. Remember, in the business of investing, it usually pays to buy the panic!


© 2007 Puru Saxena
Editorial Archive

[Mick100]

GLOBAL BOND MARKETS RE-ADJUST TO A NORMALIZATION OF SPREADSby Monty Guild
Guild Investment Management, Inc.
August 10, 2007

Spreads are the differences that financial institutions get between their cost of money and the price they demand for loans. Spreads in effect reflect evaluations of current and expected risk. Clearly, the current bond market problems are due to a very over-optimistic evaluation of risk by many lenders. The lenders have realized their mistakes and are rapidly adjusting their risk premiums back to the historical levels of risk premium that have prevailed for the better part of 30 years. As I wrote recently, every type of loan from government paper to all types of mortgages and corporate and consumer credit will become more expensive. This will reverberate through the U.S.andglobal debt markets and raise the cost of borrowing for everyone.

GOOD FOR STOCKS AND COMMODITIES

This will also make investors more cautious about future commitments to debt. Historically, when interest rates were rising, investors shunned long-term debt in favor of short-term debt and moved more into equities (stocks).

Many aggressive investors have been using leveraged debt instead of equities to maximize returns..We believe that many of those seeking high returns will return to stocks and commodities in order to maximize returns.

In this area, there are statistics suggesting why base metals and energy remain in demand. We have stated these things before in different ways in hopes of capturing your attention.

From an economic point of view, world economic growth determines the demand for raw materials to build economies.

The estimated GDP growth for the last four years and the coming four years is as follows:

India 8-9%
China 10% +
Developing world other than India and China 6-8%
Developed world 2-3%

If the developing world contributes about 40% of the global GDP as many economists think, and the developed world is contributing about 60%, then the blended world growth rate is roughly 5% per annum.
We believe, based upon the research of economists from many parts of the world, that global GDP growth has been about 5% a year for the past few years, and will probably continue at about that rate for the next few years.

LONG TERM GLOBAL ECONOMIC GROWTH LIKELY TO BE STRONG

We further believe that world economic growth will remain strong for two or more decades as the current 6.5 billion world population grows by more than 50% by 2050.

TO GROW A WORLD ECONOMY BY 5% PER YEAR..you must consume resources at the rate of about 3% per year.

In today's tight markets for oil and minerals, the supply of many commodities is growing at about 1% a year or less. If demand is growing at 3% per year PRICES MUST RISE SUBSTANTIALLY for energy and for many other commodities.

AS WE HAVE SAID, WE ARE OPTIMISTIC ABOUT THE OUTLOOK FOR SOME STOCK MARKETS AND THE MARKETS FOR ENERGY, BASE METALS AND PRECIOUS METALS.

LET'S MAKE A LIST OF WORLD NEGATIVES AND POSITIVES..THEN LET'S DECIDE WHO IS HURT BY THE NEGATIVES AND WHO IS HELPED BY THE POSITIVES..THIS WAY WE CAN DETERMINE WHERE TO INVEST AND WHERE TO AVOID INVESTING.

POSITIVES

SOME COUNTRIES ENJOY:

• <LI style="MARGIN: 0in 0in 0pt">Rapid economic growth <LI style="MARGIN: 0in 0in 0pt">Rapid growth in corporate profits <LI style="MARGIN: 0in 0in 0pt">Availability of low cost labor <LI style="MARGIN: 0in 0in 0pt">Availability of raw materials and energy
• Availability of capital in the local markets

Those in the positive category are: China, India, Norway, Canada, Brazil, Hong Kong, Singapore, and Korea. Much of Latin America and Eastern Europe are on the fence with some positives, but they also have some negatives.

NEGATIVES

SOME COUNTRIES SUFFER FROM:

• <LI style="MARGIN: 0in 0in 0pt">Rising interest rates <LI style="MARGIN: 0in 0in 0pt">Lowering of P/E ratios as interest rates rise <LI style="MARGIN: 0in 0in 0pt">Slower economic growth <LI style="MARGIN: 0in 0in 0pt">Weakness of the financial system <LI style="MARGIN: 0in 0in 0pt">Lack of availability of capital in some markets <LI style="MARGIN: 0in 0in 0pt">Threats to corporate profits from tax policy after 2008 [U.S.]
• Increasing restrictions on global trade (potentially the biggest problem)

GLOBAL INVESTING EXPERTISE A MUST!!!

In our opinion investing solely with a U. S. (or for that matter any one country centric) strategy will become more difficult in coming years. We further believe that expertise in global investing will become an important attribute for investment success in a increasingly globalizing world. We have worked very hard over the past few decades developing such expertise. We look forward to the changes taking place in the global economy as we expect they will create some very profitable opportunities in coming years.

© 2007 Monty Guild
Editorial Archive

12400 Wilshire Blvd. Suite 1080 Los Angeles, CA 90025
(310) 826-8600 Tel (310) 826-8611 Fax
Email | Website | Legal Disclaimer

[Mick100]

LENDERS TAKE THE JAB, BORROWERS TAKE THE KNOCKOUT
by Peter Schiff
Euro Pacific Capital
August 20, 2007

The current weakness in domestic markets has recently been magnified overseas as panic spread to foreign investors with exposure to U.S. asset backed debt. Some commentators point to this reaction in an attempt to disprove the belief that foreign assets offer protection from falling U.S. stocks. I believe such conclusions are premature. Global stock markets will soon decouple from ours, and strong returns overseas will occur even as U.S. stocks slump.

I believe that the recent sell off in global stocks is liquidity-driven and will likely be short-lived. Many of our foreign creditors, particularly those using leverage, were forced to meet margin calls by selling assets to raise cash. Since the assets causing the problems had little, if any, value, they were forced to sell other assets instead, causing prices to fall sharply. In addition, the increased risk aversion that followed led to de-leveraging of other speculative positions; particular yen carry trades, putting additional downward pressure on many of the foreign assets that had been purchased with borrowed yen.

In contrast to the recent declines in U.S. stocks, which are driven by deteriorating fundamentals and a poor outlook for corporate earnings and the U.S. economy, the steep drops in many foreign stocks do not stem from financial distress in the companies themselves, but simply from the short-term distress of their highly leveraged shareholders. Remember, the root of the problem lies in the inability of American borrowers to repay their debts. While foreign lenders may be getting stung a bit, they will take their losses and move on. On the other hand, American borrowers will face much bleaker futures.

In a mortgage crisis, such as the one we are currently experiencing, lenders typically get hit first. As it so happens at present, America's lenders usually carry foreign passports. Although foreign creditors may be the first to take it on the chin, American borrowers will ultimately be knocked out by the combination punch of much higher interest rates and vanishing home equity.

Foreigners are suffering now because they loaned money to Americans who could not repay. However, as we are the ones who are broke, we are the ones who are in real trouble. Furnished with a greater appreciation of the risks, foreigners will now buy fewer dollar-denominated bonds collateralized by U.S. real estate, automobiles, receivables, credit card debt, etc. Without a ready secondary market for asset-backed debt, Americans will find it increasingly difficult to buy consumer goods or real estate on credit. As discretionary consumer spending grinds to a halt, real estate prices plunge and our economy falls into a protracted recession, the developing bear market in U.S. stocks will continue. However, as foreign consumers and businesses enjoy the benefits of additional goods and credit previously provided to Americans, overseas economies will grow faster, extending the lives of what are very powerful bull markets.

On a similar note, the recent global rout in stocks produced similar declines in both gold and gold stocks. Here again I feel that we are witnessing liquidity events that will likely reverse as the true nature of our problems become apparent. As Fed officials continue to talk tough on inflation and deny the obvious threats to our economy from the growing credit crunch and collapsing real estate market, gold is being sold in favor of treasuries. Soon however, the markets will see through this charade and gold will shine more brightly than it did in 1980. The key for those of us holding the yellow metal or other non-dollar assets in anticipation of a major economic crisis in the U.S. is not to panic out of our positions. I am confident that we are holding the winning hand; all we need do is not throw it away.


© 2007 Peter Schiff
Editorial Archive

CONTACT INFORMATION
Peter Schiff
Euro Pacific Capital
Darien, CT USA
Email l Website

[Huang Chung]

Metals not looking too flash at the moment. Short term outlook for U continues to deteriorate. Buying opportunity coming up??

http://www.bloomberg.com/apps/news?p...er=commodities

[OneUp]

AGP note that "the price of coking coal has “increased sharply” over the last few months. Recent reported sales of spot coking coal have been at considerably higher levels than the long term contract rates of circa US$100 per ton used in the past two years. This price rise is reflected in the Group’s coal royalty interests being independently valued at 30th June 2007 at £59 million compared to £48 million at 31st December 2006."

Could be a good time to buy (coking) coal stocks.