• Regulators will hold hearings this month and next to possibly limit the holdings of energy futures traders, including index and exchange-traded funds. The U.S. Commodity Futures Trading Commission (CFTC) will hold hearings in the next two months to consider the need for government-imposed restrictions on speculative trading in oil, gas and other energy markets, Chairman Gary Gensler said in a statement. “Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities such as crude oil, heating oil, natural gas, gasoline and other energy products,” Gensler said in the statement. “This will include a careful review of the appropriateness of exemptions from these limits for various types of market participants.” The CFTC did not give dates on when the hearings would be held or who would speak at them.

Source: Investment News Briefs Wednesday, July 8, 2009

As Grant’s Interest Rate Observer has been known to say, “We wrote it. Did you read it?”

My slim hope is that the Chinese really and truly know what they are doing, because, in fueling investor optimism with such flair, they are playing a high stakes game. My worry is that they drop the ball, somehow, and the result shows up as a violent wake-up call for “high beta” assets… emerging market equities, energy, commodities and the like.

What happens next is far from clear. The huge [commodity] stockpiles could continue to grow at a breathtaking pace – after all, Beijing has plenty of greenbacks to work through – and the dragon’s data points could continue to impress, or at least not frighten.

But with that said, a stumble from the dragon… and the shock of a sharp, swift deflationary contraction immediately following… does not feel like a far-fetched scenario at this point. It would certainly have profit potential as a surprise event, given how far the notion seems to be from Mr. Market’s mind.

– Taipan Daily, June 12, 2009, “The Fate of This Rally May Rest in China’s Hands”

On Monday, the violent wake-up call arrived. You could say the week started off with a bloodbath… a “decoupling” bloodbath that took many investors by complete surprise. (But none who are readers of Taipan Daily we hope.)

The brutal sell-off was more or less led by emerging markets and hard assets. It was as if the World Bank had rung a bell. Out of the blue the race was on to sell anything and everything with any sort of connection to the grand “decoupling” theme.

Speaking of the World Bank, they are the ones to whom the financial media assigned blame. It was an awfully gloomy World Bank forecast, the wires suggested, that led to the carnage on an otherwise light news day.

But as Bespoke Investment Group astutely asked, since when have traders ever paid attention to the World Bank?

The need to match up trading action with a particular news item of the moment shows an amusing failing of the financial press. Many journalists approach the market like a television sitcom… as if every day were its very own episode, with no continuity or chronological buildup of events.

China Weighs Heavy

In reality, the market had been inching ever closer towards a sell-off for some time. Volume was steadily shrinking rather than rising – a sign that the bull move was running out of steam. Public companies were coming out of the woodwork to issue record amounts of stock. Unconventional measures of sentiment, like the bull-bear ratio of money flowing into Rydex funds, showed worrisome levels of optimism. Ill winds were blowing on multiple fronts, as we noted in these pages.

And, perhaps most importantly, the magic pixie dust sprinkled by China had finally begun to wear off.

The bulls happily embraced the China story and ran with it as fast and far as they could, taking oil and copper and the like to eight-month highs.

But, as it turns out, much of China’s stockpiling drive looks to have been pure speculation. And not even official speculation sanctioned and planned out by the mandarins in Beijing… but instead a fast and loose misallocation of funds.

As part of China’s economic stimulus plan, Chinese banks were ordered to lend massive sums to steelmakers, iron ore importers and other industrial players. A large portion of these funds was plowed directly into big commodity price bets.

The iron ore debacle, for example, was almost certainly a result of speculative excess at the local level. Many traders scratched their heads on hearing the news of 90 large iron ore freighters idling in the water for two weeks or more, waiting to unload at overflowing Chinese ports.

Who would plan such a thing? Nobody would. The backlog came about due to a communication snafu. Stockpiling decisions were made by cash-flush managers at the ground level, as a wave of stimulus funds encouraged them to gamble. Beijing lost control of how those funds (handed out as cheap loans) were being used.

This kind of thing is bad news on multiple fronts.

For one, it highlights how little control Beijing actually has over how China’s stimulus funds are being spent. For another thing, it puts many ground-level Chinese industrial producers at risk of insolvency if the price of, say, iron ore falls too far.

“Last year people who stockpiled went out of business,” notes Shanghai-based economist Andy Xie. “I know one distributor who stockpiled six million tonnes of steel and went bust when it dropped by more than half.”

Making Sense of the Story

There are at least two important lessons here. The first one is, try to make sense of the story. In my trading service, for example, I have been wary of the “China leads the world” theme for months, mainly because the basic story line (as touted by the bulls) never quite made sense.

Meaning, how was China ever set to lead the world into recovery when China itself is still so dependent on exports to a weak global economy? How can Chinese business activity truly be picking up with electricity usage falling, rather than rising?

And how could a stimulus plan slapped together by Beijing bureaucrats really solve the issue of internal domestic demand – China’s biggest hurdle and a challenge that simply will not succumb to short-term fixes?

There is a big bullish story in China. But as with other emerging markets, it is a longer-term story, hinging on the day when these countries truly make strides towards weaning themselves from the economic crutch of exports to the West. We are closing in on that point, but are not quite there yet.

Trader or Investor?

Another important lesson is recognizing the difference between trading and investing, and not getting caught in the no man’s land between the two.

A good working concept here is “the Mountain and the Valley.” Here’s what I mean:

Imagine a great, vast mountain off in the distance. You don’t know exactly how far away it is, but you know it’s there, waiting to be scaled. Meanwhile, in between you and the mountain is a fog-covered valley. You don’t know what kind of ups and downs will be in that valley, but you know the trip across won’t exactly be smooth.

The difference between trading and investing is, investors tend to focus on the mountain and more or less ignore the valley. They keep their financial and emotional risk low enough to handle the ups and downs without losing their cool. Deliberate staying power and long-term conviction are the operative phrases here. With those two things, many hard asset and emerging market investors will be able to look past the volatility of recent days and ultimately do just fine.

In contrast, the trader is very aware of the ups and downs of the valley. Rather than ignoring that volatility, the trader focuses on it. The trader’s advantage is thus speed and flexibility – an ability to buy and sell a position repeatedly as need be, get a sense of how the terrain is going, and move quickly and fluidly when the timing calls for it.

So which one are you? Steadfast and true, or flexible and fluid? The two temperaments are rather different. Some versatile folks are traders and investors at the same time, but even then, not often with the same positions (or even the same brokerage accounts).

In closing, do emerging market equities and hard assets still offer excellent long-term investing opportunity? Absolutely, without question.

In the eyes of the investor, this week is just another dip in the valley. But in the eyes of the trader, China’s stumble – and the demise of the bear market rally – have created a shift in the near-term landscape worth exploiting.

Source: Commodity Bulls Snared by China Stimulus Snafu

Five years ago, almost no one believed that oil prices would soar past $30 per barrel. $50 seemed utterly unthinkable. As oil prices continued climbing, so did disbelief. The skeptics never abandoned their misguided notion that oil was “overpriced.” So when crude retreated from $75 to $50 early last year, the prospect of $100 oil seemed like a ridiculous prediction

Due of Peak Oil, the prices of agricultural commodities are going much higher…

Most of the agricultural markets have had a big move already, but these markets could easily suffer a big correction from current levels. The long-term investor will want to buy these markets on weakness, not sell them.

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627% Profit in Four Years and Rising!

The New York Times and USA Today called it a “bonanza” for everyone involved…

There’s an energy revolution about to reemerge and impact the entire nation…and it’s neither oil nor ethanol…

You’ll be surprised what this revolution is…

Click here to read more…

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A hundred years ago, the average American spent about 45% of annual income on food. Today, that figure is down to about 15%. So we’ve been taking cheap food for granted and have spent our “extra” cash on plasma TVs and leased BMWs.

We don’t worry about food costs or whether it will be readily available tomorrow. But the agricultural markets may have some major surprises in store for complacent Americans…and unprepared investors:

While shortages of key industrial and energy commodities are frightening, no sector will threaten global stability more than agriculture…

In 2007, we saw stark glimpses of just how bad this situation will get. The “Tortilla Crisis” in Mexico, the “Pasta Protest” in Italy, the riots and crushing of one supermarket shopper in China over cooking oil… We have seen dairy, meat, and bread prices skyrocket.

It’s ironic that as global population is reaching an all-time high, we are turning a huge percentage of our crops into ethanol or biofuel…

This questionable, if not idiotic, alternative produces little, if any, short-term benefit and considerable long-term harm — both to the quality of farmland and to the integrity and stability of the global agriculture markets. In other words, using food as fuel can make a big mess out of the global food supply…and the prices that we all pay for that supply.

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The Greatest Hoax in 30 Years…

This will have worse effects on the U.S. economy than 9/11…and it’s only a hoax…

The U.S. has been lied to for decades and the government is just now figuring it out…and there hasn’t been a public announcement because it will cause hiatus on Wall Street… We know the hoax and how you can make killer profits off of it…

To find out what Bush was informed behind closed doors and how to make a fortune from it… Click here for more info…

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From sea to shining sea, the U.S. has croplands as far as the eye can see. For years, its bounty has been a supermarket for the world. Now it’s a fuel station, too.

China, which has hundreds of millions more hungry mouths than we have, has far less arable farmland. And worse, China has far fewer controls in place to regulate farming methods.

Trends like these strongly suggest that the agricultural markets will imitate the price action of the energy markets. As investors, we must look at this situation as an opportunity…

We should be looking to buy stocks of some of the key agricultural companies that help support the industry: those dealing with equipment makers, fertilizer, irrigation, and transport.

In my own portfolios, I have exposure to soybeans, wheat, and corn. I also think the soft commodities are much undervalued: coffee, cocoa, sugar, and cotton. These markets are also poised to move much higher…

The planet is not running out of food, but it might be running out of cheap food. So stock up your pantry and start shopping for the kinds of investments that will prosper during the coming agriculture boom.

Regards,
Kevin Kerr

P.S.: Agriculture is a profitable market and safe bet for several years…but there’s another market out there that’s a lot more lucrative, a lot less obvious. We’ll give you a sneak peak to find out how to make easy millions. To find out what his hot market it… Click here…

Source: A Grainy Picture

I’m sure Sens. Carl Levin and Dianne Feinstein think they’re enlightened types, far beyond any sort of “ugly American” mentality. But that’s exactly what they betray with their notion of closing the “London loophole.”

Says Levin, “The [Commodity Futures Trading Commission] didn’t have good information about who was trading how much US oil when, and whether traders subject to US speculation limits were circumventing them by trading in London. That’s why I and my colleagues have repeatedly introduced legislation to close the London loophole.”

The Levin-Feinstein bill would order the CFTC “to ensure that energy commodities traded on foreign exchanges using trading terminals located within the US are subject to the same speculative trading limits and reporting requirements as energy commodities traded on US exchanges,” reports the Financial Times.

Of course, not only is there a London loophole, there’s also now potentially a Dubai loophole. And in time, perhaps a St. Petersburg loophole. And if the Iranians can ever get their heads out of their posteriors, a Tehran loophole, and if Hugo Chavez can do likewise, a Caracas loophole. Soon there will be a big bold world of people outside the United States, trading in exchanges outside the United States, perhaps using currencies other than that of the United States.

And as oil prices rise all the while to $150 and $200 and even higher, Sens. Levin and Feinstein will still be fussing and fuming about transactions through U.S. terminals that will account for less and less of the world’s oil trade. What will they do then? Maybe they’ll sue the operators of the international bourses, to go along with their suits against OPEC. Yeah, that’ll bring back $2.00-a-gallon gas.

Source: The Ugly Americans

My grandmother, Oget Palm, was just a little girl when my family was scheduled to sail from Europe to New York in 1912. Her parents (my great-grandparents) and her siblings were prepared to make the trip from Gothenburg, Sweden, where they lived. They were scheduled to be in the steerage compartment — as all immigrants were — aboard the newest and “safest” ship on the sea, the RMS Titanic.

It’s funny how fate can change so many lives. Just before the trip from Sweden, my great-grandmother contracted rheumatic fever, or what they used to call consumption. Nobody is really sure why. She was only 33. Sad to say, she died.

But there is another side to the story. The family was delayed from sailing to America as they mourned their loss. Thus, they missed sailing on the Titanic. And everyone knows what happened to the Titanic.

Later on, my grandmother and her family sailed into New York Harbor on a different ship. She remembered gazing at the Statue of Liberty. I returned with her in 1997, and we walked through Ellis Island together. We even found her name in the book they used to categorize everyone who came through, an experience that is truly chilling. Back then, everyone was processed at Ellis Island and made their way to the places where they had relatives. Typically, the Swedes and Norwegians went to Minnesota, and that’s how yours truly ended up being born there.

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A $14,300 Gain Instead of $2,200

On a single $5,000 stake, just holding Occidental Petroleum’s regular “tier one” shares — the kind you hear everyone gabbing about on the financial shows — you might have walked with just $2,200 in profits.

Not so bad, but the “tier two equities” would have given back a hefty $14,300. On the same company, the same trend, and over exactly the same time period.

Here’s more…

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Fast-Forward: Doing More with Less

The light that burns twice as bright burns half as long. And America has burned very brightly for a long time. As the resource battles begin to heat up, we are already seeing where some of the major battle lines will be drawn, and it’s not a pretty picture. The simple fact of the matter is the world’s resources — not just oil — are dwindling faster than Britney Spears’ career.

While shortages of key industrial and energy commodities are frightening, no other sector will threaten global stability more than agriculture.

Food Fight

It seems ironic that as global population is reaching an all-time high, we are turning at least half of our crops into ethanol or biofuel. This is a questionable, if not idiotic, alternative that clearly does as much damage as good. While the short-term impact is obvious, the longer-term ramifications for agriculture on a global scale could be devastating.

In 2007, we saw stark glimpses of just how bad this situation will get. The “Tortilla Crisis” in Mexico, the “Pasta Protest” in Milan (I happened to be there for that one), the riots and crushing of one supermarket shopper in China over cooking oil…we have seen dairy, meat and bread prices skyrocket.

The idea of food inflation is new to many Americans, who are used to prices for food being only about 13-16% of income. Back when my grandmother got off the boat in 1912, they were more like 45%.

Bad Choices Beget Bad Choices

In recent years in the U.S., the number of immigrants has swollen. The porous borders continue to attract newcomers as if it were still 1912. Here in the U.S., a lot of people think that America can still absorb a massive influx of immigrants from all over the planet who are poor, tired and hungry. And while that is nice, romantic thinking, the fact of the matter is we cannot.

Now, I would hate for us to change the plaque on Lady Liberty to “Bring us your well-fed and rested, employable and intelligent,” but the truth is maybe we have to.

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Get Smart or Get Gone

As investors, we must look at this situation as an opportunity for our portfolio. First of all, I suggest if you have some extra land (condo developers and house flippers, listen closely), grow a vegetable garden, and if you are ambitious, raise some sheep and cows, because they will come in handy. A little more practical and with less bunker mentality is to add stocks of some of the key agricultural companies that help support the industry, like those dealing with equipment making, fertilizer, irrigation and transport.

My grandmother may have missed the Titanic, and figuratively, I hope we all do too. But keep in mind that our ship (the USS America ) is sailing in uncharted waters and we had all better get smart fast. Really, the food supply is stretched and getting stretched thinner and thinner. There are only so many lifeboats, and unfortunately, that’s the new reality. Increasing population and rising demand for scarce resources mean that there is a big iceberg ahead. So man your stations.

Yours for resource profits,
Kevin Kerr

Oil, for example, is flirting with $120 per barrel. Natural gas is over $10 per thousand cubic feet. Copper is about $4 per pound. Foodstuffs are up by double- and triple-digit percentage increases. (This is not a good thing for the billion or so people in this world who live on less than $1 per day.) And cost inflation in almost all infrastructure projects is roaring along.

What is Causing the Rise in Prices?

Well, a lot of it has to do with the decline in value of the dollar. Let’s look at one of the most commonly consumed substances in the world, rice.

Here is a chart tracking the price of 100 pounds of rice against the euro-dollar exchange over the past 12 months. The regression fit is 90%. It is not that a lot more people are eating a lot more rice. It is that more dollars are chasing the same bags of the stuff. And there is a similar relationship between the prices of rice and oil, demonstrating the rise in oil process against the depreciating dollar. Same thing with coal, iron ore and many other goods that trade on world markets.

Basically, the chart is just another data point confirming that the dollar has lost its status as a long-term reserve of value. So people from China to Chile are exchanging their depreciating dollars for things of value. Whether it is rice, oil, industrial metals, gold or silver, the prices are on a long upward trend.

What Should You Do as an Investor?

Hopefully that’s one of the reasons why you subscribe to Outstanding Investments . That’s exactly why Kevin Kerr and I write our articles. But here is our abbreviated list of recommendations:

1. Buy gold and silver
2. Own mining shares
3. Own energy plays. What forms of energy? All of them — oil, gas, coal, nuclear, wind, solar, geothermal, biofuels
4. Own energy service plays
5. Own infrastructure plays
6. Buy soft commodities, but only if you really understand how to do this (and you could have no better guide than Kevin Kerr).

In short, the OI portfolio is designed as a defense in times of a declining dollar. Yet it also offers the opportunity to participate in stock price gains as entire business sectors profit in the future.

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

My grandmother, Oget Palm, was just a little girl when my family was scheduled to sail from Europe to New York in 1912. Her parents (my great-grandparents) and her siblings were prepared to make the trip from Gothenburg, Sweden, where they lived. They were scheduled to be in the steerage compartment — as all immigrants were — aboard the newest and “safest” ship on the sea, the RMS Titanic.

It’s funny how fate can change so many lives. Just before the trip from Sweden, my great-grandmother contracted rheumatic fever, or what they used to call consumption. Nobody is really sure why. She was only 33. Sad to say, she died.

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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

But there is another side to the story. The family was delayed from sailing to America as they mourned their loss. Thus, they missed sailing on the Titanic. And everyone knows what happened to the Titanic.

Later on, my grandmother and her family sailed into New York Harbor on a different ship. She remembered gazing at the Statue of Liberty. I returned with her in 1997, and we walked through Ellis Island together. We even found her name in the book they used to categorize everyone who came through, an experience that is truly chilling. Back then, everyone was processed at Ellis Island and made their way to the places where they had relatives. Typically, the Swedes and Norwegians went to Minnesota, and that’s how yours truly ended up being born there.

Fast-Forward: Doing More With Less

The light that burns twice as bright burns half as long. And America has burned very brightly for a long time. As the resource battles begin to heat up, we are already seeing where some of the major battle lines will be drawn, and it’s not a pretty picture. The simple fact of the matter is the world’s resources — not just oil — are dwindling faster than Britney Spears’ career.

While shortages of key industrial and energy commodities are frightening, no other sector will threaten global stability more than agriculture.

Food Fight

It seems ironic that as global population is reaching an all-time high, we are turning at least half of our crops into ethanol or biofuel. This is a questionable, if not idiotic, alternative that clearly does as much damage as good. While the short-term impact is obvious, the longer-term ramifications for agriculture on a global scale could be devastating.

In 2007, we saw stark glimpses of just how bad this situation will get. The “Tortilla Crisis” in Mexico, the “Pasta Protest” in Milan (I happened to be there for that one), the riots and crushing of one supermarket shopper in China over cooking oil…we have seen dairy, meat and bread prices skyrocket.

~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~

Can You Afford $6 Gas?

I know that many Americans are beginning to worry about the price of gasoline as the summer driving season approaches. And they should be worried. Things have gotten out of control.

Where will it end? Gas could be as much as $4.50 by the end of the summer, and $6 by the end of the year. What are you going to do? Click here for some much needed answers…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The idea of food inflation is new to many Americans, who are used to prices for food being only about 13-16% of income. Back when my grandmother got off the boat in 1912, they were more like 45%.

Bad Choices Beget Bad Choices

In recent years in the U.S., the number of immigrants has swollen. The porous borders continue to attract newcomers as if it were still 1912. Here in the U.S., a lot of people think that America can still absorb a massive influx of immigrants from all over the planet who are poor, tired and hungry. And while that is nice, romantic thinking, the fact of the matter is we cannot.

Now, I would hate for us to change the plaque on Lady Liberty to “Bring us your well-fed and rested, employable and intelligent,” but the truth is maybe we have to.

Get Smart or Get Gone

As investors, we must look at this situation as an opportunity for our portfolio. First of all, I suggest if you have some extra land (condo developers and house flippers, listen closely), grow a vegetable garden, and if you are ambitious, raise some sheep and cows, because they will come in handy. A little more practical and with less bunker mentality is to add stocks of some of the key agricultural companies that help support the industry, like those dealing with equipment making, fertilizer, irrigation and transport.

My grandmother may have missed the Titanic, and figuratively, I hope we all do too. But keep in mind that our ship (the USS America ) is sailing in uncharted waters and we had all better get smart fast. Really, the food supply is stretched and getting stretched thinner and thinner. There are only so many lifeboats, and unfortunately, that’s the new reality. Increasing population and rising demand for scarce resources mean that there is a big iceberg ahead. So man your stations.

Yours for resource profits,
Kevin Kerr

P.S.: In my resource service, Resource Trader Alert, I’m always on the lookout for plays you can make in the resource industries. Problems with food shortages and over population are becoming more and more serious with each passing year. The time is right to strike now and boost your portfolio with these specific plays. My readers have already seen returns of 107%, 195%, and 214% from these plays. Click here to see what they’re buying…