• The Conference Board’s index of consumer confidence jumped to 54.9 in May, up from a revised 40.8 in April. The leap marks the biggest one-month gain since April 2003, and was set in motion by tighter credit and oversupply of homes pushing down prices, Reuters reported.

• Hong Kong’s government will inject another HK$16.8 billion ($2.2 billion) into the economy via tax cuts, fee waivers and spending, Bloomberg reported. Added to previous stimulus measures, Hong Kong’s government has pumped HK$87.6 billion, or 5.2% of the country’s gross domestic product, into the economy.

• Virgin Atlantic said its annual profits nearly doubled, but gave a grim assessment the current fiscal year. “We have not seen conditions as tough as this, and we do not see any signs of recovery … for airlines to make a profit this year is almost impossible,” Chief Executive Steve Ridgeway told Reuters. “The key now is to slow down capital expenditure and preserve cash.”

• South Africa has slipped into its first recession in 17 years, as its gross domestic product fell an annualized 6.4% in the first quarter. Manufactures and miners have been scaling back output and letting workers go, as a result of tightening global demand, Bloomberg reported.

• Sonia Sotomayor, President Barack Obama’s nominee for the U.S. Supreme Court, does not appear to be either particularly liberal or conservative on business issues, but four of her rulings have been overturned by the high court, according to legal experts interviewed by Reuters. Sotomayor has a lengthy record of rulings in business cases as a federal judge in New York, but her rulings appear to present a patchwork of decisions based more on the merits and facts of the cases than an ideological approach to the law, the experts said.

• Hedge funds are making big bets that commodity prices will rise as the global economy rebounds from its steepest slump since World War II, according to Bloomberg. An index of the net long positions in U.S. commodity futures held by hedge funds and other large speculators rose to a nine-month high. The index consists of 20 raw materials and is monitored by the U.S. Commodity Futures Trading Commission.

• General Motors Corp. (NYSE: GM) received approval from its Canadian Auto Workers union to freeze pension payments until 2015 and cut new hires’ pay to protect jobs, as it works on labor agreements to help speed its exit from a probable bankruptcy, Bloomberg reported. The union, representing about 9,000 hourly employees, ratified the accord yesterday (Tuesday) with 86% of the vote. The United Auto Workers (UAW) presented a tentative U.S. contract to plant-level leaders in Detroit yesterday as well.

• A Russian Internet investment firm has invested $200 million in Facebook, as the social networking site builds a cash buffer.  The investment by Digital Sky Technologies, which has invested in leading Russian web properties like Mail.ru and Vkontakte.ru, values the social networking site at $10 billion.  The Russian company took a 1.96% stake in Facebook in preferred stock in exchange for its investment, Reuters reported.

Source: Investment News Briefs Wednesday May 27, 2009

The dollar and yen rose as worries persisted about global economic prospects despite a batch of better-than-expected U.S. economic data, prompting investors to seek shelter in the two safe-haven currencies.

Gold climbed to a six-week high after data showed U.S. core inflation rose more than expected in April, boosting the precious metal’s appeal as a hedge against rising prices.

Oil fell toward $56 a barrel, pressured by weak global demand and a stronger dollar.

Europe sank to what may have been the recession’s low point in the first quarter of this year as tumbling German exports and investment plus further sharp drops in output elsewhere hastened the pace of a year-old contraction.

Official GDP estimates showed the period was the worst since records at the European level began in 1995.

“Overall risk appetite is still down because of the bad numbers from Europe,” said Matthew Strauss, senior currency strategist at RBC Capital, in Toronto.

European shares closed higher, with gains for most banks outweighing losses for defensive plays such as telecoms.

But U.S. stocks turned lower after earlier gains due to the expiration of option contracts and a fresh assessment of a jobs report on Thursday that was worse than expected, said Rick Meckler, president of LibertyView Capital Management in New York.

“Yesterday’s rally, given the news, caught people off guard and left the market in a place where no one’s quite sure of the next direction,” Meckler said.

“With the weekend coming up and the potential for weekend news, some people are taking some money off the table,” he said.

Shortly after 1:30 p.m., the Dow Jones industrial average <.DJI> fell 46.43 points, or 0.56 percent, to 8,284.89. The Standard & Poor’s 500 Index <.SPX> shed 8.77 points, or 0.98 percent, to 884.30. The Nasdaq Composite Index <.IXIC> slipped 4.02 points, or 0.24 percent, to 1,685.19.

The FTSEurofirst 300 <.FTEU3> index of top European shares rose 0.5 percent to close at 839.94 points. Over the week, the index fell 3.1 percent, but is up 30 percent from a lifetime low on March 9.

But analysts were skeptical about when, and how strongly, an economic recovery will come through.

“We’ve had a spectacular rally,” said Philip Lawlor, chief portfolio strategist at Nomura. “Risk appetite has rebuilt. The question is about more green shoots.

“I don’t think the data is actually going to turn positive for another six or nine months,” he said.

U.S. and euro-zone government debt slipped after U.S. industry and consumer sentiment reports bolstered hopes the economy might soon start to recover.

U.S. industrial production fell 0.5 percent in April, a more modest pace than in recent months and less than the 0.6 percent economists had expected.

The data dimmed the allure of safe-haven investments such as U.S. Treasuries. Separate reports showing improved national consumer sentiment and a slower rate of contraction in New York state manufacturing this month also trimmed flight-to- safety bids.

The benchmark 10-year U.S. Treasury note fell 16/32 in price to yield 3.16 percent. The 2-year U.S. Treasury note fell 1/32 in price to yield 0.87 percent.

In Europe, June Bund futures fell 53 ticks on the day to 121.17, well off a one-week high of 122.07 set earlier in the session.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.41 percent at 82.777.

The euro fell 0.80 percent at $1.3524. Against the yen, the dollar was down 1.04 percent at 94.87.

U.S. light sweet crude oil fell $2.06 to $56.56 a barrel.

Spot gold prices rose $4.70 to $930.05 an ounce.

Asian stocks rose as investors bought shares that stand to benefit from an expected global recovery. MSCI’s index of Asia Pacific stocks outside Japan rose 1.7 percent, while Japan’s Nikkei share average <.N225> added 1.9 percent,

May 15 (Reuters)

Oil prices now trade at a five-year low.

If oil prices overshot on the way up to US$147, then the opposite is certainly true today with prices at US$36 a barrel. At some point, crude oil will bottom; the odds of a spectacular bounce occurring is highly likely as global governments spend trillions of dollars at the same time to desperately boost economic growth in 2009-2010.

China, which is the world’s second-largest consumer of oil after the United States at 9.4 million barrels per day, is now importing the lowest amount of crude oil this decade amid a softening economy. U.S. demand has also declined sharply to less than 19 million barrels per day.

Did Crude Overshoot on the way down to US$36?

According to the International Energy Agency (IEA), oil consumption in 2009 will decline to its lowest levels since 1982.

The IEA cut its demand outlook last week as the global economy continues to deflate since the fourth quarter. The Paris-based agency now projects oil consumption will decline by 570,000 barrels per day to 84.7 million barrels. Just 12 months ago, the world sat on a net supply deficit of about one million barrels.

More than any other nation, China has seen the largest spike in net oil consumption this decade. Chinese oil consumption has increased by 3.2 million barrels per day since 2000, accounting for a third of the total increase in global demand.

The Chinese are also in the midst of their biggest expansion of credit in history following the passage late last year of a US$541 billion dollar stimulus package. That spending should at least boost short-term demand for oil assuming consumption in the United States is also supported by the government’s recent passage of the $878 billion fiscal spending package.

Even the biggest bears will concede that concerted global government spending will buy at least a few quarters of economic growth later this year or in 2010 – and that should boost oil prices. Combined with additional supply cuts by OPEC and a host of cancelled exploration and development projects over the last few months, oil prices are bound to bottom shortly.

The above chart shows oil prices dating back to 1997. In 1998, amid the tail end of the Asian economic crisis and the Russian debt default, oil prices bottomed at an incredible $10.50 a barrel. Ten years later, at its peak, oil climbed a cumulative 1,300%.

I think it’s highly unlikely we’ll see 1998 prices again, unless another major bank fails or worse, a major sovereign borrower defaults in this cycle. This remains a possibility in a brutal deflationary environment.

Yet, if the time to buy an asset is when prices are low and in near disrepute, then crude oil fits that bill right now. When the time comes to buy oil, look to the oil futures or oil futures related ETFs. They’ll give you much more bang for your buck than most oil stocks.

Source: Depressed Oil Prices Approaching Speculation of a Lifetime

The reason: Soaring unemployment and the threat of social unrest.

A recent government survey showed that slightly more than 15% of China’s 130 million migrant workers – about 20 million people – had lost their jobs and returned to the countryside by the start of the Chinese Spring Festival on Jan. 25.

That figure is double the previous estimate by the Ministry of Human Resources and Social Security, which said in December that up to 10 million migrants lost their jobs in 2008 due to the financial crisis. But analysts say the actual number of unemployed migrant workers is probably closer to 26 million.

Another 5 million to 6 million new migrants enter the workforce each year, Chen Xiwen Director of the Office of Central Rural Work Leading Group, a central government advisory body, told BusinessWeek.

“So, if we put those figures together, we have roughly 25 to 26 million rural migrant workers who are now coming under pressures for employment,” said Chen.

Other government figures suggest that as many as many as 7 million workers a year have migrated from the countryside to fill factory and service jobs. And that could just be the beginning, as weak global demand for Chinese exports is having a profound effect on the nation’s once raging economic growth.

China posted its most severe foreign-trade decline in at least a decade in December. Exports, which have contributed around 20% of China’s economic growth since 2005, fell 2.8% from a year earlier, extending the 2.2% decline in November.
With global demand stagnant, China’s gross domestic product (GDP) growth cooled to 6.8% in the fourth quarter, the weakest pace in seven years. That’s a steep decline for a country that has a strong track record of double-digit growth.

According to rough official calculations one percentage point of Chinese GDP growth creates around 1 million jobs, The Financial Times reported.  If China’s growth drops below 6%, hundreds of thousands, if not millions, of more job losses can be expected.

A recent study by China’s Tsinghua University said that up to 50 million migrant workers will lose their urban jobs in 2009 if the downturn continues.

Premier Wen Jiabao: China WiIl take ‘Preemptive’ Action

Unemployment is more than a drag on the economy in China; it’s a threat to social stability.

That’s why the government in Beijing is wasting no time, or expense, when it comes to ensuring China’s economic prosperity continues.

“It’s fair to say the Party Central Committee is taking the issue of employment of migrant workers very seriously,” said Chen Xiwen. “Ensuring job creation and job protection is to promote social stability.”

China is already at work implementing the $586 billion (4 trillion yuan) stimulus package it unveiled in November. The cost of that plan amounts to a staggering 20% of China’s GDP.

But Chinese Premier Wen Jiabao said yesterday (Monday) in an interview with The Financial Times that the government might expand the plan even further to boost growth and trigger consumer spending.

“In meeting the financial crisis, it is imperative that governments must adopt a big enough package plan to stimulate the economic development,” Wen told the FT.  “Such a plan must be comprehensive and complete. It must target both the root causes and symptoms of the issues, and also take into account both immediate difficulties and long term development.”

In the interview Wen outlined the several measures his country has already taken to stem the tide of the financial crisis, including:

• The $586 billion investment program intended to stimulate domestic demand.
• Another $88 billion (600 billion yuan) dedicated to scientific and technical innovation and upgrades.
• And $124 billion (850 billion yuan) to improve the nation’s health care system.

In addition, Wen indicated that the government remains vigilant and willing to take preemptive action to stimulate growth.

“The financial crisis has not yet hit the bottom, and we will continue to follow very closely the development of the situation,” he said. We may take further new timely and decisive measures…All these measures have to be taken preemptively before an economic recession, so as to maximise the desirable effect, otherwise our efforts will be wasted.”

The government has already made rural economic stability a priority. About $54 billion (370 billion yuan), or 11%, of the $586 billion spending package has been allocated towards rural infrastructure projects to create jobs.

In a 28-point policy outline Beijing said it would also “skew” more budget and bond revenues to villages, increase agricultural subsidies, and put more money towards schools, clinics, and roads, Reuters reported.

“We must truly enhance our sense of crisis and take full account of the hardships,” said the policy document. “Pay attention to rural social stability and appropriately address pressing conflicts and problems sparked by requisition of rural land, pollution, migration and resettlement, and handling of (village) collective assets.”

In his interview with the Financial Times, Premier Wen confirmed that the government will inject $30 billion (200 billion yuan) into the Agricultural Bank of China, an institution that lends to the country’s impoverished rural regions.

“The China Agricultural Bank is the last among five national banks which is now undertaking a banking reform,” Wen said. “Our decision for this recapitalization is around $30 billion.”

Source: China Considers Expanding Stimulus to Combat Unemployment

The world’s stock markets tanked, as did some of its biggest economies. In such an environment, they thought, gold should have risen. After all, gold is widely considered to be a safe-haven investment when everything else is spiraling south.

However, Money Morning Contributing Editor Martin Hutchinson – an investment banker with more than 25 years’ experience on Wall Street and a leading expert on the international financial markets – understood perfectly what other investors did not.

“Gold is not a safe haven against recession,” said Hutchinson. “It’s a safe haven against inflation.”

In the past year, commodities prices skyrocketed – across the board. That was especially true of oil, which hit a record high $147 a barrel. Corn, wheat, and soybeans all hit record highs, as well.

That price escalation tightened household and corporate budgets, and was a primary reason why the U.S. economy posted a gross-domestic product (GDP) decline of 0.3%. With that negative growth, the third quarter was the beginning of what many experts believe will be the nation’s first recession since 2001.

However, the inflation epidemic has waned significantly, as global demand for raw materials has plummeted.

Price for such staple foods as corn, soybeans and wheat have all come down from their record highs – in near-lockstep fashion.

Corn futures are down nearly 50% from their summer high of $8 per bushel. The same is true of soybeans and wheat, with each having lost roughly half their value. In fact, wheat hit a 16-month low in mid-October.

As most of us noticed, gas prices have fallen 48% from their July 17 high of $4.114 a gallon.

And not coincidentally, gold has fallen 22% in that same time frame.

However, this report examines the pending commodities rebound – a projected slow-and-steady increase in commodity prices that will reverse the breakneck plunge below fair value that commodities have experienced for much of this year.

Our objective now: To chart the expected path of gold prices in the New Year.

This report also reveals another wild card inflationary indicator that Hutchinson believes will carry gold prices to $1,500 an ounce by the end of 2009.

Two Catalysts For Gold’s Climb

The U.S. Department of Agriculture’s Oct. 10 Crop Production Report said acreage for a handful of staple food commodities has shrunk:

• Corn acreage fell 1.2%.
• Soybean acreage dropped 1.4%.
• Canola acreage dropped 1.9%.
• Sunflower acreage shrank 0.8%.
• And acreage of dry edible beans fell 0.7%.

That naturally translates to higher prices because it squeezes the supply of the particular commodity. And it does so at a time when demand continues to escalate from populations in China, India and Latin America. And higher prices equal inflation.

But Hutchinson – who correctly predicted this last run-up in gold prices – says there’s another catalyst that’s right now inherent in the U.S. economy that could help vault gold prices to $1,500 an ounce by the end of 2009. And it has to do with the much-ballyhooed $700 billion rescue plan.

“The government is pumping money in so many banks, and that money has to come out somewhere,” Hutchinson said.

The philosophy behind the rescue plan is elegantly simple: By providing a portion of the $700 billion to foundering U.S banks, the Treasury Department believed it could provide banks with badly needed capital, and get them to start lending money once again – jump-starting the economy in the process.

Since September 2007, U.S. Federal Reserve policymakers have cut the benchmark Federal Funds target rate nine times – from 5.25% down to the current 1.0% rate – to increase bank-to-bank lending and bank-to-consumer lending.

“The government is pumping money in so many banks, and that money has to come out somewhere,” Hutchinson said.

Right now, banks aren’t boosting lending. Instead, they are using the cash to finance buyouts of other banks. Even so, that money will “come out” into the economy in the form of higher stock prices for banks. That will make consumer/investors wealthier, and could make them more confidence in the economy. If they’re more confident, they will spend. As that happens, food prices should begin ticking upward, adding another set of thrusters to gold prices.

“Everybody thinks that because we’re having a horrible recession, we’re not to going have inflation. I think that’s probably wrong,” Hutchinson said. “I think gold has quite good hidden-store value.”

As gold prices increase, count on more investors leaving the sidelines to invest, too, causing the surge in gold prices to accelerate and steepen.

“As gold goes up, it gets more popular and investors start piling into it,” Hutchinson said.

And if gold gets anywhere near the $1,500 mark, sell. Prices that high will likely fall back or plateau as the Federal Reserve begins raising interest rates and strengthening the U.S. dollar, Hutchinson said.

Five Ways to Play Bottom-Basement Gold

Before we get too far ahead of ourselves, let’s first look at five ways to play bargain-basement gold prices.

The SPDR Gold Trust ETF (GLD) – formerly StreetTracks Gold – is a fund whose shares are intended to parallel the movement of gold prices. Since gold prices started falling along with gas prices, SPDR Gold Trust has stayed within a 0.5% margin of gold prices. This exchange-traded fund (ETF) eliminates any investor concern over storage and delivery while giving them exactly what they want – gold.

Toronto-based Barrick Gold Corp. (ABX) has 27 mines, mostly in North America and South America, and is developing or exploring 11 more. With a market cap of more than $20 billion, it has considerably more liquidity than most mining companies. Barrick is primarily a gold miner, but it also has copper and zinc mining operations. As far as investors are concerned, there are two ways to look at that: It’s not a pure play, per se, but then again, this is a company stock, not a bar of bullion. Also, having operations other than gold can help stabilize the company’s bottom line in case problems arise at a gold mine.

Denver-based Newmont Mining Corp. (NEM) is primarily a gold producer with operations in the United States, Australia, Peru, Indonesia, Canada, New Zealand and Mexico. Its reserves are hovering around 86.5 million ounces. Like Barrick, this is a mining stock play, and is subject to market swings – as well as fluctuations in gold prices. That can be a significant tailwind, especially if you believe the stock market has bottomed out or is close to doing so. Hutchinson – forever a value-oriented investor – warned that Newmont might be a little too pricey now. Investors may want to wait for the company’s stock price to settle before getting in.

Hutchinson thinks the best value for a gold mining stock can be found in Yamana Gold Inc. (AUY), another Toronto-based company that’s small now, but has rapidly expanding production. 

But for investors who just want gold – not an ETF or stock – the best avenue is an EverBank Select Metals Account: EverBank accounts has a minimum deposit that is 98% lower than its competitors, and its commission costs are up to 86% lower than other metals’ brokers and bullion banks. It offers two types of gold accounts: Unallocated (your purchased gold is pooled with that of other investors, eliminating storage and maintenance costs; the minimum deposit is $5,000), and Allocated (you directly own the gold you purchase, held in your own private account; $7,500 is the minimum deposit here).

Both types of accounts can be set up 24/7 online. But if you prefer the phone, call 866-326-6241, and be sure to give them the code 12608 when setting up an account.

We should point out that the publisher of Money Morning has a marketing relationship with EverBank, but that’s because its products are among the best in class.

Source: Five Ways to Play Gold’s Rebound to $1,500 an Ounce

[Editor's Note: With the New Year upon us, it's a good time for investors to be looking ahead. With that in mind, Money Morning will be running installments of our "Outlook 2009" economic forecasting series into the New Year.]

U.S. stocks tumbled on Monday as signs of further deterioration in the economy around the world punctured last week’s market enthusiasm, with financial services companies and retailers among Wall Street’s biggest drags.

Major industrial companies also contributed to losses on signs global demand is faltering, leading investors to pare back risk in favor of safe-haven government debt.

With the holiday shopping season under way, investors feared that retailers may turn in their bleakest sales in many years. The S&P retail index declined 4.4 percent.

Department store Macy’s Inc tumbled 9.6 percent.

Consumers made repeat trips to stores and spent more on bargains this weekend, but analysts said the rush is unlikely to translate into a much-needed boost in profit.

“Things are looking quite bleak. Everyone acknowledges that,” said Brian Gendreau, investment strategist at ING Investment Management in New York. “The question is to what extent is that already priced into the markets. Apparently, not entirely.”

The Dow Jones industrial average slid 383.26 points, or 4.34 percent, to 8,445.78. The Standard & Poor’s 500 Index shed 45.94 points, or 5.13 percent, to 850.30. The Nasdaq Composite Index plunged 82.09 points, or 5.35 percent, to 1,453.48.

In the United States, factory activity fell in November to its weakest since 1982, according to the Institute for Supply Management. The data jolted investors who earlier got news of weaker Chinese and European manufacturing activity.

Top drags included financials, with Citigroup down nearly 9 percent, after an influential analyst forecast more losses for the major U.S. bank. A slide in commodity prices pinned resource stocks in the red, with aluminum producer Alcoa tumbling almost 9 percent.

Among big manufacturers, Caterpillar Inc plunged 8.6 percent, as General Electric slid more than 7 percent.

The market’s slide extended a global equity rout that hurt stocks in Asia and sent European indexes sliding 4 percent or more.

A lower close on Monday would snap a 5-day streak of gains for the S&P 500 stock index. Yields on benchmark 10-year Treasury notes sagged to five-decade lows and prices rose as investors sought the safety of government debt.

Citigroup shares fell to $7.49 on the New York Stock Exchange, while Bank of America slid 8.7 percent to $14.82. The S&P financial index plunged 7.1 percent.

Shares of Caterpillar, a maker of bulldozers and excavators, dropped to $37.33.

Among retailers, shares of department store operator Macy’s Inc tumbled 9.6 percent to $6.71, as those of Wal-Mart Stores , the world’s biggest retailer, shed 3.3 percent to $54.04.

One analyst expected the U.S. credit-card industry to cut $2 trillion in credit lines over 18 months, which would be a severe blow to spending for cash-strapped consumers.

Shares of Alcoa fell to $9.78. Shares of energy companies were another drag as oil prices fell on concerns that the economic slump will hurt energy demand. U.S. front-month crude fell about 8 percent to $49 a barrel.

On Nasdaq, chipmaker Qualcomm Inc was the top drag, falling 6.3 percent to $31.44.

Ellis Mnyandu
NEW YORK, Dec 1 (Reuters)

U.S. stocks slipped in thin holiday trade on Friday after a streak of gains as investors nervously eyed post-Thanksgiving sales to gauge how retailers will fare this holiday season, while worries about global demand hurt technology and energy shares.

Chevron (CVX) fell 1.9 percent tracking oil lower as OPEC gathered to discuss potential further supply cuts to combat falling demand. U.S. crude dropped below $53 a barrel.

Technology shares slid after signs of a downturn in global chip demand as STMicroelectronics cut its fourth-quarter outlook. Industry sources said Taiwan companies want to slash costs. The semiconductor index shed 1.1 percent.

The U.S. stock market was closed Thursday for the Thanksgiving holiday and is trading for half the day on Friday. On Wednesday, stocks ended higher, capping the Dow’s biggest four-day percentage gain since 1932.

Stores across America hope to ring in billions of dollars in holiday sales beginning on the “Black Friday”, the day after Thanksgiving. But retailers fear a looming recession and mounting job losses could cost them dearly during the period that brings in up to 40 percent of annual sales.

“It’s a light volume day so you’re going to see some choppy trading, with so many people out,” said Robert Finkel, consumer trader at Stifel Nicolaus in Baltimore.

“I’m watching how things go from a retail standpoint today – we’ve heard a lot of speculation about how bad it’s going to be, now we’ll get some proper feedback.”

The holiday weekend will test the strength of consumer sentiment, a main driver of the U.S. economy, as the country faces its worst financial crisis since the Great Depression.

The Dow Jones industrial average fell 2.39 points, or 0.03 percent, to 8,724.22. The Standard & Poor’s 500 Index was down 2.39 points, or 0.27 percent, at 885.29. The Nasdaq Composite Index shed 14.26 points, or 0.93 percent, to 1,517.84.

The S&P’s retail index dipped 1.6 percent.

Chesapeake Energy Corp (CHK) fell 14.7 percent to $17.26 after a shelf offering to issue up to 50 million shares.

U.S. aluminum company Alcoa Inc’s (AA) fell after an executive said the company is not actively seeking to raise its stake in miner Rio Tinto Ltd (RIO) .

There is no U.S. economic data due on Friday nor any major companies scheduled to report earnings.

For the month, the Dow is down more 6 percent, the S&P 500 down more than 8 percent and Nasdaq down 11 percent.

By Kristina Cooke
NEW YORK, Nov 28 (Reuters)

More from Justice in Taipan Daily:

Hear ye, hear ye, one and all: The supercycle is dead. Long live the supercycle!

Commodities on the whole have declined nearly 50% from their peak as a result of the credit crisis. This has led some to declare that the “commodity supercycle” – the idea that we are merely in mid-innings of a massive, multi-decade commodity bull market – is defunct too.

I’ll admit it… the weekly chart is hard to ignore. If one had to assess the health of the supercycle by way of the Reuters CRB Index alone (as shown above), Monty Python’s Dead Parrot sketch would spring to mind.

Really though – in spite of deeply dire appearances, it’s a fair question to ask: Has the commodity supercycle shuffled off its mortal coil? Are we now dealing with an “ex-supercycle?”

Believe it or not, there’s a case to be made that the commodity supercycle is not dead – that it really is just resting – despite the speed and ferocity with which commodity prices have been chain-sawed in half.

Let me explain…

How You Can Survive… And Thrive, During The Most Savage Financial Shock of This Century

In the next 12 minutes, I’ll reveal a remarkable insider strategy that you can use to collect up to $341.78 or more in bonus payouts every single day of the year!

And if you follow the detailed instructions outlined in this report and get started right away; you could collect your first bonus payout in as little as 36 hours.

Follow this link to learn more…

Cures What Ails Ya

There is a hoary old saying in the commodities biz: “The best cure for high prices is high prices.”

What this means is that, when a commodity gets pricey enough, production naturally expands. Expensive oil & gas leads to more drilling in hard-to-get-at places… expensive hogs lead to more hog farming… expensive corn to more corn acreage being planted, and so on. High prices, in other words, act as a “cure” for high prices by drawing new supply into the market.

The same idea works in reverse: “The best cure for low prices is low prices.”

As you can probably guess, the “low price” cure means that when a commodity gets cheap enough, producers start throwing in the towel. New projects are canceled… existing production is cut back… and marginal production is shut down entirely. As profit margins fall, more and more producers rein it in… or simply throw up their hands and quit. Over time, this winnowing process shrinks supply until it matches up with newly reduced demand. Then things stabilize, demand shifts, and the cycle begins anew.

So here’s the ironic thing: Those who declared commodities to be in a “bubble” feel vindicated because commodity prices have been smashed. And yet, today’s ultra-low commodity prices are merely reestablishing the same conditions that fed the supercycle thesis in the first place!

From High to Low (in Record Time)

When the commodity bull really hit stride, it was largely based on a strong outlook for global growth. With so many emerging market countries coming of age, resource after resource was projected to be in short supply as far as the eye could see. Investors of all stripes and sizes, from institutional on down, wanted a piece of the action.

Then the mortgage bubble popped, trust and liquidity evaporated, and credit and commerce fell off a cliff.

Not wanting to be left out, commodity prices jumped off a cliff too… and now things have come full circle. Commodities fell so violently and so quickly, we’ve been rudely transported backwards (or perhaps forwards) to the “low prices cure low prices” part of the cycle again!

For many commodity producers – and metal miners in particular – these new low prices (no pun intended) aren’t high enough to justify keeping the doors open. (That hushed sound you hear? It’s an idle haulpak with an empty gas tank; keys left dangling in the ignition.)

Pity the Miners

Pity the poor miners. Well before the panic and ensuing collapse, profits in the mining business were being squeezed by rising costs. The cost of essentials like fuel, skilled labor, equipment, and even oversized truck tires threatened to spiral out of control.

Due to this relentless “cost creep,” many of the miners – precious metals in particular – struggled to maintain healthy margins even when metals prices were riding high.

And thus when the credit bubble burst, the fall in prices was so vicious that many miners’ profits were simply wiped out. All those sky-high operational costs came down too, it’s true – but that was cold comfort in light of bank credit, investor capital, and pricing power all disappearing into thin air at once.

So now we have a situation where marginal miners all over the globe are shutting down. Operations that were profitable three to four months ago are now bleeding red ink… and screeching to an utter halt.

“Virtually all [mining] projects except those of the biggest companies need financing,” the Wall Street Journal observes, “and even some of the largest still need to borrow after starting out with equity capital.” The debt window is closed, and raising new equity in these conditions would take a miracle.

As a result of all this, production levels are being scaled back rapidly. New production is no longer in the pipeline. And post-panic prices suggest the world has given up on growth.

The Global Growth Question

Say, what about global growth? Is the uptrend in long-term demand dead too?

We know that a large element of this “fire sale” was forced asset selling… a vicious little quirk of the credit crisis that has nothing to do with fundamental outlook. But investors also seem to be arguing for a world of much diminished demand for a long time to come. That could be a mistake.

Rick Rule, a legendary natural resource investor with 35 years experience, points out that emerging market demand going forward could be “steadier… than many people think… simply because the developing countries’ balance sheets are better than we are accustomed to.”

I agree with Mr. Rule. This is the first crisis we have seen where the balance sheets of many emerging countries actually look better than those in the Western World. Not all, but many, of the upcoming emerging market players stuffed the proverbial mattress with cash during the run-up.

China alone, for example, has nearly two trillion dollars in reserves… Russia more than half a trillion at last count… India nearly a quarter trillion. Having that kind of cash on hand can smooth over a lot of bumps on the road to middle-classdom. Their stock markets may be punk, but emerging market consumers could be back in action sooner than we think.

Lags and Gaps

There is another thing to remember about commodity price swings: Normally the shift from high to low prices (or vice versa) takes quite a while. This is because of time lag. Simply put, it physically takes a long time for production to adjust to an upward shift in demand. It’s not as if you can throw a switch and suddenly have a new mine or refinery or power plant in operation just like that. The preparation process – assessing, planning, funding, building – takes years.

Much of the supercycle thesis was predicated on the idea that it will take a very long time – perhaps a decade or two – for the world’s lagging commodity infrastructure to catch up with soaring global demand. As far as I’m concerned, that thesis is still in play.

Right now, commodity production trends and global demand trends have both flat lined (or even flat out declined). But when commodity demand trends start ticking up again – something that is bound to occur – it will happen at a faster rate than production can match. In the long term, this velocity discrepancy is what truly matters.

Think of two upward sloping lines that intersect in the lower left corner a graph. The X axis equals time, the lower sloping line equals commodity production, and the higher sloping line equals global demand trends. Though both lines move higher with time, the distance between the upper and lower line only gets wider as you move to the right.

That’s why I think the supercycle still lives, be it lying at the bottom of the stairs in a heap at moment. Global demand will be back… and when demand trends get back on form, they will again outpace our ability to keep up. And with so many commodity operations scaled back or mothballed thanks to the credit crunch, the starting gap will be even wider when things get rolling again.

And Don’t Forget Gold

And by the way, don’t forget gold in all this. With fiat currencies headed for a predestined tragedy of Shakespearian proportions, it doesn’t take a genius to see how physical gold demand could rise. Gold bars and coins are already flying from the vaults. Faith in the yellow metal will only wax further as faith in paper wanes.

And as for the miners’ role? John Embry, Chief Investment Strategist for Sprott Asset Management, states things flatly: “When the gold’s all gone, the market will go nuts.”

“If gold hasn’t moved up by the end of this year, I would be very surprised,” Embry says. “People don’t realize how distressed the gold mining industry is. Even at $1,000, miners weren’t doing very well. At $800, the entire industry is in crisis. Costs have risen so much, nobody’s making any real money. In fact, some mines are starting to close.”

Embry thinks gold would have to hit at least $1,200 an ounce before the shuttered mines reopen… a 50% rise from gold’s price as of this writing. And if, or should I say when, gold reaches that new high, it will likely be on the way to even higher climes.

And now if you’ll excuse me, I’ve got to go research some very attractive junior mining candidates. Long live the supercycle!

Source: Is the Commodity Supercycle Dead… or Is It Just Resting?

I listened to various experts talk for over thirty minutes on Radio 5’s afternoon show last week about the high oil price. Not one mentioned Peak Oil. Not one mentioned out-of-control money supply. Not one mentioned increasing Asian demand..

Yes, oil is overbought; yes, oil is going to correct at some stage…but it’s not a bubble.

Then we had Anatole Kaletsky in The Times tell us the rising oil price ‘threatens to do far more damage to the world economy than the credit crunch.’ He’s right about that. Unless of course you’re long of oil in some form or other, in which case things are looking rather rosy.

Kalestsky goes on, ‘The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 80s, tech stocks in the 90s and, most recently, housing’. Does it?

In a bubble supply overwhelms demand, yet prices continue to rise. In the 1990s tech companies with no earnings issued masses of stock; in the US housing boom-bust, builders built everywhere and there was an oversupply of inventory. Is there an oversupply of oil?

The chart below from IEA statistics shows oil supply and demand 2003-2007.

Since 2007, supply has remained constant at about 85 million barrels per day, while demand is now around 88 million barrels per day. No supply-glut there.

Kaletsky goes on to say that the Gulf is ‘crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell’. Hang on, are you sure?

A bit of research reveals there are in fact ten supertankers ‘cramming’ the Gulf, with about twenty million barrels between them – or less than 25% of one day’s global demand. They are carrying heavy Iranian crude, just at the peak of the refinery maintenance season in Asia and the Mediterranean, when refineries have seasonal shut downs for repairs. It’s just a temporary lack of refining capability for heavy oil, that’s all.

It’s worth noting that just a few weeks back, when oil was $100, George Blake, a geologist who studies hard data, rather than an info-spinning journalist, noted an imminent shortage of refinery capacity in Canada and Australia and said it was going to shortly lead to $160 oil. He was laughed at and dismissed. As we touch $135, it’s starting to look now like one of the calls of the decade.

What about other commodities? Are they in a bubble?

So is this commodities bull market a classic financial bubble as Kalestsky asserts? Below is a long-term chart of commodities prices since 1749:

Since 1792 there have been five major bull markets in commodities. These lasted 23 years, 21 years, 23 years, 18 years and 12 years – an average of 19.4 years. The current bull market began around 2000, so we are 8 years in. If history is any guide, this bull market is not even at the halfway stage. Unless, of course, ‘it’s different this time’ and this is the shortest commodities bull market ever.