What’s he talking about? Today, we take a look and invest right alongside his idea. And it should start to pay off with the arrival of the first swallows of spring in 2010. It’s also timely now — in this weak-kneed economy — because it has traditionally held up well even in when the economy is on the ropes. Even the Great Depression couldn’t put this thing down.

We start with simple truths. The world’s population has more than doubled since 1950 — from about 2.5 billion to 6.7 billion. By 2050, there will be more than 9 billion people on the planet. Almost all of this growth will come from undeveloped markets such as China and India. And they will all be doing one thing, for sure — eating.

Now, hang on. I know that is a banal insight by itself, but this story has layers like a tiramisu. The second layer is the mix of food eaten, which is important. These undeveloped economies are getting richer. Predictably, as people everywhere have done and continue to do when they have a little more money in their pockets, they change their diets. They spend more on food. The average Chinese spends 40 cents of every additional dollar earned on food. In India, it’s about 70 cents of every additional dollar. What do they buy?

Read the rest of the story at PennySleuth.com.

When a large holder of U.S. dollars declares that the dollar is in “great shape,” should we believe him? My answer is, “Probably not.”

Russia’s Finance Minister Alexei Kudrin told journalists this week that the U.S. dollar is in “good shape.” He added that, “It’s too early to speak of an alternative [to the U.S. dollar].” These remarks came after Chinese and Russian officials have quite publicly suggested that the world’s financial system would benefit from using a currency that wasn’t being run by a bunch of inflationistas in America.

But the dilemma for the large dollar-holders of the world – Japan, Russia, and China to name a few – is how candidly they should verbalize in public about what everyone knows in private. By blowing the whistle on the Fed’s inflationary monetary policy, dollar-holders penalize themselves. The lesson? There’s a price to pay for rightly pointing out that a huge supply of Treasury bonds threatens the credit rating of the U.S. That price is paid by owners of dollar-denominated assets.

The dollar-supportive remarks by Kudrin, then, should be seen for what they are: a white lie, designed to halt the dollar’s slide…at least temporarily. In the meantime, however, you can bet that these same dollar-holders are working behind the scenes to find alternatives to the greenback and, of course, to diversify their currency reserves into other currencies or tangible assets. It’s just that you don’t want to precipitate a crisis until you’re good and ready to profit from it with a well-planned trade. Goldman Sachs would never make that kind of mistake!

There may be a few escape avenues from the dollar. It comes down to figuring out what-if anything-will go up when the U.S. dollar resumes going down. In fact, the question on everyone’s minds is what U.S. creditors will do with their money if they aren’t lending it to Barack Obama to spend.

“Over time,” says Nouriel Roubini, professor of economics at the Stern School of Business at NYU, “the willingness of the U.S. creditors to finance U.S. spending and buy dollar reserves is going to be reduced. People are getting nervous rightly about us devaluing or inflating our way out of the debt problem and causing real losses on the holdings of those assets.”

If you’re losing money on an asset, naturally you’re going to either sell of it, or at the very least, accumulate less of it. But then what? Where does your money go after that? We’d suggest the investment needs of the emerging market nations are the natural replacement for throwing away money in the U.S. Treasury market. Granted, there’s risk in emerging markets. But it’s now clear there’s risk in the sovereign bond market too. Take your pick.

Speaking of those emerging markets, four of them spoke with one voice in Russia this week. The leaders of Brazil, Russia, India, and China gathered to figure out how to solve their dollar dilemma. Criticize it too much, you lose value on your current dollar-denominated holdings. Do nothing, you lose value on your dollar-denominated holdings as Obama and his Congress spend America into poverty and servitude…and then inflate like mad men.

“There is a strong need for a stable, predictable and more diversified international monetary system,” the final statement from the BRIC nations read. Russia’s Dmitry Medvedev added his own “two roubles,” saying that existing reserve currencies, “have not managed to perform their functions.”

And what is the function of a reserve currency? Well, it’s probably the same as the tripartite function of any money: as a store of value, a unit of account, and a medium of exchange. Countries hold baskets of currencies (yen, Euros, Swiss Francs, U.S. dollars) in order to conduct international trade and commerce.

Of course all this is relatively new. That is, when money used to be a commodity (gold and/or silver) then a country’s monetary reserves were the same as its precious metal reserves. Debtor nations that consumed more than they produced and borrowed to do so paid the price in a net outflow of commodity money. But things don’t work that way in a world where everyone uses fiat money. So what we’re seeing now is a worldwide monetary system that is, well, systemically flawed.

Make of it what you will. What we make of it is that the very foundation of the world’s commerce and the currency in which it’s conducted is shifting. The stock markets of the world have no idea what to make of all this because it is not clear yet who the winners and losers will be.

All that we know is that paper currencies and government debts are proliferating very rapidly. We also know that natural resources are not. In fact, they are depleting very steadily.

So we conclude that the prices of most natural resources will go up…a lot. That’s why lots of bears on the U.S. dollar suggest buying gold. We are sympathetic to this idea, but we’d suggest a slightly different strategy: Sell bonds. Buy energy.

Source: Sell Bonds, Buy Energy

Editors Note: Pulbished by the Rude Awakening, this article origianlly appeared in the Australian Daily Reckoning

This from Penny Sleuth:

In the corporate tax world, one dreaded phrase reappears when you talk about dividends: “Double Taxation”. All incorporated companies are taxed on the income they make. The shareholders are taxed again on any dividend distribution they receive from the company. So the same income is taxed twice. But, there is a way around it…

Master Limited Partnerships, or MLPs, are nearly identical to royalty income trusts. The only difference between them is double taxation.

Regular trusts must pay taxes on income before it is distributed to shareholders. Those shareholders also have to pay taxes on the already-taxed income when they receive it. MLPs, on the other hand, are limited partnerships. Therefore, they pay no taxes.

Only unitholders, as owners of MLPs are called, are responsible for paying taxes on the income they receive from the partnership.

MLPs are usually trusts comprised of natural resource, financial services, and real estate assets. Many own oil and gas wells, refineries, or pipelines. Others own hotels, restaurants and stores – much like REITs. Still others own certain assets like royalties in gold or copper mines. Some specialize in certain countries or regions, while others are more diversified.

One downside of MLPs is you shouldn’t invest in them through IRAs or other tax deferred accounts. Since they already receive a tax benefit, many IRAs won’t include them. Those that do, could complicate the tax scheme.

MLPs don’t send 1099 forms like most trusts and other investments. Instead, they send out Schedule K-1 Forms at the end of the year, which will describe the unitholder’s allocated income, gains/losses, deductions, and credits. You can use any losses in these as passive losses to offset other income during the year for taxes.

While this isn’t a complete tax shelter for your investment cash, it does one important thing. Since the partnership itself isn’t taxed, the yield is higher, you receive more of your share of the profits without the tax man touching it, and you are still able to use any losses to offset your other gains.

Most MLPs offer safe investments, such as the resource royalty ones. The partnerships themselves offer you cash flow straight from real operating assets without any of the overhead, since the royalty MLPs aren’t actually the ones operating.

Another advantage of MLPs are the many small-cap options you have. There are hundreds of MLPs with market caps below $1.5 billion. Below are our favorites…

Top 5 Small-Cap Master Limited Partnerships:

• Genesis Energy L.P. (AMEX:GEL) – general oil and gas conglomerate operating in supply and logistics, refinery, and pipeline sectors.
• Penn Virginia GP Holdings L.P. (NYSE:PVG) – manages coal and natural gas properties in Illinois, Kentucky, New Mexico, Virginia, and West Virginia.
• Pope Resources L.P. (NASDAQ:POPE) – owns and operates timberland and is involved in the property management.
• Magellan Midstream Partners L.P. (NASDAQ:MMP) – involved in the marketing, supply, and distribution of propane, natural gas, liquefied natural gas, and petroleum gas.
• Quicksilver Gas Services L.P. (NYSE:KGS) – engaged in gathering and processing of natural gas and liquefied natural gas.

All of these should provide investors with years of income, without the burden of “Double Taxation”.

Source: Top 5 Small-Cap Master Limited Partnerships (MLPs)

This from The Daily Reckoning:

Global financial markets are acting as though the world is about to implode. Over the past four months, the investment community has dumped all assets; regardless of their underlying economic fundamentals. We have seen unbelievable wealth destruction on a global scale and trillions of dollars have evaporated and returned to monetary heaven.

The rate of decline has been astonishing and in the past twelve months, the Dow Jones Industrial Average (Dow) has seen its worst one-year performance – ever! It is interesting to observe that the Dow’s recent plunge has been even worse than the 1929 decline which preceded the Great Depression of the 1930’s (Figure 1). So, are we really witnessing the end of the world as we know it?

Regardless of the Armageddon fears prevalent today, I would argue that this slump may turn out to be a fantastic buying opportunity for the patient, long-term investor.

Now, the mainstream media seems to be convinced that our planet is headed into a permanent global depression and investor-sentiment certainly reflects this thought process. The same cheerleaders who, only a few months ago, were gleefully shouting about the emergence of a new global economy are now forecasting eternal disaster. Furthermore, investors are liquidating all assets as images of their children living in shanty towns fill their fearful minds. ‘Demand destruction’ and ‘de-leveraging’ have replaced ‘liquidity’ and ‘global growth’ as the new buzz-words. Stocks are down significantly from the highs, corporate bonds have taken a beating and even commodities (including precious metals) have joined the bear parade. And those who naively bought structured products from private banks have seen total losses. So, where do we go from here?

The best way to begin is by reiterating that global markets are now extremely oversold and undervalued, hence attractive. This may sound counter-intuitive but it is vital to understand that a decline of 40% in US stocks (and even more in some countries) has set the stage for fantastic long-term gains. If my assessment proves to be correct, investors who buy the unimpaired sectors today should make a fortune over the coming decade.

Remember, the best time to buy is when everyone is despondently selling. As John Templeton (founder of Templeton Funds) often said, “bull-markets are born on pessimism, grow on scepticism, mature on optimism and due on euphoria”. And you can be sure that the investment community is feeling extremely pessimistic and fearful today.

At present, a lot of ‘gloom and doom’ and ‘deflation’ chatter is doing the rounds in the mainstream media. The recent selling panic is frequently being described at the worst crisis since the Great Depression. However, this hype does not imply that the economic outlook is similar to the 1930’s. One of the biggest reasons why the Great Depression occurred was due to the failure or inability of the money-supply to expand in line with the need for this money.

Furthermore, the failure of roughly 5,000 banks did not help the situation either as millions of Americans lost their savings! In the current situation, however, various central banks and governments are throwing trillions of dollars into the monetary system and all bank deposits have been guaranteed. And if need be, the authorities will print money until the world runs out of trees. So, in my view, a prolonged deflationary phase or a global depression is not likely to happen.

The recent sharp declines in the markets can be attributed to the fact that two separate negative events caught the public’s attention at roughly the same time – depth of the financial crisis and fears of a US recession. Now, as far as the first issue is concerned, it is my belief that the worst is behind us. For sure, we may hear of sporadic bank busts in the months ahead, but the recent government guarantees prevented a total collapse of the banking system. For the record, I do not agree with the recent bail-outs because they are immoral and are going to cause huge inflation in the future. However, we all have to deal with reality and for now, it seems that the credit markets are starting to function again.

Our research reveals that currently US$3.5 trillion is sitting on the sidelines, waiting to be invested. And when investors deploy this cash into the markets, it will flow towards sectors which have been unharmed in this financial crisis. Now, I do not know about you, but apart from natural resources (where supply and demand imbalances persist) and industrials (which may benefit from massive government-sponsored infrastructure projects), I cannot find any other sector which has strong fundamentals. Housing faces severe over-supply, autos are struggling, banks will suffer due to over-regulation and consumer discretionary stocks will also fare poorly as the over-stretched public in the West tightens its belts.

The one sector of the economy which remains in excellent condition is commodities. Demand is holding firm, supplies of key resources are still tight and the ongoing credit crisis will only delay many projects which were previously meant to come online. This will create additional supply shortages in the future, thereby leading to much higher prices.

As far as precious metals are concerned, it is worth remembering that our world’s financial system has been hijacked by money-printers. Whether it is the Federal Reserve, Bank of England or the European Central Bank – they are all creating money ‘out of thin air’ and inflating the supply of paper currencies.

As this rampant inflation continues, what is astonishing though is that so many investors are being hoodwinked into believing that our world faces a genuine deflationary bust. These days, opinion is divided as to whether we will witness continuing inflation or gut-wrenching deflation. In my view, this discussion is absurd and deflation (or a contraction in the supply of money) is out of the question.

Banks are in the business of lending money and debt creation is essential for their very survival and prosperity. So, you can be sure that the modern-day money lenders will find a new way to further expand the supply of money and debt.

Whilst paper currencies (cash) regained some purchasing power in the past few months due to forced liquidation in the asset markets, there is no chance that they will maintain their value over the medium to long-term. History is littered with numerous paper currencies which became totally worthless and I suspect many of the current ones will also disappear. In fact, a remarkable study confirms that only 23% of paper currencies ever issued have survived the test of time! The vast majority were destroyed due to hyperinflation and are no longer in circulation.

Accordingly, I would urge investors to sit tight with their positions in hard assets (precious metals, energy and agriculture) and add more capital at such depressed levels. Under the best-case scenario, global markets bottomed out over the past two months and even if they did not, at the very least, we should get a multi-month rally in commodities and related stocks.

Source: The End of the World…Or the Right Time to Buy?

The industrial dynamism that produced Germany’s post-war success is moving to the East…piece by piece.

The Ruhr Valley was the heart of Germany’s industrial might. For more than 200 years, the smokestacks in this northwest corner of Germany pounded out the steel and iron that would form the backbone of the nation’s industry. And when the war drums rumbled, these factories supplied imperial Germany with its field guns, armored tanks and shells.

Prosperous communities grew up around these old blast furnaces and mills. People took pride in the stuff they could make with their hands. Tens of thousands found work in the factories of the Ruhr. Generations passed with the knowledge that their sons and daughters could make a life here and carry on the legacy of such a place. For a long time, that was the way it went.

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

There’s Another Bear Stearns Out There…

When Bear Stearns’ stock plunged from over $60 to under $3 a share, many unlucky investors lost their shirts. And many experts believe that history is going to repeat itself with another household name…

Don’t be caught off guard when the next “toxic stock” falls apart. Find out who the next Bear Stearns is — and how to make money-tripling gains in the next wave of wipeouts and writedowns — here.

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But the winds of change patiently grind away at even the most impressive of advantages. In the early 1990s, the industrious workers of Asia powered the mortar and pestle that would crush the Ruhr’s traditional way of life.

It was a slow process, but the endgame was not hard to see. While the South Koreans became the most efficient producers of steel in the world, German workers were agitating for a 35-hour workweek. While the Chinese worked all day in their mills and new factories sprouted up like spring peepers all through China, Germany increased taxes and expanded its bloated government programs.

By the turn of the millennium, no one could ignore the stark reality any longer. The mills and factories of the Ruhr started to close — forever. In his terrific book, China Shakes the World, James Kynge tells the story of ThyssenKrupp’s steel mill in Dortmund, one of the largest in Germany. The Germans called it the Phoenix, inspired by its rise from the ashes of bombing raids in World War II.

Within a month of ThyssenKrupp closing the mill, a Chinese company bought it with the idea of disassembling the entire mill and taking it to China, near the mouth of the Yangtze River. Soon after this Chinese company bought the mill, 1,000 Chinese workers arrived in Germany to begin the process of taking the plant apart and bringing it to China. The Germans got an up-close lesson in why they could not compete. The Chinese worked seven days a week for 12 hours a day. The Germans started to complain. So the Chinese, in deference to local law, took one day off.

In the end, the Chinese dismantled the mill in less than one year — a full two years ahead of the time ThyssenKrupp initially thought it would take.

When the Chinese departed, they left the makeshift dormitories and kitchens they occupied for a year neat and clean. There was, however, a single pair of black boots left in one of the dormitories. The boots carried the brand name Phoenix, which was the same name of the plant the Chinese just took apart. The boots also carried the label “Made in China.” Kynge writes, “Nobody could tell, however, whether the single pair of forgotten boots was an oversight or an intentional pun.”

Over 5,000 miles away, the Chinese rebuilt the steel mill exactly as it was in Germany. As Kynge writes: “Altogether, 275,000 tons of equipment had been shipped, along with 44 tons of documents that explained the intricacies of the reassembly process.” Doing all of this was still cheaper — by about 60% — than building a new mill. Plus, in China, the demand for steel was such that the mill could start producing steel immediately at full capacity.

As recently as 1975, China’s entire output of steel could not match this one mill in Dortmund. Now, the Dortmund plant itself stands in China. And in Germany, you have a dying industrial city, unemployed steelworkers and the scarred earth where the mill once stood. Germany is thinking of turning the site into parkland and perhaps creating a lake and marina. But as one burly steelworker says in Kynge’s book: “Do we look like yachtsmen to you?”

This remarkable vignette captures, on many levels, how the game has changed. Comfortable workers in the factories and mills of America and Western Europe have no idea what they are up against. Even so, the nature of global competition keeps shifting. We tend to think of emerging markets, such as China, as occupying a place down on the food chain of the global economy. We tend to think of these places as sources for cheap labor and natural resources. But more and more, these emerging markets are home to world-class companies in all kinds of industries.

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SUCCESS WITH STOCK OPTIONS: Once Difficult, Now Made Easy

The “pros” love ‘em…the gurus brag about ‘em…but maybe you were just never sure how to make stock options work for you…

Finally, the secret to making options pay…with much less risk and much less work…has just been revealed…for anybody who’s finally ready to get started… Read on.

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This is the thesis of Antoine van Agtmael, author of a new book called, The Emerging Markets Century. Agtmael is the man who coined the phrase “emerging markets” to describe growing, but less-developed economies such as China, India, Brazil, Argentina, Mexico, Thailand and other places. Before him, we called these markets “third-world” — which brings to mind many negative associations. To sell the idea, Agtmael came up with “emerging markets.”

It affects all energy projects, plus all other capital-creation efforts. It’s a long-term theme in my view of things. It means that capital creation will become much more difficult, in an era when it is of utmost importance. Central Planning, anyone? Maybe we all ought to re-read Vladimir Putin’s PhD Thesis — much of which he plagiarized — on the subject of central planning.

The vertically integrated steel companies will survive, and likely prosper. Heck, a good steel millll will become a national asset, like Yellowstone Park or Gracieland. The “tier” metals-players, who bought into the niche theory, will struggle to find suppliers — let alone just-in-time suppliers
(Ha!!!) — and to pass through costs to the customers hemorrhaging from sticker shock.

Close to home, in the 1990s all the investment bankers told US Steel to sell off those “non-performing assets” like the coal reserves and iron ore facilities. Former CEO Tom Usher took unholy hell from the alleged “financial” community for his stubborn refusal to dismember the firm that Andrew Carnegie built. After all, we all know how smart those Wall Street guys are, right?? Now in hindsight, Usher is a genius of the proportions of Albert Einstein, or at least of Leslie Groves who weaponized Einstein’s bright idea. (And I knew Tom Usher when he used to eat a humble club sandwich on Pullman Bread for lunch at the Duquesne Club.) Coal? Iron ore?
Dolomite? “Non-performing assets” my ass. It all depends on your time frame. Usher was thinking of the future, and avoided selling good natural resources for bad US dollars. US Steel will be around for another century unless some idiot comes along to screw it all up.

The article mentioned below makes good reference to the Dept of Energy’s Hirsch Report (2005). As a nation, we are just plain blowing our time window for advance mitigation. There are endless tasks just to begin, let alone to accomplish. One of the big efforts in the advance period has to be to educate the people about the severity of the crap-train that is coming down the tracks. On that, the US media gets an “F-” grade.

Instead, we have the sordid scene of GW Bush flying the Big Blue Jet to Saudi, hat-in-hand like Oliver Twist, asking for “more please.” And the Saudis don’t even offer sympathy. The first answer is “No.” The second answer is, “Oh by the way, we increased output by 300,000 barrels back on May 10, in response to requests from our customers.” So take that, Mr. President of the US of A. And so much for the 75-year special relationship. (Indeed. Beware such insult, King Abdullah. Heavy is the head that wears the crown.)

Still, how unseemly this is. Not only is the US losing time, we are losing face. I don’t know what is worse.

By comparison, it takes a 7.9 magnitude earthquake, with 50,000+ dead before China even begins to think of allowing “foreigners” into the country with body-sniffing dogs just as a token of humanitarian aid. And the US sends its president to beg from those Arabian devils when gasoline costs $3.75 per gallon. Boo-hoo. This is a nation of whiners.

Meanwhile, we in the US won’t drill offshore. We won’t drill in Alaska. Forget about drilling ANWR. And the Dept of Interior just issued a “10 year moratorium” on new leasing adjacent to the National Petroleum Reserve near the North Slope. And it declared polar bears to be an “endangered species.” (In China, they eat bears.) Thanks, guys. We sure dodged the bullet on
that one, eh? For some weird reason (CO2, they say) we won’t do coal-to-oil — not even a pilot plant to see if the technology works. We have nothing resembling a national passenger rail system, while the airline system flies towards its own version of Silent Spring. (Hey, if the jets
leave the skies, how will all the cocaine get from South America to the streets of West Hollywood and Greenwich Village?)

Back on the home front we have the Great Senator Gasbag from Oz, Chuckie Shumer, threatening to block arms sales to Saudi if they don’t sell us more oil (which we in the US cannot refine with the limited refining capacity we have.) As if the Russians or Western Euros would not leap at the chance to sell guns to the Wahhabis? Really, kids.

And waiting in the wings we have………. Sen. Fall-Guy from Arizona. His job is to go out in the ring and make it look like a good fight, but take the dive in the 9th round. (And if he doesn’t take the dive, the referees will look the other way when he gets the rabbit-punch.) The media and
deep-backgrounders have already identified the next POTUS, a true Man-of-the-People (with his prep school preparation, Columbia undergrad and Harvard Law School pedigree), the next-great-thing, the guy offering Hope who is a mind-bending mix of paper-thin resume and blind ambition in a hurry. Oh, and don’t worry about all his radical friends and that Euro-Marxist crap that he utters in his unguarded moments. If he does not understand the concept of capital gains, well, it’s a small price to pay for such a Great Leap Forward.

Bill Bonner has it right. Buy a ranch. Go up into the Andes. Get so far away that even Google Earth can’t find you. Grow cows Then eat them. Wait it out for a couple of generations. Can it get any worse? Well, probably yes.

** Here is the article that I’m referring to…

Best, BWK

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!

Source: High Steel Prices and ‘Peak Everything’

Australia is the sixth-largest country in the world in terms of land mass — and yet the entire Aussie population is on par with greater Los Angeles.

Also known as “the lucky country,” Australia is loaded with natural resources, and is one of the world’s largest exporters of minerals and other commodities. The rising tide of industrialization has Australia’s top 10 customers buying over 70% of their exports. China is projected to become Australia’s biggest customer, bar none, in the next three years.

In 2007, Australia also dominated mining company mergers and acquisitions in the Asia Pacific region. They alone accounted for 20% of the world’s 50 largest mining deals.

The insatiable appetite for resources from China, India and the rest of Asia should keep Australia strong… and their currency reflects this strength, as the Aussie dollar continues to make new highs.

Money flows to where it is best treated, and Australia is one of those favored places. There are many ways to play this trend, from the currency itself to various stock ideas. Readers of the Taipan newsletter are keeping up with both. Join us, and you can, too.

Sally Limantour

Editor, Taipan

The 5 Best Foreign Stocks to Own Right Now:  These companies are big, strong, and offer a safe alternative to the risky U.S. markets. More importantly, they could pay you $25,000 to $375,000 every year for the rest of your life. And you can own them without investing a single dime overseas. Follow this link for all the details…

In the past two years, your DailyWealth team has traveled to Africa, South America, Canada, Asia, and just about every other place rich in natural resources. In all locations, you’ll find an army of Chinese businessmen looking to make deals in natural resources and the infrastructure needed to extract them.

As the interest in BHP shows, it doesn’t matter whether China has to go into the desert, the sea, or the stock market, it’s ready to spend hundreds of billions to fuel growth. The resource race is on!