Lord William Rees-Mogg (Fleet Street Invest UK):
In the last six months there has been a rebound of 50% in the great majority of world stock markets.

There has also been a comparable rebound in the price of oil, with West Texas oil rising very close to $80 a barrel. In the oil market there has been heavy two-way trading in options. There could be a sharp spike in the oil price if speculators have to cover their positions.

At the same time the US dollar has remained weak, and now stands at $1.4886 to the euro and $1.66628 to the pound. This is close to a 14-month low on a trade-weighted basis. The poor performance of the dollar reflects the low US interest rates and the twin US fiscal and trade deficits.

The demise of the dollar

The dollar nevertheless remains the world’s leading reserve currency, with the euro in second place. Investors are naturally anxious to protect themselves against markets, including currency markets, which have shown such a high degree of volatility.

The Chinese, who have the greatest number of dollars in their currency reserves, have already suffered substantial losses.

In what amounts to a crisis of the dollar, the euro is in second place as a reserve currency, but there are potential threats to the future of the euro, due to the weak productivity of the Mediterranean economies. There is a big stretch in productivity growth between the German and the Southern European regions.

The fall in the dollar against other currencies includes a devaluation of the dollar in terms of gold, which now seems to have stabilized at a dollar price of $1,050 an ounce.

The circumstances do indeed appear to be uniquely favourable to gold.

Interest rates and therefore carrying costs are exceptionally low. The dollar is exceptionally weak. The technical market position is strong, including good demand for gold in terms of jewellery. The oil price – which is often linked to gold – is rising. Those who believe that oil is due for a further rise to $100 a barrel are likely also to be confident about holding a proportion of their investment . . .
Click here to read the rest of Lord Rees-Mogg’s article at Fleet Street Invest UK.

Source: An Update On Copper

The only thing keeping Wall Street from packing up shop and moving to Washington is the fact it can’t find a buyer for the buildings it occupies. Thanks to our elected officials, investors are forced to spend more time reading the political pages than the business section, and that means Wall Street leads directly to Pennsylvania Avenue.

Lately, the equities market has little energy or motivation to move until Washington opens its mouth. When our leaders talk, all bets are off.

Geithner sent the markets crashing. Bernanke sent them soaring. And today, Obama sent them right back down. The more they meddle with the economy, the stronger the reactions and the worse the addiction.

Anybody have any duct tape?

It is an utter mess on Wall Street. Political uncertainty has created financial uncertainty and we are all paying for it, whether it is through higher taxes or our plunging 401(k)s. As I write, all three major indices are down by over 2.25%, getting sucked down by more bad news from the real estate sector.

But even in the midst of the decline, shares of General Motors (NYSE:GM) and Ford (NYSE:F) continue their recent upswing.  GM has surged by more than 65% since crashing to a new low of just $1.52 last Friday.

What gives?

Of course, it all has to do with government intervention. Now that Obama has its Detroit review team in place, speculators believe chances of any bankruptcies are greatly decreasing by the day. Some positive gestures from Obama last night only helped to brighten the mood.

Many investors are looking at the action and wondering if this is a sustainable run or merely another government-fueled fake-out.

Read the full article here: Investments lost? Just follow Wall Street to Pennsylvania Avenue

Martin Hutchinson in Money Morning blames Fed inspired inflation and speculators:

The reason for this intense advance in commodity prices is that the Fed and its European counterpart have been pumping money into their respective economies to prevent the collapse of several major banks. The St. Louis Fed’s “Money of Zero Maturity” (the best broad money-supply measure left over since the central bank stopped reporting M3 money-supply statistics in March 2006), is up at an annual rate of 17.6% during the last six months. In Europe, Euro M3 is up at an annual rate of 10.8% during the same period – still double the growth seen in nominal gross domestic product (GDP).

In the key emerging markets, the money supply has been rising even faster – 19% in China over the past year, and 21% in India. Not surprisingly, those countries’ inflation rates are taking off, with India into double digits and China quickly getting there.

He goes on to say:

It’s fairly clear to me that concerted speculation by hedge funds and pension funds is what’s been pushing up oil prices. But that may be playing out – and reaching its limit – as the huge price increases we’ve seen in “black gold” over the past year is finally dampening consumer spending both here in the United States and in other key markets worldwide…

Dave Gonigam in Daily Reckoning sees oil supply as the problem:

…Oh, and those darn speculators. OPEC loves to blame them, and has blamed them, going at least as far back as $92 oil eight months ago.

BP (NYSE: BP) chief Tony Hayward is having none of that, calling the notion of speculators driving up the oil price a “myth.” More relevant, he told the World Petroleum Congress, is that “supply is not responding adequately to rising demand.” But then Hayward goes off the rails when, according to Reuters:

He added that politics rather than geology was the reason. “The problems are above ground not below it,” he said.

Now it’s true enough, as Hayward complains, that OPEC nations don’t like having Western oil majors like BP working OPEC oil fields the way they did in decades gone by. But the fact oil-rich nations are giving BP less access than they used to doesn’t change the fact that the world’s biggest oil fields are in decline, and new ones aren’t coming online nearly fast enough to pick up the slack. I can understand why OPEC doesn’t want to fess up to that reality, but why is Tony Hayward so reluctant?

Surely, these three factors of inflation, speculators, and lagging supply are the primary causes of rapidly rising prices. But, will any of these factors fall off or fade in the near future? Speculation is most likely to wain according to Hutchinson. Demand may well slump with consumer spending, but inflation will likely worsen… Bill Bonner says:

Talk is cheap. It’s action that is dear. And the action the Fed needs to take – raising rates – will be so potentially costly for the lame U.S. economy that Bernanke and Co. are afraid to do it. They’re hoping inflation will go away so they can continue the battle against the slump, without having to worry about their unprotected flanks. Most likely, they will make a gesture towards raising rates – perhaps a quarter of a point. But then, when the mob starts howling for his head, Ben Bernanke will drop them again.

It’s evident that the Fed does not have the will or the tools to ward-off looming inflation. With inflation eating your dollars and commodities most likely set to rise higher, there are still many opportunities to profit…

Implications

Martin Hutchinson says:

Investing in the late stages of a bubble is highly speculative. Nevertheless, I reiterate my prediction of a few months ago that gold will reach $1,500 an ounce. Even if the Fed begins to act against inflation in August, it is very unlikely that its initial actions will be effective. Don’t forget that in the last great inflationary bubble of 1980, gold hit a level that’s the equivalent of $2,300 an ounce in today’s money.

I would consider SPDR Gold Trust (formerly StreetTracks Gold Trust) shares (GLD) about the most efficient way of getting a pure gold play. As an alternative, you might consider a silver investment: The metal is currently trading at less than 15% of its 1980 high, the equivalent of $130 per ounce. If that’s a move you like, the iShares Silver Trust ETF (SLV) seems the best way to play silver directly.

Also see other commodity ETFs such as:

S&P GSCI(TM) Commodity Indexed Trust (GSG)

PowerShares DB Agriculture (DBA)

Market Vectors Global Agribusiness (MOO)

Does mean the end of the great emerging markets trend?

On the contrary, here at Profit Hunter we believe it presents you with an even better chance to buy.

As short-term traders pile out of Vietnam, we seriously recommend canny long-term investors PILE IN.

And we’ve uncovered the perfect way to play…

Like a slingshot, Vietnam is pulling back. Be ready when it goes off

See, we regard Vietnam as the “sling shot” economy of the next 20 years.

“Slingshot” is the term we use to describe a hitherto ignored market.

A market that takes off suddenly and rapidly after attracting a raft of state, domestic and international investment…

True to form, Vietnam pulled-in $15 billion in foreign funds last year alone.

“Slingshot” markets tend to emerge in developing countries where there has been major economic reform, a relaxing of market controls and a year-on-year increase in GDP…

Vietnam is experiencing all these in abundance.

We saw exactly the same global economic shifts in China and Russia 5 years ago.

That’s why the recent volatility in Vietnam’s performance only strengthens our view that the “slingshot” is being pulled back even more. When it comes off, we see carefully positioned investors making a packet!

But before I reveal this exciting opportunity, let me explain why the Asian markets are taking a breather, and crucially, why it won’t last forever…

Vietnam is a victim of its own success

As we’ve seen, its dazzling economic performance has attracted an unprecedented level of foreign money.

But that tide of money has had some unintended side effects: It has led to too much liquidity in the financial system, and that’s fuelled inflation.

Right now, inflation in Vietnam is running at 25.2%. And it’s spooked a lot of short-term foreign investors.

With Western markets reeling in the wake of the credit crunch, Asian markets suffer as international profit seekers lose their appetite for riskier investments.

Now there isn’t much Vietnam’s government can do about that – but what it IS doing is taking real measures to tackle inflation.

Last week, it raised interest rates from 8.75% to 12%. And I believe they will have to go higher before they have a positive impact. But it’s an important first step.

Not only that, it backs-up an important point we made when we first recommended investing in Vietnam on 3 July last year: This is a country where the government is willing to sacrifice short-term growth to ensure the long-term development strategy remains on-track.

And that’s precisely what you need to look for when you’re investing in a macro growth story like this one.

Buckle-up and hold on for the ride

Short-term speculators may be tempted to bolt for the door. But long-term investors’ interest in the country has actually been rising…

The country received foreign investment pledges of $15.3bn between January and May this year. That’s more than double what it received in the same period last year.

And it underlines our optimism for the country’s growth prospects.

Right now, Vietnam is the most oversold market in the world.

After the recent falls, its market is trading on a price-to-earnings ratio of just 11, which makes this market dirt cheap.

In other words: It’s a screaming buy.

If you aren’t already in it, you ought to be.

Our advice is to get in now, buckle-up and hold on for the ride!

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: Asian Markets Oversold! Buy Vietnam ‘Now’

Yesterday, markets were closed in both the US and Britain. Still, here at the Daily Reckoning’s mobile command post, we continued our lonely vigil. What are we waiting for? What are we watching for?

Ah, dear reader…just a little dignity, a little grace, a little courage and beauty. That’s all we ask. Can we find it on Wall Street? In Washington? In politics or economics? We hope so, because that’s all we have to work with here at the Daily Reckoning.

Oil went up yesterday. Asian markets fell – with Japan taking its biggest hit in 6 weeks. And the dollar fell. Speculators are beginning to bet that the Fed will cut rates for an 8th time; that’s the world on the street. As we predicted, the first 7 cuts have done wonders for the prices of oil, gold and commodities…but little for the real economy. Oil has gone up 60% in 6 months…putting big pressure on US household budgets. Now, instead of taking the hint – that it’s time to go in the other direction, by raising rates to head off rising prices – speculators think Ben Bernanke will continue battling deflation with further rate cuts. Maybe, maybe not…but our guess is that it doesn’t matter. Even if the Fed raises rates, it is unlikely to raise them enough to block the consumer price inflation already in the pipeline.

In economic theory, the supply of money is the key to prices. Prices should remain more or less stable when the supply of money increases at the same rate as the supply of goods and services. But in the last 15 years, the US money supply increased about twice as fast as GDP. The surprising thing was that prices didn’t rise. That was the period known as the Great Moderation. Food prices only increased at a 2.5% annual rate…even though money supply, MZM, was going up at nearly 9%.

We have given our opinion as to why consumer prices did not go up. We guessed, too, that those trends that labored so hard to hold them down have now walked off the job. Prices now seem to be adjusting to a higher money supply, with food up 4% last year, officially. Unofficially and anecdotally, consumer prices are rising at about 10% per year.

But while consumer prices were stable during that 15 year period…asset prices frequently went into bubble territory. And now, we await the Final Bubble, dear reader…about which we will have more to say later in the week.

In the meantime, the winner of the Enron Prize, and former head man at the Fed, Alan Greenspan, is in the news this morning. The Financial Times reports that he believes “there still greater than 50% probability of recession.”

Warren Buffett, on the other hand, says recession is already a fact of life. And he says it will be “deeper and longer that people expect.”

The old timer’s definition of a recession was ‘when your neighbor loses his job.’ When you lose your own job, it’s a depression. How many people have lost their jobs in this downturn? Well, for the answer to that question we look to the same people who give us the official inflation numbers – the apparatchiks at the U.S. Labor Department. Therein, of course, hangs a tale…and we will let Dana Samuelson of Danagold tell it:

” The average person judges a recession mainly on employment. If jobs are available, then the economy is holding up. If jobs are scarce, the economy is poor. By that standard, the economy is really struggling, with payrolls down in each of the first four months of the year. But the headline figures, again, don’t reflect the lived reality of Americans. At 5.0% in April, down from 5.1% in March, the current BLS unemployment rate is relatively low by historical standards. Yet the number of jobless Americans of prime working age, that is, men aged 24 to 54, is historically high at 13.1%. Most of these people don’t qualify as unemployed but they are nonetheless out of work.

“Why don’t these would-be workers show up in the headline statistics? Mainly because the government’s definition of the unemployed includes only people who do not have a job, have actively looked for work in the four weeks preceding the survey, and are currently available for work. But it excludes the self-employed, 1099 workers who can’t get enough contracts, those working part-time or on commission only, and the under-employed (like real estate agents waiting tables or mortgage brokers bagging groceries). It also doesn’t count those who’ve given up looking for work altogether—a category known as “discouraged workers,” defined as persons not currently looking for work specifically because they believe there aren’t any jobs available for them. Some analysts say this particular group of jobless Americans—who believe their prospects for finding a job are getting ever dimmer, yet who don’t figure in the computation of the unemployment rate—represent the nation’s dire job situation. According to John Williams’ Shadow Government Statistics , the primary source for unbiased economic data, if adjusted for “discouraged workers,” the actual unemployment figure for April rose to 13.1%, up from 13.0% in March. Now that’s recessionary!”

Real inflation at 10%? Real unemployment at 13%? Maybe. But we have not quite seen the fall off in consumer spending that these numbers suggest…

…stay tuned.

More thoughts…

*** Since we have so little market news to report to you, we will take our quest for truth and beauty to other areas: global warming and the children of Israel for example. Both are touchy issues. In Europe, if you say you are skeptical of global warming, they look at you like a lion at a Christian. In America, you can say almost any nasty thing you want against Arabs…but if you are planning to run for public office, don’t dare to criticize Israel.

We begin by telling a story. A Jewish colleague told us yesterday.

“You really have to be careful to maintain good relations with your neighbors. That’s something my family discovered in WWII. My father was just a little boy in Paris when the war broke out…and then the French surrendered. You know, France was divided in two…there was the zone occupied by the Nazis and there was the unoccupied zone to the South. Since they were Jewish, they figured they’d sneak across the line and once they got to the unoccupied zone, they would just keep a low profile, not mention to anyone that they were Jews, and they would be safe. But my father was only a kid. And when they put him in the local school, in the little town they were staying in, the first thing he did was tell everyone that he was a Jew. So everyone knew why they were there. And then, when the Germans took over all of France anyone in the village could have denounced them and get them sent to a concentration camp. But no one did.”

This recalled another story. A disagreeable French woman, then in her ‘70s, once told us that during the war she had been the directress of a boarding school for little children. It was a catholic boarding school. But it was wartime and a few of the children were Jewish, sent there by their parents in the hopes that they would be safe.

A desperate Democratic Senator, Claire McCaskill, warned during a Senate hearing on commodities speculators that “the American people are about to take out pitchforks” because of the cost of groceries and gasoline.

McCaskill then told an official from the U.S. Commodity Futures Trading Commission: “If you don’t do something, Congress will,” according to a report in the LA Times.

Of course, it doesn’t appear to have struck the outraged Senator to consider mere market forces such as supply and demand or, in the case of oil prices, increased demand from emerging markets and decreased supply because of bad weather or geopolitical events.

To learn more about what is pushing up the price of oil, read on at the ContrarianProfits.com peak oil primer, Peak Oil Facts: How to Survive the Coming Crisis.