Joel Bowman, on another visa run to Hong Kong, with a few words... Not so long ago your wayfaring managing editor had to hop the Omani border to get his passport inked. Or, worse, spend the weekend in Bahrain. Expats without visas could only stay in Dubai for a few months before the authorities demanded you spend a weekend abroad. These days, the Emiratis can barely entice people to hang around long enough to pay off their car and bank loans. Now the heavily indebted British and Australian expats simply ditch their cars at the airport, opting for visa runs of the “one-way” variety. Workers, like money, tend to go where they are treated best. We wonder what might happen if the India and Bangladeshi workers there had access to their own passports... These days your editor jumps back and forth through a big hoop in the South China Sea to remain “legal.” It’s a good excuse to get out and about, of course, but one does miss a room of one’s own from time to time. Where next, we wonder? In any case, we’ve got a packed issue for you today, dear reader. We’ve got observations from small-cap and options analysts, a follow up to our value specialist’s “Food Bank” essay and tales from Bill’s childhood in Maryland, back in the States. And, of course, there’s the usual market commentary to mull over. First up, Bill Bonner, checking in from Johannesburg, South Africa... The Dow stayed in the same place yesterday. The correction in the gold market continued, with a $5 loss in the gold price. The employment news on Friday was better than a poke in the eye with a stick. But how much better? Better enough to justify higher prices on Wall Street? Better enough to sell your gold because you believe that it will be clear sailing from here on out? Uh...we wouldn’t advise it. Maybe Main Street has been misled – again – by Wall Street and the feds. Spread around enough hot money and it begins to look like there’s a real recovery going on. Employers – as well as consumers – are duped. Business owners, for example, are likely to think that the recession is over and halt the layoffs. More likely, Friday’s announcement that unemployment has bottomed out is bogus. A single swallow doesn’t make a spring. Nor does a single month’s worth of jobless numbers tell us much about the underlying trend. Jobless rates...like other financial numbers...bounce around. One month is insignificant. We’ll have to wait to see what happens next, just like everyone else. But there are probably a million or so more job cuts to come before the bottom is finally reached. Don’t blame businessmen for being confused. The press reports make it sound like it’s back to business-as-usual. And for the banking industry, it DOES seem as though nothing has changed. They’re lending to cockeyed private equity deals...aiding and abetting speculators in the carry trade...and handing out billions in bonuses. Just like old times. They’re enjoying the bliss of the spotless mind...that is, the mind that has no memory...no regrets...and no sense. But something has changed. It’s not the same world that it used to be. We don’t know much, here at The Daily Reckoning mobile headquarters in Johannesburg. But we know this: there is NO WAY that today’s economy is going back to what it was pre-2007. Business as usual? Not at all. The bubble of the pre-2007 period was pumped up by consumer spending financed by housing debt. Ain’t no way that can happen any time again soon. Housing may or may not have stabilized – at 30% below pre-crash prices. That leaves millions of homeowners underwater...and practically all homeowners with no access to housing credit. Out in the real economy, where these people live, the picture is bleak. First, one in ten is officially unemployed. Six hundred thousand jobs were lost in the last 3 months, bringing the total to 7.2 million lost since the recession began. And if you add in all the part-time workers...and workers who’ve given up the job search... the total is said to be more like 1 in 5 of the labor force. Now ask yourself: how can things get back to normal with so many people out of a job? And many of these jobs will never come back. Many of them were housing- related. And housing will never go back to the bubble pace of 2005- 2007. Not in our lifetimes. And then too, many of the service and retail jobs that existed thanks to the revenues of the housing industry have disappeared too. They won’t come back either...not until something comes along that is able to replace the housing income. It will happen...but not for many years. In the meantime, we’re in a depression...and in a depression we will stay, until these mistakes and imbalances are worked out. Bloomberg provides more detail on the real estate mess: Dec. 4 (Bloomberg) – Drew Schlosser tried for two years to sell his three-bedroom Punta Gorda, Florida, waterfront condominium for less than he owed on its two mortgages. The deal only went through last month when Wells Fargo & Co. agreed to take a $165,000 loss on the loans. Even after he had an offer of $155,000 for the property, it took five months for the San Francisco-based lender to approve the purchase, a so-called short sale, in which the bank accepts less than the balance owed on a property. Schlosser said earlier offers had fallen through as bidders lost faith the bank would take less than the $320,000 in two mortgages. “It was just kind of a mess,” said Schlosser, 31, a market research company director living in Estero, Florida. “You really have to get buyers who are patient.” --- The Agora Financial Reserve is Officially Open --- We’ll Pay You $5,909 to Cancel Your Agora Financial Subscription Right Now We know it sounds preposterous, but it’s true. Not only that... If you act now* you’ll receive every one of our elite publications... And that’s in addition to the nearly $6 grand we just mentioned. Just give us 10 short minutes out of your day, and we’ll explain everything. *The doors to the Agora Financial Reserve are only open a few short weeks out of the year. We suggest you take advantage while you can. --------------------------------------------------------------- And more thoughts... Are we racists? You decide. “Bill, I can’t believe you said the wrong side won the Civil War. People are going to think you’re a racist...” warned a colleague yesterday. The same subject came up on our flight down to Johannesburg. On our last trip, we were seated next to a pilot’s wife. She explained that the NEW South Africa was being ruined by affirmative action, that is...a kind of compensatory, racial discrimination-in-reverse. Her white husband was being forced out of his job, she said, in order to make room for black pilots who lacked sufficient training or experience. Even before we got on the South African Airways plane we noticed what looked like the new South Africa at work. All the ground staff were black. Friendly. Apparently competent. Efficient and courteous. This was not NWA...in fact, it was much better than the frumpy, disagreeable treatment we usually get from US based airlines, black or white. Then, once we got on the plane, same thing...nice looking, professional staff...all black. We began to wonder about the pilot. Then, we saw him. A solid white man deep into his 50s. He looked like a stiff-necked Boer...at least as we imagined them. But he looked like a fellow who knew how to fly a plane. We gave an inward sigh of relief. “No affirmative action pilot on this plane,” we thought to ourselves. Of course, that’s the trouble with affirmative action; it undermines its beneficiaries. You never know whether a pilot got his wings because of who he is...or because of what he can do. And you feel guilty for wondering. South Africa has many of the same obsessions with race as America. And bigger potential problems. But this little circumlocution is about your editor and his alleged racism, not about South Africa. He pleads neither guilty nor not guilty...but ignorance. In the early 1960s, the authorities desegregated the Anne Arundel County schools. Your editor was 12 years old. He was there when three little black girls showed up. After 300 years of being schooled separately, Maryland decided to put black and white students together. Sentiment out on the tobacco flats ran hotly against it. The tidewater was George Wallace country. Of course, in the 7th grade, we were unaware of the politics or history behind desegregation. But we had no trouble picking up bad ideas from our elders. On the first day the girls arrived, the boys felt they should make some kind of remonstration. This took the form of pressing their backs to the hallway walls as the girls walked by as if they were afraid they would get cooties. To his everlasting regret, your editor joined them. In a flash, however, even at 12 years old, a boy understands when he is being a jerk. It was not that he is afraid of being labeled a ‘racist.’ As near as he can tell, being a racist could be a good thing. But if he is lucky he has a deeper compass to guide him. In the case of the little boy now writing this remembrance, he knew that what he was doing wasn’t very nice. And he knew that if his mother could see him she’d be ashamed of him. After a second, he pulled himself together. So did the other boys. The clouds of desegregation gathered at 9:AM. By 9:30 AM the storm had blown over. Boys and girls, blacks and whites, lived happily together at Southern Jr. Sr. High School ever after. Or at least until we left in 1966. Human beings, like animals, feel an urge to separate themselves into herds, tribes, groups, cliques, economy class and first class. That’s just the way they are. They are a competitive species, always angling and butting heads, trying to get an advantage. Why do they do it? Even blubbery walruses come ashore and try to gouge each other with their tusks...hoping it leads to a dominant position and a chance to mate. Girls like winners; there is no getting around it. There must have been plenty of tough times in the dark beginnings of man and pre- man. Perhaps only the fastest, smartest, toughest males were able to get the food...and the girls. Their genes survived. Those who had no competitive drive may have died out. We don’t know. But we know individuals compete. So do groups. They compete in commerce. In sport. And in war. Most wars, as we mentioned yesterday, are little more than violent sporting contests...with no more significance than a game of football for mortal stakes. The ‘reasons’ for war are little more than claptrap. In the War Between the States, both sides probably deserved to lose. The South had its slaves. But the North had the South. The desire to boss someone around seems irresistible. While the Southerners whipped their field hands, Lincoln suspended the Constitution and began bossing everyone around. Marylanders, who maintained a Swiss-like neutrality, were rounded up and sent to prison camps. Irish immigrants...who were little better off than the slaves...were rounded up in New York and forced to fight against the yankee’s enemies. The Southerners, being good shots, laid many of them in their graves. But racism? They were probably all racists. Lincoln surely was. The reason some were slave owners and others weren’t was based on economics, not prejudice. The North had no cotton fields. In the stony ground and primitive workshops of the North, slave labor didn’t pay. It was cheaper to pay skilled workers slave wages than keep them in chattel slavery. In Maryland at the time, slavery was disappearing fast. Out in the tobacco fields, it was still a paying proposition, but Baltimore’s factories were only a short distance away. In the little village where you editor grew up, surrounded by tobacco fields, there was nevertheless a railroad station...on the ‘underground railroad,’ this is. Slaves knew that if they could get to that big white house in the village, they could get away. An abolitionist lived there. Property that can run away so easily loses much of its property value. Slavery was dying out everywhere...all over the world. Slavery was unsuited to the industrial age. Within a decade of the end of the war, it had been extinguished almost everywhere – without war. Then, the war over, the southerners put on their sheets, nursed their wounds and passed their Jim Crow laws. The North, having defeated the most sacred principle of the American Revolution, continued on the road to empire. Regards, Bill Bonner for The Daily Reckoning --- Outstanding Investments Metals Research Report --- Introducing the investment touted as... Better Thank Gold! One investment should rocket even faster than gold over the next 12-24 months... yielding at least 3-to-1 gains on every dollar invested... GUARANTEED. In fact, I’m so sure of this, I won’t charge you a penny to show you how... If soaring gold feels good... when this “other” metals investment makes its next big move, it’s going to feel even better. With much greater potential for high returns. Download my Full Metals Research Report Right Here. --------------------------------------------------------------- And now over to Steve Sarnoff, editor of Agora Financial’s Options Hotline trading service... The S&P 500 rally has reached resistance. I spy an opportunity to buy put options on SPY, the ETF that tracks the S&P500. Last Friday, stocks jumped early on a surprisingly strong jobs report. Indexes then slid back, pressured by a rebounding US dollar and falling commodities. Many market participants believe bulls will continue to run roughshod over bears. It’s possible that they may. But important technical resistance, turns in currencies, and the current condition of market sentiment indicate the likelihood of a serious price correction taking hold. The character of recent market price action has become increasingly negative. There are glaring negative technical divergences, showing the market is not as strong as it appears. This implies the likelihood, but not the certainty, that a pullback is set to get underway. That’s why I’ve urged the subscribers of Options Hotline to buy put options on “SPY,” the exchange-traded fund (ETF) designed to track the performance of the S&P 500. A rally in the US dollar could trigger deeper declines in stocks and commodities. In my opinion, the market looks vulnerable to a significant correction toward underlying levels of support. SPY has technical resistance at $111.42-$112.48 and up to $120. Support is at: $110, $107-$108, and $98-$103. Conservative traders may target a move below $108. Speculative traders may eye a multiplier move toward $105 and below. If my expectations go awry, put options on SPY would, of course, expire worthless. That is your risk. P.S. Don’t forget... Right now you can grab six free months of my Options Hotline service...but only until midnight. For further details, click here. --------------------------------------------------------------- And from the gents at The 5-Minute Forecast, resident microcap analyst, Greg Guenthner muses on what the penny stock universe might be telling us about the broader market... “Are small stocks breaking down?” asks our microcap man Greg Guenthner. “We were looking over dozens of small-cap stock charts earlier this week with a few other analysts in the office. And we noticed immediately that the smallest companies we research on the NASDAQ or Amex are all beginning to act in a very similar fashion. The charts all look like a variation of the one below:
Some are less dramatic – but the idea is the same. The smallest issues – with a few exceptions – peaked sometime in October. It’s becoming more obvious that the NASDAQ flagships – Apple, Google and the like – are keeping the index from pulling back. Sure, the evidence is anecdotal. Nevertheless, it’s worth mentioning. We’ve said time and again that the smaller stocks have historically led the market out of recessions. And right now, we aren’t exactly thrilled where Wall Street’s smallest denizens are leading us. It may well be, as we suspect, that the overall market is due for a much overdue breather...or, indeed, a complete collapse. Nevertheless, there are opportunities aplenty for the savvy value investor, as today’s column explains... --------------------------------------------------------------- | ||
| The Daily Reckoning PRESENTS: If you missed Part I of Chris Mayer’s macro agriculture story yesterday, you can catch it right here. The story is relatively straight-forward – more people means more food means more fertilizer – but there is more to the story than just that. Chris has the details below. Please enjoy... An Intriguing Mosaic By Chris Mayer Gaithersburg, Maryland The relationship between grain prices and fertilizers is pretty clear. It’s all about profits. Let’s take corn. Higher corn prices mean more profits for farmers. Fertilizers help grow more crops. So high corn prices encourage more corn planting – which leads to more fertilizer use. At today’s prices for corn and fertilizer, a US farmer can clear about $2 a bushel on corn. So net cash income is high for farmers right now. Today’s farmer also carries low levels of debt, relative to times past. All of these factors add up to one very likely result: robust demand for fertilizer. About a year ago, I urged the scrubbers of my investment letter, Capital & Crisis, to invest in PotashCorp (NYSE:POT), the world’s leading supplier of potash fertilizer. The stock has nearly doubled since then. Despite the strong performance, I still consider POT a very solid long-term investment. But POT is not the only attractive opportunity in the fertilizer sector. The Mosaic Co. (NYSE:MOS) also offers a very compelling investment profile. Mosaic is the leading producer of phosphate fertilizer and the No. 2 producer of potash. The company, which operates primarily in Canada and the US, generates about half of its earnings from potash and half from phosphate. However, the company will be expanding its potash production from 10.4 to 16.8 million tonnes over the next 10 years. This will move the business mix to about 60% potash and 40% phosphate. A good thing too, as the investment case for potash is the strongest of all the nutrients. (High-quality potash mines are scarce, and most of them are in the hands of only a few players.) This fact does not diminish the potential of Mosaic’s phosphate business, as the company’s phosphate operations are among the lowest cost in the industry. But I think Mosaic’s potash operations provide most of the sex appeal for this stock. This year, worldwide potash purchases fell to unprecedented lows. In the first half of the year, the major markets cut their import needs dramatically, as the nearby chart shows.
As a result, potash prices and volumes fell. That is why Mosaic’s stock price is 60% off its all-time high of $163. Yet the long-term picture looks as bright as ever for this stock. So I’m expecting a big rebound. One other potash-specific nugget: Passport Capital estimates that the potential demand for potash just from the BRIC countries – Brazil, Russia, India and China – is about 30 million additional tonnes. That’s a big nut for a market that has only 54 million tonnes of total capacity right now. So Mosaic sells a product that is not going out of style anytime soon. Investors can afford to wait for the rebound, which could begin as early as next spring, when the new planting season begins. But even if fertilizer demand does not recover as quickly as I expect, Mosaic’s solid balance sheet provides a large margin of safety. The stock sells for less than its net asset value, or what it would cost you to rebuild the company from scratch. As you can see, Mosaic’s NAV is about $68 per share, compared to the current price of $60 per share. [The stock was changing hands below $50 when I recommended it to my subscribers on November 6. But I would still recommend buying MOS on pullbacks].
This table utilizes approximate replacement values based on industry estimates to start, say, a new potash mine. But these estimates give no additional credit for the fact that it would take at least seven years to get a new potash mine up and running; or that it would take three to four years for a new phosphate facility. Add a few more years to those numbers if you would need to install infrastructure like ports, rail and roads. At current potash prices, new expansions don’t make economic sense. Many new projects have been deferred or canceled altogether, which sets up the potential for more bottlenecks and price spikes in the future. Cargill owns 64% of The Mosaic Co., which means that there is some rock-solid agricultural expertise behind this company. Cargill, privately owned, is a large agricultural firm. It started with W.W. Cargill’s small granary on the American frontier in 1865. Today, Cargill employs 159,000 people in 68 countries. James Prokopanko, the CEO, is a Cargill man. (He is a former Cargill VP. Much of the Mosaic board has connections with Cargill.) Rest assured he doesn’t do much of anything without checking in with the boys in Minneapolis first. Mosaic is an excellent way to participate in the long-term bull market for agricultural commodities. If things play out as I think they will, the stock could be a $100 by next spring. Regards, Chris Mayer, for The Daily Reckoning Joel’s Note: Each month Chris offers his Mayer’s Special Situations readers a top down, macro view of the trends shaping the world economy. Combined with his meticulous value approach to stock picking – choosing only companies with rick-solid balance sheets and strong management – Chris guides his readers to the kind of investments you can build a reliable portfolio on. If you’re interested in learning more about what Chris does and how you can start to use his information to strengthen your own investments, we think this is a good place to start. And that about wraps it up for today. We’ll be back again tomorrow with more from the usual suspects. Until then... Cheers, Joel Bowman Managing Editor for The Daily Reckoning joel@dailyreckoning.com | ||
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Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future |
Tuesday, 8 December 2009
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