Can you believe it's already June? What a month May was for commodities. They are Lazarus, come from the dead to tell us all that the world will not stop turning if there is a financial crisis in the West. Or something like that.
If we were using numbers instead of metaphors, we'd say the CRB Reuters/Jeffries Index had its biggest monthly rally in 34 years. It was up 14% on the month. That was the best performance since July of 1974.
A monthly performance like that can only mean one thing. We're just not sure what one thing it is. It could mean commodities have rebounded from being oversold, as they were in late 2008. It could mean that markets are less pessimistic about the global economy than your editor at the Old Hat Factory (though we doubt that).
It could also mean that investors increasingly prefer tangible assets as a long-term growth strategy over financial assets. Even after $1.465 trillion in realized losses by global banks and financial institutions, there are trillions more to come. Commercial real estate...the option-ARM recast period in the U.S. housing market...European banks...any or all of these things could conspire to lead to more losses and more capital raisings in the financial sector.
Perhaps that is what explains crude oil's biggest monthly gain in a decade. July crude futures traded at $66.52 in Friday's New York action. The U.S. dollar price of gold powered to $981.20, before sliding back a bit $975.
The Aussie gold price is fighting its way up despite the fact that the Aussie dollar keeps gaining on the greenback. While the Aussie gold price is up just $1.71 in the last 30 days (0.14%), the U.S. gold price is up nearly nine percent. We reckon the Aussie gold price will begin moving up closer to $1,500 again on a combination of events (weakness against the greenback for one.)
There are also two data releases this week that will affect the Aussie dollar. The RBA meets today to decide the price of money in Australia (set interest rates). And then Wednesday, the March quarter GDP figures come out. This will tell us how bad the recession is, although not how bad it may become.
It's no use predicting these things, but for what it's worth, our view is that we're in a bit of a plateau between down moves. The "down moves" will come again in financial stocks 2010, although they may not be as "down" as before, and employment. Mostly, the indices are going to have to price in very slow GDP growth for the remainder of the year and more job losses.
The wildcard for Australia is trade. Its proximity to Asia means that a rebound in that part of the world provides some cushion to resource companies. But then, we thought the resource stocks of 2010 would be pretty well insulated from the first round of deleveraging too, and we were wrong about that. And the second time around?
Well, even if the long-term underlying demand for Aussie resources is real and growing, it still takes real money to make new projects happen. The financing of resource projects will continue to be a key issue in your best stocks selection. The other issue, obviously, is the direction of commodity prices.
Take LNG, for example. Last year the Australian Petroleum Production and Exploration Association said it wanted to triple Australia's LNG output to sixty million tons per year. Meeting this weekend in Darwin, the group says 50 million is a more realistic target, given both the slump in energy prices and tight credit markets.
If LNG prices track oil prices-as they did in the big run up to $150 per barrel for crude-the economics of big Aussie projects get a lot better. Our view is that energy prices are going structurally higher anyway. Global recession aside, the big plunge in energy capital spending virtually guarantees a supply shortage in the coming years anyway.
Besides, you have to wonder why big international energy firms would be investing in conventional and unconventional Australian LNG projects if they weren't convinced that a) oil prices were going higher, or b) more carbon-friendly fuels like gas would gain as coal gets politically demonized and punished with cap-and-trade or emissions-trading-schemes.
Obviously, if global trade continues to contract and a second round of losses in the global banking industry triggers another financial crisis, demand for energy is going to fall. And while we're at it, best stocks for 2010 would probably test the 2003 lows too. We enter a new stage of grimness.
In the meantime, energy and precious metals best stocks of 2010 are riding higher commodity prices. And there's a distinctly 2007 mind-set in the air. It's vogue to be long-commodities and indifferent to risks in the financial system. It's enough to make an investor with a short memory nervous.
Dan will be with us in Vancouver this year…and he may be on the Whiskey Bar panel (Dan, if you're reading this, allow me to say "pretty please with a cherry on top"). You can be there, too, if you click here.
And you can still sign up for our Webinar which is…hold on let me check… Yep, it's tomorrow at 3:00 pm. It's still free to sign up, but time is running out. Just click here to learn more.
Here's that scintillating conversation I promised…
What if the government outlaws gold and silver AGAIN! I think it's better to invest in bullets, in the four major recessions of the world people went to the barter system. And in all four bullets were at the top of the list of barter items. You can protect yourself and family and shoot a deer too eat. You can't eat gold or silver.
It's a fine plan, truly, but I quickly point out that the government could just as easily outlaw bullets and the mechanisms that put them to their intended use.
Give any government enough time and they'll start blurting all kinds of nonsense that it's best to ignore clandestinely if you can.
Of course government prohibition just encourages a black market so people can get what they want. Prohibition introduces a tremendous risk premium that marks up the price of the goods and richly rewards the scofflaws willing to traffic in those banned goods.
So best stock up on all of it! If you've got guts to go along with your convictions despite what your imperial overlords say, you could end up rich beyond your wildest dreams.
As long as we're on the subject, maybe you could take this Shooters advice…
Gary,
Thanks for all the entertainment you provide on a daily basis. Whether I agree or disagree is really irrelevant in regards to all the issues that face this society and economy.
I think though that as I am too poor to buy gold and silver or any investments for that matter, and my 401(k) doesn't allow for the possibility of that investment, I may be stuck with investing in ammunition.
If inflation and the gloom and doom prophesies come true, It will be much easier to exchange .22 caliber ammo, than say a one ounce gold bar. It breaks down in small increments a lot easier.
Hmm maybe I can buy some silver bullets, ya think?
Keep up the lively comments and keep antagonizing all the dissenters. I really enjoy it.
Thanks! And now it's time for a confession.
I am terribly afraid of werewolves. I saw the original The Howling at a tender age and without my parents' knowledge. Scarred me emotionally and I live with the effects to this day.
I strenuously endorse silver bullets as a practical matter. They are just all kinds of useful. Made of mankind's longest standing honest currency, protection against other men and werewolves.
Mr. G:
One quibble: I believe you should have started with LBJ as the initial source of our present dilemma. While you're certainly correct in your assessment of Nixon, LBJ's Guns & Butter started this whole "live-beyond-your-means" era. Please note that it was under LBJ that the first "raid" was made on the Social Security "lock box." All presidents have continued the practice, but LBJ led the parade.
I won't accuse James Howard Kunstler of central planning, either. Just to let you off that hook.
Point taken. Great Society...boils my blood every time I think of it. We could go back to that arrogant meddler Wilson. Then there's the imperialist Lincoln...
Or we could address this meddler who has something to say about an article Dan Denning penned a couple weeks back. You remember…the one about the unfairness of progressive taxation…
The current mess we are in is all about abuse of wealth and power.
The system we have is a very good one except that the top rates have been lowered too much. The rates should be spread out much further with many more brackets so that the middle and upper middle class has lower graduated rates than the very rich.
God I hate you conservatives. This is idiotic. Progressive taxation is all about fairness. If we lived in a truly egalitarian society where everyone had an equal chance to earn incomes it wouldn't be fair. But the reality is that on average, the more you have the more you make is the way it is set up. And as you get more and more you earn more and more. This leads to consolidation of wealth and power, which has historically been the greatest drag on wealth creation all through human history. Progressive taxation could be set up in a better fashion but it is a balance against this. Progressive taxation is a much better solution than say Communism. Would your wealthy readers really want their children to have to compete on the same basis as the average child and go into the world just on their wits? No fancy prep schools, Ivy League on merit alone? Have to get jobs just to pay month-to-month bills instead of building up careers. Work their way up in corporations instead o f getting favored treatment? It isn't fair that their children should have such favored lives or that many of their parents also had it that way as well.
Uh huh.
Progressive taxation is communism, just as free will, private property and honest (commodity) money are capitalism.
That's part of the problem. You have to get your terms straight. Capitalism isn't by definition heedless, rapacious greed. It's the movement of wealth in a society in which people are free to pursue the crime of their own best interest (like eating and using their gifts to capture a share of the resources other free human beings choose to give them in mutually beneficial exchange).
But slavers and thieves just love to accuse capitalism of their own sins. The irony!
Redistribution ― which progressive taxation blatantly is ― is morally wrong and as with other sins, the result is punishment from on high. As Dan Denning already pointed out, it's merely the politics of envy.
I'm not particularly religious, but I can't help notice the bits of hard-won wisdom collected in the works of humanity's major religions. I also can't help but recall that covetousness and larceny are as much an affront to God and notions of justice as murder. Progressive taxation manages to embody two major evils at once. Impressive.
But some people are naturally inclined to want to meddle and boss people around on their way to a better world. Some of us are also simply more inclined to figure out eternal principles, live in the world of facts and not go a-begging or a-meddling.
And these phenotypic, philosophic orientations pop up rather randomly in each litter ― like red hair or unusual height, bad eyesight and teeth ― so you can't even reliably breed it out of the species.
They will always be with us, Shooters…the nannies and the ninnies, meddlers and parasites…and they cannot help but be what they are.
But as dear old Dad often points out, God must love them…because he made so many of them.
Here's an impressive missive from a Shooter on good terms with reality:
James Howard Kunstler's thoughts resonate with me. I am mister average. I wonder how many are thinking along the same lines. I guess the rush to the gun shops is a good indication. I am 51 years old. I am burned out. I have increased my income over the years only to find my purchasing power about the same as it was 20 years ago. I don't have a pension, I don't have any savings, I am upside down in my mortgage, I have no confidence in social security. Wake up call. We were raised with expectations of what we needed to survive in a world which is disappearing. I am hunkered down. I am trying to wean myself from the 2 latte a day, 80-mile commute. But I am glad to see the ship go down. I am glad to be relived of a system that forced me to work more and more for les s and less. It is going to be uncomfortable; there won't be health care, air conditioning, food supply that we all enjoyed. On the other hand, I was not that comfortable working 50 hours a week to support a family, two cars, and a house. I achieved the American dream. It lasted about 2 years. I would like to see what comes next if I only have the endurance. How many are there just like me, mister average?
The human animal is collectively irrational. He thinks more is better. A larger government or city or whatever is better. With all his cleverness he creates systems which become larger than his ability to manage. James Howard Kunstler and others point out we need to reorder ourselves into small sustainable groups. People need the ability to vote with there feet and there is nowhere to run.
That was refreshing. Thanks for writing.
Your editor needs a shot and a nap, but he's going to medicate himself with more coffee and go on with his day.
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