- Grocery Stores - The grocery store will have a utility bill that is 2-3 times higher than today. They will be forced to add this cost to every item in the grocery store to compensate for the higher cost. Think for a moment about the electricity used in a modern grocery store. Lights everywhere, freezers that may be one hundred feet long and seven feet tall, refrigerated meat and deli department displays, produce displays that are refrigerated and that spray water to keep the vegetables fresh, a bakery department that has very large ovens that are baking nearly around the clock, and checkout stands with registers and scanners are all huge consumers of electricity. Needless to say, this will add cost to the price of our can of peas.
- Truckers - The hardest hit industry by the cap and trade tax will be the truckers who consume immense amounts of gasoline to transport food to the grocery store. They will almost certainly have to double their shipping rates to compensate for the new tax. This must be added to the price of our can of peas.
- Manufacturers - The company that manufactures the can of peas will be faced with utility rates that are 2-3 times the current cost. The machinery that cleans the peas, cooks them, seals the cans, applies the label, and routes the cans to the boxing and shipping departments will all cost the manufacturer more money to power them. This will add to the cost of our can of peas.
- Farmers - The farmer will also be hit hard by the higher cost of fuel. They don't plant 1 million seeds by hand! The huge machinery that tills the soil, plants the seeds, applies the fertilizer, and harvests the crop will all incur much higher costs due to the cap and trade tax. In addition, many people are surprised to learn the modern fertilizer is made from crude oil and/or natural gas. This fertilizer will also cost significantly more to produce! This higher cost to grow the peas will also add significantly to the price of our can of peas.
- The Can Manufacturer - The company that manufactures the can will incur similar higher costs just as the canning company.
- Inflation on Steroids - Imagine the ripple effect as the doubling or tripling of the cost of energy cascades through the economy, with each ripple adding higher costs. The potential for inflation is mind-boggling to contemplate!
Saturday, March 7, 2009
Friday, March 6, 2009
This daily chart shows that Eurodollar futures are gradually, but slowly declining in value because of rising interest rates that investors are demanding to assume the rapidly-expanding risk of investing in dollar-denominated debt, and especially U.S. government debt. With the U.S. treasury planning to borrow about $2 trillion this year, investors are showing increasing skittishness at the idea of accepting this risk without hiking the interest they earn in compensation.
Today's candle indicates a possible breakout is imminent, with "unobstructed" interest rates potentially rising much more rapidly. The long wick on today's candle, however, is somewhat worrisome, since it may form a hammer, a reversal signal. I love to trade the Eurodollar futures because they are very liquid, and move fairly slowly. I consider it to be "easy money".
This was very good from the WSJ today:
It's hard not to see the continued sell-off on Wall Street and the growing fear on Main Street as a product, at least in part, of the realization that our new president's policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis.
The illusion that Barack Obama will lead from the economic center has quickly come to an end. Instead of combining the best policies of past Democratic presidents -- John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance -- President Obama is returning to Jimmy Carter's higher taxes and Mr. Clinton's draconian defense drawdown.Mr. Obama's $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents -- from George Washington to George W. Bush -- combined. It reduces defense spending to a level not sustained since the dangerous days before World War II, while increasing nondefense spending (relative to GDP) to the highest level in U.S. history. And it would raise taxes to historically high levels (again, relative to GDP).
When the rally begins to fizzle, I'll be the first in line to sell. I still expect a bear market rally, and feel in my bones that stocks are oversold, but I still think the most prudent position is to be short in this market.
Thursday, March 5, 2009
And look at the daily chart:
The price of gold has now broken through the high from yesterday, and appears poised to begin building toward a new upward trend if prices remain at this level into the close. Gold is $20 higher today!
"Jim Rogers is the Indiana Jones of Investing" - Time Magazine
Jim Rogers quote in a Reuters interview this week:
“None of which does much for the economy down the road. It’s trying to postpone some pain we’re going to have to take,”
U.S. stocks may rally because of the enormous amount of money the government is pumping into the U.S. economy, but “it’s not going to last,” Rogers said.
“I don’t think the bottom is here, maybe ‘a’ bottom, but not ‘the’ bottom. The economy is going to get worse. You can’t have a good stock market without a good economy,” he said.
On Crude Oil:
OPEC is determined to cut production until the price of crude oil rebounds to at least $60/barrel. The price of crude oil is showing signs of responding higher.
Yesterday, Treasury Secretary Geithner issued the sharpest attack yet on use of oil and natural gas (which until now has been considered to be a clean fuel), suggesting that they must be taxed at higher rates because they are blamed for what they believe is human-caused global warming. Pres. Obama, in an interview in San Francisco during the presidential campaign, said that his cap and trade progam would also cause electricity rates to "skyrocket", and would significantly affect the cost consumers pay for energy in their homes.
In a deflationary environment, I would expect that eventually, the price of gold will also plunge. Gold, as an indicator for fear and/or inflation, is sensitive to shifts in sentiment regarding either one of these -- fear or inflation.
From the WSJ editorial page:
Here is the full story.The bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s.
Wednesday, March 4, 2009
I haven't heard the details yet, but the Obama administration has announced a new bailout plan for mortgages. Frankly, the details are irrelevant, since the only thing that matters is its impact on the financial markets. It appears to be giving some life to the stock market.
Tuesday, March 3, 2009
From the WSJ today:
"As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem.
"Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth...
"So what has happened in the last two months? The economy has received no great new outside shock. Exchange rates and other prices have been stable, and there are no security crises of note..."What is new is the unveiling of Mr. Obama's agenda and his approach to governance. Every new President has a finite stock of capital -- financial and political -- to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his "stimulus" spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest...
"The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy...
I am not a registered Republican or Democrat. I'm equally disgusted with both parties!
Mr. Bernanke is taking a great deal of heat from an irate Senate. I hope they have a good air conditioning system. He is clearly uncomfortable, and his fidgety responses and evasive speech clearly shows that discomfort. I also couldn't help but notice that stocks really started to accelerate downward as the interplay between Chairman Bernanke and the Senators became increasingly strident and Mr. Bernanke increased his unwillingness to provide clear and nonevasive answers. It only fuels the fire of worry in the financial markets when this occurs.
Monday, March 2, 2009
From the Wall Street Journal:
"It was said to be the year of speculators gone wild. Seemingly everyone in Washington, including Barack Obama and John McCain, decided that oil prices were soaring because profiteers and middlemen were manipulating the futures markets. "Speculators" were spotted everywhere this side of the grassy knoll.
Here is the full story.
Here is the full writeup.
From Informa Economics:
General Finding: After a lengthy and detailed analysis of the data provided, Informa found very little evidence that the trader groups of interest, index funds and managed money, were routinely detrimental to any of the studied markets. All of the trader groups displayed instances of non-optimal behavior (including small traders), but none were consistently harmful to the studied markets.Here is the full Executive Summary. There are some very interesting findings in abbreviated form on this page. Very good and to-the-point!
Also from John Mauldin:
Further, Obama's accounting magicians assume that the US economy is going to grow by 1.2% this year and 3.2% next year and at a blistering 4% pace after that. Since that is not likely to happen, the deficits will be far worse than projected. Since large taxpayers can see the tax increase coming, it is likely that they will shift behavior, and tax revenues will be less than projected.
Several analysts have noted that you could tax 100% of the income of the "wealthy" and still not balance this budget. While the bottom 95% may not see their taxes rise this year, you can bet they will see them rise in the future. While the US can run multi-trillion-dollar deficits for a few years, it cannot run them for long without serious consequences for interest rates and inflation. And when our entitlement program problems hit in the middle of the next decade? You can count on higher taxes.
Just as a fragile economy is ready to pick itself back up, a large series of tax increases will help slow it down and may push us back into recession.
Whether or not I agree with Mauldin's assessment is irrelevant. The important thing is to be prepared.
From John Mauldin's newsletter:
This week saw President Obama give us a budget with a projected deficit of $1.75 trillion dollars, and a massive tax increase on the "wealthy." But hidden in the details was an even larger tax increase on everyone. Obama wants to create a cap-and-trade program for carbon emissions. This is expected to generate $79 billion in 2012, $237 billion by 2014, and grow to $646 billion by 2019. These will be payments by energy (primarily utility) companies to the government. That will cause utilities to have to raise the prices they charge customers for energy. Such a level of taxation is eventually 4-5% of total US GDP. That is not small potatoes. And since the wealthy do not use all that much more power than the rest of us, it will affect the lower incomes disproportionately.
It will take money out of consumers' pockets and transfer it to the government. You can call it cap-and-trade, but it is a tax. And a huge one. Anything that will take 4% of GDP away from consumer spending is not business friendly. And by driving the cost of energy up, it will drive high-energy-using businesses away from the US to developing countries where energy is cheaper. It will make it even harder for people to save money and drive up costs for the elderly and retired. But it will make the environmental lobby happy.
However, corn has broken through the $3.50 price support level on even the May '09 contract, and prices have plunged below both the $3.50 and $3.49 price support levels on the soon-to-expire March '09 contract.
I thought this interview was quite humorous, albeit true!
The yield on the 10-year Treasury note fell three basis points to 2.98 percent in London, according to BGCantor Market Data. Bullion for immediate delivery rose as much as 1.7 percent to $958.51 an ounce in London as investors sought assets perceived as safe.
Billionaire Warren Buffett said the economy will be “in shambles” for the rest of this year as financial firms take losses tied to reckless loans made during the housing boom.
Here is the full story.
I just try to be long things that are going to do better than the things that I am short on. By the way the best sector in the world that I know right now is probably agriculture. Everybody should become a farmer. Farming is going to be one of the greatest industries of our time for the next 20 to 30 years.
It has been finance and paper shuffling and money, now it is going to be real things and real assets.
The only sector that I know the fundamentals are improving are commodities. Many farmers in the world cannot get loans for fertilizers now, inventories of food are at 50 year lows.
Nobody can get a loan to open a mine, oil reserves are declining around the world at a fairly rapid rate, the fundamentals because of the supply of commodities is the only thing I know that is getting better.
If you need to own something I would suggest to you to learn how to own commodities and selling stocks short.
I still own my US dollars. I plan to get out of the US dollar some time this year. It seems that the short covering rally, it is an artificial rally, people are forced to cover their shorts in the US dollar and there were huge short positions.
The euro fell to a one-week low against the dollar after European Union leaders rejected calls to back an aid package for eastern Europe, fueling concern the financial crisis will deepen the region’s recession.
Europe’s single currency dropped for a second day versus the greenback as EU leaders vetoed Hungary’s proposals for 180 billion euros ($227 billion) of loans to ex-communist economies in eastern Europe. The Polish zloty, Hungarian forint and Czech koruna slipped to the lowest in about a week against the dollar. The Swedish krona fell to a record versus the euro.
“We have to prepare for autonomous weakness of the euro this week,” said Hans-Guenter Redeker, the London-based chief currency strategist for BNP Paribas SA. “This shows European countries are behind the curve. They are acting against a global crisis with national measures.”
Here is the full story.
Sunday, March 1, 2009
News wires have just released an announcement that AIG will announce a one-quarter loss of more than $60 billion. This may be what's weighing down stocks tonight. Even if it isn't, it can only make it worse. Unbelievable!
"The U.S. recession, now in its 15th month, will probably continue well into 2010 or beyond, several prominent economists wrote in today’s New York Times...
"Any “whiffs of growth” this year “are likely to herald a false dawn” because of the poor financial condition of consumers, wrote Stephen Roach, chairman of Morgan Stanley Asia. He predicted the economy won’t begin to expand again until late 2010 or early 2011...
"Nouriel Roubini, the New York University professor who predicted the current financial and economic crises, said the recession may last a total of 36 months. It’s possible, he wrote, that the slump, instead of following a typical “U” shape back toward growth, “may turn into a more virulent L-shaped near depression.”