Wednesday, September 29, 2010

Market GPS

We often fall into the trap of telling the markets what to do, instead of listening to what they, the markets, are telling us. To be able to listen and analyse correctly what they are saying, is quite the challenge. (Sort of reminds me of the game of golf). In order to analyse correctly, we need to accept that markets move in trends, mostly long term trends. Recognition of a trend is the secret to intelligent investing. Easier said than done. Not everybody is a Buffet or Gates, so I look for different indications and then try to recognise the trend (s). Interpretation of these indicators are difficult and thats why we have different "expert" opinions. I will take a shot at it and lets see what happens.......

1.The banks all claim to have massive liquidity and are ready to make loans, but according to them, there is no demand for these loans. Nonsense. The banks all have unknown amounts of  possible bad debts, and while this situation continues, they will not be making loans. An indication of when the economy is turning the corner,will be when banks initiate credit. (And believe me, they know how to do this).

2.Because of the trade imbalance between Western economies and the developing world, a currency war is in progress. In order to be competitive most countries are either devaluing their currency or preventing their currency from strengthening. The only "Honest" currency is gold. Gold is not a paper currency that can be printed. Supply and demand of the metal is worldwide and cannot be manipulated by individual (and not so honest) governments and central bankers. The price of gold is an indicator of the true value of paper currencies (and the dishonesty of politicians who arrogantly claim that gold has no intrinsic value, while at the same time vie for power by creating budget deficits). Gold has been in an upward long term trend for many years.

3.The demise of the debt bubble has created a huge hole in the world economy. There are different estimations of how deep this hole is. The US administration is trying to fill this hole by printing paper money (debt) at the rate of a trillion dollars a year. The debt is now so huge that the ONLY way to repay it, is by repaying with devalued dollars (less valuable). As the US currency devalues, prices of commodities and assets denominated in USD (metals, agriculture, energy etc.) will rise, having a domino effect on markets.
So, two more major indicators are the USD measured against a basket of currencies (check  www.kitco.com) and the Dow Jones Index of stocks.

In future posts, we will try to analyse these, and other indicators, to try and get an idea of  what the markets are telling us.

H

Bloomberg and Russell

1.Forbes magazine, Sept 7 "Barack Obama is the most anti-business president in a generation, perhaps in American history. Thanks to him the era of big government is back. Obama runs up taxpayer debt not in the billions but in the trillions. He has expanded the federal government's control over home mortgages, investment banking, health care, autos and energy."

2.From Thomas Friedman in the op/ed section of the International Herald Tribune, "In recent years, I have often said to European friends: So, you didn’t like a world of too much American power? See how you like a world of too little American power — because it is coming to a geopolitical theater near you. Yes, America has gone from being the supreme victor of World War II, with guns and butter for all, to one of two superpowers during the cold war, to the indispensable nation after winning the cold war, to “The Frugal Superpower” of today. Get used to it. That’s our new nickname. American pacifists need not worry any more about “wars of choice.” We’re not doing that again. We can’t afford to invade Grenada today. "

3.Are they abandoning ship? Peter Orszag, White House Budget Director, resigned in June. Christina Romber, chairman of the president's Council of Economic Advisors, left in early September. Larry "the disaster" Summers is leaving, going back to Harvard (is there any way of shorting Harvard?). Next reported to be departing is Rahm Emanuel, Obama's chief of staff.

4.How about this one? Both the Congressional Office of Management and the Treasury list a total shortfall of $4.5 trillion coming due during the next 12 months. And this shortfall is supposed to be paid off with less than half a trillion dollars. The national debt of the US is above $13 trillion, a sum few people can even comprehend. With short rates now at zero, the US is having trouble handling its incredible mountain of debt. But what happens if rates start to climb? We're talking about the national debt compounding and pushing the US towards economic bankruptcy.

5. The Financial Times: Europe’s central banks have all but halted sales of their gold reserves, ending a run of large disposals each year for more than a decade. The shift away from gold selling comes as European central banks reassess gold amid the financial crisis and Europe’s sovereign debt crisis.
COMMENT: These so-called economists and central bankers were all selling massive amounts of gold over the last decades at dirt cheap prices. So much for the G20. My 12 year old daughter also knows how to sell cheap and buy expensive.

6.Don't ever become a pessimist......a pessimist is correct oftener than an optimist, but an optimist has more fun - and neither can stop the march of events - Robert A. Heinlein (Writer).

H

Friday, September 24, 2010

Connect the Dots (2)

The saga continues....

Most Sophisticated Malware Ever Targets Iran
A computer worm is drawing awed respect and fear from security researchers, even as they wonder how and why it was created.

Four things about Stuxnet are particularly noteworthy, according to experts consulted by ComputerWorld. One, it appears to be the most sophisticated malware anyone has ever seen. Two, because of that, researchers do not believe it could have been created by a private group. They think it's the handiwork of a nation-state. Third, it could control real world machinery, like, say, a power plant. Fourth, it appears to have targeted Iran.

Add all that up and you come to this realization: Stuxnet is a targeted, apparently untraceable weapon.
"What we're seeing with Stuxnet is the first view of something new that doesn't need outside guidance by a human - but can still take control of your infrastructure. This is the first direct example of weaponized software, highly customized and designed to find a particular target," he said. "The implications of Stuxnet are very large, a lot larger than some thought at first... It's the type of threat we've been worried about for a long time."

On July 17, 2009 WikiLeaks posted a cryptic notice:
Two weeks ago, a source associated with Iran’s nuclear program confidentially told WikiLeaks of a serious, recent, nuclear accident at Natanz. Natanz is the primary location of Iran’s nuclear enrichment program. WikiLeaks had reason to believe the source was credible however contact with this source was lost. WikiLeaks would not normally mention such an incident without additional confirmation, however according to Iranian media and the BBC, today the head of Iran’s Atomic Energy Organization, Gholam Reza Aghazadeh, has resigned under mysterious circumstances. According to these reports, the resignation was tendered around 20 days ago.
A cross-check with the official Iran Students News Agency archives confirmed the resignation of the head of Iran’s Atomic Energy Organization.
According to official IAEA data, the number of actually operating centrifuges in Natanz shrank around the time of the accident Wikileaks wrote about was reduced substantially .
On 07. July 2009 the israeli news-site ynet-news.com posted a lengthy piece on possibly cyberwar against the Iran nuclear programm. Intriguingly, even contaminated USB-Sticks were mentioned. In retrospect, the piece sounds like an indirect announcement of a covert victory to allies and enemies.

We live in an interesting world, don't we.....One wonders what is happening at this moment in time (???)
H

UPDATE: Foxnews   http://www.foxnews.com/world/2010/09/26/worm-affects-computers-irans-nuclear-power-station/

Wednesday, September 22, 2010

Supply and Demand (2)

For the last thirty years and more, the major world shortage has been energy. This has been leveraged into a political and military weapon that has changed the face of the world. There is even a faint (or not so faint) suspicion that the war(s) in Iraq might have been for this reason. Now we have a new material that appears to be one of the next generation shortages. Anybody ever hear of Rare Earth Metals? Until recently I had never heard of this group of metals, so I investigated and the first thing that caught my eye was a quote....

Late-former leader Deng Xiaoping once said: "The Middle East has oil, China has rare earths".

 A significant article from the Australian Business edition of the Wall Street Journal. While the West wrestles with its debts and deficits. China systematically builds it power. China thinks in a different time frame -- like decades, not years.
 
1.CHINA has triumphed in a 15-year quest to become the "ultimate monopolist" in the supply of rare earth metals - a dominance that industry experts say could give Beijing control over the future of consumer electronics and green technology.
 
2.Industry sources believe that with China dramatically cutting its annual rare earth export quotas, the time may be rapidly approaching when it will be impossible for any company to produce a wind turbine or hybrid electric car outside the communist country.
After a long, relentless campaign of price wars and export quota reductions, more than 95 per cent of the global supply of rare earth metals - a group of 17 "lanthanide" elements employed in hundreds of technologies ranging from mobile phones and BlackBerrys to lasers and aviation - is produced by China.

3.Although China has the resources and refinery capacity to produce enough lanthanum, terbium, neodymium and dysprosium to satisfy a global demand that is rising at 10% per year, its rare earth export allocation for the whole world this year is expected to be about 38,000 tonnes - less than the quantity required by Japan alone.

4.China's rising strength in rare earth supply and its apparent willingness to use that as "a 21st-century economic weapon" have triggered what government sources in Tokyo told The Times was an invisible tsunami of panic in Japanese industry, which in turn has called on the Government to fight its corner with Beijing. Japan, which imports nearly 100 per cent of its rare earths from China, sees the group of elements as a probable battleground for future trade wars.

5.Toyota and other big carmakers are hurrying to secure alternative supplies in Vietnam and Malaysia. Mines in the United States that were forced out of business by price wars may be brought back into use. Yet many industry observers believe that Beijing may engineer a global supply crunch before any serious rival sources become available.


COMMENT:While the US is spending $trillions in an effort to thwart the primary bear trend, China is systematically buying up the world's resources from oil to farm land to rare-earth metals to gold.

GOODBYE OIL and HELLO RARE EARTH METALS 

To be continued.....

Monday, September 20, 2010

Bloomberg and Russell

1.The Gulf oil powers are preparing to launch a single currency modeled on the euro. Saudi Arabia, Kuwait, Bahrain and Qatar are set to start next year on their new Gulf currency. These four nations (total GDP of $1.2 trillion) are set to start trading with each other with their new currency. And it looks as though they will establish a new competitive central bank.

2.China has already announced that it will shortly make its yuan convertible. But more than that, China has established arrangements to use the yuan with some of its main trading partners including nations in Asia and South America. Their business will not be done in dollars, it will be done with Chinese yuans.

3.China has become the world's leading producer of gold. China has been urging its population to build up their personal holdings of gold. The Chinese government is no exception. China has been switching its longer-term Treasuries to T-bills, and moreover, China is adding an increasing amount of gold to its reserves.

4.Russia is not to be left out of the revolt against the US dollar. Russia is setting up its own commodity exchange to compete with the Chicago Board of Trade (CBOT), and the NYBOT (New York Board of Trade). And the currency that Russia will use will not be the Yankee Dollar, it may be the ruble or some other currency.

COMMENT: The world no longer trusts the US dollar, and various major powers are making plans to do business in currencies other than the dollar.

5.Do not argue with an idiot. He will drag you down to his level and beat you with experience.  - Unknown

Regrds
H

Connect the Dots....


General Definition - Electromagnetic pulse
In addition to other effects, a nuclear weapon detonated in or above the earth’s atmosphere or alternatively an E-Bomb (see below) can create an electromagnetic pulse (EMP), a high-density electrical field. EMP acts like a stroke of lightning but is stronger, faster and briefer. EMP can seriously damage electronic devices connected to power sources or antennas. This include communication systems, computers, electrical appliances, and automobile or aircraft ignition systems. The damage could range from a minor interruption to actual burnout of components. Most electronic equipment within 1,000 miles of a high-altitude nuclear detonation could be affected. Battery powered radios with short antennas generally would not be affected.
Although EMP is unlikely to harm most people, it could harm those with pacemakers or other implanted electronic devices.
Informed sources: There are five countries that have this advanced sophisticated weapon. USA, Russia,Great Britain, China and ....of course......Israel.

Cyberwarfare, (also known as cyberwar and Cyber Warfare), is the use of computers and the Internet in conducting warfare in cyberspace.[1]
Cyberspace technology is emerging as an "instrument of power" in societies, and is becoming more available to a country's opponents, who may use it to attack, degrade, and disrupt communications and the flow of information. With low barriers to entry, coupled with the anonymous nature of activities in cyberspace, the list of potential adversaries is broad. Furthermore, the globe-spanning range of cyberspace and its disregard for national borders will challenge legal systems and complicate a nation's ability to deter threats and respond to contingencies. [2]
Apparently one of the most advanced countries in the world, in this form of warfare, is......you got it......Israel!
Think about Iran, Hizbullah, Syria and Hamas.
Now all you have to do , is connect the dots.

H

Wednesday, September 15, 2010

And then the bubble(s) burst.....

So what creates a bubble? A bubble, is created by huge amounts of debt. The Nasdaq bubble, the real estate bubble were all created by cheap money and human greed. Now, the mother of all bubbles, the creator of baby bubbles, THE DEBT BUBBLE has the G8, The G20 and the G whatever scurrying around trying to soften the fallout. This bubble, different from others, is international in scope and has financial analysts talking about soft landings, hard landings and double dips. So what is happening and why? Lets look at it from an administartion's point of view, lets say the US Goverment. The bubble shakes and the markets are in freefall. Panic reigns. So priority number one....slow the fall. Prevent the burst. Let the air escape slowly from the balloon. If the balloon collapses, it will be the end of civilization as we know it. Interest rates drop to zero, giant companies saved by Govt loans, the rest can be saved later. If the financial system collapses, chaos will prevail, therefore, save the banks! They called it TARP. Banks were allowed to borrow from the fed at close to zero interest rates with the explanation that they would then give loans to business at lowered interest rates, and get the economy moving. Now really!!! Anybody who buys that nonsense (call it 'lip service' or 'tongue in the cheek' if you like), knows nothing about how a banking system functions. No bank on the planet will give out loans if the liability side of the balance sheet is hundreds of billions in the red.
So what did happen? The banks took the billions of fed funds at zero interest and purchased US treasury bills paying more than 3% p.a.  pocketing the difference. This suited the Fed, since the huge budget deficit needed to be financed. At the same time, the system is stabilised and John A. Public is left holding the bag (Give a name to the 'bag' if you like). Anybody who tries to get cheap credit at an American bank will understand the above. It is said that while mankind sleeps, banks make decisions.
Our first indication of a reviving economy, is when the banks initiate credit.(and don't let the politicians fool you with empty promises). Until then, stagnation is the name of the game.
To be continued.....
H

Thursday, September 9, 2010

Supply and Demand

I grew up near the Kruger National Park in South Africa. We spent many days and hours watching the animal kingdom doing what comes naturally. One phrase describes it all....survival of the fittest. Sitting in a vehicle at a waterhole watching the animals drink, it is fascinating watching the hierachy. The lions are afraid of no one. They will drink and rest next to the water and nobody will interfere with them (not even the crocodiles). The Elephants drink and bathe next to the lions and as long as nobody bothers them, all is well. The hippo's and crocs live mostly in the water and this is their domain. The rest of the animals approach the water carefully, painfully aware of the dangers that predators pose. Nature in its ruthlessnes takes care of the weak. Any animal that is weak, injured or old will fall by the way, even the lions. The scavengers take care of the rest. It becomes interesting when a shortage of  food or water changes the rules......remind you of anything?
At the turn of the 20th Century, there were about a billion people on Planet Earth. By 2011 the earth's population is expected to be close on 7 billion. Life expectancy has increased dramatically. Today 60 years old is regarded as young (I hope). As the century ages, and in spite of advances in all spheres of existence, one word comes to mind....SHORTAGES. As Asia and South America come of age, basics like food and clean water, raw materials and land will be in demand. Another essential will be in short supply...safety, both physical and financial. So the key to the economic future lies in recognising where and what the shortages will be, to invest in these shortages, while at the same time, preparing for a rainy day. So during the year 5771, we will follow the money and attempt to connect the dots.
Shana Tova
Harry

Tuesday, September 7, 2010

Israel - Follow the Money

1. New Israeli Treatment Kills HIV Cells


Researchers from Hebrew University have created a treatment that eradicates HIV-infected human cells, the journal AIDS Research and Therapy reported last month. The therapy is able to kills HIV cells without harming nearby cells that are normal. It was developed by Hebrew University’s Alexander Silberman Institute of Life Sciences and the Institute of Chemistry. Until now, there has not been a way to destroy cells infected with HIV.

2.Israel and Russia sign military cooperation deal

The Russians are eager to buy Israeli weapons systems including UAVs.

Israel's Minister of Defense Ehud Barak flew to Russia last night and met today with his Russian counterpart Anatoly Serdyukov. The two men signed a military cooperation agreement. For example: advance systems for protecting strategic installations; systems for fighting in built-up areas; and other systems for fighting terror. In all matters related to this we have carte blanche and there is a lot to talk about." While in Russia, Barak will also meet with prime minister Vladimir Putin to discuss the Iranian threat and arms sales to Syria and Hezbollah.

COMMENT: Looks like a possible deal is on the table.

3.Immigration to Israel rose 18% in 5770

The Jewish Agency for Israel reported that 17,880 new immigrants came to Israel in 5770, up 18% from 15,180 in 5769.

4.Israel's population at 7,645,500 on eve of 5771
Israel's population totals 7,645,500 on the eve of 5771, the Central Bureau of Statistics reported today. The population included 5,770,900 Jews, 1,559,100 Arabs and 315,500 others.

COMMENT: I remember the early seventy's, the jewish population was about 3 million.

5.Shekel weakens on day after BoI intervention
Market estimates are that Governor of the Bank of Israel Prof. Stanley Fischer bought $30-50 million yesterday.

COMMENT: I cannot believe my eyes. The BOI purchasing USD to prevent the Israeli Shekel from strengthening even more!

6. Always have a vivid imagination, for you never know when you might need it - J.K. Rowling (Writer)



Shana Tova

Harry

Sunday, September 5, 2010

Follow The Money

My Father always used to say "Follow the money and you will know the truth". For example, the question arises of how isolated Israel is today compared to thirty years ago. At the time Arab oil had the world by the throat and even Israel's closest friends did a disappearing act. All the African friendlies ended their relationship with the Zionist State, and Israel landed up doing business with Apartheid South Africa, warring Iran and Iraq, some parts of Europe (under different pseudonyms), and of course The USA. Israel was the pariah state of the world, only saved by constant US vetoes in the UN. Israel's balance of payments was deep in the red, Inflation was running in the hundreds, the banking system collapsed together with the stock market and foreign currency reserves were close to zero. In short, a poor, debt-ridden country with few sympathisers and many enemies. Adding to these woes, no raw materials, no land and no capital. Not pretty.

Let's look at Israel today. At least 20 votes at the UN, and many more abstentions. As the current trends in the world, towards electricity and away from oil, increase, so will oil as a weapon decrease in leverage.
Today Israel is a modern thriving country, surrounded by enemies who for the most, are well aware that Israel is too strong to be destroyed (Except for the looney tunes in Iran).

No inflation, Economic growth of 4.7% in the last quarter, one of the strongest currencies in the world, discovery of massive amounts of gas and huge potential oil reserves (Who would ever have thought?), A booming high-tech industry and a booming arms industry - Israel now exports more arms than it imports, Foreign Currency reserves of 64 billion USD....more than Canada's reserves (Believe it or not) and the list goes on and on.

Just recently the Turks have been making hostile noises in Israel's direction, so while Turkey dithers and tries to decide whether to be part of the West or join the fanatics, lo and behold, who turns up in Israel, but the Greek Prime Minister. Greece, with a history of anti - Israel rhetoric, apparently has concluded that its support of the arab world has led to nothing and now they are bankrupt. Discussions are well underway for the construction of an underwater gas pipeline from Israel to Greece for distribution to Europe. Ironically, Turkey was the original partner for this project. Like they say "Money talks and BS walks"!

Shana Tova and a prosperous new year to all
Harry