Global Markets Fall, Hot Commodities for 2008, The Dollar’s Comeback, and More!

by Addison Wiggin & Ian Mathias

  • Markets fall across the world… the sneeze in the U.S. that sickened the globe
  • Record emerging market IPOs… Mayer calls “phooey” on the international credit crisis
  • The Maniac Trader on the commodities set for big gains in 2008
  • Dollar continues its rally, gold takes a back seat
  • Rich getting richer, poor getting poorer… the CBO’s latest measure of American incomes


Stocks took a beating on Friday. We’re stating the obvious this morning for good reason. Friday, we had our holiday party. And we were thinking… maybe you enjoyed some refreshments over the weekend, too. Not a bad idea to kick things off in slo-mo this week, eh?

The Dow, S&P 500 and Nasdaq all lost about 1.3% before the band began playing and the wine flowethed over. The latest inflation news caught most of the flak for the drop… not only are prices soaring, but higher inflation will also discourage the Fed from cutting rates. Neither of those details tend to be good for stocks.

And there may yet be some truth left in the adage “The U.S. sneezes; global markets catch a cold.” Benchmarks in Hong Kong and China shed around 2.5%. Japan’s Nikkei went down 1.7%. The Australian ASX 200 got walloped for 3.5% this morning.

Traders sniffled in Europe this morning too, as the U.K., France and Germany all lost over 1.5%.

As we write this morning, too, the mucus looks like it’s coming full circle. The benchmarks in the U.S. opened down nearly a percent.

“Cash is available,” suggested Alan Greenspan in reference to the housing bust, “and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.”

Big surprise there…

“Fundamentally, inflation must be suppressed,” continued Greenspan, without cracking a smile. “Core inflation is up. Wholesale prices had their highest increase… in a generation. That raises the specter of stagflation again.”


“Emerging markets had a record year in IPOs this year,” reports Capital & Crisis’ Chris Mayer on a much more savory note.

“Emerging markets — which include China, India, Brazil, etc. — raised $255 billion by the end of November, surpassing the old record of $246 billion, set last year. That’s two record-breaking seasons back to back for the emerging market crew. There’s another $18 billion that will squeeze in here at the end of the year.

“Global credit squeeze? Phooey. In fact, the global credit squeeze has helped these lesser-developed markets. As people worry about the shaky U.S. economy, these countries look a lot better.

“Sure, there are many issues with, say, China… but a 9% growth rate covers a lot of sins.”

“The flavor of the week remains the soft commodities,” offers up our Maniac Trader, in a similar vein, “especially coffee and sugar. Not for traders to drink, but to trade. Agriculture markets remain the top contender to garner the lion’s share of commodity money in 2008, but the soft commodities like coffee, cocoa and sugar all stand to make considerable gains.

“No matter how you slice it, global demand is growing, and certain commodities are more affected than others. Luxury items like coffee, cocoa and sugar are being scarfed up by the growing middle class in China and India.

“Sugar demand in China alone is moving up to 10%. Coffee has been creeping up, too. The ags like corn and wheat are just surging, and rice demand between India and China is just incredible. There simply isn’t enough of these commodities to supply the entire world.”

(By the way, if you’re the business television type, out our Maniac Trader tonight at 5 p.m. EST on the Fox Business Channel.)

Right on cue, wheat prices pushed passed the $10 per bushel mark for the first time ever today.

Futures prices in Chicago rose over 3%, to set a record at $10.09. Wheat’s latest rise was attributed to exceptionally high U.S. exports last week and poor harvests reports from Argentina and Australia.

Rice rose to an all-time high this morning, and soybeans are currently trading at a 34-year high of their own.

You’re already feeling the effects of global “ag” demand yourself. Cereal giants Kellogg’s and General Mills have recently raised their prices. Last week, Sara Lee announced its second hike in bread prices since September. Kikkoman Corp, Japan’s No. 1 soy sauce producer, said earlier this month it’ll be hiking prices for the first time in 18 years.

Even Nissin Food Products, makers of Cup O’ Noodles, said, as of 2008, prices will rise for the first time since 1990 — thanks solely to current wheat prices. The Penny Sleuth’s Jim Nelson, who we’re quite convinced is fueled by little more than Cup O’ Noodles, cigarettes and coffee, is visibly upset.

(Ed note: The rise in agricultural commodities has brought healthy returns to a number of Agora Financial readers. Resource Trader Alert readers sold corn contracts this morning for 211%, for example. But we’ve also staked out quality long-term positions with Chris Mayer in both Capital & Crisis and Mayer’s Special Situations. Chris Hancock’s Free Market Investor provides unique insight and international recommendations that benefit from skyrocketing demand in China and across the emerging markets. To name just a few…

We’re currently offering all of our newsletters for one discounted price. If you’re looking to capture all the latest global investment themes at the most affordable price, here’s your chance. This is a rare year-end opportunity. One we highly recommend if you’ve enjoyed the ideas you read here in The 5 and want to benefit from them financially.)

On Dec. 3, we noted, with delicious irony, that since our friend Bill Bonner was the lead quote in an Economist cover piece on the falling dollar, we were likely to enter into a nice contrarian rally. Sure enough, since then, the dollar index is up 3 points, to 77.5

The dollar continued to rally over the weekend. It’s up to $1.43 against the euro, $2.01 against the pound and 98 cents against our friendly currency to the north.

In the long term, given the historic deficits we’re sporting — federal, trade and savings — we still don’t like the greenback’s chances. But for now, we’re actually quite pleased to see a rally.

In a move our trader friends would confuse you by calling “countercyclical” to the dollar, gold slipped this morning. It’s down to $785. Still a good deal, if you ask us.

Oil scooted back up to $92 over the weekend.

The black goo got a kick in the booty on Friday from the International Energy Agency (IEA). Their Oil Market Report predicted a sharp rise in global energy demand in 2008, up by as many as 2.1 million barrels of goo per day.

The weekend’s weather didn’t help matters much, either.

European banking officials quietly announced eurozone inflation has hit a six-year high. Inflation rose to 3.1% in November, reported the ECB on Friday. Officials estimated that inflation pressures would subside in 2008, but the ECB president also admitted that the current inflationary upswing is larger and longer than he predicted.

Of the nations controlled by the ECB, the Netherlands experienced the least inflationary pressure, with a current rate of 1.8%. Those in Slovenia suffered the opposite… prices are inflating there at a whopping 5.7%

The disparity between the rich and poor in the U.S. has widened, reports the Congressional Budget Office. In a “late-breaking” report, the CBO has released income data for 2005:

*The total income of the top 1.1 million Americans was $1.8 trillion in 2005, about 18% of the total income of all Americans — up 4% from 2003

*The top 1% are currently enjoying their greatest share of the national income since 1929

*The increase of the top 1% from 2003-2005 alone outweighed the total income of the poorest 20%

*Nearly half the income of the top 1% comes from “investments.”

Also, for what it’s worth, the total income of the top 3 million Americans was equal to the “other half” of the entire U.S. population. But at every income level, Americans made more in 2005 than in 2003. Most increased their salary by at least 1%, after adjusting for inflation.

Of course, they did.

McMansions and Skid Row: Only In the Land of the Free

“When I hear of CEOs making such outrageous amounts of money,” writes a reader, responding to a similar bit of news we mentioned last week “it really turns my stomach. Clearly, there is too much greed at the top, and neither the Goldman Sachs employees nor the stockholders are getting their fair share. If I were a Goldman Sachs employee or stockholder, I would be mad as hell.

“Consumers need to boycott these kind of companies. CEOs and the boards of directors need to be sent the message that they are hired to do a job (just like the rest of us), and that dipping their greedy hands into the till for further personal gain is stealing from the company and the stockholders. If there are profits to share, they need to be distributed evenly. Not only is it the right thing to do, but the money will also go where it does the most good and help stimulate the economy in the process.”

The 5 responds:
We didn’t realize there was anything “fair” about Wall Street. Hmmmn… that’s really kind of a revolutionary idea you have there.

“Have we forgotten our history?” asks another reader. “We were never founded as a democracy — i.e., majority (mob) rule. We were founded as a republic (rule of law)! You will not find the word ‘democracy’ in our Constitution, the Bill of Rights or any of the 50 state constitutions. At the close of the Constitutional Convention, a lady asked George Washington what type of government we had, and George replied, ‘A republic, if you can keep it.’

“The first widespread use referring to our nation as a democracy was by President Wilson. In fact in The Federalist Papers, there is an essay discussing democracies. Our founding fathers denounced them as being very unstable and a transition stage from a republic to a dictatorship — and that is the direction we are headed in! Please stop referring to our nation as a democracy, and perhaps it will catch on with others.”

The 5 responds:
Umn, it was Ben Franklin who replied, “A republic, if you can keep it.”

Not to belabor the answer we gave on Friday, but… since the “Revolution of 1913,” when Wilson helped usher in the income tax, the Federal Reserve and the popular election of senators, the U.S. has operated less like a republic and more like a democracy.

Wilson preferred it that way. As has every president to follow. Likewise, the candidates running in 2008. Alas, whether we call a duck a duck here in The 5 or not, the U.S. seems destined to suffer the fate of all democracies…


Addison Wiggin,
The 5 Min. Forecast

P.S. With your membership in the Agora Financial Reserve, you’ll also get our newest investment service, The Strategic Short Alert, free. The Strategic Short Alert is uniquely positioned to cash in on stock implosions instigated by the credit crunch on Wall Street. We expect it to be among our best performing services in the near term. Check it out:

Chasm widens between rich and poor in U.S.
Eurozone inflation hits six-year high


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