by Addison Wiggin & Ian Mathias
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Food prices rise again… rice crisis goes from troubling to frightening overnight
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Dollar rallies… which commodities felt the sting of a stronger greenback
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More financial earnings announcements, more write-downs… Dan Amoss on investing in this treacherous sector
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Kevin Kerr with a short-term outlook on gold
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New home sales disappoint… legendary CEO claims we’re in the worst housing crisis since Great Depression
OK… rice is getting crazy.
Rice prices all over the world set record highs yesterday and overnight… again. Futures in Chicago punched through the $25 level in yesterday’s session. Now up 26% in April alone, Chicago rice is climbing at its fastest monthly pace since 1993.
Then, as we slept, Thai rice (the world’s most traded rice) shot up to $1,000 a ton. We got our hands on a chart of this stuff… unbelievable:
Your eyes do not deceive you… prices have tripled since the New Year. We brought this story to you a month ago, when we were shocked at the $720 sticker price. Now $1,000? Oy…
People of the world’s poorer nations are thrilled. Here’s a Bangladeshi man expressing his excitement to a policeman. About 20,000 of his friends joined him in the latest food riot there.
A U.N. “peacekeeper” was dragged out of his car and shot in Haiti, where riots over the price of food occur almost daily. In the Ivory Coast, a mob of 1,500 overturned cars and burnt tires while chanting, “We are hungry.”
Senegal, Kenya, Egypt, Cameroon, Jordan, Yemen, Pakistan, India, Mexico, Mozambique, Zimbabwe… we could easily fill our whole 5 Min. recounting food-related unrest, riots and demonstrations around the world this week.
Fueling the fire, Brazil announced this morning that the country would halt all rice exports. According to the Brazilian Agricultural Department, the country grows more rice than it consumes, but has nonetheless chosen to nix all exports to “follow the movement of the principal world producers.”
African and Latin American countries had outstanding orders with Brazil for over 500,000 tons of rice. They won’t be filled now.
Costco and Sam’s Club, the biggest warehouse retailers in America, are now officially limiting how much rice their customers can buy.
Granted, the rationing is hardly unbearable. Sam’s Club members have been restricted to four 20-pound bags per customer. Representatives from both stores say that the rationing has less to do with supply and is more a measure to prevent hoarding and stockpiling. Right.
Take a quick look at a chart of both rice and the euro, priced in dollars. Quite the similarity:
“It’s not that a lot more people are eating a lot more rice,” notes Byron King. “It’s that more dollars are chasing the same bags of the stuff. There is a similar relationship between the prices of rice and oil, demonstrating the rise in oil process against the depreciating dollar. Same thing with coal, iron ore and many other goods that trade on world markets.
“People from China to Chile are exchanging their depreciating dollars for things of value. Whether it is rice, oil, industrial metals, gold or silver, the prices are on a long upward trend.”
The dollar index pulled itself up to 72 this morning.
The euro backed off from a momentary $1.59 yesterday, to $1.57 as we write. The monthly German business confidence reading came out worse than expected this morning… which is never good for the euro.
The yen lost ground, too, it trades for 104 this morning. Swiss francs are sitting at 96 cents. And over in the U.K., the pound gave it up to $1.97.
At the opening of the Nymex yesterday, gold dropped below $900, and has stayed there since.
“It’s time to be on the sidelines,” opined Kevin Kerr yesterday at our bimonthly editorial meeting. All the editors you hear from in The 5, and some you don’t, convened again at our HQ in Baltimore. While gold is usually a topic of discussion… we didn’t hear a peep from our editors this month, save Kevin’s solemn advice.
“Gold has had a great run,” says the Maniac Trader, “no doubt about it. But the time for a correction has come… it’s clearly here.” In a trading masterstroke, Kevin told his readers to sell their gold options last week when gold was selling for $955… just 24 hours before gold entered its current funk. They profited 102% in just 4 months.
For further commodity trading advice, you’ve got to check out Kevin’s Resource Trader Alert. Get the latest info, here.
Along with gold’s retraction, oil backed off a bit yesterday. But unlike gold, light sweet crude gave up only a buck or so, and now trades for $118… still an extraordinary price.
Gas is getting to be a pain in the ass now. A gallon of the cheap stuff will now set you back — on average — $3.55.
On Wall Street, agricultural stocks are the place to be.
The IPO of Intrepid Potash — what would have been a big yawn in 2005 — ran up 57% on its first day of trading. And in their earnings announcement this morning, Potash Corp. blew it out of the water… first-quarter profits more than doubled, handsomely beating already bloated analyst expectations.
You might notice a trend in their stock, too:
But the rest of the market isn’t quite as fortunate. The Dow and S&P 500 suffered a choppy trading day on Wednesday, eventually coming out with a gain of 0.3%.
“Buyers and sellers are slugging it out for control amid a slew of earnings reports,” says our options adviser Steve Sarnoff. “Indexes still have the potential to retrace more of the decline from October 2007, but substantial overhead resistance remains. When buyers exhaust the current rally, sellers will be ready to reply with force.”
Observing yesterday’s market action, we took particular interest in news from Ambac. After booking over $200 million in profits for the first quarter last year, Ambac revealed a $1.7 billion loss yesterday for the first quarter of 2008.
“This earnings release is a train wreck,” says Strategic Short Report’s Dan Amoss. “Ambac’s write-downs make last month’s $1.5 billion capital raising effort — which tripled the number of ABK shares outstanding — look impotent.”
On the news, Ambac stock fell 43%. Its equally hopeless peer, MBIA, fell 34%.
“Ambac is woefully undercapitalized and overleveraged,” Dan says. “It’s laughable that it, along with MBIA, still holds AAA ratings from S&P and Moody’s. The market knows they’ll each have to raise billions more in capital with dilutive stock offerings. A few days ago, Ambac disclosed in a little-reported SEC filing that it’s asking shareholders to authorize another doubling of its share count… good luck finding buyers.”
“We can draw parallels from the bond insurers to a few investment banks. Avoid the temptation to buy these banks because they ‘sell below book value.’ The book values are not real, can rise and fall with seemingly random trading desk profits and can be wiped out with the tiniest decline in asset values. The value of existing shares will likely be heavily diluted by new stock offerings.”
Dan’s Strategic Short Report readers are up 19% on their MBIA puts… and counting. They’re also enjoying 102% open gains on their short play of a struggling regional bank. Have Dan help you profit as companies crash… check out SSR here.
Credit Suisse announced some scary losses of its own this morning. The global bank took a larger-than-expected $5.3 billion first-quarter write-down. The bank lost $2.1 billion in the first quarter.
Even more worrisome, Credit Suisse was the sole notable European bank to post a profit in fourth-quarter 2007 earnings. If they couldn’t keep afloat during the first quarter, odds are that UBS and Deutsche Bank are going to drop some bombs soon, too.
In the U.S., through March, orders for durable goods fell for the third straight month — the first time that’s happened since 2001.
The National Association of Realtors dropped a nasty new home sales number today. After Tuesday’s not-so-terrible existing home sales report, we half-expected a similar report on shiny new homes today. Not so…
The National Association of Realtors reports new home sales sank 8.5% in March, to the slowest sales rate since 1991. The median sale price fell a stunning 13% year over year. Current inventory has risen to an 11-month supply. That’s the biggest glut since 1981.
“We are in the toughest economy since 2001 and the worst housing crisis since the Depression,” General Electric’s Jeff Immelt commented to investors yesterday at the company’s annual shareholder meeting. “While I am confident about the economy long term, we could see even more difficult times ahead.”
Not that it’s a shock to anyone, really.
The Chinese stock market finally ended its 2008 losing streak yesterday, returning to 2007 form. The Shanghai Composite rallied 9% overnight… its biggest one-day gain ever.
Nine percent. That’s a lot.
The buying rally came courtesy of the Chinese government, which lowered a tax on share buying transactions from 0.3% to 0.1%. Ironically, this policymaking merely reverses the government’s sudden hike of the same tax back in May 2007, when regulators were taking steps to cool the white-hot Shanghai exchange.
One year and a 50% crash later, they seem to be singing a different tune.
“Sulfuric acid is $330 per pound?” asks a reader. “Gee, that means the 9-pound bottles in my lab are worth almost $3,000 apiece. Try $330 a ton.”
The 5: Whoops… while the price of sulfuric acid is indeed skyrocketing, we misspoke. Acid is indeed priced by the ton, not the pound. Still, it’s amazing.
“If the CFTC assigns the cause of commodity price increases to natural and economic phenomena,” writes a reader, “then it has to be true. Speculators wouldn’t dare try to make a buck-point-six or a euro trading commodities. They’re in it for the excitement.
“The eight largest commercial traders in silver hold 80% of all silver short positions (over half a year’s production) and the CFTC has dismissed this as nothing untoward. Similar short positions exist in the gold market. You have to be a wacko conspiracy theorist to have the audacity to question the veracity of our trusted regulators and statistic providers. According to them, there’s insignificant inflation and real GDP. Everything’s great! Too bad they can’t make the price of oil look cheaper.”
The 5: Heh.
Until tomorrow,
Addison Wiggin,
The 5 Min. Forecast
P.S. If you haven’t heard, we’re currently offering 90-day trials of Kevin Kerr’s legendary Resource Trader Alert. You’ve read our accounts of his impressive trading record and commodity expertise… now is your chance to ride along with the Maniac Trader and try out RTA — risk free for 3 full months. Get the details here.