Kicking off the Second Half, A Pleasant Data Surprise, A Rare Metal Play, Signs of the Times, and More!

by Addison Wiggin & Ian Mathias

  • Stocks stumble into second half… why no news is bad news across the globe
  • Another downtrodden data point surprises to the upside
  • Kevin Kerr with three commodities set to soar, and one looking ready to short
  • Chris Mayer and the “plastics of the 21st century”
  • Fascinating signs of the times… grave robbers, million-dollar license plates and the winner of Buffett’s charity lunch auction

  Stocks around the world started the third quarter with a sluggish groan this morning. European investors were in quite a funk… nearly every eurozone market fell 2-3% today, but for no particular reason. Banks are still facing nasty head winds, oil is still quite expensive, the airline and auto industries are wounded, inflation is worsening everywhere and most euro economies are in a state of decline. 

There is just “no reason to own shares at the moment,” an English trader told Reuters today.

  The Dow opened down nearly 100 points, mostly on similar uncertainty. The boob tube cites “high oil prices and bank sector worries.” But as you’ll see below, oil is trading at yesterday’s levels, and there’s little legitimate news nagging financials… yet.

As far as we can see, folks are just plain scared of what’s next. Can’t blame’ em.

  Yesterday, the U.S. stock market finished the worst first half of the year since 1970. The Dow has plunged 14.4% since the new year, the 10th worst first half since its inception and the worst in the last 38 years.

Stocks ended yesterday with a flat day of trading. The Dow finished unchanged, saving its entry into a technical bear market for another day. The S&P 500 did largely the same, while the Nasdaq fell 1%.

  Lehman Brothers stole the show again in yesterday’s trading. The beaten-down investment bank plunged 12% on rumors of a Barclays buyout. Heh… stocks normally go UP when a takeover is rumored … turns out most investors thought Barclays would buy Lehman for less than its market value, a la Bear Stearns.

Today, we learn the Barclays takeover won’t happen, but the damage has been done. LEH is selling at levels unseen since 2000, and Lehman remains the most likely “next shoe to drop.”

  But there is some good news amid the madness today… The Institute for Supply Management’s gauge of manufacturing activity moved higher in June. Traders were expecting the ISM’s measure to fall deeper into contraction this morning. But to the surprise of many, including this editor, manufacturing activity not only increased during June, but returned to a state of growth.

With a score of 50.2, the index ended its four-month stint of contraction. 

Within minutes of the ISM’s release, major market indexes in the U.S. surged… but then fell back to lower lows. Looks like the official Dow bear market will arrive today.

  The dollar closed out its second quarter/first half yesterday, as well, with some interesting results. For all the dollar’s swings and throes over the last few months, we were a bit surprised to see this chart this morning in The Wall Street Journal:

The ol’ greenback managed to hold its own during the second quarter… a trend we suspect is on its last legs. For one reason:

  Official eurozone inflation has reached 4%, we learn today, way above the European Central Bank’s preferred rate. Thus, an ECB rate hike on Thursday is all the more probable, and the dollar will likely suffer in its wake. Until then, the dollar remains at yesterday’s levels versus its major competitors. The dollar index scores a 72.5.

Really… inflation is plaguing almost the entire world. According to the FT this morning, 42% of the world’s entire population is suffering double-digit inflation. Six out of 10 of the world’s most populous nations have watched their inflation rate rise above 10%…. Ouch.

  Not much news from the oil patch, for once. After spiking to a record $144 yesterday, light sweet crude has cooled off a bit and now sells for the low, low price of $142 a barrel.

  Gasoline remains at its record high. With the national average at $4.08 a gallon, AAA forecasted today that Independence Day travel will decline for the first time in 10 years. The group estimated 32 million travelers will drive to a location over 50 miles away this weekend, down 1.2% from last year.

  Corn futures fell by the maximum daily limit yesterday. While the USDA planting report we mentioned Monday was far from optimistic, the report showed better-than-expected crop forecasts for the flooded Midwest. As such, traders raced for the exits, and corn fell “limit down,” to $7.57 a bushel.

“Corn may have more room to the upside come harvest time, especially if heat begins to kick in,” says Kevin Kerr. “But me… I am out, out, OUT.

“Resource Trader Alert readers made their money and now are moving to greener pastures… Sugar, OJ and cattle all have more potential and plenty of good fundamentals. This news of citrus disease in Louisiana has juice surging. Sugar is also rising on increased Brazilian ethanol demand.
“Corn will likely stay steady to down until harvest time, when it may spike. I am actually considering shorting December 2009 corn… I think the ethanol-from-corn story is going to come apart with the new administration, regardless of if it is Democrat or Republican.”

As Kevin mentioned, RTA readers pocketed 189% gains on their corn trade, right before futures pulled back… another highly profitable feather in our Maniac Trader’s cap. You too can profit from the surging commodity market, and we think there is no finer guide than Mr. Kerr. Learn about Resource Trader Alert here.

  Gold took a bit of a dive yesterday, but today’s market turmoil has the yellow metal at one-month highs. A quick stint of dollar strength shaved $15 off the spot price in yesterday’s session, but as we write today, gold is back to $935.

  “Ultra high-strength and super-light steels are the plastics of the 21st century,” says Chris Mayer, adding to our commodity coverage. “There is high demand for these steels for use in everything from jet engines to rail components. In turn, there is a big push for the quirky metals so critical in making them. And in those quirky metals are good opportunities for investors.”

In his latest Special Situations alert, Chris gave his readers a closer look at vanadium — a rare metal that’s gotten a slew of investment attention this year, including a nod from your 5 Min. editors last month.

“Vanadium’s primary use: to strengthen steel. Combine it with titanium and you get the best strength-to-weight ratio of any engineered material. That makes it practically irreplaceable in aerospace and other industries. Companies also use vanadium to produce sulfuric acid, and in nuclear power plants. Vanadium also promises new advances in battery technology. Giant vanadium batteries power wind farms and solar power plants.

“The vanadium market also has some interesting quirks. For example, 98% of the world’s vanadium comes from only three countries — China, Russia and South Africa.

“South Africa, we know, has power issues. China is becoming more a consumer than producer of vanadium. Last year, China ended its export credits for vanadium because it needed the metal more at home. This year, China went further and put an export tariff in place.

“In the great infrastructure boom, vanadium takes its place at the table of other rare and obscure metals that are growing much more important. The price of vanadium, as with many of these metals, is way up… and rising”

Chris gave his Special Situations readers two ways to play the rare metals boom. Gain access to his latest alert by subscribing here.

  Rising commodity prices have spurred an outbreak of grave robbing in the U.S. As commodities soar and the economy falls, “morally flexible” robbers are targeting brass, bronze and copper grave adornments for smelt value. According to a recent Drudge Report article, the typical bronze flower vases that decorate graves can be sold to smelters for $10. States across the U.S. are arresting robbers with tens, hundreds, sometimes even thousands of such burial trinkets. Ugh… not even the dead can escape rising commodity prices.

  The state of Florida announced it will sue Countrywide Financial. Florida now joins Illinois and California in accusing the nation’s biggest mortgage issuer of fraudulent lending practices.

You might also recall last week when we told you Bank of America shareholders finally approved the Countrywide buyout. Today, that approval is set to be finalized. Countrywide, backed by BoA, versus states across the country… this is starting to get interesting.

  The latest booming Middle Eastern market? License plates…

According to a Wall Street Journal article this morning, the market for rare UAE license plates has frothed to ridiculous proportions. Earlier this year a Abu Dhabi man paid $14 million for the “1” plate… a certifiable Guinness Book World Record. We weren’t too surprised to see the Numero Uno go for such a premium, but today we learn that… well… almost any damn plate in the UAE is worth thousands, if not millions of dollars.

“5” recently sold for $9 million, the second most expensive plate in history. “9” was sold last week for $4 million. Numbers that match car models sell for six figures — for example, a Dubai man bought the “430” plate for $120,000 to match his Ferrari F430. In fact, the WSJ says almost all three-digit plates go for $100,000 or more. The government has auctioned off 900 plates so far… earning over $120 million.

It’s a mad, mad world…

  The famous “lunch with Warren Buffett eBay auction,” ended up being a remarkable microcosm of modern life. A meal with the Oracle went for $2.1 million, more than three times last year’s price and the most expensive eBay charity auction ever… to a Chinese hedge fund manager. Zhao Danyang of the Hong Kong-based Pureheart China Growth Investment Fund will fly over to NYC with seven of his friends for a bounty of steaks, Cherry Cokes and investing wisdom with Buffett himself. Heh… only in 2008.

  “GM is one of the companies doing things right in China,” writes a reader in response to yesterday’s 5, “and GM will benefit significantly in future years from being in China early. GM has significant capacity in place and is currently expanding production capacity. Its investment in China is very profitable, and building ‘U.S.’ cars in China will continue to be very profitable in the future because it is supported by growing (double-digit) consumer demand. GM’s cars are also preferred over other foreign competitors. In fact, one could make a case that just about anything ‘U.S.’ is preferred by middle- and upper-class Chinese — as the U.S. is looked upon by the Chinese as the symbol of what is success.

“As for GM’s problems in the U.S., the cost of union benefits (both for active and retired workers) is what Wall Street is focused on and weighs heavily on U.S. profits, but they should be taking a closer look at what GM and other U.S. companies are doing in Asia, as these markets will eventually dwarf the U.S. market and the China expansion will fuel profits for years to come.”

  “After today’s close,” responds another, “GM’s market cap was $6.51 billion, about half of Campbell Soup’s $12.43 billion. This may be telling us something about industry, or agriculture — or both.”

  “Jim Rogers is a little pipsqueak and not worth paying attention to,” writes a reader, changing the subject. “A whole bunch of men and women have died so he could invest in the way he chooses. Instead of making constructive comments or just keeping his big, egotistic mouth shut, he tells people to get out of the country, and get out of the currency. If he had a backbone, he would spend some of his booty and help throw the criminal-class bastards out of Washington from both parties. He doesn’t have a backbone and is not worthy of reporting on in your prognostications. If you know him, tell him if I could punch him in the mouth, I would. At 70, I can surely kick his girly-man ass.”

The 5 responds: Heh… easy fella.

This editor will meet Rogers for the first time in Vancouver next month… forgive me for not passing on your thoughts. That would make for an awkward first impression, one would think.

If you’d like to deliver the message yourself, and enjoy one of the best investment conferences in the biz, better sign up soon… there are just a few seats left. You can learn about our Symposium here… please include a physical description so security will know who to detain in advance.


Ian Mathias
The 5 Min. Forecast


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