Commodities Back from the Dead, Two Emerging Tech Trends, The Bond Bust and More!

by Addison Wiggin & Ian Mathias

  • Big moves at the month’s end… which asset class was May’s biggest winner
  • Oil has its best month in 10 years… Alan Knuckman bets there’s more upside to come
  • Our tech analysts identify two technologies on the verge of mainstream attention
  • How the bond bust has already affected your day-to-day life
  • Plus, good news for BRIC bulls… promising data from Asia, below

 

  As we prepare to wrap up the month of May, one thing’s clear: Commodities are back, baby.

That’s a 12.3% monthly move for the CRB, an index that tracks most of the world’s heavily traded commodities. The stars have aligned in the favor of hard assets this month: Global investors are collectively more optimistic. There’s a strong reboom vibe emanating from BRIC nations (see below). And perhaps above all, there’s this:

 

After falling through its 200-day moving average earlier this month, the dollar index has been in steady decay. The index crashed through another important level this morning — the 80 score, a long-standing point of support. Will the greenback fall further still? Barring a stock market reversal and flight to safety in the dollar, or some kind of wild government intervention (both totally possible), we don’t see what’s keeping the dollar from testing 2008 lows.

The euro is up a cent this week, to $1.41, its highest level of 2009. Ditto with the pound. It’s up to $1.61. The British currency has gained 9% in May, its best monthly showing since 1985… yikes.

  But if you own some gold, you’re still in good shape. The once and future money goes for $975 an ounce this morning. That’s a $90 jump from the beginning of the month.

  The real commodity winner in May? Silver. The poor man’s gold is on track for its best month in 22 years. At $15 and change, silver’s spot price is up 25% this month.

(BTW, if you missed this ride up, it’s not to late. We’re publishing a special report on precious metals investing tonight at 5 p.m. eastern. Follow this link before then, and you’ll be among the first to read it.)

  The oil market is also making some history today. Since the days of $140 barrels, a rise from $50 to $66 doesn’t feel like a big deal. But believe it or not, May’s been the best month for oil in over a decade. Crude is up 28% in May, its best month since March 1999.

 

“The all-time highs in crude,” notes our resource trader Alan Knuckman, “were made the exact day that the dollar made all time lows versus the euro currency last July. The relationship couldn’t be clearer, and the new borrowing by the Federal Reserve to finance our debt grows larger every day.

“A simple 50% retracement of the crude highs at $147 to the recent lows at $33 places a modest target at $90 a barrel. So without even expecting the emotional bull market to fully develop, just a recovery of half of the last move seems like a reasonable outcome.”

Just yesterday, Alan urged is Resource Trader Alert reader to pick up a crude oil call spread… a nice way to play further upside in oil without taking on too much risk. A similar strategy just netted them 70% profits on the Treasury bond spread, with even more upside possible. Call spreads are just one of many tricks Alan’s got up his sleeve… have him teach you how to trade like a pro – for free – right here.

  Energy stocks helped push the S&P 500 up 1.5% yesterday. The Dow was close behind with a 1.2% pop.

  “While Congress and the watchdog groups focus on solving the crisis in energy scarcity,” notes one of our small-cap chaps, Greg Guenthner, “a sleeping problem is creeping up from behind — bandwidth scarcity.

“Already, the information networks that carry your television programs, phone calls and e-mails are nearing capacity… and without investment today, AT&T expects the Web to reach full capacity by 2010.

“And that’s nothing — we’re already projecting bandwidth needs to increase 100-fold by 2015… These important deadlines are creeping up on everyone involved in the bandwidth biz. Giants like AT&T and Verizon are prepared to lay down mountains of money to increase Internet capacity across the country. Unlike a decade ago, they won’t be doing it by laying traditional metal wires. The future is in fiber optics.

“Fiber optics are superior in nearly every way to the metal wires that likely feed data to your home. Fiber-optic cables carry more data than traditional cables, and they do so farther, at a lower cost and with less interference. Instead of running electrical signals through a metal wire, fiber optics work by carrying pulses of light through flexible glass or plastic fibers.

“Of course, the transition to fiber optics isn’t cheap. Verizon’s footing a $23 billion installation bill for the cable required to connect 18 million homes to its FiOS service by 2010. Verizon’s money — and that of the other utilities and municipalities who are laying fiber lines — will be gushing into companies ready to take advantage of this trend. I’ve just added one such company to the Bulletin Board Elite portfolio… read about it here. ”

  “The electronics and computing industries,” adds our breakthrough tech analyst Patrick Cox, “are getting primed for a massive transformation in the years ahead. Quantum technologies that were only theories in scientific journals just a few years ago are being prototyped in labs now. These new components will change the way we live forever. They will also create transformational profit opportunities. If you missed the chance to buy into the computer industry when it was young, this is a second shot.

“Currently, the mainstream electronics industry processes data by moving bunches of electrons about in huge batches. Think of the components in your PC as electrical plumbing. Data are usually stored as batches of electrons. Imagine your computer’s hard drive as a bunch of very small buckets, some full of water, some not. This will change.

“Improved materials technologies from emerging nanosciences are allowing us to replace batches of electrons with the smallest individual unit: the electron. As a result, computers will work at far higher speeds. Additionally, far less electricity will be required to do the same amount of work.

“Much of this exciting news is being ignored by the market. It’s an unfortunate truth that investors often lose sight of long-term opportunities to create wealth because they get distracted by the short-term noise and news in the markets. When it comes to big transformational technologies, don’t worry about timing. The returns that disruptive technologies yield justify getting in early.”

  The bond bust looks to be taking a breather… for now anyway. The U.S. Treasury successfully sold $20 billion worth of seven-year notes yesterday. Those were the longest-dated batch of bonds the Treasury sold this week, and the relative success of the auction gave traders reason to back off their relentless selling. The yield on a 10-year note dropped 13bps, to 3.62%.

  But if you think the bond bubble hasn’t affected you already, think again. Mortgage rates soared this week. Check ’em out:

The yield on a 30-year fixed jumped from 5% last week to as high as 5.45 %, the highest level since February, according to zillow.com. Thanks mostly to the rapid rise in 10-year bond yields, almost all of the Fed’s efforts save the housing market this year — bond and agency debt purchases, ultra-low lending rates — have been undone.

  In the data batch today, the “less awful” trend continues:

  The Commerce Department revised U.S. first-quarter GDP up to a 5.7% contraction. That’s a handsome revision from the original 6.1% decline and an even further departure from the fourth quarter’s 6.3% tumble.

  The University of Michigan’s gauge of consumer sentiment soared in May to its highest level since September 2008. Their gauge jumped from 65.1 to 68.7 this month, almost a full point higher than anticipated. Coupled with the Conference Board’s reading of confidence earlier this week, it’s quite safe to say the American consumer is seeing the brighter side these days.

  Emerging Asian economies cranked out some impressive numbers of their own today. Here’s the meat of ’em:

India’s economy grew 5.8% in the first quarter, well above the Streets 5% expectation. UBS bumped up its growth forecast for the country to 6.2% over the next year

Industrial output in Japan rose for the second month in a row in April, this time by 5.2%. That’s the biggest monthly rise in Japanese industrial production in 56 years

The Chinese economy will expand 7.5% this year, up from previous estimates of 7.1%, says a study Bloomberg published today. Their survey of economists says China’s GDP will grow at 8% in the third quarter and 9% in the last of 2009.

  “I don’t buy into the idea that since fewer people are losing their jobs, the recession will soon be ending,” writes a reader responding to a historic indicator we referenced yesterday. “Every month, there are fewer people left working, so of course, eventually, the number of those losing their jobs begins to decline. But how come nobody tells us what percent of the existing work force lost their job?

“In theory, if we had only 500,000 people left working and 300,000 of them lost their job one month and the next month only 200,000 lost their job, would we say the recession is ending or would we say the world is ending?”

  “Wouldn’t the initial jobless claims as a percentage of overall workers be a better indicator?” asks another reader. “Based on that calculation, I think we would have quite a way to go until we best the early ’80s recessions.”

The 5: Those are both great points. We agree.

“Employment is not a leading indicator,” writes the last reader. “I run a 50-year old temporary help service in New Jersey. I also worked for the N.J. Department of Labor in the way back.

“New Jersey has not seen the bulk of the widely reported layoffs at the unemployment offices yet, because so many of the financial industry types axed since last October had severance packages that continued their pay. Most of the AIG people will run out after Independence Day (pun — sorry!). These are Cramer’s neighbors.

“Just like the commercial and jumbo-prime Alt-A mortgage waves, you ain’t seen nuthin’ yet!”

The 5: Love those frontline anecdotes… keep ’em coming.

Have a nice weekend,

Ian Mathias

The 5 Min. Forecast

P.S. Do you have just $1 to spare? Then you can afford a month of Mayer’s Special Situations, one of our most popular high-end investment advisories. We’re offering this super-cheap trial because we sure it’ll only take Chris Mayer one month to get you hooked on his unique brand of investment analysis. At this price, there’s no reason not to take us up on it… do so, right here.

 

rspertzel

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