The Next Bubble, The Chicken Indicator, Surviving the Worst Case Scenario and More!

by Addison Wiggin & Ian Mathias

  • Resource legend tips his hat to three soon-to-bubble sectors
  • The housing market has “bottomed out” says PNC… our gentle retort
  • Alan Knuckman with an economic indicator far superior to unemployment: chicken sales
  • Our panel of “whiskey shooters” on the worst-case scnerio… how to get out of Dodge if the dollar collapses
  • Britian now REALLY in crisis… recession, taxes cause wave of pub shutdowns

 

  Let’s make some trades this morning. We asked Rick Rule, a living legend here in Vancouver, what’s the next bubble market?

  “The Canadian market does not care about small oil and gas companies,” he told us yesterday. “Which means that small Canadian O&G companies are selling for 50-60% of net asset value. They are very, very, very cheap. They are unloved, with no finance options and no trading liquidity… and I love that. This value is free. There will be much money made in small-cap Canadian energy.

“But that will pale in comparison to alternative energy. This is what investors need to pay attention to. There is money to be made in solar, wind, even something as stupid as biofuels. Alt energy is now politically and socially correct. It has the full backing of the U.S. government.

“I would encourage you to look at small hydro and geothermal. The others have problems. Solar has one big problem — night. Wind doesn’t always blow either, and people don’t like to live places where the wind blows all the time. You might make money in solar and wind, because government likes it, but I don’t have the courage to buy a biz that’s success is determined by the Governator.

“Geothermal is always there. It is spectacular. So is hydro. In the short, medium and long term, you will all turn out to be happy. They are the uranium of this generation. I think we are on the verge of an incredible mania in alt energy.”

Which specific geo and hydro businesses? Rick has named company after company after company to our attendees at this year’s Investment Symposium. We’ve recorded nearly every second of his presentations and recommendations… you can hear them too with the Symposium CD/MP3 set.

  “The world’s biggest energy player has thrown $600 million into a research partnership to study algae oil’s potential,” reports Greg Guenthner in a similar vein. Not coincidentally, we’ve heard several Symposium speakers mention this exact transaction. “Exxon Mobil and human genome researcher Craig Venter have teamed up in an attempt to make algae oil a viable fuel source.

“‘There has been so much hype and hope about the potential for algae that this announcement should act as a reality check for everyone,’ Venter told the Financial Times.

“Of course, this new partnership does not mean we will be filling our tanks with pond scum biodiesel just yet. Developers will still need to tackle genetic engineering and oil extraction issues…

”But Exxon Mobil’s leap into the algae oil market effectively legitimizes the industry.”

Want Greg’s microcap algae play? Check it out here, along with the rest of his Bulletin Board Elite portfolio.

  Of course, alt energy is dead to Wall Street (all the more reason to buy). For the last two weeks, surprise blue chip earnings anouncements have led the market up, and today is no exception. Better-than-expected earnings from AT&T and 3M are in the spotlight today, and the S&P is up 2% as we write.

  Hell, even The New York Times is making money again. The Old Gray Lady earned almost $40 million in the second quarter, the paper reported this morning. The NYT pulled it off by jettisoning staff and cutting opperating costs by 20%… and there was this little “favorable tax adjustment” that boosted earnings by $37 million.

Exisiting home sales rose for the third straight month in June, the National Association of Realtors says today, adding to the buying frenzy. Sales of previously owned homes inched up 3.6%.

“We have finally bottomed out,” PNC’s chief economist told Bloomberg. Heh, we’ve got a fine bridge to sell that fellow…

Best we can tell, the market-clearing process is still chugging along. Of all the sales in June, 31% were distressed. Prices are still plunging — the median price is down 15% from the same time last year, to $181,000. There is a still a historically high 9.4-month supply of exisiting homes on the market. Is that what a bottom looks like to you?

  Not to mention, the job market still stinks. This morning, the government said there were 554,000 initial jobless claims last week. That’s off crisis highs of over 600,000, but obviously not by much. Continuing claims rang in around 6.2 million.

  “Chicken sales will probably lead unemployment numbers as an economic indicator out of the recession,” writes our resource man Alan Knuckman, just back from annual National Chicken Council conference (sounds like a real hoot!). “Chicken growth has slowed with the toughening economic conditions, but still is three times that of beef. Restaurants and home consumers have seen a shift in protein demand and replacement with chicken or other chicken parts.

“These guys do volume because people love chicken to the tune of over 700 million pounds a week, with per capita consumption now at 86 pounds per year. In fact, consumption has quadrupled in the last 40 years and doubled in the last 20. BSBM — boneless, skinless breast meat — has paved the way for growth, but now dark meat is making a move as consumers cut food costs. 

 

“Now, all this chicken talk is fun and interesting, but how does this make us money? BRIC consumers (Brazil, Russia, India and China) all have expanding middle-class populations that are now in the position to buy better food. Not fancy cars or electronics, but simply better protein to feed themselves and their families.

“Here in the United States, there is a 0.95 correlation between chicken consumption and income and personal consumption expenditures. More money to spend means more chicken bought. As others have their incomes rise worldwide, those citizens can add more meat to their diets.

“This growth will put tremendous upside pressure on the base inputs: commodities, which are used to feed, process and transport the protein of chicken, beef, pork and even farmed fish. Protein is what’s for dinner, and the U.S. is serving the rest of the world.

“The income growth in underdeveloped countries will continue to put our farmers in the leadership position to deliver. Plus, all along the way, we’ll be ready to profit here at Resource Trader Alert.”

If you want to trade this trend, you’ve got to check out Alan’s latest report on his “no-brainier” trading strategy.

The 2011 state budget crisis has already begun. You likely read the headlines last week, that state governments around the country were able to close $142 billion worth of budget gaps for the 2010 fiscal year. Well, according to the latest from the Center for Budget Policy and Priorites, 12 states and D.C. are already facing new budget gaps totalling $23 billion.

  That’s not great for the ol’ U.S. dollar, nor is today’s stock rally. The dollar index is down to a fresh six-week low of 78.5.

  What would be the best way to get money and yourself out of the country if there is a sudden collapse in the U.S. dollar? That question was posed last night to our Whiskey Bar panel — one of the highlights of the Symposium thus far. We managed to round up our most opinionated, venom-spitting editors for a panel discussion — Doug Casey, Chris Mayer, Eric Fry, Byron King, James Howard Kunstler, Gary Gibson, Patrick Cox and Barry Ritholtz. There’s no way to paraphrase a group like that, so here’s a snippet:

Casey: “It is still possible to send all the money you want out of the country… very possible to buy real estate. I bet in two years, it will be a problem to do both. I think the fuse is getting really short. Once you send it out of the country, buy something like real estate. My two favorites are Argentina and Thailand. I think Argentina is about to change radically, like New Zealand in the ’80s.”

King: “You need to start wrapping your brain around this. When I was in South Africa, I was told by this old Dutchman — and now I really don’t mean to offend anyone, this is just what he said — when the Jews leave, it’s time to leave. When the Portuguese leave, it’s too late.”

Ritholtz: “Keep your boat fully fueled and get ready to sail… pretty safe out there. I don’t think it’ll be an ongoing firestorm. You’ll just need a place to lay out for a week while the worst of it passes.”

Kunstler: “It’s important for those in business leadership to start thinking about defending your country and doing things that make this culture better. We have no time to be crybabies. Just too much to do to get this country back together again.” (Spontaneous applause.)

Gibson: “I’m looking to get work on Bill Bonner’s ranch.”

The event likely peaked when Doug Casey called everyone in the room “whipped dogs that roll over and wet themselves” whenever they’re scolded. Evidently, he was upset there was no gunpowder or tobacco allowed at an event sponsored by Whiskey & Gunpowder. Heh. For more from Doug, be sure to check out his presentation in the Symposium CD/MP3 set.

  With that in mind, one last note — a genuine tragedy: The Brits are taxing one of their few national treasures into extinction:

As if the legnedary British watering hole didn’t have enough head winds — smoking ban, the recession, etc. — the Economist reports that recent tax hikes on booze are causing over 50 pubs to close every week. Taxes on a pint were around 8 pence 30 years ago… they are 38 pence today. Maybe it’s just the reminants of last night’s Whiskey Bar still in our bloodstream, but what a shame!

  “Your reader who was looking at Florida real estate hit the nail on the head,” writes another reader. “My wife and I also went last year to Florida to look at ‘super’ deals and foreclosures and short sales. We concentrated in the Palm Coast area and learned that most banks had stopped foreclosing and were doing all things possible to help short sellers (except take less than what was owed by any great degree). The banks realized that if they foreclosed, THEY would now have to pay the taxes, upkeep, etc. on the properties, and, even in the case of condos, maintenance fees or dues!

“Most of the properties we looked at were in the $300,000-600,000 price range, and, as a result, had taxes of $6,000-7,000 and maintenance fees of nearly equal cost! Ouch! We too have decided to rent — unless you live there at least six months out of the year, it doesn’t pay to ‘own,’ and even then it may not.”

Thanks for reading,

Ian Mathias

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