The Rise of Scrip, Money Supply, Biofuels, A Contrarian Indicator and More!

by Addison Wiggin & Ian Mathias

  • Sick of the dollar? Print your own money… the rising popularity of community scrip
  • Frank Holmes charts “one of the most important factors to watch” for commodity investors
  • BiofueAgora Financial’s 5 Min. Forecast – The Rise of Scrip, Money Supply, BioFuels, A Contrarian Indicator and More!ls are back… Patrick Cox on the sudden resurgence of this emerging tech
  • Contrarian Alert: S&P 500 short interest near yearly low, led by financials

 

  We usually save the goofy stories for last. But this quirky idea is starting to get a little serious: Communities around the country are printing “scrip” at the highest rate since the Great Depression.

Behold the “Plenty” an alternitive currency printed and exchanged exclusively in Pittsboro, N.C., population 2,500. A couple dozen Pittsboro stores accept it as a dollar alternative, like the local feed store and a produce co-op.

The idea is nothing new… we’ve chronicled scrips like the Ithaca HOUR and Western Mass’ BerkShare for some time. Both have millions worth in ciculation.

But according to the LA Times, scrips haven’t been this popular since the Great Depression. They’ve gained significant traction in New York, North Carolina, Michigan, Colodaro, Arizona and Massachusets, with many more commonities beginning to experiment.

And we’re noticing a decidedly less hippie, more snarky feel: "The Plenty is not going to get siphoned off to Wall Street,” says B.J. Lawson, president of The Plenty co-op board, “or Washington, or make a stop in Bentonville on its way to China.” In Mesa, Ariz., locals are using Mesa Bucks to essentialy stick it to the man… bring a sales receipt from inside city limits to the local arts center and they’ll give you a percentage of your sales tax back in Mesa Bucks.

So much for “E Pluribus Unim”

  The dollar is falling again today, thanks to a rally in stocks. The dollar index is down to 78.9 as we write, from its early morning high of 79.3. That’s puts the euro at $1.42, the pound at $1.65 and one dollar will fetch you 96 yen.

  Dollar weakness is giving commodities a bump. Oil is up a buck and change, to $70 a barrel. At $948 an ounce, the recent gold sell-off seems to have come to an end as well.

  “One of the most important factors to watch for the U.S. economy and commodities,” writes Frank Holmes, “is money supply. Put simply, money supply is the total amount of money available in an economy. This includes bills, coins, credit and all other forms of liquid financial instruments.

“There are a couple different measures of money supply, but at U.S. Global, we follow M2 the closest because it is the broadest measure of money currently available — all money in circulation plus savings deposits and money market accounts for individuals.

“As you can see from the chart below, M2 spiked in the fall of 2008 as the Fed sought to inject additional liquidity into the U.S. economic system.

“This particular chart focuses on the U.S., but the same is true on a global basis. Countries in Europe, China and other places around the world have seen a jump in money supply. According to ISI, global money supply now sits near 10%.

“With so much excess money in the global financial system, the idea was that some of it had to find its way into financial markets. What we’ve found is that some of that excess supply often ends up landing in riskier areas — which may help explain why the Nasdaq has outperformed other markets so far this year.

“Increases in money supply have fanned inflationary fears and pushed funds toward traditional inflation-hedging instruments like gold, oil and other commodities. Deflationary forces have been strong during the economic downturn and it may be some time before inflationary pressures set in. However, if the supply of money continues to grow faster than our economy can absorb it, the likelihood of higher inflation increases.”

Frank revealed his favorite inflationary plays at this year’s Investment Symposium… check ’em out here.

  The U.S. registered a $27 billion trade deficit in June, up $1 billion from May’s deficit. More expensive oil products bumped import prices up $3.5 billion, which accounted for the majority of the rise, says the Commerce Department.

  Industrial production in India rose 7.8% in June, its government reports today. That’s the fastest pace in 16 months and double what economists expected.

  Mexican oil production might fall 4.9% next year, Finance Minister Agustin Carstens forecast today. Given that oil revenue funds 38% of the Mexican government — and Mexico is the third largest supplier of oil to the U.S. — this could get pretty interesting. Kudos to Byron King for being WAY ahead of this one.

  “I’ve been surprised over the past few weeks by the pace of biofuel development,” reports our tech analyst, Patrick Cox. “These aren’t breakthroughs that are likely to produce obvious winners in the next few months, but the time line keeps pulling in. There’s a lot of skepticism about this technology, but there was also skepticism for every major tech development of the last three or four decades.

“If you were at the Agora Financial Investment Symposium in Vancouver, you may have heard Juan Enriquez announce that Exxon Mobil had given Synthetic Genomics Inc. (SGI) $300 million to work on producing biofuels using algae. SGI is run by Craig Venter, the man who broke the human genome. Exxon is not a company known for wasting money on environmental gestures. The energy company wants and expects that Venter will find a way, using genomics and algae, to produce raw materials for its refineries.

 

“The startup Solazyme, which I’ve written about before, just picked up an additional $57 million in its quest for algal oil. Solazyme is targeting not only fuels, but also oils for cosmetics and the food industry. Solazyme is concentrating on using sugars, instead of sunlight. The company uses biomass and industrial byproducts, including cellulosic materials and waste glycerol, to feed their algae. As a result, they can grow algae in dark tanks, which has obvious advantages.

“Then there is the wild card, Joule Biotechnologies. Little is known about this company except that the photosynthetic microorganism it uses to produce energy is not algae. Some are reporting that they are harnessing bacteria, but that is not yet certain. Currently, however, the company claims it can produce fuels competitively when subsidies are factored in. I don’t believe you can or should count on subsidies, but the core technology may be improved to the point that it is honestly profitable…

“Fortunes will be made in this space, and we intend to have a piece.”

Patrick’s Breakthrough Technology Alert readers will be prepared for this phenomenon, which he says could be just a few years away. Find out more, here.

  Up over 1% as we write, the Down and S&P 500 have resumed their winning ways today. After falling every day this week, the indexes are “buying the rumor” of the Fed announcing just about anything at the conclusion of the FOMC meeting this afternoon. More quantitative easing? Hinting at the end of the recession? Exit strategies? Yawn… hard to get too excited about the FOMC, but we’ll let you know tomorrow, nonetheless.

  Contrarian alert: Short interest on the S&P 500 is down to its lowest level since February. Investors were short 8.7 billion shares of the index at the end of July, Bloomberg reports today. That’s a 12% drop in just two weeks. Shorts reduced bets against financials the most, down 31%. 

  Another straw on the back of commercial real estate: In what would be the biggest commercial real estate sale of the year, JP Morgan is looking to unload 23 office properties. The sale could bring the bank as much as $1 billion.

  “As a (happy) subscriber to Agora Financial,” writes a reader in response to yesterday’s issue, “many thanks for ‘allowing’ a disenchanted Californian to see how the knuckleheads voted for approving (and, thankfully, backpedaling) their spanking-new jets. MY elected officials did NOT vote for passage of this bill… now, if they could just figure out how to haul the state out of bankruptcy… I’m here to tell ya, the Golden State isn’t so golden right now… in fact, she’s more than slightly tarnished, leading one to wonder just how golden she really is or if she has become fool’s gold!

“Keep up the good work!”

  “Thank you for the link to Congress’ vote on the fleet of jets for their sole use,” writes another reader in a similar fold. We must add, the Pentagon and the executive branch would have used them quite a bit as well… if that makes you feel any better, or worse.

“I dropped out of the Republican Party several years ago, when it was obvious that the Republicans were in control of Congress and spent like a drunken sailor on shore leave in Bangkok. I didn’t care when the Democrats took over the Congress. It was obvious that the rest of the country saw things the way I did.

“When the Dems and Obama turned out to be bigger spenders than every before in history, I started to look at the GOP again, and was on the fence deciding whether to return my vote to the GOP. The vote that took place on the fleet of jets for Congress, with just seven — count that again, seven — GOP house members voting against it during the worst spending spree in the history of our Republic proved to me that neither party could be trusted to do the prudent thing, the necessary restraint to save what is left of our bankrupt country.

“It is plain to see that the only rational thing to do is to throw the bums out, all of them. I will remain an independent and never again vote for either party until they can prove to me they are worthy of making decisions on the fate of our nation. All Americans should forget what the talking heads tell us about wasted votes. No vote is wasted if it is cast in good conscience.

“The only true answer to keeping Congress in check is term limits. I will vote for any candidate, liberal or conservative, that will stand for term limits. Does absolute power corrupt absolutely? Absolutely.”

The 5: We try to stay out of this sort of thing, but we’re suckers for the “throw the bums out” letters.

Cheers,

Ian Mathias

The 5 Min. Forecast

P.S. I think our publisher is a little nuts for doing this: We’re giving away one of Dan Amoss’ best short ideas for just $1. It’s a bank — a very big bank — that Dan is convinced will be the next financial to rip off its shareholders. The play is a result of months of research and years of Dan’s money management experience… and it can be yours for one lousy dollar.

Why does this offer rub me the wrong way? Because Dan’s short-financial plays during the credit crisis have been worth way, way more than $1… like 162% profits on Allied Capital, 220% gains on PNC Financial and the whopping 462% winner betting against Lehman Brothers.

But they don’t pay me to set the prices. So for a very limited time, here’s your chance to learn the latest Strategic Short Report pick: Click here for Dan Amoss’ new bank short, for just $1.

rspertzel

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