Contrarian Alert, Fishy Jobs Report Details, Getting Water to China, Unemployment Benefits and More!

by Addison Wiggin & Ian Mathias

  • NYT, LA Times, Drudge Report all extol gold’s virtues… and our editors take profits
  • John Williams on why Friday’s jobs report was even more fishy than usual
  • Chris Mayer solves a worthy puzzle… how does one export potable water to China?
  • Plus, readers rise against The 5… our thoughts and theirs on expanding unemployment benefits


  When two of the world’s biggest newspapers write big Sunday pieces on one of your favorite investments, is it time to cash out?

Heh, if you answered yes, sell some gold today.

Both the New York Times and the Los Angeles Times are making our contrarian bone ache with weekend edition titles like “Inside the Global Frenzy for Gold” and “Why Gold Is Shining Brighter.” They’ve helped push the spot price to $1,110 an ounce early this morning, yet another record high. Addison Wiggin and Bill Bonner have repeatedly said that the “trade of the decade” is still on, but the media is making it hard on us today. Geesh… Matt Drudge’s big, bold headline this morning — even bigger and bolder than the healthcare reform news — “Gold Hits Record High as Dollar Wanes.”

  Let the record show that both Chris Mayer and Dan Amoss told their readers to sell some of their gold stocks Friday, but neither left the market entirely. Chris’ Capital & Crisis readers took 112% profits by selling half their stake in one of his favorite gold miners. Meanwhile, Dan’s Strategic Short Report readers bagged a quick 68% trading options on a gold miner ETF that were set to expire in January.

“At the risk of stating the obvious,” Dan wrote to his subscribers, “we don’t want to lose sight of the fact that gold stocks are ’stocks.’ Aside from the movement in gold bullion prices, gold stocks are sensitive to the overall level of the stock market. My lack of confidence in the broad market holding up tells me that now is a good time to take profits on our Jan. $40 GDX calls.”

(By the way, if you want to get in on Dan’s next trade, we just started offering a monthly billing option for Strategic Short Report… nice way to try your hand in that game o’ poker.)

  The stock market remains resilient today. Friday saw a meager 0.3% gain for the S&P 500, surprisingly good given the lousy jobs report. GE was the hero of the day, rising over 6% after a few analyst upgrades and word that it was close to jettisoning its share of NBC.

Traders bid the S&P up 1.5% by lunchtime today after a wink and nod from the G-20… if the weekend G-20 meeting revealed anything, it was that member economies intend to keep rates low and bailouts around for a while longer.

  Friday’s jobs report was even more statistically screwed up than usual, reports John Williams of ShadowStats fame.

“Last month, the BLS found it had a flaw in its payroll surveying that was going to require a very large annual benchmark revision. Current underestimation of monthly jobs loss likely exceeds 200,000. In October, employment was down by 589,000 per the household survey [an alternative employment measure], versus a 190,000 jobs loss reported in the payroll survey [the headline jobs report]. Underlying employment series are more consistent with the reported household survey than the payroll survey, which is known to be flawed at the moment.

“While the payroll survey is more broadly based, the BLS never knows what it really is receiving in data (did a company just not get its report in on time, or did it go out of business?), and revisions over the last year or two have been well outside the bounds of the estimated confidence intervals.”

  Five more banks failed over the weekend, including the fifth-largest banking death of 2009. California’s United Commercial Bank’s $7.5 billion in assets makes it one of the bigger busts in recent history. Atop the four other failures this weekend, the FDIC has now shuttered 120 banks in 2009. All told, it’ll be another $1.5 billion out of the FDIC’s deposit insurance fund, which is rumored to be around $9-10 billion in the red. Kudos to The Journal for keeping tabs on this mess.

  Like Fannie Mae last week, Freddie Mac posted a multibillion-dollar loss late Friday. The company lost over $5 billion last quarter but swears it will be able to keep afloat without more government aid… like they said last quarter, and the one before, and the one before. So far Freddie has tapped Uncle Sam for over $50 billion.

  American reliance on credit fell for the eighth month in a row in September, the Fed reported Friday. Consumer borrowing fell at an annual rate of 7.2%, or $14.8 billion in September — another month in the longest stint of deleverageing on records that date back to 1943. Still, the mighty U.S. consumer has $2.46 trillion in debt outstanding, excluding mortgages. That could buy every stock on the Brazilian Bovespa — twice — or replace the entire British economic output for one year.

  The U.S. dollar is flirting with another 2009 low this morning. At 75 on the dot, the dollar index is just a tenth of a point from a fresh yearly low.

  Don’t mind us, just whistlin’ past the graveyard… the U.S. government will sell (mostly to China) $40 billion in three-year notes, $25 billion in 10-years and $16 billion worth of 30-year bonds this week – all record-sized debt auctions.

  “China resolutely opposes such protectionist practices and will take steps to protect the interests of our domestic industries,” read a statement — a pretty harsh one for Chinese standards — from China’s Commerce Ministry this morning. The Red Nation is reacting to a recent U.S. tarrif on steel pipes… just another line in a long list of Sino-American trade disputes lately. In response, China is readying a similar policy on U.S. poultry (again).

Sooner or later, someone’s feelings are going to get hurt. Should be interesting next week when Presidnet Obama makes his first official visit to Beijing. 

  “China is the largest importer of soybeans and has been since 2000,” notes Chris Mayer, always searching for investment opportunities amid the rubble. “China was once the largest exporter of soybeans, but flipped to a net importer in 1995. It may well be impossible for China to meet its demands for soybeans by producing more of its own. Passport Capital, an astute hedge fund, estimates that in order to grow enough soybeans to become self-sufficient, China would need to cultivate an area about the size of Nebraska.

“That looks impossible against China’s arable land base, which has been in decline since 1988 — this despite the fact that China’s subsidizes agriculture. Another reason is the low level of water resources in China. (See the nearby chart ’Who Has Water… And Who Doesn’t.’) Soybeans require a lot of water — 1,500 tonnes of water for one tonne of soybeans.

“This chart is telling. Who has lots of water? Brazil. So it is no surprise to discover that the increase in demand for soybeans from China has largely been met by increasing soybean acreage planted in Brazil. (Brazil is the second-largest exporter of soybeans in the world, behind the United States and ahead of Argentina and Paraguay.)

“The easiest way for China to get around its water shortage is to import soybeans. By importing soybeans, Passport calculates that China is effectively importing 14% of its water needs…

“So now we are in a position to connect some dots. China’s increasing population and affluence will drive its soybean imports. These imports will come mainly from Brazil. And Brazil, as it converts more arable land to producing farmland, will need a lot of potash and phosphate. What is true of soybeans is also true of wheat and corn and rice and other agricultural commodities. We’ll need more of all of them. And all of them face the same challenges for water and land. All of them require lots of fertilizer.”

How should you specifically invest in this trend? Subscribe to Capital & Crisis to find out… do it today and we’ll throw in a fresh copy of our updated bestseller, Financial Reckoning Day: Fallout.

  Last today, we almost forgot to mention — the House passed one of the most expansive and expensive bills in U.S. history over the weekend.

  “You are upset over 99 weeks of unemployment benefits,” a reader writes. “What you forgot is that these are regular folks who are beating down doors looking for work they will not yet find for at least six months, with families and children and rent to pay, food to buy and heating bills come winter. There’s nothing between them and a mattress in a homeless shelter for their families except their unemployment benefits. The same people who get their guns off their gun racks to preserve a cross in state park seem to forget what their cross stands for. At least think of it this way — we don’t want tens of millions maxing out their credit cards to buy a loaded 9mm Glock so they can take their cash from off your body on the street. The situation is dire out there, and we need to stretch further than ever for their sake and our own.”

  “So what are the folks who are unemployed and have lost their unemployment benefits supposed to do?” another writes. “Start living in tent cities or slums like in India or Brazil? Would you want one of those in your community? It’s tempting to say they don’t deserve these extended benefits, but what’s the alternative? And don’t say ’job retraining,’ cause I know people who are in the areas more in demand (healthcare, education, IT) who are out of work.

The 5: The day Barack Obama was sworn in, we ran a picture of the millions who gathered at the National Mall  and noted, “Two million people don’t gather in one place unless things are really good or really bad. We’re having trouble telling the difference these days.”

It’s the same kind of strange fine line that has us scratching our heads on this one. We’ve made peace with the national safety net of which unemployment insurance is part… but when does a hand-up become a handout? Where do we draw the line between encouraging "rugged individualism" and providing "bread and circuses"… 50 weeks? 99 weeks? 150 weeks? The Great Depression lasted 10 years… how about 520 weeks of “benefits”?


Looks like we’re going to find out.


Ian Mathias

The 5 Min. Forecast

P.S. “I think our work now is more urgent than it has ever been,” Addison told CNN Radio on Friday. How? Why? Listen to the interview for answers… give it a minute to load up.

P.P.S. Just 48 hours remain on our big discount for Master FX Options Trader. At midnight tomorrow the price goes back up… check out this opportunity here before it’s too late.


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