Gold Forecasts, The New Reserve “Currencies,” Climategate, Alt Energy Investing and More!

by Addison Wiggin & Ian Mathias

  • Gold hits another record — in popularity and price… is it time to take profits?
  • Marc Faber on the dollar’s real value… Rob Parenteau on the world’s new reserve “currencies”
  • Greenback crisis flips world on its head: Mercedes to make more cars in U.S., Canadian ice hockey comes back to life
  • Plus, Byron King and Rick Rule on “Climategate”… 3,000 e-mails that could change everything

 

  While we aim to in every 5 Min. Forecast, today’s an especially good day to challenge the status quo. Our president, who campaigned on a platform of peace and change, announced last night he prefers neither. A jury confirmed yesterday that our mayor here in Charm City — a black native of Baltimore’s rough west side and the much-needed voice of this city’s suppressed majority — is actually a far bigger betrayer of Baltimore’s tired and poor than her white, privileged, male predecessor.

But I thought all those gift cards were for me?

Even the very neighborhood your editor calls home (along with Mayor Dixon’s sniveling brigade of attorneys) has gone 180. The developer of our “upscale revitalization” admitted yesterday that the flashy architecture and amenities around here are just that — fancy appearance without balance sheet substance. They foreclosed on over two dozen unfinished lots and are a breath from bankruptcy.

  So if nothing is what it seems today, “has gold reached its top?” Eric Fry asks Daily Reckoning readers.

“Your editors here at The Daily Reckoning have no answers — especially when money is at stake — but we do have guesses. In fact, we have a lot more guesses than money. And so we would guess that the gold bull market is far from over… very far. But having said that, we would also guess that the risk of a sudden, steep correction is far from zero… very far. In fact, an imminent correction seems like a plausible scenario…

“Long-term gold holders are probably well advised to remain faithful to their favorite dollar substitute and just ride through the inevitable ups and downs.

“That said; short-term traders do not lack for reasons to risk betting against gold. For starters, the gold trade has become a bit crowded. Secondly, the recent rally has triggered ‘overbought’ signals on all major technical indicators. Lastly, the recent rally is bumping up against the performance targets that have capped all the major gold rallies of the last 10 years.

“As a result, gold is making more headlines than the soon-to-be-filmed love scene between Angelina Jolie and Johnny Depp. In fact, gold just might be the sexier of these two news stories… and that’s probably not a good thing.

“The long-term outlook for gold remains as compelling as ever. This bull market is justified and ‘has legs.’ But the Yellow Dog has run very far very fast over the last few months.

“The pooch might need a rest.”

  Gold hit yet another record high this morning in the Asian session: $1,217 an ounce.

  At 74.4 today, the dollar index remains just one tenth of a point higher than yesterday’s 15-month low.

  “The intrinsic value [of the dollar] is zero, and that’s where it will go,” Dr. Marc Faber bluntly forecasts… not exactly a mainstream view. If you haven’t seen our exclusive interview with him yet, do it here. “Whether it will happen in five or 10 years time, nobody knows… I don’t believe in a new world reserve currency for the immediate future, but I believe that the U.S. dollar, after a near-term rebound that could last three-four months, will continue to depreciate.”

  “The dollar carry trade is surely one possible route to Marc Faber’s pinpoint prediction,” adds Rob Parenteau of The Richebacher Letter. “Investors borrowing dollars at low interest rates (or shorting dollars) and then investing the proceeds in foreign currency-denominated assets (usually with higher yields or higher expected returns) place downward pressure on the dollar exchange rate and upward pressure on the foreign currency asset they are purchasing. As the dollar exchange rate falls, the effective cost of borrowing in dollars falls, and thus the incentive to devote more resources to the trade increases — people will tend to pile into the trade, to the point it eventually will become a ‘crowded’ trade, as the negative borrowing rate becomes recognized…

“But here is the problem: As of 2008, the McKinsey Global Institute estimated the United States accounted for about 21% of global GDP, while U.S. capital market assets totaled one-third of the world’s $167 trillion in assets. In addition, roughly 65% of the total foreign exchange reserves of foreign governments are held in U.S. dollars, while the euro has the next highest share, at 25%.

“Dethroning the dollar may take some time, given there is as yet no other nation in position to replace these mammoth U.S. shares of global economic activity and portfolio holdings. The euro may be the closest candidate, but there are enough questions about whether the one-size-fits-all monetary policy approach may eventually spur populist calls for the defection from the European Union of Ireland, Greece, Spain and other nations still struggling with serious economic weakness that this remains a long-shot candidate. The IMF’s special drawing rights (SDR) has been frequently named as another candidate, but the SDR is really a weighted basket of four currencies, with 44% of the weight placed on the U.S. dollar, so it is not much of a replacement for those seeking to reduce U.S dollar exposure at all…

“While we recognize real GDP growth has returned to much of the world, we doubt the advances in numerous commodities through mid-November (shown above) are entirely the result of stronger end demand for the products that require these commodity inputs. Rather, the ‘flight to real values,’ as Hayek termed it, appears under way as the reserve currency status of the dollar has been put into question, but no other fiat currency can take its place.”

  Mercedes has found a new low-cost production location for its C-Class sedans: Alabama.

Daimler announced today that it will move about a fifth of all Mercedes C production to its plant in Alabama by 2014, citing the growing gap between the euro and the dollar. “From a strategic and economic point of view, this step is absolutely necessary,” Mercedes’ CEO said. BMW recently upped capacity at its South Carolina location for the same reason.

  But there’s at least one silver lining in the dollar’s collapse: Canadian ice hockey is experiencing a much-deserved revitalization. Just 10 years ago, with the Canadian dollar around 62 cents, our northern neighbors were in danger of losing their national pastime. The purchasing power disparity got so bad that in 1995 the NHL had to erect the “Canadian Assistance Program,” where profits from U.S. teams were used to subsidize Canadian counterparts. Around the same time, there were some notable franchising atrocities, such as the Winnipeg Jets becoming the Phoenix Coyotes.

As the N.Y. Times reports today, the tables have turned. At 96 cents, the loonie is near parity with the dollar. Thus, with a level playing field, the six Canadian NHL teams remaining now account for nearly a third of the league’s revenue. Clubs like the Calgary Flames are now contributing to a profit-sharing program that helps keep struggling U.S. teams afloat. Who would have thought that more people want to watch hockey in Toronto than in Nashville?

We’re admittedly out of our depth on this one… but we’re in the forecasting business, so here it goes: If Canadian hockey revenue is at a generational high, Canadian hockey teams will have bigger coffers for signing marquee players. It’s been 17 years since a Canadian team has won the Stanley Cup. Maybe that “market” has reached its bottom.

  “The reputation of the so-called science of global warming just reversed course,” our resource analyst Byron King observes, continuing today’s theme. “It’s more like ‘political’ science now — literally — and there are 3,000 e-mails to prove it.

“Last week, the global warming movement crashed, along with its holier-than-thou ‘only we can save the world’ aura of empirical certitude. Down with the ship went the last semblance of unblinking, unthinking willingness to submit to draconian, Procrustean ‘cap and trade’ legislation against fossil fuels.

“The cause of the crash was a batch of purloined e-mails from the University of East Anglia and its Climate Research Unit (Climate Research Fabrication Unit is more like it). When the contents of the e-mails hit the fan, the U.K. Telegraph headlined that "This Is the Worst Scientific Scandal of Our Generation."

“The East Anglia e-mails reveal a transnational cabal of scientists whose ethics and methods mirror those of Stalin’s favorite biologist, Comrade Trofim Lysenko. That is, these modern Merlins of global warming have massaged the climate data to fit their preconceived anti-CO2 theories. For many years, the climate change Godfathers have humiliated and intimidated scientists who dared to disagree. They’ve squashed dissent. They’ve blackballed academic journals that didn’t toe the line of politically correct global warming wisdom. And they’ve done it all under the rubric of ‘peer-reviewed’ science — where they are the peers über alles. Nice work, if you can get it…

 

“To my way of seeing things, the proposed remedies for global warming never added up. Now, with the release of the East Anglia e-mails, we know that things were never supposed to add up. The whole global warming and remedies process is designed to lasso a perceived ‘environmental’ problem and use it to fulfill a laundry list of campus-Marxist political agendas. And quite a bit of the mainstream West swallowed it, hook, line and sinker.”

  “I was wondering if you had any thoughts on ‘Climategate,’” a reader writes, “and its potential impact on so-called ‘green stocks’ and the market in general. If we expect these stocks to take a hit, what would be the best way to play that for profit?”

The 5: Our first impression is that it’s already been brushed under the rug. But even if we’re wrong and this scandal knocks the climate change movement off the rails, it’s hard to imagine any administration wavering from the cause du jour — “ending our dependency on foreign oil.” We’re reminded of Rick Rule’s advice from this summer’s Investment Symposium.

“Investors need to pay attention to alt energy. Money to be made in solar, wind, even something as stupid as biofuels. Alt energy is politically and socially correct.

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

“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. It is the uranium of this generation. I think we are on the verge of an incredible mania in alt energy.”

Best,

Ian Mathias

The 5 Min. Forecast

P.S. By the way, did you know that all Agora Financial Reserve members are invited to attend our Investment Symposiums for free? Not only can they attend on our dime, but this year we threw an exclusive concert and cocktail reception on their behalf in the ballroom at the Fairmont Hotel Vancouver.

Aside from free access to this event (a $995 yearly value), Reserve members get lifetime subscriptions to nearly every Agora Financial service (a $10,716 yearly value) … and this year we’re even giving the first wave of new members a free set of mint condition coins. Quantities are very limited on that last perk… so if you want some schwag on us, don’t wait. Details here.

rspertzel

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