by Addison Wiggin – February 4, 2011
Economy adds fewer jobs than expected in January because of… [spins the wheel]… bad weather!
Wheat prices up 13% since early December because of… [spins again]… bad weather!
We’re already at $100 oil… Why the oft-quoted price in the media is almost useless now
A stock that generates neither capital gains nor dividends… but always generates high interest
Readers chime in on commodity prices… the EPA (again)… and lithium. Lithium?
We detect a pattern in this morning’s media. Whatever’s going wrong in the economy, blame it on… the weather.
“Payrolls rose less than forecast, depressed by winter storms,” says Bloomberg of the January employment report out this morning from the Bureau of Labor Statistics (BLS).
Traders were counting on 140,000 new jobs. BLS statisticians could conjure up only 36,000 — less than a third of what it takes to keep up with the natural growth of the “labor” force. Ho-hum.
The percentage of the working-age population in the labor force sank to its lowest level since the early ’80s — down to 64.2%. Again. For perspective, this figure stood above 65%, and as high as 67%, every year between 1986-2009.
Still, because so many people gave up looking for work — so long ago they no longer get counted by BLS quants — the unemployment rate actually fell from 9.4% to 9.0%.
For perspective, we turn once again to the chart that tracks the percentage of job losses during every postwar recession… and the number of months it took to get back to par.
The BLS also issued what it calls “benchmark revisions” — or, revised figures from last year that account for all the missed guesses they made at the time.
Unfortunately for all the clamoring you hear on TV about “jobs, jobs, jobs”… 483,000 jobs that were thought to have existed two months ago turn out to have been a chimera.
“The freeze gripping a swath of the U.S. threatens winter wheat planted in the fall,” says The Wall Street Journal, catching the drift. As such, we’re told wheat prices are up 13% in two months.
Never mind that the run-up in wheat — and everything else — has a rather longer history. Wheat’s lows came last June.
“Are we to believe,” asks GoldMoney’s James Turk, “that the market knew seven months ago that weather around the world today would be so bad that it would impact global wheat output?
“Obviously, given that commodity prices are rising across the board, we have to look for other factors that are causing this surge in prices. Just consider the money printing — aka quantitative easing (QE) — by central banks going on all around the world.
“QE is building up tremendous inflationary pressures in the pipeline of goods and services, which for months now has been showing up in the area most sensitive to monetary debasement, namely, commodity prices.
“The gathering monetary storm is far more important than the weather,” James says, “and there is one easy way to seek shelter — buy physical gold.” James offers an unusually convenient way to do so. And Byron King has nine more suggestions you can use to profit from gold’s rise.
Stocks are flat after the release of the employment numbers. Yesterday, the major indexes ended up in the green by the close. Among the stocks in the spotlight was J.P. Morgan Chase.
According to confidential emails just released as part of a lawsuit, senior JPM executives had big doubts about Bernie Madoff 18 months before he was outed as a fraud… but they decided to keep doing business with him anyway because, damn, the fees were just so good.
After the news came out, JPM stock went up.
Gold moved up the instant the employment numbers came out, presumably because that implies the Fed will keep its foot on the monetary accelerator. Right now the spot price is $1,355.
Gold shot up over $20 around lunchtime yesterday for no apparent reason. “Short covering” and “safe haven buying” were among the explanations offered, along with the convenient excuse of Egypt. For all we know, it was Charlie Sheen’s latest drunken antics.
Crude prices have firmed to $102.01 as traders keep a nervous eye on Egypt. That’s Brent crude, by the way, seeing as the American benchmark — the West Texas Intermediate stored at Cushing, Okla. — has become darn near irrelevant.
WTI sits at $91.18 as we write, and “the divergence is no mystery,” says Jeff Rubin, former chief economist at CIBC World Markets. “Unlike Brent crude from the North Sea, which can be shipped to refineries pretty much anywhere in the world, oil in storage at Cushing can only be absorbed by refineries in the U.S. Midwest.
“With nowhere else to go, WTI is not even an accurate barometer for oil prices in the U.S. market, let alone the global market. For example, the price spread between it and Light Louisiana Sweet on the Gulf Coast is as big as its spread with Brent.”
That’s because new crude from the Alberta oil sands is piling up at Cushing, often faster than local refineries can process it. This situation won’t change until TransCanada Corp. can connect its flow of crude to refineries on the Gulf of Mexico — which won’t happen for another two years.
“There is going to be a bigger and bigger disconnect between WTI and global crude demand as more oil piles up at Cushing,” concludes Rubin. “As that happens, the oil industry and the investment community will look to Brent as the new benchmark for global oil prices.”
Heard around Washington: “I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy,” Ben Bernanke complained to the National Press Club yesterday when someone had the temerity to ask him a question about it.
“The most important development globally is that the world is growing more quickly,” he added.
Really. Didn’t Malthus believe something similar a couple hundred years ago? Well, At least he didn’t blame it on the weather.
“Emerging markets have all the [monetary] tools they need to address excess demand,” Bernanke says he believes.
For our part, we’re planning a trip to Colombia in March, where some money management friends have lined up a meeting with the Colombian Treasury. Among other questions we’ve forwarded to them ahead of schedule; “Just how much does U.S. monetary policy affect emerging markets in South America?” Stayed tuned for a firsthand account of the response.
And now, on this auspicious sporting weekend, we pause to ponder a one-of-a-kind stock that’s in perpetually high demand, despite the many things it has going against it…
It pays no dividend and never will
Its share price cannot appreciate (although private sales have been known to go for more than “face value”)
It will pay you nothing should the board of directors choose to sell or to cease operations.
And the coup de grace: Your share certificates don’t even entitle you to season tickets.
One of the two contenders in Sunday’s Super Bowl is a publicly owned nonprofit with 112,015 shareholders. The Green Bay Packers’ ownership structure — unique in professional sports — explains how a city of merely 101,025 people is home to an NFL franchise.
Well, that’s part of it. Here’s the other: Under the team’s Articles of Incorporation drafted in 1923, any profits from a sale of the franchise were to be donated to the Sullivan post of the American Legion to build “a proper soldier’s memorial.”
In other words, it was a transparent ruse to keep the franchise from moving back in a day when the NFL included teams like the Canton Bulldogs and the Muncie Flyers. (Today, the designated beneficiary is the Green Bay Packers Foundation, the team’s charity arm.)
There’ve been only three stock offerings — in 1923, 1950 and 1997, the last one bringing in $24 million to finance a renovation of Lambeau Field.
But don’t get the wrong idea: Like the newer breed of NFL owners, the Packers have socialized their costs onto the backs of taxpayers; for the last decade, stadium operating expenses have been covered in part by a half-percent sales tax.
“Coffee prices just went up,” a reader informs us. “The Wawa had reduced a 16 ounce cup to a $1.00 a month ago. Guess what: It's back up to $1.36 again.
“What happens to us when eggs are $4.50 a dozen, milk is $5.00 a gallon (almost is) and gas is $6.00 a gallon? Heating oil of gas is at $1,000 a month.”
The 5: The way things are going, we’re all going to find out.
“I traded commodities about seven years ago,” writes another. “Now I am much wiser, I think, and would like to get back into them, seeing the food shortages, worldly disasters, etc.
“Who is your guy that handles that aspect of the market? I have searched through past emails from you and can't put my finger on it. Let me know because I want to subscribe to his service.”
The 5: That would be this guy:
The one and only Alan Knuckman of Resource Trader Alert, founder of OriginAl’s Chicken Ribs and perpetual Big Gulp aficionado.
Indeed, Mr. Knuckman has been right on and out front of the rising prices trend. As of this morning, RTA traders are sitting on open gains of 104% on wheat… 258% on soybean meal… even 480% on cocoa.
At the moment, membership is available only by telephone. Call John Wilkinson at (866) 361-7662. He can answer all your questions and get you set up right away.
“I work at the EPA,” writes a reader who takes issue with the tale of corruption contributed by another reader yesterday, “but that is not a requirement for knowing EPA does not keep its fines under most circumstances.
“Under some circumstances, fines can be directed to improve environmental conditions under a consent order informed by community input. Fines mostly go to the Treasury. That is pretty standard across the government.
“As useful as it may be for conspiracy theorists to assert that the gov'ment thug busting the poor businessman for an OSHA or Clean Water Act violation gets a kickback, it’s just groundless and born of ignorance. So for beginners, dispense with the corrupt officials argument.
“Try this on for size — the laws and regulations to enforce a clean and healthy environment are so diluted by industry and business interests that the fines are too minimal to drive corrective behavior.”
The 5: And yet you’d argue they should be able to drive corrective behavior.
“What would happen if the Fed just burned all the Treasury securities that it now owns?
“Would the U.S. government now be in less debt? With fewer securities in existence, the price of remaining securities would go up and drive rates even lower.
“Apart from some double-entry bookkeeping (and our government is very good at that — e.g., the unfunded Social Security Trust Fund), I think a fire in the Fed's vaults sounds like a plan!”
The 5: Oh man, don’t give them any more ideas!
"Byron is full of s&*t," our final contributor writes. “All this lithium crap, etc., is another scam to get investors screwed.”
The 5: Hmmn. Lithium? When did Byron discuss lithium? But far be it from us to interrupt…
“The most pollution-free solar energy is wind power,” the reader continues. “Every person on earth can collect its energy and, after initial costs, have all the energy he needs for free. No earth-destroying wind farms and electric grids needed.
“Let’s get rid of the bankster gangsters and their international campaign bribing corporations. Then every American can have his very own self-employed job. No more involuntary servitude. No more competing with Asian slave labor.
“Let’s restore America to its self-reliance and prosperity. All free energy collection designs are free for the asking. Powering your car, heating your house, generating your own electricity is free. It can be manufactured by real can-do Americans in every neighborhood in America.
“I dare you print this, you one world central government promoters!”
The 5: Heh. You forgot ‘free love,’ dude!
We’re not very fond of our own central government. Why would we want to foist one on the world?
(As a side note: You’ve made us reconsider our policy to publish anything we get “dared” to publish. We’re not afraid of any ideas, but Christ, at least try to be coherent.)
Have a good weekend,
The 5 Min. Forecast
P.S.: “OK, OK, I agree with your readers’ praise of Byron King,” writes a charter member of the Agora Financial Reserve. “Suffice it to say that when Byron King recommends, I buy and buy and then I buy some more.
“For the love of the Almighty, keep him on staff, no matter what it takes.”
The 5: Uh… we’re hoping Byron is otherwise occupied in Toronto today and doesn’t read this issue of The 5. (Wink, wink.) Still, to your point: We know a good thing when we have it. For instance, shares of Cameron Intl. hit a 52-week high this week after some terrific fourth-quarter earnings.
“I told people to buy CAM after the BP blowout,” Byron wrote to us yesterday. “Buyers are up a cool 60% or so if they followed the advice.”
Because he was on this beat even before the Deepwater Horizon accident happened, Byron knew Cameron wasn’t at fault for its blowout preventer failing. BP had tinkered with it endlessly over the preceding 10 years. He also knew the market would eventually recognize their ‘innocence’… and that Cameron’s technology would be in high demand as offshore operators sought to beef up their safety measures.
Whether it’s energy or precious metals, Byron’s Outstanding Investments has you covered when it comes to the resource sector… and for a remarkably low price of entry. Here’s one of his favorite plays right now.