by Addison Wiggin – March 10, 2011
- The “hell in a bucket” edition of The 5: Catching up on falling stocks, Mideast turmoil, the euro, Wisconsin… what else have we missed?
- The Bond King joins our side of the Trade of the Decade… pulls the plug on U.S. Treasuries…
- The greatest growth opportunity in the Western hemisphere… and the one thing everyone in Colombia says the country needs most…
- New results in from a monumental study of stock returns… Michael Moore’s a Nazi?…”fight or flight” in Vancouver…. much more
00:14 — Sheesh. We leave the country for a few days and all hell breaks loose?
“The 8.9 quake in Japan,” our resident geologist Byron King tells us, “may be the world’s fifth most powerful earthquake in the past 110 years. It may be the most powerful earthquake in Japan in 150 years.
“Civilization exists,” Byron quotes Will Durant, “by geological consent, subject to change without notice.”
00:19 — In part because of the earthquake and ensuring tsunami, stocks are selling off.
But the truth is, after an epic run over the last two years, they were due. A couple weeks ago, we noticed the S&P 500 had run up over 100% for only the third time in history. Now it’s pulled back 3.5% from its Feb. 18 high.
00:28 — It appears, too, Libya’s Col. Gaddafi has made good on his threat to torch the country’s oil infrastructure out of spite.
Libyan planes bombed the country’s biggest oil terminal Wednesday night, for no reason other than it sits in a region now controlled by rebels.
00:45 — The planned “Day of Rage” in Saudi Arabia turned out to be a day of whimpering. A protest, organized on Facebook, has been in the works for weeks. But after police opened fire and wounded three demonstrators yesterday, no one showed up to the Rage.
In anticipation of more violence, traders had driven the number of $200 call options on oil to a record. That is, a whole lot of traders believe oil will reach $200 a barrel by May 17. You, however, don’t have to play options to make money from the trend. Just follow the steps Byron King outlines in this presentation, and you’ll be ready.
01:30 — Bill Gross joined the sell side of our Trade of the Decade today. He cleaned out his Pimco Total Return Fund of US Treasuries paper and loaded up on cash. Given he manages the largest bond fund in the world, we expect to have more company over here soon.
“Nearly 70% of the annualized issuance since the beginning of QE II has been purchased by the Fed,” Gross wrote in his latest monthly communique. “Who will buy Treasuries when the Fed doesn’t?”
That’s been our question for some time.
“What we look for in our Trade of the Decade,” we wrote early in 2010, “for the sell side, is something that has just had its best decade ever…something that has been going up for so long people think it will go up forever…something that everyone wants.
“What does that describe? Well, the thing that comes closest is US Treasury debt. Yields have been going down (meaning, the price of debt is going up) since 1983. And now, despite a supply that seems to be going off the charts, demand for Treasury bonds, notes and bills has never been stronger. What’s more…if our analysis of the US economy is correct…the supply of Treasury debt is going to continue to rocket upward for many years. Deficits of $1 trillion to $2 trillion per year are going to become commonplace.
“How long will it be before the market in Treasury debt crashes? How long will it be before hyperinflation…or a debt default…sends investors running for cover? We don’t know…but it seems a likely bet that it will happen sometime in the next 10 years.”
Mr. Gross backtracked a little this morning and said he still believes US T-bills should still carry AAA ratings. But, umn, actions speak louder than words, right?
01:38 — Moody’s got around to downgrading Spanish government bonds this week. All of a sudden people are remembering there’s a crisis in the Eurozone. The euro fell to a one-week low against the dollar.
01:42 — Meanwhile in the currency markets, readers of our newest publication, Strategic Currency Trader, had the chance to score a 98% gain this week by playing the Canadian dollar. Abe Cofnas, our currency expert who literally wrote the book on Forex trading, recommended readers buy the play on Monday. He followed up with a profit taking alert today.
If you’d like to turn the currency analysis you read here in The 5 into the chance for actual profits, we suggest you take a look right here. Act quickly and you’ll have the chance to claim a charter member discount.
00:00 — Wisconsin governor Scott Walker is about to sign legislation stripping public-employee unions of their collective bargaining authority. Despite Michael Moore’s promise to stand and fight. Republicans in the state Senate used a legislative maneuver to push the bill through this week, even though Democrats fled the state to prevent a quorum.
01:58 — A few of other “signs of the times” we seem to have missed this week…
After months of study, the Federal Reserve just concluded that no bank has committed a “wrongful foreclosure,” ever. Even those cases where the bank has repossessed houses bought with cash, apparently.
The chief financial officer at General Motors has resigned “unexpectedly.” Let’s hope for GM’s sake that he’s not following in the footsteps of Wells Fargo’s CFO. That one resigned a few weeks ago amid an “ongoing internal dispute” over aggressive accounting practices.
02:13 — And finally, the results are in from a monumental study of how the stock markets and the GDP of nations are influenced by… phases of the moon.
The January issue of the Journal of Empirical Finance features this article by Dr. Stephen Keef of Victoria University in New Zealand: “Are investors moonstruck? Further international evidence on lunar phases and stock returns.”
Keef examined potential influences of both the new moon and the full moon on 62 stock markets around the world between 1998-2008.
Keef’s conclusion: “The overall enhanced new moon effect is independent of GDP. An overall full moon effect is absent.”
Glad we got that straightened out.
02:30 — Here in Colombia we’re continuing our tour of this young and growing emerging market. The country has a lot of catching up to do — and that we believe is the core of the investment opportunity here.
“On Thursday,” Chris Mayer reported back to Capital & Crisis readers this morning, “we visited Cementos Argos, the largest cement company in Colombia, with a 51% market share. It is an asset-rich company. In addition to its cement operations, Argos owns a huge land bank of 5,000 hectares and a portfolio with stakes in three other listed Colombian companies worth $3.3 billion and 600 million tons of coal reserves.
“Argos has a huge opportunity in Colombia. As is often the case when a boom arrives, the building of the infrastructure to support the boom comes later.
“Colombia is way behind in infrastructure. It needs miles and miles of roads. It needs bigger ports, expanded airports and railroads. This has been a recurring theme on our trip, something we heard everyone mention.
02:48 — “Colombia consumes about 220 kilograms of cement per capita annually, compared to 500 kilograms for Vietnam,” Mayer continues. “In this respect, Colombia is well below the consumption rates of comparable developing economies. There is lots of room to grow.
“We’ve reviewed new road projects, such as Ruta del Sol, which will connect Bogota, the capital in the Andes, with Santa Marta, a port city on the Caribbean Sea. We talked about the Cartagena Refinery expansion. Both are huge projects as big as the Panama Canal expansion a few hours to the north. There is also a tunnel project that will connect Bogota to the Pacific port at Buenaventura. There are projects for hydropower plants, bus systems, pipelines and much more.”
03:13 — One thing we’ve agreed: infrastructure has been one of the surprises of the trip. “We had heard and read,” Chris sums up the point, “about the relative lack of good infrastructure in Colombia. But it is another thing to be down here and see it firsthand.
“Traffic in Bogota is impossible — or nearly so. The roads are choked with small cars that go nowhere fast. It seems to take forever to go even short distances. One of our contacts here told us that Colombia has only 300 kilometers of two-lane two-way roads.”
During our meeting with Ministry of Finance, we were told the government has identified infrastructure as one of 5 key “locomotives” — alongside housing, oil and mining, innovation and agriculture — that will pull the country along for the immediate future. There is a lot of money being thrown at these projects now… and we suspect that will continue for the next 5-7 years at least.
03:29 — Property prices in Bogota have skyrocketed because of an influx of wealthy Venezuelans escaping the “reforms” of their beloved president Hugo Chavez. If you want to move into an apartment in the swanky part of the Bogota it will now set you back $3500 a month for a 150 square meter apartment.
03:39 — “We’ve been enjoying your comments on Colombia,” writes a reader. “My wife and I lived in Cali 1963 to 1966, arriving the day after Kennedy was assassinated. No drugs back then, but gangs of ‘banditos’ roamed the countryside making driving outside the city limits extremely dangerous.
“Before getting too excited about the strength of the 1900:1 Colombian Peso, I remember it was a low 10:1 when we first touched down and when we left 3 years later it was 20:1. Our first experience of what currency devaluation is all about.”
“To focus in on what is the real Colombian Peso risk compare the 1963 peso gold ratio of 350:1 versus the 2,700,000:1 it takes to buy an ounce of gold today. Just imagine what might take place when “broke Uncle Sam” has to stop shoveling out its foreign aid.”
The 5: More on Colombia, next week, if you can stomach it.
04:05 — “It has that stink of old chicken parts in the trash,” says a reader reacting to Bank of America’s move to create a “bad bank” to house all its rotting mortgage paper. “This is the epitome of why the Fed was created. I am sure the general public or 97 percent of us don’t get it. It is legalized theft. And what is really strange is that it is so transparent.
“I am not a financial whiz, but I would assume that at some time the bank will transfer these to the Fed, based on the full value on the discounted cash flow, pocket the cash, and be rid of any losses. Millions will go to BOA, and I will be paying for the loss.
“Think I will start a bank. I can loan money to corrupt countries and multinational corporations as fast as anyone, not much risk that I can see.
“I’m sorry, I think I’ll just get another beer.”
The 5: Indeed.
05:00 — “Man you get them excited, don’t you?” says the entire content of one e-mail in our inbox. We presume that’s a reference to other readers’ reaction to the Michael Moore speech in Wisconsin. Can’t be anything about Charlie Sheen, since we’ve been studiously ignoring his public meltdown this week along with most everything else.
“I saw Mr. Moore at a rally at the University of Cincinnati a few years ago,” writes another reader. “He reminded me of the type of socialist that my mother had witnessed in Germany during the mid to late 1930s. By 1940 it was too late. They used to be called… Nazis! The route that the USA is taking has me recalling more and more the history of my family and why we moved from one country to another in order to escape. I do not want to repeat this again, however it is becoming more likely that I shall.”
We’ve been kicking around this very idea as theme for the Agora Financial Investment Symposium July 26-29, 2011 in Vancouver, B.C. “Fight or Flight: Capital At Risk!” come to Vancouver to join the discussion… call Barb Periello at (800) 926-6575 or (561) 243-2460 right now and claim your early bird discount.
That would also be a good place for us to grab that beer, eh?
Have a good weekend,
The 5 Min. Forecast
P.S. You’ll have to forgive us for any misspellings in today’s 5. We penned pieces of the issue in a zooming car, at a restaurant, and during our meeting in a textile plant. Never fear, however, we’ll be back in mistake-free mode on Monday.
P.P.S. We’re not sure if there’s a connection but in the last 48 hours we’ve seen scads of display ads on the Internet for the world’s most useless electronic accessory.
It was just about 48 hours ago when Dan Amoss released an updated research report on the company that makes this accessory why it’s set to crash no later than next Tuesday and how you can use this knowledge to make three times your money. Don’t miss out. Check it out right here.