by Addison Wiggin – March 22, 2011
- Rising food prices and the Beefy Crunch Burrito caper… and how not to play the trend…
- All gold stocks are not equal… Chris Mayer on why the big names are lagging the gold price…
- Burger chain flees California… and if Japan flees Treasuries… will those attempting to "undermine the legitimate currency" please stand…
- *** Membership announcement: 6 Stocks for Right NOW! free, plus details on the Equity Reserve below…
0:00 — "Food prices may be rising," Fed governor William Dudley told an audience this month "but at the same time, other prices are falling." He then recommended they buy an iPad 2 for the same price as an old one.
As much as we don’t think we’ll tire of telling that story, we don’t think anyone really gives a hoot about the stabilizing costs of iPads, either. Least of all employees of the Taco Bell on Rigsby Road in San Antonio.
0:15 — On Sunday, a man ordered seven Beefy Crunch Burritos there. When he found out the price had risen 50 cents per, to $1.49, he lost it… and fired a BB gun at the manager.
He then sped off, exchanged real bullets with pursuing cops, and holed up at nearby motel.
After a three-hour standoff, the local SWAT team set off some tear gas and Ricardo Jones, 37, gave himself up. No one was hurt.
That night, Jones dined courtesy of Bexar County taxpayers.
0:33 — "Rising prices for food can cause all kinds of problems," says Chris Mayer. "I don’t think the world is ready for a 15% reported inflation rate in China, for example."
The following chart from Goldman Sachs shows you what headline inflation rates would be if local food prices caught up with international food prices:
Mayer: "We could see alarmingly high inflation rates when the second-quarter numbers come out."
0:50 — "Good investment ideas on food are tough to find, however," Chris warns. "Most stocks have already moved quite a bit and are not attractive from a value perspective."
"Gold mining stocks," on the other hand, says Chris, as he searches for something attractive, "are good inflation plays now. You don’t have to be a gold bug to like gold stocks right now. Still, it’s important to be in the right gold stocks."
You don’t want to be stuck in gold stocks that trail the price of the metal.
1:06 — Several of the biggest gold stocks are historically overpriced, as demonstrated by this chart.
The top four gold miners — Barrick, Newmont, Goldcorp and Kinross — traded five years ago at 28 times forward earnings. Today, that number is down to 17. Compare that with Exxon Mobil —another stock that has gone nowhere because it started at a relatively high valuation."
1:19 — "rice-to-earnings ratios are not a good way to value gold stocks," Chris cautions. "It’s better to look at price to cash flow and to value assets in the ground. But the point is still relevant."
"I haven’t recommended any of the large gold miners, because the values were better in the smaller gold stocks. I think that still holds true.” Readers of Mayer’s Special Situations will agree. They’re up 69% on one gold stock and 71% on another. In the past, they’ve collected precious metals gains like 132% in only four months.
Ditto for readers of Byron King’s Energy & Scarcity Investor. They have precious metals plays up 152% and 218%.
Even readers of Penny Momentum Trader — in which editor Jonas Elmerraji focuses on chart action, not ounces in the ground — bagged big gains on a precious metals play this month — of 21% and 52% in just five days.
[Ed note. A select group of readers has a chance to profit from all of these plays… and much more. If you take a few moments to review the following presentation, you can get 6 Stocks for Right Now free of charge. Gratis. A complimentary gift for becoming a member of the Agora Financial Equity Reserve.
The special report 6 Stocks for Right Now details one ‘pick of the litter’ from each of our editors. You can find full details of this offer right here. For new members, 6 Stocks will be released at 5 p.m. on March 31.]
1:42 — Across the Big Board, stocks are treading water after yesterday’s big run-up. The major indexes are off a smidge.
1:46—Another measure of inflation, the dollar index is bouncing off lows last touched in 2009. At 75.5, the dollar index is down 17% from when Ben Bernanke signaled the prospect of "QE2" at Jackson Hole, Wyo., last August. Thanks, Ben.
1:57 — Precious metals are holding firm, around where they were this time 24 hours ago. Spot gold is fetching $1,426, silver $36.13.
As go the metals, so goes crude today. A barrel of West Texas Intermediate is holding steady at $102 and change.
2:02 — "Natural gas presents a special opportunity for you today," wrote Byron King in a special message to readers over the weekend. But you’ve got to act fast. The mainstream is catching on.
"Natural gas may be having its day," reads today’s front page of The New York Times business section, "as its rival energy sources come under a cloud." It’s not just the new worries about nuclear power after the disaster in Japan. The NYTimes points to offshore oil after the BP disaster and ongoing concerns about coal and greenhouse gases.
"With the global demand for energy expected to grow by double digits in coming decades," says the Old Gray Lady, "analysts are anticipating a new boom in gas consumption."
"After all," says Byron, one of those analysts, "demand in the U.S. won’t go down… even though the supply of power from nuclear could decrease." Remember our figures from yesterday: If regulators take all the Japan-type reactors off line in the United States, that’s an instant 4% power cut nationwide.
Byron has 11 ways to play the natural gas trend. You can learn about all of them and get a one-month trial of Outstanding Investments… simply by making a donation to the American Red Cross for relief in Japan. Here’s how you can help.
2:38 — While we’re in fast-food mode today, we note this portent of things to come: California has managed to chase away a business with a 70-year history in the Golden State.
CKE Restaurants, owner of the Carl’s Jr. chain, is picking up stakes. You may have heard of Carl’s Jr., They’re a string of burger joints in the West who made a name for themselves with "edgy" commercials like this one featuring Paris Hilton:
"It costs us $250,000 more to build one California restaurant than in Texas," says Andrew Puzder, CKE’s CEO. And once it’s open, the costs keep piling up: Under California law, restaurant managers are hourly employees. That means, for instance, they must take breaks at specified times, even if a busload of customers shows up.
"California is setting a bar here. You can’t work smarter, harder, longer or better," says Puzder, citing an oft-believed adage of entrepreneurs. CKE Restaurants will move to Texas — where they plan a major expansion.
3:05 — In a similar vein, we see efforts are under way to keep the Jimmy John’s sub chain from moving out of Illinois. You’ll recall founder Jimmy John Liautaud already fled the Illinois tax jurisdiction by moving his residence to Florida.
The Champaign County Economic Development Corp. is in the "early phase" of "efforts to retain local business, including the corporate headquarters for the Jimmy John’s sandwich chain," according to the Champaign-Urbana News-Gazette.
Ah, yes, special favors… just what an economy in recession needs to get back on its feet.
3:22 — "Boomers did save," counters a reader after seeing our item last week about that age cohort’s slim savings, "but now those savings have dwindled." Due to barefaced lies the Fed and the administration are spewing, boomers had to dig into savings due to:
- 1) Loss of jobs and inability to find similar full-time jobs.
- 2) Financial assistance to grown kids who have lost jobs.
- 3) Economic devastation in ability to draw interest or rely on ‘so-called’ safe investments.
- 4) Reduced pay — In many instances, working people took cuts in pay to stay at their jobs, or had to pay more for health care and other benefits as the employer backed off.
- 5) Inflation. I know those lying b-st–ds say there is no inflation. They are manipulating those numbers just like all the other numbers.
"The U.S. government and the Fed are no better than people in power around the world being overthrown."
3:50 — "Oh, boy!" writes another reader, shifting gears, "If Japan cashed in its stash of U.S. Treasuries, or if its companies pulled in recovery money from selling U.S. securities, our markets would collapse and Treasury rates would skyrocket — just as James Grant described in your issue on Friday."
"What the financial elite are going to do is loan Japan the recovery money so Japan does neither of those things. They’ll just going to do it in sleight-of-hand fashion so we won’t realize what is going on."
4:10 — "Of course, von NotHaus wasn’t charged with counterfeiting," writes a third, leading a chorus of responses to the conviction of Bernard von NotHaus, monetary architect, over the weekend. “Counterfeiters pass fraudulent money with no value.
"Looking closely at von NotHaus’ currency, he attempted to pass an ounce of silver for $20, which has now appreciated to $34. The only counterfeiter is the U.S. Treasury."
"No one is more guilty of attempting to undermine the value of the legitimate currency of this country than Ben Bernanke," adds another. "What NotHaus did is a drop in the ocean compared to the inflationary action of the Fed in printing trillions of unbacked fiat dollars."
The 5: Apparently, the Bureau of Engraving and Printing has overcome a problem it was having with its press for $100 notes last fall. In December 2010, they printed 3.2 million $100 bills. In January, 16.0 million.
Last month? 41.6 million.
4:43 — "Von NotHaus makes a great coin!" chimes in a third. "I liked that silver Liberty Dollar. The Mint might actually hire him as a designer, instead of letting this industrious brain rot with the bums."
"I wonder if his hoard is still available for purchase; anyhow, can always sell them at eBay."
The 5: No such luck. The government wants the coins too. They currently value NotHaus’ stash at $7 million. The forfeiture trial began yesterday.
The 5 Min. Forecast
P.S. "Days like yesterday make me worry," Chris Mayer mused over the phone yesterday.
"It seems like nothing can derail this bull market. It shakes off natural disasters, civil war and sovereign debt crises with ease."
"But days like this also have the feel of a bartender’s last call for drinks. Everybody orders a couple of vodka tonics before the party ends."
During delicate moments like this, we call upon all our editors for their very best picks of the moment. Then Mr. Mayer and our investment director Eric Fry pare down the list to a manageable half-dozen and we put it all together into a presentation called 6 Stocks for Right Now.
We’ll release this presentation at 5 p.m., March 31 — that’s a week from Thursday. It’s one of the benefits that come with membership in Agora Financial’s Equity Reserve.
For a one-time upfront membership fee, the Equity Reserve gives you access to all our stock-picking advisories, plus free annual admission to the Agora Financial Investment Symposium in Vancouver in July.
The Equity Reserve is open to new members for the next 10 days. When it closes, we never set a firm timetable for reopening it. And when it closes this time, it will be the last time it’s ever available for the current fee. Please review your invitation from publisher Joe Schriefer right here.