Archive for September, 2010:
Gold – All About the Dollar?
By: Adrian Ash, BullionVault
The race to debase only looks set to raise gold’s global appeal still further…
GOLD is suddenly all about the Dollar again. Or so you might think.
After its longest run of moving in tandem with the trade-weighted Dollar Index since midsummer 1991 (45 trading days; average correlation +0.58), the gold price in Dollars resumed its commonly-assumed relationship with the greenback last Friday, moving opposite to the currency’s forex fluctuations.
Tuesday then brought the first of this week’s three new record highs. Only the Indian Rupee, to date, has suffered a similar fate.
What next? History says to expect further Dollar-led gold action ahead, at least in the headlines. Because any approach of the strong, positive correlation achieved this summer is typically followed by a stretch of strong negative correlation, with the Dollar and gold moving in opposite directions.
But that doesn’t mean non-Dollar investors won’t also see fresh gains or highs in gold, however – not with gold continuing what remains a powerful long-term uptrend against all major currencies, and not with central banks everywhere desperate to devalue their own money against the greenback.
“There’s certainly investor nervousness about monetary policy around the world since the Yen intervention,” as Mitsubishi’s new precious metals strategist Matthew Turner (formerly at the VM Group) tells Reuters.
“A lot of people are sensing a race to the bottom by central banks to print more of their currency, to reflate their economies, and gold is getting support from that.”
The Bank of Japan is now actively selling Yen to buoy the Dollar, while the Bank of England has held real Sterling interest rates below zero for 24 months running. Whatever the political rhetoric during May’s Greek deficit crisis, France and Germany would rather see a weak than strong Euro, while Beijing’s new “flexibility” – a prelude, perhaps, to its new Yen buying strategy – has so far delivered only a 1.4% rise in the Yuan’s Dollar value since June.
That’s barely a ripple compared with the Yuan’s 4.8% rise of Q1 2008, and nothing against the 5.5% rise in the Kiwi, 8.7% rise in the Aussie, or 15% rise in the Swissie of the last 3 months.
Longer-term, as you can see, gold’s bull market to date hasn’t really been about any particular currency. It really is about all of them.
Gold has quadrupled and more against all the world’s money since the start of 2000, as our Global Gold Index shows. (It maps the daily gold price in the world’s top 10 currencies, weighted by size of economy and starting at 100 on New Year’s Day 2000). And most critically for traders trying to second-guess the Dollar gold price, throughout 2010 to date – and also across the last four decades as well – gold’s correlation with the Dollar Index is statistically insignificant (+0.02 and minus 0.15 respectively).
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold “Steady” vs. Dollar Rally as US Leads Global “Race to Debase”
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD sat tight above $1290 an ounce in London on Thursday morning, holding 1.4% above last week’s close as European stock markets extended their losses to 1.2% and crude oil dropped below $74 per barrel.
“Gold has remained fairly steady around yesterday’s closing level, in spite of a stronger Dollar,” says one London dealer in a note.
“A quiet session overnight,” says another, with gold “basically tracking the Euro” against the US Dollar as Tokyo and Hong Kong joined Shanghai in closing for a holiday.
The Dollar today knocked the Euro 0.5¢ off Wednesday’s 24-week high above $1.34, but it fell back against the Japanese Yen.
New data meantime revealed a downturn in European services and manufacturing output, a further decline in UK mortgage and business lending, plus higher-than-expected US jobless claims for last week.
“Gold was, and is, used as a symbol of status and value, and the basis for that is its rarity,” said BBC business editor Adam Shaw on Radio 4′s agenda-setting Today program this morning.
“A government [in contrast] can print as much money as they like, flooding the market and undermining the currency’s value.”
Examining Tuesday’s US Federal Reserve statement, “The Fed had indicated previously that further quantitative easing would be conditional upon a worsening of the economy,” says the latest Commodities Weekly from Natixis bank.
But “Their message this week suggested this was not necessary…suggest[ing] that quantitative easing may commence imminently.”
“In the race to the bottom in the game of currency devaluation, the US continues to pull ahead,” says RBS’s Global Views report.
“Japan fought back valiantly with its unsterilized intervention a week ago…[and] the Eurozone has lost ground for the time. [But] with all the major currencies looking shaky, gold is hitting new highs.”
“The evils of inflation are well known…and inflation [is] above target and expected to remain so until the end of next year,” said Bank of England policy-maker Spencer Dale in a speech to business leaders in Cardiff, Wales last night.
“I recognize that reassuring words and good intentions are not enough,” he said, before delivering a technical presentation on pricing models and theory.
The Bank of England has now kept base rate at a record low of 0.50% for 18 months running. Consumer price inflation has exceeded the Bank’s upper tolerance of 3.0% per year for 9 months in succession.
On a trade-weighted basis, the British Pound has dropped one-fifth of its exchange-rate value since the UK banking crisis began three years ago this month.
The gold price in Sterling today held above £821 an ounce, more than 32% higher from March 2009, when the Bank launched its own quantitative easing.
“The conditions for a major appreciation of the Renminbi do not exist,” said Chinese premier Wen Jiabao, rebutting calls for a 20% rise in his currency (also called the Yuan) ahead of meeting US president Barack Obama at the United Nations in New York today.
“The main reason for the US trade deficit with China is not the Renminbi exchange rate, but the structure of trade and investment between the two countries.”
Over in Dublin, meantime, Irish finance minister Brian Lenihan suggested today that the lowest-ranking creditors to Anglo Irish Bank will not be repaid in full.
Default insurance on Irish banks leapt, and yield spreads on Irish government bonds jumped to new records above comparable German debt.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold’s “Straight North” Rally Driven by Fears of QE and “Lack of Alternatives” Ahead of US Fed Decision
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF WHOLESALE gold bullion eased back from yesterday’s new record highs in London on Tuesday, unwinding Monday’s 0.7% gain as world stock markets crept higher ahead of the US Federal Reserve’s latest policy decision.
Major-economy government bonds rose, and crude oil fell.
Silver prices slipped to three-session lows beneath last week’s close of $20.75 per ounce.
“At these rarefied levels, investors continue to be wary,” says a note from Swiss refinery group MKS’s Finance division.
“While the yellow metal ought to continue to rise, it will be a volatile trip.”
Volatility has been absent, however, from the last 7 week’s 10% rise in gold prices, with the Chicago Board of Exchange’s new CBOE/Comex Gold Volatility Index (ticker: GVZ) closing Monday at just 19.
The CBOE’s new oil volatility index ended last night above 32. The VIX index of volatility in S&P500 stock options stood at 21.5.
“This gold rally has been as orderly as the March of the Penguins,” says CNBC senior editor Lori Spechler – “straight line, all participants headed north.”
“It seems like gold is being driven more by investors just deciding there aren’t any compelling alternatives,” says Douglas Porter, deputy-chief economist at BMO Capital Markets in Canada.
“One of the things that has bothered people is the possibility of further quantitative easing by the Federal Reserve Board, which essentially means injecting further liquidity into the market,” says Bank of Nova Scotia’s Patricia Mohr, also speaking to the Toronto Star.
“Some gold investors expect to see new rivers of currency offered” by today’s US Federal Reserve decision on monetary policy, notes Angela Prunecchi on the trading desk of Italpreziosi in Arezzo, Italy.
But while 54 out of 63 economists surveyed by Bloomberg expect the Fed to retain its promise of “exceptionally low rates for an extended period”, sixty of those experts don’t expect any new quantitative easing today.
“We can probably expect that they won’t come out with additional measures,” agrees commodity trading chief Darren Heathcote at Investec in Sydney, speaking to Reuters.
“In that case, you might see the gold price retrace some of its recent gains.”
US Treasury bond prices rose meantime Tuesday – and so yields fell – ahead of the Fed announcement.
European government debt also rose after new bond auctions by Ireland, Spain and Greece attracted strong investor demand, but only at higher yields than last time they went to market.
Gold priced in Sterling hit new 14-week highs above £826 per ounce after the government reported an August record for its budget deficit.
The Euro gold price fell, however, as the single currency rose sharply on the forex market, breaking back above $1.31 to the Dollar and capping gold at €31,300 per kilo.
“I don’t think [gold's] going to stop,” said Harmony Gold’s CEO Graham Briggs to reporters at this week’s Denver Gold Forum today.
“I think gold financial issues in the world demonstrate the basic principle of gold – that it’s basically a good investment.”
Taking part in the Forum’s opening debate last night, Paul Walker of the GFMS consultancy said a short-term “collapse” in the gold price would require higher interest rates from the world’s major central banks – an event due “some time within the next five years,” according to Lawrence Williams’ report for MineWeb
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Profit from Brazil’s Agricultural Boom with 2 Easy Plays
Above all, I’m a currency guy. I spend my days in front of a Bloomberg terminal, monitoring every move that takes place in the forex markets.
Before I was a currency analyst, I was a kid growing up in one of Brazil’s poorest states: Piauí.
Recently, though, my home state has become a place of interest for such top business executives as Alejandro Elsztain and Julio Piza. They are both presidents of leading agricultural companies in Argentina and Brazil.
In fact, I met with them during a recent South America trip. Mr. Elsztain revealed to me his interest in my humble home state.
He told me, “I’ve been to Piauí several times. I travel there so frequently that I’ve even learned some Portuguese.”
Piauí is responsible for less than 1% of the nation’s Gross Domestic Product and is described by The Economist as “the Timbuktu of Brazil, a remote, somewhat lawless area where the nearest health clinic is half a day’s journey away.”
So why is Mr. Elsztain so interested in Piauí?
What One Top Executive Knows about
Piauí Could Make You Rich
One word: Cerrado
Most of Brazil’s arable land is located in the Cerrado, a tropical savannah that spreads across a few states, including Piauí. A massive stretch of land, perfect for growing cash crops like corn and soybeans.
Argentina is already one of the main grain exporters in the world. But Brazil is the emerging superpower in the sector. No wonder this major Argentine company is investing so heavily in Brazil.
South America will take center stage in what is one of today’s biggest investment mega-trends.
I’ll tell you two ways to cash in on this megatrend. But first, let’s look at why agriculture will reign as a winning investment in the not-too-distant future.
9 Billion Reasons to Invest
in Brazil’s Agriculture
Speaking with this ag-insider in Argentina solidified my belief the industry has a very bright future.
You see, there are three main factors that drive food demand:
1.) Population Growth
The United Nations forecasts world population will grow from the current 6.8 billion to a whopping 9 billion by 2050. That’s 55 million more mouths to feed every single year.
Today, a rice-and-beans meal remains a luxury to many of the poor in emerging markets. But the middle class of Asia and most other emerging markets will continue to grow. As more people emerge from poverty, quality of life — including dietary habits — will improve.
2.) Increasing Urbanization
Urbanization is a part of emerging market growth. Rural poor move into cities seeking better jobs with better pay.
China has a very big economy, but it’s still a very poor country. Its per-capita Gross Domestic Product is only $6,600, which is seven times lower than America’s. In terms of wealth, the Chinese are as rich as Algeria or Namibia.
But that will soon change. As we’ve written before, the Chinese government increasingly raises minimum wages and its rural residents flood into the major cities for greater opportunity.
3.) Rising Incomes
As the very poor climb the social ladder, they first spend extra money on food.
And they begin to add meat to their meals. That’s why the United Nations estimates meat output will have to double by 2050.
And higher demand for meat intensifies the demand for agricultural products.
Ag Not Just in Demand, But ‘Super-Demand’
“Chickens are nothing more than feathers, corn and water.”
That’s what Julio Piza told me when I met him in Brazil.
He explained what the third world’s newfound taste for meat will mean for agriculture – super-demand. Not only do animals eat the same grains and agricultural products we do, but it takes acres of grazing land to feed a cow, which in turn means less acreage for growing other food.
Limited Supply + Growing Need = Soaring Prices
Besides growing demand for agricultural products, the supply of land is very limited. That’s one reason Mr. Elsztain is investing in Brazil. It has a lot more arable land available than Argentina.
The limited supply of agricultural products is a global trend. The net supply of corn, for example, has been declining since the 1960s.
With more mouths to feed, and limited ways to increase supply, prices of agriculture products have no way to go but up. Billionaire investor Jim Rogers’ stance is the same as mine. In his words:
“The fundamentals for agriculture have gotten better. The inventories are now at the lowest they’ve been in decades, not years. We’re going to have very serious shortages of food everywhere in the world, and prices are going to go through the roof.”
Rising prices will certainly be bad news for your wallets at the grocery store. But the investment opportunities are tremendous.
Here are two ways to play the long-term rally in agriculture that are designed to be easy for the investor, but profitable enough (in a short enough time frame) to satiate the currency trader in me.
Big Agriculture Gains in 2 Plays
And as a currency guy, I can’t help but believe the agricultural boom that’s about to take hold of Brazil will hurtle the Brazilian real upward.
One way to play it is to buy the Brazilian real exchange-traded fund, BZF, and ride Brazil’s agricultural wave to long-term profits. I would buy this fund on pullbacks below $26.50.
Already, Brazil’s Central Bank is taking action to push down its currency. When central banks intervene in this way, the result is temporary. They may succeed in manipulating the real lower in the short term, which means a greater buying opportunity for you.
And although I’m a currency analyst, given everything I discovered in my South American research trip, I can’t help but like agriculture itself.
An easy way to invest in the global trend is to buy the Market Vectors Agribusiness ETF (NYSE:MOO). This fund invests in agriculture-related stocks of companies across the globe. From companies that operate farms to those supplying agricultural equipment and even fertilizer.
By investing in these two funds you will not only diversify away from the declining dollar, but also participate in one of the biggest investment booms of the future.
Evaldo Albuquerque
Editor, Exotic FX Alert
Has the price of gold reached its zenith?
Today we are going to be looking at gold and analyze the recent run-up that has created a great deal of excitement and fear for many investors and traders.
We’re also going to be looking at some upside measurements that we have for this market. Conversely, we are also looking at an area that should provide support should the gold market pull back from its current levels.
In this new video we are going to be focusing on our “Trade Triangle” technology and what it means for traders. We will explore short-term, intermediate-term, and long-term trading in this precious metal. This will all be done using our “Trade Triangles.”
We hope that you enjoy the video and that you share your comments. Video follows below:
All the best,
Adam Hewison
President of INO.com
Co-founder of MarketClub
Will Grains Gain OR Wane? Find Out For FREE
Futures Junctures Free Week has begun
September 16, 2010
By Elliott Wave International
Over the past few months, leading grain prices have climbed up the commodity wall like a “mile-a-minute” kudzu vine. From late June to early August, the big three grain markets (wheat, corn, and soybeans) soared 40%-plus in a coordinated rally to multi-year highs before leveling off.
The question on the minds of market participants is simple: Is the grains’ uptrend set to end?
Well, according to the mainstream experts, the answer is a definite NO — and an equally definite YES. See, according to recent headlines, grain prices are as likely headed for strong gains as they are for a world of pain. On this, following news items capture the very conflicting grain complex picture:
- “Wheat futures decline, fall most in two weeks after Egypt looks elsewhere for supplies… We have a bearish tone.” (Wall Street Journal)
- “Wheat Soars Despite Reassurance On German Crop.” (AP)
- “Corn Above $5-per bushel mark; prices expected to pull back.” (Cattle Network)
- “Corn (Soybeans) Still King… the bull market is intact for now.” (Farm Forum)
- “Grain Markets Are Hot: But Is It Too Late? One money manager believes the dance will soon be coming to an end.” (Minyanville)
I rest my case.
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Fortunately, there’s a quick and easy alternative to the mixed messages of the mainstream: the September 14 Daily Futures Junctures. In that publication, EWI’s chief commodity analyst Jeffrey Kennedy presents in depth analysis, labeled price charts, and live video commentary on all three grain markets — a total of 12 charts in all.
The best part is, you can get instant access to Daily Futures Junctures, along with its long-term sister Monthly Futures Junctures at the unbelievable discount of 100% off. This complimentary admission to one of EWI’s most exclusive subscriber resources is the benefit of Futures Junctures Service Free Week. The event runs from 5 pm (EST) on Wednesday September 15 to September 23. Sign up today and start taking advantage of this amazing opportunity.
This article was syndicated by Elliott Wave International and was originally published under the headline Will Grains Gain OR Wane? Find Out For FREE. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Gold Rises on Northern Rock, Lehmans’ Anniversaries; Silver Hits Highest Price Since Bear Stearns’ Collapse
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD rose as the Euro fell from near 5-week highs to the Dollar and world stock markets also slipped early Tuesday.
Rising to a four-session high of $1257 an ounce for US investors, the gold price in Euros jumped 1.5% from yesterday’s low to touch €31,480 per kilo.
G7 government bonds rose, depressing the yield offered to new buyers, while commodity prices ticked back.
“Traders were pre-occupied with [platinum-group metals] in the morning,” said one Hong Kong dealer of Tuesday’s Asian trade.
“Gold and silver were left on the sidelines” until London opened, when platinum and palladium – used primarily in auto-catalysts, and so dependent on new vehicle demand – rose 1.4% to reach new six-week highs.
Silver prices also rose once again, recording a London Fix of $20.31 an ounce, the highest level since 18 March 2008 – when Bear Stearns was rescued by a US Treasury-backed takeover by J.P.Morgan.
“If the gold price does continue to move upwards as many are still predicting, then silver could be dragged up to even higher levels,” writes Lawrence Williams at MineWeb today.
“Many analysts make the point that the historic Gold/Silver Ratio has been nearer 15 than the current 62.5 (gold at $1250, silver at $20),” he adds.
“But then the role of silver has changed dramatically since those days, from being a true monetary metal to one which is driven more by industrial demand with precious metals overtones.”
“All four precious metals are really keeping a very close eye on the US Dollar right now, and if the Dollar doesn’t shape up, as such, this safe-haven buying will continue,” reckons Afshin Nabavi, head trader at Swiss refinery MKS’s finance division.
Gold prices, however, continued to show a positive – not negative – correlation with the Dollar on Tuesday, extending the longest period of moving in sync with the US currency since Dec. 1995.
So far in 2010, gold and the Dollar have moved together vs. the Euro on 103 out of 176 trading days. Previously showing a strong, negative correlation with the Dollar of minus 0.50 on a daily basis (rolling one-month), gold and the Dollar have now displayed a positive correlation of +0.1 on average since New Year’s Day, peaking above +0.91 as the Greek debt crisis struck in May.
New data today showed Industrial Production across the 16-nation Eurozone contracting unexpectedly in August, while Economic Sentiment on Germany’s ZEW measure also fell.
UK house prices rose much less quickly than analysts forecast on the government’s official measure. Consumer Price inflation also defied predictions by holding at 3.1% per year.
CPI inflation has now matched or exceeded the Bank of England’s upper tolerance of 3.0% per year in 19 of the last 36 months. The Bank has nevertheless slashed interest rates to 300-year lows at 0.50%.
Governor Mervyn King is only obliged to write an open letter to the government, defending the Bank’s policy, when inflation rises above 3.0%, rather than remaining above that level.
King has now written eight such letters – all of them since April 2007.
Over in the gold futures market, rapid growth in speculative demand “drastically slowed” last week, notes the latest Precious Metals Weekly for ABN Amro from the VM Group consultancy.
“ETF investment [also] fired a possible warning shot over the sustainability of the gold price rally, by falling for the first time on a weekly basis since July and, notably, across all regions.”
New York’s SPDR gold ETF trust reduced its gold bullion holdings by another tonne on Monday, taking them back to a 1-month low at 1292 tonnes.
London-listed GBS also cut its holdings slightly, down to the 18-month average of 126 tonnes.
On the third anniversary of the banking run on Northern Rock – the UK’s first High Street banking run in over a century – British investors looking to buy gold today saw the price reach a four-session high above £816 an ounce, some 129% higher from 14 Sept. 2007.
Two years after the collapse of US investment bank Lehman Bros., the New York Federal Reserve said yesterday it will recycle some $27 billion of its maturing mortgage-bond portfolio into Treasury bonds over the next four weeks.
Targeting both fixed-income and inflation-protected bonds (TIPS), the NY Fed has already bought some $18bn of US Treasury debt since mid-August.
By this morning’s London Gold Fix, gold priced in Dollars stood 61% higher from 15 Sept. 2008 – the day Lehmans filed for bankruptcy.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
You say Obama; I say Ozawa! You say boom; I say ka-boom!
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| Bill Bonner |
The Nobel Prize committee has never withdrawn a prize. It might want to consider it. In Tuesday’s New York Times, prizewinner in economics, Paul Krugman reveals either that he knows nothing about economics…or that there is nothing worth knowing in it. We’re beginning to think it’s the latter.
“From an economic point of view,” he writes, “World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Deficit spending created an economic boom – and the boom laid the foundation for long-run prosperity….”
In the 1938 US elections, voters showed what they thought of the New Deal; Democrats lost 70 seats in the House. Then as now, the public had lost faith in public spending, says Krugman. Nearly two out of three of those polled said they were opposed to stimulus efforts. Roosevelt buckled under the pressure; he drew back from further spending to fight the slump.
Thank God for WWII! No one opposes military spending in time of war. Krugman made his position clear in 2008 in his New York Times blog.
“The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression.”
According to this line of thinking, the best form of stimulus spending is money spent on the military. It creates consumer demand without creating consumer supply. Consumer prices rise; people spend. The slump is soon over.
But if WWII helped the US economy, think what it must have done for Japan; proportionally, its stimulus efforts dwarfed those of the US…and began much earlier. Just this week, Ichiro Ozawa, running for prime minister of Japan, vowed to take “every measure” to lower the yen and promised a stimulus package more than twice as big as the current program. He was just following in the footsteps of Japan’s leaders from the ’30s. It was “economic security” they said they were after. And they thought they could get it by central planning and government spending. Military spending rose from 31% of the budget in the early ’30s to nearly 50% five years later. By the early ’40s it was around 70% and nearly 100% later on. Deficits and debt soared.
Did that create a boom? You bet it did. Japan was the first nation to get out of the global slump. It boomed…and boomed…and ka-boomed. When it came to warships, planes, and soldiers, Japan was soon among the richest nations in the world. Yes, Americans had more electric fans, automobiles, central heating, aspirin, ice cream, and the rest of the paraphernalia of civilized life at the time. In the mid-’30s, the US produced 40 times as many autos per person as did Japan. Even during the Great Depression, the US out-produced Japan by a factor of 7 and its workers earned 10-times as much money.
Economists can’t even measure real prosperity, let alone fiddle it. So they put on the GDP and employment numbers the way a bald man puts on a cheap wig. It makes him look ridiculous and fraudulent, but it’s the best he can do. Unemployment disappears in a war economy. Japan put a million men in uniform. Two million more were part-time reservists. Those who weren’t in the army were put to work building tanks and planes. By 1941, Japan could produce 10,000 planes a year. If you were a swallow you wouldn’t want to build your nest in Japan’s factory chimneys; they belched smoke night and day.
And talk about fiscal stimulus! Krugman would have loved it – stimulus unfettered by real money or even a casual regard for real prosperity. Takahashi Korekiyo was known as the “Japanese Keynes.” Gillian Tett notes in The Financial Times that he was assassinated in 1936 after he came to his senses and tried to bring state finances under control. He was done in by army officers who did not want the stimulus to stop. Not that we’re being judgmental about it. As far as we know, the quality of central banking could probably be improved by an occasional assassination.
Takahashi wasn’t the first. Before him Junnosuke Inoue had held out for the gold standard and balanced budgets. He was out of office by 1931 and out of luck in 1932, when he was murdered. The gold-backed yen was abolished the day he left office. Then, public spending, deficits, central planning, debt, and inflation ran wild. By 1939, the Japanese were spending $5 million a day on their war with China – a huge sum for the Japanese at the time.
Was the economy improved by all this spending? No, it was perverted…hammered into a grotesque imposter – a parody of a real economy. Most of the nation’s resources were put to work building things almost no one wanted. Then, after the attack on Pearl Harbor, the stimulus efforts were redoubled. Rations were reduced further. Working hours were extended. What few consumer items were available were three times as expensive at the end of the war as they had been when it began. Men were conscripted into factories and the army. Women were expected not only to make the tanks, but to join the home-guard and prepare themselves to repulse the American invaders with sharpened bamboo sticks. What a marvelous economy – operating at full capacity and full employment until General MacArthur finally put it out of its misery.
Regards,
Bill Bonner,
for The Daily Reckoning
It’s FreeWeek at EWI: Get charts, analysis and forecasts of Asian-Pacific and European markets
Greetings,
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About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private around the world.
Can Green Energy ETFs Put Green In Your Wallet?
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Remember a few years ago when “alternative energy” was all the rage? With crude oil trading at $150 and gasoline prices above $4 a gallon in many places, breaking free from our dependence on fossil fuels seemed like a good business opportunity.
As someone who greatly enjoys driving, air conditioning and electricity, I totally agree that it would be nice to diversify our energy sources. The question is: How to do it cost-effectively?
I believe the answer is to let free enterprise do its thing. Remove the artificial barriers, and the laws of supply and demand will lead us toward a good solution. Entrepreneurs will sort out the details.
Unfortunately, not every alternative-energy pioneer can succeed. There will be winners and losers. And investing in single stocks from this sector is a high-risk game. The good news is that you can get involved while staying diversified through exchange traded funds, or ETFs. Today I’ll tell you about some of them.
First let’s take a quick look at the different sources of energy …
Conventional Energy Sources
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Fossil fuels: Good old-fashioned oil, coal, and natural gas provide the bulk of the industrialized world’s energy. We have the infrastructure already in place to find, produce and distribute this kind of fuel.
There are two problems, though. First, the easily-tapped reserves are running low. Second, the whole process is messy and unhealthy for people as well as the planet.
Nuclear energy: The secrets of the atom can also produce energy, and in many places atomic power plants go a long way toward meeting the demand for electricity. However, nuclear is not so great in transportation. You can’t run your car on uranium — at least not yet.
Hydro power: As long as water keeps running downhill, hydroelectric dams will be a good source of electricity, with relatively low environmental and safety risks. Like nuclear, though, hydro power is of limited usefulness when portability is required. What’s more, the best running-water sources have already been dammed.
That’s where we stand right now. Everything else is an “alternative.” So let’s take a look at …
The New Energy Sectors
Electric cars: The big problem is that batteries with enough juice to power a car are heavy. So heavy, in fact, that carrying them around often costs more energy than it saves!
The holy grail of the electric car industry, then, is the lightweight battery — one of the highest-potential but most elusive goals of the sector. Such things are being developed but are still very expensive. Most use a metal called lithium.
The Global X Lithium ETF (LIT) is probably the best and easiest way to tap into advanced battery technologies. Although this ETF has “lithium” in its name, the majority of its investments are in battery companies. Think of it as a “lithium food chain” ETF.
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Solar energy: The sun is always there and doesn’t run out — or at least it won’t for a few billion years. Meanwhile we might as well tap into it.
Using sunlight to heat water is fairly simple; turning it into electricity is more complicated. New technologies are making the process a lot simpler, though. As this challenge is met, solar power could grow to provide much more than the fraction of our energy needs that it meets right now.
Currently two ETFs focus on solar energy: Claymore/MAC Global Solar Energy (TAN) and Market Vectors Solar Energy ETF (KWT). Both were launched in April 2008 and both are down about 70 percent from then. Solar energy may sound like a great idea, but it’s not yet a profitable idea for investors.
Wind energy: Remember when every farm had a windmill? They were handy for running the water pumps before electric lines made it out to the boonies. Now they’re just antiques.
What a change — now wind is the reason some farms exist. Oklahoma billionaire Boone Pickens has poured a ton of money into vast “wind farms” in the desert Southwest where huge windmills generate electricity.
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Wind energy has its limitations, of course. But it could still turn into a big business. Boone Pickens is no dummy about these things …
According to his Web site, his Mesa Power Group continues to pursue smaller projects throughout the United States and Canada through the American Wind Alliance, a cooperative formed with General Electric.
First Trust Global Wind Energy (FAN) and PowerShares Global Wind Energy (PWND) both target this alternative energy source, and like their solar cousins have not had much financial success. Wind energy is actually one of the worst performing industries of 2010. FAN and PWND are both down more than 30 percent so far this year.
Keep in mind that even if these ETFs are “green” for the environment, they may not necessarily put “green” in your wallet. Just like an old-fashioned gold rush, the alternative-energy rush is prone to hype and overconfidence.
This year most of the ETFs covering this sector have been hit hard, and it’s easy to start thinking that they look cheap. Are they a bargain at current prices, or are they only beginning to crash? I wish I knew the answer to that one. The “value investors” haven’t started buying them up just yet.
A somewhat less aggressive way to get into the alternative-energy group is with broader ETFs that don’t specialize in one niche like wind or solar. Alternative energy means different things to different people and as a result there is not just one index. Green, alternative, renewable, and progressive are among the monikers used to describe these funds.
Here are a few ETFs you may want to consider. But before you buy I suggest you dig a little deeper to see if they target the industries you want to own:
- PowerShares Wilderhill Clean Energy (PBW)
- PowerShares Global Clean Energy (PBD)
- Market Vectors Global Alternative Energy (GEX)
- PowerShares Wilderhill Progressive Energy (PUW)
- iShares Global Clean Energy (ICLN)
- First Trust Nasdaq Clean Edge U.S. Liquid (QCLN)
Nearly all the ETFs I’ve mentioned today are thinly-traded, so be sure to use limit orders when you buy or sell. Be cautious and know what you’re getting into.
Best wishes,
