Courtesy of Bloomberg Click on Link to see videos.
http://www.bloomberg.com/news/2010-12-28/commodities-beat-financial-assets-making-silver-zinc-top-picks-for-2011.html
Commodities Beat Financial Assets Making Silver, Zinc Top Picks for 2011
By Nicholas Larkin, Pham-Duy Nguyen and Tony C. Dreibus - Dec 28, 2010
At a time when money managers’ concerns have swung between record government stimulus and the potential for a new recession, investors remain bullish on commodities that beat stocks and bonds for a second year.
The benchmark Standard & Poor’s GSCI gauge advanced 20 percent, more than the 9.1 percent gain in the MSCI World Index of stocks and 5.3 percent return on a Bank of America Merrill Lynch index of Treasuries. Currency traders are betting on a stronger dollar, sending a contrarian signal because commodities moved in an opposite direction to the currency in 16 of the past 20 quarters, data compiled by Bloomberg show.
Silver, an investment and an industrial material, will jump as much as 37 percent next year, leading gains in the 15 commodities covered in a Bloomberg survey of more than 100 analysts, traders and investors. Zinc, this year’s worst- performing metal, will appreciate 21 percent. Arabica coffee, which reached a 13-year high last week, will be the weakest performer, adding no more than about 7 percent.
The strength in demand “has been a surprise considering that we’ve just come out of the worst recession since the 1930s and carnage in most asset classes,” London-based Roxana Mohammadian-Molina, one of a team of 18 analysts at Barclays Capital who correctly called the bottom in oil and copper last year, said by phone Dec. 22. The bank says U.S. natural gas, will be the only one of the 25 commodity prices it follows that will average less next year.
Stocks Short
Global stocks are still about $11 trillion short of the record $62.6 trillion of market capitalization reached in October 2007, data compiled by Bloomberg show. Over the same period, commodity assets under management rose about 80 percent to $354 billion, and will attract a total of $60 billion in new money this year, the second most after 2009, Barclays estimates.
The S&P GSCI Index is extending last year’s 50 percent advance, which also beat the 27 percent jump in the MSCI World Index and the 3.7 percent loss on Treasuries.
Investors favored raw materials this year as China, the biggest user of everything from coal to iron ore to zinc, led the recovery from the first global recession since World War II. With economies now expanding, competition for raw materials is intensifying.
U.S. growth will rise to 3.25 percent in the fourth quarter of 2011, from 2.5 percent in the first, according to the median estimates of as many as 66 economists surveyed by Bloomberg. China’s will slow to 9 percent next year from 10 percent in 2010, still three times the rate of the U.S. and six times the speed of the euro zone, the surveys show. China on Dec. 26 raised interest rates to counter inflation.
Goldman’s Picks
Commodities gaining the most will be those in which China is least self-sufficient and with the smallest spare production capacity, according to Goldman Sachs Group Inc. analysts led by London-based Jeffrey Currie. Oil, copper, cotton, soybeans and platinum are the bank’s top picks.
Goldman on Dec. 13 forecast an 18 percent advance in raw materials in 12 months, led by a 28 percent gain in precious metals. That tallies with the results of the Bloomberg survey.
Silver, the precious metal most used in industry, will rise 37 percent to as high as $40 an ounce next year from $29.1238 an ounce Dec. 24 in trading in London, the survey shows. Palladium, used in catalytic converters for cars, will jump as much as 18 percent to $900 an ounce from $764 in trading in London Dec. 24.
Silver futures for March delivery rose 53 cents, or 1.8 percent, to $29.785 an ounce at 10:14 a.m. on the Comex in New York. Palladium futures for March delivery gained $11.90, or 1.6 percent, to $779 an ounce on the New York Mercantile Exchange.
Markets in London are closed for a second day today for public holidays.
Gold Outlook
“Investors will be cycling out of gold and into silver, platinum and palladium if financial and economic conditions improve,” said Jeffrey Christian, managing director of CPM Group, a research company in New York.
Christian correctly predicted in January that gold would reach $1,400 an ounce this year and is now forecasting prices to peak at $1,550 in the first quarter before declining as low as $1,200. The median forecast in the Bloomberg survey is for a 23 percent gain to as high as $1,700. Gold reached a record $1,431.25 Dec. 7 in London and closed at $1,381.47 Dec. 24.
Gold futures for February delivery rose $18.70 or 1.4 percent, to $1,401.60 on the Comex.
The popularity of precious metals suggests investors are seeking safety as governments and central banks pump money into economies to shore up recovery.
The Federal Reserve has kept its benchmark interest rate near zero since December 2008 and plans to inject $600 billion into the economy through June by purchasing government bonds through so-called quantitative easing. It already bought $1.7 trillion of securities in a first phase that ended in March.
Fiscal ‘Concern’
“I like gold because I’m concerned that our fiscal and monetary policies don’t make any sense,” David Einhorn, the president of Greenlight Capital Inc., which manages about $6.8 billion of assets, said in an interview in New York. “It leads potentially to a risk of greater instability later.”
Investors increased precious-metals holdings by 22 percent to a record 17,390 metric tons in the 10 months to Dec. 17, data compiled by Bloomberg show. That’s worth about $111 billion, of which 84 percent is in gold and 13 percent in silver, with the remainder in platinum and palladium.
GSCI Returns
Returns for commodity investors may be lower than the spot index suggests. The S&P GSCI Total Return Index, tracking the net amount received, rose 8.4 percent this year, reflecting the cost of maintaining positions in futures markets. When longer- dated contracts cost more than those for immediate delivery, a market structure known as contango, investors pay a premium to maintain their holdings as positions expire.
Gains in commodities may evaporate if currency traders’ bets that the dollar will strengthen are right.
Contracts on the dollar appreciating against the euro are at a three-month high and the U.S. Dollar Index gauge against six counterparts rose 6 percent since Nov. 4. The inverse relationship between the currency market and commodities last month reached the highest level in more than a year, data compiled by Bloomberg show.
Commodity experts in the Bloomberg survey are betting this time will be different amid surging demand and dwindling stockpiles.
Copper Deficit
Copper use will outpace supply by 825,000 tons next year, more than twice the inventory in LME-monitored warehouses, according to Barclays Capital. Prices which reached a record $9,392 a ton on Dec. 21 in London will rise to $10,475 next year, the Bloomberg survey shows. Zinc will be the best- performing industrial metal, advancing as much as 21 percent to $2,800 a ton from $2,308 in London on Dec. 24.
Copper futures for delivery in March rose 2.25 cents, or 0.5 percent, to $4.3025 a pound on the Comex. Earlier, the metal climbed to an all-time high of $4.3195.
Demand may also come from new exchange-traded products. ETF Securities Ltd. started offering investors ETPs backed by copper, tin and nickel this month, attracting about $25 million so far. JPMorgan Chase & Co., BlackRock Inc. and Credit Suisse Group AG also plan similar products.
Weather Markets
A stronger dollar may also be trumped by weather in agricultural markets. Wheat as much as doubled since June and corn jumped 83 percent as Russia’s worst drought in at least a half century, flooding in Canada and parched fields in Kazakhstan and Europe ruined crops.
While wheat should rise as much as 17 percent to $9.13 a bushel next year from $7.83 in Chicago on Dec. 23 and corn 14 percent to $7 a bushel from $6.14, coffee was picked as likely to be the worst performer in the Bloomberg survey. Analysts see a gain of no more than 7 percent to $2.53 a pound from $2.359 a pound in New York on Dec. 23.
Wheat futures for March delivery climbed 8.5 cents, or 1.1 percent, to $7.8875 a bushel today on the Chicago Board of Trade. Corn futures for March delivery rose 3.5 cents, or 0.6 percent, to $6.1875 a bushel, the eighth straight gain. Arabica- coffee futures for March delivery rose 1.05 cent, or 0.4 percent, to $2.385 a pound on ICE Futures U.S. in New York.
“We don’t see an imminent threat to commodity prices in 2011,” said Evan Smith, who helps manage $900 million at U.S. Global Investors Inc. in San Antonio. “You will still have concern over currency stability and in emerging economies there’s the wealth effect that’s driving demand.”
Tuesday, December 28, 2010
Tuesday, December 14, 2010
Insana Quotient Appearance
I will be on the Insana Quotient http://www.roninsanashow.com/ Wednesday December 15, 2010 7:30 to 7:42 AM to talk about the run on paper money.
The Run on Paper Money
http://online.barrons.com/article/SB50001424052970203905904576009593234574586.html
The Run on Paper Money
Ran in Barrons 12/9/10 as
ETFs to Play Precious Metals' Surge
The meteoric price rise of precious metals such as silver and gold to record highs marks the beginning of a larger movement of capital into safe havens. Investors are loosing faith in currencies backed solely by the guarantee of a government whether it is dollars, euros, yen or renminbi. As this outflow out of paper money into hard assets gains momentum precious metals and other money surrogates will continue to rocket higher in price.
Like a bank run this outflow out of paper money will create a crisis of confidence that will challenge policy makers and bring with it strong inflationary pressures. The demise of government backed currencies will have serious repercussions, for markets, livelihoods and even how we are governed.
The Float
Our current monetary regime of Floating exchange rates began in 1973 with the abandonment of Bretton Woods which pegged exchange rates to the dollar which was then convertible into gold. It was the first time in history that currencies were not fixed, or linked to gold or some other commodity. Markets were to determine rates.
The Float and the ensuing deregulation opened up markets and spawned financial innovation. This fostered capital mobility and redefined money as new investment vehicles were created. Money markets, credit cards and new mutual fund alternatives changed how individuals managed their money. For institutions and corporations currency trading and derivatives opened up new windows of trading and how business was conducted.
Why Now
At 37 years of age the Float is well past the 20 to 30 years most monetary regimes last. With many countries mired in debt the talk in the gold market has turned to concern about the viability of governments and their currencies. Even countries like China who are running surpluses are inexorably linked to other countries through trade and their holdings of foreign government bonds.
Front page headlines about currency wars show the tension and the inability of world leaders to come to terms over exchange rates. While such banter has been a feature of the Float, no one is flinching. In the 1980’s it took only a few years for countries to agree that the high value of the US dollar was responsible for the large USA trade deficit and we had the Plaza accord in 1985 that let the dollar fall. Today China has been rigidly keeping its currency low and has been for over a decade.
Fiscal austerity has become the rage in Britain, the Eurozone and among newly elected Tea Partiers, but is it the right policy at this time? One of the guiding principles that I learned as a global money manager was that timing is as important as policy, in other words, you don’t wear your swimming trunks outside in January. The world needs governments to spend. There is also a multiplier affect between countries as policies feed off each other. The economy in Britain will be slowed by its austerity and by that of other countries.
Austerity policies will leave the central banks as the only lever left to stimulate growth and many will pick up the slack and ease as we have seen with the Fed’s quantitative easing. This will increase inflationary pressures.
While newly elected conservatives and Tea Partiers want to talk tough to their base they are also talking to a larger global audience that can be easily spooked. The dollar swooned after the last Republican sweep in 1994. Clearly the Mexican peso crisis triggered it, but Republican rhetoric fed it.
Financial Innovation
Financial innovations and products developed during the Float will facilitate the run on paper money and hamstring policy makers. Prior to 1973 capital was not mobile, markets were closed and investment opportunities limited. Not so today. Now investors can buy physical gold, gold futures, gold ETFs and more. Some of these new products are highly liquid and fungible, making them like money. Not only do such vehicles provide a competing alternative to paper money, they will attract speculative funds causing large inflationary price rises as we have seen in commodities such as oil.
Financial innovations such as COLA adjustments on entitlements will increase government expenditures as inflation rises and rises.
A New World Order
Precious metals will continue to see large price rises. I believe that silver will outperform gold shorter term and take out its old high. Investors should consider buying silver ETF’s such as SLV, SIVR and DBS. I would also recommend buying pre 1965 US silver coins to have physical assets which can be easily purchased on Ebay for around melt value. As the bull market for currency alternatives gathers, investors will look for new vehicles such as stamps the same way that they reach for yield and lower credits in a bull market for bonds.
Commodities will appreciate although at a lower rate than silver and gold. Consider ETF’s such as DBC, GSG and GCC.
Interest rates will surge because of inflationary pressures from rising commodity prices and the necessity of governments to pay more to retain and attract capital as the run on paper money gains momentum. This will burst the bond bubble and deal a blow to the stock market as well. Deficits will balloon and the fear of default will increase, bringing tension and mayhem. Countries will be forced to find ways to calm markets and citizen concerns. They may be forced to link to gold or some other commodity to restore confidence in their currencies. They may also attempt to implement constraints in the flow of capital. How governments respond will determine whether we have high or hyperinflation.
The greatest challenge to governments may come from global corporations, or some commodity cartel that has a commodity component or some other money surrogate that the public has confidence in. They could come up with their own financial instrument and create some sort of alternative to paper money. For example, an IOU backed by gold or oil that is commoditized, tradable and accepted for payment at retail outlets like a credit card. Arguably this money creating ability will give them quasi sovereign status in the world. If this happens they will begin usurping the role of government and its functions.
Clearly the times they are a changing
Madis Senner is the author of The Way Home—Making Heaven on Earth (O Books http://www.amazon.com/Way-Home-Madis-Senner/dp/1846942489/ref=sr_1_1?ie=UTF8&s=books&qid=1292376777&sr=8-1 ) that details how our collective consciousness has trapped us and how we can break free.
Like a bank run this outflow out of paper money will create a crisis of confidence that will challenge policy makers and bring with it strong inflationary pressures. The demise of government backed currencies will have serious repercussions, for markets, livelihoods and even how we are governed.
The Float
Our current monetary regime of Floating exchange rates began in 1973 with the abandonment of Bretton Woods which pegged exchange rates to the dollar which was then convertible into gold. It was the first time in history that currencies were not fixed, or linked to gold or some other commodity. Markets were to determine rates.
The Float and the ensuing deregulation opened up markets and spawned financial innovation. This fostered capital mobility and redefined money as new investment vehicles were created. Money markets, credit cards and new mutual fund alternatives changed how individuals managed their money. For institutions and corporations currency trading and derivatives opened up new windows of trading and how business was conducted.
Why Now
At 37 years of age the Float is well past the 20 to 30 years most monetary regimes last. With many countries mired in debt the talk in the gold market has turned to concern about the viability of governments and their currencies. Even countries like China who are running surpluses are inexorably linked to other countries through trade and their holdings of foreign government bonds.
Front page headlines about currency wars show the tension and the inability of world leaders to come to terms over exchange rates. While such banter has been a feature of the Float, no one is flinching. In the 1980’s it took only a few years for countries to agree that the high value of the US dollar was responsible for the large USA trade deficit and we had the Plaza accord in 1985 that let the dollar fall. Today China has been rigidly keeping its currency low and has been for over a decade.
Fiscal austerity has become the rage in Britain, the Eurozone and among newly elected Tea Partiers, but is it the right policy at this time? One of the guiding principles that I learned as a global money manager was that timing is as important as policy, in other words, you don’t wear your swimming trunks outside in January. The world needs governments to spend. There is also a multiplier affect between countries as policies feed off each other. The economy in Britain will be slowed by its austerity and by that of other countries.
Austerity policies will leave the central banks as the only lever left to stimulate growth and many will pick up the slack and ease as we have seen with the Fed’s quantitative easing. This will increase inflationary pressures.
While newly elected conservatives and Tea Partiers want to talk tough to their base they are also talking to a larger global audience that can be easily spooked. The dollar swooned after the last Republican sweep in 1994. Clearly the Mexican peso crisis triggered it, but Republican rhetoric fed it.
Financial Innovation
Financial innovations and products developed during the Float will facilitate the run on paper money and hamstring policy makers. Prior to 1973 capital was not mobile, markets were closed and investment opportunities limited. Not so today. Now investors can buy physical gold, gold futures, gold ETFs and more. Some of these new products are highly liquid and fungible, making them like money. Not only do such vehicles provide a competing alternative to paper money, they will attract speculative funds causing large inflationary price rises as we have seen in commodities such as oil.
Financial innovations such as COLA adjustments on entitlements will increase government expenditures as inflation rises and rises.
A New World Order
Precious metals will continue to see large price rises. I believe that silver will outperform gold shorter term and take out its old high. Investors should consider buying silver ETF’s such as SLV, SIVR and DBS. I would also recommend buying pre 1965 US silver coins to have physical assets which can be easily purchased on Ebay for around melt value. As the bull market for currency alternatives gathers, investors will look for new vehicles such as stamps the same way that they reach for yield and lower credits in a bull market for bonds.
Commodities will appreciate although at a lower rate than silver and gold. Consider ETF’s such as DBC, GSG and GCC.
Interest rates will surge because of inflationary pressures from rising commodity prices and the necessity of governments to pay more to retain and attract capital as the run on paper money gains momentum. This will burst the bond bubble and deal a blow to the stock market as well. Deficits will balloon and the fear of default will increase, bringing tension and mayhem. Countries will be forced to find ways to calm markets and citizen concerns. They may be forced to link to gold or some other commodity to restore confidence in their currencies. They may also attempt to implement constraints in the flow of capital. How governments respond will determine whether we have high or hyperinflation.
The greatest challenge to governments may come from global corporations, or some commodity cartel that has a commodity component or some other money surrogate that the public has confidence in. They could come up with their own financial instrument and create some sort of alternative to paper money. For example, an IOU backed by gold or oil that is commoditized, tradable and accepted for payment at retail outlets like a credit card. Arguably this money creating ability will give them quasi sovereign status in the world. If this happens they will begin usurping the role of government and its functions.
Clearly the times they are a changing
Madis Senner is the author of The Way Home—Making Heaven on Earth (O Books http://www.amazon.com/Way-Home-Madis-Senner/dp/1846942489/ref=sr_1_1?ie=UTF8&s=books&qid=1292376777&sr=8-1 ) that details how our collective consciousness has trapped us and how we can break free.
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