Conquer The Wallstreet !!!: Sunday, November 2, 2008

Sunday, November 2, 2008

Did late October see the end of the bear market for commodity stocks?

From MoneyWeb
November 2, 2008 13:01

The following quote from Canaccord Capital's Chief Portfolio Strategist Nick Majendie:

"If we are close to a bottom, we believe it will be the quality blue chip stocks that will recover the fastest. Why? The answer is because when there is financial panic, investors sell the good with the bad. With all the recent de-leveraging by financial institutions and in particular hedge funds, the margin clerk has been king. Whatever could catch a bid was often sold so that even blue chip stocks have traded down to Depression-type valuations. Quality stocks with strong balance sheets, good and sustainable dividends and good long-term prospects should then be the first to recover."

How true this has been/is likely to be in the metals commodities sector as is highlighted in the various tabulations of stock price performance from my colleague Barry Sergeant. In times of market panic any liquid stock gets sold regardless of quality. Ironically non-liquid stocks where there is little buy or sell interest tend to perform best, but this represents such a tiny sector of the market as to be irrelevant.

Rod Blake also highlights in a weekly ‘blog' a most interesting observation from the Gartman Letter in that "Bear markets panics end in late October. Do not ask us why this is so; we note only that it is so. We note that panic, after panic, after panic has begun in September and has ended in October. More importantly than that, the last week of October has been the ending point for those panics. More importantly still, October 27th is the average ending date for so many of them in the past." This note was written on October 27th - and there has certainly been a major pick-up in world stock markets over the last few days of last month. Let's hope this observation proves true yet again.

But while markets in general may be picking up, metals commodity prices are still in serious trouble and the sector may continue to underperform until the fallout abates and analysts can truly assess how the supply/demand patterns are really panning out. Will the "China syndrome" continue almost unabated bar a brief hiccup, or will metals demand crash there too? No-one really seems to know and it is going to take a few months for the anomalies introduced into the markets by the financial panic to unwind and the true situation become clear.

In as much that stocks in general have probably been oversold, with the blue chips falling alongside the real dogs, then this is probably true of commodities also. After all latest serious estimates of global activity still point to an increase of 1.3 percent next year in global GDP. OK - well below levels seen of late, but growth nonetheless.

So what is the essence of the above. If the commentators quoted are correct, the markets bottomed last week and while we may not yet be in a real bull run, we could be out of the true bear phase. Better quality stocks have been oversold, and this applies to metals and minerals stocks as much as anything else, so there are some big bargains to be found out there.

Meanwhile the weak will continue to suffer as debt is well-nigh impossible to refinance if the tiniest degree of risk is apparent. As we noted here before, the fallout among the weaker mining juniors could be catastrophic - even if the market has now bottomed. Even the majors say they are conserving cash - note the latest reports from Barrick and Goldcorp - and this means future projects are going to be heavily delayed, or in some cases postponed indefinitely with a corresponding effect on projected medium and long term metals supplies. If the global economy keeps growing, even at a tiny rate, but metals supplies are likely to fall, then when the real picture is understood there could be a fast and dramatic rise in commodity prices - perhaps not back to the recent bubble-driven highs, but high enough to pull the mining sector out of the current gloom and doom scenario.

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Is the metals commodities bear market over or is there grief still to come?

Please Note!

This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

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Florida Rail Service To Run On Biodiesel

A Florida commuter rail service will move passengers
using biodiesel from palm and soy oil.

Tri-Rail, the commuter rail service connecting Miami with Fort Lauderdale and Palm Beach, announced this week that it was beginning to power most of its trains with biodiesel made from palm and soy oil, depending on the availability of each feedstock.

According to The Palm Beach Post, it is one of the first systems in the nation to do so.

Tri-Rail said the new fuel would cost no more than regular diesel because while it runs about 7 percent less efficiently it costs 10 to 30 cents less a gallon.

"We are about to transfer a trillion dollars out of this country," James Simpson, head of the Federal Transit Administration, was quoted as saying in The Post, "It’s going up in the smoke of diesel fuel, and it’s going to foreign countries".

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Florida Rail Service To Run On Biodiesel

Germany plans $64 billion stimulus package

The German government plans a two-year program of investments and incentives to provide a 50 billion- euro ($64-billion) boost to the economy, wracked by a freeze in global credit markets.

``Measures to safeguard companies' financing and liquidity are provided by funding investments worth slightly more than 20 billion euros,'' according to a joint paper by the economy and finance ministries obtained by Bloomberg News. They ``will encourage investments and orders by companies, private households and municipalities totaling about 50 billion euros.''

Chancellor Angela Merkel said yesterday the government will enact ``broad'' measures to bolster the economy. The government has so far been divided on whether to offer tax cuts or boost spending and the Cabinet will discuss the package on Nov. 5. Germany last month slashed its growth forecast for 2009 to 0.2 percent, compared with a 1.7 percent estimate for this year.

The paper, dated Oct. 31, suggests the government is seeking to fund measures with increased borrowing and ``accept cyclical revenue shortfalls or higher expenditures to the full extent.'' The government will fail to meet its target of balancing the federal budget by 2011 because of the ``changed economic environment,'' the document said.

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Germany Plans $64 Billion Boost to Economy Via Stimulus Program

Nobel Winner: Bernanke, Paulson Steps 'Not Smart'

From Bloomberg:

The Gentle Readers may compare the statement above and George Soros' statement below:

George Soros: End of Financial Crisis could be in Sight

What is your conclusion? Does US gov see the real problems in the current crisis?

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Nobel Winner Aumann Says Bernanke, Paulson Steps `Not Smart'

George Soros: crisis underscores need for regulation

International financier and philanthropist George Soros,
had a conversation with Ford International Professor of Economics
and Head of MIT Department of Economics Ricardo J. Cabellero
at Kresge Auditorium - MIT, 48 Massachusetts Avenue,
on Tuesday, October 28, 2008 3:30 pm

Stephanie Schorow, News Office Correspondent
October 29, 2008

Financier, philanthropist and political activist George Soros told an MIT audience Tuesday that the current financial crisis underscored the need for regulation, even while he warned of the pitfalls of regulation and insisted on the impossibility of predicting the economic future.

"The prevailing perception of the market actually affects the so-called fundamentals that market prices are supposed to impact," Soros said during a wide-ranging conversation moderated by Ricardo Caballero, the Ford International Professor of Economics and head of the Department of Economics. "That is the nature of financial systems. Bubbles are a particular manifestation of this."

Because financial markets are not a "natural" but a "human" phenomenon, "the idea that you should be able to predict the future is nonsense," he told a packed audience in Kresge Auditorium.

"I don't get the market right," admitted Soros, later adding, "The reason I do well is I learn from my mistakes."

Soros said the recent meltdown of global financial markets -- something the former hedge fund manager described in dire terms -- undercut the pervasive belief that markets could be entirely self-regulating. That misconception arose, ironically, from the resolution of past financial crises with regulatory interventions: "These periodic financial crises served as successful tests of the misconception of market fundamentals," he said.

The burst of the housing bubble in the United States was, Soros said, a relatively small event but it was a "detonator that set off a much bigger explosion. And that super bubble has been growing for at least 25 years."

Soros, whose new book is titled "The New Paradigm for Financial Markets," criticized former Federal Reserve Chairman Alan Greenspan for keeping interest rates "too low for too long" and, more fundamentally, for holding fast to the idea that it was better to "pick up the pieces" rather than impose regulations on the market.

Caballero also asked the question that was on the mind of many in the audience: "How do we fix the system?"

Certainly, financial markets will always undergo bubbles and bursts, but "unless the United States leads an international effort to stabilize the system, the system will not continue," Soros asserted.

However, while, "I argue that the ideology that markets are perfect is wrong, regulations are also imperfect, in fact they are more imperfect than the market … you don't want to regulate more than you have to. But I think you have to regulate credit as well as money."

During an audience question and answer session, Soros was questioned about his financial past as well as his analysis. MIT Sloan School of Management student Gary Cao asked Soros about his role during "Black Wednesday" in 1992, when the financier made $1 billion as the British pound collapsed.

"I played by the rules. I was a key member of the market. I was doing what other people in the market were doing, with no negative moral implications," Soros replied. "At the time, as a citizen, I was concerned about making the rules better. And I'm still concerned."

Another questioner noted that Soros had written previous books predicting economic doom. Yes, Soros said amid laughter, he made such predictions in 1987 and 1997 and "the third time the wolf came."

In response to a question about the impact of the financial crises on nascent democracies in volatile areas of the world, Soros sounded a hopeful note, saying that the United States could play a positive role but "for that we have to change fundamentally what we stand for and recognize that … we have an obligation to the world which we have absolutely abandoned."

Yet Soros also said that the United States would cease to be the world's undisputed dominant force. "The veto power that we have in the International Monetary Fund will disappear. We will be downsized. At the same time, hopefully, we will have a better working system and opponents will be more downsized than we will."

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Soros says crisis underscores need for regulation

George Soros: investing in green energy could save global economy

From Green Inc Blog
George Soros on the Clean-Energy Economy
October 14, 2008

Friday, October 10, 2008 - In an interview with Bill Moyers on PBS, George Soros, who has made billions of dollars based on his ability to read the ebb and flow of markets, suggested that investing in alternative energy technologies, refurbishing aging electricity grids and pursuing household energy efficiency, among other green strategies, could yet save the global economy.

Mr. Soros told Moyers that the business of green could serve as the new "motor of the world economy" -- echoing a refrain he has used before.

The relevant video clip follows, with transcript to be found after the jump.

Excerpt transcript:

BILL MOYERS: So let’s think about those people down at Neely’s Barbecue going home tonight having heard you. What they’ve heard you say is the system is really disfunctioning right now. It’s out of control. Nobody’s in charge. They’ve heard you express your own worry that in the next three months it could get much, much worse.

And they’ve heard you say that you don’t see much good news immediately on the horizon. So let’s leave them something to think about as they go home. Let them go home and say, “Mr. Soros said here are three things we can do, simply.” One?

GEORGE SOROS: Well, deal with the mortgage problem. Reduce foreclosures. Recapitalize the banks. And then work on a better world order where we work together to resolve problems that confront humanity like global warming. And I think that dealing with global warming will require a lot of investment.

You see, for the last 25 years the world economy, the motor of the world economy that has been driving it was consumption by the American consumer who has been spending more than he has been saving, all right? Than he’s been producing. So that motor is now switched off. It’s finished. It’s run out of — can’t continue. You need a new motor. And we have a big problem. Global warming. It requires big investment. And that could be the motor of the world economy in the years to come.

BILL MOYERS: Putting more money in, building infrastructure, converting to green technology.

GEORGE SOROS: Instead of consuming, building an electricity grid, saving on energy, rewiring the houses, adjusting your lifestyle where energy has got to cost more until it you introduce those new things. So it will be painful. But at least we will survive and not cook.

BILL MOYERS: You’re talking about this being the end of an era and needing to create a whole new paradigm for the economic model of the country, of the world, right?

GEORGE SOROS: Yes.

On Sunday, Mr. Soros blasted leaders of the United States and Europe for being “consistently behind the curve” in dealing with the global financial crisis.

“This is the crisis of my lifetime,” Mr. Soros told The Associated Press during the weekend meeting of the International Monetary Fund and the World Bank. “I haven’t seen anything like it and I won’t see anything like it again.”

It is also worth noting that despite his sanguine disposition toward clean-energy development, Mr. Soros has drawn jeers from green advocates — principally for his investments in sugar cane production (destined to become ethanol) in Brazil, which critics say is mowing down forests at an unprecedented pace.

Wrote The Washington Post last year:

“Deforestation in the Cerrado is actually happening at a higher rate than it has in the Amazon,” said John Buchanan, senior director of business practices for Conservation International in Arlington. “If the actual deforestation rates continue, all the remaining vegetation in the Cerrado could be lost by the year 2030. That would be a huge loss of biodiversity.”

The roots of this transformation lie in the worldwide demand for ethanol, recently boosted by a U.S. Senate bill that would mandate the use of 36 billion gallons of ethanol by 2022, more than six times the capacity of the United States’ 115 ethanol refineries. President Bush, who proposed a similar increase in his State of the Union address, visited Brazil and negotiated a deal in March to promote ethanol production in Latin America and the Caribbean.

U.S. companies and investors — including George Soros and agribusiness giants Archer Daniels Midland and Cargill — are staking out territory in Brazil, expecting even greater growth in biofuels.

Sources :

George Soros on the Clean-Energy Economy

An interview given by George Soros to the Finnish Broadcasting Company (YLE)

The material of the interview is similar with George Soros: energy investments will fuel America’s next boom and George Soros: End of Financial Crisis could be in Sight.

Sources :

an interview given by George Soros to the Finnish Broadcasting Company (YLE)

George Soros: energy investments will fuel America’s next boom

October 29, 2008. George Soros said energy investments will fuel America’s next boom.

George Soros on America's new engines of growth
Video courtesy of BigThinkCom

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George Soros says energy investments will fuel America’s next boom

George Soros: End of Financial Crisis could be in Sight

The script below is Nathan Gardels' interview with George Soros; the financier, philanthropist and author most recently of The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means. Mr. Soros spoke with Nathan Gardels in Washington, D.C., where the IMF and World Bank are meeting, on Sunday (October 12, 2008). One of the important points of his interview is developing alternative energy sources and building green infrastructure can be the new motor for the world economy:

Nathan Gardels:

George Soros:

Gardels:

What ought to be the "circuit breaker" that short-circuits the distortions that inevitably destabilize financial markets?
Soros:

If bubbles are endemic in the system, then government regulators have to intervene to prevent bubbles from getting too big. Governments have to recognize that markets are not self-correcting. It is not enough to pick up the pieces after the crisis.
Gardels:

Does the presence of the 24-hour global financial news cycle amplify and exaggerate distortions in the financial markets?
Soros:

Without question, they accelerate the process. At the same time, I wouldn't overstate it. At the end of the 19th century, you didn't have 24-hour cable, but nevertheless you had the same kind of bubbles. Throughout the 19th century, when there was a laissez-faire mentality and insufficient regulation, you had one crisis after another. Each crisis brought about some reform. That is how central banking developed.
Gardels:

How come all the efforts of the U.S. government so far -- the $700 billion rescue package, low Federal interest rates, backstopping deposits and commercial paper -- have not stemmed the crisis?
Soros:

Gardels:

Now that the U.S. authorities are at last on the right track, what are the key components of resolving the crisis?
Soros:

Gardels:

At the end of the day, won't we be looking at a vastly different global financial landscape? The U.S. will decline as the top power. It will have, along with parts of Europe, socialized banks and loads of debt. Communist China will be the new financial power globally, flush with capital and a major investor in the West.
Soros:

Sources :

Nathan Gardels’ interview with George Soros: End of Financial Crisis could be in Sight

The World now needs about US $1 trillion bailout from IMF

From Bloomberg
Wednesday October 29, 2008

Gordon Brown, U.K. Prime Minister, on October 28, called on countries with large currency reserves such as China and oil-rich states to donate to the IMF.

The world probably will need more money because problems may spread from liquidity shortages to balance-of-payments gaps to slower economic growth, according to Strauss-Kahn, Managing Director of the IMF.

As Simon Johnson, a former IMF chief economist, said that The fund has the option to tap an additional $35 billion to $50 billion from rich countries. The IMF may need to go beyond that total to meet the demand for loans. He added, "If we are really facing the problem I think we are, you need about $1 trillion".

Demand for the fund's loans -- which had dried up over the past five years as developing nations boomed -- is now soaring. Hungary, Ukraine, Belarus, Iceland and Pakistan have all announced this month that they are seeking financial support from the IMF.

To qualify for the IMF's "Short-Term Liquidity Facility," countries must have been assessed by the IMF "very positively" on their recent economic policies, the fund said in a statement. Asked specifically about Argentina's eligibility, Strauss-Kahn said the country wouldn't qualify for the new program because it doesn't meet that standard.

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IMF Starts Short-Term Lending Program to Ease Crisis (Update2)

Primary credit card limit of 25% consumers were reduced by banks

According to Standard & Poor's survey released Oct. 15, as much as 25% of they're at or near the limits on their primary credit card, and 20 % said they're approaching the limit on their secondary cards.

Purchasing may shrink further as more lenders follow Citigroup Inc. (see: Citigroup lost $1.4 billion from credit card securitization) and JPMorgan Chase & Co. and impose tougher lending standards to conserve capital. Wal-Mart Stores Inc. executives told analysts at a meeting this week that customers have "maxed out" their credit cards.

Outstanding credit-card debt has risen 75 percent since 1999, while real wages have grown 4 percent in the same period, according to a report last month by Innovest Strategic Value Advisors, headquartered in New York. These conditions are expected will cost retailers by losing as much as 8 % of their holiday sales this year which accounts for as much as 35 % of their annual revenue; because lenders and stores are clamping down on financing.

The less credit available to consumers has the more impacts into retailers confidence.

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Sears, Home Depot May Lose 8% of Holiday Sales on Credit Limits

The bankruptcy of VeraSun was due to liquidity squeeze

The Front Range Energy ethanol plant with its giant corn silos
next to a cornfield in Windsor, Colorado July 7, 2006.
Reuters/Rick Wilking
VeraSun Energy Corp., one of the nation's largest ethanol producers announced late Friday that it is filing for Chapter 11 bankruptcy protection.

The bankruptcy of VeraSun was due to tightening liquidity in the current credit market. Ethanol production has been spurred largely by the Federal Energy Policy Act since 2005. The package has created instant demand for ethanol, so the ethanol producers poured money to finance its expansion in the ethanol industries. But in recent months, ethanol prices have dropped along with oil prices. Meanwhile increasing demand of ethanol pushed up corn prices as raw material of US corn based ethanol production. As a result, that has cut into profit margins of ethanol production.

As corn prices increased but ethanol prices drop, that sent VeraSun and other ethanol producers into panic. In attempting to protect itself from rising corn prices, VeraSun locked in agreements to purchase corn at $6.75 to $7 a bushel in the future contracts. But then the prices on corn futures sank to $4 a bushel. In September, VeraSun said it had lost $63 million to $103 million due to bets on the prices of corn. VeraSun's current liabilities totaled $312 million at the end of the second quarter, and it had $1.4 billion in long-term debt. As the global credit crunch intensified in September, VeraSun was unable to secure the funding it needed to pay interest on its debt, which is due in December.

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VeraSun Seeks Bankruptcy Protection

Sunday, November 2, 2008

Did late October see the end of the bear market for commodity stocks?

Florida Rail Service To Run On Biodiesel

Germany plans $64 billion stimulus package

Nobel Winner: Bernanke, Paulson Steps 'Not Smart'

George Soros: crisis underscores need for regulation

George Soros: investing in green energy could save global economy

An interview given by George Soros to the Finnish Broadcasting Company (YLE)

George Soros: energy investments will fuel America’s next boom

George Soros: End of Financial Crisis could be in Sight

The World now needs about US $1 trillion bailout from IMF

Primary credit card limit of 25% consumers were reduced by banks

The bankruptcy of VeraSun was due to liquidity squeeze

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