From Idiosyncratic to Idiotsyncratic. Greece and HY ETF’s (Tchir)

Thursday, May 17th, 2012

by Peter Tchir, TF Mar­ket Advisors

The idio­syn­cratic risk is really com­ing from two sources and the fact that at the mar­gin they col­lide is adding to the con­fu­sion and the volatil­ity in the market.

Right now the prob­lems in Europe are directly tied to Greece. Spain and Italy con­tinue to have prob­lems, and noth­ing is close to being resolved, but the real next cat­a­lyst in Europe is Greece. All this talk of a “Grexit” seems some­where between pre­ma­ture and dan­ger­ous. I think Greece is likely to leave at some point, but sev­eral things have to hap­pen before it can leave with­out caus­ing a tidal wave of destruc­tion across Europe and the global economies:

• Deter­mine what will hap­pen to the money owed to the ECB and the IMF. They too need to be rede­nom­i­nated at the very least, and pos­si­bly defaulted on in order for the new Greece to have a chance. What does that do for the rep­u­ta­tions of those two insti­tu­tions? How will the ECB make up for the loss? Will the IMF fire­wall remain intact after losses? Real issues that can­not be dis­missed, and address­ing some worst case, rather than best case reac­tions needs to be dealt with.
• Will Greece have the nat­ural resources stock­piled to sur­vive the imme­di­ate after effects? I see the risk of spik­ing energy costs as being one of the biggest risks. If the Drachma trades poorly against the Euro, and the Euro trades poorly against the dol­lar, how are peo­ple and busi­nesses going to be able to afford items that need to be imported. For all the bizarre ways in which the bailout has been done so far, Greece has the lux­ury of not being forced into an imme­di­ate deval­u­a­tion, so has time to pre­pare for some of the obvi­ous risks.
• Por­tu­gal, Spain and Italy. I don’t see any­thing in place that would stop these coun­tries from being imme­di­ately dragged down. Cur­rency con­trols and a force rede­nom­i­na­tion in Greece will scare peo­ple in these coun­tries. Cap­i­tal flight at all lev­els will become a big issue. Trade in Europe could grind to a halt. How will con­tracts with Greek com­pa­nies be dealt with. Peo­ple will assume the worst in other coun­tries and there is a real risk that trade dries up because even short term credit becomes com­pletely unavail­able. The ECB is likely to have to take unprece­dented actions such as guar­an­tee­ing repo lines, and even set­tle­ment risk.
• The EFSF incu­bates con­ta­gion. Now maybe the EU will real­ize what many of us have being say­ing all along. The EFSF (and ESM) ensures that con­ta­gion will spread. If the EFSF is to be a source of money for any­one (notwith­stand­ing its own losses on Greek loans), they will either be rely­ing on Span­ish and Ital­ian guar­an­tees, adding to the mis­ery in those two coun­tries, or, far worse, those coun­tries will become “step­ping out” mem­bers as well.
• Target2? Bank debt? Bank debt guar­an­teed by Greek cen­tral bank? So many other ques­tions, so few of which have been addressed.

I don’t know what will hap­pen if Greece leaves. I am not cer­tain that we will see con­ta­gion quickly spread and Europe grind to a halt, but that sce­nario, given the cur­rent level of prepa­ra­tion, and the pre­car­i­ous sit­u­a­tions in Spain and Italy, I find it impos­si­ble to believe politi­cians will ignore that risk in the end. The other issue here is that the enti­ties that you would nor­mally expect to see step in after a default, like the IMF, have already stepped in. The IMF, ECB, and EFSF, all of whom would be relied on to help after a big event, are already part of the big event. That is unusual and makes the sit­u­a­tion far more dif­fi­cult to con­tain.

The Greek drama will play out, but Grexit will not hap­pen yet, and both sides will find enough ways to claim vic­tory that some con­ces­sions will be made to give Europe and Greece more time to pre­pare. At this stage, that would be a big pos­i­tive for the mar­kets which right now are largely ignor­ing that most log­i­cal outcome.

You can­not men­tion idiot­syn­cratic risk with­out talk­ing about JPM. What­ever the trade was, in all of its iter­a­tions, it is clear that it got so big rel­a­tive to the liq­uid­ity in the mar­ket, that it was dri­ving prices. Too tight at one point in hind­sight, and pos­si­bly too wide right now, but that is yet to be deter­mined. Every part of the fixed income world is being affected by the alleged unwind. It really doesn’t mat­ter at this stage what posi­tion JPM has or doesn’t have. Whether they are unwind­ing or adding, whether they are being front run or not? The only thing that mat­ters is that liq­uid­ity has dried up. No one wants to be the other side of a trade if they think it can be part of some alleged mas­sive unwind. Liq­uid­ity, already lim­ited with every­thing going on in Europe basi­cally dis­ap­peared after the JPM announce­ment. The swings in CDS and now cash have been large. It takes very lit­tle trad­ing to move the mar­ket. At cer­tain prices, for what­ever rea­son, big vol­umes go through, but the gap to the next “clear­ing” level seems ran­dom and large.

You can­not ignore these moves, but being dragged around by a bat­tle that is occur­ring on a higher plane has its own risks. The mar­kets will revert quickly and in ways that don’t let you get back in if you want. Not one to say “close your eyes” and ignore it, but to some extent you have to “close your eyes” and ignore it. It is impos­si­ble to sep­a­rate out what is tech­ni­cal and spe­cific to the JPM from the usual tech­ni­cals. Games are being played and pic­tures are being painted on a scale that rarely occurs.

IG18 is trad­ing at fair value. IG17 is actu­ally trad­ing cheap to intrin­sic value. MAIN is trad­ing cheap as well. This means that the indices are trad­ing wider than their com­po­nents. Since part of the alle­ga­tions against the whale were that their trad­ing drove indices to trade extremely tight to fair value, that has over cor­rected (it can over cor­rect fur­ther, but that part of the prob­lem is now out of the mar­ket). To me, this is a clear sign that the desire to put on “liq­uid” hedges has got­ten more extreme and weak shorts are being cre­ated. Then look­ing at sin­gle name CDS ver­sus the cash bond mar­ket, and it looks like CDS has under­per­formed here as well. So sin­gle name CDS, another “hedge” vehi­cle has done worse than the cash, and the index has done even worse. We have again a typ­i­cal sit­u­a­tion where rather than sell­ing cash, some peo­ple have bought pro­tec­tion at prices wide rel­a­tive to bonds. That often ends in a big gap where either bonds under­per­form or CDS out­per­forms. I’m lean­ing towards CDS going tighter, but can­not dis­count the poten­tial for bonds to do worse.

Which brings us to HYG and JNK and their weak per­for­mance. There are two key dri­vers here and both are some­what strange. The ETF’s are effec­tively a rep­re­sen­ta­tion of the bond mar­ket and they tend to trade to either the “offer” side of the mar­ket in good times, or to the “bid” side of the mar­ket in bad times. What does that mean? It is rel­a­tively safe to say that the aver­age high yield bond is quoted in 1 point mar­kets. So if a bond was quoted as 98–99, in a strong mar­ket, the ETF tends to trade closer to the “99″ price as the offer get­ting “lifted” is the likely trade. As the cash mar­ket weak­ens, two things tend to hap­pen. The one is obvi­ous, the price drops, the other is that the bid/offer spread also widens. So this same bond that was quoted 98/99 will now be 97/98.5. In spite of the bid drop­ping faster than the offer, that is the more likely side to be exe­cuted on, so the ETF, reflect­ing mar­ket sen­ti­ment, will drift to the bid side, and now reflect a “97″ level. So the ETF could drop 2 points while the fair value, based on “mids” only dropped 0.75%. This move, while large, is as much a func­tion of how high yield bonds trade as it is a reflec­tion of real weak­ness. Remem­ber the ETF’s are only a proxy for the under­ly­ing mar­ket, so this move from the offer to bid side explains a lot of the rel­a­tive weak­ness of the ETF’s.

I’m see­ing both HYG and JNK trade “cheap” to fair value. They are trad­ing at a dis­count. That means the “reverse arb” comes into play, which can put added pres­sure on the ETF’s. It doesn’t sur­prise me, that JNK which gen­er­ally is more lenient on the share redemp­tion (and cre­ation) process is expe­ri­enc­ing more out­flows than HYG, because the arbs will focus on it.

Be care­ful, but also don’t for­get, that although we get lulled into a sense of liq­uid­ity in the ETF’s, at some level, the poor liq­uid­ity and wide bid offers in the under­ly­ing bond mar­ket come into play, and we are see­ing that now.

I think the U.S. credit mar­kets are attrac­tive, I con­tinue to like them, and am look­ing at adding more. I am not sure the time is right, but the price action in the U.S. is start­ing to become encour­ag­ing, and I’m see­ing some signs that the whale feed­ing frenzy is over, which is encour­ag­ing. I would like to see some more evi­dence that Europe under­stands they aren’t ready to kick Greece out and that they will lose more than Greece, but for the first time, I’m see­ing much more bal­anced com­ments and not every­one is on the Grexit bandwagon.

Tags: Bailout, Capital Flight, Catalyst, Currency Controls, Devaluation, ECB, Energy Costs, ETF, Global Economies, Hy, Idiosyncratic Risk, Imf, Natural Resources, Portugal Spain, Redenomination, Reputations, Tidal Wave, Volatility, Wave Of Destruction, Worst Case
Posted in Markets | Comments Off

Ben Graham's Curse on Gold

Tuesday, February 21st, 2012

Ben Graham’s Curse on Gold
by John Mauldin
Feb­ru­ary 20, 2012

~~~

This week we have a shorter Out­side the Box, from my friend David Gal­land at Casey Research, with an inter­est­ing insight into why gold can be con­sid­ered as a poor invest­ment by some rather influ­en­tial investors (like War­ren Buf­fett) while oth­ers may see it as the core of a diver­si­fied port­fo­lio. As usual when I use someone’s mate­r­ial for an OTB, I include a link at the end, if you want to look deeper. The rather large team at Casey Research spe­cial­izes in gold, nat­ural resources, and energy-related invest­ments, for those with such an invest­ing bent.

As a quick note, the feed­back on this weekend’s let­ter on taxes has been sub­stan­tial, and a great deal of it is quite good and worth think­ing about. Many bring up real prob­lems with the posi­tion I took in my let­ter, and I may sur­prise you by agree­ing with some of them. My inten­tion right now (bar­ring some­thing hap­pen­ing between now and Fri­day night) is to take some of the bet­ter state­ments and ques­tions, and answer them. I am not mar­ried to any spe­cific plan. I just want to solve the prob­lem and am open to any­thing that is polit­i­cally fea­si­ble and makes sense, as long as we solve the basic prob­lem of the deficit. I think it will make for a very inter­est­ing let­ter. I do read your feed­back, by the way. So if you wanted to respond and won­dered if I might actu­ally read it, the answer is yes I do, and this week will answer as many as I can.

And to answer a ques­tion I get a lot, I buy a lit­tle phys­i­cal gold every month. I don’t even look at the price. The check is writ­ten the same day each month, for the same amount. I take deliv­ery. I hope the price of gold goes down so I can get more gold per dol­lar. I also hope it ends up being worth­less, as that will mean every­thing else has worked out just fine. But my gold is there just in case my crazy gold bug friends are right and we can’t actu­ally trust the gov­ern­ment to find a rea­son­able solu­tion to our dilemma. And maybe because deep down I really don’t trust the (insert your favorite exple­tive). Just a lit­tle insur­ance, you understand.

So, until we con­nect this week­end, have a great week!

Your I am not a gold bug analyst,

John Mauldin, Edi­tor
Out­side the Box

JohnMauldin@2000wave.com

Tags: Casey, Curse, Dil, Diversified Portfolio, Friday Night, Friend David, Galland, Gold Bug, Gold Dollar, Insight, Intention, Investments, John Mauldin, Natural Resources, Otb, physical gold, Poor Investment, Price Of Gold, Reasonable Solution, Warren Buffett
Posted in Markets | Comments Off

Can the World Hold 7 Billion?

Thursday, January 6th, 2011

Some time this year, there will be 7 bil­lion peo­ple on the planet. If we all stood shoulder-to-shoulder, we would fit inside the city of Los Angeles.

National Geo­graphic just kicked off its year-long series ded­i­cated to this global mile­stone. Check out this video.

Accord­ing to National Geo­graphic, no human had lived through a dou­bling of the human pop­u­la­tion before the 20th Cen­tury. Now, there are peo­ple on this planet who have seen it triple. In fact, the world pop­u­la­tion hasn’t fallen since the Black Death wiped out nearly 60 per­cent of Europe’s population.

The prob­lem with pop­u­la­tion isn’t space—we have plenty of it—it’s resources. Nearly 1 bil­lion peo­ple go hun­gry every day and 20 years from now there will be 2 bil­lion more mouths to feed.

If you’re ana­lyt­i­cal, you can think of it this way—the Earth has a finite num­ber of resources but the demand and use of these resources are the vari­ables. That demand not only depends on the num­ber of peo­ple, but how intense their usage is.

Today, usage inten­sity is pick­ing up in the emerg­ing world—which hap­pens to be home to the major­ity of the global pop­u­la­tion. As these peo­ple move, for exam­ple, from using bicy­cles to cars, or can­dles to elec­tric­ity, the pres­sure on that finite amount of resources rises.

This, in a nut­shell, is why we’re pos­i­tive on nat­ural resources—the sup­ply of resources is lim­ited while the demand is ris­ing. Daily, monthly and even yearly fluc­tu­a­tions in demand or geopo­lit­i­cal events will cause volatil­ity in prices, but the over­all supply/demand fun­da­men­tals remain intact, and we believe these fun­da­men­tals lead to higher prices for these increas­ingly rare commodities.

Since this pop­u­la­tion theme is a cor­ner­stone of the nat­ural resources story, we’ll check back in on the National Geo­graphic series as it progresses.

All opin­ions expressed and data pro­vided are sub­ject to change with­out notice. Some of these opin­ions may not be appro­pri­ate to every investor.

Tags: 1 Billion, Bicycles, Black Death, Commodities, Cornerstone, Finite Number, Fluctuations, Geopolitical Events, Global Population, Human Population, Intensity, Milestone, Mouths, National Geographic, National Geographic Series, Natural Resources, Nutshell, Rare Commodities, Shoulder To Shoulder, Volatility, World Population
Posted in Commodities, Energy & Natural Resources | Comments Off

Rare-Earth Resources — The Race is On

Monday, December 13th, 2010

The finan­cial cri­sis has shown that spec­u­la­tion, funds, and credit default swaps cre­ate a huge amount of vir­tual wealth, but the real eco­nomic motor is dri­ven by the man­u­fac­ture of prod­ucts using the earth’s nat­ural resources. The race is already on to con­trol rare resources like lan­thanum, scan­dium and thulium; essen­tial for hi-tec but every­day prod­ucts such as com­put­ers and mobile phones.

Source: YouTube, Decem­ber 11, 2010 (hat tip: Finan­cial Doom Blog).

Tags: Control, Credit Default Swaps, Doom, Driven, Earth Resources, Everyday Products, Financial Crisis, Hat Tip, Hi Tec, Lanthanum, Mobile Phones, Natural Resources, Rare Earth, Rare Resources, Scandium, Speculation, Virtual Wealth
Posted in Markets | Comments Off

Energy and Natural Resources Market Diary (November 8, 2010)

Saturday, November 6th, 2010

Energy and Nat­ural Resources Mar­ket Diary (Novem­ber 8, 2010)

This chart shows a sharp rise in the super­tanker rate for oil ship­ments in the Per­sian Gulf. A report from Bloomberg this week said that the Per­sian Gulf, which is the world's largest crude-oil load­ing region, doesn't have enough of the super­tankers to meet demand. Just a week ago there was a 20 per­cent sur­plus of these ships, but Bloomberg's sur­vey this week showed a 1 per­cent short­age. This region feeds 20 per­cent of the world's crude oil demand, so a short­age of ships means that global demand for oil is pick­ing up.

Strengths

• Crude oil futures closed at a 24-month high of $87.11 per bar­rel this week.
• Russia's oil pro­duc­tion rose 4 per­cent to a new record 10.26 mil­lion bar­rels per day in Octo­ber. This beats the high of 10.16 mil­lion bar­rels per day set in September.
• Turkey's gold imports rose to 9.07 tons in Octo­ber, com­pared with 2.45 tons the pre­vi­ous month.
• A report from the Bom­bay Bul­lion Asso­ci­a­tion says that Indian gold imports rose to 43 tons, an 18 per­cent increase from the same time last year.

Weak­nesses

• Despite price gains for most com­modi­ties this week, nat­ural gas remains below $4 per mil­lion British ther­mal units (Mmbtu) and is down 2.7 per­cent over the prior five days.
• The Baltic Dry Freight Index, typ­i­cally an indi­ca­tor of global com­mod­ity demand, declined by 7 per­cent to 2,510 over the past five days through Thursday.

Oppor­tu­ni­ties

• China's real con­sump­tion for cop­per may rise to 8.5 mil­lion tons by 2015. This would be a 25 per­cent rise from 2010 demand forecasts.
• China Steel Corp is in talks with five groups to buy stakes in iron ore and coal mines to reduce its reliance on raw mate­r­ial sup­pli­ers as it increases pro­duc­tion. Aus­tralia is the main tar­get for these invest­ments, while Brazil and Africa are among prospec­tive loca­tions. The com­pany aims to raise the por­tion of iron ore and coal it receives from its mines to 30 per­cent from 2 per­cent through invest­ments over the next five years.
• China's gold mar­ket may dou­ble in the next decade as retail invest­ment and jew­elry demand gain, the World Gold Council's China Gen­eral Man­ager said. Con­sump­tion may rise to 900 tons over the next ten years. China's jew­elry and invest­ment gold demand was 428 tons in 2009, accord­ing to the council.

Threats

• Canada blocked BHP Billiton's $40 bil­lion hos­tile bid for Potash Corp. of Saskatchewan, say­ing a sale wouldn't pro­vide a net ben­e­fit to the coun­try. BHP has 30 days to appeal, at which point the gov­ern­ment will make a final decision.

Tags: Baltic Dry Freight Index, Brazil, BRIC, BRICs, Canadian Market, China, China Steel, Coal Mines, Commodities, Crude Oil Futures, Demand Forecasts, Dry Freight, energy, Global Commodity, Global Demand, Gold, Gold Bullion, Gold Imports, India, Indian Gold, Iron Ore, Market Diary, Mmbtu, Natural Gas, Natural Resources, oil, Oil Demand, Oil Shipments, Persian Gulf, Raw Material Suppliers, Russia, Steel Corp, Supertankers, Target
Posted in Brazil, Canadian Market, China, Energy & Natural Resources, Gold, India, Markets, Oil and Gas | Comments Off

David Winters: Why He Loves Stocks (and Canada too)

Friday, November 5th, 2010

On this week’s Con­suelo Mack Wealth­Track, “Great Investor” David Win­ters (for­mer CEO, Franklin Mutual Advis­ers, circa pre-2005) explains why his go any­where, invest in any­thing Win­ter­green Fund (fund man­ager of Renais­sance (CIBC AM) Global Mar­kets Fund) is fol­low­ing the money by invest­ing nearly 90% in stocks and 65% overseas.

Win­ters loves stocks, and he describes why his non-U.S. port­fo­lio expo­sure has more than dou­bled in the past five years, which coun­try is cur­rently his favorite, why he thinks M&A is about to take off, which indus­try makes up almost 20% of his port­fo­lio, and what he thinks the mar­ket is miss­ing in Nestlé, Swatch, Schindler and Richemont.

The tran­script for this video fol­lows below:

Con­suelo Mack Wealth­Track inter­views David Win­ters — Octo­ber 29, 2010

CONSUELO MACK: This week on Wealth­Track, while other investors flee stocks for the com­fort of bonds, our Great Investor is embrac­ing them. Win­ter­green Fund’s David Win­ters on why he loves stocks is next on Con­suelo Mack WealthTrack.

Hello and wel­come to this Great Investor edi­tion of Wealth­Track. I’m Con­suelo Mack. Investors, both big and small, are flee­ing stocks, par­tic­u­larly large cap U.S. ones. And the trend is stun­ning and shows lit­tle sign of abat­ing. Over the past three years, net new cash inflows– that’s the dif­fer­ence between money com­ing in and money going out of stock mutual funds– have grown from a trickle of sell­ing to a flood. This chart of net new cash flows into domes­tic stock funds from Bianco Research shows the mag­ni­tude of the nearly $180 bil­lion dol­lar stock sell­ing stam­pede since 2007.

The story is the exact oppo­site in bond land. As you can see from this chart, net new cash inflows into domes­tic bond funds have soared, par­tic­u­larly in the past year, as bond yields have fallen and prices have risen. This stock-bond dichotomy is also play­ing out among big insti­tu­tional investors. A recent Wall Street Jour­nal arti­cle noted that pen­sion funds are join­ing the stam­pede in “search of less-risky bets;” their asset class of choice is also bonds.

But are bonds less risky than stocks, espe­cially after the big run up they have expe­ri­enced since the finan­cial cri­sis? Leg­endary investor War­ren Buf­fett was recently quoted say­ing he “can’t imag­ine” the ratio­nale for adding bonds to your port­fo­lio at cur­rent prices and that to him it is “quite clear stocks are cheaper than bonds” now.
That is exactly the sen­ti­ment of this week’s Great Investor guest. Win­ter­green Fund’s David Win­ters launched his go any­where, invest in any­thing fund five years ago. Since then the value-oriented fund has hand­ily beaten the S&P 500 and the MSCI World Index. Win­ters, who has been named one of the “World’s Great­est Investors” by Smart Money mag­a­zine is not hedg­ing his bets right now. His Win­ter­green Fund is about 90% invested in stocks, 2/3rds of which are for­eign based com­pa­nies. Win­ters believes the global econ­omy is in the midst of pro­found shifts with huge ram­i­fi­ca­tions for investors. I asked him what has changed.

DAVID WINTERS: The power is shift­ing from the West­ern world to the Far East. And you know, we're still very rel­e­vant. But the cut­ting edge of wealth cre­ation is hap­pen­ing in Asia. And that's very dif­fer­ent from the world in which I grew up in and that most of us have grown up in.

CONSUELO MACK: Now this change, it's been com­ing along for a num­ber of years. But you tell me it's accel­er­ated through the finan­cial cri­sis. What changed dur­ing the finan­cial cri­sis that really has accel­er­ated this shift in eco­nomic power?

DAVID WINTERS: Well, you've had the West go down. And you've had asset val­ues col­lapse and a lot of debt. You had an ongo­ing debt cri­sis. And you had con­tin­ued pros­per­ity in Asia. So the dif­fer­en­tial has widened and so you have pros­per­ity in Asia gen­er­ally. And the West is mired in a severe reces­sion and debt liq­ui­da­tion. And so you know, as Wayne Gret­sky would say, "You got to skate to where the puck is." And the puck is increas­ingly out­side of North America.

CONSUELO MACK: So how last­ing do you think this shift is going to be and the scary ques­tion from, you know, a U.S. citizen's point of view, is the gap going to keep widen­ing between us and them? Or do you see us com­ing up and at any rate, you know, gain­ing some momentum?

Tags: Bianco Research, Bond Funds, Bond Yields, Brazil, Canadian Market, Cash Inflows, China, CIBC, CIBC Asset Management, Commodities, Consuelo Mack Wealthtrack, David Winters, Dichotomy, Domestic Bond, Domestic Stock Funds, energy, ETF, ETFs, Franklin Mutual Advisers, Global Markets, Institutional Investors, Investor Edition, Natural Resources, oil, S David, Stampede, Stock Bond, Street Journal Article, Wall Street Journal, Wintergreen Fund
Posted in Brazil, Canadian Market, China, Energy & Natural Resources, ETFs, Markets, Oil and Gas | Comments Off

Caisse: A Bridge to Québec's Future?

Friday, November 5th, 2010

Via Pen­sion Pulse.

Today was one of those days! My MS was act­ing up early in the morn­ing. I had this bru­tal pain in my upper back that felt like some­one was stick­ing a dag­ger in me. But come hell or high water, I wasn't going to miss Michael Sabia's speech at the Palais des con­grès de Mon­tréal at lunch.

I was run­ning late and just my luck the cab dri­ver leaves me all the way on the other end of the build­ing. I was walk­ing with severe pain in my back but there was no way I was going to miss the speech. I finally got to room 520, and ran into some famil­iar faces which I was happy to see. Sit­ting next to me at my table was a very nice lady, Lucie Pel­lerin, a recruiter from St-Amour & Asso­ciates (if only all recruiters can be more like her; she gets it!).

Mr. Sabia, Pres­i­dent and CEO of the Caisse de dépôt et place­ment du Québec, Canada's biggest pen­sion fund, was the guest speaker at the the Board of Trade of Met­ro­pol­i­tan Montréal's Des­jardins busi­ness lun­cheon — Busi­ness Voices. He talked about the many facets of the Caisse's con­tri­bu­tion to the eco­nomic devel­op­ment of Que­bec, mainly in the con­text of a chang­ing world, which both the Caisse and Que­bec need to adapt to in order to achieve their full potential.

You can down­load the speech in French and in Eng­lish. Mr. Sabia deliv­ered the speech in French, which is very impres­sive. His French is excel­lent and he showed tremen­dous respect to his audi­ence by deliv­er­ing the entire speech in French. Quebec's élite and media were present, and I'm sure they were equally impressed (peo­ple at my table were impressed by that and more impor­tantly, with the con­tent of the speech).

Mr. Sabia started off by saying:

When I enter the office every morn­ing, just across from here, on Place Jean-Paul Riopelle, I think about the priv­i­lege of lead­ing the Caisse — an impor­tant Québec insti­tu­tion, an insti­tu­tion with immense potential.

The most urgent task, upon my arrival 18 months ago, was to get back on track.
Since then, we have made sig­nif­i­cant changes:

• We renewed our man­age­ment team
• We sim­pli­fied our invest­ment strate­gies
• We reduced risk and tight­ened our risk con­trols
• We devel­oped a client-centric culture

Our per­for­mance has improved.

We still have work to do, but it's bet­ter now.

Now that the Caisse is rest­ing on more solid foun­da­tions, it is time to look to the future.

In doing so, we will address a series of ques­tions and issues that give us the tools to seize oppor­tu­ni­ties for build­ing a strong, suc­cess­ful Caisse in the com­ing years.

Our strate­gies for address­ing these chal­lenges rep­re­sent a new chap­ter for the Caisse.

Today, I will focus only on one of these strate­gies: our con­tri­bu­tion to Québec’s eco­nomic development.

With that he delved into the core issue:

The genius of the Caisse’s archi­tects — Lesage, Parizeau, Cas­tonguay, Marier — was to under­stand the impor­tance of adding a finan­cial insti­tu­tion to all the other reforms, a finan­cial insti­tu­tion to make Québec’s social and eco­nomic trans­for­ma­tion possible.

The Caisse was founded to serve this purpose.

At that time, the world was very different.

It was cut in half, immersed in the Cold War.

In China, a rev­o­lu­tion was just begin­ning: the infa­mous Cul­tural Revolution.

The Euro­pean Union was still light years away.

There was no free trade and nobody talked about globalization.

There was no Inter­net, no lap­tops, no cell phones, no Google.

Imag­ine such a world.

The world has changed.

Almost 50 years later, the Cold War is over.

We have global markets.

Instant com­mu­ni­ca­tions.

And a global world.

China has become the world’s second-largest economy.

The euro is the cur­rency for a mar­ket of more than 350 mil­lion people.

India, Brazil and many other coun­tries are also becom­ing lead­ing eco­nomic pow­ers.
Que­bec has also changed.

We’ve become a world cen­tre of high value-added sectors:

• Mul­ti­me­dia
• Aero­space
• Engi­neer­ing
• Biotech­nol­ogy
• Envi­ron­ment technology

There are Lau­rent Beau­doin, the Lemaire broth­ers, Serge Godin, Alain Bouchard, Mar­cel Dutil and many others.

And now we see a whole new gen­er­a­tion: Pierre Beau­doin, Sophie Brochu, Marc Dutil, Guy Lal­ib­erté, Monique Ler­oux, Pierre Karl Peladeau and more.

It has become quite nor­mal to see Fran­coph­o­nes at the head of the Québec economy.

What’s sur­pris­ing now is to see an Anglo­phone Que­be­cer at the head of the Caisse...

This just shows you how much things have changed.

That last com­ment elicited quite a chuckle from the audi­ence. I think he took a lit­tle shot at his crit­ics and some in the media who think only Fran­coph­o­nes should be at the helm of the Caisse (pure nonsense).

He went on to say:

Here, we must ask a fun­da­men­tal question.

In this incred­i­bly dif­fer­ent world, how can the Caisse serve the best inter­ests of Québec?

Must we adapt to a new reality?

The answer is yes. The Caisse is ready to keep pace with this new emerg­ing world.

This must be based on our com­par­a­tive advantages:

• Our in-depth knowl­edge of Québec
• Our role as a long-term investor
• Our crit­i­cal mass
• Our inter­na­tional scope

The objec­tive of the Caisse remains the same. Here’s what Mr. Lesage had to say about the Fund in 1965 — and I quote: “It must both meet the cri­te­ria for ade­quate prof­itabil­ity and make funds avail­able for Québec’s long-term development.”

As in 1965, we must grow the assets of our long-term depos­i­tors, so they can meet their oblig­a­tions. This is vital for Québec.

It has never been more impor­tant than today, as many Québe­cers are about to retire.

Que­be­cers must know that they will have access to their pen­sion funds.

This is cru­cial. That’s why we rein­forced the Caisse’s foundations.

That's why we make invest­ments based on our com­par­a­tive advantages.

We are will­ing to take risks — cal­cu­lated risks — by invest­ing in high-quality companies.

Well-managed, promis­ing companies.

And where can we invest with a clear com­par­a­tive advantage?

In Québec.

We have an inti­mate knowl­edge of the local mar­ket, econ­omy and companies.

It is only nat­ural that, in the pur­suit of healthy returns, we invest here.

You can­not arti­fi­cially sep­a­rate the issues of returns and Québec’s eco­nomic devel­op­ment. The two go hand in hand. Accord­ingly, we aim to seek and seize prof­itable pri­vate equity, stock and real estate invest­ment opportunities.

In small, medium-sized and large com­pa­nies. In every region of Québec.

In this respect, our com­mit­ment is quite clear.

The $1.4 bil­lion increase in our pri­vate sec­tor invest­ments in 2009 is very real.

We're here to serve our clients, to serve Québecers.

Mr. Sabia then gave some spe­cific exam­ples to follow-up on those comments:

How? By mak­ing long-term, sta­ble and prof­itable invest­ments in the areas we know well.

Take, for exam­ple, Gaz Metro:

• It’s prof­itable
• It’s low risk
• It has good cash flow
• It oper­ates in one of Québec’s vital industries

This invest­ment is per­fectly in line with the needs of our clients.

And, at the same time, with our Québec devel­op­ment objective.

That's why we recently decided to increase our stake in Gaz Metro by pur­chas­ing SNC Lavalin shares.

Invest in SMBs

Right now, I'm talk­ing about a big com­pany, but we also focus on SMBs.

Québec has been suc­cess­ful for 30 years as a remark­ably diver­si­fied economy.

Such a thing is pos­si­ble with dynamic SMBs.

Inter­na­tional com­pa­nies some­times start in the basement.

Serge Godin lit­er­ally started CGI in his base­ment. Today, it’s a com­pany with 30 000 employ­ees in 15 countries.

Cas­cades, orig­i­nally a fam­ily busi­ness, is another exam­ple of how an econ­omy can grow over time.

Of course, there are dozens of Québec SMBs that may turn into major global organizations.

There are hun­dreds of young entre­pre­neurs, extra­or­di­nary man­agers, sci­en­tists and
tech­ni­cians — deter­mined, full of new ideas.

They are the ones who are build­ing the Québec of tomorrow.

We must invest in the best, the most promising.

Not only to con­tribute to Québec's devel­op­ment, but also to seize busi­ness opportunities.

SMBs are every­where in Québec. But not the Caisse.

How can we ensure that SMBs have access to our exper­tise and finan­cial resources?

Our response: by forg­ing a part­ner­ship with Des­jardins, a finan­cial insti­tu­tion very well inte­grated into the social and eco­nomic fab­ric of Québec.

Together, we cre­ated a $600 mil­lion fund.

We have already started investing…

From Mon­tréal to Daveluyville

From Méta­betchouan to Val-d'Or

All the way to Havre-Saint-Pierre

We will make sure to find SMBs ded­i­cated to a bright future and pro­vide our ser­vices and funds to develop Québec — as a whole — over the long term.

As far as I’m con­cerned, I will con­tinue doing my part.

I'll go to any region and talk to peo­ple about what we do.

What we can do with them and for them.

Mr. Sabia also spoke of the Caisse's ini­tia­tives with Québec universities:

This brings us to our rela­tion­ships with Québec universities.

For years, we’ve had ties with UQAM, McGill and HEC.

Now we’ve gone even further:

• Within the Caisse, an ongo­ing intern­ship pro­gram
• With the Uni­ver­sité Laval and UQAM, research pro­grams in finan­cial analy­sis
• With Sher­brooke, an agenda for research on invest­ment prac­tices
• With École de tech­nolo­gie supérieure, a finan­cial engi­neer­ing pro­gram
• And with Con­cor­dia, a sus­tain­able invest­ment program

So these are alto­gether another type of investment…in Québec’s finan­cial expertise.

An invest­ment, so to speak, with a very healthy return.

Finally, M. Sabia had this to say about the inter­na­tional chal­lenges that Québec faces and how the Caisse can help build a bridge to the future:

In this incred­i­bly dif­fer­ent world, the chal­lenge will not be easy.

For 20 years, Quebec's share of Canada’s total exports has declined. The ratio of exports to GDP of Que­bec is lower than the Cana­dian aver­age.

Only 30% of Québec’s small and medium-sized export com­pa­nies are in Europe. Only 16% of these SMBs are in Asia. That’s just too lit­tle. Québec is fac­ing an inter­na­tional challenge.

To enrich itself, to build large com­pa­nies, Québec should export more.

And it should do it around the world.

There is no doubt in my mind that Québec’s eco­nomic future will be partly decided by our abil­ity to pen­e­trate major mar­kets worldwide.

The fact that a soci­ety of fewer than 8 mil­lion peo­ple has such a finan­cial insti­tu­tion is not a com­mon phenomenon.

And given the lim­ited size of the Québec and Cana­dian economies, the Caisse has been moti­vated to expand its pres­ence in inter­na­tional mar­kets over time.

45% of our equity secu­ri­ties are inter­na­tional. 55% of our real estate port­fo­lio is located abroad. And 70% of our pri­vate equity is out­side Canada.

To obtain returns for our depos­i­tors, we will con­tinue to expand our pres­ence in new
inter­na­tional markets.

The Caisse’s inter­na­tional perspective.

Our invest­ments worldwide.

Our net­work of inter­na­tional contacts.

Our exper­tise from new markets.

All of it can be put to the ser­vice of Québec companies.

First, in the U.S. market.

Despite the dif­fi­cul­ties of our neigh­bours, we are, after all, talk­ing about the world's largest econ­omy and a mar­ket we know well — a mar­ket that must remain a priority.

Québec must also broaden its pres­ence in Europe, a mar­ket of more than 500 mil­lion
people.

To sim­plify Québec com­pany access to this mar­ket, we entered into a part­ner­ship with AXA Pri­vate Equity, a large French firm, in Octo­ber 2009.

At the same time, of course, we must look toward Asia and South Amer­ica — to coun­tries
with very strong growth.

With this in mind, we just forged a part­ner­ship with HSBC, a global finan­cial insti­tu­tion with a strong pres­ence in Asia and Brazil.

This agree­ment aims to pro­vide Québec com­pa­nies with the sup­port of both institutions.

They offer financ­ing for inter­na­tional projects of over $10 million.

This exper­tise and these net­works are for our depos­i­tors, Québec busi­nesses and, in turn, Québec.

At the same time, we launched a co-investment strat­egy with Québec com­pa­nies.
Cirque du Soleil, already well-established in many coun­tries, is a good example.

With Cirque du Soleil, we recently co-invested $25 mil­lion in a pro­duc­tion and devel­op­ment fund. The goal? Cre­ate new prod­ucts that will broaden the Cirque’s pres­ence worldwide.

The Caisse has crit­i­cal mass, exper­tise, scale and cred­i­bil­ity in inter­na­tional markets.

And we aim to fur­ther extend our net­work of con­tacts and exper­tise around the world, espe­cially in emerg­ing countries.

In the future, we will develop more part­ner­ships with inter­na­tional insti­tu­tional investors who share our long-term vision.

Sov­er­eign wealth funds or other inter­na­tional pen­sion funds in Canada, Nor­way, China or Sin­ga­pore. I think that’s where a vital part of the Caisse’s con­tri­bu­tion can be made — where the Caisse can serve as a bridge between our port­fo­lio com­pa­nies and the world.

This is the part of our eco­nomic devel­op­ment strat­egy that we must empha­size and
intensify.

The Caisse’s inter­na­tional dimen­sion, which con­tributes to Québec’s brand image and rep­u­ta­tion world­wide, is part of the legacy we have inher­ited from our predecessors.

A legacy that we must continue.

The key for the Caisse is to lever­age off its invest­ments part­ners, Mon­tréal uni­ver­si­ties and build solid net­works across the globe with large sov­er­eign wealth funds and other large global pen­sion funds. But the chal­lenges for Québec com­pa­nies are huge and it remains unclear how the Caisse's com­par­a­tive advan­tages will be used to help this com­pa­nies meet these challenges.

How­ever, one thing is clear, the com­mit­ment is there and as the world changes for bet­ter or for worse, the Caisse will con­tinue to play a vital role in shap­ing, pro­mot­ing and sus­tain­ing Québec's eco­nomic development.

Tags: Brazil, BRIC, BRICs, Business Luncheon, Cab Driver, Caisse De Depot, Canadian Market, China, Commodities, Dagger, Desjardins, Economic Development, energy, Facets, Guest Speaker, High Water, India, Metropolitan Montreal, Michael Sabia, Natural Resources, One Of Those Days, Pension Fund, Privilege, Quebec Canada, Recruiter, Recruiters, Severe Pain, Some Familiar Faces, St Amour
Posted in Brazil, Canadian Market, China, Emerging Markets, India, Markets | Comments Off

“It’s Not Nice to Fool Mother Nature”

Monday, November 1st, 2010

by Jef­frey Saut, Chief Invest­ment Strate­gist, Ray­mond James

Novem­ber 1, 2010

“Tor­na­does, vio­lent thun­der­storms, and tor­ren­tial rains swept through a large por­tion of the nation's mid­sec­tion yes­ter­day, thanks to the strongest storm ever recorded in the Mid­west. NOAA's Storm Pre­dic­tion Cen­ter logged 24 tor­nado reports and 282 reports of dam­ag­ing high winds from yesterday's spec­tac­u­lar storm, and the storm con­tin­ues to pro­duce a wide vari­ety of wild weather, with tor­nado watches. The mega-storm reached peak inten­sity late yes­ter­day after­noon over Min­nesota, result­ing in the low­est baro­met­ric pres­sure read­ings ever recorded in the con­ti­nen­tal United States, except for hur­ri­canes and nor'easters affect­ing the Atlantic seaboard (last week’s hurricane-like Mid­west storm shown below).”

... Wun­der­ground Blog, by Dr. Jeff Mas­ters, 10/27/10

Droughts in Rus­sia and China have destroyed 30% of Russia’s grain crops. The same drought has caused 30-foot deep “cracks” to appear in the farm­lands north of China’s Inner Mon­go­lia Autonomous Region, keep­ing farm­ers out of the fields (read: food short­ages). Mean­while, other parts of China are expe­ri­enc­ing floods, and mud­slides, of his­toric pro­por­tions. Ditto Pak­istan, where mon­soons have dis­placed some 20 mil­lion peo­ple and caused huge crop losses. A few weeks ago, some parts of Wis­con­sin had three feet of water in the streets, a late-season Hur­ri­cane (Earl) flooded our country’s North­east cor­ri­dor, New York City expe­ri­enced its hottest sum­mer on record, punc­tu­ated by a microburst con­tain­ing 125 mph winds, hot weather left the tem­per­a­ture in Los Angles at 114° two weeks ago, and a heat wave sparked the Four­mile Canyon fire near Boul­der, Col­orado. I could go on, but you get the idea, the weather has turned unde­ni­ably weird.

In past mis­sives I have com­mented that while to some degree the envi­ron­men­tal­ists are right about the cli­mate change being attrib­ut­able to “man,” this year’s weather is being com­pounded by a La Niña weather pat­tern cou­pled with huge amounts of vol­canic ash in the atmos­phere. That com­bi­na­tion has allowed “The Trop­ics” to expand toward the “poles.” Accord­ingly, the Hadley cell winds have shifted out­wards. Recall, the Hadley cell winds dom­i­nate the trop­ics, car­ry­ing hot equa­to­r­ial air up into the tro­pos­phere where atmos­pheric cir­cu­la­tion car­ries it North and South. The air even­tu­ally sinks back to Earth around the 30° lon­gi­tudes. Where the air rises, the atmos­pheric pres­sure is low, caus­ing heavy rains and storms (trop­i­cal). When it sinks, it pro­duces high pres­sure areas char­ac­ter­ized by deserts like the Aus­tralian out­back. Once the air becomes earth­bound it flows back toward the equa­tor. Unsur­pris­ingly, the Hadley cell winds’ out­ward shift has played havoc with the Trade Winds, pro­duc­ing droughts in oth­er­wise moist parts of the world and mon­soons in pre­vi­ously dry locales. Said “shift” has allowed trop­i­cal zones, and deserts, to expand dra­mat­i­cally. This is not an unim­por­tant event because the changed weather pat­tern has major impli­ca­tions for agri­cul­ture and the world’s soil bank.

Cur­rently, much of the world’s top­soil is erod­ing and there­fore declin­ing in nutri­ent qual­ity. Accord­ing to wiseGEEK:

“Top­soil is the upper sur­face of the Earth's crust, and usu­ally is no deeper than approx­i­mately eight inches. The Earth's top­soil mixes rich humus with min­er­als and com­posted mate­r­ial, result­ing in a nutri­tious sub­strate for plants and trees. It is one of the Earth's most vital resources.”

Unfor­tu­nately, top­soil ero­sion is occur­ring much faster than nature can replace it. In addi­tion to weather, mod­ern agri­cul­ture tech­niques have has­tened the ero­sion, as has row crop plant­ing (corn, soy­beans, cot­ton, tobacco, etc.) since row crops erode soil much faster than sod crops. Regret­tably, once soil is gone you can’t get it back! Plainly, this has grave impli­ca­tions because as I have stated for years, “When per capita incomes rise the first thing peo­ple want is clean water, the sec­ond is a bet­ter diet.” With per capita incomes ris­ing rapidly in emerg­ing coun­tries the bur­geon­ing food demand has left global grain con­sump­tion exceed­ing pro­duc­tion; and, over the next few decades the sit­u­a­tion is likely to get worse because food pro­duc­tion needs to expand by some 50% just to meet the esti­mated demand. Ladies and gen­tle­men, this means an addi­tional ~6 bil­lion acres of land is needed to meet the upcom­ing food demand, but only ~2 bil­lion acres of good land is avail­able. Obvi­ously, that should make farm­land a good invest­ment and there are select pub­lic com­pa­nies that play to this theme. Also of inter­est are ag-centric “tech­nol­ogy” com­pa­nies that hope­fully can ame­lio­rate some of the upcom­ing food short­fall. Com­pa­nies like Mon­santo (MON/$59.42) and Deere & Co. (DE/$76.80), which are fol­lowed by our research affil­i­ates, are con­stantly search­ing for inno­v­a­tive solu­tions to the dilemma.

Tags: Atlantic Seaboard, Barometric Pressure Readings, Canyon Fire, Chief Investment Strategist, China, Commodities, Crop Losses, Dr Jeff, energy, Grain Crops, Hot Weather, Hurricane Earl, Inner Mongolia Autonomous Region, jeffrey saut, Lowest Barometric Pressure, Microburst, Natural Resources, Noaa, Northeast Corridor, oil, Peak Intensity, Russia, Spectacular Storm, Storm Prediction Center, Tornado Reports, Violent Thunderstorms
Posted in China, Energy & Natural Resources, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Diary (November 1, 2010)

Saturday, October 30th, 2010

Energy and Nat­ural Resources Mar­ket Diary (Novem­ber 1, 2010)

Strengths

• China’s imports of cop­per con­cen­trate climbed to a record in Sep­tem­ber as smelters ramped up pro­duc­tion in response to ris­ing treat­ment charges. Inbound ship­ments jumped to 683,523 met­ric tons last month, up 22 per­cent year-over-year, the cus­toms office said.
• World refined cop­per was in a deficit of 356 thou­sand met­ric tons year-to-date through July, com­pared with a deficit of 164 thou­sand met­ric tons in the same period in 2009, accord­ing to the Inter­na­tional Cop­per Study Group.
• Sep­tem­ber imports of cok­ing coal into China hit their high­est lev­els since Jan­u­ary of this year. China imported 4.17 mil­lion met­ric tons, up 7.5 per­cent sequen­tially accord­ing to Cus­toms data.

Weak­nesses

• Vietnam’s coal exports in 2011 are pro­jected to drop 5.6 per­cent from this year to 17 mil­lion met­ric tons, a state-run news­pa­per said on Tues­day, as the coun­try seeks to save more for domes­tic con­sump­tion. Coal exports would drop grad­u­ally to between 3 mil­lion and 4 mil­lion tonnes by 2015, the Rural Today news­pa­per said, cit­ing an Indus­try and Trade Min­istry report.
• China’s daily crude steel out­put fell fur­ther to 1.56 mil­lion met­ric tons in the sec­ond ten days of Octo­ber, down 3.9 per­cent from early Octo­ber, accord­ing to the China Iron & Steel Association.

Oppor­tu­ni­ties

• Rus­sia, the world's top oil pro­ducer, will need over 8.6 tril­lion rubles ($280 bil­lion) to keep pump­ing oil at cur­rent record lev­els until 2020, Prime Min­is­ter Vladimir Putin said on Thurs­day. “This is not an easy task,” Putin told a meet­ing of oil indus­try top man­agers and gov­ern­ment offi­cials. Putin was chair­ing a gov­ern­ment meet­ing on a new 10-year energy strat­egy, which seeks to stave off out­put declines and encour­age invest­ment as the heart­land of the Russ­ian oil indus­try, the Soviet-era fields of West Siberia, goes on the wane.
• India, Asia’s second-fastest-growing major econ­omy, may face a short­age of 60 mil­lion met­ric tons a year of power-plant coal by the year end­ing March 2012, as domes­tic out­put falls short of demand, Enam Secu­ri­ties Ltd. said.
• India, the world’s third-largest iron-ore exporter, should ban ship­ments over­seas to ensure that local steel­mak­ers have ade­quate sup­plies of the raw mate­r­ial, accord­ing to Steel Min­is­ter Virb­hadra Singh. The coun­try will need increased quan­ti­ties of iron ore to meet domes­tic demand from steel pro­duc­ers, so there was a need for a ban, Singh said at a sem­i­nar in New Delhi this week.
• South Africa opened pub­lic hear­ings on a $125 bil­lion energy plan to shift from depen­dency on coal while avoid­ing major price increases and a repeat of par­a­lyz­ing black­outs in 2008. The draft plan pro­poses nearly halv­ing the share of coal in the country’s energy mix to 48 per­cent by 2030, down from about 90 per­cent, using nuclear power and renew­able energy such as wind and solar to make up the difference.

Threats

• Hal­libur­ton Co. may face increased lia­bil­ity in the Gulf of Mex­ico oil spill after the staff of a U.S. pres­i­den­tial panel said the con­trac­tor knew cement it mixed for BP Plc’s well was unsta­ble. The staff of the National Com­mis­sion on the BP Deep­wa­ter Hori­zon Oil Spill said doc­u­ments pro­vided by Hal­libur­ton showed at least three tests of the mix­ture, in Feb­ru­ary and April, found the recipe wasn’t sta­ble. BP received data in March from at least one of the tests, the com­mis­sion staff said in a let­ter this week.

Tags: Association Opportunities, China, Coal Exports, Commodities, Crude Steel, Customs Office, Domestic Consumption, energy, Inbound Shipments, India, India Asia, International Copper Study, International Copper Study Group, Market Diary, Million Metric Tons, Ministry Report, Natural Resources, oil, Output Declines, Refined Copper, Russia, Russian Oil Industry, Steel Association, Steel Output, Treatment Charges, Vladimir Putin, West Siberia
Posted in China, Energy & Natural Resources, India, Markets, Oil and Gas | Comments Off

Debt Bubbles and the Bull Market for Commodities

Thursday, October 28th, 2010

The “World’s Great­est Invest­ment Event,” the 2010 New Orleans Invest­ment Con­fer­ence kicked off on Wednes­day as gold and nat­ural resources investors descended on the Cres­cent City for answers to today’s mar­ket questions.

The list of speak­ers for this year’s con­fer­ence reads like a who’s who of the nat­ural resources and com­mod­ity world—Dr. Marc Faber, Newt Gin­grich, Den­nis Gart­man, Dick Armey, Peter Schiff and others.

We know every­one can’t make it down to the con­fer­ence this year, so we’re going to be shar­ing some of the high­lights with you over the next cou­ple of days.

Rick Rule, chair­man of Global Resource Invest­ments, Ltd., was first to speak Thurs­day morn­ing and he had a clear mes­sage for the audi­ence: We’re in a bull mar­ket for com­modi­ties and nat­ural resources. Rule said that the easy money, what he called “risk­less” money, has been made, but the “big” money is still out there.

Rule cau­tioned that this bull mar­ket in nat­ural resources comes with a hefty amount of volatil­ity; how­ever, he told the audi­ence of sev­eral hun­dred to use the volatil­ity to their advan­tage. Rule said “volatil­ity means items are con­tin­u­ally being sold at 30, 40 and 50 per­cent off.”

One big rea­son Rule cites for the bull mar­ket in com­modi­ties and resources are supply-side con­straints. A severe bear mar­ket in the 1980s and 1990s kept many com­pa­nies and gov­ern­ments from invest­ing in explo­ration and today’s con­sumers are liv­ing off reserves dis­cov­ered in the 1960s and 1970s. With per capita con­sump­tion grow­ing in places like China, new dis­cov­er­ies will need to be large and fruit­ful to pre­vent sup­ply shocks.

Next up on the stage was Brien Lundin, edi­tor of the Gold Newslet­ter and host of the New Orleans Invest­ment Con­fer­ence. Lundin began his pre­sen­ta­tion on gold show­ing that the cur­rent rally—which he says began in August 2009—has taken longer and appre­ci­ated less than recent run-ups in 2006 and 2008.

Lundin says he has been expect­ing a cor­rec­tion in gold prices that has not come to fruition. This could likely come when the Fed­eral Reserve insti­tutes their sec­ond edi­tion of quan­ti­ta­tive eas­ing because mar­ket expec­ta­tions have just got­ten too high.

Lundin is also pos­i­tive on cop­per, say­ing that ana­lysts have been try­ing to kill off cop­per for years but the Chi­nese have refused to play along. Lundin thinks we’ll see $4 a pound cop­per sooner rather than later.

Although Lundin thinks a pull­back in gold prices is com­ing, he believes this is the time for investors to reload. His long-term bull­ish view on gold is based on unprece­dented debt lev­els by the Fed and the oncom­ing deval­u­a­tion of nearly every major cur­rency in the world.

Bubble-spotter Peter Schiff led off the mid-day ses­sion with a dis­cus­sion of bub­bles and exces­sive gov­ern­ment spend­ing. Schiff says we’re cur­rently expe­ri­enc­ing one of the biggest bub­bles in his­tory; it’s not a bub­ble in equi­ties, not in gold or com­modi­ties, but a bub­ble in gov­ern­ment. The rest of his half hour speech laid out the case sup­port­ing this argu­ment. Schiff says that the 2008 hous­ing bub­ble was the over­ture to a much greater debt opera that is nowhere complete.

While Schiff spent his time at the podium explain­ing where a bub­ble is, newslet­ter mavens Pamela and Mary Ann Aden spent their time onstage explain­ing where there isn’t one—in gold. Mary Ann Aden began by lay­ing out the his­tory of gold’s trip from $200 in the 1990s to more than $1,300 today. One of the biggest dri­vers has been the explo­sion of gov­ern­ment debt. Mary Ann said that if the gov­ern­ment paid $1 mil­lion a day on its debt, it would take nearly 2,000 years to pay it off.

Mary Ann said that gold is far from a bub­ble because of the world’s reliance on paper cur­rency and “there’s not one paper cur­rency in the his­tory of the world that has sur­vived.” Mary Ann says that cen­tral banks have seen the writ­ing on the wall and that’s why you’ve seen a pickup in cen­tral bank buy­ing of gold this year. Mary Ann’s sis­ter Pamela Aden pro­claimed in her speech that gold is cur­rently in a “once in a life­time” megab­ull market.

We’ll have more updates from other speak­ers tomorrow.

Tags: Advantage Rule, Bear Market, Brien Lundin, China, Commodities, Crescent City, Dennis Gartman, Dick Armey, Dr Marc Faber, Easy Money, energy, Global Resource, Gold Newsletter, Investment Conference, Investments Ltd, List Of Speakers, Natural Resources, New Discoveries, Newt Gingrich, Peter Schiff, S Market, Side Constraints, Supply Shocks, Ups, Volatility
Posted in China, Energy & Natural Resources, Gold | Comments Off

Energy and Natural Resources Market Diary (October 25, 2010)

Saturday, October 23rd, 2010

Energy and Nat­ural Resources Mar­ket Diary (Octo­ber 25, 2010)

Strengths

• China's total coal imports surged 15 per­cent sequen­tially in Sep­tem­ber to 15.22 met­ric tons. Sep­tem­ber marks the fifth con­sec­u­tive monthly gain in coal import lev­els accord­ing to McCloskey.
• Early this week, cop­per prices in Lon­don and Shang­hai ral­lied to their high­est lev­els since July 2008, sup­ported by improv­ing global demand and expec­ta­tions of a sec­ond round of quan­ti­ta­tive eas­ing in the U.S.
• Corn imports by South Korea, the world's third-largest buyer, rose by 21 per­cent to 6.5 mil­lion tons in the first nine months of the year, cus­toms data showed.

Weak­nesses

• Accord­ing to China Iron & Steel Asso­ci­a­tion sta­tis­tics, the crude steel out­put from the 75 mem­ber mills have dropped in the first ten days of Octo­ber to 13.74 mil­lion tons from 14.17 mil­lion tons due to power-induced pro­duc­tion cuts ordered by the provin­cial governments.
• For the week end­ing Octo­ber 16, U.S. steel capac­ity uti­liza­tion rates decreased to 67.4 per­cent ver­sus the prior week of 68.3 per­cent. This is the fifth week in a row of declin­ing uti­liza­tion rates and the first time uti­liza­tion rates dipped below 68 per­cent since early February.

Oppor­tu­ni­ties

• Reuters reported that coal miner Peabody Energy is ship­ping a test cargo of U.S. Pow­der River Basin coal to the United King­dom in a response to Euro­pean con­cerns about future supply.
• Reuters reports that an aluminum-backed ETF will hit the mar­ket within three months, backed by half a mil­lion to one mil­lion met­ric tons from Rusal.
• China Min­metals Corp. plans to invest $2.5 bil­lion to develop the Galeno cop­per project in Peru. Galeno, located in the north­ern region of Caja­marca, would pro­duce 144,000 tons of cop­per in con­cen­trate annu­ally, accord­ing to a 2007 fea­si­bil­ity study. No time­line of the project was provided.

Threats

• The Cana­dian province home to Potash Corp said it opposed BHP Billiton's $39 bil­lion bid to buy the fer­til­izer sup­plier, set­ting the stage for a politically-charged final deci­sion by the Cana­dian government.

Tags: Canadian Market, China, China Minmetals Corp, Coal Imports, Coal Miner, Commodities, Copper Prices, Copper Project, Crude Steel, energy, ETF, European Concerns, Feasibility Study, First Nine Months, Import Levels, Market Diary, Member Mills, Million Metric Tons, Natural Gas, Natural Resources, Peabody Energy, Potash Corp, Powder River Basin, Powder River Basin Coal, Provincial Governments, Reuters Reports, Steel Association
Posted in China, ETFs, Markets | Comments Off

Energy and Natural Resources Market Diary (October 18, 2010)

Saturday, October 16th, 2010

Energy and Nat­ural Resources Mar­ket Diary (Octo­ber 18, 2010)

Strengths

• Two more shale oil and gas deals were announced this past week in the Eagle Ford shale of South Texas with Sta­toil part­ner­ing with Tal­is­man and CNOOC part­ner­ing with Chesa­peake Energy. In total, over $75 bil­lion of deals for oil and gas shale prop­er­ties have been announced since 2008 includ­ing Exxon’s $35 bil­lion takeover of XTO Energy. Deals con­tinue to hit the mar­ket as large inter­na­tional oil and gas com­pa­nies look to secure U.S. shale resources to ensure reserve replace­ment. The com­pa­nies are also look­ing to acquire knowl­edge of drilling and com­ple­tion tech­nolo­gies nec­es­sary to take shale extrac­tion global.
• China’s crude oil imports increased 11 per­cent to 5.52 mil­lion bar­rels a day, com­pared with a month ear­lier, accord­ing to Gen­eral Admin­is­tra­tion of Customs.
• The Inter­na­tional Energy Agency (IEA) again raised demand esti­mates by roughly 300,000 bar­rels per day for both 2010 and 2011. The increase reflects stronger-than-expected demand dur­ing the third quar­ter of 2010 and the Inter­na­tional Mon­e­tary Fund’s lat­est upward revi­sions to global GDP growth.
• China's iron ore imports jumped 18 per­cent in Sep­tem­ber from the pre­vi­ous month, show­ing that state-imposed steel pro­duc­tion cuts failed to dent demand from the world's top buyer of the raw material.

Weak­nesses

• Chi­nese net steel exports were 1.69 mil­lion tonnes in Sep­tem­ber, or 20.6 mil­lion tonnes annu­al­ized. This rep­re­sents a 28.8 per­cent month-over-month rise from July, but remains well below the 29 mil­lion tonnes (annu­al­ized rate) so far this year and a peak of 50 mil­lion tonnes (annu­al­ized rate) reached in June.
• India’s next auc­tion of oil rights may draw fewer inter­na­tional bids should the gov­ern­ment delay Cairn Energy’s plan to sell a stake in its local unit to Vedanta Resources. India plans to offer 34 oil and gas fields in the nation’s ninth round of auc­tions start­ing Octo­ber 15. In last year’s round, the gov­ern­ment received bids for just 36 of the 70 blocks offered because of dis­putes over production-sharing con­tracts and the global recession.

Oppor­tu­ni­ties

• The head of the Inter­na­tional Energy Agency (IEA) said that any delays to new off­shore deep­wa­ter oil and gas drilling could have a sig­nif­i­cant impact on the oil market.
• Bloomberg reported that OPEC mem­bers have said that oil should rise to $100 a bar­rel to make up for the 13 per­cent decline in the U.S. Dol­lar Index. OPEC mem­bers say the U.S. currency’s weak­ness means the real price of oil is about $20 less than at cur­rent levels.
• Freeport-McMoRan Cop­per & Gold said oppor­tu­ni­ties for acqui­si­tions are lim­ited and the com­pany may study return­ing excess cash to share­hold­ers. “It’s a very com­pet­i­tive mar­ket out there,” Chief Exec­u­tive Offi­cer Richard Adker­son said. “That leans you heav­ily toward inter­nal invest­ments. We are aggres­sively look­ing for ways to invest.” Adker­son said.
• Codelco expects a tighter cop­per mar­ket next year because of con­tin­ued demand from China and a lack of new sup­ply. “China is con­tin­u­ing to have strong demand and from the sup­ply side we have only a cou­ple of new projects com­ing on-stream,” Codelco’s CEO Diego Her­nan­dez said. He said the com­pany is sell­ing a lit­tle more than 40 per­cent of its cop­per to China.
• Ana­lysts at Mac­quarie high­lighted that Energy Resources of Aus­tralia reported quar­terly pro­duc­tion of 910 tonnes of ura­nium oxide in, up 10 per­cent quarter-over-quarter. That is well below mar­ket expec­ta­tions due to fur­ther poor-yielding grades from the Ranger pit. The com­pany has reduced full year guid­ance to 3,900 tonnes of oxide as a result and sig­naled that it will need to con­tinue pur­chas­ing mate­r­ial from the mar­ket in order to meet con­tracted oblig­a­tions. In Macquarie’s view, this has been a major fac­tor behind the rel­a­tive strength in ura­nium spot prices over the past three to four months.
• ETF Secu­ri­ties announced that it is prepar­ing to launch a range of physically-backed base met­als ETFs, accord­ing to Metal Bul­letin. The range of prod­ucts is to include phys­i­cal alu­minum, cop­per, lead, nickel, tin and zinc, as well as, a bas­ket con­sist­ing of all six met­als. The phys­i­cal back­ing will be pro­vided through own­er­ship of LME war­rants on met­als in approved warehouses.

Threats

• Monday's release from the Inter­na­tional Lead and Zinc Study Group sug­gested that despite a likely strong rise in zinc demand next year, a 10.7 per­cent year-over-year rise in zinc mine out­put should result in a 233 kilo­tonne sur­plus for the metal next year.
• U.S. steel­mak­ers, work­ing to block Chi­nese invest­ments such as a planned ven­ture by Anshan Iron & Steel Group in Mis­sis­sippi, pro­duced a report say­ing com­pa­nies in China get ille­gal gov­ern­ment sub­si­dies. Groups rep­re­sent­ing Nucor Corp. and U.S. Steel listed gov­ern­ment loans, tax breaks and pay­ments they said their coun­ter­parts in China receive. Much of the aid vio­lates World Trade Orga­ni­za­tion (WTO) rules and may give Chi­nese com­pa­nies an unfair advan­tage if they invest in the U.S.

Tags: Chesapeake Energy, China, Cnooc, Commodities, Crude Oil Imports, Demand Estimates, Eagle Ford, energy, Energy Deals, ETF, ETFs, GDP Growth, Global Gdp, India, International Energy Agency, International Monetary Fund, Market Diary, Natural Gas, Natural Resources, oil, Oil And Gas Companies, Oil Shale, Shale Oil, Steel Exports, Steel Production, Upward Revisions, Vedanta Resources, Xto, Xto Energy
Posted in China, Energy & Natural Resources, ETFs, Gold, India, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Market Diary (October 11, 2010)

Sunday, October 10th, 2010

Energy and Nat­ural Resources Mar­ket Diary (Octo­ber 11, 2010)

Strengths

• The Reuters/Jefferies CRB Com­mod­ity Index breached a new 52-week high on Fri­day in response to the Fed­eral Reserve’s expected quan­ti­ta­tive eas­ing pro­gram (money print­ing) and prospects of improv­ing global growth.
• Bulk freight con­tin­ued its sharp rebound with the Baltic Exchange Cape­size Freight Index up 7.9 per­cent on Fri­day to 3,786 amid grow­ing expec­ta­tion of a Chi­nese restock.
• The price of cop­per broke out to a new annual high price of $3.78 a pound. A ris­ing cop­per price has his­tor­i­cally been asso­ci­ated with a grow­ing global econ­omy, par­tic­u­larly in China.

Weak­nesses

• Steel Busi­ness Brief­ing has reported that an offi­cial with the United Steel­work­ers Union believes that U.S. Steel Canada will idle the 1.8 mil­lion ton per year (mtpa) blast fur­nace at the Hamil­ton works in Ontario this week amid soft­en­ing mar­ket conditions.
• Platts reports that recently announced $40/ton steel plate price increases in the U.S. are not stick­ing accord­ing to mar­ket participants.
• The price of nat­ural gas fell to a 52-week low of $3.62 per Mmbtu this week on wan­ing sea­sonal demand and ample domes­tic supplies.
• Lat­est port data for Brazil and Aus­tralia on iron ore show a surge in exports to China in recent months. Aus­tralian esti­mated iron ore exports in Sep­tem­ber were 38.3 mil­lion tons, up 9 per­cent from the prior month and 12 per­cent year-over-year. This rep­re­sents a new monthly high and an annu­al­ized rate of 438mtpa.

Oppor­tu­ni­ties

• Accord­ing to one recent research report, Iraq will require as much as $110-$115 bil­lion in spending/capital invest­ment over the next seven years in order to increase oil pro­duc­tion to 12 mil­lion bar­rels a day by 2020.
• Com­modi­ties could extend a rally that has lifted prices more than 10 per­cent since late August, if cen­tral banks pump bil­lions more dol­lars into the global econ­omy to prop up the sput­ter­ing recov­ery. Raw mate­ri­als prices surged after U.S. Fed­eral Reserve Chair­man Ben Bernanke said on August 27 the Fed was pre­pared to use "uncon­ven­tional" poli­cies such as buy­ing more long-term secu­ri­ties to drive down inter­est rates, if necessary.

Threats

• Cop­per pro­duc­tion at the 520,000 ton per day Col­lahuasi mine in Chile could be affected by labor issues later this month or in early Novem­ber. The labor con­tract expires on Octo­ber 31 and early reports sug­gest that the prob­a­bil­ity of indus­trial action is higher than normal.

Tags: Baltic Exchange, Blast Furnace, Brazil, Canadian Market, Capesize, Central Banks, China, Commodities, Copper Price, Crb Commodity Index, energy, Freight Index, Global Economy, Global Growth, India, Iron Ore Exports, Jefferies, Market Diary, Market Participants, Mmbtu, Money Printing, Natural Gas, Natural Resources, oil, Price Of Copper, Price Of Natural Gas, Seasonal Demand, Steel Business Briefing, United Steelworkers Union
Posted in Brazil, Canadian Market, China, Energy & Natural Resources, India, Markets, Oil and Gas | Comments Off

Canadian Advisors Turn Bullish on Stocks

Friday, October 8th, 2010

Cana­dian Advi­sors Turn Bull­ish on Stocks

TORONTO, Oct. 8 /CNW/ — After a quar­ter of healthy returns, a clear major­ity of Cana­dian invest­ment advi­sors are now bull­ish on the prospects for higher stock returns, accord­ing to the Q4 2010 Advi­sor Sen­ti­ment Sur­vey (the "Q4 Sur­vey") con­ducted by BetaPro Man­age­ment Inc. ("BetaPro").

The Q4 Sur­vey asked advi­sors to give their out­look on 15 dis­tinct asset classes. Advi­sors responded whether they were bull­ish, bear­ish or neu­tral on the antic­i­pated returns for these asset classes in the next quarter.

Advi­sors' out­look for broad-based equity indexes turned clearly bull­ish as most major stock indexes deliv­ered healthy returns in the third quarter.

Advi­sors' bull­ish sen­ti­ment for the S&P/TSX 60™ Index increased by 25 per­cent­age points from 39% in the Q3 sur­vey to 64% in the Q4 Sur­vey, as this index deliv­ered an 8.00% return for the 3rd quarter.

In a com­plete rever­sal of sen­ti­ment, the major­ity of Cana­dian advi­sors sur­veyed (52%) are now bull­ish on U.S. large-cap stocks for Q4, rep­re­sented by the S&P 500® Index. In the 3rd quar­ter, the same pro­por­tion of advi­sors was bear­ish on this index, which returned 10.72% for the period. Bull­ish sen­ti­ment on the NASDAQ 100® Index jumped from 42% in the Q3 sur­vey to 64% in the Q4 Sur­vey, as that index deliv­ered a 14.89% return for Q3.

"Stock mar­kets showed strong gains in Q3, and the results of this sur­vey sug­gest that advi­sors expect that upward momen­tum to con­tinue through the next quar­ter," said Howard Atkin­son, Pres­i­dent of BetaPro.

Con­sis­tent with trends observed in the past few Advi­sor Sen­ti­ment Sur­veys, invest­ment advi­sors sur­veyed con­tinue to be bull­ish on fur­ther growth in the gold mar­ket, despite the fact the spot price of gold is already trad­ing at an all-time record high. Roughly two-thirds of advi­sors sur­veyed (66%) expect gold bul­lion to con­tinue to rise over the next quar­ter. Sim­i­larly, 64% of advi­sors sur­veyed are bull­ish on the S&P/TSX Global Gold Index™ for the 4th quar­ter. Advi­sor sen­ti­ment on sil­ver, which had a very strong quar­ter grow­ing 16.28% in value, also remains bull­ish, with 62% of advi­sors sur­veyed expect­ing the price of sil­ver to con­tinue to move upward dur­ing Q4.

"Long­stand­ing trends that we've observed with advi­sors choos­ing com­modi­ties over stocks, domes­tic and emerg­ing mar­ket stocks over U.S. stocks, and the Cana­dian dol­lar over the U.S. dol­lar, all seem to remain intact," Mr. Atkin­son said. "How­ever, the con­sis­tently bull­ish view that advi­sors sur­veyed have had on the Cana­dian dol­lar ver­sus the U.S. dol­lar appears to be wan­ing. Slightly less than half — 47% — of Cana­dian advi­sors sur­veyed were bull­ish on the loonie ver­sus the green­back for Q4, with a fur­ther 43% neutral."

In energy asset classes, a major­ity of advi­sors sur­veyed con­tinue to have a bull­ish out­look on nat­ural gas, with 52% of the view it will con­tinue to rise in Q4, despite the fact the NYMEX® Nat­ural Gas Index lost 21.13% last quar­ter. Bull­ish sen­ti­ment on crude oil jumped slightly by 3 per­cent­age points in the Q4 Sur­vey, with 55% of advi­sors sur­veyed expect­ing fur­ther increases in the price of crude oil for the 4th quarter.

Cana­dian advi­sors are his­tor­i­cally quite accu­rate in pre­dict­ing future trends in the Advi­sor Sen­ti­ment Sur­veys. In the Q3 sur­vey, there were above-average neu­tral views reported, which BetaPro believes was a result of the high degree of uncer­tainty about the direc­tion of many assets classes.

"Advi­sors bat­ted .500 last quar­ter, accu­rately pre­dict­ing the direc­tion for 7 of 14 indices," Mr. Atkin­son says. "In cases where the major­ity of advi­sors were bull­ish, they were accu­rate on five out of the six asset classes."

The Q4 Sur­vey was con­ducted between Sep­tem­ber 29 and Octo­ber 1, 2010, and gauged the opin­ion of more than 100 Cana­dian invest­ment advisors.

About the Sen­ti­ment Sur­vey

BetaPro con­ducts a quar­terly sen­ti­ment sur­vey of Cana­dian invest­ment advi­sors. The sur­vey quan­ti­ta­tively mea­sures advi­sors' quar­terly out­look as it relates to 15 key bench­marks cov­er­ing equi­ties, bonds, cur­rency and com­modi­ties. Full sur­vey results are avail­able at http://www.hbpetfs.com/pub/en/resources/SentimentSurvey.aspx.

Tags: 3rd Quarter, Asset Classes, Bullish Sentiment, Canadian Investment, Canadian Market, Cap Stocks, Cnw, Commodities, energy, Equity Indexes, ETF, ETFs, Gold, Gold Bullion, Gold Market, Investment Advisors, Major Stock Indexes, Nasdaq 100, Natural Gas, Natural Resources, oil, Price Of Gold, Q3, Silver, Spot Price Of Gold, Stock Markets, Stock Returns, Time Record, TSX 60, Upward Momentum
Posted in Canadian Market, Energy & Natural Resources, ETFs, Gold, Markets, Oil and Gas, Outlook, Silver | Comments Off

“Churn! Churn! Churn!”

Tuesday, October 5th, 2010

“Churn! Churn! Churn!”

by Jef­frey Saut, Chief Invest­ment Strate­gist, Ray­mond James

Octo­ber 4, 2010

To every­thing – churn, churn, churn
There is a sea­son – churn, churn, churn
A time to win a time to lose,

A time to stand around and be confused

Over the years I have often adapted the lyrics from The Byrds’ clas­sic song “Turn! Turn! Turn!” for the stock market’s action. Cur­rently, the equity mar­kets are indeed churn­ing slightly above their top­side “break­out” lev­els, hav­ing pierced pre­vi­ous reac­tion highs. That begs the ques­tion, “Is this an upside break­out; or, an upside fake out?” As stated in pre­vi­ous com­ments, I think it is an upside “break­out,” imply­ing there should be more upside to come. In fact, if we get through the next few weeks with­out some kind of major pull­back, you are going to start hear­ing about the strong upside sea­son­al­ity of November/December.

If cor­rect, par­tic­i­pants need to know how to posi­tion them­selves into year-end. My friends at the saga­cious GaveKal orga­ni­za­tion fre­quently say there are three ways to make money in the finan­cial mar­kets: “return to the mean trades,” “momen­tum trades,” and “carry trades.” To wit:

1 – “Through Return to the Mean Strate­gies: The first way to make money in the finan­cial mar­kets is to buy what is undervalued/oversold and to sell what is overvalued/overbought and wait for the asset price in ques­tion to return to its his­tor­i­cal mean. This is the strat­egy adopted by most ‘value’ man­agers, but also fre­quently a num­ber of ‘macro-funds’, ‘distressed-debt’, ‘special-situations’, etc.

2 – Through Momentum-Based Strate­gies: The sec­ond way to make money in the finan­cial mar­kets is to iden­tify a trend and get in (and out) at the right time. Most money man­agers do try to invest fol­low­ing momen­tum, but it is espe­cially preva­lent amongst ‘growth’ investors, ‘macro-funds’, and ‘long/short’ hedge funds.

3 – Through Carry Trade Strate­gies: The third and final way to make money in the finan­cial mar­kets is to play intel­li­gently the yield curve (i.e., bor­row at low rates and lend at higher rates . . . and hope that the mar­kets remain con­tin­u­ous). Most of the ‘arbi­trage’ types of hedge funds run some kind of ‘carry trade’.”

To be sure, I agreed with the good folks at GaveKal, yet I was reminded of GaveKal’s views by a research note from ISI’s always insight­ful Jeff deGraaf, who writes:

“As the mar­ket breaks through 1131 it attracts two types of play­ers: ‘break­out’ (momen­tum) buy­ers and ‘over­bought’ (mean-reversion) faders (sell­ers) of strength. Much like the value investor sells to the growth investor on the way up, and the growth investor sells to the value investor on the way down, the inter­ac­tion between momen­tum and mean-reverting is much the same. It is here that we find the cur­rent mar­ket bat­tling between mean revert­ing sell­ers and momen­tum buy­ers. The market’s reac­tion to news sug­gests (the) sell­ers will exhaust them­selves, and buy­ers will dom­i­nate as they are forced to play, but a lit­tle momen­tum would sure be wel­come (right) here.”

From Jeff deGraaf’s mouth to God’s ears because a break­down by the S&P 500 (SPX/1146.24) below its 10-day mov­ing aver­age (DMA) at 1141 could lead to a rapid down­side test of the 200-DMA (1118) and maybe even a test of the 50-DMA at 1105. What­ever the near-term out­come, I don’t think the equity mar­kets have much down­side in them. Indeed, just last week the D-J Trans­porta­tion Aver­age (TRAN/4509.08) con­firmed the D-J Indus­trial Aver­age (INDU/10829.68) by bet­ter­ing its August 9, 2010 clos­ing high, a feat accom­plished by the Dow on Sep­tem­ber 20th. Accord­ingly, the Dow The­ory “buy sig­nal” that was reg­is­tered in July was recon­firmed last week, sug­gest­ing the stock market’s trend remains “up.”

I heard from yet another friend last week when Sam Sto­vall appeared on CNBC. His topic was the cor­re­la­tion between the large cap SPX and the small cap­i­tal­iza­tion Rus­sell 2000 (RUT/679.29). Sam stated, as para­phrased by me:

We com­pared the cor­re­la­tion between the SPX and the RUT for the past 30 years on a rolling 36-month basis. In Decem­ber 1987 the cor­re­la­tion was at an all-time high of 94. It sub­se­quently fell to a low of 52 in Feb­ru­ary 2002. Since then, the cor­re­la­tion has again risen to a cur­rent high of 94. If you believe in rever­sion to the mean, as I do, it sug­gests cor­re­la­tion should fall from here imply­ing small caps will under­per­form large caps going for­ward. Addi­tion­ally, small caps tend to dra­mat­i­cally out­per­form in the first year of a bull move, while out­per­form­ing to a lesser degree in the sec­ond year. In the third year of a bull move large caps outperform.

Sam’s con­clu­sion was that you likely want to under­weight small caps and over­weight large caps. Obvi­ously I agree.

Mean­while, the weird weather con­di­tions con­tinue as reflected in a 113° day in Los Ange­les last week, floods along the east coast, mon­soons in Pak­istan, and droughts in Russia/China. In fact, accord­ing to CNN:

“In north­ern China this month, farm fields have devel­oped cracks up to 10 meters (32.8 feet) deep. Farm­ers in Chifeng city have had to delay har­vests to avoid injury, the state-run Xin­hua news agency reported. Accord­ing to the Chifeng's hydro­log­i­cal bureau, 62 per­cent of the city's 51 reser­voirs have run dry. More than 250,000 peo­ple are short on drink­ing water. In south­west China's Guizhou province in August, a drought affected more than 600,000 peo­ple and nearly 250,000 heads of live­stock. Parched soil in rice fields was cov­ered with cracks. Beijing's water short­age will soon reach 200 mil­lion to 300 mil­lion cubic meters, even as the city waits for a new diver­sion of water from south­ern China, accord­ing to state-run media.”

Regret­tably, these tragedies play to my long­stand­ing invest­ment themes of water and agri­cul­ture. The unusual weather, how­ever, is not being caused by global warm­ing but rather a La Niña weather pat­tern com­bined with more vol­canic activ­ity than I can remem­ber. Those erup­tions have spewed huge amounts of vol­canic ash into the atmos­phere. That com­bi­na­tion has caused the “trop­ics” (Tropic of Can­cer and Tropic of Capri­corn) to extend beyond their usual ter­ri­to­ries. In turn, the Hadley cell winds, which are shaped by the trop­ics, are out of whack and thus so are the trade winds. And that, ladies and gen­tle­men, explains the ongo­ing weird weather. I revisit this sub­ject because the cold months are approach­ing; and, if you think last year’s win­ter was unusu­ally cold just wait for this year’s. Con­sis­tent with this view, I con­tinue to rec­om­mend over­weight­ing energy stocks in port­fo­lios. My favorites in the energy space are: E&P com­pany Clay­ton Williams Energy (CWEI/$50.68/Outperform); off­shore driller Noble Cor­po­ra­tion (NE/$33.50/Strong Buy); equip­ment provider National Oil­well Varco (NOV/$45.18/Strong Buy); coal com­pany Alpha Nat­ural Resources (ANR/$42.50/Strong Buy); and for yield I con­tinue to like 6.9%-yielding Inergy L.P. (NRGY/$40.43/Strong Buy). For more adven­ture­some types, I sug­gest look­ing at the SPDR Met­als & Min­ing ETF (XME/$54.50), which invests in pre­cious metal and coal stocks, con­sis­tent with my long­stand­ing bull­ish views on those sectors.

The call for this week: There is another rea­son the mar­kets may con­tinue to rally, Con­gress is set to adjourn. Remem­ber, “No man’s life, lib­erty, or prop­erty is safe while Con­gress sits.” That old “saw” is par­tic­u­larly poignant this year as Con­gress passed a 2,100-page finan­cial reform bill that didn’t address the two ser­ial finan­cial offend­ers – Fan­nie Mae and Fred­die Mac. Next was the 2,700-page health­care bill, which nobody read, that didn’t cover healthcare’s biggest cost – friv­o­lous law suits (read: tort reform). Speak­ing of not read­ing, the Sen­ate has passed a bill with no title. H.R. 1586 sailed through the Sen­ate with the title “The ______ Act of ______” – oops! Mean­while, con­tract law has been absolved, along with con­sti­tu­tional law (read: GM bond hold­ers and the Health­care Bill), caus­ing one old Wall Street wag to exclaim, “Who’s dri­ving this boat?” The upcom­ing mid-term elec­tions there­fore become mon­strously impor­tant. Whether it hap­pens, I can make the argu­ment that the Repub­li­cans “take” the House, and come close to retak­ing the Sen­ate, caus­ing politi­cian Pres­i­dent Obama to pull a Pres­i­dent Clin­ton and move to the “cen­ter.” If that hap­pens, I think the SPX could be at 1300 quickly!

Copy­right © Ray­mond James

Tags: Asset Price, Byrds, Chief Investment Strategist, China, Commodities, Distressed Debt, energy, ETF, Financial Markets, Growth Investors, Hedge Funds, jeffrey saut, Momentum Trades, Money Managers, Natural Resources, oil, Pullback, Raymond James, Russia, Seasonality, Short Hedge, Song Turn Turn Turn, Special Situations, Trade Strategies, Turn Turn Turn, Value Managers, Wit 1
Posted in China, Energy & Natural Resources, ETFs, Markets, Oil and Gas | Comments Off

Emerging Market Infrastructure Set to Drive Demand for Commodities

Saturday, October 2nd, 2010

Every week roughly 1 mil­lion peo­ple are born in or migrate to cities in emerg­ing mar­kets all over the world. By 2030, the global urban pop­u­la­tion is expected to grow by 1.6 bil­lion peo­ple and account for 60 per­cent of all peo­ple on Earth, accord­ing to the United Nations.

With more peo­ple to feed, house, trans­port and keep warm, many emerg­ing mar­ket met­ro­pol­i­tan areas are buck­ling under the pres­sure. A month-long traf­fic jam near Bei­jing caught world­wide atten­tion in August. Accord­ing to Mer­rill Lynch, the daily com­mute for an aver­age office worker in China is twice as long as it is in the U.S.

Over the last two weeks we have shared with you charts demon­strat­ing the ris­ing demand and prices for met­als and oil due to the robust ris­ing eco­nomic activ­ity in emerg­ing mar­kets.  The visual below reflects the high cor­re­la­tion between oil demand and urban­iza­tion, which dri­ves infra­struc­ture spending.

India is strug­gling to ful­fill the most basic needs of its pop­u­la­tion. Nearly 40 per­cent of India’s pop­u­la­tion doesn’t have access to elec­tric­ity and almost 400,000 chil­dren die each year from water­borne dis­eases because they don’t have access to clean water.

Rus­sia relies on Soviet-era roads and infra­struc­ture to trans­port its nat­ural resources to key export hubs. Many of these road­ways haven’t been updated since the early 1980s. Russia’s road­ways cur­rently rank near the bot­tom for qual­ity when com­pared to oth­ers around the globe.

Brazil may have the widest infra­struc­ture gap of the BRICs. The country’s invest­ment as a per­cent­age of GDP has been declin­ing since the 1970s and dropped to just over 2 per­cent in the 2000s—roughly the same amount as the U.S. The under­in­vest­ment shows; the coun­try ranks in the bot­tom quar­tile glob­ally for qual­ity of roads, qual­ity of ports and qual­ity of airports.

In order to get back on the right track, sub­stan­tial invest­ment is needed in global infra­struc­ture. Mer­rill Lynch fore­casts that more than $6 tril­lion in invest­ment is required over the next three years—80 per­cent being invested in the BRICs.  We believe com­mod­ity prices could exceed most ana­lysts’ expectations.

Of emerg­ing mar­ket coun­tries, China is far and away the big spender. This table shows the invest­ment break­down by cat­e­gory. You can see that more than 81 per­cent of the funds go toward three areas: Energy & Power, Trans­port & Logis­tics and Water & Environment.

The spend­ing out­lined above should be a huge demand dri­ver for com­modi­ties such as oil, coal, iron ore and for mate­ri­als such as steel and cement. Equip­ment and con­struc­tion com­pa­nies could also ben­e­fit. We believe it is sim­i­lar to the Cal­i­for­nia gold rush when the peo­ple who made the most money weren’t the prospec­tors but the sup­pli­ers who sold them their picks and shov­els. Water-related, trans­porta­tion and logis­tics com­pa­nies may also turn out to be acces­sories to the boom.

Because of rapid urban­iza­tion, decades of under­in­vest­ment and strong fis­cal bal­ance sheets rel­a­tive to the devel­oped world, the stage is set for a mas­sive global infra­struc­ture build-out in the emerg­ing world.

John Der­rick, co-manager of the U.S. Global Investors infra­struc­ture fund, the Global Mega­Trends Fund (MEGAX), con­tributed to this commentary.

Tags: 2000s, Brazil, BRIC, BRICs, China, Commodities, Correlation, Economic Activity, Emerging Market, Emerging Markets, energy, Global Infrastructure, Hubs, India, Market Infrastructure, Merrill Lynch, Metropolitan Areas, Natural Resources, Office Worker, oil, Oil Demand, Roadways, Russia, Substantial Investment, Traffic Jam, Urban Population, urbanization, Waterborne Diseases, Worldwide Attention
Posted in Brazil, China, Emerging Markets, Energy & Natural Resources, Gold, India, Infrastructure, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Diary (October 4, 2010)

Saturday, October 2nd, 2010

Energy and Nat­ural Resources Market

Strengths

• HSBC’s mea­sure of China’s man­u­fac­tur­ing Pur­chas­ing Manager’s Index (PMI) for Sep­tem­ber increased to 52.9, the high­est level in five months, from 51.9 in the prior month. The PMI fig­ure, as well as other recent eco­nomic data out of China, sug­gests that eco­nomic growth in the coun­try might be re-accelerating fol­low­ing signs of soft­en­ing after tight­en­ing mea­sures were imple­mented ear­lier in the year.
• Cop­per prices hit a 26-month high of $3.65 per pound this week.
• Crude oil prices gained 6.6 per­cent for the week on fur­ther talk of quan­ti­ta­tive eas­ing from the U.S. Fed­eral Reserve and a bull­ish weekly inven­tory report.

Weak­nesses

• Nat­ural gas futures prices slid 2 per­cent this week as indus­try sup­ply and demand data con­tinue to indi­cate sur­plus inven­to­ries and production.
• Steel out­put in Japan, the world’s second-biggest pro­ducer, will prob­a­bly drop 1.5 per­cent next quar­ter because of slow­ing demand from car­mak­ers, accord­ing to the nation’s Min­istry of Econ­omy, Trade and Industry.
• Con­sol Energy said Fri­day it will lay off 231 work­ers at two mines. The Pitts­burgh com­pany said it will lay off 135 hourly and 36 salary work­ers at the Emery Mine near Price, Utah, because of higher pro­duc­tion costs, rel­a­tive to the local region, and mar­ket con­di­tions for coal. More than 250,000 tons of coal at the mine remain to be sold. Con­sol Energy said it will also lay off 60 employ­ees at Mine 84 near Wash­ing­ton, Pa., because of the high cost struc­ture of the mine ver­sus cur­rent mar­ket prices for coal being pro­duced there.

Oppor­tu­ni­ties

• In a recently pub­lished report, oil ana­lysts at Bank of Mon­tréal esti­mate that the Eagle Ford shale play in South Texas holds recov­er­able resources of roughly 8.8 bil­lion bar­rels of oil equiv­a­lent (boe) and that pro­duc­tion could approach 1.4 mil­lion boe per day by the year 2015.
• At an indus­try con­fer­ence in Dalian, China, Rio Tinto indi­cated that Chi­nese ore demand this year may exceed last year’s level as it con­tin­ues to run at full capac­ity. Fur­ther, Vale said that it expects Chi­nese steel demand to pick up in late 2010 or early 2011.
• China’s coal use will prob­a­bly grow by more than a third in the next five years, accord­ing to Peabody Energy Corp., the largest U.S. coal pro­ducer. China’s cur­rent coal con­sump­tion of 3.3 bil­lion tons a year will likely rise to 4.5 bil­lion tons.
• State-owned China National Nuclear Corp (CNNC) is sched­uled to spend Rmb800 bil­lion, or US$117.6 bil­lion, on the devel­op­ment of nuclear indus­try by 2020 (CNNC’s nuclear invest­ment is expected to reach Rmb500 bil­lion by 2015), accord­ing to the company.
• The Inter­na­tional Energy Agency said on Fri­day it antic­i­pated upward pres­sure on oil prices in the sec­ond half of 2011 due to a pro­jected decline in oil stocks. The agency also said the most recent round of sanc­tions imposed on Iran by the United States and the Euro­pean Union was lead­ing to sig­nif­i­cant delays for Iran’s oil and gas devel­op­ing projects. A senior oil ana­lyst for the agency’s oil and indus­try mar­kets divi­sion said that if the global econ­omy grew at an annual rate of more than 4 per­cent in the first half of 2011, as pro­jected by the Inter­na­tional Mon­e­tary Fund, oil sup­plies could start to be squeezed.

Threats

• Accord­ing to the Wall Street Jour­nal, BHP Bil­li­ton and Rio Tinto are look­ing at revis­ing or post­pon­ing their pro­posed $116 bil­lion iron ore joint ven­ture until the Aus­tralian gov­ern­ment sets the terms of its planned min­ing tax.
• The youth wing of South Africa’s rul­ing African National Con­gress said it will spend the next two years seek­ing sup­port for the nation­al­iza­tion of mines after suc­ceed­ing in putting it on the party’s agenda for debate.
• The Depart­ment of Energy and Cli­mate Change (DECC) fore­casts U.K. oil pro­duc­tion is likely to fall to 1.03 mil­lion bar­rels per day (bpd) by 2015, down from 1.39 mil­lion bpd pro­duced last year, which was the low­est out­put since 1978. Britain’s oil and gas out­put has steadily declined over the last decade, peak­ing in 1999, as North Sea fields have depleted.

Tags: Bank Of Montreal, China, Commodities, Consol Energy, Copper Prices, Crude Oil Prices, Dalian China, Eagle Ford, Economy Trade, energy, Gas Futures Prices, India, Market Strengths, Natural Gas, Natural Gas Futures, Natural Gas Futures Prices, Natural Resources, oil, Pittsburgh Company, Production Steel, Recoverable Resources, Report Oil, Report Weaknesses, Rio Tinto, Salary Workers, Steel Output, Surplus Inventories
Posted in China, Energy & Natural Resources, India, Markets, Oil and Gas | Comments Off

Caisse Getting Ready for the Next Big Move? (Natural Resources)

Thursday, September 30th, 2010

Fred­eric Tomesco of Bloomberg reports, Caisse Pen­sion Fund May Bor­row More After C$8 Bil­lion Pro­gram, Sabia Says:

The Caisse de Depot et Place­ment du Que­bec, Canada’s biggest pen­sion fund man­ager, isn’t rul­ing out sell­ing more bonds after com­plet­ing an C$8 bil­lion ($7.8 bil­lion) bor­row­ing pro­gram three months ago, Chief Exec­u­tive Offi­cer Michael Sabia said.

The Caisse in June sold 750 mil­lion euros ($1 bil­lion) in 3.5 per­cent bonds matur­ing in 2020 through its CDP Finan­cial unit, the last step in a seven-month plan to replace short-term bor­row­ings with longer-term debt. As of June 30, the Mon­tréal– based Caisse, which man­ages Quebec’s pub­lic pen­sion plan, had net assets of C$135.8 billion.

“We did the C$8 bil­lion that we set out to do,” Sabia said Sept. 28 in an inter­view at Caisse head­quar­ters in Mon­tréal. “We dealt with the most press­ing prob­lem. Whether or not down the road at some point we decide to do some­thing else, that’s pos­si­ble. I won’t nec­es­sar­ily rule that out.”

The lat­est trans­ac­tions mean that about 74 per­cent of the Caisse’s sources of financ­ing have matu­ri­ties of more than two years, while 78 per­cent of its assets are invest­ments such as real estate that the firm will hold for more than two years, Sabia said. Before the refi­nanc­ing, only 20 per­cent of the bor­row­ings were due in two years or more, while 80 per­cent of the assets were long-term, he said.

“We had this really big mis­match between sources and uses of funds,” Sabia said. “That exposed us to a huge amount of refi­nanc­ing risk. One of the things that this orga­ni­za­tion learned in 2008 was that we can’t always count on refinancing.”

Record Loss

Dur­ing the global finan­cial cri­sis that fol­lowed Lehman Broth­ers Hold­ings Inc.’s bank­ruptcy, the Caisse sold equi­ties, closed out futures con­tracts and reduced its foreign-exchange hedg­ing amid a fall in the Cana­dian dol­lar. It even­tu­ally reported a record loss of C$39.8 bil­lion, or 25 per­cent, for 2008, includ­ing C$6.1 bil­lion in hedging-related losses.

After post­ing a 10 per­cent gain last year, the Caisse reported a 2.3 per­cent return in the first six months of 2010, led by its infra­struc­ture and private-equity units.

Sabia, 57, said he expects the refi­nanc­ing to allow the Caisse to seize invest­ment oppor­tu­ni­ties more quickly than in the past.

“We live in a period of exag­ger­ated response and dis­con­nec­tion between fun­da­men­tals and short-term mar­ket reac­tions,” he said. “It takes very lit­tle to move mar­kets. In this envi­ron­ment, what really mat­ters is insti­tu­tional agility.

You need to be able to react to events and to do it quickly.”

Sabia, the for­mer CEO of Cana­dian telecom­mu­ni­ca­tions com­pany BCE Inc., joined the Caisse in March 2009.

Mr. Sabia is right, the Caisse being a mature fund needs to reduce refi­nanc­ing risk and be as oppor­tunis­tic as pos­si­ble while min­i­miz­ing risk, which is very dif­fi­cult when you're man­ag­ing billions.

Tags: Bloomberg Reports, Brazil, Caisse De Depot, Caisse De Depot Et Placement Du Quebec, Canadian Dollar, Canadian Market, Chief Executive Officer, China, Commodities, energy, Futures Contracts, Global Financial Crisis, Lehman Brothers, Lehman Brothers Holdings, Lehman Brothers Holdings Inc, Maturities, Michael Sabia, Mismatch, Montreal Quebec, Move Commodities, Natural Gas, Natural Resources, Net Assets, oil, Pension Fund Manager, Pension Plan, Public Pension, Quebec Canada, Term Borrowings, Term Debt
Posted in Brazil, Canadian Market, China, Energy & Natural Resources, Infrastructure, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Market Diary (September 27, 2010)

Saturday, September 25th, 2010

Energy and Nat­ural Resources Mar­ket Diary (Sep­tem­ber 26, 2010)

Strengths

• Aus­tralia raised its fore­cast for com­mod­ity exports this fis­cal year to a record amid ris­ing prices and increas­ing demand. Sales may total $214.9 bil­lion (Aus­tralian dol­lars) by June 30, 2011, offi­cials said. That com­pares with its June esti­mate of $202.5 bil­lion (Aus­tralian dol­lars) and a revised $170.6 bil­lion (Aus­tralian dol­lars) for the pre­vi­ous year.
• Cop­per prices con­tinue to per­form well on the back of the weak­en­ing dol­lar, with cop­per prices for all deliv­ery dates up and three-month cop­per prices reach­ing a new five-month high on the Lon­don Metal Exchange this week.
• Accord­ing to Russia’s cen­tral bank, Rus­sia added 300,000 ounces of gold to its reserves last month to bring the country’s stock­pile to 23.6 mil­lion ounces.
• The Nor­we­gian National Oil Fund is expected to be worth approx­i­mately $500 bil­lion by the end of this year–roughly $100,000 for each Nor­we­gian citizen.

Weak­nesses

• The Orga­ni­za­tion for Eco­nomic Co-operation and Devel­op­ment (OECD) cut its 2011 growth fore­cast to 2.6 per­cent, from its pre­vi­ous 3.2 per­cent. It also warned that the 2008–2009 reces­sion may trig­ger long-term dam­age to the U.S. econ­omy with higher long-term unem­ploy­ment. The OECD believes employ­ment may not reach pre­re­ces­sion lev­els until 2013.
• Teck Resources Ltd. cut its coal sales fore­cast because of capac­ity con­straints at a British Columbian port. Third quar­ter 2010 sales will be 5.2–5.5 mil­lion met­ric tons, com­pared with a pre­vi­ous tar­get of 5.8–6.2 mil­lion met­ric tons, the com­pany said in a statement.
• Indonesia’s trade min­istry fore­casts that tin ship­ments may drop 19 per­cent this year. Exports may slump to about 80,000 met­ric tons in 2010 from 99,287 tons in 2009 as heavy rains dis­rupt mining.

Oppor­tu­ni­ties

• Mon­go­lia will seek an IPO for its Tavan Tol­goi min­ing assets after this year’s open­ing of a national stock exchange, with the gov­ern­ment retain­ing con­trol, Prime Min­is­ter Sukhbaatar Bat­bold said. The coun­try will sell as much as a 50 per­cent stake in the coal deposit to the pub­lic. Mon­go­lia will pick a con­trac­tor for the project in the next month, he said.

Threats

• Antofa­gasta may delay the Antu­coya cop­per project worth around $850 mil­lion in Chile if the country’s con­gress approves a bill to increase min­ing taxes, com­pany CEO Macelo Awad said.
• From a con­trar­ian stand­point, ana­lysts at JP Mor­gan reported that the Den­ver gold show this past week attracted a new record atten­dance of 1,080 bull­ish gold investors. At a Bull and Bear lunch dis­cus­sion only two mem­bers of the audi­ence admit­ted to being bear­ish, which is per­haps a bit worrisome.

Tags: Australian Dollars, Bank Russia, British Columbian, Capacity Constraints, Coal Sales, Commodities, Commodity Exports, Copper Prices, Development Oecd, energy, London Metal Exchange, Long Term Unemployment, Market Diary, Million Metric Tons, National Oil, National Stock Exchange, Natural Gas, Natural Resources, Norwegian Citizen, oil, Russia, S Central, Target, Tavan Tolgoi, Trade Ministry, Year Exports
Posted in Energy & Natural Resources, Gold, Markets, Oil and Gas | Comments Off

Planning for Prosperity

Tuesday, September 21st, 2010

Today I’ll be at the sixth annual Clin­ton Global Ini­tia­tive event in New York, which brings together heads of state, busi­ness peo­ple and many oth­ers to dis­cuss major issues affect­ing humankind and our planet.

I first got involved with the CGI through my friend Frank Gius­tra in 2007 when Frank and Pres­i­dent Clin­ton teamed up with Mex­i­can investor Car­los Slim to estab­lish the Clinton-Giustra Sus­tain­able Growth Ini­tia­tive.

CGSGI exists to cre­ate sus­tain­able eco­nomic and social con­di­tions in the poor­est areas of the world. This is espe­cially impor­tant to us at U.S. Global Investors because our search for the best nat­ural resources com­pa­nies often takes us to these same lands.

Emerg­ing nations hold nearly 80 per­cent of the world’s pop­u­la­tion and 80 per­cent of its valu­able nat­ural resources. Many of these coun­tries are see­ing rapid eco­nomic change, and it’s impor­tant that this new pros­per­ity be invested in ways that con­tin­ues to ben­e­fit local pop­u­la­tions long after the nat­ural resource deposits are gone.

CGSGI is now focus­ing on improv­ing health care, edu­ca­tion and small busi­ness in Colom­bia and Peru. In Peru, it is help­ing to develop the agri­cul­ture and tourism indus­tries to pro­mote local com­merce. In Colom­bia, the efforts are aimed at cul­ti­vat­ing small– and medium-sized businesses.

I saw evi­dence of CGSGI’s work when I vis­ited Colom­bia ear­lier this year with Pres­i­dent Clin­ton, Frank Gius­tra and oth­ers from the Ini­tia­tive. The coun­try is becom­ing a tem­plate for eco­nomic trans­for­ma­tion that other Latin Amer­i­can nations can follow.

By click­ing the link above, you will be directed to the Clin­ton Foun­da­tion web­site. U.S. Global Investors does not endorse all infor­ma­tion sup­plied by this web­site and is not respon­si­ble for its content.

Tags: Carlos Slim, Clinton Foundation, Clinton Global Initiative, Commodities, Economic Transformation, energy, Foundation Website, Frank Giustra, Friend Frank, Growth Initiative, Health Care Education, Humankind, Improving Health Care, Latin American Nations, Local Commerce, Medium Sized Businesses, Natural Resources, President Clinton, Rapid Economic Change, State Business, Sustainable Growth, Tourism Industries, U S Global Investors
Posted in Emerging Markets | Comments Off