Category: commodities

What’s going on with gold and oil?
Here’s what we know. Prices for both gold and oil were moving upward for most of the spring and well into summer. Then prices hit a peak. Gold touched $980 per ounce. Oil topped $146 per barrel. Now prices are falling.
High oil prices have caused big changes in patterns of consumption. Indeed, the U.S. Department of Energy just announced that U.S. oil demand fell by about 800,000 barrels per day during the first half of 2008, compared with the same period last year. This is the biggest volume decline in 26 years, since the recession of the early 1980s.
Sure, some headlines describe what’s going on as something like the “oil bubble” or “commodities bubble” popping. Some people are talking and acting as if we were going back in time to the last era of cheap energy, cheap gold and cheap commodities. But don’t believe it. Don’t bet on it. And don’t play the markets that way.
A Correction Was Due
What’s going on? We are in the midst of a short- to medium-term correction in the trends for energy and resources. Keep this in mind: This is a CORRECTION, not a fundamental change in the long-term correlation of things.
The long-term trends are still upward, in terms of value and pricing. But for now, the money is leaving energy and resources for pastures that look greener.
What pastures are greener? Well — speaking of green — the U.S. dollar is strengthening. It turns out that the euro is not the powerhouse currency that a lot of people believed it was. So the dollar has been strengthening against the euro for the past couple of weeks.
The Euro Can Go Down
And it turns out that euroland has its own economic problems. In fact, the euro can go down against the dollar, as well as up. That’s exactly what has happened. Euro down, dollar up. So in consequence, we are seeing the dollar going up, and oil and gold going down.
There is more to the equation. The economists are describing a recession occurring in parts of the euroland economic space. Germany — with Europe’s largest economy — has been hard hit, so there’s been quite a bit of drag on the euroland economy.
And then there are indications that the long-awaited U.S. recession is finally just around the corner. Really, we are just in the middle innings of the banking meltdown and housing crash in the U.S. The recent stock market turnaround may just be the seventh- inning stretch. I expect to see more large banks and investment houses either fail or get bailed out before the end of 2008.
So with two of the world’s largest economies about to enter the doldrums, world markets are seeing demand for energy and commodities slacken.
Thus, we have monetary issues with the dollar. And there are demand issues with economic slowdown in two of the world’s largest economic blocks. Prices for benchmark items like gold and oil are falling.
But looking in the long-term gold and oil are headed back up, for all the familiar reasons. Really, it’s not like anyone is finding new large gold or oil deposits out in exploration land. Indeed, a whole lot of looking is leading to not very much finding in the exploration patch.
The big gold miners are pulling ore out of the ground. But generally, they are not replacing their mined reserves through reserve growth or resource expansion. To the extent that the mining companies are expanding reserves in the short term, it’s by digging deeper. And that raises the cost structure for production.
Rising production costs are eating into profitability. So in the medium to long term, the big guys will have to find new reserves by digging on Wall Street, if not on the TSX Venture Exchange. There is already some takeover activity occurring, but it has been hamstrung by the broken world banking system.
It’s the same thing with the large Western oil companies. It’s a rare oil company that replaces its annual output with new reserves.

Question asked on 08/25/2008 at 07:11 AM :: Comments to date: 0

Category: commodities

What’s going on? We are in the midst of a short- to medium-term correction in the trends for energy and resources. Keep this in mind: This is a CORRECTION, not a fundamental change in the long-term correlation of things.
The long-term trends are still upward, in terms of value and pricing. But for now, the money is leaving energy and resources for pastures that look greener.
What pastures are greener? Well -- speaking of green -- the U.S. dollar is strengthening. It turns out that the euro is not the powerhouse currency that a lot of people believed it was. So the dollar has been strengthening against the euro for the past couple of weeks.
The Euro Can Go Down
And it turns out that euroland has its own economic problems. In fact, the euro can go down against the dollar, as well as up. That’s exactly what has happened. Euro down, dollar up. So in consequence, we are seeing the dollar going up, and oil and gold going down.
There is more to the equation. The economists are describing a recession occurring in parts of the euroland economic space. Germany -- with Europe’s largest economy -- has been hard hit, so there’s been quite a bit of drag on the euroland economy.
And then there are indications that the long-awaited U.S. recession is finally just around the corner. Really, we are just in the middle innings of the banking meltdown and housing crash in the U.S. The recent stock market turnaround may just be the seventh- inning stretch. I expect to see more large banks and investment houses either fail or get bailed out before the end of 2008.
So with two of the world’s largest economies about to enter the doldrums, world markets are seeing demand for energy and commodities slacken.
The mining stocks are down. The oils and service companies are down. It’s painful to watch. But it’s not a reason to give up.
As I said, this is a correction. This is an August swoon. Share prices are down, so it’s time to look at your shopping list. You can pick up shares in 2008 and pay 2005 prices. You can build a portfolio for the next five years with some prudent stock picking in the next couple of months.
Some of the most beaten-up oil and oil service companies are Apache (APA: NYSE), Halliburton (HAL: NYSE), Baker Hughes (BHI: NYSE) and Superior Energy Services (SPN: NYSE).
Some of the most beaten-up miners are Kinross Gold Corp. (KGC: NYSE), Yamana (AUY: NYSE), Hecla Mining (HL: NYSE) and the development-stage NovaGold (NG: AMEX).
When oil and gold turn around -- which they will -- all of these companies should do very well.

Question asked on 08/16/2008 at 06:54 AM :: Comments to date: 0

Category: commodities

The Real Speculators

This essay was written by silver analyst Theodore Butler, an independent consultant.

The unprecedented price volatility in crude oil, grain and other commodities, has focused our attention and galvanized a collective opinion. "Too much speculation" is the cry of the day. There appears to be much truth in that statement, since few can point to supply and demand factors that account for the shocking price moves. But maybe we are not looking closely enough at the speculation angle.

The most visible culprit for the excessive speculation is said to be the index funds. These are huge institutional funds that hold significant long positions in many commodity futures markets (but not in COMEX gold or silver futures). I have previously written about index funds. This is an important topic, although I have been clear to state that I have no vested interest in whether they continue to hold their big long positions or not.
Presently, there is a political frenzy developing to more closely regulate the index funds, and perhaps even force them to sell their long positions, thereby lowering the price of oil and other commodities. While I question whether these index funds should have been allowed to amass such a large position they were permitted to amass their positions legally and openly.

Should the index funds be forced to dump their long positions, that would likely pressure, at least temporarily, oil and other commodity prices. Perhaps a temporary lowering of prices is all the politicians are interested in. That way they could declare victory over the evil speculators and go back to their business of efficiently running (ruining?) the country.

But before the index funds are tarred and feathered and run out of town on a rail, let’s clear up a common misperception that it has been a sudden influx of index fund buying that has caused the recent dramatic increase in the price of crude oil. That is simply not true. The index funds are holding the same size, or smaller, long position in crude oil than they held 10 months ago, when crude oil was $70/barrel. Ditto for the large long speculators and smaller (unreported) traders on the NYMEX, according to CFTC data in the Commitment of Traders Report (COT). The data clearly shows that long traders on the NYMEX have not been buying aggressively and running up the price of crude. Well, if speculators are behind the recent sharp run-up in oil prices and the long-side traders haven‘t been buying, then who has been buying oil?

The answer is painfully obvious - the speculative shorts have been doing the buying. Public COT data proves this. The buying back of previously sold short futures contracts, primarily in the commercial category, account for the bulk of the buying over the past eight months or so, when oil was trading at $70.

There is always a short for every long position in every commodity futures contract. When enough longs panic and sell aggressively, prices plummet. When enough shorts panic and buy back their short positions aggressively, prices soar. Oil prices didn’t jump sharply because many new longs came into the market. They jumped because, at the margin, enough shorts panicked and bought back contracts they previously sold short, to prevent their losses from getting larger.

So while I agree that speculation caused oil prices to jump sharply, at least we should correctly identify which speculators did the buying. It was the shorts, not the longs. In fact, the data shows that the longs were selling. That’s not to say that oil prices won’t plunge in the future. They will, when enough longs panic and sell. To a large extent, this is the trading pattern of most markets.

By correctly identifying the real cause of the recent price spike caused by the speculative oil buying, we come to the real hidden problem with speculation. That problem is that large numbers of shorts are, effectively, trapped with their short positions. The shorts are trapped because the index funds buy and hold for the long term. That doesn’t mean prices can’t go down sharply while the index funds are long. For example, the wheat market rose almost 100% and then fell by 40% with hardly a change in the index funds’ large position. But because the index funds hold and don’t sell, regardless of whether prices rise or fall, large numbers of shorts can’t exit their short positions, even if prices fall. And when prices do fall, there are no complaints about index funds, just when prices rise.

Recently, some commentators have labeled the index funds as not playing fairly, because they don’t sell, but instead invest for the long term. But there is no rule that anyone can’t invest in futures for the long term. The index funds were clear in their intentions as they came into the futures market over the past several years. Everyone knew beforehand how they behaved and they certainly didn’t sneak into the market; because they were so big, you could see them coming a mile away. The shorts initially licked their chops, because they knew the index funds wouldn’t demand delivery and therefore attempt to squeeze the shorts. The shorts also knew the index funds would have to roll over their positions constantly, giving the shorts an opportunity to extort spread advantages due to the mandatory roll-over behavior of the index funds.

But there is such a thing as the law of unintended consequences, and that law has prevailed in the trading dance between the index funds and the shorts. When the index funds initially established their positions in oil or grain futures, there was no extreme tight supply/demand situation. That’s why great numbers of shorts sold into the index fund buying. But then conditions tightened up and the shorts appear to be on the wrong side and are looking for a way out. The easiest solution for the shorts is to have the regulators mandate that the index funds sell.

The real story should be told. It doesn’t seem fair to me to label the index funds as the real speculators when they back their purchases with the full cash value of the contracts and hold for the long term, while casting the short speculators masquerading as commercials, who are out for a quick buck, as innocent victims. If the regulators want to change the rules against the index funds, let them do so. Just don’t pretend these funds are evil and the short speculators are without blame. If we get shortages in oil or grain or anything else, prices will go higher, with or without the index funds.

I do have an interest in silver (and gold), so I would like to relate what I think all this index fund business means to those metals. There is no index fund participation in COMEX gold and silver futures (the index funds buy gold and silver through the ETFs and directly). This can be confirmed by observing the consistently small gross and net (ex spreads) long positions in the commercial category of the COT reports (the index funds are included in this category for all commodities). So, first and foremost, any arbitrary edict to limit index fund long commodity futures positions will not involve liquidation of gold and silver futures, because there are none to liquidate.

In fact, any such across the board order of index fund futures contract liquidation may so limit the choices of where to invest by large participants, that it could result in more, not less, buying in precious metals. Increasingly, I have been struck with the thought, independent of the index fund discussion, of just how few good real alternatives are available for investment, other than silver.

Although there in no index fund participation in gold and silver futures trading, there is a somewhat similar short situation connecting all the markets. There is a true speculative connection present in most markets that is hidden and excluded from current debate. That connection is the existence of a large number of shorts who are trapped and can’t easily fulfill the contract delivery requirements, nor extricate themselves from their short obligations by buying back their contracts. This is the real, but unspoken, motivation in the current index fund debate. How can the shorts be secretly rescued from the folly of their own creation that threatens to send many prices explosively higher?

Nowhere is the problem of the trapped shorts more extreme than in COMEX silver (and secondarily, gold). Precisely because there is no index fund long presence in COMEX silver futures, the problem for the shorts is worse. That’s because the corresponding long position is relatively diverse and not subject to an arbitrary edict of forced liquidation. The big shorts in COMEX silver and gold probably wish there was an index fund, or some other big concentrated long position, that they could attack and lobby against to get the shorts off the hook. But the real situation, to the shorts’ dismay, is as opposite as it can get.
While it is my contention that there is a large contingent of short positions trapped in many commodities, only in COMEX silver and gold is that trapped position held in a super-concentrated form. This elevates and intensifies the problem to the highest level. Whereas there is much debate about too much speculation in our markets, like oil, there is no talk of concentration or the intent to manipulate, two vital components in manipulation. That’s because there is no concentration or intent to manipulate in most markets. Except, of course, in silver (and gold).

In other words, while I think the shorts should be more readily blamed for the sudden spike in oil prices, for example, I don’t think that they intentionally manipulated prices upward, or that they held a concentrated position. Common sense and public data confirm this. But that same common sense and public data confirm the opposite in silver and gold, namely, an intentional and documented short-side manipulation.

The data contained in the COTs clearly indicates that the concentration held on the short side in COMEX silver and gold is head and shoulders above the concentration on the short side of oil or any market that has come under the accusation of speculative manipulation. And this is true whether you look at it either in percentage of the entire market terms or in terms of days of world production.

In the most recent COT for positions held as of June 3, the percentage of the entire NYMEX crude oil futures market held net by the 8 largest shorts was 12.8%. This concentration percentage is generally low compared to most other futures markets, mainly because the crude oil market is one of the largest futures markets around. But it is striking compared to the concentrations in silver and gold. The reported concentration of the 8 largest short traders in silver is 53.8% and 57.2% in gold, each more than 4 times the reported short concentration in oil.

And remember, these reported figures grossly understate the real concentrations in these markets, once you remove all the spread transactions, and make the comparisons more stark. Removing all the spreads in crude oil raises the true net concentration of the 8 largest short traders to maybe 19% of the entire market, while the silver percentage jumps to 79% and gold jumps to a new record of 84%, How 8 traders controlling 79% and 84% of an entire market can not be manipulation, in and of itself, is beyond me.

In terms of equivalent days of world production, the comparisons are off the charts. In crude oil, the 8 largest short traders represent 2 days of world oil production (174 million barrels held short vs. 85 million barrels daily production). In gold, the 8 traders hold short 103 days of world mine production (22.8 million ounces vs. 220,000 daily world mine production). In silver, the 8 largest traders hold short 183 days of world mine production (330 million ounces vs. 1.8 million ounces daily mine production). Under this comparison, gold has a concentrated short position more than 50 times the concentration in oil, while silver is 90 times more concentrated than oil. This is simply astounding.

Now here comes the most important message of this piece. If you think I’m just complaining about the super short concentration in silver and gold in terms of proving they are manipulated in price, you are only partially correct. I want to convey something else. If you agree with my premise that the most plausible explanation for the sudden sharp jump in crude oil prices was due to some panicky short covering, then I ask you to contemplate just what is likely to be the price result when some big shorts try to buy back silver?

Yes, I rant and rave about the manipulative and depressing impact of the concentrated short position in silver, as I believe I should, but there are big benefits in this manipulation. The price-support this short position places below the market and the explosive effect it will have on prices yet to be, must not be underappreciated. If such a small amount of short-covering in such a large market, like oil, can have such a big impact on price, it is hard to imagine what the impact on price might be from a large amount of short covering in such a small market as silver.

This is the bullish beauty of the short concentration in silver (and gold). Because the concentrated position is so large (on both a percentage and real world basis) and held by so few participants, any short covering by any of these short traders is virtually guaranteed to impact prices profoundly. Much more profoundly than what we have witnessed in oil. In fact, it is the growing extreme concentration that should tell everyone that the game is coming to an end. That fewer and fewer traders want anything to do with the short side in silver (and gold) means that the manipulators are growing more isolated and desperate. If silver and gold were such attractive free market short candidates, more and more participants would be shorting them, not less.

And to those who think these short traders are so powerful and in control, that they can extend the manipulation in silver indefinitely, please think again. What assures that the short manipulators will fail for sure, at some point, are the realities of the physical realm. The shorts can play all the paper games in the world, but the moment a wholesale physical shortage becomes evident, the shorts are toast. I intend to publish information in the near future which should provide such evidence.

In the meantime, we must try to decipher and understand and learn from the events of the day as they occur. I think oil prices recently shot up, just like wheat and cotton did not so long ago, because a number of shorts, at the margin, decided to buy back short positions in a hurry. I know that the short position in silver is held by very few participants, so when they cover, it will not be an event measured at the margin. It will be an event characterized by a change at the core of the market. The short covering in oil, wheat and cotton are just a hint of what’s to come when the shorts cover in silver.

Question asked on 07/13/2008 at 08:14 AM :: Comments to date: 0

Category: commodities

Here is one view of why commodities are so high.
I am unable to print the charts but this article gives you a flavor of what the professional traders are dealing with.
It is not the speculators that are driving prices up but the hedge funds and index funds.

Testimony of

Michael W. Masters
Managing Member / Portfolio Manager
Masters Capital Management, LLC

before the
Committee on Homeland Security and Governmental Affairs
United States Senate

May 20, 2008

Good morning and thank you, Mr. Chairman and Members of the Committee, for the
invitation to speak to you today. This is a topic that I care deeply about, and Iappreciate the chance to share what I have discovered.

I have been successfully managing a long-short equity hedge fund for over 12 yearsand I have extensive contacts on Wall Street and within the hedge fund community. It's
important that you know that I am not currently involved in trading the commoditiesfutures markets. I am not representing any corporate, financial, or lobby organizations. I
am speaking with you today as a concerned citizen whose professional background hasgiven me insight into a situation that I believe is negatively affecting the U.S. economy.
While some in my profession might be disappointed that I am presenting this testimonyto Congress, I feel that it is the right thing to do.

You have asked the question “Are Institutional Investors contributing to food and energy
price inflation?” And my unequivocal answer is “YES.” In this testimony I will explainthat Institutional Investors are one of, if not the primary, factors affecting commodities
prices today. Clearly, there are many factors that contribute to price determination in thecommodities markets; I am here to expose a fast-growing yet virtually unnoticed factor,
and one that presents a problem that can be expediently corrected through legislativepolicy action.

Commodities prices have increased more in the aggregate over the last five years than
at any other time in U.S. history.1 We have seen commodity price spikes occur in the
past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today,
unlike previous episodes, supply is ample: there are no lines at the gas pump and there
is plenty of food on the shelves.

If supply is adequate - as has been shown by others who have testified before thiscommittee2 - and prices are still rising, then demand must be increasing. But how do
you explain a continuing increase in demand when commodity prices have doubled ortripled in the last 5 years?

What we are experiencing is a demand shock coming from a new category of
participant in the commodities futures markets: Institutional Investors. Specifically,
these are Corporate and Government Pension Funds, Sovereign Wealth Funds,
University Endowments and other Institutional Investors. Collectively, these investors
now account on average for a larger share of outstanding commodities futures contracts
than any other market participant.3

These parties, who I call Index Speculators, allocate a portion of their portfolios to
“investments” in the commodities futures market, and behave very differently from the
traditional speculators that have always existed in this marketplace. I refer to them as
“Index” Speculators because of their investing strategy: they distribute their allocation of
dollars across the 25 key commodities futures according to the popular indices – the
Standard & Poors - Goldman Sachs Commodity Index and the Dow Jones - AIG
Commodity Index.4

I’d like to provide a little background on how this new category of “investors” came to
exist.
In the early part of this decade, some institutional investors who suffered as a result of
the severe equity bear market of 2000-2002, began to look to the commodity futures
market as a potential new “asset class” suitable for institutional investment. While the
commodities markets have always had some speculators, never before had major
investment institutions seriously considered the commodities futures markets as viable
for larger scale investment programs. Commodities looked attractive because they have
historically been “uncorrelated,” meaning they trade inversely to fixed income and equity
portfolios. Mainline financial industry consultants, who advised large institutions on
portfolio allocations, suggested for the first time that investors could “buy and hold”
commodities futures, just like investors previously had done with stocks and bonds.

Index Speculator Demand Is Driving Prices Higher

Today, Index Speculators are pouring billions of dollars into the commodities futures
markets, speculating that commodity prices will increase. Chart One shows Assets
allocated to commodity index trading strategies have risen from $13 billion at the end of
2003 to $260 billion as of March 2008,5 and the prices of the 25 commodities that
compose these indices have risen by an average of 183% in those five years!6

According to the CFTC and spot market participants, commodities futures prices are the
benchmark for the prices of actual physical commodities, so when Index Speculators
drive futures prices higher, the effects are felt immediately in spot prices and the real
economy.7 So there is a direct link between commodities futures prices and the prices
your constituents are paying for essential goods.

The next table looks at the commodity purchases that Index Speculators have made viathe futures markets. These are huge numbers and they need to be put in perspective tobe fully grasped.

In the popular press the explanation given most often for rising oil prices is the
increased demand for oil from China. According to the DOE, annual Chinese demandfor petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billionbarrels, an increase of 920 million barrels.8 Over the same five-year period, IndexSpeculators' demand for petroleum futures has increased by 848 million barrels.9 The
increase in demand from Index Speculators is almost equal to the increase in demandfrom China!

In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of
1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own
stockpile as the United States has added to the Strategic Petroleum Reserve over thelast five years.10
Let’s turn our attention to food prices, which have skyrocketed in the last six months.
When asked to explain this dramatic increase, economists’ replies typically focus on the
diversion of a significant portion of the U.S. corn crop to ethanol production.11 What
they overlook is the fact that Institutional Investors have purchased over 2 billion
bushels of corn futures in the last five years. Right now, Index Speculators have
stockpiled enough corn futures to potentially fuel the entire United States ethanol
industry at full capacity for a year.12 That’s equivalent to producing 5.3 billion gallons of
ethanol, which would make America the world’s largest ethanol producer.13

Turning to Wheat, in 2007 Americans consumed 2.22 bushels of Wheat per capita.14 At 1.3 billion bushels, the current Wheat futures stockpile of Index Speculators is enoughto supply every American citizen with all the bread, pasta and baked goods they can eatfor the next two years!
Demand for futures contracts can only come from two sources: Physical Commodity
Consumers and Speculators. Speculators include the Traditional Speculators who have
always existed in the market, as well as Index Speculators. Five years ago, Index
Speculators were a tiny fraction of the commodities futures markets. Today, in many
commodities futures markets, they are the single largest force.15 The huge growth in
their demand has gone virtually undetected by classically-trained economists who
almost never analyze demand in futures markets.

Index Speculator demand is distinctly different from Traditional Speculator demand; it
arises purely from portfolio allocation decisions. When an Institutional Investor decides
to allocate 2% to commodities futures, for example, they come to the market with a set
amount of money. They are not concerned with the price per unit; they will buy as many
futures contracts as they need, at whatever price is necessary, until all of their money
has been “put to work.” Their insensitivity to price multiplies their impact on commodity
markets.

Furthermore, commodities futures markets are much smaller than the capital markets,
so multi-billion-dollar allocations to commodities markets will have a far greater impact
on prices. In 2004, the total value of futures contracts outstanding for all 25 index
commodities amounted to only about $180 billion.16 Compare that with worldwide
equity markets which totaled $44 trillion17, or over 240 times bigger. That year, Index
Speculators poured $25 billion into these markets, an amount equivalent to 14% of the
total market.18

Chart Two shows this dynamic at work. As money pours into the markets, two things
happen concurrently: the markets expand and prices rise.

One particularly troubling aspect of Index Speculator demand is that it actually
increases the more prices increase. This explains the accelerating rate at which
commodity futures prices (and actual commodity prices) are increasing. Rising prices
attract more Index Speculators, whose tendency is to increase their allocation as prices
rise. So their profit-motivated demand for futures is the inverse of what you would
expect from price-sensitive consumer behavior.

You can see from Chart Two that prices have increased the most dramatically in the first
quarter of 2008. We calculate that Index Speculators flooded the markets with $55
billion in just the first 52 trading days of this year.19 That’s an increase in the dollar
value of outstanding futures contracts of more than $1 billion per trading day. Doesn’t it
seem likely that an increase in demand of this magnitude in the commodities futures
markets could go a long way in explaining the extraordinary commodities price
increases in the beginning of 2008?

There is a crucial distinction between Traditional Speculators and Index Speculators:
Traditional Speculators provide liquidity by both buying and selling futures. Index
Speculators buy futures and then roll their positions by buying calendar spreads. They
never sell. Therefore, they consume liquidity and provide zero benefit to the futures
markets.20

It is easy to see now that traditional policy measures will not work to correct the problem
created by Index Speculators, whose allocation decisions are made with little regard for
the supply and demand fundamentals in the physical commodity markets. If OPEC
supplies the markets with more oil, it will have little affect on Index Speculator demand
for oil futures. If Americans reduce their demand through conservation measures like
carpooling and using public transportation, it will have little affect on Institutional
Investor demand for commodities futures.

Index Speculators’ trading strategies amount to virtual hoarding via the commodities
futures markets. Institutional Investors are buying up essential items that exist in limited
quantities for the sole purpose of reaping speculative profits.

Think about it this way: If Wall Street concocted a scheme whereby investors bought
large amounts of pharmaceutical drugs and medical devices in order to profit from the
resulting increase in prices, making these essential items unaffordable to sick and dying
people, society would be justly outraged.

Why is there not outrage over the fact that Americans must pay drastically more to feed
their families, fuel their cars, and heat their homes?

Index Speculators provide no benefit to the futures markets and they inflict atremendous cost upon society. Individually, these participants are not acting with
malicious intent; collectively, however, their impact reaches into the wallets of every
American consumer.

Is it necessary for the U.S. economy to suffer through yet another financial crisis
created by new investment techniques, the consequences of which have once againbeen unforeseen by their Wall Street proponents?

The CFTC Has Invited Increased Speculation

When Congress passed the Commodity Exchange Act in 1936, they did so with the
understanding that speculators should not be allowed to dominate the commodities
futures markets. Unfortunately, the CFTC has taken deliberate steps to allow certain
speculators virtually unlimited access to the commodities futures markets.

The CFTC has granted Wall Street banks an exemption from speculative position limits
when these banks hedge over-the-counter swaps transactions.21 This has effectively
opened a loophole for unlimited speculation. When Index Speculators enter into
commodity index swaps, which 85-90% of them do, they face no speculative position limits.22

The really shocking thing about the Swaps Loophole is that Speculators of all stripes
can use it to access the futures markets. So if a hedge fund wants a $500 million position in Wheat, which is way beyond position limits, they can enter into swap with a Wall Street bank and then the bank buys $500 million worth of Wheat futures.

In the CFTC’s classification scheme all Speculators accessing the futures markets
through the Swaps Loophole are categorized as “Commercial” rather than “Non-
Commercial.” The result is a gross distortion in data that effectively hides the full impact
of Index Speculation.

Additionally, the CFTC has recently proposed that Index Speculators be exempt from all
position limits, thereby throwing the door open for unlimited Index Speculator
“investment.”24 The CFTC has even gone so far as to issue press releases on their
website touting studies they commissioned showing that commodities futures make
good additions to Institutional Investors’ portfolios.

Is this what Congress expected when it created the CFTC?
Congress Should Eliminate The Practice Of Index Speculation
I would like to conclude my testimony today by outlining three steps that can be taken to immediately reduce Index Speculation.

Number One:
Congress has closely regulated pension funds, recognizing that they serve a public
purpose. Congress should modify ERISA regulations to prohibit commodity index
replication strategies as unsuitable pension investments because of the damage that
they do to the commodities futures markets and to Americans as a whole.

Number Two:
Congress should act immediately to close the Swaps Loophole. Speculative position
limits must “look-through” the swaps transaction to the ultimate counterparty and hold
that counterparty to the speculative position limits. This would curtail Index Speculation
and it would force ALL Speculators to face position limits.

Number Three:
Congress should further compel the CFTC to reclassify all the positions in the
Commercial category of the Commitments of Traders Reports to distinguish those
positions that are controlled by “Bona Fide” Physical Hedgers from those controlled by
Wall Street banks. The positions of Wall Street banks should be further broken down
based on their OTC swaps counter-party into “Bona Fide” Physical Hedgers and
Speculators.

There are hundreds of billions of investment dollars poised to enter the commodities
futures markets at this very moment.26 If immediate action is not taken, food and
energy prices will rise higher still. This could have catastrophic economic effects on
millions of already stressed U.S. consumers. It literally could mean starvation for
millions of the world’s poor.
If Congress takes these steps, the structural integrity of the futures markets will berestored. Index Speculator demand will be virtually eliminated and it is likely that food
and energy prices will come down sharply.
APPENDIX: HOW TO CALCULATE INDEX SPECULATORS’ POSITIONS

If someone knows how much money is invested in the total index then it is easy to calculate how much must be in each commodity in dollars and in futures contracts.
Total Dollars Invested Weight Of Individual Dollars In Individual

And therefore if someone knows how many contracts are in an individual commodity
along with the dollar value of a contract and the weight of that commodity in the index
then you can calculate the total dollars invested in the index as follows:

# Of Contracts In An Dollar Value Of A Weight Of Individual Total Dollars Invested

Individual Commodity Commodity Contract Commodity In Index

The CFTC starting in January 2006 has been publishing the Commodity Index Trader
Supplement to the Commitments Of Traders report. This supplemental report shows
the reported positions of Index Speculators in 12 different agricultural commodities. Of
the 12, two commodities:, KC Wheat and Feeder Cattle, are part of the S&P GSCI (and
not the DJ-AIG) and one commodity: Soybean Oil, is part of the DJ-AIG (and not the
S&P-GSCI). Note that 95% of dollars indexed to commodities are replicating either the
S&P-GSCI or DJ-AIG.

Both the S&P-GSCI and DJ-AIG publish on a daily basis the individual weights of their
constituent commodities. Also futures market data providers like Bloomberg publish
daily closing prices for the commodities. Since the futures contract terms do not change
that enables someone to calculate the daily dollar values of the individual commodity
contracts.

So with these three data points it is simple to calculate the total dollars invested in the
S&P-GSCI and the DJ-AIG on a weekly basis. And once the total dollars invested in
these two indices is known then that results in the ability to calculate the number of
contracts held by Index Speculators in the other 13 non-agricultural commodities.

A detailed example of this 3 step process follows.
Step One - Estimate Total Amount Invested In S&P-GSCI and DJ-AIG
According to the CFTC’s January 17, 2006 CIT report, Index Specualtors had positiions
in KC Wheat, Feeder Cattle and Soybean Oil of 21366 , 5613 and 59264 contracts
respectively. Plugging in the weights and contract values from the appropriate sources
yields the following calculations:

21,366 X $18,762.50 / 0.82% = $48,887,753,049
5,613 X $56,137.50 / 0.68% = $46,338,204,044
59,264 X $12,732.00 / 2.77% = $27,240,045,054

So the S&P-GSCI had somewhere between $46 and $49 billion invested in it and the
DJ-AIG had around $27 billion invested in it. This corresponds well to the figures
published by Goldman Sachs and Dow Jones.

Step Two - Calculate Position Size For Other Commodities
If $47.6 billion is used as an estimate for the S&P-GSCI and then $27.2 billion is used
for the DJ-AIG it is possible to calculate (using the formulas above) Index Speculators
positions in all the other commodities. The table above shows the results.

Step Three - Compare With Actual CFTC Figures For Accuracy
The final column in the table shows the actual figures released by the CFTC. As you
can see in almost all cases the estimates generated using this method yield results that
are less than the actual reported results. That increases one’s confidence that this
method is in fact conservative.

Final Note

This method of calculating Index Speculators is almost identical to the methods used by
Philip Verleger (www.pkverlegerllc.com), Steve Briese (www.commitmentsoftraders.org)
and others. It is not clear who deserves the credit for developing it but it clearly is not
us.

ENDNOTES ENDNOTES
1 “Reserve Management, The Commodity Bubble, The Metals Manipulation, The Contagion Risk To GoldAnd The Threat Of The Great Hedge Fund Unwind To Spread Product.” Frank Veneroso, July 19, 2007,
pp. 5-6. http://www.venerosoassociates.net/Reserve%20Management%20Parts%20I%20andII%20WBP%20Public%2071907.pdf

2 http://hsgac.senate.gov/public/index.cfm?
fuseaction=Hearings.Detail&HearingID=dc7368c2-0ea1-4151-9fc5-06317a5bba79

4 For more information visit:
http://www.djindexes.com/mdsidx/?event=showAigHome for the DJ-AIG or for the S&P-GSCI
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_gsci/
2,3,4,0,0,0,0,0,0,1,1,0,0,0,0,0.html

5 “Investing and Trading in the GSCI,” Goldman, Sachs & Co., June 1, 2005 and calculations based upon
the CFTC Commitments of Traders Report, CIT Supplement, see the Appendix for more information on
how to calculate Index Speculators' positions.

7 The CFTC states on its website that “In many physical commodities (especially agriculturalcommodities), cash market participants base spot and forward prices on the futures prices that are
.discovered' in the competitive, open auction market of a futures exchange.” - “The Economic Purpose ofFutures Markets and How They Work,” U.S. Commodities Futures Trading Commission, http://
www.cftc.gov/educationcenter/economicpurpose.html

As an additional example, when Platts, an energy markets pricing service, surveys crude oil pricing inphysical markets around the globe they are receiving bid and offer quotations from market participants
expressed as WTI Light Sweet Crude minus a spread. - “Platts Oil Pricing and Market-on-CloseMethodology Explained,” Platts - a McGraw Hill Company, July 2007. http://www.platts.com/Resources/
whitepapers/moc.pdf?a=i Note that if and when Platts receive price quotes as Brent Crude or DubaiCrude plus or minus a spread there is still a direct and stable relationship between WTI, Brent and Dubai.

8 Please remember if demand for oil stays the same then prices will stay the same. If supply is constantthen demand has to increase for prices to increase. That is why we examine increases in demand.

Increase In Chinese Demand For Petroleum
Last 5 Years

9 This table takes the numbers from the main table in the body of the statement and converts them to theirbarrel equivalents. The Petroleum consumption numbers that the DOE provides for Chineseconsumption include all forms of petroleum both crude and refined.

10 Energy Information Association - U.S. Department Of Energy.
http://tonto.eia.doe.gov/dnav/pet/pet_stoc_wstk_dcu_nus_a.htm

11 “The End Of Cheap Food,” The Economist, December 6, 2007 http://www.economist.com/research/
articlesBySubject/displaystory.cfm?subjectid=7216688&story_id=10252015

12 “Ethanol Reshapes the Corn Market,” Economic Research Service - U.S. Department Of Agriculture,
Allen Baker and Steven Zahniser April 2006. http://www.ers.usda.gov/AmberWaves/April06/Features/
Ethanol.htm

13 “Ethanol Production Could Be Eco-Disaster, Brazil's Critics Say,” Kelly Hearn, National Geographic
News, February 8, 2007, http://news.nationalgeographic.com/news/2007/02/070208-ethanol.html

14 Economic Research Service, U.S. Department of Agriculture, http://www.ers.usda.gov/Briefing/Wheat/
consumption.htm

15 see endnote #2

16 Because the base metals are traded on the London Metals Exchange, Bloomberg did not have openinterest data prior to 2005. Since prices and open interest expressed in contracts have been risingsteadily the last five years we took 2005's base metal data and added it to 2004 actual numbers to come
up with a conservative estimate for 2004 open interest. These are daily numbers averaged across theentire year.

17 CIA World Factbook. https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html#Econ

18 There is no publicly available data that shows inflow data for commodity indexation trading strategiesbut some approximations can be made. The end of year “investment” figures are published by therespective index companies (or they can be calculated) and the annual performance is known. Therefore
the amount that the prior year's investment has grown or shrunk can be calculated. Then the difference
in the yearly change has to come from net inflows. When during the year the inflows occurred is notknown, so the assumption is made that all net inflows occurred evenly throughout the year. Changingassumptions on net inflow timing only affects the rate of growth for that year's inflow which never amounts
to more than a few billion dollars difference.

21 “And that actually happened in 1991 with a particular swap dealer that was hedging an OTC transaction
with a pension fund, and the swap dealer came to us, and we said, "yeah, that qualifies for a hedge
exemption," so we granted a hedge exemption to the swap dealer. And in the years since then, we've
done the same for other swap dealers, as well.”
(Remarks of Don Heitman, Division of Market Oversight, CFTC Agricultural Advisory Committee Meeting,
Washington, D.C., December 6, 2007)
(www.cftc.gov/stellent/groups/public/@aboutcftc/documents/file/aac_12062007.pdf)

22 “Commodities: Who's Behind the Boom?,” Gene Epstein, Barron's, March 31, 2008

23 “Similar hedge exemptions were subsequently granted in other cases where the futures positionsclearly offset risks related to swaps or similar OTC positions involving both individual commodities and
commodity indexes. These nontraditional hedges were all subject to specific limitations to protect the
marketplace from potential ill effects. The limitations included: (1) The futures positions must offset
specific price risk; (2) the dollar value of the futures positions would be no greater than the dollar value ofthe underlying risk; and (3) the futures positions would not be carried into the spot month.”
(72 FR 66097, Notice of Proposed Rulemaking, Risk Management Exemption From Federal SpeculativePosition Limits, , November 27, 2007.)
(http://www.cftc.gov/stellent/groups/public/@lrfederalregister/documents/file/e7-22992a.pdf)
(The language in 72 FR 66097 above also appears in 71 FR 35627, CFTC Request for Comments,
Comprehensive Review of the Commitments of Traders Reporting Program, June 21, 2006.)
(http://www.cftc.gov/foia/fedreg06/foi060621a.htm)

24 (72 FR 66097, Notice of Proposed Rulemaking, Risk Management Exemption From FederalSpeculative Position Limits, , November 27, 2007.)
(http://www.cftc.gov/stellent/groups/public/@lrfederalregister/documents/file/e7-22992a.pdf)

25 “CFTC Study Finds Independent-Moving Commodity and Equity Markets,“ December 19, 2007, http://
www.cftc.gov/newsroom/generalpressreleases/2007/pr5425-07.htmlhttp://www.cftc.gov/stellent/groups/public/@aboutcftc/documents/file/amarketofone.pdf

26 Pension fund consultants have been advocating portfolio allocations of between 5% and 12% tocommodities indices. Considering that worldwide institutional assets are about $29 trillion, if InstitutionalInvestors heed the advice of their consultants, index replication could easily reach $1 trillion. $1 trillion on
$29 trillion would represent an average allocation of just 3.5%.
“Investing In Collateralised Commodities Futures,” Russell's Research For Excellence, Yvonne Ooi and
David Rae, 2005
Strategic Asset Allocation and Commodities, Ibbotson Associates, Thomas M. Idzorek, March 27, 2006Pension Funds $26 trillion : “UK pension fund returns at five-year low,” IFAonline, Jennifer Bollen,
January 28, 2008. http://www.ifaonline.co.uk/public/showPage.html?page=698204Sovereign Wealth Funds $3 trillion : “Sovereign Wealth Funds,” Council On Foreign Relations, Lee
Hudson Teslik, January 18, 2008. http://www.cfr.org/publication/15251/

27 “WFP says high food prices a silent tsunami, affecting every continent,” World Food Program - United
Nations, April 22, 2008. http://www.wfp.org/english/?ModuleID=137&Key=2820

Question asked on 07/12/2008 at 08:10 AM :: Comments to date: 0

Category: commodities

ONE OF THE LESSONS OF WORLD WAR II was the vulnerability of international trade. The Germans almost starved Britain with submarine attacks on British and Allied shipping. And the U.S. broke the back of the Japanese economy by sinking over 90% of the Japanese merchant fleet.
So during the Cold War, from the 1940s to the 1980s, the U.S. government was pretty worried about keeping the national economy running in case of a war with the Soviet Union. Thus the U.S. government built up what it called a “strategic stockpile.”
This stockpile contained large quantities of metals, minerals, fuel and other critical commodities. Military planners believed these things were essential for national security. So the government just plain hoarded up metals and minerals in warehouses, and open camps out in the desert.
It was like a squirrel stocking up on food for a long winter. The stockpile included all sorts of things. There was helium and indium, chrome and cobalt, germanium and beryllium, diamonds, molybdenum and much more. This constituted the U.S. “war reserve.”
In hindsight, it is fair to say that the planners had their basic facts straight. The items in the stockpile were — and remain — the backbone of a modern industrial economy. Without these metals and minerals, you can hardly keep the lights on, let alone build advanced systems like power plants, or war machines like jet aircraft and submarines.
But the Cold War ended in the early 1990s. So in the post-Cold War euphoria of the 1990s and early 2000s the U.S. government sold off almost all of the strategic stockpile material. (The Russians sold a lot as well, but not all of it — characteristically.) So today, the U.S. strategic stockpile is gone. The warehouses are empty. Heck, the U.S. government even sold off many of the warehouses.
Selling the stockpile did raise a bit of cash for the federal coffers, but it also produced some unintended consequences out in the real world:
• First, it depressed world prices for most of these commodities. This worked against new investment in mines, mills and factories. And few firms were hiring and training new workers.

• Second, the sell-off forced many former producers out of business. Think about it. When you are competing against government sales from a stockpile, how can you afford to keep running a mine, or mill, or processing factory? So the mines closed. The mills closed. The factories shut down. The skilled employees moved on to other jobs.
And guess what? Here in the year 2008, we are now witnessing worldwide shortages of many of these critical metals and minerals. So prices for almost all of these strategic goods are climbing. And as I just noted above, the mines are closed. The mills are shut down. The factories are shuttered. The workforce has moved away. So what happens now?
Well, the very few companies that are still in the business of producing critical and strategic materials will profit handsomely going forward. Beryllium is critical to high tech, aerospace, the nuclear industry, medical imaging and numerous other advanced industries. And demand for this critical medal is growing. Just look at what’s happening in the aviation and aerospace industries, which are both major beryllium consumers.
The order books of Boeing and Airbus are filled through the next decade. (Have you tried to buy a B-787 Dreamliner lately? The line is sold out to 2017.) And governments all over the world are getting into the business of launching rockets and orbiting satellites.
Meanwhile, as the developing world builds out its capital base, one of the things that citizens of other nations demand is better medical treatment. Much of modern medicine is predicated on exotic machines like CT and MRI scanners, and these devices use beryllium metal.
But beryllium is only one of the strategic metals in relatively short supply. There are others, , as well as other companies that produce them. I am on the prowl for companies that mine and process other critical elements on the periodic table as well. Some of these items are truly in shortage.

Question asked on 03/31/2008 at 07:09 AM :: Comments to date: 0

Category: agricluture

Investing Safely in this Bull Market Mega-Trend
Well, fortunately it is much easier to invest in agricultural commodities and agricultural companies than it once was. Here are two ways to do it:
Market Vectors Global Agribusiness ETF (MOO) – If you want to achieve wide global diversification among agriculture-related companies, there is no better way to do it than this ETF, with the appropriately named ticker. MOO tracks the DAXglobal Agribusiness Index and holds positions in 40 companies trading on 13 global exchanges.
These companies run the gamut from equipment makers Komatsu and Deere, to seed and fertilizer companies such as Monsanto and Potash, to firms involved in agricultural chemicals, irrigation, food and livestock operations, ethanol and biodiesel, and food distribution.

Buy on any pullbacks
This ETF began trading in September 2007 and gained 39 percent by the end of December. Considering the long-term fundamentals of the agribusiness sector, this is just the beginning of greater gains ahead. But keep in mind that this ETF is stretched to the upside, so it might be a good idea to accumulate on weakness.
PowerShares DB Agriculture (DBA) – There are few ways to invest directly in agricultural commodities without going into the futures markets. But the PowerShares DB Agriculture ETF is one of the best. This ETF provides equally weighted exposure to the four most widely traded “soft” commodities: corn, soybeans, sugar, and wheat.
DBA gained 34 percent in 2007, and with the supplies of these four commodities under long-term pressure from rapidly rising demand, this upward trend should continue in the years to come.
The Train is Leaving the Station ... Are You on Board?
No matter how strong the fundamentals, bull markets don’t move up in a straight line. This one will be no different. There will be certainly be volatility and corrections along the way. But the fundamentals of the supply and demand equation foretell a long-term uptrend.
Do you expect the price of energy to go down in the long run? Do you believe that governments will stop encouraging biofuels? Do you think that the two billion people in China and India will stop eating anytime soon?
If you answered no to these questions, then it is time to build a long-term position in agribusiness companies and food commodities. This mega-trend is on solid ground and the bull market is just beginning.

Question asked on 01/06/2008 at 06:11 AM :: Comments to date: 0

Category: commodities

Most investors are well aware of the existing bull market in precious metals, raw materials, and energy. But there is another aspect of the natural resources bull market that has just begun ... and has gone virtually unnoticed.
I’m talking about the bull market in food and agriculture. This bull market is being driven by the most fundamental concept of economics: supply and demand. Quite simply, the demand for agricultural products is overwhelming the supply. And this imbalance should continue for years to come, regardless of what happens in the broader economy.
For decades, food prices have been declining as scientists developed high-yield plant varieties and farmers implemented the latest improvements in equipment, pest management, and growth-promoting fertilizers. But the days of declining food prices appear to be over.
According to the International Food Policy Research Institute, the world has consumed more grain than we have harvested in seven of the last eight years. Currently, there is only 12 weeks worth of the world’s consumption of wheat and only eight weeks of corn remaining in stockpiles. And demand for these grains is rising by more than 30 million tons per year!
Predictably, this has had an impact on prices. In the past 12 months, corn and wheat prices are both up more than 50 percent, while soybeans, dairy, meat, and poultry are also on the rise. For the three months ending in October 2007, the price of food rose at roughly three times the rate of overall inflation.
Why Demand is Outstripping Supply
There are several key reasons why the demand for food and agricultural products is soaring.
First, the world’s population is exploding. There are simply more mouths to feed. It is estimated that the world’s daily caloric intake will increase from 17 trillion calories per day today to nearly 25 trillion in the next two decades.
But it is not just the number of people that counts. Even more important is what people are eating. As the economies of developing countries grow, the personal wealth of billions of people is also growing. In China, for example, the middle class is expected to grow from 100 million to 700 million people by 2020.
And as living standards improve, one of the first things to change is diet. With the money to buy more than just a plate of rice and cabbage, the populations in developing countries are putting more eggs, dairy, poultry and meat on the table.
So not only is the demand for protein going up, but so is the demand for grain, because more protein consumption requires more grains to feed the animals. In fact, it takes five to seven pounds of grain to produce just one pound of beef or pork.
The World Bank estimates that global grain production will have to climb by 50 percent and meat production by 85 percent to meet the projected global demand in the next 20 years.
Food vs. Fuel
But the increased demand for agricultural products does not just come from the dinner table. The emergence of biofuels has also caused a significant boom in demand.
In the U.S., there are currently more than 130 ethanol refineries that consume 27 percent of the U.S. corn crop, according to the USDA. An additional 80 plants are currently under construction. When all of these facilities are operating, ethanol will account for half of the U.S. corn harvest!
Now combine that number with the 43 percent of the crop that goes to feed livestock. That leaves just seven percent for food products. Talk about a squeeze play.
To add to the supply and demand imbalance, consider that changes in climate and inclement weather have severely decreased crop yields in crucial places. Drought in Canada, China, Europe, and Australia (suffering the worst drought in 1,000 years!) has also put significant pressure on world food supplies.

So what does this all mean?
Well, it means that over the long term, food prices are going up, up, up. That presents an investment opportunity and inflation hedge in itself. But it also means that any companies that help farmers produce more food, and do so more efficiently, will be very profitable investments in the coming decades.
And that will stand, no matter what happens to the global economy. After all, people may cut back on clothes and cars and gadgets, but they won’t stop eating.
And in most countries, with declines in soil fertility, dropping water tables, and competition from urban development, it is proving difficult to increase the amount of land suitable for farming. That means the best solution to the coming food crisis is for farmers to increase the yield they get from their existing land.
All of this translates into substantial long-term opportunities for the companies that grow, harvest, distribute; and service the global food supply.
Continued Tomorrow

Question asked on 01/05/2008 at 02:08 AM :: Comments to date: 0

Category: commodities

The demand side finishes the bullish picture for uranium. The main catalyst is the move to green energy. Nuclear power plants have no carbon emissions. The growth of nuclear power is just beginning, but planned production is expected to greatly increase the demand for uranium.

Here is a list of the amount of power plants planned for production: U.S., 34; China, 40-plus; Russia, 42; S. Korea, 11; and many others. That is combined with the 448 nuclear power plants currently in production.

The end result of this is an annual rate of consumption currently running at 188 million pounds of U3 O8 per year, compared with an annual mine production of 100 million pounds of U3 O8 per year. The difference is made up in excess ore pilings and old Soviet warheads being converted into nuclear fuel.

For a brief snapshot of the market, last month, active supply (the amount of U3 O8 for sale) was approximately two million pounds. Active demand (buyers currently seeking uranium for shipment) was 4.4 million pounds. These buyers are the reason that the price of yellowcake has been getting bid up at such an extreme pace. And not all of these buyers were able to secure U3 O8 for shipment.

The uranium market is very transparent. This makes the supply and demand fundamentals extremely easy to read and interpret. Supply disruptions have increased the shortages of available uranium for delivery. Junior and intermediate miners are all racing to get production online, but the general public has trouble understanding the time and money it takes into turning these properties into profitable ventures. The use of nuclear energy as an alternative to carbon-based fuel sources has really set into place the emergences of a fantastic bull market.

There is going to be a very innovative way to play this market. In mid August a nuclear energy ETF was released here in the U.S. The ticker is NLR. It follows the DAXglobal Nuclear Energy Index. This is an ETF that invests in the following fields: uranium mining, uranium enrichment, uranium storage, nuclear power plant builders, nuclear fuel transportation, nuclear equipment and generation. This is really exciting stuff and its price will very likely jump, being that it is one of a kind here in the U.S. Given a good buy price, this one is a safe and potentially highly profitable way to play the uranium market.

Question asked on 09/09/2007 at 06:42 AM :: Comments to date: 0

Category: commodities

The theory of commodity supercycles clearly explains why supply has lagged behind demand and will continue to do so over the coming years. But there is another story behind the supply shortage in uranium.
Uranium deposits often occur in geologically fragile areas. In other words, uranium mines are susceptible to disruptions. This is a risk with any mine, but the risk is higher with most uranium mines. Just look within the last eight months — two major mines have been flooded, which caused significant delays in future production.

The two mines are Cameco’s Cigar Lake operation and Energy Resources of Australia’s Ranger mine.

Let’s start with the situation at Cameco. On Oct. 23, 2006, Cameco announced that its Cigar Lake operation had experienced flooding in parts of the underground mine due to a collapse of rock formation.

This mine was planned to come into production in 2008. After the flood, Cameco announced that production would be delayed one year. It looks like the company was a little optimistic, because it recently came out and said that the remediation process was taking longer than expected. It pushed the expected production date back to 2010.

The impact of this flood is very significant on the market. Cigar Lake had the world's largest undeveloped high-grade uranium deposit. The proven and probable reserves are estimated at 226.3 million pounds of U3 O8 , with an average 21% grade. It is very easy to see the significance of delaying this planned production from the market.

The other operation mentioned was the Ranger mine. The incident here was different. The flooding at the Ranger mine was not a result of geological instability, but a result of Mother Nature. Tropical Cyclone George was the cause of the flooding at the Ranger mine:

This is a very significant loss in production. Energy Resources of Australia’s planned production was revised down to 7.5 million pounds of uranium. That’s a four million pound decline, or 4% of total world production. That four million pounds of uranium is estimated to be worth $340 million.

Energy Resources of Australia claimed “force majeure” on its contracts for sales. In other words, because of unforeseen events, it has exited ALL of its contract obligations for delivery of U3 O8 .

Situations like these are unable to predict and carry devastating implications for the supply of U3 O8 . Remember that these two incidents occurred within the past eight months. Although one can’t say when or where, you can bet that we haven’t seen the end of scenarios like the abovementioned ones.

Question asked on 09/08/2007 at 06:36 AM :: Comments to date: 0

Category: commodities

On July 24, Westinghouse Electric signed a deal to build four nuclear reactors in eastern China. The price tag on the deal is $8 billion. This is just one tiny piece of the puzzle. China plans to spend approximately $50 billion to build 30 nuclear reactors by 2020. This will increase its nuclear energy production by 40 gigawatts. That’s basically enough power to supply all of Spain with electricity. The growth in the nuclear market has resulted in a very large increase in the demand for yellowcake.

I’m not talking about the cake your grandmother brings to your birthday party, either. I am talking about refined uranium (U3 O8 ). The price of uranium has seen a kind of growth second to no other commodity, equity index, or virtually any other investment vehicle available. From 2003 to the present, the spot price of uranium went from $7 to $130 per pound without declining once. That’s a 1,700%-plus increase over a five-year span.

I’m here to tell you that this amazing price run is not over yet, not even close. In fact, this market is just barely starting to catch the public eye, but once it becomes mainstream, the uranium market will really take off.

Uranium: Supercycle

Uranium is the perfect case study for discussing the notion of a supercycle. A commodities supercycle refers to the extended periods of time when either supply exceeds demand, followed by demand exceeding supply, or vice versa. This cycle extends of a period of several years. Let me explain its relevance to uranium.

Most of the demand for uranium came from the U.S.’s and the USSR’s amassing nuclear warheads. After the fallout of the Cold War, and the incidents at Three Mile Island and Chernobyl, the demand for uranium plummeted. Nuclear power plants that were planned for production were canceled at a very rapid pace. And to add further downward pressure, much of the demand that was still left was fulfilled by recycling old Soviet warheads, which is a process that goes on today.

For all of these reasons, the spot price of uranium slumped to a low of $6.50 per pound. Being that uranium miners’ revenues directly depend on the spot price of uranium, this drove the majority of them out of the market. This is the lag period when supply greatly overexceeded demand. In this case, it was fueled by a couple of extraneous factors.

Let’s fast-forward to 2003. The green energy movement is starting to take hold of the media, public, and Washington alike. Geopolitical tensions are making it essential that nations secure energy resources and become less dependent on politically unstable regions — especially the Middle East.

So nuclear energy is back, except there’s only one problem. There are very few uranium mines still in production, and exploration efforts are essentially nonexistent. It was around 2003 that we began to transition from excess supply to excess demand.

Time to get the shovels digging, the leach operations running, and the mills churning... That’s easier said than done — these processes take time.

An exploration company needs to be formed, and funds need to be raised. The company then needs to either lease or buy land for exploration. The next step involves using radiometric and magnetic survey equipment to prioritize potential exploratory drilling locations. Before any ground is broken, the company needs to obtain permits. This step might be the most underestimated as far as time consumption and difficulty are concerned. The inability of a company to obtain a permit is essentially the end of that company.

Assuming that the company does get its permits, it has to conduct numerous drilling tests. The test samples need to be treated with chemicals and then assessed for further testing. Again assuming that everything goes well with the drill tests, the company can go ahead and set up a mining operation, whether it be a leach setup or a more conventional mine. Infrastructure needs to be set up, and workers need to be brought in. During this whole process, time is ticking away. Once the ore has been removed from the earth, it needs to be transported to a mill for further processing. The product is eventually refined into the final product, U3 O8 .

Notice my use of the word “assuming.” Those are very big assumptions, and that’s why a very small minority of these companies actually make it to the production phase.

Just look at all of the places where a company could hit a dead end. Operating capital could dry up. There could be a failure to obtain permits. What if there’s no uranium on your property?

The production of these mines takes time and money. Even if everything goes well, you are talking at least six years until a mine becomes operational from initial exploration, and it’s for this reason that there is a long period of time during which demand exceeds supply. This shortage will always show up in price, and that’s exactly what we have and will continue to see. This has directly shown up in the supply and demand for yellowcake.

To be continued

Question asked on 09/07/2007 at 06:21 AM :: Comments to date: 0

Category: Life

Nassim Taleb's new book, The Black Swan is a remarkable work and suggest that any serious student of the market read this book.

A few thoughts on this book follow.

"The inability to predict outliers implies the inability to predict the course of history, given the share of these events in the dynamics of events."

"But we act as though we are able to predict historical events, or, even worse, as if we are able to change the course of history. We produce thirty-year projections of social security deficits and oil prices without realizing that we cannot even predict these for next summer - our cumulative prediction errors for political and economic events are so monstrous that every time I look at the empirical record I have to pinch myself to verify that I am not dreaming. What is surprising is not the magnitude of our forecasts errors, but our absence of awareness of it. This is all the more worrisome when we engage in deadly conflicts: wars are fundamentally unpredictable (and we do not know it). Owing to this misunderstanding of the casual chains between policy and actions, we can easily trigger Black Swans thanks to aggressive ignorance-like a child playing with a chemistry kit.

"...To summarize: in this (personal) essay, I stick my neck out and make a claim, against many of our habits of thought, that our world is dominated by the extreme, the unknown, and the very improbable (improbable according our current knowledge) - and all the while we spend our time engaged in small talk, focusing on the known, and the repeated. This implies the need to use the extreme event as a starting point and not treat it as an exception to be pushed under the rug. I also make the bolder (and more annoying) claim that in spite of our progress and growth, the future will be increasingly less predictable, while both human nature and social "science" seem to conspire to hide the idea from us."

So, the above quotes will help put the later predictions into context. By definition, we cannot know the future. Yet we go through the exercise. And even though we should know that we will probably be wrong, there is a value on the process if done with the proper amount of cautious optimism tempered by reality.

I think about the future not just to look for opportunities to invest but primarily as a thought process to assess wherein lies the risk. The first task of an investor is to manage risk and only then to seek attractive returns. We make predictions about the future so as to think about risk and to seek places for opportunity. And then every so often, we re-assess our predictions in the light of new information and adjust our risk controls and objectives.

So as you read my predictions they are nothing but a gathering of historical data analyzing the data for a best fit scenario for historical repeatability. This is known as experience with knowledge.
Therefore with knowledge you use it for the experience and with experience you gain wisdom about all that you been through. The more you read and learn about other peoples experiences the better you can make judgements about what to do.

My favorite Quote is ;

"That which has been is that which will be. And that which had been done is that which will be done. So there is nothing new under the sun...." Solomon.

Question asked on 08/01/2007 at 06:56 AM :: Comments to date: 0

Category: commodities

The Stock Market has peaked for now, and the tendencyfor the stock market to top in the 6th and 7th years is so strong historically, the 7th year of the decade is called the "Death-Zone."
The first Phase of commodity inflation was right on schedulewith its 30-year cycle counterpart, the 1970's advance with about a 335% average gain in individual commodities.
The 1970's commodity inflationary advance took place in2 phases (1971-1974 and 1977-1980). And the 30 year cycle has been a strong ally in forecasting.
No Commodity Inflationary period since 1730, has everlasted less than 9 years, and the average inflationary advance has been around 20 years. Ours is a mere 6 years old.
Phase 2 appears to be starting with a number of markets demonstrating "bull-market" type strength.
* Soybeans are in the midst of a 2nd leg up in a bull market*
Gold and Silver are correcting now ready to move and break out of their bull market highs*
Platinum is close to new All-Time highs*
Crude Oil has potentially launched a NEW bull market*
The CCI Commodity Index made new all time highs in July*
The Goldman Sachs commodity index has come within 0.4% of an all time record*
Cotton recently broke out to the upside after a 3 year basing pattern*
12 year lows in the Dollar index and all-time lows vs. Euro is good news for rising commodity prices

We appear to be starting a fresh or the 2nd leg of commodity inflation.
Buy physical silver and gold now in your IRA's and long term investment allocations.
GG, GLD, SLV, at least 10% of your investments should be in there now.

Remember this the stock market does not like inflation, that is why the market will trend downward for some time.
The leader of the inflation is oil and it is at an all time high at $76.00 a barrel.
Oil in 2000 was $11.00 a barrel. That is almost a 700% increase in 7 years.
Now if that isn't inflation I don't know what is.

Question asked on 07/30/2007 at 06:46 AM :: Comments to date: 0

Category: commodities

Our fearless leaders here in the United States have perfected the art of passing off old ideas as new and improved solutions to the country’s problems. This holds especially true when it comes to energy policy.

Take ethanol, for instance. It was the choice fuel for some of the first combustion engines. In the 1820s, Samuel Morey used an ethanol blend in his experimental internal combustion engine. Due to the rise of steam power, ethanol remained an obscure fuel until 40 years later, when the internal combustion engine took off thanks to a more efficient design by German inventor Nikolaus Otto.

But also around that time, America discovered a cheap, domestic oil supply, which would compete with ethanol and later become our preferred fuel despite ethanol’s early success. Even Henry Ford thought ethanol would withstand the test of time. He designed his Model T to run on ethanol, going so far as to call it “the fuel of the future.”

Now, 100 years after the first Model T took to the roads, our leaders are spouting the same tired slogans. Our reliance on oil has not been clipped. Instead, we are faced with new debates over ethanol’s true energy output and its overall effectiveness as a cheap, efficient alternative to gasoline.

Another political football was once gas was the method of fuel because it was cheaper than ethanol the oil companies had to add lead to it to help the knocking in the engine. So they charged more for that.
Then lead became a no no and they charged more to take it out until today there is hardly anymore leaded gasoline.
So what will happen next?

Question asked on 07/21/2007 at 07:23 AM :: Comments to date: 0

Category: commodities

Rival Iraqi factions continue jockeying for power in post-Saddam Iraq. This situation has turned out to be far more complicated than most -- especially the Bush administration -- expected.

It explains why “the jihadists did not employ their signature tactic of using suicide bombers to strike the [Sunni’s al-Gailani] shrine. Using a truck bomb allows the jihadists to prevent any potential backlash from the Sunni community, which the jihadists do not want to alienate totally. The bombing also helps fuel the Shiite/Sunni sectarian fire by raising suspicions that Shiite militants potentially bombed the al-Gailani shrine in retaliation for the attacks on Shiite sacred sites.”

As long as rival Iraqi factions think they can establish a lasting democracy with car bombs and gun battles in the street, they have no reason to expect stability in Iraq. New twists on old sectarian grudges will continue to unfold under the current status quo. Violence begets violence. Fresh conflicts over oil revenues should be expected. The conflicting parties all know that U.S. political will to fight this war is waning and are acting to solidify their positions for a future with limited U.S. military presence.

The future of the Middle East is the same as the past, political turmoil, which will escalate and cause oil and gold and silver to keep on in a upward price pattern.

This will put pressure on the market eventually. The market does not like inflation. Oil will cause the next wave of inflation which will cause the price of gold and silver to take off for the second wave up.

Question asked on 06/07/2007 at 07:02 AM :: Comments to date: 0

Category: Stocks

Dr. Bakhtiari continues on a profound pathway.
“In 'Post Peak,’ all of our systems of habits are in mortal danger. Due to the relative cheapness of crude oil (in relation to other, more expensive daily needs), people don't exactly realize the pivotal role played by its products in their daily routines -- as these products have invaded every nook and cranny of our modern life. It is only when the brakes will be pulled (as they inevitably will have to be) that the general public will come to gradually realize the critical importance of 'black gold’ -- which currently provides no less than two-fifths of world energy -- and of ‘energy’ in general in their living habits.

“Thus, at present, the global masses seem totally unprepared for the two shocks which will inevitably occur in 'Post Peak.’ On the one hand, no major institution or medium is willing to inform them seriously on the not-so-palatable consequences of 'Post Peak’; and, on other hand, specialized institutions (such as the International Energy Agency [IEA], the Energy Information Administration [EIA] and OPEC) as well as some major energy consultancies (e.g., the Cambridge Energy Research Associates and the Edinburgh-based Wood Mackenzie research outfit) will go on denying 'Peak Oil’ by issuing rosy future oil output predictions.

“So that the twin shocks are now inevitable on a global scale, as there is no time left to prepare public opinion for 'Post Peak’ sequels. The shocks will first surprise, then jilt, and finally entangle swaths of people worldwide. Those better prepared will be less inclined to react in a disorderly way and panic when the shocking truth will be unveiled.”

Question asked on 04/30/2007 at 04:38 AM :: Comments to date: 0

Category: Stocks

Dr. Bakhtiari delves into the state of preparation of major nations and populations for what is about to ensue and concludes as follows:

“In the large majority of countries, no one has prepared (or wanted to prepare) the general public to the historical 'Peak Oil’ event and to its momentous consequence in their daily lives. Thus, most probably, the popular masses will be directly exposed to two main types of shock:

A material shock;
A psychological shock.
“Due to the benign decline gradient in crude oil production during the early 'Post Peak’ period -- only 3 mb/d over the first transition period spanning 2007-2010 -- the material shock will not pose insoluble problems and accommodation will prove possible with minimal gradual pain. Moreover, sizeable amounts of wastage in most developed societies will provide a welcome cushion for the initial cuts to be made.

“Not so for the psychological shock. This shock, in stark contrast, will be electric and abrupt. Stress, fear, depression, despairs, and nightmares will be the order of the day -- as people come to face the not-so-palatable facets of 'Post Peak.’ When confronted with this series of unknowns, with the trauma of change, people will try to protect themselves by automatically reverting to their past, to the known, to what they believe to be "real and true" -- in a word, to their reassuring 'roots'”

Question asked on 04/29/2007 at 04:34 AM :: Comments to date: 0

Category: commodities

Dr. Bakhtiari has this to say about both the future, as well as the nature of mankind:

“Peak Oil', however, is now in the past, and we are presently left facing the 'Post Peak’ era. There is little doubt that in this brand-new period, massive changes are bound to occur. The usage of relatively cheap crude oil has invaded every nook and cranny of our modern world economy -- sometimes without the wasteful invasion being fully realized. Moreover, the ubiquitous oil products have created addictions (especially in the transport sector) which will be extremely difficult to uproot. And not only is the addiction to motorcars common throughout the developed world, it has also begun making deep inroads in China, Russia, and even India: a very dangerous development, indeed, because as American physician and poet Oliver Wendell Holmes [1809-1894] judiciously remarked:

‘Man's mind, once stretched by a new idea, never regains its original dimensions’”

Question asked on 04/28/2007 at 04:32 AM :: Comments to date: 0

Category: commodities

According to Dr. Bakhtiari, the world has now reached and passed the point of Peak Oil. Bakhtiari has recently published an essay entitled “The Century of Roots.” Bakhtiari has reviewed the available evidence on world oil production and believes that world output peaked absolutely in 2006. Here is what he is saying:

“After some 147 years of almost uninterrupted supply growth to a record output of some 81-82 million barrels/day [mb/d] in the summer of 2006, crude oil production has since entered its irreversible decline. This exceptional reversal alters the energy supply equation upon which life on our planet is based. It will come to place pressure upon the use of all other sources of energy -- be it natural gas, coal, nuclear power, and all types of sundry renewables, especially biofuels. It will eventually come to affect everything else under the sun.”

“Everything else under the sun”? That sounds like quite a lot, but Dr. Bakhtiari has done his background work, to include reviewing numerous models for oil extraction on a worldwide basis. In a paper delivered to an oil conference in Italy in March 2007, he concluded that in 2006, overall depletion subtracted about 3.5 mb/d of oil extraction from the daily global total of oil output (plus or minus 10%), and that a maximum of 2.5 mb/d of “new” oil production came on line, which includes new and expanded oil fields, as well as new projects in the Canadian tar sands areas. Thus, according to Bakhtiari, in 2006, depletion was greater, by more than 1 mb/d, than new discoveries and reserve growth, including oil produced from unconventional sources such as the tar sands.

Dr. Bakhtiari’s conclusion, presented to the Italian conference in March, was that “the peak of global oil production has been reached.” Bakhtiari now sees the world entering a phase of irreversible decline in daily oil output, moving down from the current 82mb/d toward daily oil extraction of only 55 mb/d by the year 2020.

If any of you have seen Al Gores global warming he presented data that showed exponential populatiion growth where all natural resources are now in the midst of being consumed by the populations of the earth. I am not predicting doomsday I am showing what the laws of supply and demand are going to do in the future long term in the markets.
Even oil companies are going to have a hard time because there won't be as much new oil coming on stream to replenish what is beiing consumed.

Question asked on 04/25/2007 at 04:14 AM :: Comments to date: 0

Category: commodities

We have had the first wave of inflation starting in 2003 and to 2006.
The markets have settled back for about a year depending on which market you are in but the government data is finally showing the results of the trickle down effect inflation has on the economy with the latest CPI #'s.
Now all we have to have is a shortage of gasoline which is coming this summer. Then inflation will raise it's ugly head big time because the corporations are tired of taking it on the chin. They are being squezzed from both ends so prices will pop this time because their long term contracts are now market related.
The general results are metals will go higher, stock market will go lower.
Buy puts on the dow or S&P to protect your portfolio.

Question asked on 03/20/2007 at 05:33 AM :: Comments to date: 0

Category: commodities

NOAA predicts that La Nina, evil sister to El Nino, will produce weather patterns in the Gulf Coast that could ramp up the number of hurricanes that hit the region this year. Any direct hit in the Gulf can always have a devastating impact. The losses are massive, not only in terms of the individual people whose lives are destroyed, which is the most tragic, but also to the energy and agriculture industries.

Drilling platforms, refineries, shipping terminals, pipelines, etc. are all impacted when a direct storm hits and refining and production grinds to a halt.

This is already driving prices higher in anticipation of more demand and possibly less supply. It’s still a little early to be worrying about hurricanes, but the reality is they will be here sooner than we think.

With the snow storm and cold weather on the east coast this past weekend the refineriies will stay with the winter production schedule so the inventory build up for gasoline for the summer driving season is going to tight.
The futures market usually play on the anticipation of the worst scenerio which drives the market up. But what can really move the prices is a true demand causing a shortage and everyone who needs it will pay anything for it.

Thus plan for higher prices at the gas pump.

Question asked on 03/19/2007 at 07:26 AM :: Comments to date: 0

Category: commodities

The Peak Oil Paradigm
(This is for long term Investing)
Mankind has generally located, if not discovered, most of the conventional crude oil that there is to find in the crust of the Earth, and has produced and consumed something near half of it. That is, out of a conventional, worldwide resource base of conventional oil that is estimated by some knowledgeable commentators at about 2.2 trillion barrels, about 90% has been discovered and about 1 trillion barrels have been extracted and consumed over the past 150 years or so. At the present time the global oil industry is pumping the world’s known oil reserves at a rate of about 1,000 barrels per second, or 85 million barrels per day (mbd), or about 31 billion barrels per year. And the global economy is, as frequent readers of this column know, consuming or otherwise burning up almost every drop of that oil. And not to get too preachy, but watch what happens if just a couple of hundred thousand barrels per day of production (near a rounding error from a production base of 85 mbd) go off line, such as occurred last August when BP closed the Alaska pipeline.

So do the math, dear readers. Follow the facts. Watch the trends. Mankind is at the top (or “peak”) of the conventional oil production curve. The world’s major oil provinces and largest oil fields are barely holding steady in production (Saudi’s Ghawar Field, for example), or are in irreversible decline (U.S. Lower 48 and Alaska, North Sea, Mexico’s Cantarell, Kuwait’s Burgan, China’s Daqing, Russia’s Samotlor and Romashkino, and many others). The world is pumping and burning oil that was discovered decades ago. And despite massive and costly efforts at exploration, overall, the global oil industry is pumping conventional oil reserves out of the ground at a far faster rate than it is discovering new reserves. So in the past few years, “new” oil production has barely kept up with depletion and decline in volumes produced from older areas.
Continued.

Question asked on 02/25/2007 at 06:51 AM :: Comments to date: 0

Category: Stocks

Can Uranium Prices Come Down Temporarily? Sure Can!
In fact, I’m hoping we get a pullback. That would be a golden buying opportunity.

Here are a few factors that could drive uranium lower in the short-term…

1. Russian imports. Right now, Russia has two choices. It can sell uranium to the U.S. market through the United States Enrichment Corp. (USEC) or it can pay a 116% tariff. But Russian-owned Techsnabexport is working on a new civilian nuclear power deal between Russia and the U.S. You can bet that U.S. utilities, desperate for lower-cost uranium, are pushing hard for this deal, which could come as soon as the first quarter of 2007.

2. Cigar Lake update. Last week, Cameco announced it expects to seal off water flow to its Cigar Lake uranium mine by the second quarter. But it has delayed preliminary cost estimates and timelines, which were supposed to come out in February, until late March.
Does that sound to you like Cameco’s going to get that mine back online anytime soon? It sure doesn’t sound like it to me. So Cameco is STILL having trouble stopping water from flooding the mine. One engineer in Vancouver joked that so much water is pouring in, Cameco should stop trying to mine uranium at Cigar Lake and turn it into a hydroelectric project.
Nonetheless, it would be surprising if the March report isn’t upbeat. Corporations have a way of putting even the worst news in the best light…and maybe Cameco will surprise everybody by reporting actual good news.
On the other hand, if Cameco pushes its timeline for Cigar Lake back by years, uranium could lift off the launch pad.

3. Overspeculation. I like speculation as much as the next guy, but according to a recent update from TradeTech’s Nuclear Market Review, “Speculators are holding about 24 million pounds of U3O8 equivalent.” That is about 22% of global uranium production in 2005.

So if Cameco announces good news on Cigar Lake, or if Russia’s Techsnabexport hammers out a trade deal, speculators could decide to sell, temporarily exaggerating any short-term decline. The Uranium Participation Corp. is holding a bunch of uranium with the intention of selling to utilities at a higher price at a later date. If prices start to go down, the fund could decide to start unloading.

SUMMARY: I expect a pullback in uranium prices this year, but it will be a short-term correction in a big bull market. What I recommend is you put HALF your money to work NOW, then put the rest to work if and when we get a sizeable pullback.
If uranium doesn’t pull back, at least you’re in the game. If uranium does pull back, you’ll average in for a better price.

Question asked on 02/22/2007 at 04:50 AM :: Comments to date: 0

Category: Stocks

Force #7: The Feeding Frenzy Could Get Even MORE Intense Next Year

Most uranium is sold under long-term contracts. But the utilities that contracted for uranium in the future are finding they’re coming up short, and for good reason: When a nuclear reactor is first fired up, it can use TRIPLE its normal amount of uranium oxide.

While the price of uranium is rising, suppliers can still scrape together enough to meet demand. But come 2008, we may reach a tipping point. A lot of uranium users don’t seem to have enough contracts to cover their needs. And many of the contracts they do have are ending -- which means suppliers can negotiate at MUCH higher prices.

So if you think uranium prices have been on a tear so far, just wait…2008 could be an even more intense feeding frenzy.

And when you come down to it, we should see prices move well in advance of that. That, in turn, should take the stocks of small, well-managed companies sitting on big resources and potentially send them ballistic!

Question asked on 02/21/2007 at 04:47 AM :: Comments to date: 0

Category: Stocks

Force #6: Nuclear power looks cheaper all the time.

Standard & Poor’s recently published a study showing that the next wave of nuclear power plants should be able to produce electricity at $55 per megawatt hour, versus the average rate of $50 per megawatt hour at a coal plant.

Even the $55 figure may prove conservative, because the second wave of nuclear plants could benefit from standardization. All told, the cost of a megawatt hour could potentially drop to about $44!

That’s right: Nuclear power could end up being cheaper than coal, and without the tons of greenhouse gases and poisonous ashes that coal plants spew into the atmosphere.

The cost of uranium is only 6% of the cost to run a nuclear power plant. There fore an increase in uranium rods to doouble what they are today only increases the cost to generate electricity at 6% increase.

But double the price of natural gas and oil and coal the utility factor is 3 fold.

Question asked on 02/20/2007 at 04:41 AM :: Comments to date: 0

Category: Stocks

Force #5: Peak Oil and Peak Natural Gas .

In 2006, global oil demand grew 0.9%, thanks to steady growth in China and the Middle East. The world used 84.5 million barrels of oil per day last year, according to the International Energy Agency. That’s nearly 31 billion barrels, and the most oil used in a year...EVER. What’s more, world demand is forecast to rise 1.6% this year to 85.77 million barrels a day.

Worldwide oil and gas reserves are becoming depleted at an ever increasing rate, with many analysts convinced that we are fast approaching Peak Oil and Peak Natural Gas.

In fact, the former Soviet Republic Belarus, which was hardest hit by the Chernobyl nuclear accident, is pulling out all the stops to accelerate its nuclear energy program. Reason: President Alexander Lukashenko is desperate for an alternative to Russian natural gas that is fast rising in price.

If Belarus is embracing nukes, I believe even the most die-hard holdouts won’t be far behind.

Question asked on 02/19/2007 at 04:34 AM :: Comments to date: 0

Category: Stocks

Force #4: Global Warming Trumps Everything

Fact: The 11 hottest global temperature years (since records began in 1861) have been since 1990.
The ice caps are melting at an alarming pace. And whether it’s hurricanes in the Atlantic or typhoons in the Pacific, storms are whipping up with an intense fury. Unless your name is “ExxonMobil,” there is very little argument about why this is happening. A normal global warming cycle is being worsened by man-made pollution -- greenhouse gasses that trap heat. Or the earth is just getting warmer due to natures way. People make the market and if they believe the earth is global warming due to hydrocarbons then the politicians will pass laws to save the earth and mankind. That means nuculear will win out eventually.
And though people rant and rave about gas-sucking SUVs, the biggest source of greenhouse gasses (apart from methane-farting cows and other livestock) is coal-fired power plants. People point to the fact that China is building a new coal-fired plant every week and shake their heads. Well, here in the U.S., we have about 150 new coal plants planned or already being built. Many of these are using “old-coal” technology for cost savings.

It’s almost as if China and the U.S. are engaged in some kind of suicide pact. And I doubt it’s going to have a happy Hollywood ending.

There is hope, though. Awareness of the crisis of global warming is becoming so acute that major corporations are joining forces with environmental groups in an unprecedented alliance to push for quicker action on global warming. The alliance of greens and Corporate America is called the U.S. Climate Action Partnership, and we’re talking some really BIG names here: Alcoa, BP America, DuPont, General Electric, FP&L Group, and more. One of the solutions to global warming is nuclear power.

Here’s why: An operating nuclear power plant produces zero greenhouse gases. Compare that with your average coal plant, which can spew 3.7 million tons of carbon dioxide (a greenhouse gas) into the air every year, along with hundreds of tons of heavy metal-laden ash.

I expect public awareness on this issue to grow over the next few years and the public to start demanding utilities make the switch. This boosts nuclear power in two ways -- increasing demand for uranium at power plants and lifting bans and overregulation on mining.

Question asked on 02/18/2007 at 04:29 AM :: Comments to date: 0

Category: Stocks

Force #3: China, the Uranium-Devouring Monster

China deserves mention as a force all its own. How hungry is China for uranium? The Chinese are hot-footing it through the Australian outback with bags of cash, investing in the best small companies sitting on large quantities of uranium. And no wonder! China plans to import 2,500 metric tonnes of Australian uranium per year by 2020, as it builds 24-30 new atomic power plants.

The really bullish news is that China’s total expected annual uranium demand is three times as much -- 7,500 metric tonnes. And it will use every pound of it, as China plans to construct two new 1,000-megawatt nuclear reactors every year, including two coming online this year.
Continued tomorrow.

Question asked on 02/16/2007 at 06:26 AM :: Comments to date: 0

Category: Stocks

I have recomended USU in the past and it has moved up nicely. It has a considerable way to move yet, buy it on dips for accumulation for the next few years. You should double your money in 3 years on this pick.

Force #2: Crisis at Cigar Lake

Uranium prices were already climbing steadily when the nuclear power industry was rocked in October by disastrous news out of Cameco’s Cigar Lake Mine.

Cameco planned to bring Cigar Lake online in 2008, with 7 million pounds of uranium in the first year and full-scale production of 18 million pounds annually thereafter. Keep in mind, 18 million pounds is more than a tenth of last year's total global demand of 171 million pounds. That’s like the global oil market losing Saudi Arabia’s production!

In 2008, uranium demand was already expected to exceed supply by 25 million pounds. With Cigar Lake seriously delayed, that gap will be 32 million pounds. Put another way -- the shortfall in uranium is going to soar by 30% just in 2008.

Sure, Cigar Lake will be brought into production eventually. But meanwhile, demand keeps building up. Uranium consumers around the world can see this squeeze coming, so the race is on. That explains why spot uranium prices basically doubled in the course of a year, and the stocks of near-term uranium producers vaulted higher.

Cigar Lake could be a force driving uranium prices this year both UP and down.

Question asked on 02/15/2007 at 04:01 AM :: Comments to date: 0

Category: commodities

Why I’m Convinced the Second Wave of Uranium’s Bull Market Is About to Begin!

Uranium is the “white-hot metal,” and not only because it glows in the dark. During the course of 2006, the uranium spot market price continually climbed by 99%, from $36.25 to $72 per pound of U3O8. At $75 per pound, the price is now more than 10 times its record low of $7 per pound that it hit in 2000.
The first big move in uranium is over -- the next one is about to begin. And if uranium prices DOUBLE from here -- which I think could easily happen -- some of these small-cap wonders I’m looking at could go to the moon.

I believe we’re poised to enter the “Second Wave” of uranium’s big bull market…probably the biggest bull market the world has ever seen.
Despite the big bull rally in uranium over the past couple years, on a historical basis, it’s still dirt-cheap! Uranium hasn’t come anywhere near its old peak in inflation-adjusted terms. In 1978, uranium topped out at $43.40 per pound -- but adjusted for inflation, that’s around $145 per pound in today’s dollars. It’s now trading at $75 per pound. That means uranium could nearly DOUBLE and still not surpass its old inflation-adjusted highs.

That’s why I think we’re looking at $100 uranium by the end of this year -- a 39% move from recent levels. Pretty sweet -- and even then, uranium will still have plenty of room to run! How high? Let me show you…

Continued:

The answer to: "Uranium Part II (2/14/07)"

Question asked on 02/14/2007 at 03:53 AM :: Comments to date: 0

Category: commodities

7 Forces That Will Drive Uranium to $100 Per Pound in 2007.
A six-week long stalemate on the spot price of uranium has finally broken, with the price of the metal ticking up $3 to $75 per pound, according to Ux Consulting. Uranium investors have been holding their collective breath, waiting to see if uranium’s recent plateau was a peak. The answer seems to be, “not yet.” Indeed, my target for the metal is $100 per pound by the end of this year.
It could be a bumpy ride, though. I’ll tell you about forces that should drive uranium higher, as well as a few that could drive it lower in the short term.

2007 Could Bring an M&A Feeding Frenzy in the Uranium Mining Industry

Three weeks ago, there was the 2007 Vancouver Resource Investment Conference. There were way more exhibitors than last year, and the hall was jampacked with investors looking for Canada’s natural resource bargains, gold, silver, lead, zinc, nickel, diamonds and many other things. Uranium, was so hot that the exhibitors set up a special “Uranium Alley” so investors could find these companies more easily.
Continued:

The answer to: "Uranium (2/13/07)"

Question asked on 02/13/2007 at 06:02 AM :: Comments to date: 0

Category: commodities

Sugar Rises in London as Prices at 13-Month Low May Spur Demand

“Jan. 15 (Bloomberg) -- Refined sugar in London rose on speculation last week's drop to a 13-month low will spur demand.

“The 14-day relative strength index for sugar in London declined to 30.5 on Jan. 12, a signal that prices are poised to climb. Indonesia purchased 158,000 metric tons of refined sugar for delivery this month, C. Czarnikow Sugar Ltd. said in a monthly report today.

“‘There is business going on, bread-and-butter small business,’ said David Sadler, head of sugar trading at Sucden (U.K.) Ltd. in London.

“White, or refined, sugar for March delivery advanced $1, or 0.3%, to $326 a metric ton on Euronext.liffe. Prices ended last week at $325, the lowest since December 2005.

“Tunisia bought 14,000 tons of refined sugar for April delivery and is seeking another 14,000 tons for May, Czarnikow said. Ethiopia recently bought 20,000 tons from London-based Tate & Lyle Plc, Sadler said. Tate & Lyle spokeswoman Ferne Hudson declined to comment.”
Continued

The answer to: "Sugar starting 2nd leg (1/22/07)"

Question asked on 01/22/2007 at 07:27 AM :: Comments to date: 0

Category: commodities

Art Samberg is quoted in a debate by Barron's Roundtable:

“I'm recommending cotton -- the December ’07 contract. This is the other side of the growth story in agriculture. You're a farmer and you want to plant cotton? You've got to be crazy. You want to plant corn or wheat. Cotton consumption in the U.S. has fallen from 12 million to 5 million bales a year because of the growth of polyester and other stuff. But the real story is China, as it is with most things. In China, there is a booming fixed-asset investment across the textile industry. Spending in China was up 27% in ’06, after rising 36% in ’05. Chinese consumption of cotton had been growing by 4-6% a year. Now it's growing by 15% a year. China's consumption of cotton has gone from 25% to 39-40% of world cotton consumption. They are a large importer.

“The decline in U.S. cotton consumption had masked some of these trends. U.S. farmers are going to withdraw acreage. There have been only four times since 1913 when cotton was this cheap relative to grains like corn and wheat. The last time was in 1974, and farmers planted 16% less cotton acreage the next year. From the end of ’74 to mid-’76, the cotton price tripled.”
Continue.

The answer to: "Cotton has bottomed. (1/21/07)"

Question asked on 01/21/2007 at 07:12 AM :: Comments to date: 0

Category: commodities

Coffee Market Deficit May Hit 11 Million Bags in 2008

“Jan. 15 (Bloomberg) -- The global coffee market may be in deficit of 11 million bags, or 1.45 billion pounds, next season as producing countries fail to compensate for output cuts from Brazil, the world's biggest producer, the International Coffee Organization said.

“In December, Brazil's forecasting agency Conab estimated a cut of as much as 27% in output for the country's 2007-2008 season as its coffee trees enter the low-production year of a two-year growth cycle. The ICO said today in a report that it expects global production to be 109-112 million bags, of which Brazil will account for 29%. Demand is forecast to be 118-120 million bags.

“‘Even if production in other countries were to increase during the crop year 2007-2008, it would not be sufficient to offset the shortfall in Brazilian production,’ the London-based ICO said. ‘The current supply and demand structure has reinforced the firmness in prices recorded in December and early 2007, which gives me reason to state that the recovery in prices should be maintained,’ Nestor Osorio, the ICO's executive director, said in the report.”
Continued.

The answer to: "Coffee Will Percolate (1/19/07)"

Question asked on 01/19/2007 at 07:07 AM :: Comments to date: 0

Category: commodities

If the economy is still good why are metals falling apart?
They were overbought.
China is overbought and the suppliers have been expanding production.
Copper in particular. The precious metals will take a breather for awhile.
Accumulate on the way down infrastructure stocks because they are still building infrastructure for new technology which is alot more efficient than before. This is going to be very profitable for the future for companies.
Wait for a bottom in the metals and then start to accumulate again.

Question asked on 01/11/2007 at 06:44 AM :: Comments to date: 0

Category: commodities

Commodities started out the new year on a rather aggressive note, with investors sinking prices for gold and oil in a move that actually makes sense, given all the issues the market will be forced to contemplate this year.

It was almost impossible to find a commodity that actually went higher today, as sellers were out in force. Gold got absolutely slammed, dropping as much as $21 at one point. Things weren’t much better over in the oil patch, with crude getting down to the mid-$50 range, which we haven’t seen in several years. Crude futures have been in a free fall, with the February contract losing a combined Wednesday and Thursday total loss of more than 9%. Ouch!

Then, on top of it all, the government announced job growth in the U.S. unexpectedly accelerated in December, with nonfarm payrolls rising by 167,000 and the jobless rate remaining at a very low 4.5%. Only 100,000 jobs were expected, so now hope is pretty much lost that the Federal Reserve will cut interest rates soon. Average hourly earnings in December jumped by 8 cents, or 0.5%, far ahead of the 0.3% rise expected.

Question asked on 01/05/2007 at 05:27 PM :: Comments to date: 0

Category: commodities

Interest rates, 10-year T-bond yield (4.59%): I give bond sellers (those
looking for rising rates) the edge in 2007. It is utter madness for the
overnight risk to pay substantially more than the long-term risk (inverted
yield curve). Support for falling rates is at 4.43-4.50 and 3.70-4.00.
Resistance to rising rates is at 4.75-4.80 and 5.25.

Question asked on 12/22/2006 at 03:58 AM :: Comments to date: 0

Category: commodities

Crude oil ($63): Buyers have the edge. Support is at $55-$60 and
$45-$50. Resistance is at $65-$70 and $78-$80.

A mild winter will put pressure on the price.
OPEC will try to keep prices up at $60.
So it will be a wide trading range.

Question asked on 12/20/2006 at 05:47 AM :: Comments to date: 0

Category: commodities

There are numerous proposals within the U.S. for developing a CTL industry. There has been some discussion of CTL at the federal level, but much of the impetus for CTL efforts has originated at the state level. Among others,
U.S. Approach
Gov. Brian Schweitzer of Montana has advocated a program of coal gasification, and Gov. Ed Rendell of Pennsylvania has also supported efforts for CTL.

At the level of private industry, Sasol of South Africa, of course, remains among the world leaders in CTL technology. But in North America, Sasol focuses on the production and marketing of chemicals at its advanced plants in Baltimore, Md., and Lake Charles, La., that produce olefins and surfactants, as well as solvents. Sasol has no plant in the U.S. comparable to its South African facility that produces gasoline, diesel fuel, and jet fuel.

There are also smaller, publicly traded companies, such as Rentech, in partnership with Peabody Energy (BTU:NYSE), that are constructing CTL facilities on a modest basis. And there are numerous private equity efforts in the CTL arena. But even if this article were to be utterly exhaustive on the U.S. effort in the realm of CTL, it is clear that there is no large-scale CTL effort going on in the U.S. comparable to what is occurring in China.

For the foreseeable future, and for lack of a comprehensive policy that focuses on exploiting domestic energy resources with available technology, the U.S. will just have to keep on trading U.S. dollars for oil from our friends in places like Saudi Arabia and Venezuela. The U.S. is simply living in, and making policy based