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David White submits:The Baltic Index has fallen dramatically. This is a good barometer of the strength of Chinese commodities buying. Commodity prices are coming off their lows, but they are still weak. Some pundits argue that the Chinese will stop their economic tightening as the Chinese economy has slowed significantly (GDP down to 10.3% growth from 11.9%). Many pundits conclude that commodities prices will go up dramatically. There are problems with both of those points (commodities rising and no tightening). First China may stop or reduce new tightening measures. However, they have already decided on a 5% materials tax, and the Chinese government seldom changes its mind on a course of action. This tax has only been dictated for one province so far and only for oil and gas. It is supposed to be put into place in all provinces, likely within a year. I apologize for not having the exact schedule. Perhaps this will happen by Christmas. The materials tax is supposed to be expanded to include most major materials such as coal, iron ore, etc. When all of this happens, it will significantly affect GDP growth. It will act to depress commodities prices. I note the government says the tax rate may vary on the additional commodities. The government clearly wants to limit oil and gas use more than that of other commodities.Complete Story »

David White submits:The Baltic Index has fallen dramatically. This is a good barometer of the strength of Chinese commodities buying. Commodity prices are coming off their lows, but they are still weak. Some pundits argue that the Chinese will stop their economic tightening as the Chinese economy has slowed significantly (GDP down to 10.3% growth from 11.9%). Many pundits conclude that commodities prices will go up dramatically. There are problems with both of those points (commodities rising and no tightening). First China may stop or reduce new tightening measures. However, they have already decided on a 5% materials tax, and the Chinese government seldom changes its mind on a course of action. This tax has only been dictated for one province so far and only for oil and gas. It is supposed to be put into place in all provinces, likely within a year. I apologize for not having the exact schedule. Perhaps this will happen by Christmas. The materials tax is supposed to be expanded to include most major materials such as coal, iron ore, etc. When all of this happens, it will significantly affect GDP growth. It will act to depress commodities prices. I note the government says the tax rate may vary on the additional commodities. The government clearly wants to limit oil and gas use more than that of other commodities.Complete Story »

David White submits:Apparently a significant number of Hungarians have historically taken out mortgages denominated in Swiss Francs. They liked the low interest rates those mortgages offered. Unfortunately over the last 6 months the Forint (Hungarian currency) has gone down against the Swiss Franc. See the 6 month chart below: Complete Story »

David White submits:The EU-IMF put together a bailout package of 750B Euros last month. This was supposed to stem the rising tide of PIIGS bond yields and CDS spreads, but did it? The following two graphs tell the real story.The PIIGS bond spreads (vs. the German 10yr bond) chart is below (Bloomberg):Complete Story »

David White submits:After writing an article about the attractiveness of Brazilian bonds, a comment on the article suggested many might be interested in the BZF ETF. A quick look at the 2-yr. chart tells one that this BZF ETF is indeed worth an investor’s interest (see below). click to enlargeComplete Story »

David White submits:We in the US and Canada are spoiled by our relative wealth of water resources. Much of the world is not so lucky. Much of southern Asia, India, Africa, and the Middle East have much more constrained water resources. 300,000+ people in Syria recently had to abandon their homes due to a drought. Southern China has a drought. China has only 7% of the world’s fresh water resources – the same amount as Canada. Yet China has 40 times as many people. Much of China’s fresh water resources are unusable for drinking water or even agriculture because they are so polluted. Less than 15% of Chinese can get safe drinking water from the tap. Two thirds of China’s 600 biggest cities don’t have enough water. Worse, the northeastern half of the population has to live on just 15% of China’s water resources. Even in the south, the water rich deltas of the Yangtze and the Pearl Rivers suffer from water shortages due to water pollution. Polluted water (both chemical and bacterial) is thought to be responsible for the high rate of absenteeism in industrial areas. Not surprisingly, China is forecast to spend $125B+ on its water infrastructure within the next five years. It needs waste water treatment, desalinization, purification, aqueducts, etc. There is even a major project to divert water from Tibet to northern China. This water is now used in Bangladesh and India. Those people aren’t happy. Some think a war could be brewing. It’s no wonder the Chinese were sensitive about Obama even talking to the Dalai Lama – the exiled leader of Tibet.Complete Story »

David White submits:The price of gold has gone from approximately $700/ounce in late 2008 to its current approximate $1130/ounce. Some say gold is going to $2000 in the near future. Some say $5000/ounce gold is coming soon. Some even say $10,000/ounce gold will be seen within the next 10 years. Others say the industrial value of gold (for jewelry, etc.) is only about $700/ounce. The rest is all premium due to speculation.There is probably a lot of truth to this. However, speculation can be a real force. This is especially true when the governments of China and India are buying gold, and even more so when governments are encouraging their citizenry to buy gold. With the huge debts incurred recently by the major economic powers in the world due to the recession, the likelihood that gold will go higher as a hedge against inflation (or due to devaluation of the USD and other major currencies) is extremely high. As many call for the establishment of an international currency to replace the USD as the base currency, gold should go up as a new international currency will not be adopted quickly. In the meantime (likely more than 10 years), gold represents the historical international currency. This respect will push it up still further. The use of gold as a political tool to oppose the USD’s prominence will push gold up still further.Complete Story »

David White submits:Two weeks ago pundits were saying that higher Far East steel prices would mean a rise in US steel prices soon. Near the end of December the Far East Steel prices were $490/tonne. With the advent of January, US steel makers announced new price increases of approximately $500/tonne. These two prices would seem to be in agreement.With the recent China tightening actions and statements by the Chinese government (to combat a real estate / hard asset bubble) , the Far East cash steel prices on the London Metals Exchange have fallen to approximately $410/tonne. To me this means that it is more likely the US steel prices will fall in the near term. If Far East prices were driving US prices up, they will also drive them down.Complete Story »

David White submits:Since March 2009, most steel maker stocks have rallied tremendously. Steel prices bottomed near then. The near term upturn in the market for steel became obvious. If the economy was recovering, steel would recover. Prices of steel did rise as people had expected. However, has there now been a disconnect between reality and steel maker stock prices? Have they over shot? Or do these great performers of the recent past deserve to keep sailing higher? Perhaps the best way to forecast how steel makers will do going forward is to look for a trend in steel prices. If steel prices are trending strongly upward, steel makers will likely trend upward with them. The London Metals Exchange steel futures are probably the best gauge of steel price. Currently there are two regional futures markets: the Far East and the Mediterranean. I will present data from them both. In 2Q 2010 the London Metal Exchange will make everyone’s life easier by going to one global futures market, but until then we’ll go with what they have. The price charts are below:Complete Story »

David White submits:The US reports its Q3 GDP number Thursday. The current estimate is for 3.2% growth. This is almost 4% above the Q2 result of -.7% growth. This should be great news! Even a slight disappointment should be great news. How would it not be? First, the US equities markets are toppy at the moment. They are really looking for an excuse to retrace. They are up about 60% from the March 2009 lows. Commodities have risen dramatically lately too. Oil is over $80. If it goes much higher, it will seriously impact any chances of a worldwide economic recovery. Gold has gone up dramatically too, but there are no big signs of huge inflation yet. In fact the signs of deflation abound. The housing market is still troubled. The commercial real estate market is apparently in bigger trouble. There is no reason to believe a dramatic increase in prices is imminent. Gold’s intrinsic value is only about $700/oz. The rest of the current price is speculation on inflation. It is toppy without further strong signs of inflation. If the GDP number Thursday comes in below estimates, the US equities markets will likely react negatively to the fact that growth is not as strong as people were hoping. The Chinese markets (FXI) will follow suit because a non-growing or slower growing US economy will buy fewer Chinese goods (i.e. negatively impact the Chinese economy). If the GDP number Thursday comes in at or above the estimates, US equities markets may likely still go down. Why, you ask? The explanation comes from the above described toppiness of the equities markets, the toppiness of the commodities markets, and the likely response of the USD Index to a better than expected GDP number. If the GDP number is at or above the estimates, the USD Index will likely go up. The USD will strengthen against other currencies. When that happens commodity prices will fall dramatically because they are USD denominated. The commodity related stocks (energy and materials) will consequently fall. This should bring the rest of the market down with it. The fact that the USD Index is already bottoming against several currencies should only help this scenario. On top of this there is the carry trade consideration. If the GDP number is good, it will mean the US economy is doing better. People will see it as a sign that the USD is likely to strengthen soon. This will mean immediate term losses to those who have borrowed the USD at low rates to invest in something else. It will mean some people will sell those other assets in order to repay their borrowed USD monies. This selling, which will not be negligible, will likely cause the US equities markets to go down. Hence you have a lose/lose situation.Some might argue that a good or great GDP number should make commodities go up as there will be more demand for them in a growing economy. I would tend to agree with this sentiment in general. However, the current toppiness of most commodities makes the likelihood of movement for this reason much lower. Instead coupled with the "bottoming" of the USD against other currencies, commodities are likely to go down on the subsequent rise in the USD as their prices are USD denominated.Complete Story »