In looking back at the events of the past few months, I'm wondering if the US government is trying, unsuccessfully thus far, to devalue its currency to pay for this increase in debt. There are a couple of reasons I think this.
For one, pumping the system with obscene amounts of dollars will, sooner or later, cause inflation. Right now they are doing generating this through the issuance of governement debt, and to the best of my knowlege haven't simply started to print money for nothing.
As I mentioned before, worldwide investor fear has created a forced liquidation for hedge funds, mutual funds and investors alike, causing them to pile into the US currency. Prices for the 30 year treasury have shot up and the yields are coming down.
Sooner or later inflation will begin to kick in and when it does think of it this way. If I lent you a million dollars today because you needed it and because of inflation and the drop in value to my currency ten years later that million dollars might only be worth half of what it was when I lent it to you. And over that time, prices have shot way up so that dollar buys way less than it used to. But that's OK for you because it makes it much easier for you to pay me back.
If that is what the US government is doing than maybe they aren't as dumb as I thought. Still, I don't think its the smartest move to devalue your currency, but if you're racking up massive debt why not? The ones left holding the bag are the debt holders.
Now, those that are currently holding a good portion of the US debt are the Asian country's like China, Japan, South Korea and Taiwan. What would be the implications? I don't think they would really go for that.
Remember what happened a few years back when the US tried to impose trade sanctions on the Chinese? They threatened to sell off their US securites which would have caused a massive drop in the dollar. It would have hurt both China and the US but at that time it was the equivilant of an economic nuclear bomb.
So, my thought at this point is that a devaluation of the currency could be somewhat benefitial for commodities as the US is still the main currency and it would allow countries to buy more for less and drive up demand. That would be good for Canada, unless you're still working in the auto industry.
In the meantime, Jim Rogers was on CNBC the other day. I quite enjoyed this interview.
Friday, November 28, 2008
Thursday, November 27, 2008
Freeport McMoran (FCX)
When I first mentioned FCX on Monday it closed on the 21st at $19.44 and on Wednesday before the Thanksgiving day holiday it closed at $25.33. That is a gain of $5.89 per share or 30.3% over those three days.
There may be a pull back or some profit taking as the play in this market is to sell into the rally.
I'm no expert but I think it may give a bit back, but it serves as an example of how quickly one of these commodity stocks can move.
China seems bent on growth with a $600 billion stimulus plan and a 1% rate cut. Oil jumped $4 a barell on that interest rate cut alone. When China's demand starts to return I think we will see some incredible spikes in commodities and those sectors.
There may be a pull back or some profit taking as the play in this market is to sell into the rally.
I'm no expert but I think it may give a bit back, but it serves as an example of how quickly one of these commodity stocks can move.
China seems bent on growth with a $600 billion stimulus plan and a 1% rate cut. Oil jumped $4 a barell on that interest rate cut alone. When China's demand starts to return I think we will see some incredible spikes in commodities and those sectors.
Monday, November 24, 2008
Market Direction
With the markets being the way that have been these past couple of months, I've been sitting on the sidelines waiting for the opportunity to get in on the ground floor of the next bull market, whenever that is. I've been looking for patterns in the way money has been flowing and have found a few interesting ones for which I think this market may be heading.
For one, I have been somewhat baffled by the strenght of the US dollar versus most of the world currencies, but once you look closer it does make sense. With the end of the year approaching, hedge funds and mutual funds liquidating their assets and those who are locking in their losses for the year, there seems to be only one solid place to put your cash and that is in US treasuries. And with the amount of long bonds being issued by the US government there is more than an adequate supply to satisfy the demand. As a result there is an inordinate demand for the US dollar which in turn is pressuring it up.
At the same time, the US government is literally trying to print its way out of the financial crisis as is so many other governments. In my opinion, this can only lead to massive inflation. There is talk about deflation, but I will get to that in a moment. When the US government announced today it was pumping 20 billion into Citi Group and guaranteeing 360 billion in bad debt it basically told the market "No bank will fail" With that promised, why wouldn't you want to put your money back into the market, there is little to no chance your company would fail.
With that you saw money flowing out of the bond market and into equities, and thus fell the demand for US dollars. At one point it lost 4 cents to the Canadian dollar. And, with the drop in the dollar, so jumps the price of oil, because you could by more oil with the cheaper dollar. Gold also jumped up in price and so did the companies that deal with it.
One such company I am following is Freeport McMoran (FCX) on the NYSE. It was up 13.5% today because of gold and copper.
To me, this was a sign that comodities are the place to park my money. Deflation, in my opinion, only appears because we have had a massive drop in commodity prices. But I believe commodities will be the first to recover once it starts. That is because once the debt of the US has to be dealt with the US dollar will sink and money will be flowing into the only safe haven there is, commodities. And with most comodities being traded in US dollars, as the dollar becomes less valuable you will be able to buy more with it, thus increasing the demand.
I also think that the market has overestimated the drop in demand from China. Even in its slowdown it is still growing at breakneck speed. 6-8% growth is still incredible. And the Chinese are loaded with cash. They could have numerous economic stimulus packages and still have money in the bank. I'm also watching China very closeley, as I think it will be them, and not the US consumer that pulls us out of a recession.
The Chinese middle class is growing and they will not want to give up their new found wealth. China needs oil, minerals and lumber to fuel their growth, that will not change. Canada is poised to fill that need.
So what I saw happen in the market today confirms my thoughts. Is this the beginning of that? I don't think so, as there is too much more bad news to be digested by the market, but these are the indicators I will be keeping a close eye on.
If anyone is reading this and has an opinion, please don't be shy, share it with me.
For one, I have been somewhat baffled by the strenght of the US dollar versus most of the world currencies, but once you look closer it does make sense. With the end of the year approaching, hedge funds and mutual funds liquidating their assets and those who are locking in their losses for the year, there seems to be only one solid place to put your cash and that is in US treasuries. And with the amount of long bonds being issued by the US government there is more than an adequate supply to satisfy the demand. As a result there is an inordinate demand for the US dollar which in turn is pressuring it up.
At the same time, the US government is literally trying to print its way out of the financial crisis as is so many other governments. In my opinion, this can only lead to massive inflation. There is talk about deflation, but I will get to that in a moment. When the US government announced today it was pumping 20 billion into Citi Group and guaranteeing 360 billion in bad debt it basically told the market "No bank will fail" With that promised, why wouldn't you want to put your money back into the market, there is little to no chance your company would fail.
With that you saw money flowing out of the bond market and into equities, and thus fell the demand for US dollars. At one point it lost 4 cents to the Canadian dollar. And, with the drop in the dollar, so jumps the price of oil, because you could by more oil with the cheaper dollar. Gold also jumped up in price and so did the companies that deal with it.
One such company I am following is Freeport McMoran (FCX) on the NYSE. It was up 13.5% today because of gold and copper.
To me, this was a sign that comodities are the place to park my money. Deflation, in my opinion, only appears because we have had a massive drop in commodity prices. But I believe commodities will be the first to recover once it starts. That is because once the debt of the US has to be dealt with the US dollar will sink and money will be flowing into the only safe haven there is, commodities. And with most comodities being traded in US dollars, as the dollar becomes less valuable you will be able to buy more with it, thus increasing the demand.
I also think that the market has overestimated the drop in demand from China. Even in its slowdown it is still growing at breakneck speed. 6-8% growth is still incredible. And the Chinese are loaded with cash. They could have numerous economic stimulus packages and still have money in the bank. I'm also watching China very closeley, as I think it will be them, and not the US consumer that pulls us out of a recession.
The Chinese middle class is growing and they will not want to give up their new found wealth. China needs oil, minerals and lumber to fuel their growth, that will not change. Canada is poised to fill that need.
So what I saw happen in the market today confirms my thoughts. Is this the beginning of that? I don't think so, as there is too much more bad news to be digested by the market, but these are the indicators I will be keeping a close eye on.
If anyone is reading this and has an opinion, please don't be shy, share it with me.
Thursday, November 20, 2008
Jim Rogers
This was interesting. I've followed Jim Rogers for some time now and I think he is a smart investor. He is very big on Asia and commodities. He sees this period of time as forced liquidation and that with the amount of money being printed by all governments in the world we will contribute to massive inflation and commodities prices will skyrocket.
If that is truly the case, then Canada is poised to be an economic super power. Just how long will this forced liquidation continue is the million dollar question.
If that is truly the case, then Canada is poised to be an economic super power. Just how long will this forced liquidation continue is the million dollar question.
Thursday, November 13, 2008
US Sales and Economic Recovery
I recently had the chance to get down to Seattle last week and help contribute to the economic recovery by doing a bit of shopping. Here are a few things that I noticed while I was there and why I have faith that the US economy will eventually come back.
1. It appears that retailers are doing what every they can to get the consumer back out to shop. They had incredible discounts, some as low as 80% at some of the high end outlet malls. Most of the stores were busy. Now, what those type of prices are doing to their margins is another story, but the point is they are doing quite a bit to get consumers back out to shop. There are really some great deals to be had.
2. The sales staff there were aggressive. I don't mean in your face aggressive but it was clearly evident they wanted to get the sales. It was a welcome change to Canadian retail staff who tend to just sit by and do nothing. I've had numerous occasions where I was looking to buy, whether it be clothes or a piece of electronics and no one would help me with my questions, or if they did it seemed as though I was annoying them.
3. I always love going down to the US because I'm always amazed at how innovative and creative they can be with new products or services. I always find that the ones who innovate and come up with new ideas make the biggest splash in gaining new sales. I have faith that they will be able to create wealth out of nothing again.
1. It appears that retailers are doing what every they can to get the consumer back out to shop. They had incredible discounts, some as low as 80% at some of the high end outlet malls. Most of the stores were busy. Now, what those type of prices are doing to their margins is another story, but the point is they are doing quite a bit to get consumers back out to shop. There are really some great deals to be had.
2. The sales staff there were aggressive. I don't mean in your face aggressive but it was clearly evident they wanted to get the sales. It was a welcome change to Canadian retail staff who tend to just sit by and do nothing. I've had numerous occasions where I was looking to buy, whether it be clothes or a piece of electronics and no one would help me with my questions, or if they did it seemed as though I was annoying them.
3. I always love going down to the US because I'm always amazed at how innovative and creative they can be with new products or services. I always find that the ones who innovate and come up with new ideas make the biggest splash in gaining new sales. I have faith that they will be able to create wealth out of nothing again.
Monday, November 3, 2008
Knowing Your Inventory
Over the weekend I had the opportunity to add on to an existing deal which significantly increased the revenue I was bringing in, howevever because the retail store I was working in was so busy I didn't have time to check the actual stock before I completed the deal. As it turns out, we didn't have everything that I had sold.
As the customer was picking up the items the next day and I was preparing the pick up order this is when I noticed that we were out of stock on some of these items. The result was that I had to call the customer and explain my mistake and that those three particular items would now be on order with the next shipment. I gave the customer the option of taking those items off the bill or picking them up when they came in.
Fortunately he was very understanding and elected to pick them up when the next shipment came in. This was the best for me, as taking it off the bill would have resulted in less revenue.
The silly thing is that I know better than this but got caught up in the business of the sale and "assumed" that we had everything. Had I taken the time at that moment the customer would have known we didn't have the product and could have made his decision right there.
The problem now is that he has somewhat of a bad taste in his mouth about his purchasing experience even though he was buying the best product.
The lesson being, check your stock and the availability before closing the deal to avoid these mistakes after.
The other point is, if the company had an effective POS system I would have know right on the spot that the items were out of stock. As sales people we need to have all of the information at our disposal to make quick decisions.
As the customer was picking up the items the next day and I was preparing the pick up order this is when I noticed that we were out of stock on some of these items. The result was that I had to call the customer and explain my mistake and that those three particular items would now be on order with the next shipment. I gave the customer the option of taking those items off the bill or picking them up when they came in.
Fortunately he was very understanding and elected to pick them up when the next shipment came in. This was the best for me, as taking it off the bill would have resulted in less revenue.
The silly thing is that I know better than this but got caught up in the business of the sale and "assumed" that we had everything. Had I taken the time at that moment the customer would have known we didn't have the product and could have made his decision right there.
The problem now is that he has somewhat of a bad taste in his mouth about his purchasing experience even though he was buying the best product.
The lesson being, check your stock and the availability before closing the deal to avoid these mistakes after.
The other point is, if the company had an effective POS system I would have know right on the spot that the items were out of stock. As sales people we need to have all of the information at our disposal to make quick decisions.
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