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The Liquidity Flood Continues

Monday, January 3, 2011, 7:58 PM

Happy new year, everyone!

I am slowly recovering from the intensive "weekend" that actually spanned Tue-Sat and never saw me in bed before 1:30 a.m. or after 7:00 a.m.

I am very much looking forward to a new year of seeing what the world shall bring.

As always, our commitment here is to let the data do the talking. Of course we develop theories, and even act on them, but keeping a flexible outlook is the most important attribute one can develop. Nobody knows what the future will bring, but knowing which trends are in play can offer a lot of illumination to the alert participant.

To refresh our minds, the key trends we have been following are these:

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Dispatch #2 from the field

Friday, December 31, 2010, 5:02 AM

Here are Chris’ and Adam’s takeaways from their second day at the conference.

Chris’s Observations

Today was a quite interesting day, but also, in many ways, simply reconfirmed yesterday. I would have to say that the most powerful money and policy people are all in agreement; they believe more stimulus money is both necessary and proper here. None seem to think that there’s any real risk to the US dollar. The usual litany of perfectly reasonable rationalizations applied. “China needs the US more than the US needs China.”  “The Euro is a weak substitute with plenty of risks all its own.”

These are reasonable propositions, but that’s the problem. By accepting these ideas, exploration of other risks seems to have been short-circuited, as no other discussion could follow them. That places them into the bucket of “rationalizations” as opposed to reasoned ideas. That is, they are beliefs, not facts. 

The good news, such as it is, is that plenty of work remains for us to do in this world. 

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Dispatch #1 from the field

Thursday, December 30, 2010, 2:05 AM

Chris and I are spending the week at a non-partisan conference where players from diverse industries explore ideas & trends they find most relevant to the world today. As we can steal time to do so, we'll send out field dispatches with our notable observations from the event. 

First, a little about the company here. It's a medley of politicians, financiers, corporate executives, entrepreneurs, activists, scientists, religious leaders, actors, media personalities, and educators - of all generations. Some of those here are household names; all are engaged in endeavors that impact society in some noteworthy shape or form. It's both a fascinating and intimidating crew to mix with.

Chris and I are here to get first-hand visibility into the issues these decision-makers are focused on, as well as to engage their attention on our mission. Can they introduce new perspective or support that will help us better serve our readers?

This morning we attended panel discussions on politics, energy supply, investing, the economy, and social media. Here are our takeaways so far.

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Commodities Continue to Rumble

Tuesday, December 28, 2010, 8:06 PM

In keeping with our focus on commodities I am going to take another quick peek at them here.


A Very Mild Alert: The CCI Breaks Out to New Highs

Thursday, December 23, 2010, 3:45 PM

Well, I can rip down the post-it from my monitor:  The Continuous Commodity Index has broken out to a new daily high, having bested the previous 615.14 level. It’s currently at 617.35.

This means that the Commodity Index, consisting of energy (18%), grains (18%), livestock (12%), softs (29% - this is coffee, OJ, cotton, sugar and cocoa), and metals (23%) has never been at a higher level in history. Of course, this is in nominal terms, and I am not sure how much higher these may have been at earlier times expressed in dollars that were worth more.

But as far as current consumers are concerned, they are at all-time highs.

Unless the index reverses hard later today, the weekly index will close at a new all-time high. And unless it closes down hard next week, it will close at a new monthly high as well. Jim Rogers (et al.) wins this battle.

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Atrocious Reasoning: Media Whiffs on Gas

Wednesday, December 22, 2010, 12:37 PM

The mighty media blender is furiously trying to spin things every which way but right. Around here, what we care about is information and context, two essential elements to making correct decisions.

You might have recently read an article that put forth the idea that US gasoline consumption has peaked, never to recover its 2006 highs. That's a powerful assertion and deserves to be carefully examined, not blindly accepted.  » Read more


Fueling the Fire: Commodities Hit a New High

Monday, December 20, 2010, 7:01 PM

Is the stock market topping? Will deflation return soon? Is oil about to tank?

As we continue to wrestle with the various policy gyrations that are complicating the macro picture, we're going to continue to keep our eyes firmly on market activity for clues.

Our old friend, the Continuous Commodity Index (CCI) has made a new closing high today. If it does not soon turn down, it will give traders a powerful motivation to run it up even higher, as it will have broken out from a potential double-top formation.

"Things" are getting more expensive. That is a fact. Energy, metals, and the 'softs' (grains and cotton) are all headed higher, both in the US and elsewhere across the world.

True, the new daily closing high for the CCI is by a whisker, but it's a new high nonetheless:

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The Federal Budget Deficit and the Looming Crisis

Thursday, December 16, 2010, 5:02 PM

The US federal government is barreling towards a certain fiscal train wreck. While there is much being gleefully reported about the return of the, consumers...uh, patriotic citizens...spending more than they have, there is almost no hope of growth returning fast enough to offset the amount of budgetary deterioration that now seems to be baked into the cake.

As always, one component of the problem is that the US political leadership has absolutely zero experience with controlling spending, let alone cutting spending. Where austerity is being attempted in Europe (at great pain, too...if you have not seen this video of the recent Greek riots, it is both remarkable and disturbing) the current civil unrest shows that citizens don't necessarily dutifully accept their politicians' belt-tightening policies.

The plan, such as it is, for the US fiscal and monetary authorities seems to be to keep up the government spending (including the Fed's QE efforts) for as long as necessary until self-sustaining growth returns.

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Bond Market Rebels

Friday, December 10, 2010, 11:35 AM

The news is full of stories about how the bond market seems to be defying the Fed. While it is not yet clear what the drivers of the recent sell-off in bonds truly are, the action bears watching.

As I mentioned previously, there are both innocent and sinister explanations for why bonds might be selling off. The innocent explanation involves a return to economic health that is being discounted in the bond market. The idea here is that a return to economic health will include both the cessation of Fed bond buying activity (QE II) and higher interest rates. Under this scenario, which is supported by recent economic data, one does not want to be holding bonds, which will only lose value over time. Best to beat the rush and sell them now.

The sinister explanation involves the idea that the Fed is losing control of the market and is not as powerful as some might have thought. This is the angle that the WSJ is playing up today:

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Insider Alert: Food Storage Shortage Risk Emerging

Thursday, December 9, 2010, 9:15 PM

As an enrolled member, we're bringing this alert to you first, before we make it available to the general audience on Friday morning.

After hearing reports of depleting inventories of pre-packaged, ready-to-purchase stored food, did a little investigating. It turns out there's truth behind the rumor.

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