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OIL, GOLD, AND FOOD

OIL, GOLD, AND FOOD

What Happens When a Nation Fails To Repay Its Debts?

To get a flavor of what can happen to the citizenry when their country can not repay its debts, please see link to article below.  It provides a small window into the suffering that is just beginning in Greece. 

New York Times Article  

China

In this past weekend’s Barron’s, Alan Abelson reprinted a piece by Jeremy Grantham of GMO describing China’s share of world commodity consumption.  Those who still think China to be a bit player in the global economy should read this.  What is happening in China dictates commodity prices these days.

 

China’s commodity consumption will continue to grow over the long-term as will India’s and many other countries.  It may grow at a slower rate as a buildup of inventories in China makes their imports less likely to grow over the next few months, but their demand will still be more than significant.

Oil, Gold, and Food: What Is Likely To Change Our Long-Term Positive View on Them?

As our readers know, the margin requirements for many precious metal, food, and energy commodity futures have been raised by various exchanges and authorities.  Clearly, this has had a short-term calming influence on these markets, which had been rising rapidly. 

The question remains…Has the intermediate and long-term need to protect oneself and one’s assets from inflation and from problems of a declining currency ended?  As things stand today the answer to these questions is a resounding “No”.

What could change our long-term bullish view on these investments?  In the U.S., if the Republicans and Democrats were to in the near future come to an agreement and implement some miraculous decrease in government spending that moves in the direction of balancing the budget within a few years, it would cause us to reconsider our weak dollar, strong natural resource position.  

It is our desire to be optimistic on this issue and to hope for the best, but early indications are not favorable.  Treasury Secretary Geithner says spending cuts are not needed and President Obama says we cannot miss raising the debt limit by even a few days.  The purpose of their statements has been to put pressure on Congress to agree to very minor and superficial cuts in spending, and to do this before the August date when the government will ostensibly ‘run out of money’ if it is not allowed to borrow more than 14.3 trillion dollars. 

Based upon our long term viewing of the government approaches, the crisis will simmer up to the last minute, when it will be resolved with an increase in the debt limit or perhaps even a technical default where the U.S. is late paying interest on some of its debt.

We must wait and see, any long term plan to cut spending that is actually implemented, would probably create a period of decline for commodity prices.

More likely, we will see past behavior continued.  Politicians will talk cuts, but not implement more than minor cuts. In this case, we will see much higher prices for gold, oil and food.

 

What Would Increase our Bullishness on Oil, Gold and Food?

Further demonstrations and instability in the Middle East, North Africa, and other oil-producing provinces will work to move the prices of commodities higher.  In our opinion, such upheavals are very likely to continue in 2011 and into 2012.

Please see the table below for our current and closed recommendation.

Investment

Date

Date

Appreciation / Depreciation


Recommended

Closed

in U.S. Dollars

Commodity Market Recommendations





Corn

4/20/2011

Open

+1.2%

Gold

6/25/2002

Open

+360.2%

Oil

2/11/2009

Open

+171.5%

Corn

12/31/2008

3/3/2011

+81.0%

Soybeans

12/31/2008

3/3/2011

+44.1%

Wheat

12/31/2008 

3/3/2011 

+35.0% 


Currency

Recommendations





Short

Japanese Yen 

4/6/2011


Open

-4.4%

Long

Singapore Dollar

9/13/2010

Open 

+7.8% 

Long

Thai Baht

9/13/2010

Open

+7.1%

Long

Canadian Dollar

9/13/2010

Open

+6.0%

Long

Swiss Franc

9/13/2010

Open

+14.4%

Long

Brazilian Real

9/13/2010

Open

+6.3%

Long

Chinese Yuan

9/13/2010

Open

+3.8%

Long

Australian Dollar

9/13/2010

Open

+13.7%

Short

Japanese Yen

09/14/2010

10/20/2010

-3.3%

 

Equity Market

Recommendations



 

 

India

4/6/2011

Open

-9.7%

Malaysia

4/6/2011

Open

-0.9%

Canada

3/24/2011

Open

-2.6%

Colombia


9/13/2010


Half Original Position sold

-0.5%

 

Australia

2/15/2011

Open

+2.0%

Japan

2/15/2011

Open

-10.1%

U.S.

9/9/2010

3/11/2011

+18.1%

Canada

12/16/2010

3/11/2011

+7.9%

South Korea

1/6/2011

3/3/2011

-2.9%

China

9/13/2010

1/27/2011

+5.0%

India

9/13/2010

1/6/2011

+7.9%

Singapore

9/13/2010

12/16/2010

+4.8%

Malaysia

9/13/2010

12/16/2010

+1.3%

Indonesia

9/13/2010

12/16/2010

+9.5%

Thailand

9/13/2010

12/16/2010

+11.9%

Chile

9/13/2010

12/16/2010

+8.9%

Peru

9/13/2010

12/16/2010

+32.2%

 

Bond Market

Recommendations


30 YR Long Term

U.S. Treasury Bond  




08/27/2010

10/20/2010

0.00%