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Posted On :Wednesday, June, 16, 2010BASE METALS Author's: Monty Guild & Tony Danaher
As some of our regular readers have noted, we have not recommended base metals for months. We have recently received some emails about base metals and our position on them. We remain bullish on gold and oil, but we are not currently bullish on base metals. We think the current rally in base metals prices is a good time to sell.
Why do we take this stance? We are fundamentally driven analysts and we believe that a deflationary depression or a damaging inflation are both equally probable within the next two to seven years, especially in the over-levered developed world.
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EMERGING MARKET GDP GROWTH: THE PAST TWO DECADES, AND OUR PROJECTIONS FOR THE NEXT DECADE
According to the IMF, World Bank, and the United Nations’ historical data, GDP growth rates have varied widely for emerging markets over the last fifty years. We will focus on the past twenty years from 1990 to the present so that we may draw conclusions to help us project future growth in the developing world. Once we are able to make an educated guess of the GDP growth, we will be able to compare it to the more thoroughly analyzed and widely predicted growth expected for the developed world.More... |
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The second quarter was very eventful. European sovereign debt came under suspicion, and many waves of fear flowed through global bond, currency, commodity, and stock markets.
The source of this anxiety and fear was the projection of future economic activity. Global bond, stock and commodity markets are a discounting mechanism of future events. They rise and fall prior to economic events which shape business activity in future years.
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DOES THE OIL LEAK IN THE GULF OF MEXICO HERALD A BIG DISCOVERY?
Let us look at the oil spill from another angle. Among oil industry watchers there has been a great deal of information about the size of the field under the big spill. Respected industry watchers have said that there is good reason to expect that the field extends many miles deep underground and horizontally from the site of the spill.
In the past few years, seismic studies and drilling results from deep beneath the Gulf are leading many informed sources to believe the total oil available under the Gulf of Mexico, in the area around BP’s Macondo well (which was originally expected to have about 50 million barrels of recoverable oil) may contain billions of barrels of oil. It is early to make an informed analysis, but the Macondo well blowout may indicate that these Gulf of Mexico fields, located in deep water about 50 miles offshore and under another 20,000 to 35,000 of rock below the seabed, represent a massive oil discovery.
The costs of exploitation will be huge (and already are), and it will probably be decades, before the oil can be brought to the surface, but they may do a great deal to help the U.S. attain energy independence.
We are carefully watching the developments to determine the size of the find. It is safe to say that the oil in and underneath the Gulf of Mexico will have profound long-term consequences for U.S. energy policy. Despite the ongoing tragedy of the Gulf oil spill, the reality is that these resources are likely to eventually make it to market. More... |
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“Entire ignorance is not so terrible or extreme an evil, and is far from being the greatest of all: too much cleverness and too much learning, accompanied with ill bringing-up, are far more fatal.”
-Plato
THE NEW ECONOMIC REALITY - PART II
Last week, we began to discuss this subject, sharing our views on the history and economic back drop for the past twenty years. If you missed it, you can go to http://www.guildinvestment.com/ARThome.aspx?ModuleId=0&Itemid=389&SType=F for a copy of the letter.
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THE NEW ECONOMIC REALITY
THE DE-LEVERAGING OF THE DEVELOPED WORLD WILL CONTINUE FOR ANOTHER DECADE
There is too much debt throughout the developed economies, and not enough growth to service that debt.
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TAKE YOUR PICK - A TALE OF TWO ECONOMIC TRENDS
The developed world is de-leveraging and Europe is moving toward deflation and depression. Meanwhile, the Chinese, Southeast Asian, and Indian-led developing world is growing and experiencing inflation. We will discuss both regions in this memo.
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THE EUROPEAN ECONOMIC CRISIS
Earlier this week, the markets cheered the announcement out of Europe of a bailout package by the European Union nations and the International Monetary Fund, and a decision by the European Central Bank to begin buying sovereign debt of weaker states. This bailout plan protects the sovereign bond markets for the short term, but does not solve any of the longer term problems in European bond, stock, and currency markets. In fact, they allow the problems to grow and fester without being addressed.
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GREECE WILL RECEIVE A BAILOUT, AND THE BAILOUT WILL BE AIMED AT STRUCTURING FINANCIAL SECURITY FOR EUROPE AS A WHOLE
European financial officials from sixteen nations and some supra-national organizations met last weekend and announced that Greece will get a package of loans to be delivered to them over three years. Why is this happening? This is happening because if Europe does not support Greece, the government debt contagion that we have been discussing in recent memos will continue and spread. It will spread to Spain and Portugal and later to many countries in Europe including Italy and possibly France. Because they fear the spreading contagion, Europe wants to stop the crisis as soon as possible. In other words, Europe is getting a bailout, not just Greece.
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