Bernanke Confirms Fed Stimulus Concerns Hot Air

About a week ago I wrote that there was absolutely no doubt the quantitative easing of the Federal Reserve would continue. That was in response to the nonsensical idea that because of the minutes of the latest meeting a couple of officials expressed concern over continuing to stimulate the U.S. economy.

Anybody that understands a modicum of economics knew this was all smoke and mirrors, as since the last introduction of stimulus, the unemployment figures have gone nowhere; even going slightly higher.

Bernanke's defense before Congress of his continuing to print money and throw it into the economy ensures there is never going to be some type of premature and surprising exit from that plan.

Other than a little strength in housing, there's nothing to suggest Bernanke would even think of starting to wind down the process.

So as far as stimulus has an impact on commodities, that part of the puzzle will remain in play, and anyone making investing decisions based upon rumors to the contrary will be making a big mistake, unless they understand the temporary effects the news will bring for short-term moves.

Commodity Revenue for Investment Banks Plunges in 2012

Revenue for investment banks from commodities dropped in 2012, with intrusive regulations and increased capital requirements resulting in less interest from clients. Another factor was volatility for the year was relatively low, also affecting interest in the sector.

The drop was a huge 25 percent from 2011, with revenue coming in at $6 billion for 2012, down significantly from the $8 billion in revenue generated the year before.

Ten banks were by consultant Coalition, including Bank of America/Merrill Lynch (BAC), Barclays (BCS), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), JP Morgan (JPM), RBS (RBS), Goldman Sachs (GS), Morgan Stanley (MS) and UBS (UBS).

A report released by Coalition said, "Low volatility and reduced client activity led to a 24 per cent drop in revenues. Energy, investor products and precious metals options businesses were notably affected.

"Performance was also subdued by ongoing concerns about increased regulation and capital sensitivity, pushing banks to re-evaluate their commodities strategies."

In its quarterly results last month, Morgan Stanley said the commodity revenue for the fourth quarter was the lowest since 1995.

Unemployment in Spain Surpasses 25 Percent - ECB Awaits

The economic news for Spain continues to worsen, as the National Statistics Institute said in Madrid that the unemployment rates has soared past 25 percent, to stand at 25.02 percent. That's up from 24.6 percent in the last quarter.

Projections are the economy of Spain will continue to sputter, with unemployment probably reaching 27 percent in 2014.

Painting a much rosier picture is the Prime Minister Mariano Rajoy, who sees the employment picture improving in 2013, and the Spanish government saying the economy will drop by only 0.5 percent. Economists watching the situation see it contracting by almost 1.5 percent.

This puts even more pressure on Rajoy to apply for the loan aid offered by the ECB, although he asserts he feels no pressure to do so at this time.

According to an analyst with Madrid-based consultant firm Analistas Financieros Internacionales, Sara Balina, she told Bloomberg that the third-quarter wasn't nearly as good as the data suggest, as "they were distorted by a temporary increase in demand before a value- added tax increase and by exports that may suffer from weakening growth in the euro zone.”

Although positioning for time, it's clearly approaching when Spain will have to apply for financial aid, which it is delaying in having to do because of the austerity measures included in the package.

The only question is how far and how long will the politicians in Spain go and wait until they finally do what everyone knows they'll have to do: apply for the aid.

This will result in the price of commodities, especially gold and silver, rising significantly, which along with QE3 from the Federal Reserve in America, will push the price of the precious metals up.

December Gold Drops Over $10 an Ounce

Some commodity prices were under pressure Tuesday after a report from the International Monetary Fund revealed it slashed global economic growth for the year from 3.5 percent to 3.3 percent.
Gold for December delivery dropped $10.70 an ounce to settle at $1,765. December silver was down 3.2 cents an ounce to $33.985. January platinum fell $3.50 to settle at $1,695.30 an ounce.
Unsurprisingly, the IMF confirmed the leading economies of the world are at risk of recession, although the reality is we've really never emerged from latest recession, and there has been no recovery.
Those commodities moving up on the day included energy, palladium and wheat. Soybeans fell a penny to $15.50 a bushel. Palladium climbed to $658.20, up $1.25 an ounce.

Concerns over supply because of a slowdown in production in the North Sea and rising tensions in the Middle East were behind the rise in energy prices. Recent fires at a refinery in the U.S and another in Russia has also added price support in some energy segments.
Benchmark crude oil futures climbed $3.06, or 3.4 percent, to settle at $92.39 a barrel in New York. That is the highest level in over a week. Brent crude closed at $114.50, jumping $2.68, or 2.4 percent.

Heating oil increased by 5.89 cents to $3.2032 a gallon, and wholesale gasoline was up 6.56 cents to $2.9587 a gallon. Natural gas was up by 6.4 cents to $3.467 per 1,000 cubic feet.

The Dow Jones Industrial Average plunged 110 points to close at 13,473, a loss of 0.8 percent. The S&P 500 Index dropped to 1,441, losing 14 points or just under 1 percent.

The ICE dollar index climbed to 80.023, up from Monday's 79.595.

Why Metals, Energy Look Attractive Going Forward

With the misguided commitment from major central banks around the world to "stimulating" the economies of the countries or regions they are based in, especially the euro zone, United States and Japan (China will probably stimulate soon), it predicates the probability that energy and base metal commodities, along with gold and silver, should push up in price over the next several years, with some possibly extending even longer, such as in the case of silver.

Even if there is a further global economic slowdown, the fallout from the stimulus efforts will start to point to resources and resource companies as one of the few viable places to place one's capital.

As measured by inflationary pressures, oil, gas and other commodities get more attractive as the U.S. dollar falls in value, as it will continue to do as money continues to be created out of thin air.

The caveat will be how much competing currencies fall in relationship to the U.S. dollar.

Successful commodity investors in the near future will be those who properly analyze the valuations of a particular commodity; getting in before it begins its upward run in price.

Some commodities at this time are overbought, while others are still available at a good price.

For example, natural gas appears to be at, or close to a bottom, so there is, for the most part over time, only one place to go, and that's up.

And even if there is still a little room to move down, the price of natural gas for long-term investors is very attractive, and those entering now should reap significant rewards over the next several years.

Oil on the other hand may be in for some rough times, as it may be on the opposite end of the spectrum, possibly ready to pull back significantly after years of high prices.

The geopolitical situation will weigh more on the prices than other factors, as many energy companies have improved operations to the point where there is a lot of oil available at lower costs than in the recent past.

So with the certainty the Europe and the United States will continue to inflate through fiat money, and Japan continuing on the course it set a couple of decades ago, there is little reason to believe a number of commodities won't continue to be among the best performers going forward, especially in precious and base
 metals, as well as in some energy segments.


 

Silver Now Outperforming Gold

Over the last three months, the price of silver has jumped about 25 percent, while during that same period of time, gold has performed at about half that level.

Most commodities experts have been saying that silver is highly likely to outperform gold over the next decade, as the price of gold has soared so high in the previous decade that it'll be hard to duplicate that going forward, even as more industrial demand for silver continues to grow even as silver supply is tightening.

Add to that the new practice by the Federal Reserve and ECB of initiating open-ended stimulus programs, and you have support under both metals, with silver poised to break out even more once the sellers complete their current disposal of silver assets, which has pushed the price of silver and related companies and ETFs down.

Some rightly point out that economies important to silver demand have been slowing down, with the most significant being China, but that will change if that continues to go beyond the attempts by Chinese leaders to cool off their economy, which they've been doing for some time now.

There is no doubt the Chinese will stimulate if that becomes the case, and silver demand will continue to rise, even if there is a temporary lull.

The world is now in stimulus mode, and it doesn't matter whether the demand for silver is based primarily on that reality. What's the difference if silver prices move up because of stimulus or industrial demand that is organic in nature? Either way, silver demand will rise, even though over the long term the question of sustainability rises.

But we're talking years there, not months, and so silver prices should continue to rise over time, even though, as usual, it will have a more bumpy ride than gold.

Finally, the underlying assumption and assertion by the Federal Reserve is it stands ready to stimulate even more if the jobs market doesn't improve. If that were to happen, it would assuredly give the price of silver another big boost.

Again, most of this is only a matter of when, not if. In the short term, China and Europe may weigh on the price of silver some, but once Spain caves and requests stimulus, that should change quickly, and with most investors understanding China has deliberately slowed their economy down, it won't be much of an impact on silver prices, as there are really no surprises there except for those that don't do their homework.

Silver has become a long-term investment option, and one that should be invested in that way. There is no doubt whatsoever that it will be among the strongest performing assets in the next decade, based upon industrial demand alone. Include the long-term stimulus strategy of the U.S. and Europe, and you see how that will be the case.

Jim Rogers Says Commodities will Come Roaring Back

Some have wrongly believed that the end of the commodity super cycle is over, but Jim Rogers isn't one of them, as he says the recent downturn is only a temporary setback, and because supplies remain constrained, the upward move in prices will continue for some time.

Rogers stated in an interview with Mineweb, that "this is nothing more than a blip. The bull market will continue until a lot of supply comes on stream and the problems since 2008 ensure not a lot of supply is coming on stream."

Why it's different this time around as far as the length of the commodity bull market, is historically companies are starting to bring more supply online after about 8 or 9 years of higher prices. This time around, because of the crises in 2008, that temporarily halted much of the expected boost in production, resulting in a slow down in supply of commodities.

Rogers said concerning expansion of commodities companies, that "All these guys are delaying or suspending or cancelling new supply which is bullish. Until the supply comes we're not going to have an end to the bull market and, certainly in agriculture, my goodness, inventories are near historic lows, we have serious shortages of everything in agriculture developing, including farmers."

As for China, which is the major impetus behind commodity demand, Rogers sees them possibly loosening up their money supply, suggesting more demand for commodities, although he says that "China has loosened up too early every time in the last decade, which is why the real estate bubble has continued and it's gotten worse. So it looks as though China is going to loosen up again and in my view they're going to loosen up again too early this time around, and you'll probably have a continuation of the same old thing - more inflation and perhaps excesses in real estate again."

Concerning where investors should place their money in regard to commodities, Rogers concluded they should look for those commodities which have fallen the most in price for the place to begin.

Commodities Fall on Greece, Economic Worries

Fears Greece may exit the euro has put pressure on commodities, as concerns it would lead to a domino effect, which could result in Spain, among other countries, abandoning the euro as well.

That would lead to a period of chaos in the region, which when combined, is the largest market in the world.

Not too many people are concerned about Greece itself, as it's largely irrelevant. It's what Greece represents in regard to other countries that strikes fear in the hearts of leaders in the region, as it does those who have been attempting to peddle the concept of a one-world order.

That and concerns over China, Japan and the United States, all of which seem to have economies that are slowing down, has commodities under extreme pressure, aided by the rise in value of the U.S. dollar against the euro, as well as other major currencies.

Because commodities are bought in U.S. dollars, that makes it more expensive for those trading in other currencies, exasperating the problem. That's why the price of gold and other commodities have been plummeting.

In Japan, machinery orders dropped 2.8 percent in March, while in the U.S. retail sales fell to the lowest growth level in April for 2012.

The Dollar Index was in positive territory for the 13th day in a row - a record, while the euro plunged to its lowest level in four months, falling as low as $1.2681.

As for Greece, until that situation is resolved, it appears commodities prices will remain under downward pressure. Even though nothing has really changed economically with the failure of the country to form a new government, the market is acting as if this is something new and that Greece is actually serious about austerity measures and paying back its debt.

If Greece does exit the euro, which, over time, is almost a surety, that could have a dramatic impact on commodity prices and the global economy because of the very real and legitimate concerns over what is going to happen with Italy, Portugal, Ireland and Spain.

That of course translates into the euro zone, where the inability to project the short-term future with any clarity will hinder the ability to obtain funding, and even if businesses and banks could access funds, it's highly unlikely they'd take the risk with the specter of uncertain growth weighing on them.

One thing that could quickly change that is the introduction of another round of quantitative easing, which would temporarily give the global economy a boost, but at the growing risk of even more debt, which already can't be paid down by governments that promised the moon to their people but are now reaping the whirlwind because of the failure of Keynesian economics.

While there is no doubt the commodity bull run isn't over, we are in a correction that seems to still have longer to go before commodities begin their upward climb in prices again.

This is why the U.S. dollar is the perceived place of safety for investors, even though currencies around the world, including the greenback, have been devastatingly debased.

Citigroup (NYSE:C) Building Up Commodity Unit in Europe, Asia

Citigroup Inc. (NYSE:C) said they're increasing the greatest number of commodity jobs for the company in Europe and Asia, as the North America market is considered the most "mature."

Stuart Staley, global commodity head for Citigroup said, “It’s been a leaner year than the past two years across the sector. We’re adding disproportionately to Asia and Europe whereas the U.S. business is the most mature part.”

Growing demand for energy in Asia has caused Citigroup and a number of its competitors to focus on shoring up its commodity units in Asia especially, as the growing middle class now has the disposable income to acquire more energy, generating more demand for natural gas, oil and coal.

Staley said Citigroup has hired close to 30 people in the commodity unit this year, as investors focus more on physical refined products and crude oil. A growing number of investors want to participate in physical transactions instead of commodity futures, he said.

Revenue generated from commodity transactions for Citigroup will be lower than in previous years, Staley concluded.

JPMorgan (NYSE:JPM) Shutters Proprietary Commodity Trading Unit

JPMorgan (NYSE:JPM) has went a different route than its competitors concerning the rules against retaining a proprietary trading unit, as they announced they're going to close them all down, starting with their commodities trading unit.

Most other banks affected by the so-called Volcker rule, are shuffling things around, calling it a different name, and continuing on with business as usual.

Following up the closure of their commodity unit, JPMorgan will then shut down their fixed-income and equities proprietary trading division.

Proprietary trading is a bank using their own money to make deals, and not their clients'.

Jim Rogers: “We never got out of the first recession”

In a telephone interview with Bloomberg, investor and author Jim Roger stated concerning the economic conditions, that “We never got out of the first recession," something we agree with heartily.

As we mention frequently, the GDP of the United States includes the stimulus spending in its results, and so makes things look better than they really are, masking the true state of the economy.

That's why most economic commentators continue to say we're in danger of a double-dip recession.

Stimulus money is leaving the economic system, simply revealing to us the state the economy has always been in.

Also in the interview, Rogers stated this concerning interest rates: “Everyone should be raising interest rates, they are too low worldwide. If the world economy gets better, that’s good for commodities demand. If the world economy does not get better, stocks are going to lose a lot as governments will print more money.”

“We never got out of the first recession,” Rogers added. “If the U.S. and Europe continue to slow down, that’s going to affect everyone. The Chinese economy is 1/10 of the U.S. and Europe and India is a quarter of China, they can’t bail us out.”

Concerning commodities, Rogers is still very bullish, and said even if they grow at a rate of 5 to 6 percent annually, they'll still surpass their all-time high, sometime in the next decade.

Rogers said he remains long on commodities.

Teck (NYSE:TCK), Freeport (NYSE:FCX) Fall on Weak Economic Data

Teck Resources(NYSE:TCK) and Freeport-McMoRan Copper & Gold (NYSE:FCX) fell today as jobless claims in the U.S., as expected by Commodity Surge, increased again, this time to about 500,000.

The other bad economic news was the manufacturing in the Philadelphia area dropped fro the first time in a year, according to the Federal Reserve.

With increasing confirmation the recession is continuing on, concerns over how that will impact demand for raw materials is putting downward pressure on commodity companies and miners.

The positive side for those miners with strong gold exposure is this will cause misguided politicians and governments, especially the U.S. government, to print more money and buy up its own debt, making gold an even stronger performer in the years ahead.

China has, and will continue to, be the major importer of most commodities. And they will determine much of how companies like Teck and Freeport will perform going forward.

BHP Billiton (NYSE:BHP) Concerned Over Commodity Demand

BHP Billiton (NYSE:BHP) is one of the few companies in the world that is considered a bellwether of the global economy. Essentially that means, how BHP Billiton goes, so will go the economy. It also means guidance from BHP is among the most important in the world, as it does give a snapshot of the global economy as they see it at the moment, and BHP usually sees it as good as anybody does.

With that in mind, BHP said in its most recent earnings report, that they were cautious of the demand for commodities going forward, based on how much governments would implement austerity, which would in many cases determine the demand for commodities and/or raw materials.

There are a couple of different major scenarios playing out at the same time. The first is the austerity measures being implemented in Europe, and the Chinese slowing down their heated up urban property markets, which will have some negative effect on prior estimates of commodity demand.

That doesn't mean there still won't be significant demand, just that the demand will be nowhere near the levels they've been in the recent past.

The second scenario playing out is the recent reminder and commitment from the U.S. government and Federal Reserve that they're willing and able to continue "quantitative easing," i.e. printing money in another attempt to stimulate the economy. It has completely failed, but that isn't going to stop them from continuing to do it again.

Just today the Federal Reserve announced they're going to buy long-term Treasury securities by using the proceeds from sales from their gigantic mortgage-bond portfolio.

As the securities they acquired mature, the Fed said they'll continue to roll them over. In other words, they'll continue to use that money to acquire Treasuries.

What that does is keep the enormous amount of money spread around into the economy.

The question is whether that will help the economy. History, and even the last couple years of history, have proven this is a failed strategy, and it's a giant waste of money.

So when BHP Billiton says they're concerned about the demand factor as it relates to policies of governments around the world, these are the type of things they're looking at.

Industrial Metals Lead Commodities Down for Quarter

Commodities experienced their worst quarter in over a year, as industrial metals plummeted in price on an extremely weak U.S. economy, China urban property inflation concerns, and the sovereign debt crisis in Europe.

The worst of the industrial metals was zinc, which fell 25 percent for the quarter, its worst performance since the latter part of 2008. Nickel was much better, dropping 22 percent for the quarter, followed by lead, which was down 19 percent, copper declining 17 percent, and aluminum falling 15 percent.

Heading into the fourth quarter doesn't look much better for commodities, as estimates from Barclays Capital have prices dropping even more, according to a recent report, especially copper and aluminum, which are used heavily in building homes.

With the bottom falling out from the U.S. housing market after the tax break was ended, along with the Chinese battling property inflation in their urban areas, the demand for industrial commodities are under extreme pressure until those situations turn around, which they don't look likely to any time soon.

Gold will continue to be a strong performer, and silver will probably shine when measured against other industrial metals.

Jim Rogers: Put Money in Real Assets

If you follow investor and commodity expert Jim Rogers, you know he has been recommending investors put their capital in real assets for a long time, and in light of the European sovereign debt crisis and China inflation challenge, Rogers again reiterated that in an interview on Bloomberg today.

The primary reason for this advice from Rogers is "because paper money everywhere is being debased.”

Governments and central banks around the world haven't stopped their printing of money, and continue to spend as if there are no consequences to their actions.

Smart investors know the more you print, the less value the currency holds, and inflation will be inevitable down the line. Only holding real assets will help investors maintain their wealth.

Credit Suisse (NYSE:CS) Issuing $66.6 Million in Structured Notes Linked to Commodities

Credit Suisse (NYSE:CS) announced it will be issuing $66.6 million in structured notes which will be linked to the commodities futures index - Standard & Poor’s GSCI.

The GSCI is a benchmark index of 24 raw materials.

Parameters of the structured notes are they will have a floor of 5 percent and a ceiling of 17 percent. Those are guaranteed as long as the index doesn't fall by over 20 percent from the level started at.

J.P. Morgan (NYSE:JPM) is handling the sale of the notes.

Goldman Sachs (NYSE:GS): Commodities, Currencies Up in 2010

Goldman Sachs on Commodities and Currencies

Goldman Sachs (NYSE:GS) lowered estimates for a number of banks and financial institutions today, including Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS).

While that put downward pressure on the share prices of the stock, there was some good news in general in areas of interest for us.

Goldman maintains and confirms that currencies, commodities and fixed income investments should do good in 2010, something most of us at Commodity Surge would agree with.

Citibank (NYSE:C) Growing Commodities Unit

Citibank Commodities Unit

Citibank (NYSE:C) is looking to its investment banking division for growth, specifically its commodities unit, which it is focusing on expanding in the near term.

Raw materials and agriculture should be strong sectors for many years, and even with the alleged move by China to tighten its monetary policy, that could be a ploy as it negotiates across a number of sectors for raw materials it needs desperately.

One for sure is iron ore for the steel industry in China, which is booming and a major export for the country.

Precious metals are another sector which China will have great demand for in the years ahead.

With the pressure to cut back on fees in relationship to consumers, banks like Citibank are looking outside of retail banking for growth sectors, and commodities afford some of the best opportunities in the years ahead, even though there could be a lot of ups and downs on the road.

Citibank Commodities Unit

JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) Chasing Commodity Investment Leaders

JPMorgan and Citigroup Looking to Commodities

Now that many of the banks and investment banks like JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) have finished shoring up their foundations and building up their reserve capital, they're looking at generating revenue, and the commodity bull market may be the best place to do that in the years ahead, as they try to catch up with competitors like Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) who make a lot of money in the sector, and are positioned well to continue doing that.

Although mergers and acquisitions and initial public offerins are expected to increase some this year, that business won't be a huge revenue generator until we truly emerge from the recession.

So commodities are one of the few growth sectors left which have a good chance of increasing revenue and profits for banks and their investment bank units.

JPMorgan and Citigroup Looking to Commodities

Charlie Munger Warns on America

Charlie Munger on Economics and America

Anyone reading Charlie Mungers parable over at Slate over the weekend should come away very sober, with the realization why precious metals like gold and silver, along with other commodities, will do well over the years ahead.

The parable by Charlie Munger attacked on two fronts. The first was the outrageous practices of the U.S. government which is out of control with its spending and taxation, and discourages entrepreneurs from flourishing when all they do is take wealth away from them and redistribute it like the growing socialist government and administration we now have.

On the private business side, Munger blasted the derivative trading of the banks which were a major part of the underlying problems many of us face.

While this is all true and accurate, we still face the consequences of the actions of the U.S. government and major banks no matter what is done in attempts to deal with the root causes.

This is why commodities will continue to be the major success story over the next decade or more, as real things will continue to be in demand, rather than things most people can't begin to understand.

Charlie Munger on Economics and America