it was very tempting for me to skip a market update posting this week for the simple reason that i got spanked and i am not happy about having to face the music. however, i am out to prove myself a bigger man than jim cramer and the other prognasticators on CNBC who never own up to their failings. i will do so now. i will admit that my investment strategy took it on the chin last week. that said, and stubborn as i am, i still believe i am right on target for the long term. keep reading....
this week we saw a complete deleveraging of the commodities market. gold and oil both sunk 8-9% to $912/oz and $100/barrel respectively. nat gas, silver, wheat, corn and nearly all commodities likewise faired badly for the week. some of the ags opened up limit down and remained so throughout the day.
one can only imagine the affect this had on my investment picks. vanguard precious metals got whacked (though still up for the year....barely), along with fidelity select energy services, fidelity select gold, and pretty much everything else i own, including my long term holding conoco philips (COP), which is now back to the low 70's again after trading up to 85 just days ago.
meanwhile, the US dollar actually had a few days of strong gains after some traders took the Fed's interest rate cut of 3/4 of a point as an actual victory compared to the full point which had been priced into the Fed funds futures. i for one was quite shocked at this show of strength as people apparently forgot that a 3/4 point cut was, historically speaking, a huge move. regardless, the strength of the dollar was all the commodities markets needed to sell off. and sell off they did.
after licking my wounds and reassessing my positions i realized nothing in my longterm strategy has changed one iota. i still believe the US dollar will weaken further. i still believe in peak oil. i still believe energy and gold are more valuable than US dollars. and i still believe in the governments inability to admit any of this, let alone do anything about it. so, i increased my positions in precious metals, oil, and hard currency hedges against further US dollar weakness. dammit, if i am going down, i am going down with the ship!
after all, look at conoco philips. here is an oil company which S&P figures will earn over $10 a share this year, and is priced at $74 (!). sure, COP has a lil bit more debt than most of the large integrated oil companies, but a forward PE of 7.4 with oil at $100 and nat gas still above $9? are you kidding me? this company is printing money. who would be buying the financial stocks and selling COP? give me a break....i just don't buy it. i still look for COP to trade close to $100 over the next 12 months (barring a huge recession/depression which, with the current bush admistration still in charge, is entirely possible).
the financial analysts are saying that the bull market in gold and oil are over. poppycock. gold dropped 9%, big deal. it is still over $900/oz which is up over 300% in the last few years. oil is still over $100/barrel and now the analyst make it sound like this is cheap! actually, by 2010, i believe we will consider $100/barrel oil a real bargain. last week the economist magazine pointed out that 10 of 11 of china's biggest oil fields have hit peak production and are declining at production rates of around 4%. meanwhile, exxon and conoco both admitted that their production targets for the next 5 years are for 2% increases, stressing that their goal is not to pump out as much oil as possible, but to increase shareholder value over the long term. i continue to wonder where all the new oil will come from to match the expected 2015 worldwide demand. time will tell....
as far as the US dollar goes, why should we expect it to increase in value over the next few years? answer: we shouldn't. our trade and fiscal deficits are horrendous. currently, those middle eastern countries whose currencies are pegged to the US dollar are seeing riots by their foreign workers (mostly Indian and Pakastanis) who simply cannot keep up with the booming inflation. they cannot even afford to buy sufficient food and are leaving those countries in droves to move back home where they said "we can be poor without having to work so hard". these countries were forced to cut their interest rates by 3/4 of a point when the Fed did so. these countries are considering to move off the US dollar peg, and once they do, and oil begins trading in euros (or yen), the dollar will drop like a rock. of course, i still believe a barrel of oil to be the new world currency. and one cannot forget gold, which still buys about the same amount of oil per ounce as it historically has. one can indeed learn from history. reegardless, why would one by the US dollar when countries like australia, canada, and russia are supplying the raw materials the world needs to run. meanwhile, the US offers bear stearns and lehman brothers? pah-leeeze. at least we have apple ipods, boeing airplanes, cisco routers, and caterpillar and deere heavy equipment going for us.
so, yes, i was beaten and bloodied last week not unlike a rented mule. undaunted, i continue to hold fast to my belief that the S&P500, US bonds, and US financial institutions (including banks) will severely underform energy, gold, and commodities in the years ahead. inflation, on the banks of cheap money (again) will rise steadily and there won't be alot the Fed (or any other US government institution) can do about it. our best bet is to devise a real energy policy, but we already know that won't happen. what we need is an energy "czar" with big breasts who can sing and dance on american idol. THEN we would get some publicity on the issue. meanwhile, we keep sending all our dollars to the middle east for oil, and they want more and more of them since they keep sinking in value. what is the endgame here? as in the bible, do the arabs get their day in the sun? looking at dubai and the other countries in the middle east..i think it has already happened...
meanwhile, spring has sprung and remember, when the two armies of the Union marched through Washington after Robert E. Lee surrendered, it wasn't Meade's "eastern" army of well dressed and manicured soldiers that got the biggest and loudest applause from the crowd. no, it was the more-or-less rag tag "western" army of Sherman, complete with it's wagons of Negro followers and cooks stringing along pigs and chickens, with hams hanging off the wagon's sides, for which people clapped the loudest, laughed the hardest, and gave their most enthusiastic response. me? i am just a poor irish lad trying to make my way through this world of complex financial wheeler-dealers hoping to keep a few pigs and chickens around so i too won't go hungry like a negro in the deep south after the war.
i cannot help but recall "Gone With the Wind" which gave a real good rendering of what happens when a civilization falls. i remember the poor irish lass scarlet trying to hold onto her farm tara. the prostitute who comes by to help out hands mrs. ashley wilkes a handful of coins. gold coins. that's what kept tara for scarlet. gold.
yup, chickens, pigs, and gold. that's where it's at.
interesting civil war tidbits:
- lee surrendered to grant basically 4 years to the day after the opening of the war in charleston, SC.
- general sherman who faced the confederacy's joe johnston on his campaign, marching from chattanooga to atlanta, was the first of the two to die. johnston, an old man by then, went to sherman's funeral in washington. his companion told old joe to put a hat on or he might catch a cold. johnston said if it was his funeral, and sherman was in his place, sherman too would take his hat off. johnston ending up dying of a cold he apprently caught that day.
- grant and lee met at appomattox courthouse for the surrender negotiations. (btw, they were more favorable than "unconditional surrender" for which "US" Grant was known for). the house belonged to one Wilbur McLean. turns out old wilbur had owned a farm near manasses junction, the site of the two battles at bull run and once had a shell come crashing through the window of his house. he up'd and moved his family out to a rural countryside of no strategic value "where the sounds of battle would not reach them." he found what he wanted in the remote hamlet of appomattox courthouse only to discover on a fateful Palm Sunday that the war would effectively come to an end on his doorstep. after grant and lee exited the house, rubber neckin sightsee'ers and souvineer hunters completely stripped his house of its furnishings. he was offered money for the tables which grant and lee signed the documents on, and when he answered he didnt want money, he preferred his furnishings, the money was thrown on the floor and the tables (along with everything else) were hustled out of wilbur's house as keepsakes.
- i cannot help but contrast the description of abraham lincoln's behavior and mood during the civil war with that of george bush's during our current two wars. sure, one could say the death and destruction of a the civil war were orders of magnitude more terrifying than sending troops overseas where the death is distant and not immediately felt. that said, it still bothers me that bush continues to smile and make jokes during news conferences which supposedly are about the two wars the country is in. it just makes our soldiers' lives seem cheap and mere pawns to be used as he seems fit.
we were a very lucky country to have a man like lincoln at the helm during those trying times. very lucky indeed. i am therefore very much looking forward to the next installment of john adams documentary on HBO tomorrow night. it reminds me of when the US had real statesmen, men of vision, substance, and ideals. i was talking to my mom the other night and she wondered aloud that boy, wouldn't adams, jefferson, washington and the rest be amazed to see what a country they started and how it had survived everything between then and now. think of it, a civil war, a world war, a depression, and another world war. vietnam and impeachments. personally, i think they would be definitely shocked at the technological advances, but i think they would be very, very dissapointed in the current status of our government. i wonder what lincoln would think about the wars we are in now, our unfair tax policies, and the ever greater consolidation of wealth into the hands of the very few. although i am sure these men of the past would be surprised and most proud of their achievements, and the survival of the Constitution, i think they would be very very dissapointed that our institutions of government cannot seem to come to grips with something as basic as the running out of a commodity that our civilization has become addicted to. nope, i think these men would find it unforgivable that short-term greed would win out over plain common sense and the requirement to meet the challenge head-on with transparency and a sense of urgency.