Catching-Up With Commodities

The Daily Reckoning – Weekend Edition
January 28-29, 2006
Baltimore, Maryland

It’s been an interesting few weeks in the natural resource markets…sugar hit a 24-year high…crude oil prices are still on the rise…and natural gas demand is, much to everyone’s surprise, down…

After a rough few months – two massive hurricanes followed by an unusually frigid December – it looks like Mother Nature decided to give us a breather – unseasonably mild temperatures have been seen throughout the country. (It was 65 degrees in Baltimore last weekend!) Experts say we can expect these mild temperatures to last through the beginning of February, which is usually the coldest part of year.

As your heating bill will show, this pleasant weather has led to low industrial-gas demand – actually breaking records for how little gas has been taken out of storage. Barron’s reports, "Traders agree that with the confluence of anemic demand and underground gas shortage stocks at roughly 16% above the five-year average for this time of year, chances of a supply-squeeze are extremely slim."

So, this will keep the price of natural gas down – at least for now. Unfortunately the same can’t be said for crude oil. Over the past four weeks, crude has risen about $10 a barrel, due to supply fears and heightened concerns over Iran and Nigeria. Attacks in Nigeria’s Delta region, which is one of the world’s largest oil exporters, caused a 10 percent fall in production. This week alone, the NYMEX crude futures rose, settling at a five-month high of $68.45 on Friday. Only time will tell what further impact the international standoff over Iran’s nuclear intentions will have on the crude market.

This past Monday saw 24-year highs for sugar, and most analysts suggest that the price rally was due to poor weather in Brazil, causing cane crop harvests to be smaller than expected.

Sugar is also a biofuel ingredient, as Resource Trader Alert’s Kevin Kerr points out. "Every ton of sugar has the energy potential to 1.2 barrels of petroleum," he explained.

As long as the price of crude stays on the rise, as most expect it will, the biofuel component will only further sugar’s recent gains.

Kate Incontrera
The Daily Reckoning

P.S. Kevin Kerr is traveling to South America to get the full story on sugar right from the source, and will be reporting back to his Resource Trader Alert subscribers, keeping them on the cutting edge on the goings-on in the resource markets. But this is typical for Kevin – when Hurricane Dennis hit late last year, he was in the Gulf of Mexico, checking to see what affect the storm had on the orange crop.

His RTA readers have really felt the difference with this sort of hands-on involvement…one reader, Mr. Chuck Simon, follows Kevin’s trading alerts. Doing this for only six days, he was already up $11,812. Eleven days later, he made another $3,250. And gains like this are nothing out of the ordinary – this testimonial barely scratches the surface…

Kevin is so sure that you won’t be disappointed by RTA, he guarantees he can show you how to at least triple your money trading commodities options in just six months, or your money back. You wouldn’t want to pass this rare opportunity up.

— Daily Reckoning Book Of The Week —

Hot Commodities: How Anyone Can Invest Profitably In The World’s Best Market
by Jim Rogers

In Hot Commodities, Rogers offers the lowdown on the most lucrative markets for today and tomorrow. In 1998, gliding under the radar, a bull market in commodities began. Rogers thinks it’s going to continue for at least fifteen years-and he’s put his money where his mouth is: In 1998, he started his own commodities index fund. It’s up 165% since then, with more than $200 million invested, and it’s the single-best performing index fund in the world in any asset class. Less risky than stocks and less sluggish than bonds,, commodities are where the money is-and will be in the years ahead. Rogers’s strategies are simple and straightforward. You can start small – a few thousand dollars will suffice. It’s all about putting your money into stuff you understand, the basic materials of everyday life, like coal, sugar, cotton, corn, or crude oil. Once you recognize the cyclical and historical trading patterns outlined here, you’ll be on your way.

In language that is both colorful and accessible, but Rogers explains why the world of commodity investing can be one of the simplest of all-and how commodities are the bases by which investors can value companies, markets, and whole economies. To be a truly great investor is to know something about commodities. You purchase your copy at Hot Commodities

THIS WEEK in THE DAILY RECKONING: Our ‘Farewell to Greenspan’ week continues…it’s all in the DR catalogue, below…

Take It Away, Maestro 01/26/06
by Bill Bonner

"If anyone could be held directly and immediately responsible for the record level of America’s foreign and domestic debts, it was Alan Greenspan."

The Habitual Deceptions Of The Political Class 01/25/06
by Vedran Vuk

"Politicians do not arise through free market competition. Politicians, inherently, must influence and coerce their way to the top."

Strong-Arming the Seesaw 01/24/06
by Kevin Kerr

"Seesawing oil prices have impacted global profits, but it’s surprising that among the Baltic countries, Estonia fared better than most."

Fearful Effects of Inflation 01/23/06
by The Mogambo Guru

"The money supply is going up faster than the growth in the economy, which means that prices will increase."

FLOTSAM AND JETSAM: In this month’s "Global Briefing" Outstanding Investment’s Justice Litle fills us in on the news that effects the world energy markets…

by Justice Litle

Iran’s Ahmadinejad: Crazy Like a Fox, or Literally Crazy?

Kim Jong Il wants the world to think he is nuts, but it is probably just an act to draw attention and aid. If Iran’s president is faking, however, he is doing frighteningly good job of it. Based on recorded statements Mahmoud Ahmadinejad has made, some fear he puts literal belief in the Muslim version of the second coming. If the man believes it is his destiny, as he put it, "to pave the way for the reappearance of the 12th Imam," we have a serious problem. True fanatics cannot be reasoned with on any level, and Iran’s relentless march toward nuclear weapons is making less pragmatic sense with each passing day.

Viva la Revolucion

Hugo Chavez is systematically destroying Venezuela, using the country’s oil wealth to fund his disastrous "Bolivarian Revolution." The Chavez government has torn up existing energy contracts, replacing them with much harsher ones, and seized private oil fields. As property rights and rule of law fall by the wayside, odds of future foreign investment in Venezuela’s energy industry diminish. Meanwhile, Venezuelans are forced to deal with massive food shortages due to government-imposed price controls. Coffee, sugar, beans, powdered milk and chicken have all become scarce. Chavez henchmen have responded by raiding private warehouses and distributing the seized goods through government outlets.

Nuclear News

China plans to approve at least two new nuclear power plants in 2006. The plants are slated to be built in the northeast Liaoning province and the eastern Shandong province. If approved, the $2.8 billion Liaoning plant will be the first of its kind in the region. Eleven reactors in China’s south and east are also slated to become operational this year. Pakistan is in talks to purchase 6yyy8 nuclear power plants from China over the course of the next decade, at a cost of $7-10 billion, and Mitsubishi Heavy Industries is bidding more than $2.5 billion for the purchase of Pittsburgh-based Westinghouse Electric, a company that provides technology to nuclear plants around the world.

Copper Soars on Chile Strike

Copper hit new all-time highs in December on news of a Chilean worker strike at Codelco, the world’s single biggest copper producer. Thousands of workers walked off the job after the government refused their demands for a one-time bonus of 500,000 pesos, or approximately $963. Chilean workers see record profits at the mines and feel entitled to a piece of the pie, especially considering many of them are subcontracted at rates far short of standard employee pay. Forecasters see potential for an 8% rise in Chinese copper demand this year, due to planned upgrades and improvements of the country’s power grid.

Beijing Drops Hints of Dollar Divestment

Hu Xiaolian, agency director for Beijing’s State Administration of Foreign Exchange, has taken lessons from Alan Greenspan. Mr. Hu’s opaque statements, posted on the SAFE Web site, have foreign exchange traders anxiously reading the tea leaves. Talk of exploring "more efficient use of our reserve assets" and improving "currency structure" and "asset structure" sounds a lot like paring down China’s dollar pile. Asian currencies have recently surged, and the dollar has substantially weakened, on belief that the Federal Reserve is nearly done with its rate hikes. If we are drawing near to the ultimate resolution of "Bretton Woods II," it will be a delicate and dangerous time for all parties.

Iraqi Energy Limping Along

Iraqi Oil Minister Ibrahim Bahr al-Ulum has been forced to resign after speaking out against a rise in the price of fuel, which is still heavily subsidized by the Iraqi government. Oil production is limping along below prewar levels, a substandard 2 million bpd, as opposed to 2.5 million bpd before the war. Frustration is running high as Iraq deals with inadequate management, bloated bureaucracy and crumbling oil infrastructure. Concern remains that some of Iraq’s oil fields are being permanently damaged by technical neglect and shoddy extraction practices. Nor is the situation helped by insurgent death threats disrupting the work of key employees.

Editor’s Note: Justice Litle is an editor of Outstanding Investments. He has worked with soybean farmers, cattle ranchers, energy consultants, currency hedgers, scrap metal dealers and everything in between, including multiple hedge funds. Mr. Litle also acted as head trader for a private equity partnership, and made contributions to Trend Following: How Great Traders Make Millions in Up or Down Markets, a popular trading book by Mike Covel (FT/Prentice Hall).

The Daily Reckoning