WORTH A LOOK

Here's a few interesting charts from http://shortsideoflong.com/2014/08/bearish-agricultural-sentiment/. and the Wall Street Journal.

We apologize for the vagueness, but checkout the charts at the above link. A few short years ago we had agriculture shortages much of it owing to a huge drought. Cattlemen took their cows to market early because they couldn't afford the high costs of  feed.

That later led to higher beef prices. California is still in the midst of an horrific drought. The ISIS in Iraq just seized control of much of that country's wheat. The Ukraine situation lingers on and Ukraine is a large producer of wheat.

Today's WSJ carried an article about corn and soybean record crops.

Soybean prices fell nearly 2% as government forecasters estimated this year's crop would be by far the largest in history.
 

Wheat also declined, while corn rose modestly after the U.S. Agriculture Department projected lower-than-expected yields.

 The USDA's forecast for a bumper soybean crop reflects near-perfect weather in the U.S. Midwest this season and an 11% increase in harvested acres of the oilseeds. As much as three times the normal amount of rain has fallen in the past three months in the Farm Belt, improving soil moisture and leading to the best conditions for the soybean crop in a decade, according to federal data.

U.S. soybean stockpiles in the 2014-15 season will more than triple from a year earlier, the USDA estimated, alleviating concerns about low inventories that have plagued food producers and other soybean buyers for several years.

WHAT THE MARKET OFFERS

 
t. man hatter
So what are they giving us?

In our recent post, So?, we mentioned energy. Well, today, September crude futures closed up 22 cents or 0.2%, with futures up four of the last five trading sessions. Some say this in part is owing to investor concerns about international trouble spots.

So far for August futures are still down 0.6%. One of the problems with crude is it has to travel someway. So geopolitical is not the only threat.

In their zeal to purify the globe, those nutty Al Gore-like environmental purists dislike pipelines, rail road cars and oil tankers. But it's a two-way thoroughfare. Cheap U.S. domestic crude oil versus heavier, higher sulpur content, more expensive imported crude.

According to Houston-based RBC Energy LLC, refineries in Texas, the home of big refinery Valero, companies are scrambling to build pipelines to connect Texas oil fields to Gulf Coast refineries. Current pipeline capacity of 1.4 mbd is projected to hit 2.9 mbd by the end of next year.

Oil tanker deliveries to the Gulf dropped from 1.5 million barrels in 2011 and to less than 1.0 million to date.

Kinder Morgan, the big pipeline energy company, has been much in the news of late, not all of it favorable, given this recent protest in Boston.

U.S. Sen. Elizabeth Warren said in a statement she opposed the current Kinder Morgan proposal, saying the state must upgrade its energy infrastructure in ways that are “consistent with Massachusetts’ commitment to environmental conservation, clean energy, and energy efficiency.”

U.S. Sen. Ed Markey also opposed the pipeline as proposed because it raises “serious questions,” including whether it is too large for the state’s energy needs and could result in the natural gas being exported rather than used locally. And Congressman James McGovern, a Worcester Democrat, said the proposed pipeline route was “irresponsible” because it cuts through environmentally-sensitive lands and local farms.

Warren's description is of particular note: "clean energy and energy efficiency" sounds like a fair and accurate one of natural gas. That's how even most environmentalists who promote natural gas describe it, clean and efficient. Apparently, she thinks they do something special in Massachusetts.  

A possible future presidential candidate, Warren is no friend of the energy business. Markey's comment is even more ludicrous, too big for the state's needs and could be exported rather than used locally. One of the Kinder Morgan proposals was to increase natural gas for the entire Northeast. Maybe the rest of the northeast needs to find out what Markey really thinks of them.

 All lands, Mr. Markey, are environmentally-sensitive. Otherwise, climate change, global warming or however one chooses to define it has no real purpose for being implemented
http://fuelfix.com/blog/2014/07/31/boston-protesters-rally-against-kinder-morgan-gas-pipeline/

On another note directly related to our what-are-they-giving-us theme, this chart from Richard Bernstein Advisers pretty much says it all.

.... mom and pop stink it up on a pretty steady basis and have lagged gains in every asset class, with the exceptions of Asian emerging markets and Japanese equities, over the last 20 years. The average investor has even managed to underperform cash – represented in the chart by 3-month T-bills.

“They could have improved performance by simply buying and holding any asset class other than Asian emerging market or Japanese equities,” wrote Bernstein, the former Merrill Lynch strategist who now heads his own eponymously named shop. (Read the note here.)

The chronic underperformance “suggests investors’ timing of asset allocation decisions must have been particularly poor, i.e., investors consistently bought assets that were overvalued and sold assets that were undervalued. They bought high and sold low,” he said.

As the chart suggests to us at least average retail investors almost never take what the market is giving.And one of the many reasons is what the market gives is often perceived as unwanted or damaged goods.
http://blogs.marketwatch.com/thetell/2014/08/13/1-chart-shows-just-how-badly-average-investor-lags-even-cash/




 

SO?

If you're the type of  investor who can look ahead and block out much of the nasty sounding news, and there seems a lot around these days, you might want to consider placing some bets where others are avoiding.

One of  those places might be Europe. The news is out about the EU's three largest economies being in a funk. And along with building suspicion about the weakness of EU banks amid rumors the ECB will soon unravel some form of American-style QE, there's enough gloom to go around for nearly everyone.

We all know what QE or easy money does to asset prices. The assumption that this money will find its way to where it's intended, should QE happen, is just that--an assumption. Even before the recent Russian sanctions were imposed, Europe's economy was anemic. 

A weaker euro and a stronger dollar will help EU exports. And higher US interest rates once they arrive will also help. A story headline in today's Financial Times, "Fears rise as headwinds hit Europe's equity rally," lists all the negatives while also noting that since September of 2011 the FTSE Eurofirst 300 to this July had rallied 60 percent. 

Even basic arithmetic tells you that's better than a 20 percent annual average in less than three years. 

Another area we like and continue to like is energy with its recent weakness. Earlier we wrote about a pullback coming there and we have not changed our minds. Trouble in this sector is good for prices all the while trouble in the EU is viewed as being bad for prices.

What's being priced in to both right now is economic slowdowns. And it appears widespread with only China showing much positive news. So? 

Catalysts like everything else in life come and go. A while back we mentioned how investors were avoiding gold mining stocks. Commodity prices have softened, but apparently bad news hasn't. A correction is one thing, a nasty old bear market another.

One is overdue, the other down the road somewhere. 
t. man hatter



  

PASS IT ALONG

 t. man hatter
One thing politicians, bureaucrats and elitists count on, you can bet, is how few of us take the time to investigate.

Investigate is fungible with knowledge. And like the line in the old song about "love and marriage and a horse and carriage, you can't have one without the other," they go together. In fact, they're inseparable.

Cars initially might have been called horseless carriages, but even today's cars have something called horse power. And many are judged by it. When people can count on your lack of curiosity to investigate, they hold a certain power over you.

Others hate people like billionaire fund manager Paul Singer of the recent hubbub over Argentina's default for taking the time, having the curiosity to read all the fine print. For knowing his legal rights and then standing up for them.

Ignorance may be bliss but it bears a heavy load. Being taken for granted is only one of them. Peter Lynch, the famous former fund manager who helped put the giant mutual fund company Fidelity on the investment map, said: "People spend more time researching their washing machine than they do their stocks."

That should tell us all something we need to know. When we are too busy with our own affairs to take the time to investigate, we deserve what we get. Pass it along.

That's our view. We hope you know yours.

OVER HERE

 
t. man hatter
Job market is improving and that could impact your investment outlook.

The Janet Yellen led Fed has been focusing on jobs and any real pick up there could roll forward a change as to when interest rates go up in the U.S.

According to a story today on Bloomberg, a major shift is now taking place where recruiters are looking of candidates rather than the other way around since the recession ended in 2009. A number of cities are apparently short of workers.

“We’re short of people in a number of cities,” he said.
So he’s changing the focus of his $2.5 billion, Oklahoma City-based business. Instead of concentrating on finding jobs for those who want them, Express Employment is putting more effort into finding workers for companies that need them. 

“We’re back in the recruiting market again,” Funk said.
The 74-year-old industry veteran isn’t the only one to notice the change. Americans who have been hunting for employment for more than six months are finding they’re having better luck landing a job, while people who had given up looking are returning to the labor force to resume their search. 

Companies, meanwhile, are beefing up their in-house recruiting teams and increasingly using complicated computer algorithms to scour the Web for prospective job candidates. 

The other side of this coin is up until now employers have been extremely reluctant to hike wages, a fact that may also be changing. Labor is two-thirds the cost of doing business. 

But the real truth is worker wages have been flat for so long that if you stuck four wheels underneath them they could hall freight for the railroads. 

If wages do start rising in any meaningful way, that will put further pressure on the Fed.The other truth is the inflation number is bogus and hourly wages have not kept up with a number that has been purposely manipulated. 

So behind is a misnomer. A blatant, noon-day highway stick-up would be more correct. 
http://www.bloomberg.com/news/2014-08-10/job-market-tilts-toward-workers-as-u-s-enters-virtuous-cycle.html

KEEP IT LEGAL

All you have to do is move.

So what would you rather pay, 39%, 21% or 12.5%?

The top US tax rate on American firms that earn money overseas is around 39% if they repatriate those funds. In short, they're taxed twice, nice work if you're a government doing the taxing and can get it.

Should you locate your firm in the UK that rate drops to 21%, an 18% difference. Would that wet your pocketbook appetite?  But, if you're fortunate and you can find an opportunity to buy up a company that fits your mold in Ireland, you can pop your home office over there and cut that tax rate to 12.%.

If, as they teach in Business 101,  you're heading up a publicly traded firm and your responsibility is to return maximum profits to your shareholders, the ones who technically own the firm, what's the questions again: Should you consider a move?

Last week among all the other news, these so-called tax inversion plays got hit over fears of more regulations and name-calling. Congress, and this includes both sides of the pathetic aisle, love to slop at the taxing trough. It's in their DNA.

They also like name-calling. It's a game they love to play. Part of it may stem from the fact that they are deserving of so many names themselves.

The firms seeking to do this are hardly un-American any more than you are if you decide to set up residence in, say, Nevada, a no income tax state, versus, say, Massachusetts, a very high tax state. If you own a business and move to Nevada, do you take your jobs with you?  At least some of them.

Allowing politicians to pass punitive legislation to prohibit these moves is just one law away from denying you this same right. Think not at your own peril and the peril of any semblance of free movement in this nation.

Move to keep it legal.
t. man hatter

AROUND THE WEB

1. Is Prescription Law To Blame?
Has a law designed to speed drug approvals resulted in excessive safety issues?

A new study finds that after thePrescription Drug User Fee Act was passed in 1992 – in which drug makers agreed to pay fees to help fund the FDA and the agency agreed to accelerate approvals – the number of safety warnings and product withdrawals was higher than before the law was passed.

http://blogs.wsj.com/pharmalot/2014/08/05/have-faster-fda-drug-approvals-caused-more-safety-problems/

2. Newmont Fights Royalty Costs

The head of Newmont Mining (NYSE:NEM), Australia’s No.1 gold producer, will meet West Australian Premier Colin Barnett on Tuesday in an effort to persuade him of avoiding extra imposts on the gold industry.

CEO Gary Goldberg warned last week that a royalty hike would jeopardize the profitability of Australia's two largest gold mines: the Superpit in Kalgoorlie-Boulder and Boddington. And he believes gold miners are to blame.
http://www.mining.com/newmont-steps-up-pressure-against-w-australias-royalty-hike-70443/

3. Don't Trust Your Neighbors

One neighbor cuts off the gas, another halts petrol deliveries and Mother Nature cooks up an unusually dry season. It all means Kyrgyzstan faces a potentially catastrophic energy crisis this winter, if the impoverished and unstable Central Asian country cannot reach deals with two recalcitrant neighbors.

The predicament began with the sale of Kyrgyzstan’s gas transport monopoly, KyrgyzGaz, to Russian energy giant Gazprom in April. “We don’t need KyrgyzGas, we need gas,” President Almazbek Atambayev said at the time, promising that Russia would guarantee a cheap and constant supply. Soon after the deal was completed, however, Uzbekistan stopped gas deliveries, saying it had no contract to supply Gazprom. The two sides, with Kyrgyzstan in the middle, have not been able to reach an agreement.
http://oilprice.com/Energy/Energy-General/Kyrgyzstan-Faces-Catastrophic-Energy-Crisis.html

4. Key Term Here Is For Now

As the old saying goes, you can’t tell the players without a scorecard. So in this week’s Oilgram News column New Frontiers, Tamsin Carlisle does just that, skipping through the Middle East to summarize the hot battles, and the cold ones, impacting oil across the region.http://blogs.platts.com/2014/08/11/oil-middle-east/

5. Minimum Wage Go Figure
Few issues are as controversial and divisive as the minimum wage. Even business legend Warren Buffett has said that despite 50 years of thought, he’s not sure whether he supports an increase or not.
http://finance.yahoo.com/news/minnesota-restaurant-adds-minimum-wage-surcharge-155252174.html

6. We Like The Other Side Of This Trade
The newspaper said one of the biggest changes the fund is considering is potentially eliminating investments in indexes for commodities, including energy, food and metals.
http://www.reuters.com/article/2014/08/11/us-calpers-
 
7. Greatest Risk
We increasingly see carry being confused with expected return. Carry is the difference between the annual yield of a security and money market interest rates. For example, Wall Street acts as if a 2% dividend yield on equities, or a 5% junk bond yield is enough to make these securities appropriate even for investors with short horizons, not factoring in any compensation for risk or likely capital losses. This is the same thinking that contributed to the housing bubble and subsequent collapse. Banks, hedge funds, and other financial players borrowed massively to accumulate subprime mortgage-backed securities, attempting to “leverage the spread” between the higher yielding and increasingly risky mortgage debt and the lower yield that they paid to depositors and other funding sources.
 http://www.zerohedge.com/news/2014-08-10/hussman-greatest-risk-investors-face-here 

PUSHBACK COMING?

Here is an update on our recent story about the European economy and Zero Waste.

It's indeed gloomy and though we would take exception to some of the listed causes in this evaluation, it still pretty much supports our conclusions. Things don't look good in Euroland.

And there's plenty of blame to go around. The pushback if things get worse could be huge especially on the political front.

For Euroland, the big picture is that the economy is in its seventh year of depression. On our estimate of a 0.7% contraction in the second quarter, GDP was still 3.2% lower than it was in the first quarter of 2008, when the depression began. Euroland’s economy actually contracted in the first quarter of this year when you exclude Germany’s unexpected surge to a 3.3% annualized rate of growth. Only people who were misled by Markit’s untested and unproven PMIs believed that such growth was real and sustainable. Our estimate of second quarter GDP for the Euro Zone includes a contraction of Germany’s economy at a 2% annualized rate, reversing the windfall in the unexplained and inexplicable first quarter spurt. If our forecast proves correct, average GDP growth for Germany in the first half of 2014 will work out to 0.7% at an annualized rate, clearly less than potential but very much in line with the experience over the last few years. Our estimate for France’s economy is a more horrible contraction of 1.1% for the quarter, or 4.3% at an annualized rate.

http://www.businessinsider.com/european-depression-2014-8