Memo to EU

“It was the last wish of the Icelandic economy that its ashes be spread over Europe.”   

 

I wish I could take credit for that gem.   

 

Flights are grounded once again in Europe as more ash from Iceland’s unpronounceable volcano drifts over the continent.  

 

Europe is providing a major downer for the stock market these days. It’s not the grounded flights, however. It’s debt problems with Greece (again), and potentially Spain, Italy, Portugal and Ireland

The 11.8 Cent $100 Bill

What does
money
cost? According to the Wall
Street
Journal
, each new $100 bill set to be introduced into circulation
on
February 10, 2011 will cost the Treasury 11.8 cents to produce. Complete with holograms, security fibers,
bells, whistles, kazoos and probably a computer chip or two, poor old
Ben
Franklin is starting to look a little perturbed with all of the baubles
encroaching his paper real estate.

So it costs about
12 cents
for the Treasury to make $100, but what does it cost to buy it? That’s what the interest rate is: the cost of
money. Interest payments you make on
money loaned to you is the price you pay for borrowing. Nothing’s
free, especially not money.

When the price of
money gets
higher, it signals a weakness in the forward purchasing power of the
underlying
currency. The best way to protect
yourself from a weakening currency is to buy commodities. More on that in a second…

Marketplace
interest rate
increases at banks, for mortgages, as well as for corporate bonds always
follow
rises in Treasury bond rates.

If long term bond
rates
rise, it means that folks who lend money to our government are demanding
higher
returns on their principle.

How to Buy the World’s Cheapest Commodity

What is the cheapest commodity? 
I’ve talked about natural gas, and how extraordinarily cheap it is.  In
the April 5th issue of the Resource
Prospector
,
I said that buying natural gas at current prices is like "buying
gasoline
for 48 cents a gallon."

I’ve talked about coal too – and why I think it’s
still
undervalued.  We’re going to be using more and more coal every year, and
so are China, India and Europe
We
can’t escape this trend no matter how much we’d like to. 

And I’ve mentioned that while I’m still super-bullish
on gold,
I think silver can rise much higher, much faster in the near term. 

I’ve made the
case for these
commodities and others in past issues of the Resource Prospector,
and I still think these trends are extremely strong. 

But
there’s one commodity I haven’t talked about, indeed, that no one is
talking
about – and it’s still as cheap as it’s ever been. 

Big News from Apple

Morgan Stanley (NYSE:MS), McDonald’s (NYSE:MCD), Boeing NYSE:BA), United Technologies (NYSE:UTX), Apple (Nasdaq:AAPL) – all beat earnings expectations in the latest round of quarterly reports.   

 

Yes, earnings estimates appear to have been too low. But at the same time, the economy is surprisingly strong. I’m not sure there’s much reason to think analysts should have seen these numbers coming.   

 

Apple was the star of the bunch. It reported $3.33 a share in earnings, when analysts were looking for a measly $2.45. That’s a humongous beat by Apple. And the stock is moving 6% higher this morning. 

Never Short Goldman Sachs

Yesterday, investors have spoke loud and clear. And they said “If it comes down to Goldman Sachs (NYSE:GS) vs, SEC, I’m betting on Goldman.”   

 

And why not? Goldman is all-powerful. It’s #2 on my “never short” list, after Apple and before Google.   

 

Goldman has proved its ability to stay ahead of the curve. It survived numerous lawsuits and a $110 million settlement with the New York Attorney General for IPO fraud during the Internet bubble.  

 

Most recently, the accusations that inflated price projections and a huge oil trading desk at Goldman were behind crude oil’s run to all-time highs didn’t have any effect on the company. 

Why should this little matter with the SEC over taking advantage of the housing bubble be any different? 

The Biggest, Most Inevitable Bull Market

Does
your
portfolio have exposure to the most inevitable bull market in the world? I’m talking about a long-term trend that has
nowhere to go but up. It’s literally a
life and death situation.

The
alternative to a bull market in these commodities is something the
world’s
population has to strive to avoid at all costs. It’s more
important than oil, more vital than coal, and way more serious
than gold, copper, iron – or any other industrial metal or energy
commodity.

Because
if
there’s not more production of this particular group of commodities
every day,
in perpetuity, most people on this planet will starve.

Yes, I’m talking about food. And I realize it’s not an “exciting”
investment, not like some new oil discovery or a massive gold bonanza. But the world’s population is growing.

Designed to Fail

I’m sure by now you’ve heard that Goldman Sachs (NYSE:GS) has been indicted for fraud. Goldman is accused of creating securities that were designed to fail, so it and its hedge fund cronies could make billions in profits.   

 

Case in point: Abacus 2007-AC1. “Abacus” was a 23-part series of “synthetic collateralized debt obligations” that Goldman Sachs constructed and sold to supposedly sophisticated investors.   

 

According to Bloomberg, a “synthetic collateralized debt obligations” was a mixture of “…credit- default swaps (CDO), used to transfer the risk of losses on debt, and securitization, used to slice the risk in a pool of assets into various new securities.”

Gold

You
might
have heard the news on Friday about Goldman Sachs’ recent trouble with
the
SEC. The SEC is suing Goldman for
defrauding investors of collateralized debt obligations (CDOs). The fraud comes in because Goldman
(allegedly) did not disclose to CDO investors that Paulson & Co.
helped put
together these investments while at the same time betting against them.

That’s
kind
of like a car dealership selling you a car that was assembled by a
mechanic who
also happens to be betting the drive train will fail.

It
seems
that Paulson’s foresight in betting against mortgage backed securities
issued
by Goldman Sachs has his fund under scrutiny from the SEC as well.

This
scrutiny
is making some people nervous about owning the same gold securities as
Paulson
& Co – which is having a downward effect on all gold securities, not
least
of which is gold itself.

Invest in What You Love

I always assumed
that I
drink way too much coffee, but I read a story in the Wall
Street
Journal
at the end of last year that made me change my mind.

The crux of
the article:

“…an
analysis in the Archives of Internal Medicine
found that people who drink three to four cups of java a day are 25%
less
likely to develop Type 2 diabetes than those who drink fewer than two
cups. And
a study presented at an American Association for Cancer Research meeting
found
that men who drink at least six cups a day have a 60% lower risk of
developing
advanced prostate cancer than those who didn’t drink any.”

Six cups
of coffee a
day seems like a lot, I realize, but I drink about that much. I go through a prodigious amount of coffee in
any given week – maybe about one pound. That’s 52
pounds a year!

Apparently,
I’m not
alone. Coffee is the second most popular
beverage in the world after plain old water. In
total, the world drinks 400 billion cups of coffee every year. It’s one of the world’s most traded
commodities – which made me think: why not find a way to invest in the
brown
bean?

Get While the Gettin’s Good

I said I would be using the banks as my “canaries in the coalmine” for earnings season. Financials tend to lead the stock market, both on the upside and the downside. 

 

Of the big banks to report so far, we’ve heard from JP Morgan (NYSE:JPM) and Bank of America (NYSE:BAC). And their results have been remarkably similar.   

 

Both banks posted better-than-expected profits based on strong trading results. And both banks continue to be hampered by impaired assets and non-performing loans.