Financial Sense Blog

The economic news just keeps getting worse and worse (and worse), validating the view we spiraling down in another recession within a larger depression. Of course the effect this is having on an ever-decreasing population of traders (only the pros are left and their numbers are shrinking too as the trade patterns become increasingly bizarre) is to become even more bearish and keep on buying puts, because at some point stocks will turn lower to reflect the fundamentals, right?

In their understandably concerned state of mind in the present day, investors may have lost sight of the longer-term drivers of asset prices. Bonds, especially U.S. Treasuries, have merit presently as high levels of debt have sparked concerns about deflation. However, in the long-run, the case for stocks, commodities, commodity-related currencies, and precious metals looks quite a bit stronger than the case for bonds.

The September E-mini S&P 500 is trading flat to lower overnight. Last night’s range was inside of Tuesday’s range, indicating that traders are non-committal at this time. Yesterday’s rally was a follow-through move of Monday’s reversal bottom. This pattern usually leads to a 2 to 3 day rally equal to 50% of the last swing down. Yesterday’s up move already completed the first objective so the counter-trend rally may be over.

The cost of finding new large deposits is climbing as are the risks attending such work in this politically greedy world. On top of that most if not all of the large deposits have been found and the large companies have to replace exhausted deposits. This means lowering their sites on the size of discoveries and entertaining the likelihood of taking over small companies, like Red Back that have already found the goods.

Cap and Trade was yet another political give away, furnishing corporations (some who didn't emit much CO2) free permits to spew carbon. They could then sell these free permits to others, so not well politically connected for a profit. The sum total of it all was a boondoggle based on political considerations and not scientific. My reaction: Good riddance to bad rubbish.

Mining is a risky business and accidents happen. But when your mine is the world’s largest uranium deposit, fourth largest copper deposit, and fifth largest gold deposit, an accident can cost a little bit more than the average. Something BHP Billiton found out after the shaft accident at its flagship Olympic Dam mine located 560 kilometers north of Adelaide, South Australia.

“This is not working, let’s try something new.” –aprox quotation from Deng Xiaoping, head of China, circa 1978.

A morbidly obese gentleman labored into Dr. Hayek's office suffering from severe chest pain. The patient also complained that he was unable to consume his usual 10,000 calorie-per-day diet; in fact, he was feeling so sick that he could barely scarf down 9,000 calories. He plead that his love for food remained as strong as ever, but his body just wasn't keeping up with his demands.

Over the past couple of months the long-term borrowing costs for the US treasury have been pushing down again, concurrent with increased pessimism about the economy and when the US will emerge from recession/slow growth. In the past few days, the prices of 10 and 30 year treasury bonds have positively surged.

Wall Street is behind the new earnings reality indicated by the slowing economy and earnings warnings from major corporations.