Higher energy prices on the way
Jim welcomes back Jeff Rubin, economist and author of the recently published book on oil, “The End of Growth”. Jeff discusses the issues of pipeline politics in Canada, and how environmentalists are trying to shutdown unconventional oil production by opposing pipeline construction. Jeff also notes the massive amounts of water required for fracking, and how the current drought in the US may curtail the use of fracking. Jeff also discusses major energy producers such as Suncor walking away from projects due to poor economics. For these reasons and others, Jeff sees higher energy prices on the way.
Entitlements and the long-lasting, negative impact on the character of our citizens
Jim welcomes Nicholas Eberstadt, a political economist and a demographer by training, who holds the Henry Wendt Chair in Political Economy at American Enterprise Institute. In his book, Nicholas details the exponential growth in entitlement spending over the past fifty years. As he notes, in 1960 entitlement payments accounted for well under a third of the federal government’s total outlays. Today, entitlement spending accounts for a full two-thirds of the federal budget. He makes the case that while this spending certainly drains our federal coffers, it also has a very real, long-lasting, negative impact on the character of our citizens.
Biggest mistake investors make is to disregard diversification
Jim is pleased to welcome back Marc Faber PhD, of Marc Faber Limited in Hong Kong. Marc and Jim discuss the current state of the gold market and that Marc is buying gold every month, which he is storing in Asia, not Switzerland or the US. Marc also emphasizes the importance of diversification, and how his assets are evenly divided among real estate, stocks, bonds and gold. He also notes that sadly most investors are always chasing performance, forcing them to usually buy high and sell low. While Marc mentions that currently there are more sellers than buyers in gold, he acknowledges that “something isn’t right in the gold market”. Marc and Jim also discuss the current strength of the US dollar.
The reflation trade will return in the second half of 2013
Jim is pleased to welcome back Barry Bannister CFA, Managing Director at Stifel Nicolaus. Barry characterizes the first half of 2013 as recovery from a deflationary shock, with defensive stocks outperforming. He sees the second half of the year as a return of the “reflation trade”, with an emphasis on the energy, materials, industrials and technology sectors. Barry also discusses the many parallels between the depression-era policies of 1932-1937 and the current economic policies from 2009 -2013. He sees politicians repeating many of the same policy mistakes, and believes if the economy falters, it will be policy-driven, not from the economic fundamentals.
Gold stocks are being given away
Jim welcomes back Ned Schmidt CFA, Publisher of The Value View Gold & The Agri-Food Value View Reports. Ned is very optimistic on gold. He also advises investors to ignore Wall Street, as he believes gold is currently funding the “carry trade”. He notes that Chinese imports of gold have doubled from a year ago. Ned also cites three key factors for his optimism. The first is the ratio between gold valuation and the stock market is the best since 2008. Secondly, he believes the bottom in the price of physical gold is in place. Lastly, Ned believes the next Federal Reserve chairperson, widely believed to be Janet Yellen, will make Ben Bernanke look conservative when it comes to money-printing.
QE Is Keeping the Patient Alive, But Not Healthy
Jim welcomes back Russell Napier, Consultant with CLSA Asia-Pacific Markets. Russell makes the case that faltering economic growth in the emerging markets, weaker commodity prices, a falling yen and strengthening dollar are warning signs of a deflationary shock ahead. Russell believes that the rally in developed-world equities will not last much longer as emerging market growth slows. He is bearish on gold shorter term, but bullish longer-term as both structural and cyclical forces turn in gold’s favor. Russell sees the current falling gold price as a sign that the global reflation is failing and we are nearing a deflationary shock.
Rick Santelli: Hold Onto Your Wallet - The Entitlement Society Now Being Adopted as US Economic Policy
Austerity is the worst word in the English language for politicians
Jim welcomes back Rick Santelli, On-Air Editor at CNBC and veteran trader and financial executive. Rick refers to current central bank policies as a world-wide “money fest”, given by the Central Banking Country Club. Rick sees the US adopting the “entitlement society” as current economic policy, which he asserts has never worked globally. He advises taxpayers to hold onto their wallets. Taxes will be going higher to pay for ever increasing government spending.
There is no energy silver bullet
Jim is pleased to welcome back Dr. Oliver Inderwildi PhD, Research Fellow at Smith School of Enterprise and the Environment, University of Oxford, UK. Dr. Inderwildi speaks to the high degree of oil price volatility over the past four decades, and its damaging and destabilizing effects on the global macro-economy. He discusses the main drivers of oil price volatility and how it has influenced both the level of inflation and the level of unemployment within economies affected by it. Dr. Inderwildi notes while there is no energy “silver bullet”, he discusses economic policies that could help prevent or minimize oil price volatility.
A VAT tax is coming unless we change our politicians
Jim is pleased to welcome back Steve Forbes, Chairman, CEO, and Editor in Chief at Forbes Media and an internationally respected authority in the worlds of economics, finance, and corporate leadership. They cover a number of issues, including the recent plunge in gold, the Fed’s manipulation of the economy and the potential for future inflation, and the government’s relentless search for more revenue to raise federal spending. Mr. Forbes believes there is a determination in Washington to increase taxes on wealth, following the French model.
Natural gas inventories dipping below 5 year average
Jim welcomes Dan Steffens, the President of Energy Prospectus Group (EPG), a networking organization based in Houston, Texas. Dan publishes EPG’s newsletter, “The View From Houston”. Dan discusses his views on natural gas, and lays out the case for higher natural gas prices ahead. Dan and Jim also discuss the energy stocks, and Dan advises investors to look for companies that balance natural gas and oil production, and can switch back and forth as market conditions warrant.
The dividend game is not over
Jim is pleased to welcome Jeffrey Saut, Managing Director of Research at Raymond James Financial. Jeff mentions that many investment managers and other professionals are feeling “performance pressures” from having missed the recent rally, as well as others that have underperformed by emphasizing international equities over US-focused equities. Jeff does not think the dividend play of recent years is extended, as payout ratios average only 32% of earnings on the S&P index, compared with historical norms of 50% payout ratios.
Gold collapsed over 14 percent in two days in the sharpest tumble since 1983 raising fears that the twelve year bull market is over. Some blame the collapse on the fear that Cyprus and other weaker European countries would have to dump their gold reserves. Wrong.
In this week’s Q & A, National Numismatics’ Tom Cloud updates his near-term precious metals price targets and explains why silver will rise faster than gold once the bottom is in.
In contrast, the Labor Force Participation Rate discussed in this commentary is based on large enough numbers that historical revisions are quite small. For example, if we study the revisions of the 16-and-over LFPR since 1948, the earliest changes date from 1994.
It's easy to spot a Fed-sponsored housing bubble if you look in the right places. The best place to start is an analysis of price inflation as measured by the BLS as compared to a CPI-variant that takes actual housing prices into consideration instead of rent.
Just recently the April employment report was released by the Bureau of Labor Statistics (BLS) which showed a surprise jump in employment for the month of April of 165,000 jobs. The general consensus for the report was 153,000 jobs so the "better than expected" news was credited to the surge in the financial markets.
The two major US core inflation indices have diverged. The explanation for this divergence has to do with the difference in relative importance of housing in the indices. And recent increases in the cost of shelter accentuated these differences.
Greece received 100 billion euro bailout, Cyprus got shafted
Jim is pleased to welcome back Michelle Caruso-Cabrera, an award-winning financial television journalist working for CNBC. Michelle and Jim discuss her on-the-ground reporting from Cyprus during its financial crisis. She believes Cyprus was treated unfairly by the European powers, and didn’t receive the same treatment as Greece, which was kept afloat with massive bailouts. Michelle notes that Cyprus runs on its banking system, and Cyprus was treated as an off-shore tax haven, not a sovereign country. She also points out that Cyprus did not cut government spending, but raised taxes instead. Michelle also discusses the European economy and the chances of the Euro surviving longer term.
It is the price of paper gold that has plunged, not gold itself
Jim welcomes Ronald Stoeferle, publisher of the respected annual report, “In Gold We Trust”, and a gold fund manager in Vienna, Austria. Ronald tells Jim that we were close to a run on the bullion banks during the recent chaotic drop in gold. He also sees a growing movement to remove gold from the financial system, as paper gold is creating too much counterparty risk, as witnessed by the Dutch bank ABN Amro’s recent gold default. Ronald sees the divergence between paper gold plunging in price and record demand for physical gold as a loss of confidence in the banking system by the public. The next issue of “In Gold We Trust” will be published in June.
Energy producers have substantially underperformed the S&P 500 Index in the last 12-24 months
Jim welcomes Joseph Dancy, Manager LSGI Venture Fund, and Professor at SMU Cox School of Business in Texas. Joe sees a discrepancy between energy company performance and share prices, as most major oil producers have underperformed the S&P 500 Index. Joe notes that the global demand for oil is rising relentlessly through industrialization and growth in China, India and other developing nations. With record oil company revenues and growing global demand likely to continue, Joe sees a much more positive performance for the energy sector looking ahead.