E.D. Hart

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147 Comments

    • Thu Mar 27th 16:40 PM | Rating: 0 0
      Commented on:
      Why I Don't Own Commodities
      Subtract emotion and you have three pillars of the commodity investing hypothesis. Commodities will have ups and downs, but continue to move in an upward trend because:

      1) ETF's globally are taking larger and larger share of commodities out of the spot market--in some cases ETF demand is the largest open long category in the COT reports. This is institutional money, buy and hold, hedge funds that don't want exposure to futures, sovereign wealth funds, and managed institutional accounts. In contrast to the sub-prime fiasco, where leverage made the bubble, most of these ETF commodity investments are unleveraged, and not subject to interest rates, margin calls, or collapse in panic selling.

      I hate to say it, but I'm going to: "this time it its different" because it really is different--we've never had a commodity market with the new demand made available by ETF's. see: www.investmentrarities...
      Ted Butler archives "Still A Great Trade" March 11, 2008 Letter.


      2) Rising demand from BRIC's, and consequent supply/demand imbalance. Saudi oil is not going to raise spare capacity going forward, neither is Canadian Oil sands. Supply technically isn't the problem but daily production growth. Petrpobras discovered a big feild that is a 7-8 years away from production, same with Venez. Oil sands, same with Devons big find with deep Water Gulf fields...
      many years away, and not enough to keep pace with consumption.
      It is different this time (thats twice) because we have lost meaningful spare capacity in oil especially, but other commodities as well.

      Moreover, higher prices are not necessarily in feedback with lower demand. China subsidizes gasoline prices, keeping them artificially low, at loss of billions to PTR.

      3) Inflation, inflation, inflation---by definition the growth in the money supply at a rate that surpasses the economic growth and trade growth. Thats why you see commodities rising in all currencies--because all countries (some worse than others) are engaged in competitive currency devaluation. In commodities and currencies as in Physics, there is no non-arbitrary frame of reference (with the exception of the speed of light) and so, there is no standard currency. The closest we get to a non-arbitrary currency is a basket of commodities. The markets are telling us a strong message that all currencies are being inflated and losing value--that is the message of commodities.
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    • Thu Mar 27th 01:00 AM | Rating: 0 0
      Commented on:
      Why I Don't Own Commodities
      Why not invest in commodities...I didn't understand the authors reasons...did he state any?

      Two relatives of mine, in their 50s and 60s sent me savings bonds (series ee) when my daughter was born three years ago. This is well meaning but foolish. I am planning on taking the bonds, cashing them, and buying Apache oil.

      Which would you rather fund your son or daughters education with--paper debt of a bloated and undisciplined nation---or the single most actively traded commodity on earth?

      After the depression and into the 50s, people stayed invested with bonds because stocks were "too risky". This in spite of the recovery in the markets. There was no doubt in their minds that bonds were safe, and less risky.

      They wrote articles like, "Why I dont invest in Stocks"--everyone knew that bonds were the way to go and protect your wealth in the deflationary times, and next depression.

      Now, on the heels of the worst bear market in commodities possibly ever (1980 to 2002) the commodity market has been on fire.

      But old beliefs die hard. Stocks must be the way to go, and every year people express amazement that the commodity bull still has legs. Surprise of what great heights gold, oil has achieved, and utter skepticism that commodities will go higher. There is always supreme confidence in those that fight the last war, that they know the way.

      "There must be a bubble. It must be hot money chasing too few goods. It cant last because it doesn't fit my mental model. My confidence tells me so." Ranks right up there with "I'm the decider".
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    • Wed Mar 26th 00:04 AM | Rating: 0 0
      Commented on:
      Taking Stock of Oil
      Look into dividend paying oil and natural gas stocks: SJT, HGT, pwe, coswf to beat the sp500 over next ten years. (I own: pwe, and coswf).
      View article »
    • Mon Mar 24th 20:26 PM | Rating: 0 0
      Commented on:
      Weak Dollar is Bad For America - and ETFs
      Where have all the conservatives gone?
      We can blame the borrow and spend Republicans who controlled the house and senate, and White house for letting the country derail...the Iraq war is partly responsible at an estimated 3-4 Trillion dollars that is borrowed on the backs of our children. A weak currency is a sign of a country in crisis after a certain point. I would vote for Ron Paul, the only Politician I have heard that speaks clearly on these matters--A true conservative.
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    • Mon Mar 24th 14:29 PM | Rating: 0 0
      Commented on:
      Looks Like There's a Silver Shortage
      Silver Wheaton (SLW) is primed to do well in this space. I own Silver Wheaton.
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    • Sun Mar 23rd 23:30 PM | Rating: 0 0
      Commented on:
      Will Credit Market Flight to Safety Boost Stock Prices?
      Inflation is the hidden gravity that does not get the respect it deserves. Its invisible and unrelenting, but in some ways subjective, and difficult to calculate. It is also possibly the greatest risk to your long term financial objectives. The treasury market is manipulated both by the Chinese and the Federal Government.

      Don't misread the low yield of treasuries--it is a false reading.

      Demand for treasuries is higher than it would be otherwise if it weren't for: 1) Chinese need to recycle dollars 2) Fed desire to prop up economy 3) Scared money seeking "safe haven" during recession,and credit crisis, and 4) the underreporting of inflation, that makes investors miscalculate the risks of holding bonds.

      Investors fight the last war, and position themselves for the known and the obvious risks, while avoiding the less obvious risks. The last FINACIAL war was was the Japanese deflation of the 90's--that Bernanke and company are sworn to not repeat.

      With massive debt bubble, and the tsunami of dollars being created to re-inflate, the more likely outcome is a stagflationary 70's.

      Oil may fall to 80, gold to 750, silver to 12, but these will be cyclical selloffs in an overall upward trend. Those who don't understand commodity investing say that it is "risky".

      Some of those same folks say that bonds and fixed income are far less risky. But, in an upward inflationary trend--bonds get killed and commodities outperform.

      Finally, There is no such thing as a risk free investment.

      All investments must beat the long term rate of inflation if one is to prevent a real loss of capital. Buying a t-bill that yields .58% and holding for a year representS the guaranteed loss of between 3-5% (or more ) of capital.

      Why not buy ConocoPhilips ( Disclosure: I own COP) at a forward 6 PE, a yield of 2.2%, and a natural hedge against inflation?

      The stock may drop in the short term, but ten years from now you will double, triple, or quadruple your investment, and collect that rising dividend--something that a bond cannot match.
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    • Fri Mar 21st 14:12 PM | Rating: 0 0
      Commented on:
      Commodities: Is It All Over?
      A few ideas to consider:
      1) Most major industrial countries are growing their money supply at between 12-21% per year. This is not only a US dollar story.

      2) Growth in money supply at a higher rate than productivity and economic growth is inflationary.

      3) We are in a rising inflationary environment that is global in scale, and likely to continue for ten to fifteen years.

      4) Commodities are a proven asset class in a rising inflationary environment. (but tend to do poorly in a stable or falling inflationary environment)

      5) The average of assets allocated to commodities in major accounts of high net worth individuals (according to a recent survey) was 3%.

      6) The asset allocation recommendation by a recent (2006) PIMCO study (analysis done by Ibbotson and Associates) recommends between 12-29% of assets in a portfolio should be allocated to commodities for minimizing risk, and maximizing return.

      7) Assets allocated to commodities in portfolios invested globally are likely far from 12%, and much closer to 3%. Most people I talk to have 0% allocated to commodities.

      8) The past is not the future. The future is not the past. We are over and through the tipping point and a tectonic change has occurred that has changed the economic landscape. People worldwide will be experiencing higher inflation going forward--and they will seek protection with commodities. 1980-2002 was a bad time to be a gold investor, in general due to stable or falling inflation. Going forward, its a different story for commodities.

      9) The popular press has the story wrong--they report "the bursting of the commodity bubble", but completely ignore the change in economic fundamentals--which drive the investment returns. The story should be: "Correction in commodities presents investment opportunity"

      10) Think for yourself.
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    • Tue Mar 18th 18:30 PM | Rating: 0 0
      Commented on:
      4 Recommendations to Defend Against a Financial Armageddon
      Explain this to me: If "so much wealth is rapidly being destroyed. As soon as the commodity price bubble bursts (and it will since record high oil and precious metal prices are economically unsustainable and will crack, just like real estate prices cracked in the summer of 2005), a huge deflationary wave will engulf the world."
      Then:
      When will this happen, and why not posit that the world will be engulfed in a inflationary spiral?

      Bernanke isn't called helicopter Ben for nothing. (he has written postion papers that state that rapid inflation is the way to avoid the Japanese style deflation). But I agree that the commodity super-cycle will end--but time frame is a critical component of your analysis.

      Bull markets last around 17 years (aprox), and commodity supercycles last around 17 years plus or minus five years.

      Mr. Cara, do you see a short term commodity spike, or a supercycle?

      Your analysis is not clear on this point. And, where is you in depth analysis to back your claim that " a huge deflationary wave will engulf the world?" I can make an excellent argument that the opposite is the most likely outcome.
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    • Sun Mar 16th 20:14 PM | Rating: 0 0
      Commented on:
      The New Pillars of Inflation
      Excellent summary. You mention base metals, agriculture, and gold, but what about energy stocks with low current prices to NAV? One stock that has appreciated 40% annually from 2002- 2007 is COSWF and it pays a 9% dividend (approximately). I agree with your thesis but it seems that you leave out dividend paying energy stocks. I like TOT, PWE, and ECA and currently hold positions in each. Also, energy service companies are a bargain right now--look into XES as a basket to play that sector.
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    • Thu Mar 13th 19:37 PM | Rating: 0 0
      Commented on:
      streetTRACKS Gold Fund to Cross-List in Asia
      Inflation has been vastly understated for decades. This is a fact that is easy to verify and is calculated monthly at Shadowstats. Therefore the inflation adjusted price of gold, were it to return to former highs is closer to $4200 that the $2100 quoted in the media. Gold at $1000 is extremely cheap. This is not pessimistic, but rather, what I like to call, realistic. In this decade gold will exceed $4000 and silver will exceed $200 and oz. These are conservative predictions, and where I placed a huge bet.
      View article »
    • Thu Mar 13th 19:25 PM | Rating: 0 0
      Commented on:
      Morningstar's 'Vastly Superior' ETF Research?
      I subscribe to Morningstar, but it comes with a bag of salt. And limitations. They make have consistently undervalued the energy and commodities sectors because they have, in the past, incredibly low expectations for oil, gold, natural gas, and silver prices. I would argue that this is another 'dimension of uncertainty'. If you followed their advice on gold and oil stocks you would have missed the rally of the last 7 years. In this regard they are followers not leaders.

      With respect to commodities they overestimate the risk--and have very low star ratings for very high value stocks because their price expectations of commodities are entirely too low. They see a cycle when there is in fact a trend.

      In the financial stocks the situation is the reverse--they have very high star ratings (For Citigroup for Example) and consistently have underestimated risk, and overestimated fair value. How can we know the fair value of Citigroup, if the extent of their balance sheet deterioration is unknown, and essentially currently unknowable?

      It reminds me of Bill Miller--the past must be the future--right? Keep pouring money in Amazon. Or maybe, we are in a new inflationary era where the p/es will contract (on average) margins will compress, earnings will decelerate, and only companies that have protection against rising prices will thrive?
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    • Wed Mar 12th 14:30 PM | Rating: 0 0
      Commented on:
      Goldman's $200 Oil Call and the Hurricane Premium Theory
      Coswf has returned 40% annually from 2002-to 2007--the Canadian Oil Sands Trust is one to tuck away fro the next 25 years.
      View article »
    • Mon Mar 10th 18:42 PM | Rating: 0 0
      Commented on:
      Seeking Absolute Alpha Because Beta Might Not Be There
      Buffett is an efficient capitalist, a rational investor, but also a philanthropist--and a registered Democrat (or at least a Democrat supporter). I wouldn't think of him as Darwinian in any sense, but rather that he has developed his own philosophy of the higher ethics of capitalism--giving back to the society that allowed him to prosper.

      I disagree with the author that asset allocation is less important than security selection--many well researched studies refute this. I don't believe that Warren has ever said this either.
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    • Fri Mar 7th 19:05 PM | Rating: 0 0
      Commented on:
      Oil = All Time (Inflation Adjusted!) High
      We probably should use the most accurate inflation numbers we can find--that of approximately 6% (conservatively) over the last two decades. This changes the "inflation adjusted" component of crude greatly. In summary: we are nowhere near the inflation adjusted high using realistic inflation numbers.
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    • Fri Mar 7th 13:05 PM | Rating: 0 0
      Commented on:
      Fed Rate Cuts Backfire, Lift Gold and Oil into Orbit
      The bond market is wrong because the bonds aren't being bought just by rational investors, they are also bought by foreign governments to recycle dollars.

      Yes, commodities can keep going because 1) the alternatives are worse, and 2) there is an excess of capital looking for a home in an increasingly inflationary environment.
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