Egypt currently has a total electricity capacity of about 23,500 megawatts, which the government hopes to increase to 58,000 megawatts by 2027.

A prime potential element in increasing this electrical output?

Renewables.

One might think, given Egypt’s climate, solar?

Wrong again – wind power, which currently contributes less than 1 percent to Egypt’s energy mix.

In 2003 Egypt had its wind potential assessed and published a wind atlas, which found that with wind speeds of 7-10 meters per second, almost the entire nation was ideal for wind power installations, with the country’s best areas being along the Gulf of Suez coast. Two years later the atlas’s coverage was expanded to mapping the country’s wind potential in detail and determined that large desert regions both to the east and the west of the Nile River, as well as parts of Sinai, have average annual wind speeds of 7-8 meters per second.

Three years ago, the government of former President Hosni Mubarak approved a progressive and ambitious project by 2020 to produce 20 percent of its energy from renewables, with 12 percent being generated by wind power. Mubarak’s cabinet approved incentives for wind power development, including exemption from customs duties and 20 to 25 year power purchase agreements with government guarantees, a policy that the country’s new transitional government has endorsed.

According to the World Bank, if the policy comes to fruition, then Egypt will realize a 7,200 megawatt wind power capacity, cut vehicle emissions through improved public transportation, and make industry more energy efficient.

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Jonathan Walters, transport and energy manager for the World Bank’s Middle East and North Africa regions, said that “high and persistent” winds in the Gulf of Suez suggest Egypt has “excellent potential for wind power – among the best in the world.”

The European Union’s Clean Development Mechanism (CDM), which permits businesses and governments in industrialized nations to reduce their greenhouse gas emissions by investing in emission reduction projects in developing countries have already become involved in developing Egypt’s nascent wind power industry.

CDM members Denmark, Spain and Germany collaborated on building Egypt’s first wind farm, the 545 megawatt Zafarana wind facility, located 80 miles south of Suez on the Red Sea coast, which came online last year.

The Zafarana wind farm began construction in 2001. In 2010 120 megawatts of wind capacity were added to Zafarana in cooperation with the Danish International Development Agency (DANIDA), taking the facility’s total installed capacity to 545 megawatts, allowing it last year to generate 1,147 gigawatt hours of electricity.

The European Investment Bank (EIB) is also involved in securing financing for Egyptian wind power projects.

Egypt’s Minister of Electricity and Energy Hassan Younis is now seeking international funding to help underwrite the country’s largest proposed wind facility of 120 megawatts, for which Egypt’s private sector will underwrite 63 percent of the project, accordingly to a press release from Cairo’s Egypt State Information Service. If all goes well, Younis said that the 120 megawatt facility is scheduled to become operational in 2013.

Bigger plans are afoot – according to Younis, the Ministry of Electricity and Energy has now issued new competitive bidding tenders for underwriting a project of establishing a 1,000 megawatt wind farm, scheduled for completion in 2015-2016, along with three other wind facilities. Under the terms of the government tender, investors will finance, build and operate the power facilities for a period of 20 to 25 years, selling the power generated by their wind farms to the state-owned Egyptian Electric Company at prices approved by the government.

The largest bottleneck thus far to expanding Egypt’s wind power facilities is securing funding, but Cairo scored some successes even before the overthrow of the Mubarak regime. In mid-2010, the World Bank agreed to lend Cairo $220 million to build infrastructure that would connect wind farms to the national grid and to support some of the other wind farm projects planned in the country.

The Egyptian government is seeking to build production facilities to manufacture selective wind turbine components for the increasing demand of local and regional markets, initially focusing on producing turbine towers and blade facilities for the local market to supply a projected 400 megawatts of facility needs per year and then to export products to the emerging North African and Middle Eastern markets. NREA estimates that the blade manufacturing project requires an estimated investment of $59 million and the tower industry $147 million.

Ancient Egyptians worshiped the sun god Ra. If all goes to plan, then Ra might have to share his primacy with Qebui, god of the north wind and Maahes, the god of war and weather.

Source: http://oilprice.com/Alternative-Energy/Wind-Power/Sunny-Egypt-Interested-in-Wind-Power.html

By. John C.K. Daly of http://oilprice.com

With all eyes on the unemployment report and Europe, the CME Group’s PR Department nearly created an all out panic with their announcement after the market close on Friday relating to futures maintenance margin. The original statement was vague and I was quite concerned until I checked out the CME Group’s web-page and the PR Department sent an update clarifying their position. At this point I think the crisis has been averted, but this is just another reminder that we live in “interesting times.”

Keep in mind that if the CME starts raising margin rates across the board for futures contracts in order to protect themselves stocks and commodities could collapse. Silver recently has is margin rates increased and silver since then dropped 25% in value. So imagine if they raised the rates for more commodities…

The current price action in the marketplace pales in comparison to the world’s geopolitical tensions and deteriorating social mood. In my trading career, I have never seen the price action in the indices react so violently to intraday headlines and rumors. Risk is high and the types of traders profiting from this market are day traders and very short term traders with trades lasting  just a couple hours to 24 hours in length. Aggressive trading which small position sizes is all that can be done right now. This is not meant to be investment advice, but more as a function of the market environment in which we find ourselves currently trading within.

Right now it is hard to say where price action in the broader indices heads in the short-run.  One headline out of Greece or Italy could dramatically alter economic history. In the intermediate term I remain neutral to bearish for a number of reasons. One indicator I follow is the bullish percent index on the S&P 500 which at this point is arguing for lower prices.

The chart below illustrates the S&P 500 Bullish Percent Index:

As can be seen above, the S&P 500 Bullish Percent Index is presently at an overbought status. When looking at the relative strength and full stochastics indicators one would argue that a pullback is warranted. Historically when the S&P 500 Bullish Percent Index is this overbought, a pullback ensues which ultimately sees the S&P 500 Index selloff. The more arduous task is trying to determine just how deep the pullback on the S&P 500 Index might be.

It is critical to point out that while I do believe a pullback is likely, I will not rule out a rally into the holiday season. Much of the near-term price action is going to be dictated by headlines coming out of Greece and the rest of Europe. In addition to Greece, Italy is also starting to see increased concern regarding an unsustainable fiscal condition. Depending on how the European Union handles the varying degrees of risk in the near term, we could see price action react violently in either direction.

With the market capable of moving in either direction, I wanted to point out some key price levels which should act as clues regarding potential future price action in the S&P 500. The two key support levels to monitor on the S&P 500 Index are the 1,240 and 1,220 price levels.

The daily chart of the S&P 500 Index below illustrates the price levels:

For bullish traders and investors the key price level to monitor is the recent highs on the S&P 500 around the 1,290 area. The weekly chart below demonstrates why this price level is critical and which overhead levels will offer additional resistance should the recent highs be taken out to the upside.

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SP500 Weekly Chart Analysis:

While I am neutral in the intermediate to longer term presently, in the short run I have to lean slightly bearish simply because of the future headline risk and also because a major head and shoulders pattern has been carved out on the hourly chart of the S&P 500 Index. This type of chart pattern is synonymous with bearish price action.

The hourly chart of the S&P 500 Index is shown below:

Right now I remain slightly bearish, but should the head and shoulders pattern fail and/or we begin to see multiple positive reactions to news coming out of Europe a strong rally into the holiday season is likely. Unfortunately all we can do is monitor the key price levels and wait patiently for Mr. Market to tip his hand.

Until we see a breakout in either direction, we could see price action inhabit the 1,220 – 1,290 price range for several weeks before we get any more clarity of future direction. Until I see a breakout, I will remain relatively neutral with a slight short term bias to the downside based on price patterns in the shorter term time frames. This is a tough market to trade in, and I don’t want to get chopped around or do any heavy lifting. I’m going to focus my attention on high probability, low risk trade setups until directional biased trades make more sense.

In closing, I will leave you with the thoughtful muse of the late Texas Congresswoman Barbara Jordan,

“For all of its uncertainty, we cannot flee the future.”

Market Analysis and Thoughts By:

Chris Vermeulen – ETF Trading Videos & Trade Alerts

JW Jones – Options Trading videos & Options Alerts

By David Galland, The Casey Report

While I haven’t made a scientific study of the topic, I suspect the leading genre for popular entertainment – and for popular delusions of crowds, for that matter – revolves around magical worlds. As illustration, the Harry Potter series will serve.

The problem is that there is no such thing as magic, at least not in the mystical sense (versus sleight-of-hand variety). Rather, the physical world, and even the metaphysical world constructed by humans in their ancient and long-running quest for protection from the physical world, operates within the boundaries of certain irrefutable truths.

In the first instance, the laws of physics are only rarely found wanting; in the second, basic principles of economies are inviolate, or should be if you actually want an economy to succeed for any length of time.

This unblinking faith in an all-caring, omnipotent “Godvernment” is terrifyingly misplaced: it not only runs contrary to many of those truths but runs contrary to nearly every important lesson history has to teach. Look no further than the debts and deficits of Godvernments around the world to see the consequences of trying to keep this myth alive.

That this faith is on the increase, versus the opposite, should be very concerning… both to those who believe in the rights of individuals and to those trying to build and maintain a reasonable standard of living in this age of deep uncertainty.

Especially in that most, if not all, of that uncertainty, as well as active threats to the general well-being, emanates from the very Godvernments people look to for salvation and sustenance. The graphic shown here demonstrates this point vis à vis US security policies soberingly well.

Now, I am sure that some of you view these remarks as just another libertarian tirade, and I guess to some degree, they are.

Yet, I think there is an important underlying point that requires serious reflection. Namely, with people the world over trapped in a delusional and self-destructive cycle of believing that the Godvernments can solve all that ails – even though almost all that ails is caused or made worse by those very same institutions – then things can only get worse from here.

It’s like all but the tiniest minority of the world’s population have been brainwashed into joining a dangerous cult. A cult whose leaders are unscrupulous about stripping their followers of their wealth, their dignity (see cartoon above) and their sense of individuality, while rewarding their most ardent supporters with pensions, tax breaks, a leg up over competitors and, if push comes to shove, hard cash in the form of bailouts.

Viewed through this lens, the thinking individual – you, for instance – should see the need to take certain self-protective measures. And since few things are as useful as a high net worth when it comes to protecting your independence, there are opportunities to chase down as well.

Some suggestions, a number of which you may have heard before.

1. Expect the latest eurozone patch-up job to come unglued. When you have the heads of the eurozone’s largest countries talking about levering up bailout funds or ringing up the Chinese to ask for money, you know the latest “solution” to the eurozone’s intractable problems is little more than a hastily concocted plan to kick the wine bottle just a bit further down the road. The problem is that nothing suggested begins to resolve the structural problems of the eurozone – because nothing can be done to resolve those problems. Thus, a heads-up speculator will look for ways of betting on failure and place those bets during brief flare-ups of euro-optimism.
2. Likewise, expect the US government’s new Super Committee to fail. Sure, they may come up with some optics in an attempt to mask the dire nature of the situation (for instance, by pushing the impact of any proposed measures out for five or more years – time enough to ignore them), but the fundamental truth in this case is that the Godvernment is hopelessly broke, at the same time the population expects it to do ever more.On the prospects for the Super Committee, and how the bond markets are likely to react if it fails, Casey Research Chief Economist Bud Conrad sent me an email:

David,

What do you think will happen when the Super Committee fails with deficit reduction and S&P follows through with its promise for another debt downgrade? Probably not that much, as the last time it didn’t wreck the markets, but if rates rise, it would not be a good call to be long stocks.

We have had good auctions from the Treasury until a very bad acceptance today that drove the 10-year Treasury to 2.4%. When I wrote my recommendation at the end of September confirming that rates were too low (for the October edition of The Casey Report), the rate was only 1.8%. This kind of move up would normally take months, not days. Here is the pretty dramatic chart:

Rising US interest rates will be a stake through the heart of the US economy. Even just a return to more normal historical averages will skyrocket the costs of servicing the US Godvernment’s mountain of debt, wreak havoc in the bond markets, and simultaneously smash any prospect of recovery in the hugely important housing sector. The key point is that this is big, important stuff you have to be preparing for.

3. Reassess the risks to you or your business. Given the sense of extreme empowerment felt by the high priests of the Godvernment, you need to keep a very close eye on your personal vulnerabilities.A cautionary example are the Alabama farmers who failed to anticipate the tough new anti-immigrant legislation their meddling state government passed, and who now face sure ruin due to the lack of trained workers willing to do the back-breaking work of bringing in the crops or planting new crops for next spring.

   Is there personal or business risk that you can take steps to mitigate now, while you still can? Especially if you are on the wrong side of the populist mantras now being heard in the temples of Washington, you can’t afford to be complacent.

   For example, if you or your business are involved in or reliant upon the financial services, you might want to consider developing some new lines of business. On that front, we haven’t even begun to understand the implications and effects of the Dodd-Frank Act, other than that it was written by career politicians with zero business experience in a period of hysteria following the 2008 crash, and that it is veryambitious.

   Think Patriot Act for financial services – there will be consequences, and I doubt many of them will be good. Investors should consider doing some short-selling or using options strategies in betting on another big leg down for the banks and the financial-services sector. (In The Casey Report, we’re using a simple options strategy to bet on the failure of a massively overindebted regional bank.)

4. Don‘t expect anyone to help you. Actually, with the growing meme to soak the “rich,” namely anyone who pays more than a modest amount of taxes, you need to wake up to the reality that you are on your own.Put another way, if you have assets, you have a target on your back. Laugh at the OWS folks if you want (and it’s hard not to), but it is their world we’ll be living in going forward, not the ones our parents or we made (and, truth be told, screwed up pretty badly). If you think you’re going to be able to afford to retire on your Social Security, think again. If you’re lucky, it will buy you a hot cup of coffee to enjoy while you and your buddies stand around the burning oil drum on a cold winter’s night.

   If you don’t have a respectable net worth at this point, then learn useful skills – such as how to speculate in investment markets. Or how to program computers. Apparently, the youth of today like to use the stuff but aren’t so hot on actually learning how to program – they prefer liberal arts educations. Given that many of the iconic successes in the computing industries (Gates, Jobs, Ellison) never graduated college, it would be a mistake to consider that a prerequisite. There are many more directions you might go in, including internationally, the important point being that it’s time to get going.

5. Internationalize. With the biggest threat to your wealth and maybe even well-being coming from your own government, it’s essential that you spread your wealth into other political jurisdictions. Don’t do it hastily, but do it nonetheless. InternationalMan.com, a new site that picks up where Doug Casey’s best-selling book International Man left off, may be of some help. Remember, once exchange controls are implemented (almost a certainty), your wealth is trapped and the government will be able to have its way with your assets.
6. Front-run the mob. For example, with the mob against all currently viable forms of baseload energy production – and they are – careful bets on rising energy prices are, over a period of time, a sure thing.Let me say that again because it seems self-destructive madness to me, but a large chunk of the mob as well as the priesthood of Godvernment are actually dead set against all currently viable forms of baseload energy. You know, the stuff that keeps the lights on at night. Coal, oil, nuclear and now, thanks to the trumped-up fracking controversy, even natural gas! While the mob hasn’t yet overrun the barriers of sanity and pulled the energy plug – though many would do so in a heartbeat – they have been very effective at slowing exploration and development of energy resources to a crawl. Actions have consequences, in this case, higher energy prices. That’s what I call an opportunity… don’t miss it.

   Likewise, the mob is not going to stop demanding that the Godvernment provide succor and sustenance, and so deficit spending and debt has to continue to rise, leading to currency debasement. Buy tangibles, but especially gold and silver, on any setbacks.

   Those are just a couple of ideas for front-running the mob, but if you put on your thinking cap, I’m sure you’ll come up with many more.

Wrapping up, I’ll repeat my basic position on all of this… in the form of an excerpt from a lightly edited response to a reader who took offense at a recent article of mine.

The left and the right both have it wrong, as far as I am concerned. Both share equal responsibility for the big dislocations that have proven so damaging to the economy and society.

Thus, I can only conclude that who is in charge is far less important than what those who are charge are actually allowed to do. The size and scope of government, in my view, has to be very specifically spelled out and very limited so that the next gang to take control can’t just willy-nilly play to the prevailing mob sentiments.

That’s how we got here in the first place. Put another way, are many of Obama’s policies counterproductive and damaging to the economy? Of course. But so were those of Baby Bush. And, before him, Clinton (who allowed the government to grab Social Security funds so that he could claim a balanced budget). And before him, Bush senior… and before him… and so forth and so on.

Unless and until we stop the madness – stop the meddling – the path the world takes will remain perilous and, fortunately for us speculators, somewhat predictable.

[Will you be well positioned to survive when your Godvernment's time runs out? The Casey Report tells you what to expect and how to protect yourself. In the current issue, read investment legend Doug Casey's outlook for 2012 – on the stock market, the US economy, the euro, gold and silver, the Middle East, China, and much more. Also in this edition: An in-depth analysis of the Fed's battle for low interest rates, and how to add gold to your IRA and save taxes. For just a few days, you can get The Casey Report for only $98 per year… a staggering 72% off the regular price. Start your subscription today.]

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By David Galland, The Casey Report

Of all the social memes related to the economic and investment landscape, none is more dominant than that there is a small cadre of powerful Wall Street money men who, working behind the scenes, effectively control investment markets, the global economy and the politicians that play such a big role in that economy.

Whether you call them fat cats, greedy bankers, soulless manipulators or unindicted co-conspirators, the one sure thing, in the minds of most, is that they wield the power behind all thrones and that it is their whispered agreements, invariably made in darkened rooms full of cigar smoke, that decide the economic fates of us all.

Over the years, I have met quite a few of these “Lords of Finance” and found them to possess the same wide range of traits, positive and negative, shared by all humans: fear, insecurities, self-delusion, high hopes, good intentions, social aspirations, good habits and bad.

And, of course, the greed that the Lords of Finance are said to possess in extra doses. Like Gordon Gekko, I have no problem with greed, as long as the pursuit of that which gives you pleasure does no harm to others.

There is one trait, however, that, in my experience, is almost always present in a Lord of Finance – and that is an acute intelligence. When it comes to matters of finance, even the average Lord of Finance has a keenly honed mind that has been trained to precision to understand the complex pieces of investment markets.

Which brings me to my interview. We’ll call him LOF, because the only way he would agree to be interviewed was if it was anonymous. A former colleague of a friend of mine, his career on Wall Street has stretched over 40 years and includes 10 years as the chief financial officer for one of the world’s most powerful investment banks. Leaving that position to strike out on his own, he and a group of colleagues went into money management, overseeing billions of dollars. Now, slowing down in the latter years of his career, he and his colleagues manage “only” tens of millions.

My goal for the interview was two-fold. First, it is to help calibrate our own views on the outlook for the economy with an individual who is not just hyper-intelligent but who has spent a lifetime immersed in the money game at the very highest levels. Casey Research sees ongoing crisis, getting far worse before it gets better. But what about a Lord of Finance?

Secondly, I wanted to gain some insights into the rarified world inhabited by the Lords of Finance. Is their dismal reputation warranted, or are they just people whose education and professional instincts have taken them to the top of highly rewarding and highly influential careers?

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Let’s find out.

DAVID: People have a lot of perceptions about the “Lords of Finance,” if you will – the big banks, the operations in New York, the political connections and so forth. As you worked in the executive suite of one of the largest and most influential of these institutions for a long time, I want to get your take on those perceptions and also see how well our views on the current economic situation sync up, or not.

LOF: This is totally anonymous, right?

DAVID: Yes, completely anonymous.

LOF: Okay, great.

DAVID: So as a background, the first question, how long have you worked in the financial industry, what did you work in, and what sort of capacities?

LOF: Right. Well, I guess it started in the mid-‘60s, so I’ve been in the business now for 45 years. It is hard to believe, and the first 25 or so, really the first 30, I guess, were with a major investment bank that will go unnamed, rising to the position of chief financial officer.

Since retiring, I was involved with a firm managing billions of dollars. So, in answer to your question, most of my career has been with a big bank, but I have also run my own money management business. I am also a CPA, having started with a big CPA firm back in the early ’60s.

DAVID: Right. So 40-plus years in the business.

LOF: Correct.

DAVID: In all that time, have you ever experienced anything in the markets and the economy similar to what’s going on today?

LOF: No. In my experience, this is unique. And I remain concerned about the potential for another serious crisis. And for the first time, I’m concerned as to whether or not the American economy really has the kind of robust characteristics that we have enjoyed for most of my life and most of our careers, which is something quite new to me.

DAVID: So you aren’t buying the story that we’re out of the worst of this and that it’s happy days from here?

LOF: No, I certainly don’t buy that story.

DAVID: How would you describe the current state of the big financial houses? Does the fact that they’re still laying off thousands of people suggest these firms are hunkering down for a protracted period of slow growth?

LOF: Yes, I’m sure that’s what they’re doing. I think they’re also in an environment that is extremely uncertain, looked at from their point of view. You have a public that is still angry at them, for good reason, for their culpability in what happened in 2008 and 2009 and continues to happen.

Then you’ve got a regulatory bill, this Dodd-Frank bill, which has really yet to evolve because so many regulations have yet to be written by the various agencies. So the banks really don’t know what the landscape is going to look like going forward, and that makes it very difficult to plan, especially when it’s clear that the appetite is for more stringent regulations and not less.

Another aspect is that the environment in which they were able to make so much money by using tremendous leverage has certainly changed. It is highly questionable whether they can do that sort of business again, given that the balance sheets of these big banks are so opaque and so difficult to manage. So much so that I question whether any outside regulator can decipher and understand the risks that these banks have been taking. Actually, I question whether the banks themselves understand the risks that they’re taking. I think there are so many interactions that I have to wonder whether anybody really understands the kinds of risks that are out there. All of which adds up to a very challenging environment for these banks to operate in.

DAVID: Speaking of uncertainty, Dodd-Frank contains something like 400 new rules the banks are going to have to comply with, most of which have yet to be implemented. That would support your contention that it’s going to be very hard to plan in that kind of environment. Especially because some of the new legislation strikes right at the heart of key lines of their businesses – lines that have gone away and are unlikely to return anytime soon. So that’s got to really add some pressure.

But actions speak louder than words. Knowing everything you know about the big financial houses, would you invest in one today?

LOF: I would not. The way I look at the world as an investor today is very different than the way I looked at it in 2007. With hindsight, I now know that I was taking much too much risk in 2007, and part of that risk was in financial companies. I have significantly reduced that risk to a very, very small fraction of my own investment portfolio.

I think that it’s a fool’s game to invest in those banks, because there is so much uncertainty out there, in terms of the new rules and regulations, and also there is far too much risk embedded in these companies.

DAVID: Are you referring to derivatives?

LOF: Derivatives are certainly part of it, but it comes down to the exposure these companies have to other financial institutions. The interrelationships are immense, and the credit of each of these institutions is uncertain and hard to evaluate.

Let’s put it this way, they’re not doing business with the Procter & Gambles of the world, businesses you can do a fairly straightforward evaluation on. I no longer understand the complex interrelationships of the institutions. If I ever did, I no longer do. And I don’t like to invest in things I don’t understand, certainly not in size, so I’m uncomfortable with these institutions as an investor. For that matter, I would be uncomfortable as a regulator, and I would be uncomfortable as a customer.

DAVID: To many people, the “fat cat” bankers on Wall Street are viewed as the very epitome of unchecked greed, avarice, even evil. As you were part of that world for a long time, how would you respond – is the poor image warranted? Do you think the culture in the big institutions has changed over the years since you retired?

LOF: Most of the people I worked with on Wall Street were good people – well meaning, ambitious, but with a very strong moral compass. I suspect that is still true today.

I do think that the culture has changed… in one important respect. For many, many years – including when I worked there – Wall Street was dominated by large partnerships. The partners had every nickel they had – both in the firm and outside the firm – at risk, even their homes and cars. I was stopped frequently by partners who worried incessantly about too much risk threatening their financial well-being.

We weren’t permitted to take much of our capital out of the firm, and withdrawals were tightly monitored. Why? To reinforce the feeling that all we had was at stake and to encourage modest risk taking as opposed to “betting the ranch.”

That all changed once firms went public and partners were able to have large stakes outside the firm and achieve “limited liability.” It became “other people’s money.” A huge difference, I think, and one that contributed to a much greater willingness to do things that wouldn’t have been done in an earlier era.

A second factor was the elimination of Glass-Steagall, which had previously kept activities within bounds. Once that was eliminated, banks and brokerages were able to greatly expand their risk taking –without the capital necessary for such risk taking. And, in many cases, beyond the managerial expertise of any firm as well as the expertise of the regulators, because their activities became too complicated for mere mortals to understand.

DAVID: The news broke recently that the government is preparing to launch a new wave of lawsuits against the big banks over their mortgage lending practices. Do you get a sense that the honeymoon is over between the government and the big banks?

The average guy on the street looks at the big banks and the rotating door between the banks and government and thinks, “Well, these guys are all in the same bed.” Is that an accurate assessment of the way things have been, and if so, do you think that cozy relationship is now changing?

LOF: Well, it’s been pretty stunning how, on a number of fronts, the banks have gotten away with as much as they’ve gotten away with. That does suggest that there is this unholy alliance between the people that write the rules and the people that benefit or suffer from those rules, aside from the average person on the street, that is.

You’re right, that’s the perception, and I think it’s accurate given that nobody has gone to jail. Considering what’s happened, it’s amazing that that’s the case and suggests that corruption in the political process played a role in what happened. But that may be changing.

The elections of 2010 and perhaps the election of 2012 are putting a lot of people in office that are not beholden to the big financial institutions in the same way as was the case in 2008. That said, that’s not necessarily good. I mean it’s good in a sense, but at the same time, when you have the attitude out there that it’s the government against the banks, that’s not healthy for the economy either. It’s too early to say how all that will play out, you know, on a bottom-line basis.

DAVID: Based on your observations, do you think the banks were deceitful in how they marketed overrated mortgage-backed securities, or were they just blindly opportunistic in going along with the flow?

LOF: Have they been deceitful? I don’t really have an opinion on that, but I will say that the big problem in 2008 and 2009 was in the excessive overleveraging of these institutions and the amount of risk that they took on. The fact that they weren’t as candid as you would like them to be in terms of what they said about what they created and what they sold – I think that’s pretty much always been out there, but most of the people on the other side of these trades were pretty sophisticated people.

So I guess you can say that it was a caveat emptor kind of situation. In my view, it was the scale of what they were doing, the immense leverage that was embedded in the system, that was more of a problem than whether they were deceitful or not.

DAVID: Has the leverage been markedly reduced at this point?

LOF: You know, I haven’t studied it, so I can’t tell you that I know. I believe it has been reduced, but by how much, I really couldn’t say. Whether it’s been reduced enough and whether there’s enough capital in the system to cover the risk, who can say?

One of the things that’s sort of interesting to me is that Warren Buffett invested five billion dollars in Goldman Sachs back in 2008, and that gave a lot of confidence to others that somebody like Buffett would put five billion dollars in even though the capital was pretty expensive. And then, within a couple of years, they pay it back, which makes me question why they would have taken Buffett’s money in the first place.

I mean, it’s nice capital, and yes, it costs a little bit more, and maybe the reputational aspect of having Buffett as one of your investors was important at the time, and so you take the capital and then pay it back, but that doesn’t make a lot of sense to me. Then, recently, Buffett goes to Bank of America and offers them five billion dollars and they take it, but at the same time they’re saying they don’t need the capital, so it’s confusing.

Do they or don’t they need the capital? I’m not sure they know. I’m not sure anybody knows what kind of capital needs they have. Again, it gets back to my point as to how much they really understand their own businesses anymore, and the risks that are there and the amount of capital that they need.

If the companies themselves don’t understand it, how do you expect those people that are overseeing them to understand it? Bottom line, I question whether there’s enough capital in the system for the risk that is being taken, even today.

DAVID: Which begs the question that if another big bank runs into serious trouble, and Bank of America seems like a good candidate, do you think there’s an appetite in Washington to arrange another bailout? Of course, the consequences of not bailing them out are pretty significant.

LOF: I don’t think there is an appetite for more bailouts. You can see that by looking at what’s happening in Europe.

The question of what to do with banks and what to do with the problems they could create for the economy if you let them go is being grappled with worldwide. I think the only hope the policy makers have is that these problems will be solved through growth, as that is the only rational solution.

Which means the real question is whether or not that growth will occur in a reasonable time period. Frankly, it is hard to see where that growth is going to come from. It is certainly hard to see that in Europe, and it is hard to see that here in the US as well.

DAVID: On the topic of growth and trying to get money in the system, you’re a financial guy, so maybe you can explain the tremendous amount of money sitting on deposit at the Fed earning almost no interest, but enough, apparently, to keep the banks from lending that money back into the economy.

Do you have any thoughts about why the Fed is paying interest rates on the deposits and why the banks are leaving that money on deposit? It’s unprecedented as far as I’m aware. Any thoughts on that?

LOF: You’re right, there is a tremendous amount of money that is not being employed in the economy, and it’s all part of the same problem. And that problem is that the banks don’t have any confidence, companies don’t have any confidence, outside investors don’t have any confidence. Everybody is frightened, and everybody is trying to protect themselves. That is not an environment that produces growth.

DAVID: So they are leaving the money on deposit at the Fed because they’re not sure about their capital needs? What if the Fed were to go back to paying them nothing on their excess reserves, or actually start charging them to keep the money parked at the Fed? Wouldn’t that help push that money back out into the economy?

LOF: All these potential decisions by the Fed have consequences that neither they nor anybody else can anticipate. What you’re suggesting might work out, but I don’t think anybody knows. I don’t pretend in any way to have opinions as to what the Fed should or should not do. It’s not something I study. It’s not something I understand, particularly.

Instead, I try to approach these sort of things as a businessman or as an investor. And as a businessman and as an investor, I look around and see a lot of uncertainty, I see real potential for crisis. And when I see that, I just want to hunker down in some way, and that attitude influences every decision I make.

As I’ve mentioned before, since 2007 I’ve changed the way I think about things. As a result, for the last four years I’ve been working to position myself and my family in a way that I believe is more sensible. Becoming far more cautious could be the right thing to do or it could be wrong, but however you look at it, when you extrapolate that shift in attitude across millions of investors and business owners and even bankers who have been acting much the same way, it is not a positive for the economy. I guess that wasn’t a specific answer to your question, but…

DAVID: No, it makes sense that this widespread reaction to uncertainty is a fundamental force in today’s economy and investment markets. Any thoughts on interest rates? It seems odd that the US government could have record levels of debt and continue to run record deficits and yet interest rates bump along at record lows. Does that make sense to you?

LOF: Actually, it has made sense to me. I have felt for some time that the people, including Bill Gross, who I think is great, who have been saying that interest rates and inflation are heading higher, although probably right in the long term, were not going to be right in the short term, and that the short term has a ways to go. Specifically, I have felt for some time that interest rates were headed lower, and I continue to believe that we could easily see 1.5% on the 10-year Treasury and somewhere in the 2s for the 30-year.

My rationale is that there are such tremendous headwinds preventing the economy from growing in any significant way, and it will probably be contracting, and those conditions are not going to produce rising interest rates. Quite the opposite. The headwinds are all the things that we’ve talked about, plus you’ve got this dramatic entitlement problem in our country and in Europe that is only going to grow more problematic.

If you go back in history and look at the ability of a democratically elected government to take things away from people who vote, the record is pretty clear. Predictably, if you’ve given people something significant, and then you try to take it away and they vote, the politicians will be voted out. So whether it’s right or it’s wrong, the populace in general will not stand for it, so therefore the politicians will avoid taking the hard measures that could actually help solve the problem.

Historically the only way to resolve the sort of problems we’re facing is through growth, and if you don’t get growth, then the policy makers will continue to debase the currency.

Ultimately that will happen, but in the period of time that I can foresee, which is the next three or four years, I don’t see much of a chance that interest rates will go up. I think there is a very, very strong downward pressure on interest rates that will continue for a while.

DAVID: Obviously, the uncertainty will keep people looking for those safe harbors, and Treasuries are still considered safe harbors. The other thing that sort of strikes me as a factor now is the dismal shape of the Eurozone. I have to imagine that there is an awful lot of money currently in the Eurozone that would like to get out of there and is starting to move out. Of course, US Treasuries are one of the few instruments that can actually handle any kind of real volume, so that will probably help keep rates down as well.

LOF: Absolutely. I think that’s absolutely true.

DAVID: You seem to be expecting short-term deflation, longer-term inflation, would that be a good way to describe it?

LOF: It’s pretty hard to create a scenario where you don’t have inflation in the long run, but what the long run is, is another question, and the long run could be quite a ways out.

Let me add that I am more positive about the future than I may otherwise sound. I think that the American economy, in particular, has resilience that is pretty impressive, and that ultimately we are going to get through this. But I think it’s going to be a very, very long period of time before that happens; it could easily be five to ten years.

When we do come through it, I think the economy will have a vibrancy that people won’t expect, but it’s going to be a while, and at that point, I think we’re going to have to deal with some serious inflationary pressures.

DAVID: Given the obligations and the entitlements and the current level of debt and no end in sight to the trillion-dollar-plus deficits, it seems to me that this is not going to end without some sort of default, either overt or covert in terms of inflation. If for no other reason than that these obligations can’t be met. Would you agree with that?

LOF: Yes, I don’t think they can be met. I think it’s impossible. I think they have to be restructured in some way. You’ve got to restructure the whole entitlement system, and politically you can’t do that right now.

I recently had a conversation with the economist at a major bank, and I asked him what he thought. I said, “What do you think the chances are of another crisis of the magnitude or greater that we had in 2008 and 2009, and if that crisis occurs, when would it occur?”

He said he thought that there was a real chance of that happening, and if it happened, it would probably happen sometime after the election in 2012 when the markets realize that even in a new administration, these problems will not be dealt with.

In his view, once the markets understood that, we are likely to see a very, very bad crisis. Then, just maybe, at that point will the political process make the necessary adjustments. But I think that even that’s questionable.

DAVID: I just finished an article for John Mauldin’s newsletter, in which I looked back at all the times the US monetary system was in danger of failing and had to be fixed.

As it’s been 40 years since the last major do-over of the monetary system – when Nixon closed the gold window – most people think of the monetary system as being fixed in stone, and the notion of it stumbling doesn’t even come up in the average conversation. But in reality, it has been restructured numerous times since the Civil War.

In our view, the current fiat system is not going to make it to the other end of this crisis intact, but will have to be remade in some way that anchors money to commodities, with gold at the core.

How do you and your friends in high finance view gold these days? Do they still view it as a barbarous relic, as they did a few years ago? Are they starting to buy it for their portfolios? Personally?

LOF: I think that more and more of what you might call respectable opinion puts gold in a different category than they would have five years ago. You hear an increasing number of serious commentators, people like Byron Wien, for example, talking about having a 5% position in gold, and you never would have heard that five years ago.

Back then, favorable opinions on gold would have been seen as far out. Today having a significant gold holding is more and more in tune with respectable opinion than it ever was. The mainstream guys are also thinking in terms of things like TIPS and in terms of holding other currencies.

In other words, they’re investing in things that they never would have thought of doing before this crisis, but gold in particular. And not so much as a commodity but as a currency. That’s been my view for some time, but now I am hearing that same view on a much broader basis.

DAVID: So I take it you have been buying gold personally?

LOF: I have.

DAVID: Starting when, more or less?

LOF: Well, I’ve had a gold position for 20 years in gold coins, and then in the last three years I’ve been adding to that through ETFs.

DAVID: What percentage of your portfolio, more or less, would you say is now in gold?

LOF: It’s probably 3% or 4%, but it probably should be higher.

DAVID: Moving along, it’s safe to assume you’re pretty well off financially. What did you think of Buffett’s call that the government should be taxing the rich more?

LOF: I have what you may find an interesting point of view on that. I do think that inequality is a bad thing, and it is something that causes political unrest. Being a dedicated Republican, as much as I dislike this administration, I would have to believe that if there were a Republican administration in place and we had this kind of an economy, you could easily see a lot more political unrest in the street than you do right now.

Now ask yourself what Buffett and people at that level of wealth are afraid of… I can tell you they are not afraid of much – if you have whatever he has, 50 billion dollars, you’re pretty well set. The real fear people like that have is social unrest, and so maybe what he’s doing is trying to appease the masses by virtue of saying he should be taxed more, even though that’s not going to make any kind of a dent in his net worth.

So it’s an appeasement thing, and I understand why he’s doing it, but I don’t think it works. I don’t think it appeases anyone, and I don’t think it does anything to redress the inequality problem that’s out there. That’s a very, very great fear that people with money have, of social unrest on the home front.

DAVID: Do you anticipate your taxes going up, a little or a lot?

LOF: I think you have to assume that over time they will go up a lot. Whether or not that happens in a short time frame or a long time frame, I think the political pressures ensure it. If 50% of the people don’t pay any taxes and they’re voters, then that has to be the direction we are heading. As much as I don’t think that will be good for the economy, and I certainly don’t think that it will be good for me, I think it’s pretty hard to resist the reality.

DAVID: Other than gold, what else are you investing in these days? Are you heavy in cash?

LOF: Yes, I’m more heavy in cash than I ever was. I still have an allocation to municipal bonds where I keep the duration relatively low. I have an allocation to common stocks of companies providing consumer staples, the Procter & Gambles and the Kimberly Clarks and the Johnson & Johnsons of the world. Companies that are in better financial shape probably than the US government and that pay dividends of 3% or so.

I have an allocation to hedge funds run by very smart people who can do things and think things out in ways that surpass my level of confidence in doing it myself.

I have an allocation to convertible bonds, convertible bonds of companies where you keep the duration short, and you believe that they’ll still have a pulse a few years down the road, so you’re going to at least get your interest on the bond if you’re wrong and if the stocks don’t perform.

As I mentioned, I’ve got an allocation in gold and in TIPS. And I also believe in having money in private equity. I do believe if you want to take risk, put some money with a manager who is putting his money to work side by side with yours, watching for opportune situations, taking advantage of the dislocations that exist, and doesn’t have a liquidity issue where investors have the ability to pull their money out whenever they get nervous. I think that is a very sound place to have an allocation to.

DAVID: To give us some sense of how concerned you are about things at this point, what percentage of your portfolio is in cash?

LOF: About 10%.

DAVID: That’s all, so you haven’t completely run to cover?

LOF: I consider my municipal portfolio, which is pretty short term and is maybe another 15% or so, and my convertible portfolio and my portfolio of consumer staples as all being things that constitute my safety net. If you add all those together, it’s probably close to 40% to 50% of my portfolio, So, yes, it’s not all cash, but it’s, you know, at least in the categories that I feel comfortable with.

DAVID: Wrapping up, looking over, let’s say, the next five years, on a scale from 1-10 with 1 being everything is going to be okay and 10 being something closer to Doug Casey’s view that “people will be grubbing for roots and berries,” where would you put yourself?

LOF: The next five years: 1 is hunky dory and 10 is Doug?

DAVID: Yes.

LOF: I guess I’d be a 6. I mean, I think that we’re not going to be fighting in the streets and having to use our gold and silver coins to eat, but I do think the economy is going to be extremely sluggish – very, very sluggish. I think we’re going to have high unemployment and there’s going to be more unrest, but I think we’ll slog through it.

DAVID: As you contemplate the future, is there anything in particular that keeps you up at night?

LOF: I don’t stay up at night and worry about the economy. I do think that for most people that have been fortunate enough to live to an older age, the biggest concern they’ll face is about their children and grandchildren. The older folks will struggle through it because when you get into your sixties and seventies, you don’t need that much, and you can adjust, and you can compensate one way or another.

But when you’re young and you’ve got a family, it’s much harder to adjust, and I think those are the people that I worry about, and that’s what I think other people are going to be worrying about, too. They’re going to have their kids moving back in with them and not having any kind of self-esteem, and they’re going to be worried about their grandchildren. That’s really where the issues are, not people losing sleep over their own ability to survive.

DAVID: A wise observation. On that note, thank you very much for agreeing to this interview.

[Insightful interviews and analyses are part and parcel of The Casey Report. Big-picture perspectives combined with actionable advice on contrarian investments give you a deeper understanding of global trends and help you protect your wealth in times of crisis. Take The Casey Report for a test drive today: for just a few days, you can get a full year of invaluable information for just $98… a savings of 72%, with three-month money-back guarantee.]

On 28 October Air China conducted its first trial flight of a passenger jet powered by a mix of biofuel and traditional aviation fuel.

The Jet A-1 biofuel kerosene used in the flight was derived from the seeds of tung trees, more commonly known as japtropha.

Air China’s Boeing 747-400 landed safely at Beijing Capital International Airport at 9:30 a.m. after burning more than 10 tons of the biofuel, a 50-50 mixture of traditional Jet A-1 derived from oil and Jet A-1 processed from the japtropha seeds. The jatproha Jet A-1 is what’s known as a drop-in, simply being admixed in a 50-50 ratio with conventional Jet A-1, and requires no engine modifications.

Air China Vice President He Li said the composition and the burning efficiency of the biofuel admixture had been tested along with its impact on the Boeing 747′s four Pratt and Whitney JT9D high-bypass turbofan engines.

The Hydro-treated Renewable Jet Fuel (HRJ) used Honeywell/ Universal Oil Products’ process to produce the biofuel. According to Jennifer Holmgren , UOP’s former director for renewable energy and chemicals, UOP licenses the process “nonexclusively.” UOP said in a statement, “The flight is a result of a broader effort kicked-off in 2010 by China’s National Energy Administration and the U.S. Trade and Development Agency to address the technical, economic and institutional factors required for the development of a new biofuels industry in China.”

Air China is the People’s Republic of China flag carrier and one of the country’s major airlines, the world’s tenth largest airline company according to fleet size, operating nine Boeing 747s scheduled to be phased out. Air China has already retired five Boeing 747s.
According to the International Energy Agency, China will lead the world in “demand growth” for jet fuel through 2012, reaching 5.6 percent. Total worldwide demand for Jet A-1 is forecast to reach 239.4 million gallons per day during the same period, compared 214.2 million gallons in 2007, a demand-growth rate of 2.3 percent. A 2007 422-page National Petroleum Council study, Facing the Hard Truths About Energy, reports that global demand for energy, including jet fuel – will grow by as much as 60 percent by 2030. It is China’s growing civilian air capacity that makes the test significant, as China Civil Aviation Administration official Zhang Hongying said following the test that the jatropha-derived biofuel was now ready to be used for commercial flights.

The Air China test flight is the world’s sixth such demonstration flight using Jet A-1 derived from jatropha.

The success was long in coming. PetroChina vice president Shen Diancheng remarked that it had taken PetroChina a decade to overcome the technical barriers of converting jatropha oil into Jet A-1 aircraft, but now that tests have proven its viability, PetroChina expects to ramp up production to 60,000 tons of jatropha Jet A-1 annually by 2014.

China’s interest in developing biofuels for industrial use is growing rapidly. In late 2009 Boeing and China signed a biofuel agreement with the Chinese Academy of Sciences and Chinese universities calling for research and development that potentially could support commercialization of jatropha. China has been proactive in the biofuel area for a number of years, with jatropha planted in 2007, and the plant – either wild or cultivated – can be found in Sichuan, Yunnan and Guizhou provinces as well as the Guangxi Zhuang autonomous

region. Yunnan currently has 33,000 hectares under cultivation and the Xinhua news agency reports that the country will have 13 million hectares of biofuel plantations by 2020 that will produce 6 million tons of biodiesel annually.

But commercial jatropha production has its bottlenecks. While jatropha grows wild in tropical regions and can be cultivated on land not suitable for crops, it produces a lot more on cropland, suggesting that if it becomes popular, airlines will have to be careful that it is not squeezing out crop production. Initial field tests of jatropha cultivation suggest that high oil yields require that the plant receive water, nutrients, and soil conditions that are comparable to many food crops.

A substantial drawback to jatropha is that it is currently harvested manually and commercial producers have found that the plant is more labor intensive than originally thought, especially for harvesting.

Despite these setbacks, commercial jatropha production is underway or being established abroad. Abundant Biofuels Corporation, which is headquartered in California, has jatropha cultivation projects underway in the Philippines, Columbia, Peru, and the Dominican Republic. D1 Oils plc of London, United Kingdom, has announced large projects in India, Malawi, and Zambia. A number of companies are reported to have recently acquired rights to cultivate jatropha in Ghana. The central and some state governments of India are promoting jatropha production on tens of millions of acres, although these efforts have been criticized for potential adverse impacts on forested areas, biodiversity, and food production. Early yields in India have been below expectations.
Accordingly, commercial firms growing jatproha and airlines worldwide will be watching events in China with great interest. Fuel and oil comprise 25 percent of airlines’ operating costs and when the price of jet fuel rises one cent, it increases the global cost of aviation $195 million.

Given the fiscal resources available in China, it therefore seems most likely that jatropha commercial aviation biofuel production will arise their first, if sufficient land not impacting the nation’s food production can be found.

Perhaps in the future the East will not be so red as green.

Source: http://oilprice.com/Alternative-Energy/Biofuels/China-Completes-First-Biofuel-Jet-Test-Flight.html

By. John C.K. Daly of http://oilprice.com

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By Terry Coxon, The Casey Report

Money market funds began as a bright and useful idea, became a habit, and recently have become a bad habit.

Money market funds were invented in 1971 as an innovative end-run around Federal Reserve Regulation Q, which prohibited paying interest on demand deposits. The purpose of Reg Q was to stifle competition in the deposit-taking business in order to benefit commercial banks – at the expense, of course, of depositors.

The regulation had little effect until the late 1960s, when two factors converged. The first was consumer price inflation; it was mild compared to what was soon to follow, but it was still noticeable, and it fueled a general rise in interest rates. The second factor was the arrival of the IBM 360, which made computing much cheaper. Before that device, the administration of checking accounts was still labor intensive and little advanced from the days of green eye-shades. It was expensive for banks to maintain checking accounts, so they weren’t inclined to pay interest on them, Reg Q or no Reg Q.

Then the drop in the cost of maintaining checking accounts and a rise in the revenue that could be earned from investing depositors’ money turned demand deposits into a very attractive proposition for banks. Since Reg Q forbade head-on competition for deposits, individual banks did what cartel members always do when there are profits to be made – look for ways to compete indirectly. In lieu of paying interest, banks began giving away premiums to attract large deposits. The era of the free bank toaster was born.

The first money market fund, Reserve Fund, went far beyond small appliances to exploit the opportunity provided by high interest rates and cheap data processing. The legal strategy devised by the fund’s promoters was to avoid the regulatory environment of banking with its Reg handcuffs and instead to set up shop as a SEC-registered mutual fund. But unlike any mutual fund up until then, it didn’t invest in stocks and bonds; it invested in jumbo bank CDs earning open-market yields. And its share price didn’t fluctuate; it was held steady at $1.00 by paying a tiny dividend every day, which could be reinvested automatically in more shares. Shareholders could redeem by writing a check, which the fund would cover when it was presented to the bank where the fund kept its checking account.

From an investor’s point of view, Reserve Fund was functionally a bank, even though legally it was an investment company. But for all intents and purposes, it was a bank with zero net capital, which meant that its investment policy had to be emphatically conservative. So, since the jumbo CDs that the Reserve Fund was buying were far bigger than FDIC insurance limits, the fund bought only from banks it considered indestructible. Shortly after Reserve Fund opened for business, another invention, Capital Preservation Fund, took conservatism to an extreme with a policy of investing only in Treasury bills. This made the fund’s shares arguably as safe or safer than FDIC-insured deposits, and with no limitation on size (the FDIC insurance limit at the time was $10,000).

Good as the idea was, money market funds got off to a slow start with the public, but the continued upward trend in inflation and in interest rates soon turned them into a giant industry with hundreds of funds and a river of management fees flowing to their promoters. And for the most safety-minded investors, the Treasuries-only funds offered a welcome refuge from worries about the reliability of commercial banks.

Money market funds are still a giant industry, but you have to ask why. Limits on bank deposit interest rates are long gone for individuals, so even before today’s near-zero returns, the yield advantage on money market funds was modest at best. And with the bogeyman of sovereign default peeking out of so many windows lately, the phrase “Treasury bills-only” no longer has quite the tranquilizing effect it once did. In fact, given that most FDIC-insured deposits are owned by Americans (aka potential voters) while much of the Treasury debt is owned by non-voting foreigners, FDIC-insured bank deposits may be a better bet than T-bills.

Take a look at what is now the largest retail money market fund – Fidelity Cash Reserves. It has $120 billion in assets. The yield for investors is 0.01% – keep a hundred dollars in the fund for a year and you get a penny. Put $10,000 into the fund and twelve months later you have $10,001. And there are risks: the fund holds nearly 52% of its assets in uninsured bank CDs and another 14% in commercial paper. I can only surmise that most of the $120 billion is there because of investor habit and inertia.

Money Market Funds: An Idea Whose Time Has Passed

Today there is little good reason to use a money market fund for substantial amounts of cash.

1. There is no material yield advantage because there is no material yield on cash anywhere – unless you are willing to take risks that mock the idea of cash. The highest yield on a money market fund I’ve seen since the Federal Reserve hammered rates into the floor at the end of 2008 was an offshore operation called Bank of Ireland USD Liquidity Fund, with a yield of 0.54%. How the fund earned that much (after expenses) in a world where 30-day jumbo CDs return 0.20% and one-month T-bills yield 0.04%, I don’t know. But if the fund’s risk disclosure was adequate, it would have included language that amounted to “Baby needs shoes!”

2. With most money market funds, there is a material safety disadvantage vs. FDIC-insured CDs since, of course, commercial paper and jumbo CDs carry a risk of default.

3. With a T-bill-only fund, the best you can say in favor of the fund vs. FDIC-insured CDs is that it’s a tossup. Both are very secure.

If you invest with a family of mutual funds, moving redemption proceeds into a money market fund in the same family is convenient. But I recommend enjoying that convenience only if the fund really is limited to Treasury bills. And you’ll have to read the fund’s prospectus to be confident that that is the case. Don’t rely on the fund’s name to tell you where your money is. A “government-only” fund typically invests in IOUs from US government agencies or government-sponsored enterprises or in private loans secured by such IOUs. Even if the fund has “Treasury” in its name, you may find upon close examination that T-bills are the primary investment but that the fund puts 15% or 20% of its assets into uninsured CDs to spice things up. So if you consider the homework needed to be sure you’re getting T-bills and nothing but T-bills, the convenience argument for using the fund gets weak.

The reason for holding part of your wealth in cash is absolute protection from default risk. If a money market fund doesn’t provide that protection, it isn’t really a cash medium. It’s something else.

[Even though they may not know it, few mainstream investors have actually made money in recent years, due to inflation eating away at the meager gains these investments provide. Try crisis investing like the pros: subscribe to The Casey Report today… and save an incredible 72% off the list price. But hurry, this offer ends at midnight, November 4.]

David Banister- www.MarketTrendForecast.com

It’s been several weeks since I’ve written about Gold and we have had a wild ride since the 1910-1920 highs in August.  At the time as we approached I forecasted a major correction was nigh and we were shorting the rise from 1862-1910 prior to a huge $208 drop that took place over just a few days.  We covered our short at $1725 and then Gold rallied back to a double top at $1920 and then fell back to $1531.

That pullback to $1531 qualifies as a Fibonacci retracement of the 34 month rally from $681 to $1920, and would also qualify for a price low for a 4^th major wave correction that I discussed in prior forecasts.  My initial targets for the Gold pullback were $1480-$1520 if the $1650 area was violated.  Most recently we have seen Gold run up to 1681 which is another Fibonacci resistance zone a few times and then back off to the low $1600’s.

With the recent push over $1681, we can now confirm the 4^th wave is over at $1531 lows and that the 5^th wave is likely in the very early stages, but beginning to build steam. I will say that we want to make sure the 1650-1680’s areas are defended by Gold on any pullbacks in order for this forecast to remain valid.  During this 5^th wave up, eventually we should see the $2380 ranges in Gold, but it will not take place overnight.  In the next few months I am looking for Gold to attack the $1900 range, possibly even by year end, and then in 2012 attacking the $2000 plus ranges.

With all of the Macro events in Europe changing on an almost daily basis, the whipsaws in both the precious metals and equities markets are difficult to forecast and trade for most investors. However, Gold has been moving in defined Fibonacci and wave patterns for ten years now, and has about three years left in a 13 year bull cycle if I’m right.

You can get 3-5 updates a week on Gold, SP500, and Silver by visitingwww.MarketTrendForecast.com

Below is the updated weekly chart of Gold.  You can see prior low’s as they related to oversold indicators, and where we just came off the 1531 lows and its Fibonacci pivot along with the oversold indicators below.

Look for Gold to attack 1775 first, then 1800, 1840, then 1900 in the coming 6-10 weeks or so.

You can get 3-5 updates a week on Gold, SP500, and Silver by visitingwww.MarketTrendForecast.com

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Jordan Roy-Byrne, CMT
Jordan@TheDailygold.com

Last week we discussed the concept of relative strength. Again, relative strength is the measuring of one market against another. There are perhaps 1000 mining companies and maybe 5% of them are worthy of your research and investment. Fundamental analysis should lead you to the best companies while technical analysis (relative strength analysis in this case) can generate a precise list of top prospects. Today we are focusing on relative strength in a larger context and will then apply it to the gold stocks.

One of the best times to use relative strength is during or after a strong market selloff or panic. After 2008, I was most bullish on Gold and Agriculture for the simple fact that both didn’t have the long-term technical damage that occurred in most markets. Most markets plunged below 2005 lows. Markets that escaped that fate and held up reasonably well would make new highs first and well ahead of global stock indices (which have yet to make new highs).

In the chart below we show various markets (Gold, AGs, T-Bonds, Chile, S&P). Gold bottomed in late 2008 above its summer low in 2007. Agriculture prices bottomed slightly ahead of their bottom in spring 2007. Bonds maintained their uptrend in 2008 and beyond. Chile has been one of the strongest markets (held above 2006 lows) and surged to new highs while the S&P is nowhere close to a new high. The other four markets had the best relative strength in 2008 and thus performed the best from 2009-2010.

So how does that history apply to today? We just had a mini-panic or a mini-2008. The stock market likely put in an intermediate bottom. This doesn’t mean it will breakout but it means the lows are safe for a while. Now its time to spot the relative strength leader which will be a leader in the immediate future. In the chart below we compare gold stocks to commodity stocks, emerging markets and the S&P 500.

While emerging markets and commodity shares are in structural bull markets, both will soon meet multi-year resistance. Also, both broke their previous 2011 lows. Essentially, both have short-term technical damage to repair and long-term resistance to overcome. Meanwhile, the gold stocks have been in a consolidation for 12 months and held above their summer low during the mini-panic. We see a combination of relative strength and very limited overhead resistance.

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A weekly close above $67 in GDX should usher in the beginning of a true bull market move in the gold stocks. After viewing these charts one can visualize the gold stocks galloping higher in 2012 while their commodity and emerging market counterparts encounter multi-year resistance. The reasons do go beyond technical. We’ve written about the low valuations, lack of ownership and the bull market moving towards its recognition point. The recent double bottom in GDX should make one feel more comfortable. Their relative strength in 2011 indicates leadership and potential for a major move higher in 2012.

by Tyler Durden

There was a time, half a decade ago, when contrary to what they declared in polite (and not so polite) public, every young aspiring hedge fund manager on Wall Street secretly hoped to appear in Trader Monthly’s Top 30 under 30. Since then Trader magazine, the symbol of all the excesses of the “zeroes” appropriately went bankrupt, then reappeared once again, though completely stripped of its cachet as the media of choice for Generation XS$. But for the sake of memory lane, and in remembrance of days when it appeared that the flow of money would never cease, and children in their late 20s were disappointed if they did not get an 8 digit bonus, below we present The Decade Wall Street Went Insane – the Zeroes, in which “we get a ringside seat alongside Trader Magazine to some of the biggest parties of the decade, including a Wall Street “Charity” boxing night held at Manhattan’s lavish Hammerstein Ballroom. This 5-part web series pits the fantasy of unlimited growth against the wheeling-and-dealing of Wall Street’s glitzy surface. We urge any #OWS fanatics with heart conditions to skip this if at all possible.

From the introduction:

At the turn of the millennium, Randall Lane, former head of Forbes’ Washington bureau, knew what this decade would be about. He started Trader Monthly — a slick glossy magazine that was to become the GQ of Wall Street. It portrayed a glamorous world of yachts and private jets, fine wines and lavish mansions. Meanwhile, trading floors were functioning like giant casinos, and the banking community was gambling with the average Joe’s savings.

 

Lane and his company got caught up in the madness. They had front row seats to the vast wealth of Wall Street — and they dreamed that some crumbs would fall their way.

 

A morality tale uniquely fitted for our times, “The Zeroes” cuts to the heart of what drove America to believe in dreams too good to be true.

Below we present the first 3 parts of the series.

Part 1

Part 2

Part 3

h/t Stock_Bitch

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Source: JT Long of The Gold Report   (10/26/11)

The end of 2011 is a golden opportunity to participate in an anticipated upside for mining equities, says Tocqueville Asset Management Senior Managing Director John Hathaway. We caught up to him at the Casey Research/Sprott Inc. Summit “When Money Dies” for this exclusive interview with The Gold Report. Hathaway predicted that once investors realize higher gold prices will stick, they will take a chance on the big upside waiting in the junior and senior space.

The Gold Report: In your recent article “A Golden Mulligan,” you called gold mining equities “a rational way to participate in what appears to be the end game for paper currencies on an attractive risk-adjusted basis.” After trailing the metals prices substantially since 2010, why do you think they are ready for a turnaround?

John Hathaway: Gold mining stocks have underperformed for a number of reasons. Gold ETFs created competition for gold stocks even as it made owning physical metal more attractive. Also, as gold flirted with $1,900 an ounce (oz), investors may not have priced that into the stocks as they weren’t convinced it would stick. Now that we have had a correction, investor analysis will show that the average price over time, as opposed to variable spot prices, is steadily rising—proof that industry profitability should also be on the rise. The best is yet to come for gold mining earnings as confidence in government monetary policy continues to erode.

TGR: We have seen a lot of volatility lately. What price do you predict for gold going into 2012?

JH: From years of experience, I have learned never to combine a price prediction with a specific point in time. The gold price will continue to rise until the fiscal and monetary policies of Western democracies undergo severe alteration in the direction of sanity.

TGR: What role do operating costs play in equity price challenges?

JH: Some companies have cited increased operating costs as a limiting factor in stock price growth, but the facts don’t support that argument. Energy prices, one of the most variable costs in gold production, are almost half of what they were four years ago. The same is largely true in everything from steel and chemicals to labor. Margins have steadily increased since 2008 and, unless declines in head grades or increased resource nationalism take their toll on future mine profitability, that margin expansion trend should continue. One of the biggest factors weighing on mining stock prices is probably investor risk tolerance. It goes without saying that mining stocks are riskier than physical metals and a lot of investors are looking for a safe haven right now.

TGR: At the end of September, the Tocqueville Gold Fund reported a three-month average return of -8.49% compared to -13.87% for the S&P 500 and a three-year average annual return of 32.24% compared to 1.23% for the S&P 500. Your top 10 holdings include (5.43% of assets) Goldcorp Inc. (G:TSX; GG:NYSE), (3.75% of assets) Randgold Resources Ltd. (GOLD:NASDAQ), (3.33% of assets) Silver Wheaton Corp. (SLW:TSX; SLW:NYSE), (3.07% of assets) Royal Gold Inc. (RGL:TSX; RGLD:NASDAQ) and (2.98% of assets) IAMGOLD Corp. (IMG:TSX; IAG:NYSE). What will be the catalyst that gets investors looking at mining stocks again?

JH: I think the release of third-quarter earnings will amaze people. I am very bullish on the future of the price of gold and gold equities. Equities represent extraordinary opportunities because they offer organic growth in resource production and bumps from merger activities that aren’t possible holding inert metal.

Ratio of Gold Stocks to Metal Price Near All-Time Low

XAU & HUI as ratios of spot gold ($/oz)

Chart: Toqueville

TGR: How will companies that are not making profits at $1,900/oz be profitable going forward?

JH: If a company can’t make money at $1,300/oz gold, it shouldn’t be public. Companies have to find a way to make a profit. An example is Osisko Mining Corp. (OSK:TSX) (which is one of the top 10 in the Tocqueville Gold Fund at 4.49% of assets). It had a $200 million market cap five years ago when we invested; the market cap is now $5 billion. It has a large, low-grade deposit and the price could rise further as they ramp up production.

TGR: You mentioned seniors as a bright spot in the investing scene. Please explain the rationale for your portfolio diversification between bullion, small-, mid- and large-cap companies.

JH: I have about 7% invested in bullion because it is an anchor of value. Physical gold helps protect against currency depreciation. I have about 10–20% in small-cap companies, 20–30% in mid-caps and 30–40% in large caps. The percentages can vary as the valuations change even though we don’t trade very often. Turnover is usually less than 10% in a year.

Big caps benefit most from high gold prices because they are actually producing and selling the metal today. It therefore offers compelling valuations, attractive current returns and virtually a free ride on future gains. We own 11 companies accounting for about 40% of global gold production.

TGR: Are higher dividend payouts going to be the rule going forward?

JH: I hope so. Newmont Mining Corp. (NEM:NYSE) (another Tocqueville Gold Fund top 10 holding at 4.74% of assets) took the lead and linked its dividend to the gold price in April when gold was trading at $1,458/oz. For each $100 increase or decrease in the gold price, the dividend adjusts $0.20 a share. We expect similar announcements to follow from other producers.

TGR: For those who choose to invest in physical gold, where is the best place to keep it? In the U.S., out of the U.S.?

JH: Any good vaulting service will work. Where it is physically located doesn’t matter as long as it is secure, accessible and not in a bank.

TGR: Thank you for sharing your insights.
[Listen to John's eye-opening speech at the Casey/Sprott Summit When Money Dies – plus the presentations of nearly 30 other renowned financial experts – from the comfort of your home. More than 20 hours of audio recordings on CD or MP3, including the experts’ top stock picks. Learn more.]

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