Sugar hits 30-year top as cyclone lashes Australia

by Agrimoney.com

Sugar prices set a fresh 30-year high in New York, and a record top in London, as a cyclone bringing wind speeds above 180mph headed for cane plantations in Australia, the world's third-ranked exporter of the sweetener.

Cyclone Yasi, which Australian meteorologists on Wednesday upgraded to a category five storm, the maximum rating, reached land as "a large and very powerful tropical cyclone that poses an extremely serious threat to life and property".

"This impact is likely to be more life threatening than any experienced during recent generations," said officials in Queensland, ahead of the cyclone strike south of Cairns.

In agriculture, cane growers are expected to bear the brunt of the storm, which is being compared with 2006's Cyclone Larry, which caused nearly Aus$1bn of damage.

"Cyclone Yasi is following a similar path and severity to Cyclone Larry, which badly damaged sugar production and infrastructure in the northern sugar producing region," analysts at Australia & New Zealand Bank said, adding that the banana industry too sustained "significant damage".

Prices rise

Areas at most risk of damage from the latest cyclone account for one-third of Australian sugar production, on Commonwealth Bank of Australia estimates.

Queensland produces virtually all the sugar in Australia, the world's third-ranked exporter of the sweetener behind Brazil and Thailand.

"The cyclone could lead to a further price increase on the international sugar market," Commerzbank said.

While CBA analyst Luke Mathews proposed that mid-2011 sugar futures should be supported most by Yasi, given the timing of Australia's crush, it was the near-term March lot which led the rally in New York, hitting a 30-year high of 36.08 cents a pound.

The contract stood at 35.28 cents a pound at 17:30 GMT, up 3.9% on the day. The July lot gained 2.3% to 29.14 cents a pound.

In London, white sugar for March hit $857.00 a tonne, the highest for a spot contract since trading began in 1983.

Sugar prices are also being underpinned by a continued dearth of exports from India, where a return to a production surplus had been expected to go some way to meeting international as well as domestic demand.

Leftover cane

Mr Mathews added that prospects for damage this time have been exacerbated by the high levels of 2010-11 cane which growers left standing for cutting next season, after the wet weather which has already dogged Queensland for months prevented them harvesting it this time.

"Yasi is likely to result in cane losses because of the expected severity of the storm, and because of the significant proportion of standover cane," he said, estimating that up to 20% of cane had been left uncut.

"This standover cane is particularly susceptible to wind-induced lodging."

The northerly path of the storm meant cotton, grain and livestock farms should avoid significant damage, he adde

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Three Market Valuation Indicators Continue To Signal Caution

Doug Short, DShort.com

Yesterday I posted monthly updates of the three valuation indicators I routinely follow:

• The relationship of the S&P Composite to a regression trendline (more)
• The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
• The Q Ratio — the total price of the market divided by its replacement cost (more)

This post is essentially an overview and summary by way of chart overlays of the three. To facilitate comparisons, I've adjusted the Q Ratio and P/E10 to their arithmetic mean, which I represent as zero.
Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I'm using as a surrogate for fair value.
Based on the latest S&P 500 monthly data, the index is overvalued by 66%, 45% or 42%, depending on which of the three metrics you choose.
I've plotted the S&P regression data as an area chart type rather than a line to make the comparisons a bit easier to read. It also reinforces the difference between the two line charts — both being simple ratios — and the regression series, which measures the distance from an exponential regression on a log chart.

Image: DShort.com

The chart below differs from the one above in that the two valuation ratios (P/E and Q) are adjusted to their geometric mean rather than their arithmetic mean (which is what most people think of as the "average"). The geometric mean weights the central tendency of a series of numbers, thus calling attention to outliers. In my view, the first chart does a satisfactory job of illustrating these three approaches to market valuation, but I've included the geometric variant as an interesting alternative view for P/E and Q. .. [..]

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Nice Copper Trade

Sta procedendo molto bene il trade sul Copper, che si sta avvicinando al suo Profit Target. La divergenza negativa presente sul grafico giornaliero consiglia di avvicinare lo Stop Trailing ai prezzi correnti.

It's going very well the trade on Copper, which is approaching its Profit Target. The negative divergence on the daily chart should approach the Stop Trailing at current prices.

THE SECULAR BEAR MARKET COULD LAST UNTIL 2020

by Cullen Roche

 

Pring Turner Capital has an updated version of their secular bear market comparison.  According to them this bear is years from being over:

“Updating our duration and valuation benchmarks, again we find progress but not yet achieving the truly undervalued levels we expect to see toward the end of a secular bear market. Based upon previous cycles, it appears we are only slightly past the half way mark in terms of years, number of recessions, and valuations. A look at our chart and table comparing this to earlier secular bear markets illustrates our conclusion. We expect a major bottom for inflation adjusted stock prices is still years away before stocks finally gravitate toward the target area outlined below.” [..]

Source: Pring Turner

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Europe Situation

Wallison Reinvents History – and His Own Positions on the Causes of the Crisis

By Barry Ritholtz

The big news in U.S. regulation last week was the release of the Financial Crisis Inquiry Commission reports. (There’s a major article in the New York Times about Kabul Bank that supports warnings made in my earlier column on that scandal.) The Commission report and the two dissents discuss some of the most important topics in financial regulation, so I will devote a series of columns to the reports, beginning with the dissent of the nation’s leading anti-regulator – Peter Wallison. Wallison’s passion, for forty years, has been financial deregulation and desupervision. The Republican Congressional leadership appointed him to the Commission to serve as apologist-in-chief for the deregulation and desupervison that made the crisis possible.

We’ll explore Wallison’s dissent in greater detail in future columns, but this overview column addresses his three primary arguments: Fannie and Freddie are the Great Satans, they caused the crisis because of demands politicians put on it to purchase the subprime loans that caused the crisis, and all of this was compounded by the Fed’s easy money policies.

This column discusses Wallison’s views on the first two subjects while the crisis was developing. Wallison is well-known for his long-standing criticisms of Fannie and Freddie, but most people do not know the nature of those criticisms. Wallison praised subprime mortgage loan and complained that Fannie and Freddie purchased too few subprime loans. Wallison (correctly) explained that Fannie and Freddie’s CEOs acted to maximize their wealth – not to fulfill any public purpose involving affordable housing. He also explained that they used accounting abuses to make themselves wealthy. He predicted that low capital costs would increase economic growth. Wallison’s prior views contradict his current claims. Aspects of Wallison’s prior views were correct. They support the conclusion that Fannie and Freddie were accounting control frauds.

Wallison’s Ode to Low Interest Rates

http://www.aei.org/speech/16590

Testimony before the Subcommittee on Securities of the Senate Committee on Banking, Housing and Urban Affairs
By Peter J. Wallison | Senate Committee on Banking, Housing, and Urban Affairs
(July 19, 2000)

If capital costs are low, more capital will be available for companies that need it, capital will be allocated more efficiently, we will have faster and broader-based economic growth, and the welfare of all Americans will be enhanced.

(Parenthetically, Wallison’s July 19, 2000 Senate testimony disputed the claim that there was a high tech bubble – even as the bubble was collapsing.)

Wallison’s Ode to Subprime Lending

Wallison and his AEI colleague Charles Calomiris co-chaired AEI’s project on financial market deregulation . They were also members of the Shadow Financial Regulatory Committee (a self-selected group of deregulatory scholars and practitioners associated with AEI).

Statement of the Shadow Financial Regulatory Committee on Predatory Lending
December 3, 2001. Statement No. 173

The Federal Reserve is in the process of drafting detailed regulations dealing with alleged problems of so-called “predatory lending” in the subprime mortgage market, and the Congress is considering actions to curb various alleged abuses in this type of lending.
Because much of what is classified as predatory lending involves loans to low-income, minority, and higher-risk borrowers, a central principle that should guide legislation and regulation in this area is the desirability of preserving access to subprime mortgage credit for such borrowers, who are most at risk of losing access to this market in the wake of misguided and punitive regulations. The democratization of consumer finance that has occurred over the past decade has created new opportunities for low-income consumers. This is now threatened by chilling effects that inappropriate regulations and laws might have on the supply of subprime credit to these consumers.
Subprime credit to low-income consumers necessarily entails higher interest rates.
As recent evidence of increasing loan defaults demonstrates, this line of business is risky, and institutions will only be willing to provide such credit if interest rates are sufficiently high relative to risks and other costs of servicing consumers. One of the risks that must be borne by intermediaries is regulatory risk. Laws or regulations that place lenders at greater risk of legal liability for having entered into a loan agreement (for example, state and municipal statutes that penalize refinancings that could be deemed contrary to the interests of the borrower) generally will reduce the supply of beneficial lending as well as predatory lending. Illegal lending, however, would not be reduced; indeed, it would be encouraged. .. [..]

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Survivor Trading System - Trades of 1 February

I trades di Survivor System del 1 February. I risultati real-time sono a disposizione al seguente link: http://www.box.net/shared/5vajnzc4cp  


Trades of Survivor System on 1 February. Real-time results are available at the following link: http://www.box.net/shared/5vajnzc4cp 

Global cotton prices surge on low stocks

by Commodity Online

World cotton prices continued rising during the first month of 2011, reaching records and nearing the two-dollar-per-pound territory, according to International Cotton Advisory Committee (ICAC). Between December 31, 2010 and January 28, 2011 the Cotlook A Index rose by 25.5 cents per pound (up 15%) and reached 197.5 cents per pound. During the first half of 2010/11, the Cotlook A Index gained almost 130%, adding 111 cents per pound.

The season average Cotlook A Index reached close to 140 cents per pound, 80% higher than the 2009/10 average of 77.5 cents per pound. The New York futures contract for March 2011 delivery rose from 77 cents per pound on August 2, 2010 to a record of 169 cents per pound on January 27, 2011. During the same period, the futures contract for October 2011 delivery (2011/12 crop) rose from 75 cents per pound to 127 cents per pound, indicating the possibility of lower prices in 2011/12.

Very low world stocks of cotton; limited supply, robust demand and a depreciation of U.S dollar may have caused the surge in prices during 2010/11. World cotton production is projected to rise by 15% during 2010/11 to 25 million tons, and will be almost equal to projected mill use. World cotton mill use started to recover in 2009/10 due to the improved global economic environment. However, very high cotton prices and shortages of supply are expected to limit mill use expansion during 2010/11 close to 25 million tons, almost unchanged from 2009/10. No growth in mill use is projected for major consuming countries, except for India, where mill use may grow by 8% to 4.6 million tons.

ICAC said that considering the current environment of volatility, the ICAC price model may be less relevant than in other seasons. The ICAC season-average projection for the 2010/11 Cotlook A Index is 156 cents per pound. The projection is not based on the ICAC price model, but on the average price for the first six months of the season and our judgment that during the rest of the season prices would remain close to the average recorded during the most recent month (January 2011). [..]

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Time to Buy Commodities

By Tim Hanson

China's economy is about to slow -- and drag commodity prices down with it. That fear has begun to spread through investment circles, following January's revelation that China's economy grew 10.3% in 2010 and 9.8% in the fourth quarter alone -- both ahead of expectations.
Given the market's reaction to this news, I expect we're about to get an attractive buying opportunity in commodity-related companies. But before I get to that, it's worth explaining why such rapid growth in China isn't a good thing.

All things in moderation
Too much growth leads to problems such as inflation. In fact, China's inflation rate is reportedly set to exceed 6% in January -- an unacceptable number for the government, given how much of the country remains poor. After all, if hundreds of millions of Chinese peasants can't afford food, unrest among the citizens will likely increase. If history is any guide, the Chinese government will do everything it can to avoid such tumult.
This has investors worried that the Chinese government will take steps to cool its overheating economy, including raising interest rates. With less liquidity, China's growth will slow, diminishing the country's appetite for commodities. Given how important China has become to the global commodities market, that would cause prices for everything from oil to iron ore to corn to drop ... forever.

Don't be ridiculousWhen it comes to stocks, very little lasts forever, despite investors' and analysts' propensity to forecast that whatever happens next will continue to happen for a very long time into the future. In fact, China stands to consume a lot of stuff over the next decade, whether or not its economy slows in 2011. The Economist, for example, predicts that China will eclipse the U.S. to become the world's largest economy by 2019, implying real GDP growth of almost 8% annually until then.
That long-term trend matters most, because even if China's appetite for commodities declines in the first or second quarter this year, it'll rebound soon enough.

What this means for youWith that as background, it should come as no surprise that I think investors should add commodities exposure to their portfolios. Indeed, I wrote to Motley Fool Global Gains members last year that they should buy Latin American trade bank Bladex (NYSE: BLX) in part because it would profit by helping to finance companies in Brazil, Chile, and Peru that are sending more and more of their stuff, including metals, minerals, food, oil, and gas, to China.
Since then, the price of stuff has gone up -- oil from $79 to $91 per barrel, copper from $3 to more than $4 per pound, gold from $900 to $1,300 per ounce, corn from $4 to more than $6 per bushel, and so on -- and Bladex has performed in kind. The stock is up 25% since we picked it in October 2009, and up 40% since we recommended it again in July 2010 (when investors momentarily panicked that global demand for stuff might go down).
Therein lies the most important lesson when buying stocks tied to commodity prices: If you're bullish on stuff for the long term, pounce when the market is worried about the short term.

Getting back to that attractive buying opportunityCommodity prices and commodity stocks all dropped in late January following China's economic reports.  Chinese E&P CNOOC (NYSE: CEO), Brazilian miner Vale (NYSE: VALE), and Australian mining giants BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RIO) are all off more than 2% that day. We should expect that trend to continue if China moves more aggressively -- it's already raised the reserve requirement at banks to an all-time high -- to tighten up its money supply.
As an investor who wants more commodity exposure, I can only hope this happens, and that we get an opportunity to buy the likes of CNOOC, Vale, BHP, and Rio Tinto for prices far lower than today's. But I'm also doing more than hoping.
In order to prepare for this opportunity, my Global Gains research team and I are traveling to Australia in early February to meet with a variety of companies at the forefront of fueling and feeding China. We plan to vet them in advance, enabling us to pounce when any buying opportunity presents itself.
If you'd like to do the same, and read all of our dispatches from the field while we're Down Under, simply enter your email address in the box below. [..]

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EU short position disclosure wouldn't work: Study

by Futures Mag.com

An EU proposal for the public disclosure of the net short positions of individual managers risks distorting financial markets and is not effective in meeting the needs of companies wishing to raise capital, investors seeking efficient risk management or regulators addressing financial stability, according to an independent study.

The report by Oliver Wyman, the international management consulting firm, was commissioned by the Alternative Investment Management Association (AIMA), the global hedge fund association, and sponsored by Deutsche Bank.

The new study seeks to update the findings from a 2010 report by Oliver Wyman* and to analyse the impact of a public disclosure requirement for short selling on trading activity in equity markets.

It comes as European lawmakers continue to consider changes to the European Commission’s draft short-selling regulations, which proposes public disclosure of individual managers’ net short positions above 0.5% of outstanding share capital. Under the existing timetable, a vote by the European Parliament’s Economic and Monetary Affairs Committee on possible amendments to the Commission’s original draft regulations could take place on 14 February 2011.

The Oliver Wyman study concludes that a regulatory regime based on the disclosure of individual managers’ net short positions above a threshold of 0.5% of outstanding share capital “is not effective in meeting the needs of the public, regulators or industry participants”. It finds evidence that such disclosure requirements result in, among other things, lower market liquidity, and an increased likelihood of short squeezes. Overall, the benefits of these disclosure requirements seem negligible in comparison with the increases in the cost of capital and the associated negative impact on the real economy.

The study’s authors say market transparency on short positions is desirable and can be achieved more effectively than the current proposals by the publication of either aggregated or anonymous short positions.

The study recommends that European policymakers adopt a regulatory framework in line with other major financial jurisdictions, none of which rely on public disclosure by individual managers. Private disclosure to regulators and public disclosure of, for example, short interest, has proven to be a “balanced” approach, says the study.

“The hedge fund industry supports increasing market transparency through the publication of aggregated short positions. We also support reporting of positions to national regulators. But as the findings of this independent study highlight, there are serious unintended consequences of disclosing individual managers’ positions to the market – including a decrease in liquidity, lower returns for end investors including retail investors, and the likelihood that investments will move to other jurisdictions where returns are not constrained by inappropriate regulations,” said Andrew Baker, CEO, AIMA. [..]

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