Principles of the Stock Market : Agricultural Commodities

BUY CHINESE SOLAR

Richard Schwartz — Tue, 14 Apr 2009 13:20:00 GMT

GLOBAL VIEW. China’s Growing SOLAR Niche. China’s domestic-investor only stock market, the Shanghai Stock Exchange Composite continues to rise. Looks like Chinese investors are setting themselves up for more trouble after the Shanghai exchange rose some 514% from mid 2005 to October 2007, then fell -73% through October 2008. But before that next collapse happens, I see Chinese solar stocks as good buys here. Let’s review the larger picture first, then I’ll talk China and renewable energy.

Asia Bottomed Five Months Back? Remember ASIA in general hit its last bear market lows back last year. China, Hong Kong, India, Japan, Korea, Indonesia, Malaysia and the Philippines all last hit lows last October, along with some Latin American developing markets like Brazil and Chile. That’s six months ago thus way past the normal three weeks to three months counterswing rally time frame. So is Asia in a new mini bull market? Other regions of the world, meaning the US and CANADA and most all of EUROPE continued lower until just last month. So by my Principle of Relative Strength, which recommends always (almost) focusing on those countries, markets, individual stocks showing relative strength or outperformance, Asia in general is the area for us to concentrate our attention on today. I previously wrote last Wednesday and Thursday how well known Bob Prechter, Jr. and his Elliott Wave International advisory service says parts of Asia are now in a big bear market RALLY phase in the cycle. Like an A wave back up which can be powerful, long lasting and sizable. And I also pointed out how “hot” and well known, Swiss investor Marc Faber is now saying buy Asia on any “setbacks” (there hasn’t really been any). And I ended last Wednesday’s report with a buy recommendation on India, offering up as one way to trade or invest, the India Fund (symbol IFN) which closed Wednesday at 18.25. IFN closed yesterday at 20.69. So in general Asia is where the best action is now. Plus regular readers will remember even before that, back on February 10^th, I recommended investing in Chinese agricultural and offered up a list of stocks which you could choose from (I bought one of the 13 stocks listed; did you buy any?). Plus a few days prior to that, I went to great effort and posted the whole 100 stocks separated by industry sector on the USX China Index for you to print out, keep and go shopping from.

China In A Sweet Spot. That’s because the Chinese government, with it’s unique, command-style quasi-free marketplace, blending capitalism and government management still has great and speedy influence. They can rapidly decide on a, any, direction for the country and quickly move down that path. Not like us here in America with our democracy. We take lots of time getting any bills passed (but when we do agree on a new law, we get better if not implementation). Of course, China still has to fight its widespread corruption and pay offs at every step forward so their implementation is harder. Still, perception is everything in the short term in the stock market so implementation problems aren’t a concern over the near term. And near term the Chinese government has just changed the laws to encourage solar (and other renewable energy like wind energy use). Back on March 26^th China “introduced a subsidy for solar projects of more than 50 kilowatts that could pave the way for increased sales of rooftop systems.” One analyst projected that this change could increase solar demand this year by 58 megawatts and 232 megawatts annually by 2012. This announcement moved Chinese solar stocks up the most ever in one day and the rally in Chinese solar is now in its third week and still looks solid. One London analyst said after the announcement that: “China has the potential to double the solar market, soak up the excess capacity that’s out there, and get manufacturers back on their expansion plans.” Another report said: “China is closing older coal-fired plants and implementing clean energy to fuel economic growth.” The government itself said its going to implement its “solar roofs program” to accelerate the application of solar energy. Schwartz View: Good for you China! Just lead by example, that’s the way to do it. Don’t worry about what other countries are doing. (What we should do here in America too regarding renewable energy.) A more recent announcement says China is writing a new renewable energy law and on that news solar and wind stocks jumped again. The essence is that China wants to increase renewable energy usage to 10% of total energy consumption by 2010 (from 7.5% in 2005). Go China Go!

BUY CHINESE SOLAR. Net, net, I recommend buying Chinese solar!

SOME CHINESE SOLAR STOCKS

Mkt Analyst Next

Symbol Company Name Price Cap Ratings EPS Business Line

STP Suntech Power Holdings 14.49 2170m 7-12-11 5/21/09 China’s largest solar manufacturer

YGE Yingli Green Energy 7.67 964m 7-6-2 5/15/09 PV modules and PV systems

LDK LDK Solar Company 8.04 928m 1-8-5 5/12/09 Multicrystalline solar wafers

JASO JA Solar Holdings 3.58 589m 6-7-4 5/11/09 Solar cells

TSL Trina Solar Ltd 13.21 388m 3-6-4 6/5/09 Solar-power products

SOLF Solarfun Power Holdings 4.73 252m 0-3-5 5/21/09 PV modules

Disclaimer! I own a small amount of Yingli Green Energy but can and do change positions without notice.

For a FREE week's sample of my complete daily letter, please email me at RichardStk@aol.com

Chinese Strategy Looks Good

Richard Schwartz — Tue, 17 Feb 2009 14:38:00 GMT

GLOBAL VIEW. What Is China’s Strategy? Without having to worry about their banks, because China never got involved buying securitized, US subprime mortgages and other debt backed instruments, China’s now at a great advantage. Sure China is slumping fast economically like everyone else, their manufacturing industry shrinking rapidly, but China still has much greater leeway than other countries in lots of ways. First, luckily, because China has no developed bond market and is just starting to open up their financial markets, China missed the debt feast most other banks enjoyed. And are now regurgitating. So now it turns out, that’s a big, big plus. Also China still has its ‘Command Capitalism’ in place, meaning that when government decides on a path, boom, the country can start right off on it. No arguing back and forth like in big democracies like the United States and India. Next, China’s leaders are well educated, many with useful engineering backgrounds and have proven themselves. Finally, China is in a great spot financially. So what is China doing strategically, meaning their plans of long term significance?

Strategically, I’ve written previously how China is moving quickly to help their farms and farmers every which way because the farms were the first part of the Chinese economy to move to quasi free marketplace operations. After this move proved very successful, China then tried the same in manufacturing. Which, obviously, turned out to be a great and grand success. But now that Chinese manufacturing is downsizing rapidly, China has to keep the millions of Chinese workers forced back to the farms happy. Thus I see this government boost as making Chinese agriculture one of the few good buys around today as their farms consolidate, become larger and thus more efficient and productive, and have thus previously recommended Chinese agriculture strongly and offered up a list of stocks to consider buying.

Stockpiling Minerals & Mineral Producing Companies Too. Another, a second, strategic or long range move China has implemented is to stock up on raw minerals while their prices are down and also to take equity positions where allowed by other governments in mining companies themselves. The reason being that when China starts really growing again they are going to need adequate raw materials. China found this out quickly as it became the world’s manufacturing colossus. Even today with their new infrastructure program already in force, China needs cement, iron ore, steel, etc. So consider some recent Chinese moves:

· State-owned Zhongjin, China’s 3^rd largest zinc producer, bought a 50.1% stake in Australian zinc miner Perilya Ltd.

· State-owned Jinchuan Group, Asia’s largest nickel producer, bought 18% of Albidon Ltd, a Perth, Australia based nickel producer and has a deal to take 100% of the nickel from Albidon mines in Zambia.

· China’s 3^rd largest steelmaker bought a 50% interest in Australia’s Centrex Metals Ltd.

· Chinese interests bought a 40% stake in Australia’s Mount Gibson Iron.

· China’s 2^nd largest steelmaker upped its stake in Australian Gindalbie Metals from 12% to 36%.

· Aluminum Corp of China (ACH) has just increased it’s stake in Rio Tinto Plc.

· China’s Tongling Nonferrous Metals Group just bought 13% of Canada Zinc Metals.

· China Mining Resources said it would up its stake in Canada’s Quadra Mining from 4% to 19.9%.

Schwartz View: My point being watch what China’s doing. You might want to even sign up for FREE www.moneymorning.com as this service tracks closely what’s happening in China, the news clips above coming from a recent article. Again, while other countries play defense, having no real answer to their economic slumps besides cutting interest rates and implementing various stimulus plans, China is on offense, planning for where they want to be when this economic slump is over. So, again, if you want to put your toe back in the water on general market weakness, I would do so in China. You should have a ready resource right in front of you to do so, as along with the list of Chinese ag stocks I ran here, I also detailed by category & sub category the USX China Index and published it here for you on February 5^th.

* As soon as I wrote that along with China’s domestic-investor only stock markets, the Shanghai and Shenzhen Stock Exchange Composite Indexes going up this year, the USX China Index (symbol HXC) and the iShares FTSE/Xinhua China 25 Index Fund (symbol FXI), an ETF, were following suit and rising, that link ended. Schwartz View: Ok, I was surprised they were moving together anyway. Going forward, still scale in to China, just take it a little slower.

Where Now Inflation?

Richard Schwartz — Fri, 12 Sep 2008 13:39:00 GMT

THE FIRST INFLATION SURGE IN 25 YEARS IS OVER. So, what now?

First, let me give credit when credit is due. Federal Reserve Chairman Ben Bernanke and the Fed finally got one right. They’ve been promising us moderating inflation for a year or more and now with -30% lower crude oil prices and a big general commodity collapse we’re finally we’re seeing it happen. Or, at least, starting to (most things economic happen with a lag). And with the US dollar now surging, that’s going to reverse/diminish rising, problematic imported inflation as well. So now the deflationists out there, those who say deflation is our real problem facing us for some time – Gary Shilling, Robert Prechter, Ron Insana to name just three -- can really have their time in the sun.

Still, there remains some debate whether problematic rising inflation is going quiescent. Mac Courtenay of Seeking Alpha, I guess a boutique research firm, offers up seven reasons why inflation isn’t going away:

1. Inflation is already firmly entrenched. Schwartz View: I agree. I’ve been observing the Fed’s incessant jawboning that inflation expectations remain low is wrong and we all know that the government’s inflation data is terrible skewed to the downside from what inflation really is.

2. Inflation is already here. Schwartz View: The Producer Price Index (PPI) is up +9.8% over last year, and that’s only what the government grudgingly admits to.

3. Inflation is now moving its way through the “food chain” showing up in consumer prices as well. After some hope that because of global competition (globalization) producers would eat the higher inflation. Schwartz View: This rippling through is evidenced by the Consumer Price Index (CPI) rising too, again up the fastest in 17 years.

4. Average weekly earnings fell in July the largest since 1990. Schwartz View: I’d guess Mr. Courtenay’s point is that when earnings drop, we can’t buy as much. ???

5. More and more Federal Reserve governors are talking about raising interest rates next, not lowering them. Especially if we see energy prices stabilize above $100 and bounce. Schwartz View: Of course, these Fed officials, meeting again next Tuesday, can change their views.

6. Global (food?) consumption patterns are heading higher. Schwartz View: I don’t know if author Courtenay is talking about food, metals or just what. But I agree with him on food. As people get a little money, one of the first things they spend it on is more and better food. Thus global food consumption patterns should keep heading higher even if the global economy recesses.

7. The markets will take charge. If the Fed doesn’t raise rates, the marketplace will raise them. Schwartz View: Not sure about this reason he positing for inflation staying problematic. Right now the markets, the long US Treasury market, is still forecasting a slowdown by yields going lower and lower, which to me means more disinflation ahead, not rising inflation.

Schwartz View: He goes on to say part of oil’s recent comeuppance, coming down, is forced hedge fund liquidation because of Congressional pressure (I agree). And that it’s a great time to buy TIPs (Treasury Inflation Protected Securities) and the easiest way is to buy the symbol TIP. And to buy commodities on this correction, recommending also symbols DBC (a basket of commodities) and GDX (gold). Myself, while I believe this commodity pullback is indeed a correction, I think it’s too early to buy them back.

Schwartz BIG PICTURE Inflation View. My belief, garnered from studying stock market history and looking at thousands of charts over the last 20+ years, is that when any new trend begins, many times it begin with a surge in the new direction, then a pullback or at least a pause, sort of to regroup, consolidate gains, make believers out of disbelievers, open the eyes of others who are slow to see and just basically kill enough time to see if the new trend has legs. Then after this pullback correction, which more often than not can be large and long lasting, runs its course, the new trend reasserts itself.

Basically that’s where I see us today with rising inflation, in a pause to refresh. I’ve theorized over the last year than oil and other commodities would stay stronger, longer than most thought this year. I’d say that proved correct with oil going up all the way to about $147 and related sectors like natural gas, energy services, solar, wind and other alternative clean green leading the stock market for the whole first half of 2008. Similar to what happened during the first year of the last severe Papa Bear stock market back in 1973-1874 (oil stayed high the first year). But now, with commodities reversing downward and in major correction, it’s obvious change has occurred, that a pause to refresh is underway. And we can expect this new trend to last longer and correct deeper than many would think I’d venture. Sure, first because commodities are inherently extremely volatile, much more so than stocks and bonds. But also because of the emerging new, macroeconomic backdrop. We seem to be in line for a major, global economic slowdown which will throw a big detour on the road to a new long term trend to rising global inflation. If the global economy really goes blah for the next few years, commodities will take a longer than expected breather. Schwartz View: Still I’m in agreement with former Federal Reserve Chairman Alan Greenspan who predicted in his 2007 book The Age of Turbulence that we live in an inflationary world and that the disinflation trend dominating all during his tenure as Fed chief is coming to an end. And I’m in agreement also with famed, global investor Jim Rogers who says commodities normally correct 50% or more and that’s what we’re seeing now, a correction not the end, to this so far about 9-year commodity bull market.

San Jose to Lake Tahoe

Richard Schwartz — Tue, 08 Jul 2008 13:42:00 GMT

Just got back from vacation and before jumping back headlong into the stock market again, thought I'd relive and relate the highlights of my trip. My best, Richard

A RECAP OF LAKE TAHOE & SAN JOSE

Before my memory fades, let me recap Lucy and my just completed vacation to California and Nevada, to San Jose and Lake Tahoe. This retelling may help others who have similar interests and/or vacation plans.

No big problem with Continental Air out Newark airport. Lucy and I have been going there recently instead of LaGuardia or Kennedy, whenever we can. Just an easier drive in and out starting 90 miles up the Hudson River from NYC. I would recommend using the Park ‘N Go’s surrounding Newark airport on the perimeter road. Worked well for us three times now. Our flight was late taking off, nothing new, but we made up the time with a tailwind. The highlight was upon landing. When the tech gadgets went on in the still darkened cabin. All the cell phones glittering colorfully in the dark made me want to get one, to move into the modern world. “Whoa Richard, just another bill!”

Our good friends, whom we went to visit, drove us to Lake Tahoe from San Jose in their SUV. The drive was edifying, eye-opening and awe-inspiring. Driving south past Sacramento on the highway, there were miles and miles of gorgeous white and pink bushes. I didn’t get their names but they were ubiquitous near the capital and I saw them elsewhere too. Past Sacramento and beautiful but bankrupt Vallejo we got into farm country. Fields and fields of foodstuff growing in a massive flat valley or basin between mountain ranges. It looked like wheat as I saw big combines working. When we got out of the car for a pit stop, it actually spelled like farm country. I remember that smell as I used to visit my grandmother’s big farm for a week in the summer in Canandaigua, NY, just south of my hometown of Rochester. Then we started driving up into the mountains. Funny how we couldn’t really see them coming or going; maybe it was because of the lingering smoke from all those California brush fires in the air. We did see firemen putting out a fire on the way back to San Jose, actually no fire but charred bushes. Happily we didn’t run into any big fires anywhere while driving although even 6252 feet up in Lake Tahoe the air had a tint of smoke to it.

The drive through the Sierra Nevada’s, a small part of it anyway, not part of the Rockies I understand, was a big highlight of the trip for me. All the magnificent views and vistas as we saw signs saying 4000, 5000, 6000, 7000 feet. Holding on tight with the back seat of the SUV swinging slightly and looking out of (just) the side windows was awesome. I saw giant mountain ranges up really close, ranges which went up and up and up, finally kinking my neck. I saw valleys which were gigantic and if the car had driven off the road, we would have floated seemingly for miles before we hit. Trees looking like they went up forever actually growing well on steep ridges making the view even more awe-inspiring. The huge, straight up tree trunks looked black when in the shadows but many were reddish brown close up; I’d guess redwoods. These trees grew straight up forever and the boulder-filled trout streams looked like Lake Placid’s famous and powerful West Branch of the Ausable but were much wider, larger, longer, steeper and all encompassing. Wow! They must be something to fish. Maybe in my later years but then I’ll be too old.

Lake Tahoe itself, again, looked like a Lake Placid, NY, just much larger all round. One afternoon we went to the beach and I went swimming twice. The water was cool but not anywhere near as cold as when the outdoor pools first opened up here around New Paltz. Then there was a gondola a block from Harvey’s, one of the four major casino/hotel resorts all together lying just over the Nevada stateline which runs straight through Lake Tahoe, the town and lake. So the winter, if one can get to Lake Tahoe, must be great for skiers. Myself, I loved swimming laps in Harvey’s heated outdoor pool in the early morning (before the kids took over) while seeing snow on the surrounding mountains and western blue jays (darker coloration than our powder blue jays) before sharing a light breakfast with Luce and getting ready for the opening of Belmont at the Sports Book. A Sports Book is just a big room with TV’s everywhere showing horse race tracks everywhere and legalized gambling. There was a cavernous Sports Book in Las Vegas last year but I liked the one at Harvey’s after finding the golden mean chair to sit in. Pretty waitresses served us whatever we wanted, complimentary as long as we kept betting. I found I really liked betting in the morning while my mind was still fresh, just like writing this column in the early mornings. Reading the racing form is a commitment best done fresh. I held my own, cashing a few tickets including a $100 exacta with two horses laid off for six months, topped by Missinglisalewis now trained by Lisa Lewis. Wonder what the story behind the story behind the story behind the story is about that one. I also played golf although not at the expensive course near Harvey’s being used for this week’s 19^th Annual American Century Championship (think it’s on TV this Saturday at 4 pm EST). The ball did seem to fly further while it also seemed easier to swim, easier to lift my arms out of the water, with much less gravity pressing down up that high in the mountains. We were as much as 4000 feet higher than Lake Placid here in New York.

Too soon we had to leave Tahoe but again the drive -- thanks so much Leslie for driving! -- was awesome. I was still into the grander of the massive trees and am still thinking about them days later. But Leslie then showed us San Jose. What an up and coming technology city, actually already the 3^rd largest metro area in California. Modern, multicultural, uplifting and the home of San Jose State, a 30,000 plus school with a gorgeous campus. One day we stumbled on a Hawaiian Fest with great music and vendors on campus. Other times we just sat on a bench and read since the weather was so good, and again no humidity at all. Bob and Leslie said it hasn’t rained for months. After eating chicken and sushi (not me) at great places, we even topped it off with refreshing drinks at a Japanese place which didn’t have or know about Pepsi. Then 4^th of July fireworks! And finally we topped the whole great trip off downtown at the San Jose Technology Museum. Hey, San Jose being the heart of Silicon Valley, we couldn’t miss seeing the history of the semiconductor chip, etc., now could we? All in all, a great trip! Thanks to our very hospitable friends and Lucy’s sounding board, confident and best friend!

Have a wonderful day!

Is This Your Portfolio?

Richard Schwartz — Fri, 27 Jun 2008 15:14:00 GMT

WHERE YOU SHOULD STAND TODAY. The Ideal Portfolio (another Schwartz View).

Yep, let me offer up one man’s view of what the ideal portfolio should be today and why:

· Very minimal exposure to the stock market! This major, modern day margin call on institutional investors is causing havoc. I’ve likened this margin call to the one which wiped out many individual investors quickly back after the 1929 stock market crash, only this time around its institutional investors getting slaughtered and thus the process of meeting their margin calls is being stretched out. All are deleveraging their portfolios big time and since the securitized investments killing them are so opaque and illiquid, it’s a terrible, long, drawn out process.

· Where you do have exposure, have some in the Energy Service sector. Business is going to remain strong and money is going to funnel into this sector as long as oil stays up there, even if oil tanks 50%. The world is in now in a new competitive battle to secure our energy futures. Thus companies which help countries like Brazil find and produce oil should do well.

· Where you can, hedge your long stock exposure. One does this by having some inverse mutual funds and/or ETFs (exchange traded funds). Happily today, investors have access to this modern day invention of being able to go short (bet on declines) with inverse investments. You just buy a fund or ETF which goes up as the market goes down. I would recommend having small inverse positions, especially in financials. This allows you to ride through a day like yesterday knowing that a part of your portfolio is rising while your long positions are falling. The next day you check your portfolio’s value and see how you did. That’s what I do each morning. Say the stock market fell -3.00%, like yesterday, & your account lost just -0.20% like my ProFunds managed account did you might figure your hedge is just right. Just tinker with the hedge until you get it right.

· Hold NO BONDS. I’ve been recommending this for some time now. Yes, we may get a deflationary collapse at the end of this 25 year “too much of everything” Kondratieff disinflationary economic backdrop we’ve been in since former Fed chairman Paul Volker broke the back of runaway inflation in the early 1980s. But the world is now experiencing our first return to higher inflation jolt. Thus we’ve started a new bear market in bonds. I can’t help but remember when I first became a stockbroker with Merrill Lynch back in the late 1970s, the client who say she would never, ever buy a bond again, after losing money on bonds going back two or three decades. Well, we’ve had a 25 year bull market in bonds and its over or close. Thus, my recommendation is no bonds. (Except some very short term laddered US Treasuries for income.)

· Hold a little Gold. Yes, some will keep warning of a deflationary collapse ahead, when the economy really tanks and thus say gold will collapse as well. But gold is in a long term uptrend, a bull market, and no one knows quite how it will react in various market and economic scenarios. Buy SPDR Gold Trust (symbol GLD) as opposed to the miners themselves, thus eliminating one unneeded uncertainty. FYI, I’ve seen gold rise and gold sector funds fall, so watch yourselves.

· Hold a little foreign currencies. Again, in today’s modern day investment world, the individual investor can easily bet on foreign currencies … by buying their ETFs or tracking stocks. I’ve been recommending & still am, buying Swiss francs & Japanese yen, symbols FXF and FXY. Both are Big Picture superstar guru Jim Rogers’ picks and are in long term bull markets and dipping now so it’s a good spot to buy in on weakness. Today let me add the Chinese renminbi, symbol CNY, to the buy list since there is a exchange-traded note in existence. Not a fast mover but it’s also in a long term bull market and probably is now one of the most reliable bull markets going.

· Hold a little agricultural commodity position. The middle class global world has grown tremendously, yay!, and thus the general commodity bull market has now spread out to foodstuffs. A larger global middle class, means more and better food is needed, especially increased protein. Food commodities are up so only buy on pullbacks here if you don’t own any now. My picks have been and remain symbols RJA and DBA. Again buy the commodities themselves as much as possible and not the companies which produce such although ETFs like MOO have been doing well to this point. Today, let me add iPath Livestock ETN (symbol COW) to the buy list if I haven’t already, a livestock play. Looks like with corn prices so high, cattle is being killed off (thus one can still get steak and hamburger at $1.99 a pound) because it costs too much to feed ‘em. But that will change too and red meat prices will skyrocket.

· Finally, hold small positions in lots of alternative, clean green energy stocks. I see new fortunes being made by those riding the wave of the US and globe getting off oil. The best way I’ve found to buy these is to keep the shopping list of alternate, clean green stocks I’ve compiled and posted for you back on June 6^th in this space handy. (If you don’t have it email me and I’ll send you a copy.) Buy a bunch of these stocks on weakness. I bought one for myself yesterday.

Disclaimer! I hold or plan on holding many of the ideas recommended above.

New Investment Theme Unveiled!

Richard Schwartz — Fri, 13 Jun 2008 13:54:00 GMT

A NEW INVESTMENT THEME FOR YOU TODAY. Quiet, don’t tell anyone about this new theme until you get invested. Anyway, finding a successful theme early on, before the crowd finds it, is one of many different ways to profitable investing in the stock market. I’d say it’s one of the best for all time frame investors. Regular readers will remember we found the REITs theme early on, rode that for years and how well it served us. Then, more recently, a year and a half back or thereabouts, we got on the fertilizer theme, stocks like Potash, Mosaic, Agrium, etc. which is still ongoing, and the solar energy theme. The solar energy theme gave us doubles on stocks like First Solar, Suntech Power and SunPower. Other themes I haven’t been as lucky with have been energy and global infrastructure. But I must say I’m learning, and hope you are too, that we need to stay with a theme when we find a good one like a dog with a bone as many super investors/traders advise. Themes can and generally do run a lot longer than anyone would believe. Anyway, today let me introduce my new theme to you.

The Energy Savings Theme. Let me call it, for lack of a better name, the Energy Savings Theme. You see I’m reading about how now, after $4.00 gas has became a reality, how individuals are coping by “lowering the thermostat, eating out less, buying cheaper version of products then need, spending less on clothes and medicines and changing the education plans, …” Also by buying less food, driving less, buying fewer necessities, closing off parts of their home, spending more time outdoors (to save on AC), taking on 2^nd jobs, buying more efficient energy systems and appliances, using less water, changing to compact florescent light bulbs and more. So it only makes sense to me that businesses and corporations are already doing the same thing or discussing the same, how they can use less energy in their business models, where to get energy savings. If I was a top honcho at just about any company, I’d be holding meetings centered on this issue, that’s for sure. And from what I read many companies like General Motors and many industries like airlines believe higher energy costs are here to stay. Thus they have to plan for that long term scenario, start changing how they operate now. To me, that’s the beauty of and necessity of today’s high energy prices, this tough love. Americans absolutely need to change our lifestyles toward using less energy. Doing so will pay off very handsomely over time in key ways. It will get us off oil and thus our dependence on people and countries who don’t like us and want to harm us. It will get America’s finances, so badly out of whack, back in shape. And it will help preserve and respect the planet we live on as it’s quickly becoming too late. Have you noticed the 50-year snow storms in China, their massive horrific earthquake and the 100-year floods plaguing Iowa & our Midwest right now?

Anyway, this energy savings theme is going to be widespread, and go corporate as well as individual, with company after company jumping on board in some form or manner, one group of businesses interested in and investing in new energy savings products and services, doing the buying, while another corporate sector will be highlighting their products and services they offer which save energy, doing the selling,

Thus let’s start this theme today by highlighting one sub sector of my already ongoing alternative, clean green energy theme. That is what I’ve previously termed the Power Conversion/Energy Controls companies. Thus below I’ve pulled out of last Friday’s fairly all-encompassing shopping list of companies working on powering the world with clean green energy. I went through each stock and looked for stocks already in uptrends and that save other businesses energy by using their products. Here’s the list:

ENERGY SAVERS

CPST Capstone Turbine Corp. $3.41 Low-emission turbines; hybrids

BCON Beacon Power $1.72 Flywheel-based power systems

WGOV Woodward Governor $37.78 Energy control systems

MXWL Maxwell Technologies $12.57 Power conversion/purification

CHP C&D Tech $8.40 Reserve power systems

Schwartz View: While I believe we’ve in for an extended bear market, I do believe there may be some groups and stocks which can make some upside progress. And remember, I’ve posited that energy and related stocks should outperform early on in this first year of this bear market. While I wouldn’t bet too much on anything right now, I would suggest starting a small in size portfolio with the above fire stocks.

Disclaimer! I own a small amount of CPST. And plan to buy small portions of the rest of the stocks above.

Once a Century Day of Reckoning Starting?

Richard Schwartz — Mon, 09 Jun 2008 13:44:00 GMT

THE BIG PICTURE

Ok, here’s a Big Picture of where America and we Americans stand today. A fairly downbeat Big Picture so buckle your seatbelts. America has been on the verge of a major comeuppance for many, many years. But its been postponed and postponed. Because the US dollar is the world’s reserve currency we’ve been able to play by different rules than the rest of the world but now we’ve pushed that special benefit to the limit and beyond. But each time we’ve come close to going into a major economic recession, which almost by definition means a near term cleansing out and thus longer term strengthening of the economy, we get “bailed out,” so to speak, by the Federal Reserve or by our much deteriorated if not totally corrupted political system, i.e., by the sitting president and his staff or by Congress. Our economic problems which terribly need to be resolved, just get more and more money thrown at them (which just makes them worse and more deeply entrenched) say by President Bush’s multiple tax cuts upon taking office in 2000 or by the Fed dropping interest rates rapidly or through the floor or both. For example, former Fed Chairman Alan Greenspan numerous, back to back to back interest rate cuts in 2001 and 2002 and current Fed Chairman Ben Bernanke’s dramatic rate cuts since September. So our economy has been artificially pumped up and stimulated by what I call, financial “steroids.” time and time again for many years now. But now this use of steroids just isn’t working. Now all the money the Fed is pumping into the system to mitigate the credit crunch and crisis is just causing a big bubble in gasoline (and heating fuel prices) in America which at $4.00+ a gallon is now being felt widely. I say $4.00 is the tipping point and things are going to get worse quickly now because of the four following examples over the past weekend. First, Lucy let her Honda get down to a quarter of a tank for the first time in a long time. She called the dollar cost to fill it up

“eye-opening” numerous times as we drove off and away. I could hear the wheels turning in her head. Second, a real estate owner told me he was feeling this recession with a massive increase in real estate taxes, etc. and that he never felt any previous economic downturns in his life. Knowing me I probably blurted out it was just beginning, but I hope not. Third, awhile after my Sunday early morning bird walk, while reading the paper and drinking my coffee I heard the morning manager of Stewart’s, the local all purpose convenience store, tell another customer, a bit desperately, she couldn’t afford to drive to work now. And lastly, when I called to wish my brother-in-law Happy Birthday, my sister, retired but who was a bank trust officer in Buffalo for many years, says she’s never seen anything like this looming downturn. All in all, I expect $4 gas or out of control oil prices in general, is what the stock market discounted roughly six months back, it’s normal advance foresight time frame, when it really collapsed back in January, it’s first leg down in this bear market.

Now, Price Inflation. This commodity inflation, this cost of living inflation or price inflation, is starting to work its way through the economy in food prices as well. Watching the free marketplace work, in effect dramatically weeding out, killing off cattle herds because it costs too much to feed the cattle, that’s going to reverberate into higher hamburger and steak prices down the road. Plus Chinese wage demands will now work their way into much US clothing prices as well during this cycle. And if the US dollar keeps dropping, as it will because the US balance sheet is in such terrible shape, all prices will rise even faster. I’d go so far as to say commodity guru Jim Rogers’ and Peter Schiff’s predictions of hyperinflation are becoming a distinct possibility. All this rising inflation as the economy sinks and US wages stagnate or go lower and jobs shrink. So it’s not a pretty picture. And it’s possibly worse than a normal recession because we’ve put off this day of reckoning for so, so long. For example, in Trader Vic Sperandeo’s two early 1990s books, Trader Vic – Methods of a Wall Street Trader and Trader Vic II – Principles of Professional Speculation, he predicted a day of reckoning right then or very soon. And related to us a little history of how the US government operates, trying to paper over our problems by lowering rates, cutting taxes and whatever else they can think up to throw more money at our problems. This works and works and works … until it doesn’t work anymore. So far no one really has been able to predict when the day of reckoning will arrive. In the late 1980s/early 1990s was a flash point for trouble but we muddled through. Then another flash point around the dot.com bust from 2000 to 2002. But lower taxes and lower interest rates got us through. But now, 2008 -- 10 is the next flash point. Who knows? This time may indeed by the real thing. It sure looks it. Why? Obviously because the extremely important financial sector, the very area which has been driving the stock market higher by soaking up all the Fed and other government liquidity and manipulating it to make things look better and better on paper, has now imploded and gone bust. As Peter Schiff writes in his 2007 book, Crash Proof and Robert Prechter Jr. wrote in his 2002 book Conquer The Crash manipulating financial paper/assets/capital around to make it seem like we’re getting wealthier is a lot different than when America did grow wealthy by actual manufacturing, producing things people need and thus were willing to pay for. In the 1950s and 1960s we were the manufacturing colossus we lived on some of our profit and saved the rest. That’s how you build wealth. This disparity is one of Mr. Schiff’s key theses. Also one of Mr. Prechter’s major theses as well, just illustrated differently. Mr. Prechter, a chartist, says the US economy performed its best in the 2^nd leg up of this long term business cycle, say from the 1950s through the 1970s which shows this 3^rd leg up is nearing a major top. Schwartz View: So it’s all coming together now, seemingly. All the wrong paths we’ve followed for years coming home to roost now. That’s my guesstimate anyway. So, is this latest market decline really the beginning of America’s day of reckoning whereby the rest of the world finally loses confidence in America, waking up to the deception of the dollar as the world’s reserve currency, as Mr. Schiff describes it? Does the US dollar really head down as the world unloads our Treasury bonds, thus forcing up long term interest rates, which in turn ratchets up the already gigundo squeeze on America and us individual Americans and make the situation even worse? No one really knows for sure as Mr. Prechter reports these true economic disasters only occur about once a century! Like in the 1930s in the just departed 20^th century and once in the 19^th century as well. Why would this once in a century event be beginning now? As bad as things now look, maybe somehow we’ll get bailed out and the day of reckoning postponed once again. But since I began this stock market letter, 18 years ago in September 1990, I’ve watched things get worse and worse, not on the surface where we had a great stock market run in the 1990s, but under the surface, as democracy got pushed back and back, as labor unions lost power, as corporate statesmen became extinct, as much needed government regulation somehow morphed into a swear word and became despised, as liberalism or helping the unfortunate became obsolete behavior and as capitalism ran away unchecked, benefiting from fiscal and monetary stimulus over and over again whenever the economy lapsed into the normal down wave of a business cycle leaving us today with just a shell of the old wealth producing US economy. Yep, all looming economic crises and recessions have been pushed to the back burner by our dysfunctional political system which now listens only to corporations through their lobbying efforts. A system which even business if fed up with. Social Security, Medicare & Medicaid, pensions, health care, energy, the environment, a big wow! when I write them all down, all these long term vital issues have been avoided because of capitalism gone wild, because doing anything about them would “… hurt the economy and be bad for business … .” The same mantra Congress just used as its reason last week to kill a critical climate bill! Just awful action. Politicians should know there’s more to the economy than keeping the steroid sham going year after year, there’s more than keeping the business lobbyists happy near term and there’s more than their next election result. The US economy needs to be cleansed out from time to time and thus made fundamentally stronger for the longer term and more competitive in today’s new global economy. We still have the strongest, most fundamentally sound economic, financial and social system going from all I can tell. And the country has more than just our economy to worry about and strengthen for the longer run. We also need to re-strengthen our democracy once again after the loss of common man representation that’s taken place over the last 30 to 40 years. Actually, it’s no one’s fault, this push into Supercapitalism as Robert Reich terms it in his latest book of the same name, what has happened in America over the last few decades. But now it’s time to look at and push the flip side of the coin, to reawake democracy which is vital to American life as well. We need to regain representation for little towns and smaller groups, non-profits, etc., etc., all those groups who can’t get their sides of the story heard any more today as corporate lobbyists dominate. Again, I don’t blame anyone for what’s evolved. That’s capitalism, if left “unfettered” as even Republican presumptive presidential nominee Senator John McCain has described today’s economy, it will go to an extreme … as it now has. * For the record, one can get all five books I’ve just mentioned above from www.Amazon.com or elsewhere. And I recommend them all.

Oil Holding Stock Market Up! Oil Is Key.

Richard Schwartz — Wed, 21 May 2008 14:26:00 GMT

OIL NOW AT $130! What will be the resolution of today’s high oil prices?

The best, first approach in analyzing anything is to look back at any historical parallels we can find. The two oil crises of the 1970’s pop immediately to mind. Thus I just printed out a few online histories, including what Wikipedia, the free Internet encyclopedia, have to say about the 1973 oil crisis. (the Internet is great!) I’ll read these histories today and report back to you. For now, as I lived through the 1970s and have studies the stock market and economic history of the time, let me relate what I know:

The oil crisis of October 1973 came about after OAPEC (Organization of Arab Petroleum Exporting Countries; OPEC plus Egypt and Syria), because of the Yom Kippur War, used oil as a weapon against the west. Schwartz View: The stock market had already topped out back on January 11^th, 1973, some nine months before the oil crisis erupted. Hm, the stock market topping out BEFORE the oil crisis really started? Sound familiar? Sound like today to you too?
The October 1973 oil embargo was the cause of sharply higher oil prices but crude prices had started to rise previously. Schwartz View: Again, similar to today. Crude has soared with no actual crisis, no cutoff of oil by oil producers. But what if something similar occurs next?
Oil stocks were the leaders in the stock market in 1973, the first year of the last severe Papa Bear bear market we suffered through. Schwartz View: As I’ve been writing for a number of Tuesdays now, and which is pretty obvious without doing much research, oil and oil service stocks are now, by far, the leaders in the stock market. We’re now up to about half or 50% of the whole 100 stocks on the IBD 100 list of leading stocks being energy or energy related. And that number could be even higher if I include other companies and industries doing well primarily because of high priced oil, like mining machinery. Bottom line, strength has narrowed down considerably, basically being confined to oil and those sectors which benefit from high oil, like transports. And those sectors which are NOT directly affected by higher oil/materials prices, like technology.
“Higher prices resolve higher prices.” This old economic truism hasn’t proved true; YET! But if the laws of economics haven’t been repealed, and they haven’t, it will prove true over time. Schwartz View: Today, sure, the tipping point is higher than in the 1970s, businesses are much less dependent on oil now than back then. But there will come a tipping point.

SCHWARTZ SUMMING UP: Today is reminding me more and more of 1973-1974. Maybe 2008 playing out like 1973 and 2009 playing out like 1974. My sense is that the overall stock market will hold up, hold on, UNTIL oil starts dropping. And that when oil does goes down, it won’t be the panacea that the hosts on CNBC speculate it will be. Because high oil prices are what’s holding UP so many stocks, those in the energy service industry, stocks in coal and solar. And holding up the transports, Russia, the largest energy exporter and their new zillionaires, the Middle East and many emerging or developing countries like Brazil. When oil goes down, so do the other materials stocks, the natural resource stocks and all the rest which depend on oil. They are up because oil is indicating the world economy is still growing. The reason for the strength in the market today. BUT when oil goes down, it won’t mean relief for the other sectors of the economy, as one would logically think. That’s because we’ll be too far gone. Just meaning consumers and businesses alike will have been like a “lemon squeezed dry,” or already in such bad financial shape, the downward economic spiral will have already begun. Please think about or reread the UPDATE ON THE STOCK MARKET section above, which implies that high oil is, even now and under the surface, rippling outward and squeezing corporate profit margins. Sure, history doesn’t repeat itself exactly. But human nature itself and its reactions to events change very slowly. I see parallels from the oil crisis of 1973 and the big bear market that followed with today. Thus I plan to study the stock market and economy surrounding 1973-9174 period and get back to you with more.

For now all we need to know is the key going forward is OIL. And since the price of oil is rising so fast now, that’s an indication of a peak getting closer and closer. Be aware and be cautious!

Patience, Proper Money Management & Back into Foreign Currencies

Richard Schwartz — Tue, 20 May 2008 18:07:00 GMT

PORTFOLIO STRATEGY: Written Monday, May 19th, 2008

Patience and proper money management. Let me preach and suggest both kicking off a new week, halfway through the “Sell in May & Go Away” month. Yale and Jeffrey Hirsch’s STOCK MARKET ALMANAC promulgates this six months in and six months out yearly strategy but has been refining this approach in recent years by suggesting investors don’t abandon stocks UNTIL the MACD line, a well known trend following indicator breaks down, which it hasn’t yet. So I’d preach patience. Stay with this stock market until this rally ends, likely by this time next month. Stay in those sectors performing the best, like energy and related, transports and technology. As to proper money management, I’d also suggest being “long,” being invested, roughly 50% to 70%. The percentage depends on your investment objectives, your Big Picture view and your personality. If you’re truly investing long term, say you’re young or you sleep fine when your statement says you just lost -10% over the previous quarter, then be in there 70%. Keeping the remaining 30% if the market keeps sinking; one always needs funds to “buy on sale.” But if you’re slightly older, you track your portfolio frequently, or you’re cautious by nature, be in there 50%.

Finally, I want to suggest going back to nibbling on dollar alternative investments, namely buying foreign currency ETFs, a bit at this stage. We’ve just had a dollar rally, as minimal as its been. This has caused the Swiss franc and Japanese yen to fall back. Yes, the US dollar rally could continue to rally but a look at the chart of the franc and yen show both have pulled back to logical buying points. Both are still in longer term uptrends, have corrected and have built possible bases. Thus let me recommend putting a toe back in the water in both FXF (Swiss franc ETF) and FXY (Japanese yen ETF).

Disclaimer! I bought a tiny bit of FXY late Friday. I hold no FXF but may buy anytime.

* If the buck starts dropping once more, next I’ll suggest going back into the soft “AG” ETFs. We’ll see.

Look Back & Learn: Lesson One; Stay With Trends! It's Super Profitable!

Richard Schwartz — Thu, 15 May 2008 14:27:00 GMT

LOOKING BACK: One major day-trading tenet is to look back at each trade & learn from both your successes & mistakes. This rule should apply to investing, speculating, everything. So let me do so today.

THE SOFT AGRICULTURAL THEME. Yesterday I cleaned out my files and found when I first began writing about “AG” stocks. It was exactly two years ago now, in May 2006. Below are some excerpts:

* * *

Written May 17^th, 2006

THE CASE FOR OVERWEIGHTING AGRICULTURE AND FOOD STOCKS

I would posit that the commodity bull may now start being led by the agricultural commodities like wheat, corn, sugar, soybeans and other agricultural related commodities.

My Rationale. The rationale here is that as the world gets a little richer, err, let me change that to read as the world develops a larger middle class, in China, India, Brazil, Eastern Europe, Russia and more, this new middle class buys food. I heard a commodity analyst on CNBC say that when a person moves into the middle class (when food and shelter becomes standard fare), when a person makes $10 a day versus $1 a day, the first thing he does is to increase the quality and quantity of his food intake. Makes sense to me. With the global middle class truly expanding greatly and rapidly during this growth spurt (by the limited definition of middle class) because of globalization, demand should rise for agricultural commodities like corn, wheat, barley, etc. And it would fit well with Morgan Stanley’s Steven Roach’s recent writings as well. In the same article whereby economist Roach argues that the run up in industrial metals is way overdone, a bubble as I mention above, he quotes China’s latest five year plan which decreases its focus on commodity-intensive exports and encourages its focus on consumer-led growth. I would say that means billions of Chinese will be buying more and better food soon, wouldn’t you? And elsewhere the same.

Written May 18, 2006:

MORE ON MY NEW AGRICULTURAL COMMODITY THESIS

I began this new thesis on Monday when I first suggested overweighting agricultural related stocks, or “AG” stocks as I think they are called in the business. Then yesterday I offered up the basic rationale behind this new overweight allocation recommendation. Let me repeat and expand upon my reasoning again this morning because the investment rationale is the bedrock principle. If this economic principle is economically sound and correct in its timing, we should make money overall. If not, well, then not!

Commodity Bull Market: Phase 2. On the other hand China’s new plan is to encourage a different growth strategy which encourages consumer-led growth. That means more consumer spending to me. And that means the new Chinese middle class will first start spending more on food, expanding their diets. Remember any country that is (1) growing wealthier and (2) has billions of people has to spend its new found wealth on something. And China says they are going to encouraging more consumer spending.

And its not just China which has gotten wealthier by the world economy expanding and coming closer to together because of more free trade. (In spite of the war on terror.) Latin America has really been helped out as well. Remember Brazilian banks are now finding its profitable to make consumer loans to their citizens! (I wrote about that.) That’s another indication of a new middle class forming. (Again don’t think of developing country’s middle class as the same thing as in America. Middle class meaning people have the means to finally not worry about a roof to sleep under and where the next meal is coming from.)

And its not just China and Brazil growing wealthier and thus developing a new middle class. . Think India, Eastern Europe, Russia, and more.

Schwartz Conclusion. My sense thus is there is a wind at the back, a tide coming in, if you will for foodstuffs and thus anything agricultural related. Farms, grain companies, companies producing or shipping agricultural commodities, fertilizer companies, commodity traders, etc., etc. etc. and on and on.

Written May 19, 2006:

Continuing on with my new theme I proposed on Monday, that agricultural commodities are going to take the lead from industrial commodities (the base metals) in phase 2 of this long commodity bull market, let me make a couple more comments and then start offering up the “shopping list” I promised you.

Brazil makes ethanol out of sugar, the US makes ethanol out of corn, biodiesel is made out of byproducts. Analysts are saying when people make $10 a day instead of $1 the first thing they buy is better food. But the extrapolation from ethanol to agricultural commodities in general is not mainstream quite yet, thus we have a “first mover” advantage. And by looking at the charts of corn and wheat and other foodstuffs I can confirm we’re early on into the ag commodities bull market. Corn just started perking up last December, wheat in early May, cocoa is still trading sideways.

Thus we’re in a way earlier stage in foodstuffs than industrial metals but still it’s the same commodity bull market. Over time we’ll probably see more new ETFs, this time in agricultural commodities, come into play but we mustn’t wait around for that. Look what happened to silver just now when that ETF came out! ETFs usually come out just in time to suck the public in at some type of top, someone’s got to buy when holders want to take profits, right? Bottom line I believe the next big thing is going to be anything to do with agricultural stocks. So I’ve begun a shopping list below. But please remember, don’t just jump in without checking where each stock stands! As an example, the stocks having anything to do with ethanol, yes they are in the ag group, have just ran way up and may hurt you badly unless you’re very careful.

AGRICULTURAL COMMODITY SHOPPING LIST: The very beginning!

Price Price %

5/18/06 5/14/08 Gains

ADM Archer-Daniels-Midland 39.80 43.07 +8% Processes agricultural commodities

MON Monsanto Company 83.25 122.63 +195% Tech-based agricultural products

POT Potash Corp. 93.20 198.80 +539% Produces potash, phosphate and nitrogen

MOS The Mosaic Company 16.40 125.16 +663% Produces crop nutrients to ag communities

AGU Agrium Inc. 25.91 86.68 +234% Produces fertilizers and related products

UAP UAP Holdings 20.35 ???? ???? Distributes crop protection, seeds, etc.

CF CF Industries 16.97 136.27 +716% Manufacturers, distributes fertilizers

TNH Terra Nitrogen 19.45 142.77 +634% Produces nitrogen, fertilizer, seeds

Schwartz Update: I filled in yesterday’s closing prices above and the % gains. Note: Some stocks have had stocks splits and or spin offs so the numbers may not seem right.

Written May 24th, 2006:

THE INVESTMENT CONCEPT: INFLATION FINDS ITS WAY INTO FOOD NEXT.

Remember my new investment concept or thesis here is that commodity inflation is going to find its way over into the agriculture and foods sector next. The speculation and demand for industrial metals, while still probably robust going forward depending on economic growth, has blown its top. Thus after this first, big commodity bull market correction is over, and it could run some time, in a 25-year bull market a correction could last from three months to three years says Jimmy Rodgers, famed investor who first called this commodity bull market, I expect commodity leadership to come from, to shift over to, the soft commodities, namely the food and agricultural stocks and almost any related ag stocks like farm equipment companies, etc.

Schwartz Lesson & a New SCHWARTZ RULE:

“When you find a solid, working theme, stay with it!”

This is a rule put forth in both of Jack Schwager’s books if I recall correctly, in both The Market Wizards and The New Market Wizards. One wizard trader in particular was an expert on staying with a trend, like a “dog with a bone.” And I must say I’ve seen first hand staying with trends work very well over the last few years. Maybe after writing today’s piece and seeing for myself the incredible results out of my fertilizer recommendations, I’ll learn to not be so flighty and thus stay with multiyear trends much longer in the future, like the REITs trend I identified early on in its big multiyear move up which ran from the beginning of 2000 to the beginning of 2007, like today’s ongoing commodities bull market and the still running and hot alternative, clean green, wind, solar trend. Yep, when we unearth a new trend with strong underlying economic fundamentals (macro economic trends which don’t change for years) we gotta milk it for all its worth. “Are you listening Schwartz?” You better be!