THE SOFT COMMODITY BOOM CONTINUES

Some call it the Bernanke effect, some blame the BRIC nations, while others blame rising soft commodity prices on the weakening USD.

JIM ROGERS clearly has been spot on as far as the boom in soft commodities goes. Food inflation is making headlines again!

Clearly some of the commodities may be rather overpriced at the moment. Meanwhile speculators and commodity hedge funds continue to build positions in this rather overbought sector. Caveat emptor - Watch this space!

Source : Commodity Prices / Quotes & Commodity Charts - Free - A fantastic site for commodity charts.

BAILOUTS: HERE WE GO AGAIN

In my November 2007 post, I quoted the last two paragraphs of the book ' The Great Crash 1929 ' by the late John Kenneth Galbraith. Well here they are again.

" Wall Street, in recent times, has become, as a learned phrase has it, very 'public relations conscious'. Since a speculative collapse can only follow a speculative boom, one might expect that Wall Street would lay a heavy hand on any resurgence of speculation. The Federal Reserve would be asked by bankers and brokers to lift margins to the limit; it would be warned to enforce the requirement sternly against those who might try try to borrow on their own stocks and bonds in order to buy more of them. The public would be warned sharply and often of the risks inherent in buying stocks for the rise. Those who persisted, nonetheless, would have no one to blame but themselves. The position of the Stock Exchange, its members, the banks, and the financial community in general would be perfectly clear and as well protected in the event of a further collapse as sound public relations allow,

As noted, all this might logically be expected. It will not come to pass. This is not because the instinct for self-preservation in Wall Street is poorly developed. On the contrary, it is probably normal and may be above. But now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.''

The book was first published in 1954, and provides a detailed account of the events leading upto the 1929 crash and the consequences thereafter.
The last paragraph, sums up the situation in which we find world markets today.
Banks failing after markets close on Friday, Bailout packages announced on Sundays & bailouts and deals without any long term solution in mind.
Countrywide Financial, Bear Stearns, Freddie Mac, Fannie Mae, and now maybe Lehman Brothers: all too big to (let) fail!!!
Well the times they are a-changin!!
http://www.bobdylan.com/#/songs/times-they-are-changin
The current leadership had better sit up and take notice, before they steer our ship right off the cliff !!

THE SLIDING USD

The market is expecting the FED to cut rates by 50 basis points when it next meets.
The USD is under real pressure now; and as it continues to fall, it erodes the value of Forex Reserves of Central banks around the world, as also the purchasing power of oil producing nations that receive US Dollars for their OIL.

TEMASEK HOLDINGS

“Temasek Holdings is an Asia investment house headquartered in Singapore. With a multinational staff of more than 300 people, we manage a portfolio of over S$160 billion, or more than US$100 billion, focused primarily in Asia. We are committed to fostering a sustainable future for our shareholder, staff, portfolio companies and the community.” http://www.temasekholdings.com.sg/

Temasek and The Government of Singapore Investment Corp operate as Investment Management Companies / Private Equity Arms / Sovereign Wealth funds of the Singapore Government. GIC was set up to manage Singapore's foreign reserves.

Over the years Temasek has been a long term investor mainly in Asian markets, acquiring sizable stakes in large companies.

Here is a list of its major investments as on 31st March 2007.

http://www.temasekholdings.com.sg/our_portfolio_portfolio_highlights_major_investments.htm#fs7

Here is a wikipedia link with recent updates of investment stakes held by Temasek.
http://en.wikipedia.org/wiki/Temasek_Holdings

For an accurate list of investment holdings, please refer to the annual statement from Temasek as of 31 March 2008, which will be put up later this year.

TEMASEK INVESTMENTS BY REGION AND SECTOR http://www.temasekholdings.com.sg/

Recent High Profile Investments

After its recent investment in Merrill Lynch, Temasek now owns approximately 9.4% of Merrill Lynch.

It recently announced that it owns 19% of Standard Chartered.(up from 13% on 31 mar 07)

Its sister concern, the Government of Singapore Investment Corp, invested almost $ 10 Billion in UBS AG recently.

The current activities of Sovereign funds such as Temasek mark an inflection point in the history of financial markets. With a shift of wealth and assets from west to east, investors from Asia are acquiring businesses in the west, during a crisis, at exceedingly low prices.
The new buyers will gain access to western markets, by acquiring well established businesses and brand names. They will also indirectly acquire a foothold in the subsidiaries of large multinational corporation businesses built up in Asia over the last few decades .
Over the long term, this will be the biggest loss for investors and business owners in the west, being forced to sell out when prices are down.

REALITY SETS IN : The downtrend resumes..

Markets around the world are correcting, amidst growing fears of a US Recession.

The US Stock Markets have had a rough start to 2008, and the FED seems helpless and unable to avert a severe slowdown. Small Cap companies are especially vulnerable due to their dependence on the US economy, as compared to Large multinationals that have a greater exposure to international markets.



Consumer Confidence is low.

Philadelphia FED DATA: The Diffusion Index of Current Activity.

Manufacturing in the Philadelphia region slowed significantly. The Index fell to a negative 20.9 in January, its lowest level since October 2001. Taken from the Philadelphia FED's Survey, it is considered to be the broadest measure of manufacturing conditions. http://www.philadelphiafed.org/

BOND INSURERS IN REAL TROUBLE
Bond insurers risk losing their AAA rating, as they struggle to raise fresh capital.

Any downgrades would really add to the turmoil in the credit markets.

Clearly not the right time to be buying stocks just yet. I expect gold prices to be volatile ahead of the rate cut, with some further downside likely if a world market sell off occurs.
GOLD will outperform, as overvalued markets correct this year.

The Goldilocks Economy : Return of the Bears

Post the Dot com crash, 9/11 and the subsequent Fed rate cuts, the US economy went from a Stock market bubble to a Housing Bubble.

Cheap money has resulted in

• Inflated asset prices,



• Rising raw material prices(oil, base metals, metal ores, and coal)



• An extreme out performance across emerging markets,



• Overleveraged and overvalued LBO deals



• Rising home prices in the US coupled with refinancing of home mortgages at lower rates, enabling the US consumer to spend his way out of a recession post 9/11.

• An exponential expansion in mortgage backed derivatives fuelled by a once booming US housing market.

Here's what happened>>>

Fed Rates hit a 45 year low of 1% in 2003. The US Stock Market rallied, as the Goldilocks economy(moderate economic growth : not too hot or cold & low inflation, ) continued on its way.

Through 2004 & 2005 the US Dollar staged a comeback as interest rates started to rise, only to resume its downtrend in 2006 as the US Housing market started to crumble.

High debt levels, falling US home prices, and rising interest rates have resulted in a mega catastrophe. US Consumer Confidence is low and as the economy continues to slow, the US consumer will cut back on spending. Huge cash infusions by Central Banks and bailouts by Arab and Asian investors have been unavoidable as leading investment banks are struggling to meet regulatory capital adequacy requirements. The mess in the derivative markets continues, with concerns over losses in Credit-default swaps, and many mortgage backed derivative securities now being seen as toxic WMDs.

Uncontrolled credit expansion encourages reckless consumption and excessive leverage. When the prices of leveraged & overvalued assets start to unwind, the consequences are disastrous.

So are we heading for a "Stagflationary" Bear Market in the US?

Slow economic growth, Inflation and relatively high unemployment = Stagflation
Gold has always done well in such periods, when Central Banks are unable to raise rates to combat inflation due to slowing growth.

Meanwhile, economies such as India and China are consuming increasing quantities of oil, raw materials and food grains as the standard of living across the region continues to rise. Due to their low cost advantage, Asian economies are emerging as manufacturing centres of the world, as production activities continue to shift to developing economies.

Given the dominant position of the US in global trade, the World Economy is going to struggle to decouple from the US economy if the US goes into recession.