Jim Rogers: Saudi Arabia can't increase production

Here's a video with Jim Rogers on CNBC, his view on the oil market, his new index about stocks related to commodities and agriculture commodities.
He also said he's short emerging markets and the Nasdaq.

Invest in Vietnam with ETF

Vietnam is one of few (only?) countries in the emerging market which currency value went down vis-a-vis developed market currencies such as the US Dollar or the Euro (Cf. 10 year EUD VND Chart below- Source: xe.com).



They have also devalued their currency recently by 8.5% due to rampant inflation (20%) and already high (but still negative) interest rates (15.9%). They have also raised their interest rates, increase the electricity rates and the stock market tanked following those bad news.

Marc Faber also recommended investing in Vietnam at the end of last year.

I found 2 ETF to do so. One is available in the US market: Market Vectors Vietnam ETF (VNM) and the other in Hong Kong: X DBFTSEVIET (3087.HK).

The graph below charts the vietnam stock market (red), VNM ETF(green) and 3087:HK (orange) since the ETF are available (July 2010).




Bear in mind that the ETF are in US and HKD (linked currency) but the Ho Chi Min index is expressed in Vietnamese Dong, so adjusting for currency fluctuations shows that 3087:HK tracks the Vietnam stock market closer, but VNM outperforms both the Ho Chi Min index and the Hong Kong ETF.

I am not sure about the reason for this difference, but this is not because of the expense ratio (VNM: 0.76% vs 3087:HK: 0.85%) or premium (VNM: 2.404% vs 3087:HK: 1.129%)

Marc Faber: Oil may go up substantially from current levels

Marc Faber was on CNBC-TV18 (Indian TV) on the 21st of February 2011.
He discussed about oil prices, commodities, emerging markets, developed markets and the geopolitical situation with risks in the middle east.

Here's the transcript of the interview:

Q: What have you made on the underperformance in emerging markets (EMs) so far? Is it now beginning to look like a crowded trade — this EM versus developed markets debate?

A: We had a massive outperformance of emerging economies’ stock markets between 2003 and a few months ago vis-à-vis the US. The investors who were by and large overweight emerging stock markets and underweight the US — they are still underweight the US. When the talk about inflation came up — I am not saying it is justified or not — it gave investors an excuse to sell down their holdings in emerging markets and move some money back into the US.

Q: Do you see most of that trade as having played out or do you think emerging markets have not bottomed out yet?

A: I don’t think that emerging markets have bottomed out but it would be now late to sell emerging markets. In many cases, they are down 20% and many stocks, good companies, are down 30% from the recent high. The US stock market has now doubled from its low.

In other words, there are only three occasions in the last hundred years when the stock market in the US doubled within two years. One was in 1934, coming off very deeply oversold condition in 1932 and the other one was in 1937. After 1937 and 1934, the 12 months return, both were negative.

I would be a little bit careful here to just buy the US because investor sentiment is very positive. The volume has been relatively sluggish and the market is extremely overbought by any statistical model.

Q: What about India? If your call is that emerging markets have not bottomed yet, what would you do with India at 18,000 Sensex? What downside do you see here?

A: I was interviewed not long ago, where I said that downside is around 15,000. But many things can happen in the world. Investors have been very complacent about the events in the Middle East.

I am not suggesting that it will necessarily spread to the Emirates to Qatar and to Saudi Arabia but there is always a possibility of some further bad news coming out of the Middle East, which would then, in my opinion, drive up oil prices. Obviously, rising energy prices would be a negative for the global economy — for the US economy and also for India.

Q: What kind of upside risk would you say exist for crude prices themselves?

A: On the upside, if you look at some other commodities like copper, then obviously oil prices could go up substantially even from these levels. I don’t think that oil is expensive compared to other commodities or compared to other goods prices in the world. But that would obviously depend on some political problems — some interruptions in oil supplies or a possibility of the global economy experiencing some kind of a crackup boom. A crackup boom is a boom that is driven by artificially low interest rates, easy monetary policies and debt growth.

The private sector debt growth has slowed down but it has turned up again. At the same time we have, of course, a huge expansion in government debt. That should not be forgotten.

These crackup booms don’t last. They are not sustainable but they can last six months to one year to 18 months and then a renewed setback occurs in the global economy.

Q: At what point would you consider the fact that emerging markets at any rate may be in a bear market now and not just a running correction in the bullish phase?

A: Whenever a market turns down after extended uptrend, you don’t know for sure whether this is the beginning of the bear market or whether it is just the correction in an uptrend. My impression is that if correction could last somewhat longer — then we will have to watch a rebound whether the rebounds can bring new highs or not. If it fails to bring in new highs, the likelihood of a bear market than manifesting itself is quite high.

Q: But if you look out six-nine months, do you see global markets moving in this kind of opposite directions? For instance in the last few months, it has been in opposite directions. The developed markets have moved in one direction and emerging markets in another. Do you see any synchronous movements happening sometime late in 2011 or do you think it will be one versus the other?

A: My view is that the US market will eventually join the emerging markets on the downside because if you take a bearish view about emerging economies, you cannot be too optimistic about the US because for many US corporations, 50% or more of their profits come from emerging economies. My main concerns are these: first of all, I think that not all is well in China. That if the Chinese economy slows down more then what analysts expect, we could have a downdraft in commodity prices and all the warrants on China — whether it is Brazil, Australia or Indonesia — would get hit quite hard.

Secondly, I think that the geopolitical tensions in the world are increasing. In particular, if I were in India, I would be concerned about the events that are now occurring in Pakistan and Afghanistan. This can also have an impact, obviously, on the valuation of equities. We shouldn’t forget that all the central banks in the world basically only know one thing and that is to print money. When things will get bad, they will print more money. If they get worst than bad, they will print more money.

Independently, whether that is the Bank of China or the Reserve Bank of India (RBI) or in the US — all the central banks will keep interest rates artificially low and they won’t increase them to a level where inflation adjusted they are positive.

I would be very concerned about the bonds market.

New Jim Rogers' Index: Rogers Global Resources Equity Index (RGREI)

Jim Rogers has been chosen by CITIC Group (China) and Banco Bilbao Vizcaya Argentaria (BBVA) to pick companies operating in the resources sectors to create a new index.

This new index called the Rogers Global Resources Equity Index (RGREI) will include companies in agriculture, alternative energy, forestry, energy and metals with a total of 200 stocks.

BBVA head of equities, Eugene Lee, said there is already an institutional base of clients in Latin America with a strong interest in investing in a commodity index like the Rogers Global Resources Equity Index.

Rogers has his own index fund, the Rogers International Commodities Index (RICI) based on commodities futures (not companies) currently tracked by RJA ETF (in the US) and Barclays Global Commodities Delta Fund (in Asia).

Leadereconomics Interviews of Marc Faber

Interesting interview with Marc Faber by leaderonomics.com. However, this interview is more about Marc Faber background, his overall view about investing and investments in the 70's, 80's and 90's. They will not talk about the current market.

Investments Newsletters and Blogs

There are lots of investment and economic newsletters around, here are the main one I follows either directly (free) or indirectly (paid one) by reading to articles or listening to interviews by the publishers.

Free newsletters and Blogs

• GMO - Jeremy Grantham: Quarterly newsletter. http://www.gmo.com/ where you get a market commentary and expected returns based on the return to the mean. Grantham is the specialist on Bubbles. You'll also get a 7-year market return forecast (for US, emerging and lumber) every month.
• Mish Global Economic Trends Forecast - http://globaleconomicanalysis.blogspot.com/ - with a least three post a day and very informative. Beside economic commentary, you'll also get some more political stances mainly about the handling of US Debt and American unions by politicians.
• Sprott Newsletter - http://www.sprott.com/ - Free Monthly Newsletters (Market at Glance) about precious metals and current market conditions.
  

Paid Newsletters and Commentaries

• Marc Faber - Monthly Market Commentary - http://www.gloomboomdoom.com it costs 300 USD yer year tp get 12 monthly commentary per year. Some older samples are free. for example http://new.gloomboomdoom.com/subscribers/download/051009.pdf
• LEAP 2020 - This is an anticipation newsletter somewhat pro-Europe, but still very interesting - http://www.leap2020.eu - that cost 200 Euros per year and provide an overview of likely trends in the next few months and years. A shorter public (free) version is available every month.
• Trends Journal - Quarterly publications based future trends based on Current Event by Gerald Celente and its team at Trends Research - http://www.trendsresearch.com available for 99 USD per year (Online) and 185 USD per year (Online and Magazine). Discounts are available for the unemployed and financial distressed persons.

Investing in Rice

Rice is one of the few agricultural commodities (aka soft commodities) that has not gone up significantly in price in the last few months as you can see in the 5 year chart below (Source: Indexmundi).



During December, the price of rice averaged 536.78 USD per metric tons and it has started to go up allegedly because more farmers are switching to more profitable crops such as wheat and corn which would reduce rice production this year.

Unfortunately, for investors, the only ETF I found to bet on the rise of the price of rice is RJA (ETF tracking roger agriculture commodities index: RICI-A) but it contains only a few percent of rice, a large part of it is wheat and corn.

If you have access to the French stock market, you could also buy the rice certificate RICEF PI OPENN (FR0010606509 - 1377N). However, with such products you have to be careful of the cost of holding it for a long period. See chart below (Source: Boursorama)




I have seen some other blogs recommend Thai and Vietnamese ETF to get exposure to the price of rice, but this is really a stretch.

Baltic Dry Index is Back to October 2008 Levels.

The Baltic Dry Index (BDIY) is back to around 1000 USD, close to the level it was between October 2008 and March 2009.



Is it the pre-cursor for a sharp correction for industrial commodities ?

I suppose it won't stay that low for too long. However, I could not find a reliable way to invest in the Baltic Dry Index.

Some people recommend Guggenheim Shipping ETF (SEA), composed of shipping companies, but it poorly follows the Baltic Dry Index. As you can see in the chart below, the index stays more ore less flat during the last six months, whereas BDI fell by over 50% during the same period.

Jim Rogers on CNBC - 3 Feb 2011

Jim Rogers in Zurich comments on the stock market. During a somewhat heated debate, he explains he still does not own many equities and mainly trades with currencies and commodities:

"I do not know very many equities, have not bought any equities for a while because I do not know what's gonna happen with the world economy but I expect more currency turmoil more social unrest more governments collapsing , so I am investing in currencies and commodities rather than stocks."

"I have been explaining to you and everybody else at CNBC for a year and half or two now that food prices are going to go through the roof they are gonna explode, it's happening, I still would buy agricultural products. We have serious shortages of everything developing, including shortages of farmers. This is a serious thing which is going to last for a long time. It is going to cost more upheaval in the world and there will be investment opportunities."

Marc Faber on CNBC: Bernanke is a liar!

At the Russia Forum in Moscow, Marc Faber talks with CNBC about the "economic recovery", Egypt, emerging markets and inflation.



Faber believes the global economy may be fine for the first half of the year:
"We have to realize that it’s an artificial recovery driven by ultra-expansionary monetary policies and also ultra-expansionary fiscal policies"

Faber also predicts that deficits will lead to renewed problems down the road.

"The annual cost of living increases are more than 5% today and the Bureau of Labor Statistics is continuously lying about the inflation rate, including Mr. Bernanke. He’s a liar. Inflation is much higher than what they publish"

Faber says the true cost of living increase for most US households is 5-8%, and just below that in Western Europe.

Chinese Agricultural Stocks

I'm very bad a picking stocks, and that's why I usually invest in mutual funds or ETF. However, there are two Chinese agricultural stocks that intrigues me.

The first one is Chaoda Modem (0682.HK) , a grower of fruits and vegetables in China. It has not performed well, even with the recent run up in prices, is profitable and offers a very low P/E of 4. This stock has also been picked by Peter Schiff. Here's the 5 year chart.

We can see the stock has done nothing for 5 years although profits have constantly improve. The stock got hammered in August 2010 after it made a stock offering and diluted the shares.

The second stock is Sinofert (0297.HK), a company specialized in Potash production and trading. It is a subsidiary of Sinochem a conglomerate in China. Following the collapse of the price of Potash (Potassium Chloride), the company reported loss in the past two years. However, potash price has not gone up with the price of agriculture commodities and if the price of the latter stays high, I expect potash price will follow. Here's the 5-year chart of Sinofert, it has made a decent 100% return over the period.


Let me know what you think of those stocks trading in the Hang Seng (Hong Kong Stock Exchange).

Investing in Natural Gas

Natural is about the only commodity that is currently depressed as you can see in the chart below (Source: IndexMundi) plotting the 10-year price of natural gas.




There are some ETF to invest in Natural Gas such as UNG (USA) or 1165N (France) that are supposed to track natural gas. However, their cost (due to contango partially) is prohibitive so that I would really advise investing in those, unless you are able to correctly guess the price of Natgas within 3 months. Those types of ETF will go to zero by design.

A safer way is to invest in several Natural Gas companies such as GazProm (Russia), Chesapeake (US), Gas Natural (Spain), GDF (France)... that may profit from higher gas price. If you are a dividend investor, you should also be pleased with those stocks.

It seems natural gas prices are more local than Oil for example. Have a look at the 10-year chart of the Russian natural gas. It does not seem as depressed as natural gas in the US.

Another to estimate if natural gas is overvalued or undervalued is to look at the Crude Oil to Natural Gas Ratio which is now around 21. (Source: StockCharts.com)



Historically, this ratio is close to 8 and 10 to due to energy density between crude oil and natural gas. I understand that there is currently a glut of natural gas and that new techniques to extract natural gas have been found. In the long run, this should be favorable for natural gas since it could become a cost effective way to replace crude oil in different sectors (utility, transportation...).