SOROS - Once In A Lifetime Credit Crisis ?

Billionaire investor George Soros is pretty darn bearish about the current U.S. financial 'credit crisis' and its future implications on the REAL economy. Below are some of his comments courtesy an interview today with Reuters :


" Therefore, his (U.S. Federal Reserve Chairman Ben Bernanke) options are limited -- he is boxed in...This incident is not the last one..Freddie Mac (FRE) and Fannie Mae (FNM) have a solvency crisis, not a liquidity crisis..There's no problem in their borrowing. And in fact, insofar as there is a problem, the Fed is there to provide the liquidity..The deterioration in the housing market, the foreclosures, are going to cause losses which exceed their (Fannie Mae and Freddie Mac) equity...This is a very serious financial crisis and it is the most serious financial crisis of our lifetime...I think the dollar is vulnerable because the (U.S.) economy is going into a recession and the actions of the authorities do involve the accumulation of debt...There is various ratios by which the creditworthiness of a country's assurances are deteriorating...It is inevitable that it is affecting the real economy. It is an idle dream to think that you could have this kind of crisis without the real economy being affected. "


reuters.com/article/ousiv/idUSN1444921820080715?


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*Anecdotally thinking + given Soros' sharp and somewhat aggressive rhetoric (does he really believe the current credit crisis will ECLIPSE the 1980-90's U.S. Savings & Loans Crisis??), he's probably sporting an investment portfolio that benefits from betting against the market (a 'bearish' portfolio)


Data Courtesy: Reuters

Crude OIL's 700% Rise

The U.S. dollar-denominated price of Crude OIL has risen 697% since trading at $17.45 a barrel on the New York Mercantile Exchange (The 'Nymex') in November 2001.

http://www.bloomberg.com/apps/news?pid=20601109&sid=au.c3bEf58NI&refer=home



*FYI, since 2002 the trade-weighed value of the U.S. dollar has depreciated by 30% (thus the gap between 'Dollar/BBL' and 'Euro/BBL' in the above chart)

Data Courtesy: Bloomberg + EIA

Brazil's REAL Appreciation

Since May 2006 the value of the Brazillian REAL (Brazil's currency) has Appreciated 31% against the U.S. dollar.

Tracking The Dollar

TRACK or Trade the value of the U.S. Peso using stock ticker .DXY

(don't forget the dot before the D)

GLOBAL + U.S. FOOD PRICE Inflation

Per the 4/14/08 Larry Kudlow show on CNBC, The World Bank estimates that GLOBAL FOOD PRICES have risen 83% over the past 3 years!

The million dollar question remains unanswered though - How much of this HUGE increase in global food prices is the result of pure inflation (including the effect of the weak U.S. dollar) VERSUS REAL WORLD supply/demand food commodity market dynamics (in which case an increase in prices is mostly reflecting an actual SHORTAGE of global food commodities against the rapidly growing middle class demands/appetites of the BRIC + ROW nations) ?

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*Check out the interesting Business Week article link below regarding U.S. food inflation:

http://www.msnbc.msn.com/id/24111033/

Some Takeways from the article:
*Americans spend about 15% of their total household income on food + beverages

*In the U.S., grocery bills are surging: Nearly every food staple has seen a double-digit percentage increase over the past year, including a 38% hike for a dozen eggs, to $2.16, and a 19% jump, to $1.78, for a loaf of white bread, according to American Farm Bureau data.

*The surge in food costs has been attributed to several factors, including the increasing number of American farmers who now grow corn to supply the ethanol energy industry INSTEAD of food companies. On a side note, CNBC market commentator Jim Cramer believes the U.S.'s current ethanol energy policy is misguided, fundamentally unsound and economically dangerous...he even jokingly refers to it as the U.S.'s Food For Oil program (naming it after the United Nations' infamous 'Oil for Food' program that has been marred by corruption + scandal).

*Corn prices have soared, hitting $6 a bushel, up 50% from 2007 and triple the price of three years ago. Corn is the main ingredient in livestock and poultry feed, so the prices of milk, chicken, and meat are also higher

Data Courtesy: Larry Kudlow + Business Week.

Dennis Gartman Turns Bullish !

After 12 months of being firmly entrenched in the BEARISH camp, renowned commodities investor and author of The Gartman Letter, Dennis Gartman (aka 'The Commodities King'), turned BULLISH about the stock market this week! He voiced the following sentiments Friday night during an interview on CNBC's Fast Money:

"You have to be very impressed...You gotta own steel, you have to own the railroads, you have to own coal. For me, I turned very bullish on stocks for the first time in almost 12 months this week. I wrote what I call my 'watershed report'...its time to stop being bearish. I think the lows are in. I think the panic liquidation has occurred...The market doesn't go down now on bearish news...And now after a huge move on Tuesday, WE JUST DON'T GIVE BACK THOSE GAINS...I think that's very impressive...I own some high tech, we own copper, we own steel...The dollar still looks like its weak...I think what you've seen is a flooding of cash into the system from the Federal Reserve Bank...and that flooding of cash is going to continue to put an upward pressure on commodity prices and also an upward pressure on stock prices."

http://www.cnbc.com/id/23956690

Data Courtesy: CNBC.com.

RTOB: ECB, Commodities & The Dollar

Random
Thoughts
Of
Brilliance

Is the European Central Bank's (ECB) current reluctance to cut interest rates (and thereby indirectly provide support for a stronger Euro currency relative to the U.S. dollar) providing a floor/relative strong upside SUPPORT to U.S. dollar-denominated commodity prices (including crude oil, gold, steel, copper, etc.)?

Even DURING a U.S. recession, do commodity stocks remain FIRMLY in the 'buyable on a '15%+ dip' camp until the U.S. dollar STOPS sliding relative to the Euro??

Full Disclosure: Thinking out loud

The Inflation Trade

As the U.S. continues to cut interest rates (and subsequently pressure the dollar lower), expect fears of inflation to aid trades in the following U.S. dollar-denominated sectors...The Inflation Trade:

1.) Gold + Gold Services

2.) Energy + Energy Services:
- Crude OIL
- Natural GAS
- Ethanol
- Coal

3.) Non-Gold Commodities (including Food/Ag) + Services:
- Copper
- Steel
- Wheat
- Platinum

A Crude Ending ?

In the face of a U.S. recession, the price of crude oil continues to ascend. Oil is currently trading near all-time (non-inflation adjusted) highs of $108.41/barrel. This begs the obvious question - when will the commodity reverse course and finally reflect a global slowdown? When will the current crude oil 'winning steak' end?

Does the Fed's latest $200 Billion move...one that doesn't involve reducing U.S. interest rates...signal a potential bottom in the U.S. dollar and therefore a potential trading top in the dollar denominated price of crude oil ?

Per data gathered from TheStreet.com on 3/05/08:
*The U.S. is the world's largest consumer of crude oil and consumes 21.0 million barrels a day
*China is the second largest consumer of crude oil and consumes 7.2 million barrels a day

* The U.S. currently makes up 25% of total world crude oil consumption per day (China makes up 9%)

Data Courtesy: TheStreet.com.

The $200 Billion MASTER Plan ?

The Federal Reserve's recently announced $200 Billion plan allows the prime brokers (C, GS, MER, BAC, BSC, LEH, MS, etc.) to use some of their troubled assets (including triple A rated mortgage-backed assets) as collateral for borrowing against $200 Billion worth of new loans being issued by the Fed in order to stimulate the economy.

This is a rather large deal because the Fed is in effect creating a temporary market/demand for the toxic 'assets' that are severely handicapping the ability of the brokers to lend/take on additional balance sheet risk in the 'free market'. One important point to note is that this market for triple A rated mortgage-backed debt may only be temporary- the current terms expire in 28 days...but the Fed has stated that, if needed, it would consider renewing the terms in the future. Could the Fed be willing to continue to renew its terms and thereby indirectly promote liquidity into the system until the credit markets FINALLY stabilize??? Maybe all of wall street's problems wouldn't be solved by this initiative (these shoddy assets will still exist and may continue to lose value until HOUSING stabilizes) but it sure does seem like it could prevent systematic failure in the U.S. financial + credit complex.

The Fed's action indicates it is aware and concerned about the current global 'credit crunch' seizing up debt markets worldwide. It is also introducing a new tool to fight against the 'illiquidity' created by the credit crisis...one that doesn't involve reducing interest rates...one that may also temper the market's concerns of inflation because it does not directly pressure the U.S. dollar downward. If the Fed is able to succeed with this tool then could it mean we are we finally nearing the bottom of the U.S. dollar's decline against the euro/yen???

This is good news and FINALLY shows some creativity by the Fed !

Full Disclosure: I currently own shares of GS.