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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (2967)	12/8/2003 7:59:43 AM
From: Ramsey Su	Read Replies (1) \| Respond to of 110194

mishedlo, commercial gold position is meaningless to me, because I don't understand it. One argument against gold that I have not seen much discussion on is the gold reserves held by central banks over the world. Would governments be dumping gold for whatever reason of pertinence to their specific situation? How much reserve are in these Fort Knox's of the world? Ramsey

To: mishedlo who wrote (2967)	12/8/2003 8:48:21 AM
From: russwinter	Read Replies (3) \| Respond to of 110194

Excerpts from Barron's interview with Jeff Gendell describes current maladjusted economy well. What US manufacturing industry is he talking about though? And despite what he says, China is growing too fast, period.: Gendell: The real issue now is the economy is getting vastly overheated. The farming economy got very strong, very fast, much as we predicted. Now we think the positive surprise will be in the manufacturing area. A lot of people think U.S. manufacturing is dead. This is going to be the strongest recovery in the last 25 years -- my entire investing career -- and it is all going to be centralized in the industrial sector of the economy Q: Why is that? A: It's all about shipping rates. With the demand for Chinese production so great, the Baltic shipping rates have roughly tripled in the last year. A lot of people are making excuses and suggesting China is a one-time event, China is growing too fast and China's rate of growth will eventually slow down. We look at everything as a math problem. This is a very simple math problem. When you have an economy this big growing at 8% to 9% a year for five to seven years, you are going to have to increase shipping capacity to keep up with that growth. Take a look at a ton of iron ore that is moving from Australia or Brazil to China. The price of shipping that iron ore has gone from $7 a ton to over $20 a ton for a $20 item. It now costs more to ship the ton of iron ore than it does for the iron ore itself. Q: Low shipping rates were one of the biggest advantages for China. A: Exactly. Now that shipping will be rationed for at least the next 12 to 24 months because of scarce supply, high-end objects are going to get on the ships, but low-end objects aren't. With freight rates more than tripling, it is going to have amazing implications for the U.S. The U.S. will have to rev up an enormous amount of capacity to relieve the pressure. There is going to be a shortage of steel in this country next year, which is going to surprise a lot of people. A lot of steel makers built a lot of capacity on their ability to use scrap and process it. After 25 years of using scrap to make new steel, all of a sudden you are running out of scrap. New steel, rather than scrap, is going to have a big boom. That is one of our big themes. But it will happen all over. Look at inventories of copper. A year ago, copper inventories were at 900,000 metric tons. They've gone down almost every week this year and are now well below 500,000 metric tons -- around 475,000 metric tons -- and dropping every week. At some point in time, people will worry there is only three weeks of copper supply in inventory. What happens if we have a failure here or there? We are going to see outright shortages in a lot of commodities. Another of our big themes for the new year is to own everything that is commodity-related with a distinct end market. Scrap steel prices are up 100% in the last year because they are buying up everything they can get. So if the price of importing steel goes up by $50 to $75 a ton, it is going to be a lot easier to produce it and sell it in the Midwest than it will be to import it, given the scarcity of shipping capacity. All this import and export traffic going to and from China is starting to force the railroads to run at capacity on certain runs. They are going to raise prices, too. We expect to see all sorts of shortages. Q: How about an example? A: Louisiana-Pacific is one of the best examples of what we see happening. They make OSB -- oriented strandboard, or panel board -- for houses. A year ago, the company had about $700 million in debt and not a lot of respect on Wall Street. They embarked on a plan to reduce their leverage. They sold assets, including some forest, and took some write-downs. Then, their OSB business started going through the roof. A year ago, OSB prices were roughly $200 per thousand board feet. We calculated Louisiana-Pacific would generate about $300 million in cash if OSB prices went to $300. Well, OSB prices are at $470. Q: What other shortages do you foresee? A: When you run a whole economy on just-in-time inventories, and all of a sudden goods aren't coming just in time or they're not coming at all, it creates problems. We see the problem at Louisiana-Pacific. Louisiana-Pacific can't get all the logs they want. They just shut a mill in Maine because they couldn't get enough logs to make strandboard. There is going to be more displacement. Possibly even more dramatic will be one of our old favorites, the coal business. Q: You've been on that theme for a while. A: In the last 90 days we've upped dramatically our position in the stocks of companies that mine Eastern coal. Q: Why the focus on Eastern coal mines? A: Not to flog the shipping problem to death, but Europeans are paying double for coal from levels a year ago, and it is all because of freight rates. They get most of their coal from places like Colombia, Brazil and South Africa, and so it is shipped a long way. Again, not only are shipping rates going up, but boats used for shipping cargo are becoming scarce and cargos will be rationed. In the next four to 12 weeks there is going to be a sudden urge for Europeans to start importing coal from the United States. It's been years since the U.S. has exported any coal. We could start shipping 10 million to 20 million tons because the voyage is a lot shorter. If the Europeans take more than 15 million tons, we are going to see coal prices ratcheting up. Already, the price of delivered coal to Europe is up more than $20 a ton this year, whereas the price of Eastern coal is up about $4 a ton. Within the next three months we expect the price of Eastern coal to be up another $6 to $10 a ton. The stocks could move 30% just on this because people are going to start extrapolating higher coal prices. This is the event that is going to trigger high coal prices. But higher demand from all the new coal plants being built right now is what will drive higher coal prices from 2005 to 2010. They are going to suck up all the excess capacity over the next five years.