Money & Politics
Interview: Blue Phoenix---Licata, John---Commodity Strategist
>> 20 minutes from “money & politics.” my pal michael mckee is here to tell us what’s coming up.
>> how often do you see the republican house of representatives voting yes on a democratic proposal to raise taxes? that’s what happened last night. democratic representative maurice hinchey will be here to explain why. hint―taxes are going up on oil companies. speaking of oil, prices down today on word that iran thinks talks with u.n.’s nuclear watchdog agency are productive. we’ll ask an expert whether iran might actually mean it. and donald kohn, the new federal reserve vice chairman, will he help fed credibility? a question to ask as 10-year notes have their best week in more than a year. all that coming up on p.p.o. stay right there.
>> thanks, mike. commodity prices, as we’ve been reporting, posted their biggest weekly decline in more than 25 years. is it time to rush out of gold and other precious metals or is it a buying opportunity? for answers, let’s bring back john licata, chief investment strategist with blue phoenix joining us on the telephone. thanks for joining us.
>> how are you doing?
>> i’m very well. you put out the note titled the sky is not falling in metals land, which might suggest you think people think the sky is falling and you’re suggesting they’re wrong. explain why. >> there’s been a lot of talk the last couple of days of mass exodus out of commodities funds. while there has been a lot of selling going on, it’s created a very nice buying opportunity that i think patient investors can reap the rewards from.
>> we were chatting last week, you told me gold will hit $850 by the end of the year. are you sticking with that forecast? >> very much, you can highlight that.
>> so what are the fundamentals that will bring us back from the 8% declines in gold this week?
>> i still think the currency hedge that’s in place right now will reverse itself. we’ve heard mixed reaction this week from the fed in terms of the intentions of raising interest rates or not come next month. i think the dollar, the last couple of days, has been completely overbought. i’m looking for that correction to possibly lead to the dollar fading to as much as 1.40 versus the euro, which would be positive for gold. geopolitical hedge it’s table still exist. just yesterday we heard nigeria was threatening workers from shell and potential military -- militant action in the region and potentially attacking oil fields. i think that’s very bullish factor in crude oil and i think that’s very impacting bias to be favorable toward gold right now and inflationary hedge. tuesday, there’s an expiration contract in the spot crude that’s going into july and i think that will cause gasoline prices to go higher and net-net, i think higher gasoline prices ahead of the beginning of the hurricane season is bullish for gold.
>> i want to ask you, the other day jeffrey lacker, fomc member, said the link between metals, prices and inflation has been severed. you mentioned gold’s role as an inflation hedge. what do you think of lacker’s comments?
>> i think they were pretty strong. i think a lot of market participants were surprised by the comments made by lacker, but then we also heard comments from bernanke and other fed speakers, as well, this week, that softened those comments. so that’s one of the reasons you saw such an exodus in gold because no one knows how to play this. i will note that this morning u.s. treasury secretary john snow made comments suggesting that china “was not a manipulator of foreign exchange rates but the united states is not happy with the way china is dealing with their own currency.” to me, that suggests that the asian currencies are a much better bet near term, and that being the case, that proves what i predict as the dollar fading and gold returning as a currency hedge.
>> let’s bring in the base metals. is the story the same with copper? copper prices sharply. do you expect a rebound in base metals?
>> i like copper. we’ve seen a severe correction in copper prices, 14% on the week. the interesting thing about that is the london metal exchange today released inventory data that once again suggested that the world inventory supply for copper is only good for about three days. so if there’s another strike anywhere in the world, whether it’s the continued fallout from grupo mexico’s lakadaimlerchrysler ad facility, the seventh largest copper mine in the world or any fall back out of chile, world’s top global producer, i think you’ll see a major swing to the upside in copper prices so i would use the 10% slide in gold, 14% in copper as well as one of the most bullish outlooks is for the use of palladium as well as for silver, as opportunities to get back in. if you’re patient, i think you could ride the storm we’re seeing right now and i think there’s a lot of chance to make money by the end of the year.
>> we thank you for your interesting commentary.
>> thank you very much.
>> venezuela recently joined governments, russia, bolivia and the u.k. that have raised taxes for oil companies. venezuela’s ambassador to the united states, bernardo alvarez, joins us next.
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Listen Market briefing--Ellen (slow)
Rotation---Bob (fast)
Week review --- Suzanne (slow)
edition of “after the bell.” i’m lori rothman. stocks managed to close higher on this volatile session, expiration friday. the s&p 500 up five points, 1267. energy, technology, financials and retailers among the stocks that closed higher today. and the nasdaq composite gained 13 points, 2193. the nasdaq rose for the first session in nine today. after strong shows in 2006, materials, energy and transportation stocks reversed direction and fell strongly this week. bob bowden has more on the rotation.
>> the s&p 500 stocks can be divided into 24 separate groups. i’ve loaded all 24 into a bloomberg terminal worksheet. i have the 24 groups ranked by the worst this week right now, you see materials, energy, transportation as the worst performers, the percentage drops for those indexes this week. if i move to the six-month column and sort―go from the worst on the week to the best in six months, it’s the same names. materials, transportation and energy―actually, transition and energy switched order here but those three are the best in the last six months and the worst in the week. so now that we know those are the worst for the week, let’s see the worst of the worst. in materials, the worst of the week were two of the biggest copper stocks, phelps dodge and freeport-mcmoran, down 13% and 16.31% respectively. on the last place of the list, pittsburgh-based allegheny technologies down 16.67%. moving on to the next group, the second-worst s&p group for the week, energy stocks, and the worst in the group, two drillers, rowan companies and noble corporation down 10% and 11% respectively. last place, oil services company b.j. services. allow me a digression to show you the large cap energy stocks―exxon-mobil down 3%, chevron down closer to 5% and conoco close to 4% on the week. transportation, the third worst group on the week, the worst of the group all railroads am the transportation index has other non-railroad names like u.p.s. and southwest airlines but it was c.s.x., norfolk southern and burlington northern santa fe which fell the most on the week. c.s.x., a bargain, down only 5% when you consider norfolk and burlington down over 7%. a week of newtonian physics, what goes up must come down.
>> thanks, bob. a deal in the gold business to tell you about. goldfields raised its stake in western areas, owner of half of the world’s biggest gold deposit. goldfields paid $114 million to raise its holding in western areas to 15.5%. purchase values western areas at $965 million. harmony gold mining is western area’s largest shareholder with a 29.2% stake. goldfields’ latest investment fueled the prospect of a bidding contest for western area. even as stocks ended the day higher, not so for the entire week. the dow and nasdaq fell 2%, the s&p nearly 2%. suzanne o’halloran has more detail. tell us about the week that was.
>> what happened is investors got more concerned about inflation after that stronger-than-expected c.p.i. report earlier in the week. that’s creating more uncertainty about what the fed does come june. that’s why we are seeing a rotation from stocks to bonds and one investor says there is a goodancence that will continue as we move into summertime.
>> the markets have not declined enough yet by my pencil to present a really aggressive buying approach. indeed, for the past few months, the market ‘s internals have been deteriorating despite the fact that the dow jones industrial average was trying to make a new all-time high.
>> the dow has given up nearly 4% in just two weeks. six of the 30 dow members finished the week higher. the top performers, johnson & johnson, wall street and -- wal-mart and coke. on the flip side, alcoa, caterpillar and general motors led declines. inflation concerns rocked equities. 10-year notes heading for the biggest weekly gain since september, yields at 5.05%. richmond fed president jeffrey lacker helped that rally this week saying containing inflation is the fed’s primary focus. one bond watcher says comonts like―comments like lacker’s are designed to create uncertainty in stocks but calm the fears of bond investors.
>> investors are paid to take less risks whether it’s the front end of the treasury curve or if you share the view that the economy is slowing and inflation isn’t a threat, then at the long end of the treasury curve, investors are paid to move into quality products, or treasuries.
>> ben bernanke earlier it week―this week said the housing market is experiencing a moderate cool-down and the fed is using the housing market as a tool to assess the u.s. economy. next week is extremely important with new home sales on wednesday and existing home sales on thursday. investors will look at both of those stats to try to figure out what the fed will do in june.
>> thank you. are interest rates concerns eroding the appeal of gold, silver and other precious metals? we’ll ask john licata of blue phoenix for his outlook next.
