economic recovery would not be that great for stocks because interest rates will go up and inflationary pressures will come back

TO BE NOTED: From Marc Faber:

"May 17, 2009

Commodities Will Outperform Stocks

What happened over the last 6 months is this: the market went down and bottomed out for the time at 741 in the S&P on November 21th 2008. Then we rallied 27% into January 6th and then collapsed into March 6th when the S&P dropped to 666. Since then we went from 666 to 929, in other words, up 39%.

The emerging markets interestingly enough bottomed out between October and November last year. Oil and Copper bottomed out in December 2008 and since then have been going up very substancially. Copper up more than 70% and Oil up 90%. A lot of emerging market stocks have more than doubled, even in the US you have lots of stocks that doubled between November and May , like Freeport McMoran, Newmont Mining and more recently Citigroup. There have been very pronnounced rebounds.

I think this as little to do with the economy. Investors must realise the worst the economy is and the longer it does not recover , the larger the fiscal deficits will be and more money will be printed. You can have a situation where actually where an economic recovery would not be that great for stocks because interest rates will go up and inflationary pressures will come back. In that environment commodities will outperform stocks. "

Equity investments are preferable to debt, a contributor to the current financial crisis, Taleb said.

TO BE NOTED: From Bloomberg:

"Global Crisis ‘Vastly Worse’ Than 1930s, Taleb Says (Update1)

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By Shiyin Chen and Liza Lin

May 7 (Bloomberg) -- The current global crisis is “vastly worse” than the 1930s because financial systems and economies worldwide have become more interdependent, “Black Swan” author Nassim Nicholas Taleb said.

“This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb, 49, told a conference in Singapore today. “Navigating the world is much harder than in the 1930s.”

The International Monetary Fund last month slashed its world economic growth forecasts and said the global recession will be deeper than previously predicted as financial markets take longer to stabilize. Nouriel Roubini, 51, the New York University professor who predicted the crisis, told Bloomberg News yesterday that analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.”

“Certainly the rate of economic contraction is slowing down from the freefall of the last two quarters,” Roubini said. “We are going to have negative growth to the end of the year and next year the recovery is going to be weak.”

Federal Reserve Chairman Ben S. Bernanke told lawmakers May 5 that the central bank expects U.S. economic activity “to bottom out, then to turn up later this year.” Another shock to the financial system would undercut that forecast, he added.

‘Big Deflation’

The global economy is facing “big deflation,” though the risks of inflation are also increasing as governments print more money, Taleb told the conference organized by Bank of America- Merrill Lynch. Gold and copper may “rally massively” as a result, he added.

Taleb, a professor of risk engineering at New York University and adviser to Santa Monica, California-based Universa Investments LP, said the current global slump is the worst since the Great Depression that followed Wall Street’s 1929 crash.

The Great Depression saw an increase in global trade barriers and was only overcome after President Franklin D. Roosevelt’s New Deal policies helped revive the U.S. economy.

The world’s largest economy may need additional fiscal stimulus to emerge from its current recession, Kenneth Rogoff, former chief economist at the International Monetary Fund, told Bloomberg News yesterday.

“We’re going to get to the point where recovery is just not soaring and they’re going to do the same again,” he said. “We’re going to have a very slow recovery from here.”

Fiscal Stimulus

The U.S. economy plunged at a 6.1 percent annual pace in the first quarter, making this the worst recession in at least half a century. President Barack Obama signed a $787 billion stimulus plan into law in February that included increases in spending on infrastructure projects and a reduction in taxes.

Gold, copper and other assets “that China will like” are the best investment bets as currencies including the dollar and euro face pressures, Taleb said. The IMF expects the global economy to shrink 1.3 percent this year.

Gold, which jumped to a record $1,032.70 an ounce March 17, 2008, is up 3.6 percent this year. Copper for three-month delivery on the London Metal Exchange has surged 55 percent this year on speculation demand will rebound as the global economy recovers from its worst recession since World War II.

Commodity prices are also gaining amid signs that China’s 4 trillion yuan ($585 billion) stimulus package is beginning to work in Asia’s second-largest economy. Quarter-on-quarter growth improved significantly in the first three months of 2009, the Chinese central bank said yesterday, without giving figures.

Credit Derivatives

China will avoid a recession this year, though it will not be able to pull Asia out of its economic slump as the region still depends on U.S. demand, New York University’s Roubini said.

Equity investments are preferable to debt, a contributor to the current financial crisis, Taleb said. Deflation in an equity bubble will have smaller repercussions for the global financial system, he added.

“Debt pressurizes the system and it has to be replaced with equity,” he said. “Bonds appear stable but have a lot of hidden risks. Equity is volatile, but what you see is what you get.”

Currency and credit derivatives will cause additional losses for companies that hold more than $500 trillion of the securities worldwide, Templeton Asset Management Ltd.’s Mark Mobius told the same Singapore conference today.

“There are going to be more and more losses on the part of companies that have credit derivatives, those who have currency derivatives,” Mobius, who helps oversee $20 billion in emerging-market assets at Templeton, said at the conference. “This is something we’re going to have to watch very, very carefully.”

Taleb is best known for his book “The Black Swan: The Impact of the Highly Improbable.” The book, named after rare and unforeseen events known as “black swans,” was published in 2007, just before the collapse of the subprime market roiled global financial institutions.

To contact the reporters on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Liza Lin in Singapore at Llin15@bloomberg.net."

The major pressure though (that exercised by the US Department of State, the UK, France and China) does not appear in the media.

From Reuters:

1 of 1Full Size

By John Kanyunyu and Joe Bavier

GOMA, Congo (Reuters) - Rwanda and Congo on Friday announced the arrest in Rwandan territory of Congolese Tutsi rebel leader Laurent Nkunda during a joint military operation against rebels on their Great Lakes border.

Nkunda has led a Tutsi rebellion in eastern Democratic Republic of Congo since 2004 and is wanted for war crimes.

Congo's government said they would seek Nkunda's extradition from Rwanda and that his detention could end the activity of one of the most powerful and feared eastern rebel groups, recently split by a leadership dispute.

Congolese and Rwandan military commanders said Nkunda was detained after he and three battalions of his fighters tried to resist the joint Congolese-Rwandan operation which was launched this week to hunt Rwandan Hutu militiamen operating in Congo.

In the operation, marking unprecedented cooperation between the Great Lakes neighbours after years of mutual suspicion and hostility, more than 3,500 Rwandan troops have crossed the border into Congo.

Wars, rebellions and ethnic violence since 1998 have killed more than 5 million ( 5 MILLION )Congolese, holding back the development of the huge former Belgian colony in central Africa, which is rich in minerals such as copper, cobalt, coltan, gold and uranium.

"Ex-general Laurent Nkunda was arrested on Thursday, January 22 at 2230 hours while he was fleeing on Rwandan territory after he had resisted our troops at Bunagana with three battalions," Congolese and Rwandan military commanders said in a statement.

Rwandan military spokesman Jill Rutaremara said Nkunda was being held at Gisenyi by Rwandan authorities.

A Congolese army colonel, who asked not to be named, said Nkunda and rebels loyal to him had fought against Rwandan and Congolese troops when they arrived on Thursday at Bunagana, a town on the border with Uganda in Congo's North Kivu province.

But a rebel associate of Nkunda, Jean-Desire Muiti, disputed the account of his arrest, saying the rebel leader had gone to Rwanda late on Thursday after being "called for consultations".

Congolese Information Minister Lambert Mende told Reuters Congo would seek Nkunda's extradition.

"There is a Congolese arrest warrant against him. He is Congolese. He committed his crimes in Congo. So it is normal that he would be judged in Congo," Mende said.

He earlier told the BBC that with the arrest, Nkunda's rebellion was "over or ending".

WAR CRIMES

Nkunda's leadership of his Tutsi National Congress for the Defence of the People (CNDP) rebel group had been challenged this year by dissident rebel commanders who last week ended hostilities with the Congolese government.

Human rights groups said they would be watching how Rwanda and Congo dealt with Nkunda. His fighters are accused of mass killings and rapes, and recruitment of child soldiers.

"Nkunda and troops under his command have certainly committed serious atrocities, and he needs to be held to account in a trial that meets fair trial standards," said Anneke Van Woudenberg, senior Congo researcher with Human Rights Watch.

"He must be brought back to Congo and face justice for his acts, because he is responsible for many deaths due to the war he waged," said local Congolese pastor Crispin Kombozi.

The joint Rwandan-Congolese operation to try to disarm Rwandan Hutu FDLR rebels follows heavy international pressure( FINALLY ) for an end to more than a decade of conflict in Congo's east.

Congo had in the past accused Rwanda's government of backing Nkunda, while Rwanda had denounced Congolese army cooperation with the FDLR (Democratic Forces for the Liberation of Rwanda).

Many of the FDLR's 6,000 fighters took part in Rwanda's 1994 genocide in which Hutu soldiers and militia slaughtered 800,000 Tutsis and moderate Hutus. The FDLR presence in east Congo haas been widely viewed as a root cause of the violence there.

Late last year, Nkunda, who said his rebels were fighting to defend Congo's Tutsi minority against the FDLR, led his CNDP guerrillas in a big anti-government offensive in North Kivu province which displaced more than a quarter of a million civilians, creating a humanitarian emergency.

The United Nations, which has 17,000-strong peacekeeping force in Congo that has been largely excluded( THEY DO WHAT? ) from the joint Congolese-Rwandan anti-rebel operation, has expressed fears that civilians could suffer if fresh fighting breaks out."

From Stop The War In North Kivu:

"Nkunda arrested In Uncategorized on January 23, 2009 at 7:33 am

All the media confirm that Laurent Nkunda has been arrested by Rwandan armed forces.

Hence it was true: Nkunda´s political fate was in peril during the last months.

The release of the UN Stearns Report and the subsequent known international pressure (remember Netherlands and Sweden´s position) has played a role. The major pressure though (that exercised by the US Department of State, the UK, France and China) does not appear in the media. No public reactions yet by them (will there be any?).

The news stress the idea of recent events as an strictly internal (Congolese- Rwandese) affair. The message is: major international stakeholders are completely aside from all this. ( WHY?)

This is a very hard sell.

Meanwhile, the number of Rwandan soldiers in Congolese soil continues to grow, and the humanitarian community fears more and more for the consequences of the joint military operation starting in North Kivu."

This seems like good news, for now.

"No asset class has experienced a roller-coaster ride like commodities have in 2008. "

From Bespoke, another important chart:

"2008 Commodity Performance

No asset class has experienced a roller-coaster ride like commodities have in 2008. Below is a table with the performance of ten major commodities over the last year. For each commodity, we highlight its current year-to-date change, its drop from its 52-week high, and its performance from the start of the year to its 52-week high.

As shown, oil has fallen the most from its highs at -75%. Oil is trailed by copper (-70%), platinum (-61%), and natural gas (-57%). Oil is also the commodity that is down the most year to date at -62%. Of the ten commodities highlighted, gold is the only one that remains up on the year with a gain of 3.87%.

The crazy thing is that these commodities looked to be headed towards record positive years just a few months ago. At its peak, natural gas was up 83% on the year, but it is now down 22% in 2008. Oil was up 53% for the year before falling more than $100 from its highs.

As hectic as the stock market has been this year, commodities have been even more volatile.

Subscribe to Bespoke Premium to receive our take on commodities in 2009.

December 26, 2008 at 02:57 PM in Commodities | Permalink

"Gold is really the only commodity holding up at all, although it continues in a downtrend."

From Bespoke, some Commodities recent performance:

"Bespoke's Commodity Snapshot

Below we highlight our trading range charts of ten major commodities. The green shading represents two standard deviations above and below the commodity's 50-day moving average. As shown, oil continues its epic collapse along with most other commodities. Natural Gas hit new lows today as well and even had a 5 handle for awhile. Gold is really the only commodity holding up at all, although it continues in a downtrend.

"If one player cheats, the rest follow and the effort collapses, as it did in the early 1990s."

I'm not a fan of OPEC or Cartels, and I don't usually encourage cheating, so I like this story in the FT:

"Opec disarray as oil sinks to $50

By Carola Hoyos and Javier Blas in London

Published: November 21 2008 02:00 | Last updated: November 21 2008 02:00

The oil price yesterday sank below $50 a barrel for the first time since 2005 as the first signs of fractures within the Opec oil cartel became apparent.

Nigeria said it did not want to cut its production to try to stop the slide in prices because it needed high output to balance its budget, while Iran, Kuwait and others said they would support another production cut.

Odein Ajumogobia, Nigeria's energy minister, said it was not in his country's interest to cut production further, raising the likelihood the cartel could fail to achieve its goal of boosting prices by cutting output.

"We are in the process of [processing] our budget . . . based on an [oil] benchmark of $45 . . . If you cut the volume then it is going to affect your budget, so obviously we are not advocating a cut because it is not in our interest," he said.

Opec risks collapse if it is unable to act cohesively. The power of a cartel to boost prices depends on all significant members forgoing the revenue gain from selling more oil for the gain from the price boost that comes from withholding oil from the market. If one player cheats, the rest follow and the effort collapses, as it did in the early 1990s."

I want it to collapse.

"The drop came as investors dumped oil and other commodities on heightened fears of a protracted global recession and after Goldman Sachs, Wall Street's largest oil trader, told its clients it was closing all its trading recommendations in energy."

Wow. All energy?

"The options market priced in a growing likelihood that oil prices could sink as low $40-$45 a barrel before the end of the year, with the cost of insuring against such an event jumping overnight by as much as 90 per cent."

There's insurance on this, but on bonds it's not possible?

"The slowdown is curbing demand for raw materials from oil to copper on a scale not seen in decades. Antoine Halff, of brokerage Newedge in New York, said: "Demand destruction today rivals that caused by the oil shocks of the 1970s."

Interesting side effect.

"All Opec members are struggling with the sharp drop in oil prices from this summer's record of $147. Ecuador, Opec's newest member, this week raised the spectre of defaulting on its loans.

Only the United Arab Emirates, Algeria and Qatar can balance their external accounts in 2009 with prices below $50 a barrel, according to research by PFC Energy, the US-based industry consultant. Saudi Arabia needs barely more than $50, PFC said."

Well, that's not good news, but I still want it out.