by Steve McDonald, Bond Strategist, The Oxford Club
Friday, February 1, 2013
In focus this week; repatriating gold reserves, the winners of the new U.S. manufacturing boom and the sitfa…
When Hugo Chavez, one of the world’s best known loose wires, announced he was pulling 85% of Venezuela’s gold reserves out of the Bank of England and taking it home, no one blinked.
But, when Germany’s central bank, the second largest holder of bullion in the world behind the United States, announced they would be pulling their gold reserves from the Federal Reserve Bank of New York and taking it home, the world took notice.
Gold watchers focus on central banks’ activities as an indication of where gold prices are going, and what the Germans are doing with their gold sent a chill through everyone who paid attention to it.
Thorsten Polleit, of the Frankfurt based Degussa, a precious metals firm said in a MarketWatch article last week that people are beginning to realize how bad things could get, that the Euro will not be here forever and gold is the anchor, the only anchor.
But the real news according to MarketWatch is that Germany’s move may be indicative of a loss of confidence in the United States’ ability to deal with its fiscal crisis and debt issues. No one wants their reserves in a place where there is any chance of default.
Polleit sees gold moving to $2070 an ounce this year based solely on the ever growing amount of money governments are printing. Add to this equation the fact that Germany’s economy, the EU’s sole powerhouse, contracted more than expected in the last quarter, the coming battle over the debt ceiling later this Spring and the United States’ fiscal problems, gold is beginning to get its shine back.
Gold will be much more of a story this year than last. Watch gold!
Cheap Energy Driving U.S. Manufacturing Boom
The United States is undergoing a huge resurgence in manufacturing driven by a weak dollar, stagnant wages and cheap energy.
China, the world’s factory for the past 30 years, is seeing wages rise 15% to 20% a year and is no longer the bargain it once was. Wages in the U.S. have been flat.
Companies like Apple (Nasdaq: AAPL), Caterpillar (NYSE: CAT), Ford (NYSE: F), General Electric (NYSE: GE) and Whirlpool (NYSE: WHR) are moving factories back to the U.S. from places like China and India, and it doesn’t stop there. Samsung (OTC: SSNLF), Toyota (NYSE: TM) and other big cap foreign companies are also moving new large operations into the U.S.
The biggest factor driving this new push is the U.S. energy boom. Some of the world’s cheapest energy is here in the US and that makes our factories more competitive.
According to Barron’s, the largest beneficiaries of this cheap fuel are the companies that use the largest amounts of energy; chemical producers and steel.
The names Barron’s mentioned were; LyondellBasell Industries (NYSE: LYB), DuPont (NYSE: DD), Dow Chemical (NYSE: DOW) and Nucor Steel (NYSE: NUE).
But these energy gluttons aren’t the only places this shift back to U.S. factories will affect.
Dover (NYSE: DOV), a producer of manufacturing products, Calpine (NYSE: CPN), the largest independent gas powered electricity generator and railroads like Union Pacific (NYSE: UNP) and Kansas City Southern (NYSE: KSU) will all benefit from this new expansion.
Not all operations will return to the States though. We still have the highest corporate tax rate in the world which will keep many out, and automation will eat up a lot of jobs. But, this shift is welcome news for the U.S. and will be a big addition to needed growth here at home.
Watch steel, chemicals, railroads and gas powered electric generators.
Slap-In-The-Face Award: Unfortunate Truths
The SITFA this week is a couple of quickies and goes to the author of some of the truest statements ever made about investing, Morgan Housel, from his 50 most unfortunate truths about investing.
First up, I love this one
“Instead of trading penny stocks, just light your money on fire. The same is true for leveraged ETFs.”
And, maybe one of the truest…
“Trust no one who is on CNBC more than once a week.”
And, lastly a real slap in the face for the investing world
“Investing is one of the toughest careers to succeed at, but it has very low barriers and requires no credentials.”