4 Potential Crises for China

My piece for Thursday's InvestmentU.com is about China. It got too long, so I had to cut a chunk out. Here's what I removed:

The potential problem for China is if slowing economic growth triggers any or all of the four crises that are simmering just below the surface.

China’s 4 Potential Crises

1. Migration. China has experienced three decades of migration that has left some of its cities bursting at the seams. China has eight cities as big as New York. New York has 8 million people. The "Big Apple" seems crowded, right? Well, Guangzhou has 13 million citizens; Beijing, 18 million; Shanghai: 23 million. This migration has strained local governments' capacity to provide adequate housing, health care and education. It’s also led to horrible levels of pollution. And migrants are treated like dirt, which leads to potential civil unrest.  Many of them have “temporary” jobs in construction. Speaking of which …
2. What If China Stops Building? Chinese infrastructure investment has led to enormous gains in construction-related industries and employment, while boosting local gross domestic product. But the building boom can’t go on forever. And when it ends … or even slows down … that’s going to cause an employment crisis.
3. The Conflict Between Landowners and Local Governments. Forced demolitions of private homes have sparked protests. Public outrage is heating up. In fact, the deputy party secretary of Sichuan was arrested on corruption charges. Sure, they’re all corrupt. He’s being singled out for his ruthless expropriation of farm properties.
4. How to Pay for Social Services.  Local governments don’t have the authority to impose their own taxes in China. That’s why so many are neck-deep in real estate development; it’s how they generate much-needed revenue. If they are forced to cool down the red-hot real estate market, what will they do for money?

Unemployed or Underemployed? 10 tips to help you change that

My friend Dawn Pennington is filling an open slot on her editorial team.  Here's a list she made that is excellent advice for prospective job seekers. You'll see I have alternate advice for #4. But you might want to listen to Dawn -- she's the one hiring.

Things I’ve learned (or re-learned, or learned better) this month, being the person who can change your life or make you suffer ...

1. DO feel free check in with the hiring manager on occasion. They are busy and need help. They probably are meaning to call you but can’t find two seconds to rub together to do it.

2. DON’T call and hang up and call back and hang up. The hiring manager is probably on the other line and can’t hear what’s going on with you repeatedly beeping through.

3. DO e-mail. Busy people may not pick up their personal cellphones but they are probably watching their inbox from afar.

4. DON’T leave voicemail. Not in this day and age. We can see that you called.
XX Sean's alternative: Leave voice mail, but make it short and to the point. And speak CLEARLY. E-nun-ci-ate.

5. DO offer to send writing samples or otherwise provide additional information that will help them to reach a decision or to at least keep the conversation going.

6. DON’T tell us how great you are. And how much you need to be paid. And how much your student loans/mortgage/pets/kids/Grandma’s meds cost you. We genuinely don’t care. You are supposed to solve MY problems, not the other way around.

7. DO tell us how great of an asset you could be to us. I had a girl tell me “I couldn’t find your website” after I put the URL in the ad.  A GREAT candidate would have said, “Hey, you know what, your site doesn’t come up at the top of a Google search, but I could help you raise your page ranking with some keyword tricks I’ve learned.”

8. DON’T believe you’re God’s gift. God has many gifts to give. And I always keep my return receipts. And I am totally willing and eager to be surprised. But at least package yourself nicely and make me want to see what’s inside. Don’t CALL ME ALL WEEKEND and FIVE TIMES BEFORE 9 A.M. on MONDAY to beg me to tell you how awesome you are because you want an offer NOW NOW NOW.

9. DO play ball. Just don’t play hardball unless you’ve got some kickass experience and/or ideas for making/saving us money. We know you’re inflating your current salary. It’s OK. Just understand I am under no obligation to match or exceed it, but I am willing to reward someone who comes in and totally shines. But not a moment sooner, and certainly not before your start date.

10. DON’T slip off your mask too soon. If I ask you after a long day to meet one more person — a person who normally works from home that day who came in specifically to meet you — and you say thanks but I don’t have any questions for her and “you’ve kept me here a long time already” … well, foot meet door. Ask her how she likes working here and how much you would be working together, should you get an offer. Chances are I trust her and she can say something in your favor, if you give her the opportunity.

The Relationship Between Gold and The Dollar

I'm watching the U.S. dollar very closely here. Check out this chart from StockCharts.com for the PowerShares DB US Dollar Index Bullish Fund (UUP)



(Updated chart) 

You can see that the U.S. dollar drifts higher, then breaks lower, over and over again. Most recently, bullish action in the euro is weighing on the dollar.

Other thoughts ...

• Since gold is priced in dollars, more weakness in the dollar should be supportive for gold. It's worrisome that gold hasn't done better considering the slump in the dollar. But maybe the price in New York has yet to catch up with the fundamentals.
• And to be sure, all eyes are on the FOMC meeting this week.
• Speaking of gold, the most recent news out of China can be seen as a positive. The latest figures from Hong Kong suggest that gold demand in China is yet again heading for a new record in 2014.
• However, in India, farmers are concerned over a weak monsoon, which would drastically affect their crops. And that is probably dragging on gold.

2 Charts Showing Inflation Is Heating Up

Here are some charts I found interesting today. Let's start with Capacity Utilization.

Capacity utilization was 79.2% in March, which is a big increase from February.

Capacity utilization has been rising steadily since the economy bottomed in 2009. Over the past year, it has risen 120 basis points.

From 1972 to 2012, capacity utilization averaged 80.2%. It was highest in the early 1970s, peaking at around 89%. It bottomed at 66.9% in 2009.

This suggests there’s a lot of room for production to expand before we start feeling inflationary pressures. High capacity utilization levels in the 1970s were a big cause of inflation.

Speaking of inflation ...

After sliding for three years, commodity prices, measured by the Commodity Research Bureau Commodity Index, appear to have started to rebound [Figure 1]. Food prices are rising in part due to the extended effects of severe weather. And fuel prices have been rising — with gasoline prices at the pump jumping 45 cents over the past five months to a national average of $3.65 per gallon.

Other inflationary things to consider ...

• The Consumer Price Index, the most commonly cited and used measure of inflation, averaged 1.4% over the past year, but rebounded from 1.1% in February to 1.5% in March.
• The Producer Price Index, a measure of what companies are paying for inputs, increased 0.5% in March. It was up even more excluding food and energy (0.6%), accelerating 1.5% year over year.
• Food prices are rising rather rapidly, jumping 1.1% in March. That was the largest increase since May of last year. Droughts in California and Brazil are lighting a fire under food costs. The top-10 fastest-rising food prices from January 2010 to March 2014 are: Bacon +53%, Ground Beef +35%, Oranges +35%, Coffee +31%, Peanut Butter +30%, Margarine +30%, Wine +25%, Turkey +24%, Chicken +22%, Grapefruit +22%

Mind you, overall inflation is still low. But it is starting to heat up.

America Is Swimming in Oil -- 4 Charts

Just sit right back, and let me tell you a tale about a man named Uncle Sam. You see, Uncle Sam is swimming in oil.

Now that you're ready to rip your own eyes out, let me tell you that I have a lot of charts and data below. And the last chart is a doozy.

Bloomberg tells us ...

Shale Boom Sends U.S. Crude Supply to Highest Since 1930s

The U.S. is stockpiling the most crude since the Great Depression, thanks to the shale boom that has boosted production to the most in 26 years.
Inventories rose 3.52 million barrels last week to 397.7 million, the highest level since 1931, according to Energy Information Administration data.

So why are oil prices so high? One analyst says that they could be higher, if not for weak demand.

“Although the market may think U.S. commercial crude is bursting at the seams, it is not — and at 397.7 million barrels, we are only 2.3% higher than one year ago,” said Richard Hastings, macro strategist at Global Hunter Securities. “The problem is on the demand side, which is quite weak.”

In other words, we're producing a lot more oil. But it's not cheap oil.

Sean's note. It seems that refiners are processing plenty of it. In fact, refinery utilization was at 91% for the latest week, up from, 88.8% a week earlier and up from 83.5% the same time a year ago, EIA data showed.

So why then did this happen ...

Gasoline Trades Near Eight-Month High as Supplies Drop

Gasoline inventories decreased by 0.3 million barrels to 210.0 million barrels. At 210.0 million barrels, inventories are down 7.8 million barrels, or 3.6% lower than one year ago.

So what's the problem?  The EIA says seasonal issues have a lot to do with it.

Typical seasonal factors contribute to recent rise in gasoline price

The EIA says: "Changes in the price of retail gasoline result from changes in both the price of crude oil and wholesale gasoline crack spreads. Crude oil prices do not display a seasonal pattern. Crack spreads for gasoline, however, are very seasonal. This post-February increase is largely related to typical seasonal factors such as refinery maintenance, increasing demand from driving, and the switch to summer-grade gasoline, which is more costly to produce than winter-grade gasoline."

Yeah, nice try.  But the real reason is that refiners are selling more and more product overseas. We can pump enough oil to drown Godzilla, but it won't matter if that oil is refined and exported.

You see, the EIA also says:
US petroleum product exports increased in 2013

US petroleum product exports in 2013 averaged 3.5 million b/d, up 10% from levels in 2012, according to the US Energy Information Administration. In December 2013, US exports of petroleum products reached 4.3 million b/d, the first time to exceed 4 million b/d in a single month.
Exports of distillate fuels in 2013 increased 110,000 b/d over the previous year to 1.1 million b/d, according to EIA data. This was accompanied by a 160,000 b/d increase in distillate fuel production in 2013 as the result of cost-advantaged US crude oil and natural gas and near-record-high refinery runs.

Here's a chart I made of US oil exports using EIA data. It goes through January (the latest month available).

Wait there are two more things you need to know.

First, the oil boom in Texas is big and getting bigger. In fact ...

Texas expected to outproduce all but one of the OPEC nations this year

Benefiting from the booming Eagle Ford Shale and Permian Basin, Texas likely will best the oil output of every OPEC country but Saudi Arabia by year-end, says a top exploration official at ConocoPhillips, a key acreage holder in both of those oil-and-gas formations.

The Lone Star State is expected to end 2014 with 3.4 million barrels per day in oil output, which exceeds that of 11 of the dozen OPEC nations.

Second, all that oil has to travel around the country somehow, right?

With Keystone delayed, oil by rail in DC spotlight

The story says ...

Delivery of oil by train has rocketed as the Keystone XL pipeline has been delayed for four years. It’s important to note that’s far from the only reason the transportation method for oil has boomed, as it also coincides with a boom in production here in the U.S., notably from the Bakken Formation in North Dakota.
According to data from the Association of American Railroads, U.S. carloads of petroleum products have more than doubled since April 2010, the first time the State Department delayed Keystone approval.

Slo who are we going to sell all this oil to? You get one guess, and it better start with "China". China is becoming more and more dependent on Middle East oil, and yet is unwilling to spend to protect that oil.

 The U.S., meanwhile, has less and less reason to protect Middle East Oil. So what's the easy solution? China can buy more of its oil from good ol' Uncle Sam. Maybe he'll be able to afford a new barrel.

This is all stuff to keep in mind as America's oil production booms.

And the Gold Miners I Follow Ended Up Today Because ...

We have some gold miners left in the Gold & Resource Trader recommended positions.  This itself is noteworthy because we were stopped out with gains on so many, and with losses on a couple.

Anyway, they went up today. Today, on a day when gold as tracked by the GLD did this ...

(Updated chart)

You can see that gold not only fell, it fell below its uptrend.

And yet my gold miners are up. Meanwhile, checking on the GDX and the GLDX, they are down, but both outperformed the GLD. In fact, they had the kind of reversals during today's action that points to higher prices tomorrow.

So why are miners outperforming gold today?  That's the million-dollar question.

6 Hot Stories & Charts on Gold & Silver

As we slide into a Good Friday weekend, I have some charts of gold and silver for you.

Let's start with two factoids from Frank Holmes at US Global ...

#1: China Continues to Accumulate Gold

China is now thought to hold 2,716 tonnes of gold, while the U.S. holds 8,812 tonnes. China would still need ten years for its gold holdings to catch up to the U.S., suggesting strong gold demand from China. With Russia on the offensive again, it too has the capacity to push oil prices higher, boost its revenue and purchase additional gold beyond domestic production.

XX Update -- thanks to sharp-eyed reader "Anonymous," I have corrected this figure.  US Global listed it as "million tonnes," and I didn't catch it. The World Gold Council lists more likely numbers. The chart is still wrong.


#2. India's Gold Trade Caught in Cash Bind.

India’s general election has negatively impacted gold trade in the country. Gold traders in India are used to cash transactions when buying and selling gold. With the election code of conduct in force, traders face severe restrictions on carrying physical cash in large denominations. According to Hasmukh Bafna, President of the Gold Chains & Jewellery Welfare Association, business has dropped by 70 to 80 percent since the first week in March.This low gold demand is expected to continue until the middle of May

#3. Russia Rising.

Russia has now overtaken the U.S. to become the world’s second-largest gold producer behind China. In fact, the Wall Street Journal reports that Russia's production of gold-containing concentrates increased in January-March by 12.3% compared with January-March 2013, and the country's gold output increased by 32.6% on the year.

#4. Silver Production at Primary Producers on a Slippery Slope

Steve at SRSRoccoReports.com says that for 2013, the top primary silver miners suffered the lowest average silver yield ever.

Read the rest of his analysis HERE.

#5. Gold Miner All-In Cost Blues

Deutsche Bank has released a chart showing all-in costs of some smaller gold producers.

Chart found HERE.

#6. Chart of Gold
Finally, here's an updated version of my gold chart.

(Updated chart)

 Clearly, this was a bearish week for the metal. Gold closed below $1,300 AND its 200-day moving average. A test of support seems likely.

I'm sorry if that's not bullish enough for you. If you want bullish, look at natural gas. I'll have more analysis on that next week.

Have a happy Good Friday and a Wonderful Easter.  By the way, do you wonder why it's called "Good" Friday. Wonder no more.

Peace be upon you.