Thanks for all your comments on my Monday-afternoon gold analysis! You packed our inbox with interesting and insightful feedback. I appreciate having intelligent readers like you. You make my job easier — and you keep me on my toes, too.

Like me, most of our readers are long-term bullish on gold, and many if not most are somewhat short-term bullish on the shiny metal as well.

Some of you asked me to explain the “bottoming process” I see in the gold market. Others wanted information about specific gold investments. Many people are looking for practical advice on adding gold to their savings plan.

Today I’ll try to answer your questions and fill in some details. I’ll also give you a peek inside my own family investment strategy. Many publishers try to sell you this kind of information as a special report or bundled with a subscription, but we here believe it’s critical for folks to understand what we do with our money in order to understand where we are coming from.

Please read closely — we have a lot to cover and all of it is important!

***

Investment lingo is often colorful, but not always clear. Yesterday I wrote that gold had “touched bottom.”

Think about this phrase for a minute. What image comes to mind? Maybe you see a farmer digging through topsoil, or a Pacific Islander diving for clams. You could also imagine a bungee jumper stretching out to brush the ground before the rope snaps him back up.

Is the clam diver at the very deepest point of his lagoon? Could the farmer’s bedrock be a few feet deeper in his other pasture? Yes, of course. Figures of speech are not always literally true. We use them to evoke pictures in our minds. They help us process new information and store it in our memory.

So, am I 100% certain the gold price will not go one penny lower from here? No. I think finding bottom is a process in any market. There are no signposts to tell us when the process begins and ends. They are usually obvious only in hindsight.

In my opinion, gold is in a bottoming process. We may see gold prices drop lower as the process unfolds. We may even see an unexpected market condition that causes major players like banks and even countries to liquidate gold at some point that no one could have seen, similar to what happened to gold after the U.S. market panic in September 2008. If either happens, I think it will be temporary and short-lived. I will view them as a buying opportunity.

This is what I mean by “touching bottom.” Gold’s rope has stretched about as far as it can. We may not be at the absolute bottom, but we are darn close.

***

The gold “price” is a fuzzy concept even when you aren’t near a bottom. Gold has many prices. The twice-daily London “gold fix” is a semi-official benchmark, but you can also look elsewhere.

Several futures exchanges offer gold contracts. Because they represent metal for future delivery, futures prices reflect other factors like storage costs and interest rates.

Then you have the many gold ETFs and similar instruments. You can quote all these in many different currencies, too.

These prices are for what you might call “financial” gold. They involve large amounts traded wholesale, between dealers. The gold itself usually stays in a vault.

The “physical” gold at your local dealer is different. If you want to walk out with gold coins in hand, you’ll usually pay a premium to the wholesale price, however you define it.

Physical gold is currently in short supply all over the world. And at each dip in the gold market, supplies shrink. The U.S. Mint is selling American Eagle coins as fast as it can make them. Earlier this month India’s government imposed a higher import tariff to try to curb jewelry-related gold demand. Wealthy Indians simply turned to the Middle East. Gold sales in Dubai are reportedly skyrocketing.

Why do so many people want gold in hand? They all have their own reasons, but the impact hits everyone. The premium varies for different coins, but it’s not unusual for a 1-ounce coin to cost $40 or more than the “gold price” you see quoted in the media.

Keep in mind, also, that this premium can rise and fall completely independent of the “financial” gold price. If enough people want gold coins, and are willing to pay for them, then eventually dealers will melt big gold bars into coins.

This doesn’t happen overnight, though, and meanwhile the coin premiums can get higher as dealer inventories shrink — possibly even to zero. They can’t sell you coins when they don’t have any.

We could also see the financial gold price bottom out well before (or after) the physical gold price. These really are two different markets. Of course, they’re closely related, but they don’t always move in lockstep.

***

Finally, let me tell you how gold fits into my own financial plan. Your circumstances may be different, of course. I’m in the middle of my career with a young child and a wife. Someone who is retired and living off savings and Social Security has different needs. I’m just an example.

My wife and I have agreed on a family budget. When I get a paycheck, we first pay all our normal bills: mortgage, medical, groceries, etc. Whatever amount is left goes into our savings plan.

I categorize our savings into “mental buckets.” I was fortunate enough to learn this concept early in life and it was reinforced years ago after reading a piece on savings buckets from the author of “Automatic Wealth,” Mark Ford. It simply means placing your savings in separate buckets for distinct purposes. In my family’s case, we have three buckets.

Our short-term bucket is our “rainy day” fund. We use this money for unexpected bills or minor emergencies. Since we don’t know in advance when we will need it, this money needs to be quickly accessible. We keep it in cash or near-cash investment accounts.

Our long-term bucket is for expenses we expect in the distant future: our son’s college education, retirement and hopefully enough to help some worthy charities. In this bucket, we don’t need immediate liquidity. We’ve taken advantage of this by investing in real estate and related funds with excellent potential for long-term growth.

Our mid-term bucket is between the other two. We use it to take advantage of current investment opportunities. We want to stay flexible in this bucket, so we don’t buy assets like real estate, which can take months to liquidate.

Until the last few months, this bucket held mostly stocks, ETFs and bonds. Now we are filling it with gold. I also invest in gold-related assets like mining stocks.

Since I think we are near the bottom, our plan for the year is to buy gold at regular intervals. The way I view the market, I won’t even be upset if the bottoming process takes another six to 12 months of sideways trading, but I think it will happen much sooner. I will use the time to add to my holdings, confident that I’ll sell it at much higher prices within a few years.

Could I wait to buy gold until I’m 100% confident the exact bottom is here and once the market quickly moved up 10% to confirm? Yes, of course — but I might be wrong and miss out on the upward move. I have watched investors try to “catch a falling knife” and the results are rarely good. I prefer to use this time of weakness to buy steadily, keeping my average cost down.

That’s my method. What’s yours? I know Uncommon Wisdom Daily readers are interested in gold. E-mail us your practical tips, or maybe an update on coin prices in your area.

***

Market volume is slow as we wait for the Fed — especially what Ben Bernanke may have to say about “tapering” his QE programs. Tomorrow afternoon should be interesting. Meanwhile, here’s what else is going on …

***

• New data from the Commerce Department shows housing starts rose 6.8% in May to a 914,000 annual rate. Economists had expected more, but investors still seemed encouraged to see even a hint of recovery. The report also showed new building permits being issued at the fastest pace since mid-2008.

• Inflation ran a little lower-than-expected in May. The Consumer Price Index rose 0.1% after falling 0.4% in April. CPI rose 1.4% in the last year.

• The food portion of the May CPI report fell for the first time in almost four years. We hope grocery shopping will be a little less painful. More evidence: Meat company Hormel (HRL) sliced its profit forecast today, saying refrigerated-food revenues were down.

• The fight for computer-maker Dell (DELL) is heating up again. Corporate raider Carl Icahn thinks he can entice shareholders with a better deal than the investor group led by company founder Michael Dell.

• President Obama added to the “tapering” talk last night, as he spoke about the winding down of Ben Bernanke’s term as Fed chairman, which began in 2006. Economists expect Bernanke to step down in 2014. So, even if stimulus isn’t winding down later this year, it sounds like Bernanke’s era at the Fed certainly is!

Happy Investing,

Brad Hoppman
Publisher
Uncommon Wisdom Daily

From door to door, it took me 35 hours to fly to Seattle via Kuala Lumpur and Seoul this past weekend. But that’s OK, because I arrived safe and sound in the States to spend Father’s Day with my kids, and that made it all worthwhile.

I have to tell you, though — these trips were hard enough when I was a young man. But they are like a death march now that I’m in my 50s.

It was especially hard because my flights were PACKED! The Seoul-to-Seattle flight was so full that they were turning away standby passengers. I spent 11 elbow-to-elbow hours with a friendly retired Chinese businessman.

My flight wasn’t an anomaly. Chinese tourists are flocking to the U.S. in record numbers. And they’re spending big money wherever they go.

The New Face of the International Big Spender

In 2011, Chinese tourists overtook American tourists as the world’s biggest international travelers by making 70 million international trips vs. 59 million for Americans.

In 2012, Chinese tourists also became the world’s biggest-spending tourists by dropping $102 billion in foreign countries. To put that number in perspective, American travelers spent $84 billion.

And the Chinese are just starting their travel spree.

Just how many Chinese are headed here? The U.S. Commerce Department expects that the number of tourists from China will increase by 229% by 2018.

And boy do the Chinese spend when they travel. The average Chinese tourist spends $7,100 per visit to the U.S., which is more than double the global average $3,240.

Chinese Travelers in Search
Of Shopping Destinations!

As we’ve already discussed, Club Med is just one of Chinese travelers’ many destinations, thanks to a Chinese company making a buyout offer on it. But hanging out in a spa or on the sand isn’t what appeals to these new jet-setters.

“What we know about Chinese visitors is they don’t like to lie on the beaches. What they do like is shopping,” said Ernest Wooden, president of the Los Angeles Tourism and Convention Board.

They may be spending big, but they are also spending smartly where they can on these "shopping vacations," hitting outlet stores for souvenirs for family, friends and colleagues at home.

“We see many visitors head to the luggage store, get a suitcase and then it’s, ‘OK, we are going to fill the bag. The Chinese are definitely seen as speed shoppers,” Michele Rothstein of Simon Property Group, one of the largest operators of malls in the U.S., told the Los Angeles Times.

Start Shopping for the Best
China-Tourism-Focused Stocks

Whenever you start talking about billions of dollars, there has to be an investment opportunity somewhere to be found.

For example, you should consider the almost-always-full Asian airlines like:

• China Eastern Airlines (CEA)
• China Southern Airlines (ZNH)
• Cathay Pacific (CPCAY.PK)
• Korean Air Lines (003490.KS)
• Singapore Airlines (SINGY.PK)
• All Nippon Airways (ALNPF.PK)

With the exception of Korean Air Lines, each of these stocks is traded on the U.S. exchanges.

Of course, once all those Chinese travelers arrive in the U.S., they’ll need a place to stay. They will often choose hotel brands that they are familiar with, such as Starwood Hotels & Resorts (HOT), the operator of Sheraton hotels.

Sheraton opened its first hotel in Beijing, called the Great Wall Sheraton, in 1995. Today, Starwood has 120 hotels in China, with another 106 under construction.

Other hotel chains with big Asian footprints are Marriott International (MAR), Wyndham Worldwide (WYN) and Hyatt Hotels (H).

The view from the inside of a Radisson Hotel in Beijing

And just like us, Chinese travelers are learning to use the Internet to book airline tickets and hotels. Ctrip.com (CTRP) is a lot like Orbitz (OWW) or Expedia (EXPE) in that it provides online travel services such as hotel reservations, air-ticketing and packaged-tour services.

But there is one huge difference: Ctrip.com books more hotel and airline tickets than anybody else in China.

CTRP has risen 75% in just the past three months!

If You Want to Make a Side Trip on
Your China Travel Investing Journey …

Lastly, one underappreciated part of the Chinese transportation food chain is the toll highways that you can invest in, such as …

• Road King Infrastructure (1098.HK)
• Jiangsu Expressway (JEXYY.PK)
• Zhejiang Expressway (ZHEXY.PK)
• Sichuan Expressway (SEXHF.PK)
• Anhui Expressway (AUHEF.PK)
• Shenzhen Expressway (SHZNF.PK)

Once again, all of these stocks are available on the U.S. markets with the exception of Road King, which appears on the Hong Kong exchange.

As always, please don’t rush out and buy any of these stocks before you do your own research and figure out if they are right for you.

The Asian growth story still has several decades to run, so you’ve got lots of time. Many of these names will see exponential growth in the coming years.

So, when you’re doing your own vacation research, be sure to keep close watch on these stocks … and the next booking you make might just be a profit!

Best wishes,

Tony

Waiting is rarely fun. I have never met anyone who enjoys supermarket checkout lines.

Millions of investors have that same feeling this week. Everything is building toward a magical moment Wednesday after Ben Bernanke says … something.

Will it be worth the wait? We’ll know soon enough.

While we all wait together, let’s chat about another favorite subject: gold. Holding the yellow metal has been an exercise in extreme patience recently. In greenback terms, gold prices peaked in late 2011. Since then, paper assets like stocks and bonds performed far better.

Plenty of experts will tell you they’re “long-term bullish” on gold. Getting them to go on record about the next few months is much harder … and I understand why.

Gold is notoriously tough to forecast because it is so much more than a precious metal. It is the ultimate store of wealth.

I’m bullish on gold both long-term and short-term. I think we will look back in a few years and see that current prices around $1,330 were a bargain. I know I’m going out on a limb here. I may be wrong, but I think gold has touched bottom.

Yes, sitting through a painful drop over the last year-and-a-half was tough. Bull markets are always tricky. They don’t go straight up. They break down, meander sideways, tease you and disappoint you. They shake off as many riders as they can.

So when I read about hot-money hedge funds giving up on gold, I just smile. When they finish selling, gold will zoom higher. I think we’re almost there. I could list dozens of reasons to be bullish on gold, but today I’ll focus on three of them.

***

First, production costs are high and getting higher. This is important because, like any commodity, gold’s price depends on supply and demand. The easily tapped gold deposits are running dry.

Yes, there’s still plenty of gold locked inside the Earth, but it’s increasingly found in remote areas or deep underground.

Stubbornly high energy prices are a big part of the equation. Mines need enormous amounts of fuel. Gasoline is expensive enough when you’re in the middle of civilization. Imagine what it would cost if you were 300 miles uphill from the nearest refinery city with no highways, railroads or pipelines.

But that’s where the gold is.

The mining business is about cold, hard economics. If you can produce gold for $1,000 an ounce and sell it for $1,300 an ounce, you can make a nice profit. But if your production price goes up to $1,300, you’re just breaking even. Why bother?

The experts I trust don’t see production prices going down. This means new gold supplies will stay scarce. Score one for the bullish case.

***

Second, demand for physical gold is strong and getting stronger. Tried to buy gold coins lately? You probably had a tough time, and you almost certainly paid a big premium to the “spot” wholesale price quoted on TV.

It’s happening everywhere. The U.S. Mint can’t keep up with demand for American Eagle gold coins. The same pattern is unfolding in India, China, the Middle East … even Africa and South America. People want gold in their hands — not hidden away in a vault where they can’t see it.

Why? I can’t read minds, but it looks to me like people are losing faith in markets, banks, governments and even private businesses. I don’t blame them. Just look what’s happened the last few years.

• Taxpayers found themselves bailing out politically powerful bankers in the U.S. and Europe.

• In Cyprus, bank depositors almost had their money confiscated.

• And right here in the U.S., we’ve learned the government is spying on our private communications.

Keeping your money accessible, safe and private is tough and getting tougher. For thousands of years, gold was “money” precisely because it was safe, private and portable.

Guess what: It still is. Billions of people know it, too.

***

Third, central banks everywhere are in a race to devalue paper currency. It’s official policy in Japan and the U.S. The big shots want to cheapen the money in your pocket. They’ll tell you it’s for your own good, of course. It promotes exports, creates jobs, etc., etc.

I hear what they’re saying. I just don’t believe it. The Fed, the Bank of Japan, the European Central Bank and all the others are running out of ammo. They’re not powerless, by any means, but they are not near as omnipotent as many people think.

We little guys don’t ask for much. We just want our $10 bills to buy as much stuff five years from now as they did five years in the past. Otherwise they’re just ink and paper and a promise from some old guys in Washington. And those guys have already proven they can’t be trusted.

Again, the same thing is happening everywhere. We here in the U.S. actually have it better than most of the world. That’s why U.S. dollars are used everywhere. But as our government continues to lose credibility, people will have to look elsewhere … and they will look to gold.

So am I bullish on gold right now? You bet. Will it go straight up from here? The exact timing is always extremely hard to predict. Many analysts have been calling for gold to drop to $1,100 or even well-below that mark by the end of the year.

But if you’ve been reading our letters for the last month or two, you know we have been noticing the bottoming process for gold. It can be a long and drawn-out process, but one we feel confident is now upon us.

About this time last month I said, “We may not have seen a distinct bottom in gold yet, but the activity is certainly in-line with the beginnings of the formation of one.”

I also stated on April 15,”Sean (Brodrick) believes that we’re quickly approaching the bottom in gold prices. And with some of these companies trading at or below book value … now is the perfect time to start taking small positions in these companies.”

We have heard many times from experienced experts like Rick Rule and Doug Casey, who have said that trying to pick an “exact” bottom in precious metals is like trying to catch a falling knife.

So without trying to catch a falling knife before the Fed meeting on Wednesday, I will tell everyone that it is very important to pay attention to what Ben Bernanke and the Fed have to say on Wednesday.

If the Fed comes out and says that QE-Infinity will end, gold may be in for a slight tumble that we should be ready for.

If the Fed says QE-Infinity will continue with no mention of tapering, gold should go up — signaling a near term bottom — and we will ramp up our metals recommendations for our readers to buy.

If the Fed mentions QE-Infinity will stay in place but mentions some sort of tapering will occur, gold may trade sideways for the next month or two. But we will continue to pick and choose undervalued assets as gold completes the bottoming process. I just don’t see gold getting significantly cheaper from here in that scenario.

Conclusion: All eyes are on the Fed Wednesday.

Meanwhile, here’s what else is happening in the markets …

***

• Netflix (NFLX) surged today after the company announced a deal for exclusive content with DreamWorks. This is another step in the giant shift out of traditional media toward on-demand viewing via the Internet.

• Hulu, which streams television shows and movies over the Internet, is up for sale … again. Current owners Disney (DIS), Comcast (CMCSA) and News Corp. (NWSA) allegedly disagree about how to run the site, so they’ve decided to sell it. Possible contenders include Yahoo! (YHOO), AT&T (T) and DirecTV (DTV), the latter of which may be offering more than $1 billion for the on-demand streaming site..

• The S&P 500 successfully tested its key 50-day moving average. Despite all the uncertainty, the U.S. stock market is holding up well. The S&P 500 is less than 3% below its all-time peak.

• President Obama is headed to Northern Ireland for this year’s G-8 summit meeting. U.S. support for Syrian rebels will no doubt be on the agenda, along with economic matters.

• The New York Fed’s manufacturing report showed that growth in the Empire State slowed more than expected in April. New orders fell from 8.18 to 2.20 and general business conditions dropped from 9.24 to 3.05. The bright spot in the data came in the number of employees, which rose from 3.23 to 6.82, and in the average workweek, which improved from zero to 5.68.

As you know, the Federal Open Market Committee holds quarterly Q-and-A sessions, with this week’s meeting preceding one of those highly anticipated events. What would you ask Ben Bernanke, if you had the chance?

Plus, today we talked about one of my favorite investing topics, gold. Do you think the bottom is in? Do you look for a “right time to buy” or is owning gold a good move at any price? What is your next move when it comes to stocking up on the precious metals? Tell me here.

Happy Investing,

Brad Hoppman
Publisher
Uncommon Wisdom Daily

Crude oil is sending more mixed signals than a drive-through traffic school.

Basically, it’s boiling down to this: Should I believe crude oil’s fundamentals, or my own lying eyes?

Let me show you what I’m looking at, and maybe you’ll have some thoughts to share.

I can think of plenty of fundamental reasons why crude should go lower. The problem is, the chart of crude itself looks bullish.

Looking at the chart, I can see an obvious inverse-head-and-shoulders pattern in crude oil. That looks bullish, or it will be if crude oil can stay above $97 or $98. (Oil traded as high as $98.25 Friday.)

Maybe it’s TOO obvious. Still, my “lying eyes” would tell me that crude is poised for a potential breakout.

(Updated chart)

Looking at that chart, you might think that crude oil supply has been getting squeezed since mid-April. That’s not the case at all. Let’s look at a chart of crude oil inventory from Bespoke Investing …

Source: Bespoke

You can see that America’s crude oil inventories are way above average for this time of year.

Last week, traders expected stockpiles to decline by 1.5 million barrels, but the actual change was a BUILD of 2.52 million barrels. Gasoline inventories also saw a larger-than-expected increase.

Now, combine this with news of weakness in the emerging markets. Why the heck, then, is the price of crude above $90?

The bulls will make three points …

Bull point #1: Seasonal Draw-downs. If crude follows its seasonal pattern, we can expect crude oil stockpiles to start declining through the rest of the summer.

Bull point #2: Higher Demand Forecasts. Last week, the Energy Information Administration raised its 2013 and 2014 global oil demand forecasts. The EIA upped its 2013 oil demand forecast by 99,000 barrels per day (bpd), to 90.03 million bpd, and its 2014 demand forecast by 82,000 bpd to 91.22 million bpd.

Bull point #3: Stormy Weather. Finally, we’re heading into hurricane season, and that brings with it the possibility of supply disruption in the Gulf of Mexico.

On the other hand, the bearish fundamentals are actually quite strong. Here are some of the points the bears are making …

Bear point #1: The EIA Based its Higher Demand on Asia, Particularly China. Have you seen China lately? Its growth is slowing down.

Source: Business Insider/Bloomberg

Chinese industrial production, which measures output at the country’s factories and mines, rose at a slower pace than during the previous month. Meanwhile, fixed-asset investment also came in below expectations. At the same time, China’s exports are slowing down and its imports dropped.

The fact is, China is joining India in the camp of slowing economic growth. To be sure, both countries are still experiencing economic growth — but not as fast as we are used to.

China’s annual economic growth slowed to 7.7% in the first quarter from 7.9% in the previous quarter. China’s full-year annual growth of 7.8% in 2012 was the weakest since 1999.

Looking ahead, the International Monetary Fund and Organization for Economic Cooperation and Development cut their forecasts for China’s 2013 economic growth to 7.75% and 7.8%, respectively.

And while the U.S. EIA says China’s oil demand will increase, the International Energy Agency (IEA) thinks otherwise. “There are mounting signs that China’s oil use, like its economy, may have shifted to a lower gear,” according to an IEA statement.

Bear point #2: OPEC Said Production Increased a Bit in May. In particular, Saudi Arabia increased output, pushing up the monthly output 100,000 bpd to 30.57 million bpd. That’s more supply on the market, which should weigh on prices unless demand rises.

Bear point #3: U.S. and North American Oil Production is Booming. The U.S. pumped 7.3 million barrels a day of oil last week. In fact, the U.S. has been pumping 7 million barrels a day or more of oil since the week of Jan. 4.

Source: EIA

America is now producing more oil than it imports — the last time that happened was in January 1997.

In fact, net U.S. crude imports fell by 437,000 bpd last year to 8.5 million bpd, the lowest level in 15 years.

In the bigger picture, annual data released last week by the U.S. Department of Energy showed domestic crude production rose by 812,000 bpd last year, the fastest annual increase since the dawn of the American oil industry.

Meanwhile, Canadian crude oil production is expected to more than double to 6.7 million bpd by 2030 from 3.2 million bpd in 2012, according to data from the Canadian Association for Petroleum Producers. This includes oil sands production of 5.2 million bpd by 2030, up from 1.8 million bpd in 2012.

As for Mexico, its crude oil production is gradually declining. But the Mexican government hopes landmark energy reform will lure major investment in private oil to help boost output.

Go for the Bargains

So, I’m in a quandary. The big-picture fundamentals seem bearish, but the chart action looks bullish. What do you make of it?

Here’s what I make of it: I don’t know where the price of oil is going to go. But it all has to go somewhere — it all has to be transported. That tells me to look at two kinds of potential winners.

• Pipelines: Many pipeline operators got shellacked recently when investors dumped those high-yielding companies as bond yields rose. That’s a buying opportunity, and I plan to make the most of it.

• Railroads: Pipelines are so stuffed, a lot of oil travels by railroad now. We already have a nice play on this in Global Resource Hunter, and I’ll look to add more.

One Group to Avoid

There is also one industry I will avoid: oil tankers.

Due to U.S. laws, our crude can’t be shipped overseas (refined product is another matter). So, this boom in North American crude oil production is not a boom for oil tankers — at least not yet.

Stay tuned. The laws — and the opportunities — could change quickly.

All the best,
Sean Brodrick & Brad Hoppman

Editor’s Note: We received such an enthusiastic response to Rick Rule’s recent article on “Uranium: A Rise Coming for the Green Metal” that we invited him to share a follow-up report on two white-hot metals, Platinum and Palladium. We hope you enjoy this follow-on report from someone we regard as one of the most-legendary precious-metals experts and investors of our time.

The Bull Case for Platinum and Palladium

by Rick Rule, chairman & founder
Sprott Global Resource Investments

In recent months, a lot of my attention as an investor has been on a particular pair of precious metals: platinum and palladium. We expect the demand for these metals to go higher because it is increasingly used in automobiles and industrial processes. Yet, the supply is already having trouble keeping up.

I believe this unique situation could prove profitable.

I recently spearheaded the creation of the Sprott Physical Platinum-Palladium Trust. We raised $280 million — mostly from mainstream investment banks.

Creating this platinum-palladium trust was a natural next move for us thanks to the success of its predecessors, the Sprott Gold Trust and the Sprott Silver Trust.

Right now the fundamentals for platinum and palladium are uniquely suited to the current investment environment. We were at a particular conjunction of supply and demand.

So, why is the current situation in platinum and palladium so unique?

Buried Treasure: White Metals Far From Market

Let’s start with the supply side.

Platinum and palladium are very different from gold and silver. With gold and silver, most of what’s ever been mined is still around. We simply dug it up from one hole in the ground and buried it back down in another: The first was a mine, and the latter a vault.

Sure, some platinum and palladium is used for high-carat jewelry and similar items. But these “white metals” are not stored above ground to the same extent as gold and silver.

A lot of gold and silver is stored in vaults, so the supply of gold and silver isn’t just from new mines … it can be gold or silver that was mined in Inca, Aztec or Mayan times.

On the other hand, platinum or palladium either gets turned into expensive jewelry, or is destroyed in industrial uses. It goes up a smoke stack or out a tailpipe. The only platinum and palladium available for use is the stuff that’s being freshly mined out of the ground.

That’s where it gets interesting, because production from mining activity is hitting a very tough set of circumstances.

Newly mined supply of platinum and palladium almost all comes from three places: South Africa, Zimbabwe and Russia. Each has its unique challenges.

South Africa is by far the most important locale. It produced 73% of the platinum and 37% of the palladium in the world in 2012, but the mining industry there is going broke.

Only a relatively small amount of mines are actually profitable: miners spend more on equipment, infrastructure, personnel and financing, than their end product is actually worth.

As a result, miners have been shutting down mines that operated at less than breakeven. In the last six years, production of platinum group metals in South Africa has declined 19%. Along with problems due to labor disruptions, closure of marginal mines caused platinum output from South Africa to fall 16% in 2012 to 4.1 million ounces — the lowest point in 11 years.

We expect the trend to continue.

Why South African Miners Can’t Reduce Costs

One reason for poor performance of these deposits is that South African platinum and palladium mines cannot be mechanized — a move that would greatly reduce costs.

Due to widespread unemployment among a historically disadvantaged mining population, the South African government has blocked mechanization of mines because it would reduce the need for labor.

In addition, deposits in South Africa are difficult to mechanize from an engineering standpoint — the deposits are simply too thin and narrow to get the necessary equipment underground.

So South African mines remain extremely labor-intensive, which creates its own set of problems.

Right now, South African mine workers are unquestionably underpaid. Wages have to rise, but mining companies cannot afford the added expense; the industry already doesn’t cover its own cost of capital.

In mining parlance, the industry is between a rock and a hard place.

In addition, the South African government intends to burden the mining industry with a greater government due. There is widespread political consensus that social “takes” — taxes, royalties and carried interests to the government — have to rise.

Again, the mining industry is already running dry. How can it afford to pay more to the government?

Thirdly, the industry must invest substantially in developing new ore bodies and new areas of platinum reef in order to replace older mines that have been producing for the last 60 or 70 years. Those once-rich deposits have become more and more capital intensive and less productive with time.

Zimbabwe’s Challenge:
Mining Nationalization

North of the border in Zimbabwe, which has a spectacular resource endowment, the political risks are much more obvious. Even South Africa is more stable, despite the strikes and violence in comparison.

Robert Mugabe, who runs Zimbabwe, decided five years ago that the mining industry had to sell 51% of itself to historically disadvantaged black populations. So the industry had to find a way to deliver 51% to Mugabe.

Of course, they did that by capital-constraining mines. Miners stopped investing in and maintaining the assets they would have to give up.

These assets produced down, giving Mugabe control of 51% of assets that were no longer capable of producing platinum and palladium.

Not to be appeased, Mugabe wants to fight the next election based on the nationalization of mining. Clearly, the history of state-run mining assets in Africa has been bleak.

I expect Mugabe will do to platinum and palladium what he did to agriculture: He turned Africa’s largest food exporter into a net food importer by politicizing an economic activity.

Russian Mines Showing Their Age

The third big mining location, Russia, has its own political constraints, but it’s in much better shape than either South Africa or Zimbabwe. Russia produces mainly palladium, as a byproduct from its nickel, cobalt and copper mines.

But those mines, as in South Africa, are very long of tooth. The Norilsk ore bodies, where palladium is produced, are getting deeper and ore grades are declining.

The deeper you go the more expensive it is to mine, but ironically the lower the payoff because the rock is less mineral-rich at depth.

Thus, global supplies of platinum and palladium continue to shrink.

There are few remaining supplies from historic mining — that stuff’s already been consumed either in expensive jewelry (which is more valuable than the raw material because of the work index — so it won’t be used for other things as long as the raw material is available) or in industrial uses.

New mine supplies in the three countries that together produce 90% of the world’s platinum and palladium are in inexorable decline. You can’t make that statement for either gold or silver, because most of the gold and silver that’s ever been mined is still in circulation.

Thus, with platinum and palladium, the supply side is so challenged that we believe the price must go up.

Prices Set to Surge …
Will Buyers Pay up?

Now, let’s turn to the second part of the supply and demand equation. It’s one thing to say that the price must go up, but can it go up? Can we afford to pay more?

Platinum and palladium, as opposed to gold and silver, get used in fabrication processes very extensively. Some of it gets turned into high-carat jewelry, which does not consume the metal, but still takes supply off the market.

Give someone a platinum ring and ask whether or not that ring constitutes “supply.” This is reflected in the fact that the demand for platinum and palladium to be used in jewelry is fairly stable.

At the same time, the demand for platinum and palladium in industrial applications is growing steadily.

Most platinum goes out a tailpipe or up a smokestack. Its catalytic properties make many noxious emissions from burning hydrocarbons disappear.

At today’s platinum prices, we spend between $50 to $700 on platinum and palladium in each new car to afford the air quality we enjoy in Western Europe, North America and Japan.

Against a sticker price for a new car of $25,000 or above, $50 to $700 is very cheap.

The benefit to society from platinum and palladium, relative to the price we pay for it, is extremely high.

Doubling the price of platinum and palladium would only have a minimal impact on demand for new vehicles. Indeed, the cost of the platinum and palladium loadings relative to the sticker price of the new car is extremely low.

The growth in automobile consumption comes from frontier and emerging markets — like India and China. These countries are now imitating what we built in the United States in the 1950s: our interstate highway system. As these countries build more roads, they will only continue to drive more cars.

In 2012, China eclipsed the United States in auto sales, but they still are not consuming platinum and palladium to the same extent as us. Less than half the amount of platinum used in North America on auto catalysts was used in China.

This is also set to change.

Quality of Life Dependent on
Palladium, Palladium Availability

You may have seen the news reports on the air quality in Beijing. The American government’s air pollution index, on which 300 is considered a pollution-crisis level, hit above 500 for over two weeks, and reached a max rating of 755.

The Chinese government has identified toxicity and cardiopulmonary illness resulting from poor air quality as one of the greatest public health dangers in China.

In response, the government has mandated a five-year plan to substantially improve air quality. In doing so, it will require higher loadings of platinum and palladium in new vehicles.

The government has suggested they will order manufacturers to have five times more platinum and palladium loadings per vehicle than currently used. In what is now the largest vehicle market in the world, this could lead to a substantially higher demand for platinum and palladium.

So supplies of platinum and palladium are declining in the three countries that account for 90% of production, and demand is increasing in both developed economies and in frontier and emerging markets. Platinum and palladium allow us to enjoy a much higher air quality, because they reduce emissions from automobiles; relative to the benefit they provide, these metals are still cheap.

Platinum and palladium are still undervalued relative to the benefits they provide, but they cannot remain this cheap much longer. Already, low prices are constraining supply, which will force markets to bid more competitively.

Before mining can respond to the market’s call, prices will have to go higher, perhaps much higher — potentially creating a lot of wealthy speculators along the way.

Thank you for reading.

Sincerely,

Rick Rule
Chairman & Founder
Sprott Global Resource Investments

P.S. Want to read more from the investment experts at Sprott? Sprott’s Thoughts and Markets at a Glance offer timely, entertaining and useful investment insights. Click here to subscribe and receive the latest communications from our investment and market experts from the Sprott organization.

The waiting game is on! Financial markets around the globe seem to be holding their breath in anticipation of next week’s Federal Reserve policy meeting.

Significant changes are unlikely, but traders don’t want to take a chance. They would rather postpone major decisions until they see what happens.

The Federal Open Market Committee holds eight regular meetings each year. Four of the meetings are followed by a media Q-and-A with the Fed chairman. Wednesday’s gathering is one of them, so Ben Bernanke will be on the hot seat.

Will Bernanke slip and reveal anything new? I doubt it. Fed officials from the chairman on down are keenly aware that everything they say is under scrutiny. Bernanke chooses his words carefully. He knows how to dodge uncomfortable questions.

On the other hand, the stakes are higher than usual this time. Yesterday I talked about the Japanese yen and the developing currency war. The Fed is a key player in that drama, not to mention the recent craziness in emerging-market currencies, stocks and bonds.

If, as it appears, the Fed plans to wind down its quantitative easing programs, it must move very carefully. “Tapering” is the buzzword right now — and it’s a good one. I think investors are ready for a change, but they don’t want it to happen too quickly.

Plus, given the massive amount of stimulus being pumped into the system right now, Ben & Co. can’t just slam on the brakes without causing anything short of economic mayhem. As we’ve seen during the past couple of weeks, even a whisper about reducing stimulus sends a nervous current through the markets.

Obviously a lot can happen between now and Wednesday afternoon. You never know what news will come out of nowhere. Whatever happens, we will all get the Fed news at the same time … unless Ben gives his friends one of those 15-millisecond head starts!

***

We had a lot of heavy news this week, didn’t we? I don’t know about you, but my brain is ready for a break! Let’s wrap up with some lighter stories.

If you happened to be in Toulouse, France, today, you had a chance to see the Airbus A350 on its maiden flight. The world’s newest passenger jet took wing at the big Paris Air Show. The twin-engine, wide-body plane will compete with Boeing’s 777 and 787 models.

Air travel has changed for many reasons the last few years. Persistently high fuel prices are forcing the airlines to retire older gas-guzzlers. That’s good news for manufacturers like Airbus and Boeing (BA).

Their newest models are lighter and more-efficient. The A350 has carbon-fiber wings and fuselage, and it will carry up to 350 passengers.

Not surprisingly, the latest and greatest aerospace technology is flying to the “new” world. Qatar Airways ordered 80 A350s for its fleet. More evidence that the future belongs to Asia and the Middle East.

***

Meanwhile, back here in the U.S. we are arguing about who owns the “Happy Birthday” song. I’m not kidding. According to the New York Times, someone has filed a lawsuit asking a federal court to declare the song is “public domain” and not subject to copyright law.

I, for one, was not previously aware anyone owned the song. If ever a song could be jointly owned by every English-speaking person on the planet, this is the one. We all sing it, awkwardly but frequently.

Filmmaker Jennifer Nelson wanted to make a documentary about the birthday song’s role in family life. One scene was going to show the song actually performed. For this, a division of Warner Music demanded a $1,500 licensing fee.

I’m no expert on copyright law. As a publisher, I’m sympathetic to the idea of creative people keeping ownership of their work. But really: $1,500 to sing “Happy Birthday” on film? The long-dead composers are probably thrilled to know their song made so many people smile.

***

Speaking of music, guess who is on top of the classical charts for the fifth week in a row? I’ll give you a hint: They wear black and don’t talk much. Still don’t know? I don’t blame you. I didn’t, either, until I saw it in the Wall Street Journal. An order of monastic nuns in Missouri recorded two albums of ancient chants and melodies.

By classical music standards, the nuns are a hot commodity. Total sales are up to 53,000 and growing. The sisters need the money to pay off their mortgage. (I will resist the urge to make this an “Evil-bankers vs Nuns” story.)

The nuns reportedly turned down an invitation to appear on "The Tonight Show." No doubt it would have helped sales, but they don’t like the spotlight. Good luck, sisters!

Some other news highlights …

***

• The yen strengthened overnight after the Bank of Japan released minutes of its May 21-22 meeting. One board member expressed concern the BOJ might be opening the faucet a bit too much.

• Facebook (FB) invited the news media to a product launch this coming Thursday, June 20. We don’t know what we’re more curious about – what the product will be or why they chose to send the invitations via U.S. postal mail …

• The Supreme Court ruled that naturally occurring genetic material is not eligible for patent protection. In a decision that looked like an advanced biology textbook, the justices decided that Mother Nature owns what she makes. The biotech industry took a little comfort, though, when the court left the patent door open for artificially created genes.

• It was another down day for the markets, but several stocks made new all-time highs today including Starbucks (SBUX), Burger King (BKW) and Texas Roadhouse (TXRH). Maybe it’s that consumers are still going out to eat … or maybe it’s just close to dinnertime and that’s why I’m zeroing in on these stocks!

Let’s all have a great weekend with friends and family. “All work and no play makes Jack a dull boy,” indeed.

Of course, I admit I will probably sneak a peek at my inbox, so if you have any questions for me, send them here … and don’t mention it to my wife!

Monday we’ll be back with the top news and expert insight you’ve come trust. As always, we’re here to help you bag the best returns possible. We take the responsibility seriously, so make sure you check your inbox every day … don’t miss an issue. Until Monday …

Happy Investing,

Brad Hoppman
Publisher
Uncommon Wisdom Daily

Fixed-income super-guru Bill Gross of PIMCO said a few weeks ago what many of us have seen coming for some time. But with this pronouncement on social-media site Twitter, he made it official:

“The secular 30-year bull market in bonds likely ended April 29, 2013.”

His words were likely meant to be more of a warning than a death knell. But it didn’t take long for the bond markets to prove him right. That’s because the PIMCO Total Return ETF (BOND) saw its first monthly outflows in May.

Personally, I’ve spent more than 20 years closely watching and even trading the bond market. So, the only thing that surprised me about his statement is how long it took for him to make it!

Six weeks after Gross’ Tweet rocked the bond markets, it’s official that the three-decade run of price appreciation on fixed-income investments is now history.

Going forward, we can expect the flow of investment assets that’s drifting from bonds to income-oriented equities to accelerate.

I’ve been telling my subscribers for quite some time now, “If you want to invest for higher yields, dividend stocks are the way to go … not bonds.”

Especially now, after the markets spent the bulk of this week in correction mode, dividends are more important than ever in paying you to wait out the turbulence.

So today, I want to look at five global “bond-beaters” that can help you take the cash you may have stagnating in the bond markets and put it into motion again.

Put Your ‘Parked in Neutral’ Portfolio
Into Assets Ready to Go Into Overdrive

If you’ve become gun-shy since the stock-market crash of 2007-’09, you’re not alone. Since then, many investors have piled into fixed-income vehicles like bonds instead.

And, thanks to the questionable largess of “Helicopter” Ben Bernanke and the Federal Open Market Committee, fixed-income investors’ portfolio valuations have remained steady or perhaps showed some razor-thin returns.

But who can retire comfortably on that, especially if your withdrawals surpass what your investments are earning?

And now, as brokerage statements arrive with diminished bond-portfolio valuations, many investors have been cautiously and somewhat reluctantly returning to equities.

If you’re returning to equities … or simply looking to get repositioned in the right stocks … there are plenty of names that offer competitive dividend yields.

However, you don’t just want to go searching for the highest dividend-payers and load up on them. Yields are fantastic, but they are even-better with stock appreciation.

Plus, remember that folks who gravitated to bonds over the years did so in search of safe income. In the stock markets, unfortunately nothing is considered safe. But you can certainly reduce a tremendous amount of risk if you pick solid growers that happen to pay a nice yield.

5 Easy Ways You Can Beat the Bond Blues

Quality U.S. high-yielding equities keep powering higher in price. But some of the biggest dividend-payers are international players.

Here are five that are gaining a ton of momentum from a stock and a dividend perspective …

5 International Bond-Beating Stocks

If you’re a bond-market refugee, here are some reasons why you might find these stocks an appealing destination for your “parked in neutral” cash:

• Dividend yields of at least 3%

• Market caps of more than $10 billion

• Revenue of more than $10 billion

• Expectations of long-term annual earnings-per-share growth of at least 5%.

Earnings growth usually translates into future dividend-payment increases, a distinct advantage to the ever-unchanging interest payments of bonds.

With an international financial firm, a building materials provider, a pharmaceutical giant, an energy firm serving the earth’s most-populous nation and a telecom firm geared for the data age, the above list is widely diversified in sectors and industries.

Plus, with representatives from Asia, Latin America, Spain, Ireland and Switzerland, the list also offers wide geographic diversification.

These are all names my Global Trend Trader subscribers are familiar with. In GTT, we have consistently been adding higher-yielding equities that have big exposure to the population and spending growth in the global marketplace.

Three of these stocks are currently components of the GTT model portfolio: Banco Santander (SAN), international building-materials supplier CRH Plc (CRH); and Swiss pharma giant Novartis (NVS).

Trading hands at less than 12 times earnings, integrated energy firm PetroChina (PTR) should expand its bottom line by at more than 13% annually, according to many analysts.

On top of that, assuming its dividend payouts grow at a comparable pace, PTR investors should enjoy a return over time that far outdistances the likely (paltry) rewards from U.S. corporate bonds.

Although analysts widely expect Telefonica Brasil (VIV) to grow its bottom line by a respectable but more-subdued 6.6% annually, its current yield of 5% still handily exceeds the return on typical U.S. investment-grade corporate bonds.

The outflow of money from the bond markets to income-oriented stocks is a trend we can expect to gain momentum for many months to come. These are the kinds of trends my Global Trend Trader subscribers are used to playing for profits.

But frustrated bond investors are only the tip of the iceberg when it comes to fresh opportunities to grab rising stocks and, in many cases, rising dividends. To learn more about my service and some other trends I’m watching right now, click here.

Best wishes,
Rudy

This morning we woke up to harsh news from Tokyo. The Nikkei Dow plunged another 6.4% and entered bear-market territory.

Chinese stocks were weak, too, but Japan looks different — an island of darkness against the rest of Asia’s bright future.

But, I don’t think Japan is sinking into the sea. The Nikkei is one of the world’s top-performing equity benchmarks this year, even after today’s plunge. Some see this volatility and run away.

I see short-term opportunity in the Nikkei, but a big, longer-term crisis in the yen …

***

Japan has very serious long-term problems: aging population, decades of deflation, mind-boggling government debt problems and competitive neighbors, to name a few. The country’s political and business leaders know the challenges they face. They’re not just ignoring reality.

Japanese investors have known it for years, too. All these macro-level factors are already baked into the cake. What’s new is the response to those problems. The Bank of Japan and Prime Minister Shinzo Abe know the country needs dramatically higher export volume.

This is difficult because Japan’s best customers in the U.S. and Europe have their own economic problems. We also have more alternatives. For example, this is why Korean cars are now common on American highways. Their prices are so low, they have been able to effectively compete with very high-quality Japanese imports.

Japan needs to make its goods more-attractive for Western consumers. The fastest way to accomplish that goal is to drive down the yen currency. This effectively puts Japanese goods “on sale” in the rest of the world.

Say you’re an American with $100 in your pocket and you need to buy widgets. This is enough to buy 500 Korean widgets. Then Japan pops up and offers you 525 identical widgets. You’re spending $100 in either case and you love widgets. Buy from Japan and you get 25 widgets free. The choice is obvious.

I’m simplifying here, but not by much. Just follow the bouncing ball … when the yen drops, exports go up. Japanese companies make more money, and their stock prices jump. And, for one Japanese musical group, they raise their hemlines when the Nikkei is doing well!

It works in reverse, too. A higher yen reduces exports, which cuts into Japanese corporate profits, so stock prices fall (and skirts get longer for those musicians we just mentioned).

The Nikkei roller coaster is really a sideshow in a much-larger currency war that is still in its early stages. Japan will eventually have to deal with its debt issues. (Its debt-to-GDP ratio is at 250%, making the U.S. look like an “A” student with our near-100% debt-to-GDP.) Degrading your own currency has some unpleasant side effects.

Other countries aren’t just sitting on their hands, either. I expect more wild swings in the coming months.

This morning I reached out to our Asia expert, Tony Sagami, for his latest thoughts. He thinks the Nikkei is a good way to play the currency movements. Japanese exporters will keep racking up profits as long as the yen stays down. But the big question is, how long can Japan keep the yen down vs. larger producers?

The good news for options traders is that we still see volatility ahead.

***

The World Bank updated its global economic forecast today. They now project 2013 worldwide growth will be 2.2%, slightly less than the year before.

If the forecasts are right, this year the U.S. economy will expand 2%, a little below average. The euro-zone economy will actually contract by 0.6%.

What about Japan? 1.4% growth is the World Bank’s latest guess … twice as much as its prior forecast of 0.8% growth!

Contrast this with projected 5% growth in Tony’s home base of Thailand …  5.7% in India …  5.8% for Bangladesh … Indonesia up 6.2%… and China growth an astounding 7.7%.

This, by the way, is why Chinese stocks fell last night. 7.7% growth is wonderful but investors had hoped for more.

However the year ends, the Asian tigers are still growing like crazy. Opportunity is everywhere, from Japan’s woes to China’s boom. All you need is a way to zero in on the best ones.

I can’t name anyone who knows the Asia growth story … and how to trade it … better than Tony Sagami. His unique method of knowing whether a stock is set to rise or fall starts with his highly accurate, and yet little-known, stock signal he calls the "ABR Indicator."

In fact, he tells me that it may very well be the crowning achievement of his 27 years in finance. But it’s not something he wants too many people to know about. That’s because the gains it has been generating for his subscribers could become harder to come by if too many people start acting on these signals.

So, he’s taking down his video about his peculiar "ABR Indicator" at 11:59 p.m. Eastern tonight. In it, he also reveals a $2,400 gift he’s prepared for Uncommon Wisdom Daily readers … one that will give you a year of access to all of his findings using this indicator. Don’t miss out … watch this powerful video before it goes offline!

Other news we’re watching today …

***

• Turkish protestors took a break after Prime Minister Tayyip Erdogan met with some of their leaders. We’ll wait and see if the truce can hold. Turkish markets stabilized, which is encouraging.

• Next door in formerly developed Greece, citizens reacted with dismay to the government’s closure of the state TV network. While the move was portrayed as a cost-cutting measure, it also removes one of a disgruntled public’s few remaining diversions.

• Today the Treasury auctioned off $13 billion in 30-year bonds at a yield of 3.355%, the highest yield since March 2012. However, the auction was considered to be weak, as bidders offered to buy 2.47 times the amount of debt sold, compared to an average of 2.59 times in the last eight sales.

• Indirect bidders, a group that includes foreign central banks, bought 40.2%, vs. 36.2% in recent sales. Direct bidders, which include domestic money managers, purchased another 8.5%, vs. an average of 15.3%.

• The broader bond market fell slightly after the auction, but remained higher on the day. Yields on 30-year bonds, which move inversely to prices, fell 2 basis points on the day to 3.358%.

• Bond traders are looking ahead to next week’s Fed meeting, which will be followed Wednesday afternoon by Ben Bernanke’s quarterly press conference. With everyone on edge about “tapering,” you can bet he’ll have a huge audience.

Time to answer a bit of reader mail. I know I’ve been a bit lax about this the last couple of weeks. Truth is, there’s so much going on in the financial world, I’ve been hard-pressed to add more to your Afternoon Edition. Our ideal is about a five-minute read. We often go over, but we do try to get straight to the point so you can get the information you need to help maximize your returns, and get on with the things in your life that matter most to you.

Barkha writes:

“Hi Brad, I have to say that I have been reading financial newsletters for many years, including Harry Schultz, James Dines, Larry Edelson, Miles Franklin, Edward Jones newsletters, Richard Russell and many more. Your column is the best I have read, due to your forthrightness yet not in an alarming way. THANK YOU!”

Brad — We do aim to please, Barkha! Seriously, we work very hard not to try to (overly) alarm you about world events. Truth is, we don’t need to. If you’re paying attention, you’re already on-guard.

Our job here at Uncommon Wisdom is, as we see it, to help keep things in perspective and identify a path through the confusion. It’s easy to scare people into buying a newsletter or trading service; to really help them is more-challenging.

We believe, however, helping people is the best way to build a solid, long-lasting business. We want to be here for you for a long time to come, and we hope our subscribers find a high level of value that can truly help them maximize their gains.

And besides, my dear mother taught me that doing the right thing can be its own reward. She is a perfectionist!

Neal asks:

“Brad: I have close to 500K invested in mainly ETFs at Schwab in a Windhaven account and another 500K in muni-bonds. I am very concerned over what is happening in not only the stock market, but also the muni-bond market.

“I see a major market correction on the horizon. I keep telling my broker that I want out and go back to cash. But he keeps assuring me things will settle down.  I am not as confident as he.  Can I ask your opinion … get out now or wait until the end of the year?  Thanks.”

Brad — Neal, I’m afraid I’m restricted from giving specific advice by the law. Furthermore, even if I could give you advice, I wouldn’t feel comfortable with you making decisions about your portfolio based on my thoughts about a short e-mail. There are a lot of things to consider when investing and your broker, hopefully, knows you and your situation far better than I.

That said, in general, if you have listened to your brokers’ reasons for you to stay put … and you’ve done your own research and still decide you’re not comfortable with his advice … simply give him the directions. He does, after all, work for you.

I would certainly make sure you have a long talk with him first, and fully understand the reasons for his advice. But at the end of the day, it’s your money. If he refuses, find someone else to help you with your investments.

And stay tuned for more information coming out on bonds. In fact, Tony has been working on a bond report that should be released shortly.

Peter says:

“I would like to follow some recommendations vis-à-vis uranium stocks: junior and solid major producers.

“I’d like to hear from you on that topic. It sounds interesting what Mr. Rule had to say; it would be more interesting to follow and see if those rocket riders he recommends, take off. Thanks.”

Brad — Peter, we will publish something on metals in the next few editions for you!

That’s all for today, but make sure you keep your eyes peeled every weekday. It’s our job to help you get the maximum returns possible when managing your investments. We take that job seriously. So we will talk again tomorrow. Until then …

Happy Investing,

Brad Hoppman
Publisher
Uncommon Wisdom Daily

Chinese companies have spent billions on high-profile energy and mining deals, and we can expect them to spend billions more to fuel the nation’s ambitious growth plans.

But energy and metals are only two of the strategic resources that the country is stockpiling. China is also loading up on construction materials and food producers from around the globe.

As we saw last week, Chinese food giant Shuanghui International offered $4.8 billion to buy out Virginia-based Smithfield Foods (SFD), the largest pork producer in America.

Sure, SFD can help China to feed its growing number of citizens’ growing-just-as-quickly love affair with pork products. But this is just a sampling of the nation’s insatiable appetite for food companies.

Smithfield isn’t the first food buyout, and it certainly won’t be the last …

This Little Piggy Cried ‘Wee Wee Weetabix’

Chinese companies have been snatching up other foreign food producers:

• China National Cereals, Oils and Foodstuffs (Cofco) Corp. paid $140 million for Australian sugar producer Tully Sugar.

• Shanghai-based Bright Food bought Manassen Foods Australia for $522 million as well as U.K. cereal-maker Weetabix Food for about $1 billion.

China is spending big bucks to buy food-makers. You know from reading this column that, if you want to make serious money in the markets, I believe you should be buying what Asian consumers are buying.

But what about what its own companies are buying?

That’s why today, I want to focus specifically on food as an investment and why it can be very profitable in the longer term.

China Nourishes its Economy With Food

Smithfield Foods is a very logical acquisition because China is the world’s largest pork consumer.

In fact, about half of the world’s pigs, estimated to be around 476 million, are in China. But even that huge stock of pigs isn’t enough to satisfy China’s growing consumption of animal protein.

China’s Pork Market (in millions of tons)

The Chinese diet used to largely consist of grains and vegetables, but food choices have improved along with the economy.

In other words, an occasional pig knuckle just doesn’t cut it anymore, as the first thing people do when their income moves above subsistence is add more protein to their diet … and not just pork.

Bringing Home the Bacon …

Animal protein is becoming a bigger portion of the Chinese diet. According to the U.S. Agricultural Department, Chinese meat consumption has quadrupled over the last 30 years.

In 1982, the annual per-capita consumption of meat was 28 pounds — roughly the equivalent of one-tenth of a pig — to 82 pounds today.

China now consumes 25% of the 71 million tons of meat produced in the world each year and became a net importer of pork in 2008. Last year it imported roughly 400,000 metric tons of pork.

The nation is being forced to import meat because only 14% of its land is arable. And to produce meat you need land, corn and water … three things that are in very short supply in China.

… Now, Where’s the Beef?

Pork may be the favorite meat, with 82 pounds consumed annually per person. But chicken and beef are gaining popularity at 28 and 20 pounds per capita, respectively.

In particular, the growth in beef consumption is especially rapid. Beef was so expensive and so rarely eaten that it used to be called “millionaire’s meat.”

Today, millions of newly affluent Chinese are eating beef and driving up imports to record levels. Recent reports estimate that China now eats twice as much meat as the U.S.!

Beef imports jumped to 75,000 metric tons in the first four months of 2013, which is a 1,000% increase over the same period a year ago, and is expected to hit 175,000 metric tons for the year.

However, even that rapid import growth is insufficient.

Is There Enough Meat
To Keep Feeding China?

The slaughterhouse at beef processor Fuhua Meat Group, which supplies KFC and Pizza Hut chains, is open only two days each week and operating at 40% of capacity because of a shortage of live cattle.

Source: Earth-Policy.org

That is why the CEO at Smithfield Foods warned: “If you got sticker shock on pork, you’ll have a heart attack when you look at beef.”

In short, beef prices (as well as pork) are going much higher, and investing in livestock should be a very profitable strategy. There are two Exchange-Traded Notes (similar to ETFs) that have been created to profit from rising meat prices.

• iPath DJ-UBS Livestock Total Return Sub-Index ETN (COW): This fund is composed of two livestock contracts: lean hogs and live cattle. It’s currently trading at $26.68 a share.

• E-TRACS UBS Bloomberg CMCI Livestock ETN (UBC): This ETN tracks an index that is designed to measure the returns from a basket of livestock futures. It’s a little more thinly traded and is at $18.29 a share.

Now, I’m not suggesting that you rush out and invest money into livestock tomorrow morning. As always, timing is everything so I recommend that you wait for my buy signal.

However, the long-term fundamentals for investing in livestock are very compelling and could produce huge profits, especially with our Asian neighbors not just buying up our companies, but also the foods they produce.

Best wishes,
Tony

P.S. You owe it to yourself, and your family, to establish a solid floor of profits. In my new video, The ABR Indicator, I reveal a secret stock signal I’ve discovered that lets you do just that.

Tested against 3 years of market data, this signal has displayed a shocking accuracy of 85% at determining whether a stock will crash and burn or go to the moon.

Better yet, it has unlocked countless opportunities for double- and triple-digit profits each month.

But the video, revealing this signal and the strategy behind it, comes offline tonight at 11:59 P.M. Eastern Standard Time.

Click this link to view it now … before it’s gone!

Tuesday afternoon I sent you an unusual special alert, earlier in the day than normal. I sensed something brewing in global markets, and I wanted to make sure you were ready for it.

While I listed several potentially negative factors, I really wasn’t sure what was happening. I still don’t know all the specifics yet — but now I have a strong suspect.

Soon after we sent our alert, news came out that Greece is no longer a “developed” market country. Now, according to index provider MSCI, Greece is falling back to “emerging market” status. Yes, Greece is a tiny country whose GDP is less than $300 billion (and shrinking), but this move still has global implications.

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Some people think Greece was never fully developed in the first place, and I can see some of their points. Nevertheless, the MSCI indexes have their standards — and the simple fact is, Greece no longer meets them.

MSCI stands for Morgan Stanley Capital International. Among other things, this arm of the Morgan Stanley banking empire publishes global stock indexes. These indexes are the benchmark for ETFs and mutual funds worth trillions of dollars.

MSCI categorizes every nation’s financial markets into one of three categories. Here at Uncommon Wisdom, we are enjoying success trading in all of the categories … it’s just critical you know what you’re doing in the market category you’re trading.

• Developed markets are the top-tier countries. They have political stability, physical infrastructure, banks, courts, and so on. This describes the U.S., Canada, Japan, the U.K. and most of Western Europe.

• Emerging markets are countries that are moving toward “developed” status but still lack some of the pieces. Countries in the category include Brazil, China, India, Mexico and South Korea

• Frontier is the lowest “investable” market category. These places are trying to join the world economy but still face big hurdles. Some examples are Argentina, Nigeria, Pakistan and Vietnam.

Competing index providers like Russell and S&P have similar categories, but MSCI is the most widely followed for this purpose. Their index drives the $42 billion iShares MSCI Emerging Markets ETF (EEM).

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“Developed” status is more than just a credit rating. It means a country is now integral to the global financial system, opening the doors for foreign investment and trading opportunities.

MSCI has never downgraded a developed nation, until now. Greece is the first.

Emerging markets — with or without Greece — are driving the financial craziness everywhere. Higher interest rates in the U.S. and other advanced nations are making it harder for the emerging economies to borrow money.

Investors pulled $1.5 billion from emerging-market bond funds in the first week of June. Highly leveraged hedge funds are being forced to sell other assets to cover their losses in EM bonds, so look for more spillover as traders continue to speculate on the Fed’s next move.

The European debt crisis has been out of the headlines recently, but is far from resolved. As I also mentioned in the alert, a German court is considering whether the country’s constitution allows it to participate in the European Central Bank’s bailout activities. Greece is only one of the Continent’s sinkholes. Spain, Portugal and Italy aren’t far behind Greece.

Bottom line: Greece’s humiliation is not the only reason for market mayhem, but it sure doesn’t help. Don’t ever forget that the bankers know more than we do. That’s one of the reasons why the markets saw a 1% tumble across almost every asset class … and the reason we have to be cautious and ready for surprises.

Also in the news today …

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• Bond-fund monster PIMCO says investors should reduce risk, projecting 60% odds of another global recession in the next 3-5 years. Given that the last global recession never ended for most people, I’d say this is a good bet.

• Speaking of emerging markets, we have three new ones. In addition to Greece, MSCI added Qatar and United Arab Emirates to its EM index. For the latter two, this was a step up from their previous “frontier” status.

• Greece can take small comfort in not being the only nation sent downhill. In the same announcement, MSCI demoted Morocco from “emerging” to “frontier.”

• South Korea and Taiwan have long insisted they deserve the “developed” handle. Not yet, said MSCI, but it is still thinking about it.

• I wrote last week about trading robots and their 15-millisecond head start. New stories suggest human currency traders at some of the world’s biggest banks have been front-running customer orders for years. UK financial authorities may open a formal investigation.

• Yet more rigging? Singapore’s central bank is reportedly planning action against institutions involved in interest-rate manipulation. A report may be released later this week from the investigation that was launched last year.

Today was a bit calmer than yesterday overall, even though the Dow did post another triple-digit loss. I remain very concerned.

The guidance I gave you in Tuesday’s alert still stands. Fasten your seatbelt and don’t take any unnecessary risks.

The markets have not returned back to normal even though gold has found some footing in this mess, nearing the $1,395 mark intraday and keeping its head above the dangerous $1,360 area. (It didn’t hurt that Euro Pacific Capital CEO Peter Schiff said gold is "going to the moon.")

Please keep in mind, the storm is still out there.

I will continue to keep watch for you, and let you know when (and how) to react. In the meantime, if you have any questions or concerns, feel free to share them with me here.

Stay Safe,

Brad Hoppman
Publisher
Uncommon Wisdom Daily