I was getting dressed this morning and I put on my new favorite shirt. It says on the front…

“My President went to Saudi Arabia and all I got was this Lousy T-Shirt!”

Is it just me or does it embarrass you to that we have to watch our President go with his hat in his hand to the Middle East and basically beg for more supplies of oil. Then worst of all they say NO! Ugh, the horror.

One piece of good news there will be a polar bear in everyones backyard, so saddle up, you will likely be riding this bear to work in the future, or walking because riding a bear is “cruel”. It’s Absurd!

“Mr. Bush’s request, his second in five months, coupled with rising anti-Saudi sentiment in the Democratic-led Congress, underscored the growing tensions between the countries over oil. The issue is also dominating the domestic agenda in Washington, where the Energy Department said Friday it was suspending shipments of oil to the strategic petroleum reserve. “-NY Times

Neither the 300k increase nor halting the SPR fill will have any impact to speak of.

I will tell you what would have an impact. Immediately repeal the 53 cent tax on imported ethanol, allow offshore drilling on the continental shelf immediately and create tax incentives for Hybrid purchases, just for a start.

I was on with my friends Larry Kudlow, Don Luskin, and Mark Skousen last night and they hit the nail on the head. We must get our minds right and realize we need to start taping domestic sources of oil immediately! Safely, but we need to do it.

These hardcore environmentalists need to wake up and realize that drilling can be done safely and strategically and they need to get away from the radical “no drilling” policy.

What’s going to happen is prices are going to surge and then bad decisions will be made as a knee jerk reaction on exploration. If it’s done now and environmentalists are reasonable then it will be handled much better.

Heck, I like polar bears, and I like the national preserves of this country, but we need to accept the fact that we have a national emergency and until we have viable alternatives which may be in 5-10 years, we need to be smarter.

Watch Kudlow & Co Here

So Larry seemed taken a back with my new $1500 gold target in the next 9-12 months but I think all signs are there for another big rally… I have been calling for a pullback to $822 but we never got there, close but not $822. My feeling is now there are more inflation troubles on the horizon, the dollar is looking weaker and weaker and the other shoe is likely ready to drop, I actually like silver on a supply demand basis even better than gold.

There will be some pullback in gold but suddenly we will wake up and be back above $1000 and people will be scratching their heads. Saying gold is going to $1500 gets about the same reaction as gold going to $800 got a couple of years ago when I was on TV. Gold was at around $480 or so and people made fun of me when I said gold $1000 was around the corner, whose laughing now.

The fact remains that inflation or at least inflation fear are a problem. Gold is one refuge for investors in this environment.

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The other night when I was on with Kudlow and CO. Larry brought the Gold/Oil ratio up. I was still quite jet lagged form my trip to Dubai, so I had no sharp reply but I have some very strong feelings about it, especially with oil at $128! Watch the video and then read Charlie Nedoss and my explanation below the video.

To watch the Kudlow & Co Video Click on the Gold to Oil Ratio link.

Gold to Oil Ratio Video Click Here

Simply put it’s the amount of Crude that can be bought in terms of gold. In other words if you divide the prevailing price of gold into the current price of oil. (GOR).
Currently using June futures price this spread is running at historical lows- 6.89.
The relationship is important because oil is the world’s most important commodity, as all developing and undeveloped nations need it to function. (ie. transportation, manufacturing…)

Gold has always been the ultimate currency or form of money for hundred of years.
Therefore, I feel this relation is valid and one that should be monitored as we are comparing a widely followed commodity and a measure of currencies that is global.

The 38 year average of this spread is roughly 17.5 barrels of oil can be bought per ounce of gold. Again since gold is globally priced it eliminates currency disparities.
Both of these commodities have rallied in tandem. But in February the spread started soften and most recently is trading at historically low levels.

It must be noted that both of these commodities are dollar denominated so the effects of the dollar fluctuations should have the same impact on both. If you look at the chart below you will see that recent dollar strength has had a negative effect on the price of gold but crude oil has continued its ascend to new contract highs. Thus the GOR has been taken to abnormally low levels. (Blue=Gold Red=Crude Oil)

For this spread to revert back to the mean either crude oil has break relative to gold or gold has to rally relative to crude oil.
With increasing global demand and the U.S. not at the point of rationing demand by price then it appears the path of least resistance is for gold to rally to bring the spread back in line.
With this being an election year and the U.S. consumer being strapped with the highest debt load ever it is doubtful that rates will be raised going into November. (On a side note I believe rates need to move higher not lower to cure our economic ills but lets leave that for another discussion).
In summary, I believe the Gold – Oil ratio is undervalued and that Gold must rally relative to Crude in order to for this spread to come back to a more normal relationship. I feel this will be driven by continued dollar weakness and strong global demand for Crude Oil.

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So this is a new feature of my blog where people can check in and see what I am actually trading for my own account. One of the most common questions I get all the time is “what are you trading?” Not exactly what’s in my newsletters, or what I will eventually be trading in my managed funds (if the regulators stop delaying things) No this is where I discuss what I am trading or thinking of trading personally. I am talking about it in the first person and at no time is anything I say meant to be a recommendation for anyone.

Well the inflation numbers out of Europe seem to be tame too and it looks like the dollar may have more of a leg to stand on which tells me gold may actually pull back to $850 or my target which is now $830, no reason to jump in just yet, in time. I bought some November soybeans last night, which I have been trading in and out of all week, with good profits. It’s a bit weaker this morning but oil is strong again, looks like it will be a choppy day. Sugar and OJ are weak. OJ saw the funds come in and crush it, figures.

There is a lot of weather and problems to get through before my January options expire, I can’t say I am all that worried yet. Sugar has too much negative fundamentals working against it right now, needs more time but I am not ready to pull the plug on it yet. Patience. Soybean oil looks good to me and I am going to price some options in that market. I am looking for a bit of a pop in the greenback today though which could weigh on a lot of the commodities. Check back tomorrow!

What’s more stressful trading or being on TV…. Depends on who you are I guess. I like this O’reilly rap that’s making the rounds on You Tube lately. I apologize for Bill’s use of profanity,tough day at the office I guess we all have them.

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So I want to first say that we really are seeing a dramatic move in the agriculture markets and this could be one of the best times to attempt to make money. If you have already had a chance to get my free agriculture report, fantastic. If not just go to www.kerrtrade.com and scroll down to the bottom to get a copy. If you are having problems getting it by the link, just email us at kkerr@kerrtrade.com and we will send you the Free PDF. Don’t miss it.

Ok now onto the final chapter from my trip to Dubai…

So I headed off to CNBC and they were nice enough to send another air conditioned car to pick me up and we headed off to the studios. As I met the anchor for the 3pm show he explained to me that what I said would be translated immediately and he would ask me questions in Arabic, sounded easy to me, well it wasn’t really. The woman who was translating was taking the announcers questions and translating them to me in English, I could barely understand her, she talked so fast. At one point I just wanted to lean into the announcer and say “what did you say?” Because I knew he spoke English….lol Well anyway the interview went really well regardless and I should get a copy of it any day now and will post it here on the good old blog soon.

So I thanked them at CNBC and headed out to go ski. SKI? Sure in Dubai they have it all… including snow. I also hear that at the Dubai Mall they are building an indoor ski slope that rivals some Vermont slopes.

As a Minnesota native somehow indoor snow just doesn’t seem that exciting to me… Who would want that, who could afford that? Well, then again how many indoor waterparks and fake beaches do we have here? Guess you always want what someone else has. Anyway, I must admit it’s pretty sureal to see people swooshing down the slopes when it’s 120 degrees outside. I passed on the chance and decided to head to the pool instead, even a maniac trader needs a break once in awhile. So I headed up to the pool deck at the fairmont.

They have two pools it said, sunrise and sunset pools. So I went outside. Yup there was a very nice big pool and a little one connected to it which was more like a spa. The sun was blazing hot as I relaxed and got some tan. After about 45 minutes it was all I could stand, incredible heat.

I jumped in the pool and decided to head up to the room as the sun was starting to go over the top of the building anyway. As I walked out the towel guy said we are about to open the sunset pool please join us. I said huh? It turns out that they have an exact copy of these pools on the other side of the building. As the sun crosses the building they switch.

Thus the sunrise and sunset pools…Of course how stupid of me, you find that at every hotel, don’t you?

My point is that everything in Dubai is amazing, opulent and well “if one is good, two is better.” The question is can it be sustained.

I spent the afternoon exploring the city and walking by the gold market and mostly taking in the atmosphere.

In the evening I met with my buddy Aussie Joel and his girlfriend for dinner out by the infamous Palm Island. It was excellent and we talked for hours. They like living there but like anywhere it has it’s good and bad points.

I had to leave early the next day and had some writing to finish so we ended the evening about midnight and I retired back to my hotel. Next day I left Dubai and headed to Abu Dhabi airport.

The flight is fifteen hours but throw in security in Abu Dhabi and it becomes 20 hours…

High high security as you can imagine, no complaints here. Supposedly they now have these new full body scanners, nice. Little more information then I need in that picture below, but glad they found the gun.

My overall feelings of my first trip to the UAE were very good. The people were extremely nice, I almost always felt safe and free to do as I pleased. Dubai especially is as modern or even much more modern then the US. Even so, it’s not home and there are many differences, especially in personal freedoms and equal rights. But all of that is understandable as the Muslim religion has certain rules and this after all is their home, not mine.

I certainly will look forward to returning to the UAE soon as some of my private meetings yielded some very good contacts. I can’t imagine what they will have there by then or how many ski resorts will be available. Hell maybe by the next time I go I can just fly into the new Dubai Spaceport..

Today though I am stuck using the plane.

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A Brave New World

As you approach Dubai by freeway you traverse vast desert and scorching hot sun. Many Mosques line the sides of the road, as well as numerous housing projects that seem to go on forever.

Then suddenly in what seems to be a haze or fog a shadow, a tall shadow appears. It’s the burj Dubai.

When completed it will be the tallest building in the world, by far. The question is for how long, other big projects are planned. Yikes, are there any cranes left, any steel, any cement, any brains?

In the meantime, that’s a lot of office space to rent out. But then again Dubai plans to have an astonishing 180,000 hotel rooms by 2015. 141,000 just in the next seven years. Currently there are a mere 60,000 hotel rooms available.That is the blaring headline on the front page of the Gulf News Daily Business section.

Anyway, the burj is huge, but Just how tall the tower will be remains to be seen.

As with any skyscraper, there is a certain amount of “fudge room” where the actual height of the construction may not be exactly what was anticipated. With a project as massive as this, more flexibility is called for in the design, planning, and execution. At this time, the tower is expected to be 2,683 feet tall (818 meters).

However, those numbers have changed in the past and are likely to change again. There are estimates that it could go as high as 3,116 feet (950 meters) when all is said and done. It is also unclear how many stories will be in this tower. Early estimates were around 200, but those have been lowered to 189 as construction progresses.

Anyway as we continued on to my hotel, the Fairmont Dubai, I noticed the new monorail/train Dubai is building. In fact the elevated train runs along the freeway almost the whole way as you enter Dubai. I could see the workers on top of the pylons and trestles, seemingly without any harnesses or safety equipment several stories in the air.

Surely, if the fall doesn’t kill you the cars going 85 mph below most certainly will. Suddenly my job doesn’t seem so bad. Throw in the 120 degree heat and 15 hour day and well I think you have the job from hell.

Aussie Joel, my mate from Agora and his girlfriend were telling me at dinner the other night, that these guys, mostly Indian and Malay’s, work in these conditions in July when the heat is even more intense. Worse still, during Ramadan they cannot even drink water due to the fasting requirement.

That means from Sept 1st-September 30th certain things are off limits, refer to chart above.
Now I am not criticizing or judging anyones religion, not at all. I just am saying I can’t imagine working in those conditions, especially in that heat, and no water. Joel said that at least one a week keels over or slips and falls into traffic, it’s just part of it. Nice!

Anyway, nobody fell on my car so we drove onto the Fairmont and pulled up to the front of the hotel. Below you can see the Fairmont in the lower right corner.

Now want to get a real sense of the growth rate here in Dubailand. Here is the same stretch of road only a few years ago. It’s simply incredible.

Now I’m sure like me you may have seen these before and after pictures somewhere else, but let me tell you until you see it up close it’s really hard to grasp.

Anyway, I checked in to the Fairmont, always a fantastic hotel. In fact that is the hotel chain the Agora Investment Symposium is held each July in Vancouver. I hope you can come join us this year. I will put a link on here soon.

Anyway. I settled into my room and figured out all the things I wanted to see. First I rang Joel and we planned for dinner out by the Palm Islands, but first I had to run to CNBC Arabia to do an interview.

Again, it beats working on a three story pylon above a freeway, it’s still work. More from Dubai in my third installment tonight right here.

Also I will post my appearance on CNBC Friday on Kudlow & Co. I was noticeably jet lagged but still able to get in a few punches…lol Check back this afternoon.

By the way happy Mothers Day. Alexandra and I took Mom to the Brooklyn Botanical Garden, she loves to take photos so we knew she would like it. We both love her very much, because of course she is the best mom in the world.

Enjoy the day with your MOM!

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