Featured Trades: (RTP), (IRON ORE), (DIAMONDS)

2) Rio Tinto (RTP) is Firing on all 16 Cylinders. I managed to catch an interesting interview on TV the other day with Tom Albanese of Rio Tinto (RTP), the planet's second largest producer of iron ore. It is one of the companies at the nexus of the global economy which I have long been following, and is at the sweets spot of several global macroeconomic trends at once.

There is a two tier global economy today, with the Asian powerhouses delivering classic 'V' shaped recoveries, while the US and Europe lag behind in the dust. China has managed its tightening well, as there is no sign of a bubble in the main economy, and has reached the 'Goldilocks' point in the supply/demand equation. It is moving 'from strength to strength.'

For RTP, the net net has been to drive iron ore prices higher to the point where steel companies are moaning about resource costs. Most RTP mines are running at full capacity, and the way to further riches for the company is through further expansion of vast open pit mines in Australia's Pilbara region.

RTP is also the world's fourth largest diamond miner, which thanks to a 92% jump in demand from China, is also enjoying boom times. It's amazing how the simple adoption of a western custom, presenting a bride with a wedding ring, can have such global implications for international trade (click here for 'Diamonds are Still an Investor's Best Friend').

RTP is also the world's top producer of bauxite, no 2 in alumina, no. 3 in uranium, no. 5 on copper, and no. 13 in gold. Its value has been further bolstered by a relentlessly appreciating Australian dollar long chronicled in this letter (click here for 'Australian Dollar Holders Make a Killing').

The only risk that Albanese sees to the whole scenario would be measures that restrained international trade, for whatever reason. So far there has been a lot of blustery talk on the matter, but no action. I have always believed that this is a company that is in a dozen right places at the right time, and that despite a 500% move off the bottom over the past 18 month, should be bought on any substantial dips.

Want to Race for Pink Slips in the Pilbara?

Featured Trades: (THE MEANINGLESS NONFARM PAYROLL)

1) Why the Nonfarm Payroll Figures are Meaningless. Let me warn you that reading this analysis about the September nonfarm payroll is a complete waste of your precious time. But since it's a holiday, and you don't feel like mowing the lawn, raking the leaves, or washing the car, please read on.

First, the dismal numbers. The Department of Labor reported a net loss of 95,000 jobs, leaving the unemployment rate at a lofty 9.6%. Private sector job gains were run over by the steamroller of 159,000 government job cuts, mostly at the state and local level. There was no change in average hourly earnings. There were gains in health care, business services, and leisure and hospitality, while there were cuts in construction, as always, and manufacturing. Some 14.8 million Americans remain unemployed, 6.1 million for six months or longer.

Now, for the reason I never bother to follow these numbers any more. If you add in discouraged workers, the underemployed, and those working part time who would rather be working full time, the true number of unemployed is closer to 30 million, or about one in five Americans. Never mind the statistics that the government pumps out monthly are meaningless. They have been for decades.

The real problem is that the economy is obliterating jobs far faster than anyone realizes. My guess is that over the past decade as many as 25 million jobs were exported to China and other low waged emerging markets by globally adept, bottom line oriented corporations. Tens of millions more have been vaporized by the relentless march of technology. How many elevator operators, radio repairmen, gas station attendants, or telephone operators have you met lately? Add to that a structural over employment by states and municipalities that will take a decade or two to unwind. The net is that none of these jobs are ever coming back.

My old UC Berkeley economic professor and friend, Robert Reich, told me a fascinating story the other day. After enticing a major European company with huge tax incentives, infrastructure gifts, zoning holidays, and who knows what else, a Midwestern state landed a new manufacturing plant. Since Bob was Clinton's Labor Secretary, the governor invited him to the ribbon cutting ceremony. But before the festivities began, Bob ran inside for a quick tour. There were only 13 workers, all technicians, who manned the computers that operated the machinery. This facility replaced an earlier one that had once employed thousands. Bob threw up his hands and walked away.

What all this means is that the unemployment rate in the US is never going to recover to the heady 4%-5% rate of our youths. At best, we can grind down to maybe 7%-8% in coming years as the economy slowly recovers. Then, when the next recession hits, official unemployment will spike up to 15%, and the unofficial one to 25%-30%. This is why you'll never hear a recommendation to buy retail or consumer spending stocks pass my lips. I watched Germany suffer through long term structural unemployment for a decade, and it is not a pretty picture, and that was with a huge social safety net in place which we lack.

Let me mention an inconvenient truth here. There is nothing either political party can do about this, despite the blustery promises made by all sides. You can offer all of the tax incentives and job training programs you want. It's not going to make a bit of difference. The $250 billion in infrastructure in Obama's stimulus package last year will at best employ a few tens of thousands and add a mere 0.5%-1.0% to GDP growth, hardly a dent in a $14 trillion economy. Even construction companies are becoming efficient in their labor management. You might as well be pissing in the ocean.

Bob gave me another insight into our jobs future. He recently compared at a list of job categories when he was Labor Secretary to the current one, and noticed that about a quarter of today's jobs did not exist 20 years ago. Eventually, labor and jobs will come into balance through the acceleration of new technologies that create entire new industries, slowing population growth, and imported inflation depriving emerging markets from their cost advantage. That is how our jobless headache is going to end, but it is a decades long process, and certainly not worth losing sleep over the first Friday of every month. By then, I'll be collecting social security, if it hasn't gone broke. That's why reading this article was a total waste of time.

Featured Trades: (GOLD), (GLD), (AEM), (KGC), (INIVX)
SPDR Gold Trust Shares
Van Eck International Investor's Gold Fund

3) Where to Buy the Next Dip in Gold. After the violent moves in the gold market last week which took it to another all time high of $1,363, and then a wrenching $25 pull back in a matter of hours, many traders are left grasping for an intelligent way to deal with the barbarous relic. Those who were too clever by half and traded out of the yellow metal early are now trying to buy it back on any dip, driving it relentlessly higher.

The gold bugs who read this letter will not be surprised to hear that the Van Eck International Investor's Gold Fund (INIVX) has been the top performing US mutual fund for the past five years, with an annual 27% return. The firm focuses on buying miners with good management and decent growth prospects. These are often found listed on the Sarbanes-Oxley free Toronto Stock Exchange. Its three top picks now are Agnico Eagle (AEM), Kinross Gold Corp. (KGC), and Rangold Resources (GOLD).

The gold industry is in a supply/demand sweet spot now, as supplies have been ex-growth for a decade in the face of a rising tide of demand. Peak gold is upon us, and unexploited deposits are getting farther and fewer between. There will be no more of history's 'gold rushes' as seen in California, South Africa, Australia, and Alaska, as the world has been scoured to death for new deposits. This is happening while failed economic policies around the world create ever larger numbers of buyers.

Gold may be overbought for the short term, but the world is waiting to buy it on any $100 dip, where emerging market central banks will be jostling with private institutions and individuals to top up existing positions, and 'newbies' fight to open new ones. Van Eck's conservative one year target is $1,700/ounce. They think the bull market has a good five years to run, and won't end until we see an inflationary spike, taking prices to who knows where.

There Must Be Some Gold In Here Somewhere

Featured Trades:?? (ETF RANKINGS), (SPY), (GLD), (EEM)

3) Guess Who's On Top of the ETF Rankings? I saw the latest ranking of ETF's by asset size today, and I was stunned by the results. It was no surprise to see State Street Global Advisors' SPDR S&P 500 (SPY) on top, with $78 billion in assets, long the 800 pound gorilla of ETF's. It was the second and third spots that I found the most titillating.

The World Gold Trust Services' Gold Trust ETF (GLD) came in second, now worth amazing $54 billion, and BlackRock's (BLK) iShares MSCI Emerging Market Index Fund ETF (EEM) came in third at $45 billion. It seems like only yesterday that these two ETF's were just little nippers, knee high at best.

The flood of cash out of paper assets into hard ones by investors fleeing global, competitive quantitative easing easily explains GLD's popularity. And you can't blame investors departing the US en masse for emerging markets, trading in a projected wheezing, arthritic 2% growth rate at home for sexier, more virile 6%-10% growth rates abroad.

I'm going to make a bold prediction here. GLD and EEM will occupy the top two slots on this list within two years. This will occur both because of price appreciation of the underlying and a continuing inward flood of assets. These ETF's cater to the major long term trends in the global economy, which are only just getting started, and could continue for the rest of the decade.

How Much Longer Will the SPY be the 800 Pound Gorilla?

Featured Trades: (SOLAR ENERGY), (FSLR), (YGE), (STP)

3) The Double Play in First Solar. There is another angle to the solar play, which I bet you haven't thought of. I have been arguing that companies like First Solar (FSLR) are great proxy for oil, as any price rise in crude raises the breakeven point that alternative power generators must meet to be competitive on a non subsidized basis (click here for 'Solar Energy is Poised to Achieve Cost Parity').

I bet you didn't know that it is a currency play as well. First Solar's primary competitors are Chinese firms, like Suntech Power (STP) and Yingli Green Energy (YGE), whose costs are based in the Yuan. That was not a problem as long as the Yuan was fixed and the global recession caused polysilicon prices to collapse. Those days are now coming to a close. Any appreciation of the Chinese currency feeds directly into their overhead cost. Even just a 5% per year appreciation, the maximum rate which the Chinese government is thought to tolerate, could wipe out the razor thin margins these companies subsist on.

A cheap, long dated call on both oil and the Yuan? Given that I believe that we are in a long term bull market for both, I think you better be accumulating this company on dips. The upside surprises could be explosive.

Setting Up for the Double Play in Solar