Republican presidential candidate John McCain has chosen Alaska Gov. Sarah Palin as his vice presidential running mate, a senior McCain campaign official said on Friday.
She said NO to measure 4.
Friday, August 29, 2008
McCain picks Palin as VP running mate
Republican presidential candidate John McCain has chosen Alaska Gov. Sarah Palin as his vice presidential running mate, a senior McCain campaign official said on Friday.
She said NO to measure 4.
Thursday, August 28, 2008
Northern Dynasty gets Alaska boost
VANCOUVER -- Shares in a Canadian miner with a potential blockbuster deposit in Alaska shot up on Wednesday after that state's voters chose gold over salmon in a hotly debated citizen ballot initiative.
Northern Dynasty Minerals Ltd. gained more than 20% after Alaskans narrowly rejected the measure, which would have created potentially punishing new environmental restrictions on mining.
The small Vancouver-based company and global mining giant Anglo American PLC are partners on the Pebble project, a massive copper-gold-molybdenum find that has stoked strident backlash from fishermen and lodge owners. They say its development will bring catastrophic consequences for some of the world's richest salmon runs in southeastern Alaska.
Their efforts produced the ballot measure, which was designed to strengthen environmental protection for salmon and aimed specifically at Pebble. The mining sector, which decried the measure as so vaguely worded that it jeopardized the development of all new mines, breathed a sigh of relief when it became clear on Tuesday night that 57% of voting Alaskans agreed.
"I didn't pop any corks or anything, but I'll tell you I was very pleased with the outcome. There's no question about that," said Ron Thiessen, Northern Dynasty president and chief executive, whose company is doing pre-feasibility work on Pebble and expects to seek permits in late 2009 or 2010.
"We think the existing [environmental] rules and regulations are very adequate, and I think this vote is an endorsement of that. So from my standpoint, I think this is good for Pebble."
Other Canadian companies also pursuing mining projects in Alaska include Barrick Gold Inc., Teck Cominco Ltd. and NovaGold Resources Inc., whose CEO said the outcome represents sustained confidence in Alaskan mining.
But he argued there is no reason mines and fish can't co-exist.
"Salmon is an extremely important resource in Alaska and that certainly is recognized by the mining industry," said Rick Van Nieuwenhuyse. "Nobody wants to have bad water quality."
Yet even if a slim majority of voters agreed, the road to production for the Pebble project, in particular, is likely to be littered with opposition. Since it acquired the property in 2001, Mr. Thiessen says Northern Dynasty has focused more on socio-environmental issues than on either engineering or geology.
"We believe that the Pebble project has spent more money on environmental and socio-economic matters than pretty much any other industrial project in the world," Mr. Thiessen said. "Our intention is to get it right."
That spending is likely to continue, however, as the company wrangles with how to protect the fish and an opposition that has promised it has only just begun.
Northern Dynasty shares jumped 21% to $6.67 yesterday on the Toronto Stock Exchange. NovaGold, Teck and Barrick also closed up slightly.
Northern Dynasty Minerals Ltd. gained more than 20% after Alaskans narrowly rejected the measure, which would have created potentially punishing new environmental restrictions on mining.
The small Vancouver-based company and global mining giant Anglo American PLC are partners on the Pebble project, a massive copper-gold-molybdenum find that has stoked strident backlash from fishermen and lodge owners. They say its development will bring catastrophic consequences for some of the world's richest salmon runs in southeastern Alaska.
Their efforts produced the ballot measure, which was designed to strengthen environmental protection for salmon and aimed specifically at Pebble. The mining sector, which decried the measure as so vaguely worded that it jeopardized the development of all new mines, breathed a sigh of relief when it became clear on Tuesday night that 57% of voting Alaskans agreed.
"I didn't pop any corks or anything, but I'll tell you I was very pleased with the outcome. There's no question about that," said Ron Thiessen, Northern Dynasty president and chief executive, whose company is doing pre-feasibility work on Pebble and expects to seek permits in late 2009 or 2010.
"We think the existing [environmental] rules and regulations are very adequate, and I think this vote is an endorsement of that. So from my standpoint, I think this is good for Pebble."
Other Canadian companies also pursuing mining projects in Alaska include Barrick Gold Inc., Teck Cominco Ltd. and NovaGold Resources Inc., whose CEO said the outcome represents sustained confidence in Alaskan mining.
But he argued there is no reason mines and fish can't co-exist.
"Salmon is an extremely important resource in Alaska and that certainly is recognized by the mining industry," said Rick Van Nieuwenhuyse. "Nobody wants to have bad water quality."
Yet even if a slim majority of voters agreed, the road to production for the Pebble project, in particular, is likely to be littered with opposition. Since it acquired the property in 2001, Mr. Thiessen says Northern Dynasty has focused more on socio-environmental issues than on either engineering or geology.
"We believe that the Pebble project has spent more money on environmental and socio-economic matters than pretty much any other industrial project in the world," Mr. Thiessen said. "Our intention is to get it right."
That spending is likely to continue, however, as the company wrangles with how to protect the fish and an opposition that has promised it has only just begun.
Northern Dynasty shares jumped 21% to $6.67 yesterday on the Toronto Stock Exchange. NovaGold, Teck and Barrick also closed up slightly.
Alaskan backing of minerals over salmon a boon to Northern Dynasty
Markets have not yet realized just how positive the news is for Northern Dynasty Minerals Ltd. after Alaskan voters sided this week against a ballot measure that could have thrown the state’s regulatory system into upheaval, according to a financial analyst who calculates a huge upside to the company’s stock.
“We recommend buying Northern Dynasty shares. In our opinion the shares were oversold leading into the Ballot and still remain depressed following the defeat of Measure 4,” Raymond James analyst Tom Meyer wrote in a note published Thursday morning.
Ballot Measure No. 4 would have placed new restrictions on the ability of large mining projects to release harmful pollutants into streams used by salmon or humans. The hotly-contested fight was aimed at Northern Dynasty’s Pebble Project, a massive copper-gold deposit in southern Alaska’s richest salmon area.
Opponents of the initiative ultimately prevailed with 57% of the vote.
“With Measure 4 defeated we do not expect the opposition to the Pebble project to fall away but we do anticipate the market to view the news as evidence that a rational permitting process can begin in due course,” Mr. Meyer wrote.
Noting that Pebble partner Anglo American plc is funding much of the cost of evaluating and building the mine, Mr. Meyer said the numbers suggest Northern Dynasty is severely undervalued.
Its shares “trade at a P/NAV of 0.17 times versus the peer group of development companies at 0.66 times,” he wrote. “We view the shares as a bargain at current levels.”
Mr. Meyer has set a share target price of $24 – a 260% premium over Wednesday’s close – with a “strong buy” rating.
“We recommend buying Northern Dynasty shares. In our opinion the shares were oversold leading into the Ballot and still remain depressed following the defeat of Measure 4,” Raymond James analyst Tom Meyer wrote in a note published Thursday morning.
Ballot Measure No. 4 would have placed new restrictions on the ability of large mining projects to release harmful pollutants into streams used by salmon or humans. The hotly-contested fight was aimed at Northern Dynasty’s Pebble Project, a massive copper-gold deposit in southern Alaska’s richest salmon area.
Opponents of the initiative ultimately prevailed with 57% of the vote.
“With Measure 4 defeated we do not expect the opposition to the Pebble project to fall away but we do anticipate the market to view the news as evidence that a rational permitting process can begin in due course,” Mr. Meyer wrote.
Noting that Pebble partner Anglo American plc is funding much of the cost of evaluating and building the mine, Mr. Meyer said the numbers suggest Northern Dynasty is severely undervalued.
Its shares “trade at a P/NAV of 0.17 times versus the peer group of development companies at 0.66 times,” he wrote. “We view the shares as a bargain at current levels.”
Mr. Meyer has set a share target price of $24 – a 260% premium over Wednesday’s close – with a “strong buy” rating.
Wednesday, August 27, 2008
Alaska voters decide mining over fish
ANCHORAGE, Alaska (AP) — Alaskans were given an option when voting for an initiative in their primary election: mining or fish.
They chose mining.
With more than 84 percent of votes tallied early Wednesday, the measure was declared dead with more than 57 percent of voters rejecting it.
The ballot measure would have imposed two water quality standards on any new large-scale mines in Alaska. Had it passed, it would have restricted large, new mines from releasing toxic pollutants into water that would adversely affect the health of humans or salmon.
Opponents of the initiative say if it had passed, it would have killed large-scale mining in Alaska.
Supporters said the initiative was needed to save wild salmon streams from the Pebble Mine, a huge copper and gold deposit poised for development near Bristol Bay.
Renee Limoge, spokeswoman for Alaskans Against the Mining Shutdown, said what voters understood was that the ballot measure would have affected other mines, not just Pebble.
"We are thrilled that Alaskan voters have spoken and they have made it clear that mining is part of our history in the state and part of our future," she said.
Opponents claimed that the initiative posed a serious threat to Alaska's economy. They say mining accounts for over 5,500 jobs and nearly $200 million a year in state and local tax revenues.
Supporters said the bigger threat is to the Bristol Bay salmon fishery, which they say provides over 12,000 jobs and contributes over $250 million annually to Alaska's economy.
They chose mining.
With more than 84 percent of votes tallied early Wednesday, the measure was declared dead with more than 57 percent of voters rejecting it.
The ballot measure would have imposed two water quality standards on any new large-scale mines in Alaska. Had it passed, it would have restricted large, new mines from releasing toxic pollutants into water that would adversely affect the health of humans or salmon.
Opponents of the initiative say if it had passed, it would have killed large-scale mining in Alaska.
Supporters said the initiative was needed to save wild salmon streams from the Pebble Mine, a huge copper and gold deposit poised for development near Bristol Bay.
Renee Limoge, spokeswoman for Alaskans Against the Mining Shutdown, said what voters understood was that the ballot measure would have affected other mines, not just Pebble.
"We are thrilled that Alaskan voters have spoken and they have made it clear that mining is part of our history in the state and part of our future," she said.
Opponents claimed that the initiative posed a serious threat to Alaska's economy. They say mining accounts for over 5,500 jobs and nearly $200 million a year in state and local tax revenues.
Supporters said the bigger threat is to the Bristol Bay salmon fishery, which they say provides over 12,000 jobs and contributes over $250 million annually to Alaska's economy.
Tuesday, August 26, 2008
Monday, August 25, 2008
Obama Favors Pebble Mine In Alaska Building Earthquake-Proof Dams
Barack Obama and Fairbanks, Alaska Mayor Jim Whitaker have one thing in common: they oppose Proposition 4 which would ban large metal mines from discharging large amounts of toxic chemicals into salmon streams and drinking water supplies.
Jim Whitaker, the current mayor of Fairbanks, Alaska co-wrote an editorial in The Anchorage Daily News that forcefully opposes Proposition 4. This ballot initiative opposes the Pebble Mine from being funded and built. The voters decide on August 26.
Although Proposition 4 just applies to the Bristol Bay area of Alaska, not one word is mentioned about the Pebble Mine or Bristol Bay in the wording of the ballot initiative. According to the Anchorage Daily News article, ''Alaska's Constitution, Article XI, Section 7, specifically prevents special or local legislation by initiative and requires that Measure 4 be applied statewide.''
A Washington, D.C. based lobbying group is funding the ballot initiative. Americans For Job Security is funding the ''yes'' campaign but refuses to disclose its source of ''soft'' money. This group has been found guilty of violating Alaska's election laws in the past.
Alaska has an extremely stringent and thorough review process regarding mines getting permits. It has a federal and state review process that includes environmental impact studies. Mining companies have to adhere to strict water-quality standards. Alaska's newest mine, the Pogo Mine, took over four years for the permitting process to be completed before digging could commence.
If Proposition 4 is passed, this stringent regulatory process would be replaced by an arbitrary procedure that is decided by regulations and court decisions after people have voted. Passage of Measure 4 would lead to unnecessary lawsuits that would further impede the regulatory process and put current projects on hold.
According to the Anchorage Daily News editorial co-authored by Whitaker and Cynthia Toohey, (Toohey is a RN and a chairperson of Alaskans Against the Mining Shutdown. She is also a former state legislator from Anchorage and part owner of the Crow Creek Mine in Girdwood, Alaska). ''mining supports over 5,500 jobs in 100 communities and generates hundreds of millions of dollars per year in state and local taxes.''
If approved, the Pebble mine will be the largest mine in North America with an approximate size of 28 square miles. A large power plant will have to be constructed to provide power for the mine. For more specific and detailed information about mine waste and water usage, go to www.eyeonpebblemine.org
What does this have to do with Obama? He knows that the presidential race is close and Democrats need to make inroads into Alaska. Actually, they want to be competitive in Idaho and Nevada as well. Obama became friends with miners in those states during the primary season by opposing statutory amendments to the 1872 General Mining Law.
According to Ralph Nader in the CounterPunch newsletter, the General Mining Law of 1872 ''is a relic of efforts to settle the West allows mining companies to claim federal lands for $5 an acre or less and then take gold, silver, lead or other hard-rock minerals with no royalty payments to the public treasury.''
Western lawmakers have regularly blocked any changes to the General Mining Law of 1872. Mining companies, including foreign owned ones, have been able to extract billions of dollars worth of minerals from federal lands royalty free.
Obama opposed a bill in the House of Representatives that was proposed in late 2007 that would have charged a royalty of 4 percent of gross revenue on existing mining operations and an 8 percent tax on new hard-rock mining operations. New environmental controls would've been imposed on hard-rock mining, a permanent ban would have been placed on cheap sales of public land for mining and a cleanup fund would have been put into place for abandoned mines.
Obama opposed it because he said that it would have a significant impact on jobs. he hopes that environmentalists in Alaska and nationwide will forget about this. Mining interests in Alaska have contributed more money to the ''Vote No to Ballot Initiative 4'' than contributions to either presidential candidate.
Obama has awarded Fairbanks Mayor Whitaker with an invitation to the Denver, Colorado Democratic National Convention in exchange for his endorsement of the campaign. Is this ''change we can believe in'' or just another example of the old style politics of one hand washing the other? You can decide this for yourself.
By the way, Whitaker is a Republican.
Jim Whitaker, the current mayor of Fairbanks, Alaska co-wrote an editorial in The Anchorage Daily News that forcefully opposes Proposition 4. This ballot initiative opposes the Pebble Mine from being funded and built. The voters decide on August 26.
Although Proposition 4 just applies to the Bristol Bay area of Alaska, not one word is mentioned about the Pebble Mine or Bristol Bay in the wording of the ballot initiative. According to the Anchorage Daily News article, ''Alaska's Constitution, Article XI, Section 7, specifically prevents special or local legislation by initiative and requires that Measure 4 be applied statewide.''
A Washington, D.C. based lobbying group is funding the ballot initiative. Americans For Job Security is funding the ''yes'' campaign but refuses to disclose its source of ''soft'' money. This group has been found guilty of violating Alaska's election laws in the past.
Alaska has an extremely stringent and thorough review process regarding mines getting permits. It has a federal and state review process that includes environmental impact studies. Mining companies have to adhere to strict water-quality standards. Alaska's newest mine, the Pogo Mine, took over four years for the permitting process to be completed before digging could commence.
If Proposition 4 is passed, this stringent regulatory process would be replaced by an arbitrary procedure that is decided by regulations and court decisions after people have voted. Passage of Measure 4 would lead to unnecessary lawsuits that would further impede the regulatory process and put current projects on hold.
According to the Anchorage Daily News editorial co-authored by Whitaker and Cynthia Toohey, (Toohey is a RN and a chairperson of Alaskans Against the Mining Shutdown. She is also a former state legislator from Anchorage and part owner of the Crow Creek Mine in Girdwood, Alaska). ''mining supports over 5,500 jobs in 100 communities and generates hundreds of millions of dollars per year in state and local taxes.''
If approved, the Pebble mine will be the largest mine in North America with an approximate size of 28 square miles. A large power plant will have to be constructed to provide power for the mine. For more specific and detailed information about mine waste and water usage, go to www.eyeonpebblemine.org
What does this have to do with Obama? He knows that the presidential race is close and Democrats need to make inroads into Alaska. Actually, they want to be competitive in Idaho and Nevada as well. Obama became friends with miners in those states during the primary season by opposing statutory amendments to the 1872 General Mining Law.
According to Ralph Nader in the CounterPunch newsletter, the General Mining Law of 1872 ''is a relic of efforts to settle the West allows mining companies to claim federal lands for $5 an acre or less and then take gold, silver, lead or other hard-rock minerals with no royalty payments to the public treasury.''
Western lawmakers have regularly blocked any changes to the General Mining Law of 1872. Mining companies, including foreign owned ones, have been able to extract billions of dollars worth of minerals from federal lands royalty free.
Obama opposed a bill in the House of Representatives that was proposed in late 2007 that would have charged a royalty of 4 percent of gross revenue on existing mining operations and an 8 percent tax on new hard-rock mining operations. New environmental controls would've been imposed on hard-rock mining, a permanent ban would have been placed on cheap sales of public land for mining and a cleanup fund would have been put into place for abandoned mines.
Obama opposed it because he said that it would have a significant impact on jobs. he hopes that environmentalists in Alaska and nationwide will forget about this. Mining interests in Alaska have contributed more money to the ''Vote No to Ballot Initiative 4'' than contributions to either presidential candidate.
Obama has awarded Fairbanks Mayor Whitaker with an invitation to the Denver, Colorado Democratic National Convention in exchange for his endorsement of the campaign. Is this ''change we can believe in'' or just another example of the old style politics of one hand washing the other? You can decide this for yourself.
By the way, Whitaker is a Republican.
Friday, August 22, 2008
Please calm down
As the Olympics draw to a successful close, financial industry China-watchers are obsessed by two stories. First: China's growth is about to slow dramatically, either as the result of global recessionary trends or because of a post-Olympic hangover. Second, the government is about to step in to counteract that slowdown with a massive fiscal stimulus package.
Our advice is: calm down. China's economy is basically in fine shape. There are a few downside risks but policy makers have plenty of monetary and fiscal weapons in their armory to combat those risks if they materialize. On the fiscal front, we would not be surprised if government spending rose sharply in the second half of the year. This is because revenues grew by 33% yoy in the first half. At this rate China is headed for a budget surplus of Rmb600 bn or more than 2% of GDP. Not spending this surplus would amount to a fiscal contraction. Spending some of it, which is what we expect will happen, makes good policy sense. But it should not be considered a stimulus, because the government will simply be putting back into the economy money it has already taken out, not adding to aggregate final demand.
Our advice is: calm down. China's economy is basically in fine shape. There are a few downside risks but policy makers have plenty of monetary and fiscal weapons in their armory to combat those risks if they materialize. On the fiscal front, we would not be surprised if government spending rose sharply in the second half of the year. This is because revenues grew by 33% yoy in the first half. At this rate China is headed for a budget surplus of Rmb600 bn or more than 2% of GDP. Not spending this surplus would amount to a fiscal contraction. Spending some of it, which is what we expect will happen, makes good policy sense. But it should not be considered a stimulus, because the government will simply be putting back into the economy money it has already taken out, not adding to aggregate final demand.
Thursday, August 21, 2008
Wednesday, August 20, 2008
FORTUNE FAVORS THE BRAVE
As you know, we are fundamental analysts, not technicians. We take an investment view on stocks and commodities, not a trading view. That being said, we believe that much of the panic and the savage price decline in food related investments and in precious metals is behind us. We are adding to our positions in these two areas.
We do not know if the correction caused by technical momentum traders is over. What we do know is that the emerging world is very strong economically, and these countries are large and growing consumers of high protein foods. Thus, a recession in Europe, Japan and the U.S. will not deter them from upgrading their diets. This will require the production of more grains and an increase in demand for fertilizers and other food production inputs. We own fertilizer stocks and we have recently been adding to our positions.
The world banking system is broken and badly needs to be re capitalized. How will they get new capital from investors? We doubt that the banks will be able to get many investors to buy into their optimism and buy their stock. In our opinion, the only long term solution is that governments print more money to re-capitalize and re-liquefy the banking system. The season for increased gold demand is upon us as India starts to buy more for the wedding season. Gold coins are in short supply at many coin dealers in the U.S. Stagflation, inflation, and deflation threaten the world in different parts of the globe. All of these events are bullish for gold and we are adding to our gold positions.
As we said earlier we are not technicians, or momentum players (the two groups that seem to have had control of commodity prices during the last few weeks). We are fundamentalists, and the fundamentals argue that food and precious metals are getting into attractive buy areas.
We do not know if this is the ultimate bottom in precious metals. We do know that we want to own gold during periods when the world banking system is flirting with collapse and the only solution is governmental takeovers and subsequent large money printing exercises, by governments in Europe, Japan and the U.S.
There has been no fundamental decrease in the value of gold as a hedge against both inflation and strong deflation. Clearly, many commentators believe that one or the other may be the long-term outcome. We believe it is still too early to call…but that inflation has the upper hand at this time. Historically, gold has fared well in both inflationary and strong deflationary periods. We will write more on this later.
We do not know if the correction caused by technical momentum traders is over. What we do know is that the emerging world is very strong economically, and these countries are large and growing consumers of high protein foods. Thus, a recession in Europe, Japan and the U.S. will not deter them from upgrading their diets. This will require the production of more grains and an increase in demand for fertilizers and other food production inputs. We own fertilizer stocks and we have recently been adding to our positions.
The world banking system is broken and badly needs to be re capitalized. How will they get new capital from investors? We doubt that the banks will be able to get many investors to buy into their optimism and buy their stock. In our opinion, the only long term solution is that governments print more money to re-capitalize and re-liquefy the banking system. The season for increased gold demand is upon us as India starts to buy more for the wedding season. Gold coins are in short supply at many coin dealers in the U.S. Stagflation, inflation, and deflation threaten the world in different parts of the globe. All of these events are bullish for gold and we are adding to our gold positions.
As we said earlier we are not technicians, or momentum players (the two groups that seem to have had control of commodity prices during the last few weeks). We are fundamentalists, and the fundamentals argue that food and precious metals are getting into attractive buy areas.
We do not know if this is the ultimate bottom in precious metals. We do know that we want to own gold during periods when the world banking system is flirting with collapse and the only solution is governmental takeovers and subsequent large money printing exercises, by governments in Europe, Japan and the U.S.
There has been no fundamental decrease in the value of gold as a hedge against both inflation and strong deflation. Clearly, many commentators believe that one or the other may be the long-term outcome. We believe it is still too early to call…but that inflation has the upper hand at this time. Historically, gold has fared well in both inflationary and strong deflationary periods. We will write more on this later.
Star fund manager sticks to $1600 gold troy ounce prediction despite slump
Despite gold falling to below $800 for the first time in nine months on Friday and hitting his fund's performance, AAA-rated star US equity manager François Mouté is standing by his prediction of the gold price reaching $1600 per troy ounce in the next year.
Mouté (pictured below) has a number of gold mining companies in the top ten holdings of his $1 billion ABN AMRO US Opportunities fund. As the gold price has fallen in recent weeks, reaching $787 per troy ounce on Friday last week, so have the values of some of his top holdings. This has resulted in Mouté suffering a rare period of underperformance; his fund has lost 11.4% in the last four weeks while the S&P 500 index has risen 4.5%.
'I am disappointed to see gold below $800, and I am even more disappointed to see the exaggerated decline in the price of gold mines,' AAA-rated Mouté told Citywire. 'Mines are selling at 1.1 times NAV, when they normally trade at anywhere between one and three times NAV.'
'The falling oil price was one of the factors that precipitated the weakness in gold,' he says. 'But I am still using as a basic yardstick the fact that an ounce of gold should be 16 times the price of a barrel of oil. So a falling oil price is not that worrisome, as even if oil goes to $100 a barrel, that still does not change my 12 month view of gold reaching $1600 a troy ounce.'
Gold, regarded as a natural hedge against the dollar, has also suffered as the dollar has rallied. But Mouté thinks this recovery in the dollar will prove short-lived.
'The recovering dollar has been another factor putting pressure on gold,' he says. 'But the dollar is not going much further up. So I think the problem caused by the dollar is essentially complete.'
The basis for his bullishness on gold is a negative real interest rate environment. He points to the US headline CPI figure of 5.6% combined with the far lower levels of interest rates for fed funds and US treasury bills (2% and 1.8% respectively).
'We have negative real interest rates like we have not seen since the seventies, so I think fundamentally there is a strong background for gold in particular, but also commodities in general. I am patiently waiting for the price to return.'
Silver exposure is also a significant feature of Mouté's portfolio. The silver price has also fallen, leaving it extremely undervalued according to the veteran Frenchman.
'Silver at $12.50 is like having gold at $600. Silver is very depressed at the moment,' he says.
Mouté has increased his funds' net exposure to the S&P 500 to 72% in recent weeks by cutting back on his use of futures in a bid to not lose too much short term relative performance. But the long term is his priority, he says.
'We are having a rough time for the moment,' he says. 'I am sorry and sad to see that. But back in August 2007 and May 2006 we had similar difficulties and we recovered. I am keeping my eye on the long term.'
Indeed, Mouté's long term figures remain outstanding. Over five years the ABN AMRO US Opportunities fund has returned 57.3% compared to a rise in the S&P 500 TR index of 16.5%. He remains by far Europe's top performing fund manager in the North American equity sector over both three and five years.
Mouté (pictured below) has a number of gold mining companies in the top ten holdings of his $1 billion ABN AMRO US Opportunities fund. As the gold price has fallen in recent weeks, reaching $787 per troy ounce on Friday last week, so have the values of some of his top holdings. This has resulted in Mouté suffering a rare period of underperformance; his fund has lost 11.4% in the last four weeks while the S&P 500 index has risen 4.5%.
'I am disappointed to see gold below $800, and I am even more disappointed to see the exaggerated decline in the price of gold mines,' AAA-rated Mouté told Citywire. 'Mines are selling at 1.1 times NAV, when they normally trade at anywhere between one and three times NAV.'
'The falling oil price was one of the factors that precipitated the weakness in gold,' he says. 'But I am still using as a basic yardstick the fact that an ounce of gold should be 16 times the price of a barrel of oil. So a falling oil price is not that worrisome, as even if oil goes to $100 a barrel, that still does not change my 12 month view of gold reaching $1600 a troy ounce.'
Gold, regarded as a natural hedge against the dollar, has also suffered as the dollar has rallied. But Mouté thinks this recovery in the dollar will prove short-lived.
'The recovering dollar has been another factor putting pressure on gold,' he says. 'But the dollar is not going much further up. So I think the problem caused by the dollar is essentially complete.'
The basis for his bullishness on gold is a negative real interest rate environment. He points to the US headline CPI figure of 5.6% combined with the far lower levels of interest rates for fed funds and US treasury bills (2% and 1.8% respectively).
'We have negative real interest rates like we have not seen since the seventies, so I think fundamentally there is a strong background for gold in particular, but also commodities in general. I am patiently waiting for the price to return.'
Silver exposure is also a significant feature of Mouté's portfolio. The silver price has also fallen, leaving it extremely undervalued according to the veteran Frenchman.
'Silver at $12.50 is like having gold at $600. Silver is very depressed at the moment,' he says.
Mouté has increased his funds' net exposure to the S&P 500 to 72% in recent weeks by cutting back on his use of futures in a bid to not lose too much short term relative performance. But the long term is his priority, he says.
'We are having a rough time for the moment,' he says. 'I am sorry and sad to see that. But back in August 2007 and May 2006 we had similar difficulties and we recovered. I am keeping my eye on the long term.'
Indeed, Mouté's long term figures remain outstanding. Over five years the ABN AMRO US Opportunities fund has returned 57.3% compared to a rise in the S&P 500 TR index of 16.5%. He remains by far Europe's top performing fund manager in the North American equity sector over both three and five years.
Tuesday, August 19, 2008
As Oil Giants Lose Influence, Supply Drops
By JAD MOUAWAD
Published: August 18, 2008
New York Times
Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand.
Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies.
And much of their production is in mature regions that are declining, like the North Sea.
The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence — and with it, their ability to increase supplies.
“This is an industry in crisis,” said Amy Myers Jaffe, the associate director of Rice University’s energy program in Houston. “It’s a crisis of leadership, a crisis of strategy and a crisis of what the future looks like for the supermajors,” a term often applied to the biggest oil companies. “They are like a deer caught in headlights. They know they have to move, but they can’t decide where to go.”
The sharp retreat in all of the commodities’ prices over the last month, about 20 percent, reflects slowing global growth and with it reduced demand for more oil in the short term. But over the next decade, the world will need more oil to satisfy developing Asian economies like China. The oil companies’ difficulties suggest that these much-needed future supplies may be hard to come by.
Oil production has failed to catch up with surging consumption in recent years, a disparity that propelled oil prices to records this year. Despite the recent decline, oil remains above $100 a barrel, unimaginable a few years ago, causing pain throughout the economy, like higher prices at the gas pump and automakers posting sizable losses.
The scope of the supply problem became more clear in the latest quarter when the five biggest publicly traded oil companies, including Exxon Mobil, said their oil output had declined by a total of 614,000 barrels a day, even as they posted $44 billion in profits. It was the steepest of five consecutive quarters of declines.
While that drop might not sound like much in a world that consumes 86 million barrels of oil each day, today’s markets are so tight that the slightest shortfalls can push up prices.
Along with mature fields, the companies have contracts with producing countries whose governments allocate fewer barrels to oil companies as prices rise.
“It has become really, really difficult to grow production,” said Paul Horsnell, an analyst at Barclays Capital. “International companies have a portfolio of assets in areas of significant decline and no frontier discoveries to make up for that.”
As a result of the industry’s troubles, energy experts do not expect oil supplies to grow this year in countries outside the Organization of the Petroleum Exporting Countries. Global demand for oil is expected to expand by 800,000 barrels a day, mostly because of rising demand in China and the Middle East, despite lower consumption in developing countries.
This imbalance between supplies and demand will be one thing that OPEC ministers will consider when they meet next month to decide whether or not to increase their production. OPEC has about 2 million barrels a day in untapped capacity that its members control.
The new oil order has been emerging for a few decades.
As late as the 1970s, Western corporations controlled well over half of the world’s oil production. These companies — Exxon Mobil, BP, Royal Dutch Shell, Chevron, ConocoPhillips, Total of France and Eni of Italy — now produce just 13 percent.
Today’s 10 largest holders of petroleum reserves are state-owned companies, like Russia’s Gazprom and Iran’s national oil company.
Sluggish supplies have prompted a cottage industry of doomsday predictions that the world’s oil production has reached a peak. But many energy experts say these “peak oil” theories are misplaced. They say the world is not running out of oil — rather, the companies that know the most about how to produce oil are running out of places to drill.
“There is still a lot of oil to develop out there, which is why we don’t call this geological peak oil, especially in places like Venezuela, Russia, Iran and Iraq,” said Arjun Murti, an energy analyst at Goldman Sachs. “What we have now is geopolitical peak oil.”
Western companies are far better than most national oil companies at finding and extracting petroleum, experts say. They have developed advanced exploration technologies and can muster significant financing to develop new fields. Many of the world’s exporting states, however, have spurned their expertise.
Oil company executives see a straightforward explanation: a trend known as resource nationalism. They contend that they have been shut out of promising regions by a rising assertiveness in the Middle East, in Russia, in South America and elsewhere by governments determined to keep full control of their oil.
Even in places where they are allowed to operate, the Western oil companies face growing problems. Countries like Russia, Algeria, Nigeria and Angola have recently sought to renegotiate their contracts with foreign investors to capture a bigger share of the profits.
“The problem with the supply side of the equation is a problem of accessing the resources in the ground so they can be explored and developed,” Rex W. Tillerson, the chairman of Exxon, said in a recent interview. “That’s a political question where governments have made choices.”
This sense of being hemmed in helps explain why the Western oil companies want more offshore drilling in the United States. They see it as one of their few options.
These companies have also tried to diversify. They have turned to natural gas as a profitable source of growth. They are tackling hydrocarbon resources, like deep-water reserves, heavy oil or tar sands. And some companies, like Shell and BP, are investing in renewable fuels.
Unquestionably, the oil companies could have done more. They failed to invest heavily in exploration after the oil-price collapse of the mid-1980s, which lasted through the 1990s.
In 1994, the top five oil companies spent 3 percent of their free cash on share buybacks and 15 percent on exploration. By 2007, they were spending 34 percent of their free cash on buybacks — in effect, propping up their share prices — and a mere 6 percent on exploration, according to figures compiled by a team led by Ms. Jaffe and Ronald Soligo of Rice University. As a result, some experts warn that supplies will fall short of the demand over the next decade, perhaps sending prices well above today’s levels.
At a recent conference in Madrid, Christophe de Margerie, the chief executive of the French company Total, said the world would be hard-pressed to raise supplies beyond 95 million barrels a day by 2020. Only a few years ago, forecasters expected 120 million barrels a day by 2030, a level many analysts now view as unrealistic.
The major companies picked up their capital spending around 2005, although much of the increase has been offset by the soaring cost of development. Exxon, for example, expects to spend about $25 billion annually for the next three years to expand its business, compared with $15 billion a year from 2002 through 2006.
“It’s amazing the difference from the 1970s, where a lot of money went into exploration, development and production of new resources,” said Paul Stevens, a senior research fellow at Chatham House, a London policy research organization. “It is happening a little bit now, but it is not going to be enough.”
As the power and clout of Western companies erode, the world may become increasingly dependent on government-controlled entities for oil.
While some may be up to the task, like Saudi Aramco, others, like Petróleos de Venezuela, suffer from bureaucratic inefficiencies and political interference.
“We are going to depend on the Venezuelan, the Nigerian or the Iranian oil companies for the future of our oil supplies,” said Bruce Bullock, the director of the energy institute at Southern Methodist University. “This is a troubling trend.”
Friday, August 15, 2008
Stage two of the gold bull market is just beginning
A war breaks out in the Caucasus, pitting Russia against a close ally of the United States. Inflation reaches a new peak in the euro-zone. The CPI reaches the highest in Britain since Bank of England independence. Rampant inflation sweeps the developing world.
Yet gold crashes. It has failed to deliver on its core promises as a safe-haven and inflation hedge, at least for now. Why?
Four possible answers:
1) Nobody seriously believes that Russia will over-play its hand. The world could not care less about Georgia anyway. Ergo, this is a bogus geopolitical crisis.
2) The inflation story is vastly exaggerated in the OECD core of countries that still make up 60pc of the global economy. The price of gold is already looking beyond the oil and food spike of early to mid 2008 (a lagging indicator of loose money two to three years ago) to the much more serious matter of debt-deflation that lies ahead.
3) The seven-year slide of the dollar is over as investors at last wake up to the reality that the global economy is falling off a cliff. Indeed, the US is the only G7 country that is not yet in or on the cusp recession. (It soon will be, but by then others will be prostrate). As an anti-dollar play, gold is finished for this cycle.
4) The entire commodity boom has hit the buffers. Looming world recession (growth below 3pc on the IMF definition) trumps the supercycle for the time being.
Gold has fallen from $1030 an ounce in February to $807 today in London trading. It has collapsed through key layers of technical support, triggering automatic stop-loss sales. The Goldman Sachs short-position that I have been observing with some curiosity has paid off.
For gold bugs, the unthinkable has now happened. The metal has fallen through its 50-week moving average, the key support line that has held solid through the seven-year bull market. This week is not over yet, of course. If gold recovers enough in coming days, it could still close above the line.
Courtesy of my old colleague Peter Brimelow - whose columns on gold are a must-read - note that Australia's Privateer point and figure chart has also broken its upward line for the first time since 2002. This is serious technical damage.
So have we reached the moment when gold bugs must start questioning their deepest assumptions. Have they bought too deeply into the "dollar-collapse/M3 monetary bubble" tale, ignoring all the other moving parts in the complex global system? Nobody wants to be left holding the bag all the way down to the bottom of the slide, long after the hedge funds have sold out.
Well, my own view is that gold bugs should start looking very closely at something else: the implosion of Europe. (Japan is in recession too)
Germany's economy shrank by 1pc in Q2. Italy shrank by 0.3pc. Spain is sliding into a crisis that looks all too like the early stages of Argentina's debacle in 2001. The head of the Spanish banking federation today pleaded with the European Central Bank for rescue measures to end the credit crisis.
The slow-burn damage of the over-valued euro is becoming apparent in every corner of the eurozone. The ECB misjudged the severity of the downturn, as executive board member Lorenzo Bini-Smaghi admitted today in the Italian press. By raising interest rates into the teeth of the storm last month, Frankfurt has made it that much more likely that parts of Europe's credit system will seize up as defaults snowball next year.
As readers know, I do not believe the eurozone is a fully workable currency union over the long run. There was a momentary "convergence" when the currencies were fixed in perpetuity, mostly in 1995. They have diverged ever since. The rift between North and South was not enough to fracture the system in the first post-EMU downturn, the dotcom bust. We have moved a long way since then. The Club Med bloc is now massively dependent on capital inflows from North Europe to plug their current account gaps: Spain (10pc), Portugal (10pc), Greece (14pc). UBS warned that these flows are no longer forthcoming.
The central banks of Asia, the Mid-East, and Russia have been parking a chunk of their $6 trillion reserves in European bonds on the assumption that the euro can serve as a twin pillar of the global monetary system alongside the dollar. But the euro is nothing like the dollar. It has no European government, tax, or social security system to back it up. Each member country is sovereign, each fiercely proud, answering to its own ancient rythms.
It lacks the mechanism of "fiscal transfers" to switch money to depressed regions. The Babel of languages keeps workers pinned down in their own country. The escape valve of labour mobility is half-blocked. We are about to find out whether EMU really has the levels of political solidarity of a nation, the kind that holds America's currency union together through storms.
My guess is that political protest will mark the next phase of this drama. Almost half a million people have lost their jobs in Spain alone over the last year. At some point, the feeling of national impotence in the face of monetary rule from Frankfurt will erupt into popular fury. The ECB will swallow its pride and opt for a weak euro policy, or face its own destruction.
What we are about to see is a race to the bottom by the world's major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump.
When that happens - if it is not already happening - it will become clear that the both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.
The Fed has already invoked Article 13 (3) - the "unusual and exigent circumstances" clause last used in the Great Depression - to rescue Bear Stearns. The US Treasury has since had to shore up Fannie and Freddie, the world's two biggest financial institutions.
Europe's turn will come next. We will discover that Europe cannot conduct such rescues. There is no lender of last resort in the system. The ECB is prohibited by the Maastricht Treaty from carrying out direct bail-outs. There is no EU treasury. So the answer will be drift and paralysis.
When EU Single Market Commissioner Charlie McCreevy was asked at a dinner what Brussels would have done if the eurozone faced a crisis like Bear Stearns, he rolled his eyes and thanked the Heavens that so such crisis had yet happened.
It will.
Gold bugs, you ain't seen nothing yet. Gold at $800 looks like a bargain in the new world currency disorder.
Yet gold crashes. It has failed to deliver on its core promises as a safe-haven and inflation hedge, at least for now. Why?
Four possible answers:
1) Nobody seriously believes that Russia will over-play its hand. The world could not care less about Georgia anyway. Ergo, this is a bogus geopolitical crisis.
2) The inflation story is vastly exaggerated in the OECD core of countries that still make up 60pc of the global economy. The price of gold is already looking beyond the oil and food spike of early to mid 2008 (a lagging indicator of loose money two to three years ago) to the much more serious matter of debt-deflation that lies ahead.
3) The seven-year slide of the dollar is over as investors at last wake up to the reality that the global economy is falling off a cliff. Indeed, the US is the only G7 country that is not yet in or on the cusp recession. (It soon will be, but by then others will be prostrate). As an anti-dollar play, gold is finished for this cycle.
4) The entire commodity boom has hit the buffers. Looming world recession (growth below 3pc on the IMF definition) trumps the supercycle for the time being.
Gold has fallen from $1030 an ounce in February to $807 today in London trading. It has collapsed through key layers of technical support, triggering automatic stop-loss sales. The Goldman Sachs short-position that I have been observing with some curiosity has paid off.
For gold bugs, the unthinkable has now happened. The metal has fallen through its 50-week moving average, the key support line that has held solid through the seven-year bull market. This week is not over yet, of course. If gold recovers enough in coming days, it could still close above the line.
Courtesy of my old colleague Peter Brimelow - whose columns on gold are a must-read - note that Australia's Privateer point and figure chart has also broken its upward line for the first time since 2002. This is serious technical damage.
So have we reached the moment when gold bugs must start questioning their deepest assumptions. Have they bought too deeply into the "dollar-collapse/M3 monetary bubble" tale, ignoring all the other moving parts in the complex global system? Nobody wants to be left holding the bag all the way down to the bottom of the slide, long after the hedge funds have sold out.
Well, my own view is that gold bugs should start looking very closely at something else: the implosion of Europe. (Japan is in recession too)
Germany's economy shrank by 1pc in Q2. Italy shrank by 0.3pc. Spain is sliding into a crisis that looks all too like the early stages of Argentina's debacle in 2001. The head of the Spanish banking federation today pleaded with the European Central Bank for rescue measures to end the credit crisis.
The slow-burn damage of the over-valued euro is becoming apparent in every corner of the eurozone. The ECB misjudged the severity of the downturn, as executive board member Lorenzo Bini-Smaghi admitted today in the Italian press. By raising interest rates into the teeth of the storm last month, Frankfurt has made it that much more likely that parts of Europe's credit system will seize up as defaults snowball next year.
As readers know, I do not believe the eurozone is a fully workable currency union over the long run. There was a momentary "convergence" when the currencies were fixed in perpetuity, mostly in 1995. They have diverged ever since. The rift between North and South was not enough to fracture the system in the first post-EMU downturn, the dotcom bust. We have moved a long way since then. The Club Med bloc is now massively dependent on capital inflows from North Europe to plug their current account gaps: Spain (10pc), Portugal (10pc), Greece (14pc). UBS warned that these flows are no longer forthcoming.
The central banks of Asia, the Mid-East, and Russia have been parking a chunk of their $6 trillion reserves in European bonds on the assumption that the euro can serve as a twin pillar of the global monetary system alongside the dollar. But the euro is nothing like the dollar. It has no European government, tax, or social security system to back it up. Each member country is sovereign, each fiercely proud, answering to its own ancient rythms.
It lacks the mechanism of "fiscal transfers" to switch money to depressed regions. The Babel of languages keeps workers pinned down in their own country. The escape valve of labour mobility is half-blocked. We are about to find out whether EMU really has the levels of political solidarity of a nation, the kind that holds America's currency union together through storms.
My guess is that political protest will mark the next phase of this drama. Almost half a million people have lost their jobs in Spain alone over the last year. At some point, the feeling of national impotence in the face of monetary rule from Frankfurt will erupt into popular fury. The ECB will swallow its pride and opt for a weak euro policy, or face its own destruction.
What we are about to see is a race to the bottom by the world's major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump.
When that happens - if it is not already happening - it will become clear that the both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.
The Fed has already invoked Article 13 (3) - the "unusual and exigent circumstances" clause last used in the Great Depression - to rescue Bear Stearns. The US Treasury has since had to shore up Fannie and Freddie, the world's two biggest financial institutions.
Europe's turn will come next. We will discover that Europe cannot conduct such rescues. There is no lender of last resort in the system. The ECB is prohibited by the Maastricht Treaty from carrying out direct bail-outs. There is no EU treasury. So the answer will be drift and paralysis.
When EU Single Market Commissioner Charlie McCreevy was asked at a dinner what Brussels would have done if the eurozone faced a crisis like Bear Stearns, he rolled his eyes and thanked the Heavens that so such crisis had yet happened.
It will.
Gold bugs, you ain't seen nothing yet. Gold at $800 looks like a bargain in the new world currency disorder.
Waiting for Financials' Other Shoe to Drop
Bill Cara
I’m rushing for a 10:00am meeting, so I don’t have time to think much about markets this morning. I will leave you with the thought that I do anticipate another shoe to drop at Humungous Bank & Broker (HB&B). With foreclosures of homes at all-time record highs, the special loans groups at HB&B are working overtime.
What this means is that the bank’s capital must be protected ahead of any client. Why else do you see a Lehman (LEH) ready to sell off their profitable Neuberger division, or a SunTrust Bank (STI) of Atlanta selling off their original holdings of Coca-Cola (KO), or Merrill (MER) selling a big piece of Bloomberg?
Does anybody really think these decisions are being made lightly? The banks are toast unless they can wait the economy downturn through to where housing prices improve and their asset-backed mortgage holdings take on higher valuations.
The issues there are probably 40% worked out. If HB&B was to collectively write-off these dubious holdings today, the industry would lose many of its key players. I still think there is a likelihood of that happening, so it is advisable to continue to avoid the Financials (banks, broker-dealers and insurance companies).
Is there a play yet for the commodities? I don’t think so. Demand destruction is occurring world-wide. But, if, as and when there are major shake-outs like what happened last week and Monday, the larger and longer-term oriented accounts will buy those dips. That will lead to short-covering, and modestly higher prices in the very short-term. Then reality will set in again, and prices will continue to fall.
At the cycle bottom, I anticipate the $WTIC crude oil price to hit or exceed a low of $85/bbl. We still have a way to go. So, I’m not rushing into gold at this point, but I am watching the Toronto Venture Board companies (for more than short-covering) and the $USD:GLD linkage as well as other commodity prices, and the prices of the major miners (Xstrata (XSRAF.PK), BHP (BHP), Rio Tinto (RTP), CVRD (RIO), Teck (TCK)).
I think we’ll see a significant buying opportunity for precious metals and oil before the end of the calendar year.
I’m rushing for a 10:00am meeting, so I don’t have time to think much about markets this morning. I will leave you with the thought that I do anticipate another shoe to drop at Humungous Bank & Broker (HB&B). With foreclosures of homes at all-time record highs, the special loans groups at HB&B are working overtime.
What this means is that the bank’s capital must be protected ahead of any client. Why else do you see a Lehman (LEH) ready to sell off their profitable Neuberger division, or a SunTrust Bank (STI) of Atlanta selling off their original holdings of Coca-Cola (KO), or Merrill (MER) selling a big piece of Bloomberg?
Does anybody really think these decisions are being made lightly? The banks are toast unless they can wait the economy downturn through to where housing prices improve and their asset-backed mortgage holdings take on higher valuations.
The issues there are probably 40% worked out. If HB&B was to collectively write-off these dubious holdings today, the industry would lose many of its key players. I still think there is a likelihood of that happening, so it is advisable to continue to avoid the Financials (banks, broker-dealers and insurance companies).
Is there a play yet for the commodities? I don’t think so. Demand destruction is occurring world-wide. But, if, as and when there are major shake-outs like what happened last week and Monday, the larger and longer-term oriented accounts will buy those dips. That will lead to short-covering, and modestly higher prices in the very short-term. Then reality will set in again, and prices will continue to fall.
At the cycle bottom, I anticipate the $WTIC crude oil price to hit or exceed a low of $85/bbl. We still have a way to go. So, I’m not rushing into gold at this point, but I am watching the Toronto Venture Board companies (for more than short-covering) and the $USD:GLD linkage as well as other commodity prices, and the prices of the major miners (Xstrata (XSRAF.PK), BHP (BHP), Rio Tinto (RTP), CVRD (RIO), Teck (TCK)).
I think we’ll see a significant buying opportunity for precious metals and oil before the end of the calendar year.
Tuesday, August 12, 2008
What You Need to Know
Posted On: Tuesday, August 12, 2008, 4:01:00 PM EST
Author: Jim Sinclair
The following missive encapsulates everything you need to know. Please pass this along wherever there is interest.
There are indeed a lot of things happening in the world - and some have terrible consequences. The politicos are scheming intensely.
I played a business game in university involving three teams running three companies who were all competing to make the most profits. The economic situation today mimics that game and its eventual outcome. If one team made a mistake, invariably the other two teams turned against it with blood in their eyes. We expected the other team to turn on the weaker player and planned accordingly.
In my humble opinion the following factors are particularly relevant to today's economic situation:
The fiat money system around the world is a house of cards. There is no entity I know of that can borrow forever without paying back someday. Disregarding Europe, (which seems to be suffering worse that the US at the moment if you believe all the propaganda out there), I doubt the amount borrowed by the US Feds - never mind the states and cities, the corporates and individuals, will ever be paid back - and we are talking trillions. (Remember that the Gross National Product of the USA is between 10 and 15 Trillion). Mother Nature has her own ways of extracting payment.
When Central bankers around the world collude to save something - be it the financial system, the dollar or whatever - they never commit to such a process unless there is a clear and present danger. That danger had to be recognized by all parties for them to take any action, whatever the outcome.
When the problems with our financial system became apparent, countries started ?diversifying? out of the US$. (Read "dumping" it as quickly as possible without starting a panic.) Aside from the last few days, which I attribute largely to ?open market operations? (read manipulation) and the fact that markets never go in a straight line, the US$ has been slipping badly against all currencies, and the effort to ?diversify? has spread to nearly every country.
The dollar is a forty pound weakling and the whole world knows it. The dollar underpinned nearly every currency in the world (including the Euro) and still does to a large extent despite the ?diversification.? The clear and present danger affects all fiat currencies around the world.
Governments have learned to distract others - particularly their voters - from an issue by setting up a straw dummy and knocking it down. In the case where the main thrust of some legislation would be roundly condemned, they add one positively draconian measure as a dummy and give it up to achieve all their other goals. What bigger distraction could there be than WWIII, nuclear/biological/EMP style? I think the US set out to distract their voters and the world from the financial problems by saber rattling over Iran. War is not only hell, it is expensive.
I think the US made a mistake. Russia recognized the ploy and has taken advantage of it. In 1989, when the USSR went bankrupt over the Cold War, the US was in bad financial shape as well. No war in history has ever been settled until one or both of the protagonists went broke.
Since that time, Putin has been busy, particularly in the oil patch, strengthening Russia?s financial position. (I suspect he now has FAR more reserves financially that the US which currently amounts to only ?the full faith? of the US and loans that are so large as to frighten most of the holders of that paper.)
The financial situation in the US continues to deteriorate. Parties around the world are less likely to lend their winnings to the US if they do not expect to get paid back, both in principle AND interest. It may be argued that the US has a superior military to Russia. I don?t know. What I do know is that the care and feeding of that military costs astronomical amounts. Will the US have to borrow from Russia in order to challenge them militarily as they currently do with China in order to trade? And then there is Afghanistan and Pakistan, two other quagmires. And who knows what China, with vast financial reserves, is thinking?
The US was busy steaming towards Iran and Georgia - the latter a US-backed country which attacked South Ossetia, a Russian-backed region. Within 24 hours, Russia had thousands of men and massive amounts of equipment in Ossetia. You don?t move that number of men and equipment in 24 hours unless you are fully prepared to do so, and even then it is difficult. It took many weeks for the US to move that amount of assets during Desert Storm. Russia was prepared, for whatever reason, for that attack. Ooops, suddenly the US is being attacked on another somewhat unprepared flank. The US had prepared for a great show of distraction, and could it be that Russia has other plans? Putin is not god but he is no dumbbell.
The US is between a rock and a hard place. They have wars on umpteen fronts and are trying to save their financial system which they need to fight even one war. Despite all the happy news in the markets of the last few days, the financial malaise is growing and not bottoming. Not only that, but world supplies of oil are tight, and the US imports at least two thirds of its oil. To maintain its world status and/or military, the US needs Iraq, Iran, AND Georgia.
I understand Mexico, a big supplier of oil, has just become a net importer. Canada, the largest oil supplier to the US, has conventional reserves that are dropping alarmingly. And despite its vast oil sands, Canada can't expand oil production from this source very quickly. (Oil sands extraction needs fresh water, and they are almost at the limit now).
Moreover, if the West abandons Georgia, not only will they lose that oil source, their weakness will be apparent for all to see. And surely the other players in this game will turn on them. It is Mother Nature' way.
Author: Jim Sinclair
The following missive encapsulates everything you need to know. Please pass this along wherever there is interest.
There are indeed a lot of things happening in the world - and some have terrible consequences. The politicos are scheming intensely.
I played a business game in university involving three teams running three companies who were all competing to make the most profits. The economic situation today mimics that game and its eventual outcome. If one team made a mistake, invariably the other two teams turned against it with blood in their eyes. We expected the other team to turn on the weaker player and planned accordingly.
In my humble opinion the following factors are particularly relevant to today's economic situation:
The fiat money system around the world is a house of cards. There is no entity I know of that can borrow forever without paying back someday. Disregarding Europe, (which seems to be suffering worse that the US at the moment if you believe all the propaganda out there), I doubt the amount borrowed by the US Feds - never mind the states and cities, the corporates and individuals, will ever be paid back - and we are talking trillions. (Remember that the Gross National Product of the USA is between 10 and 15 Trillion). Mother Nature has her own ways of extracting payment.
When Central bankers around the world collude to save something - be it the financial system, the dollar or whatever - they never commit to such a process unless there is a clear and present danger. That danger had to be recognized by all parties for them to take any action, whatever the outcome.
When the problems with our financial system became apparent, countries started ?diversifying? out of the US$. (Read "dumping" it as quickly as possible without starting a panic.) Aside from the last few days, which I attribute largely to ?open market operations? (read manipulation) and the fact that markets never go in a straight line, the US$ has been slipping badly against all currencies, and the effort to ?diversify? has spread to nearly every country.
The dollar is a forty pound weakling and the whole world knows it. The dollar underpinned nearly every currency in the world (including the Euro) and still does to a large extent despite the ?diversification.? The clear and present danger affects all fiat currencies around the world.
Governments have learned to distract others - particularly their voters - from an issue by setting up a straw dummy and knocking it down. In the case where the main thrust of some legislation would be roundly condemned, they add one positively draconian measure as a dummy and give it up to achieve all their other goals. What bigger distraction could there be than WWIII, nuclear/biological/EMP style? I think the US set out to distract their voters and the world from the financial problems by saber rattling over Iran. War is not only hell, it is expensive.
I think the US made a mistake. Russia recognized the ploy and has taken advantage of it. In 1989, when the USSR went bankrupt over the Cold War, the US was in bad financial shape as well. No war in history has ever been settled until one or both of the protagonists went broke.
Since that time, Putin has been busy, particularly in the oil patch, strengthening Russia?s financial position. (I suspect he now has FAR more reserves financially that the US which currently amounts to only ?the full faith? of the US and loans that are so large as to frighten most of the holders of that paper.)
The financial situation in the US continues to deteriorate. Parties around the world are less likely to lend their winnings to the US if they do not expect to get paid back, both in principle AND interest. It may be argued that the US has a superior military to Russia. I don?t know. What I do know is that the care and feeding of that military costs astronomical amounts. Will the US have to borrow from Russia in order to challenge them militarily as they currently do with China in order to trade? And then there is Afghanistan and Pakistan, two other quagmires. And who knows what China, with vast financial reserves, is thinking?
The US was busy steaming towards Iran and Georgia - the latter a US-backed country which attacked South Ossetia, a Russian-backed region. Within 24 hours, Russia had thousands of men and massive amounts of equipment in Ossetia. You don?t move that number of men and equipment in 24 hours unless you are fully prepared to do so, and even then it is difficult. It took many weeks for the US to move that amount of assets during Desert Storm. Russia was prepared, for whatever reason, for that attack. Ooops, suddenly the US is being attacked on another somewhat unprepared flank. The US had prepared for a great show of distraction, and could it be that Russia has other plans? Putin is not god but he is no dumbbell.
The US is between a rock and a hard place. They have wars on umpteen fronts and are trying to save their financial system which they need to fight even one war. Despite all the happy news in the markets of the last few days, the financial malaise is growing and not bottoming. Not only that, but world supplies of oil are tight, and the US imports at least two thirds of its oil. To maintain its world status and/or military, the US needs Iraq, Iran, AND Georgia.
I understand Mexico, a big supplier of oil, has just become a net importer. Canada, the largest oil supplier to the US, has conventional reserves that are dropping alarmingly. And despite its vast oil sands, Canada can't expand oil production from this source very quickly. (Oil sands extraction needs fresh water, and they are almost at the limit now).
Moreover, if the West abandons Georgia, not only will they lose that oil source, their weakness will be apparent for all to see. And surely the other players in this game will turn on them. It is Mother Nature' way.
Thursday, August 7, 2008
Seven Reasons To Avoid Gold - And Why You Should Ignore Them
August 07, 2008
Tim Iacono
So, now that the U.S. government is squarely behind Fannie Mae (FNM) and Freddie Mac (FRE) and the price of crude oil is barreling toward the well known "bear market" milestone of a 20 percent decline, investors seem to be losing interest in gold as an investment alternative, figuring that order will soon be restored to the global financial system and the recent energy price shock will soon be just one more in a long line of scares that, in the end, prove to be only a scare.
The proverbial "inflation hedge" that seemed like such a good rationale for buying gold just a few months ago now seems to have lost its appeal as well with headlines now blaring, "Gold Drops as Lower Energy Costs Cut Demand for Inflation Hedge". Now, some are even talking about deflation.
Add to this the nascent strength of the U.S. dollar, now appearing to form a solid base and set to move up against the currencies of other increasingly troubled western economies, and the yellow metal seems to have lost much of its luster. "King Dollar" has been down, but he is definitely not out.
And gold has become so expensive in recent years that traditional buyers just can't afford the stuff anymore. Indian jewelry buyers, one of the world's most important consumers through history, are now balking at higher prices and demand is way down.
Economic growth in the U.S. picked up in the second quarter as real GDP came in at an annual rate of about two percent and no one seems to know if we have been, are in, or will be in a recession. While things are certainly not going gangbusters, it doesn't look like the wheels are about to fall off requiring more intervention, which, by the way, is something that the U.S. government is getting quite good at.
And finally, the Federal Reserve will soon be raising interest rates, or so the market says. Before we know it, the current era of negative real interest rates will be just a memory and you'll be able to get a decent return on a Certificate of Deposit at a nearby bank.
Though there are surely a few outliers missing from the above list (oh yeah, gold doesn't pay a dividend), these are all the reasons cited for the yellow metal having performed so poorly after reaching four-digit territory back in March, now resting below the $900 level and looking down, not up.
But, do these commonly heard arguments against owning gold really make sense?
Perhaps a closer look at each one is in order.
Financial Markets Becoming More Stable
Yes, twitchy traders and unsettled investors who are quick to abandon whatever it was they were doing before crises emerge are the first ones to bid the price of gold higher when uncertainty and chaos rule financial markets. But, this is not really something that you can count on, nor should you - either the crises or the reactions.
Extrapolating the many calamities of the last year far into the future, calamities that have aided gold's 50 percent rise, is not a good reason to buy gold. If that's your thinking for the long-term, you might be better off buying bullets because, if every year is going to be like the last year, you may need them someday.
Falling Crude Oil Prices
The oil-to-gold relationship is very much overrated. Just as oil and consumer prices are related, oil and gold prices are related because energy costs are a critical factor in whether the metal can be dug out of the ground profitably. Also, a flood of petro-dollars surely boosts Middle East bullions sales.
But, aside from that, those taking their gold buying and selling cues from the price of crude are fooling themselves just as the financial doomsayers are. If Saudi Arabia announced it had no more oil on the same day that central banks around the world announced a ten-year plan to sell all their gold reserves, would anyone buy gold because oil was going up? Once again, traders too easily confuse correlation with causation.
Waning Appeal as an "Inflation Hedge"
Guantanamo-style torture of the inflation statistics by government economists over the years have permanently rendered the official inflation statistics almost meaningless, at least when viewed in a historical context. If that's what you're attempting to hedge against by buying gold, then you should really just use the government's inflation protection in the form of TIPS (Treasury Inflation Protected Securities).
If on the other hand, you already understand how the government "cooks its books" when it comes to prices, then you're also far too smart to call gold an "inflation hedge" - owning gold would be much more accurately described as protecting yourself from the government.
A Stronger Dollar
Sure, the dollar and gold often move in opposite directions, but they don't always. In fact, since 2001, a period during which the gold price has risen every year, the U.S. Dollar Index rose during two of those years. The fact that the dollar has mostly declined in recent years as the metal has risen is again confusing correlation with causation, just like those hair-brained hedge fund managers did when they confused the rise of "index speculators" with supply and demand when trying to explain why energy prices had climbed so high.
What difference does it make how the dollar does against other fiat money when it's all just paper? Of all the reasons to buy or sell gold, the movement of the U.S. dollar versus other paper money has to be the dumbest one of the lot.
Reduced Demand from India
OK, anyone thinking that the price of gold is going to go substantially higher because of its use for jewelry or industrial applications has surely missed something along the way. It is investment demand - people like you and me realizing that we had better do something about the declining purchasing power of our paper money, something about which the U.S. government doesn't appear to give a damn - that will drive the gold price higher.
There just aren't that many good places for people with lost of paper money to put it these days. A slowdown in physical demand must be compensated for by even stronger investment demand, but with the amount of paper money and rich people in the world today who desperately want to remain rich, the monied class will eventually figure it out and easily pick up this slack.
A Weak Economy is Improving
Well, anyone who believes that the U.S. economy is going to heal itself sometime over the next year or so has been drinking far too much kool-aid for far too long to think clearly about "alternative" investments. They'll be much poorer as a result. The U.S. economy is going to need massive amounts of stimulus (i.e., borrowed/printed money) to avoid another Great Depression between now and 2010 or 2011 and policy makers appear to be up to the task.
Anyone who doesn't think that trillion dollar deficits are a good reason to exchange U.S. dollars for something more tangible is probably equally unaware of the entitlement tsunami that will hit if another Great Depression is successfully avoided. When looking at the relative long-term prospects of U.S. money and God's money (just heard that one for the first time the other day), the decision about which to hold is a no-brainer.
The Fed Will Raise Interest Rates
No, the Fed can't raise interest rates. Not this year, not next year, and maybe not even the year after that. Actually, if they wanted to get this whole mess over with so we could all try to start over again, that would be a sure-fire way to get the ball rolling. Heck, if short-term rates were raised to 6 or 8 percent, I'd be the first one in line to sell my gold and park the money in a nice government insured CD that pays something within hailing distance of even the "official" rate of inflation.
Ben Bernanke and Congress will go kicking and screaming toward "baby-step" rate hikes that won't even begin until another asset bubble can be identified and sufficiently inflated. Surely, the last twenty years of history are clear on this point. Until modern economists have a "come-to-Jesus moment" where they realize most of what they were doing was wrong, things will get worse, not better.
A Golden Opportunity
None of the commonly cited reasons for excluding gold from an investment portfolio make much sense when you stop and think about them, but much of what happens in financial markets doesn't make sense either. Just look at how much devastation has resulted because people simply assumed that home prices would never go down - who would have thought that an entire industry, and perhaps the global financial system, could be brought to its knees by thinking that home prices went in only one direction.
Gold at $877 per ounce (as this is written) is presenting an opportunity of a lifetime, but, just like most people failed to see the stock market bubble or the housing bubble, most people still haven't got a clue, thinking that $1,000 gold was nothing more than another bubble that has burst - just like the last two.
Slowly, but surely, people will convert more and more paper money into God's money and the gold price will move much, much higher.
When and how far is anyone's guess, but, probably sooner rather than later.
Tim Iacono
So, now that the U.S. government is squarely behind Fannie Mae (FNM) and Freddie Mac (FRE) and the price of crude oil is barreling toward the well known "bear market" milestone of a 20 percent decline, investors seem to be losing interest in gold as an investment alternative, figuring that order will soon be restored to the global financial system and the recent energy price shock will soon be just one more in a long line of scares that, in the end, prove to be only a scare.
The proverbial "inflation hedge" that seemed like such a good rationale for buying gold just a few months ago now seems to have lost its appeal as well with headlines now blaring, "Gold Drops as Lower Energy Costs Cut Demand for Inflation Hedge". Now, some are even talking about deflation.
Add to this the nascent strength of the U.S. dollar, now appearing to form a solid base and set to move up against the currencies of other increasingly troubled western economies, and the yellow metal seems to have lost much of its luster. "King Dollar" has been down, but he is definitely not out.
And gold has become so expensive in recent years that traditional buyers just can't afford the stuff anymore. Indian jewelry buyers, one of the world's most important consumers through history, are now balking at higher prices and demand is way down.
Economic growth in the U.S. picked up in the second quarter as real GDP came in at an annual rate of about two percent and no one seems to know if we have been, are in, or will be in a recession. While things are certainly not going gangbusters, it doesn't look like the wheels are about to fall off requiring more intervention, which, by the way, is something that the U.S. government is getting quite good at.
And finally, the Federal Reserve will soon be raising interest rates, or so the market says. Before we know it, the current era of negative real interest rates will be just a memory and you'll be able to get a decent return on a Certificate of Deposit at a nearby bank.
Though there are surely a few outliers missing from the above list (oh yeah, gold doesn't pay a dividend), these are all the reasons cited for the yellow metal having performed so poorly after reaching four-digit territory back in March, now resting below the $900 level and looking down, not up.
But, do these commonly heard arguments against owning gold really make sense?
Perhaps a closer look at each one is in order.
Financial Markets Becoming More Stable
Yes, twitchy traders and unsettled investors who are quick to abandon whatever it was they were doing before crises emerge are the first ones to bid the price of gold higher when uncertainty and chaos rule financial markets. But, this is not really something that you can count on, nor should you - either the crises or the reactions.
Extrapolating the many calamities of the last year far into the future, calamities that have aided gold's 50 percent rise, is not a good reason to buy gold. If that's your thinking for the long-term, you might be better off buying bullets because, if every year is going to be like the last year, you may need them someday.
Falling Crude Oil Prices
The oil-to-gold relationship is very much overrated. Just as oil and consumer prices are related, oil and gold prices are related because energy costs are a critical factor in whether the metal can be dug out of the ground profitably. Also, a flood of petro-dollars surely boosts Middle East bullions sales.
But, aside from that, those taking their gold buying and selling cues from the price of crude are fooling themselves just as the financial doomsayers are. If Saudi Arabia announced it had no more oil on the same day that central banks around the world announced a ten-year plan to sell all their gold reserves, would anyone buy gold because oil was going up? Once again, traders too easily confuse correlation with causation.
Waning Appeal as an "Inflation Hedge"
Guantanamo-style torture of the inflation statistics by government economists over the years have permanently rendered the official inflation statistics almost meaningless, at least when viewed in a historical context. If that's what you're attempting to hedge against by buying gold, then you should really just use the government's inflation protection in the form of TIPS (Treasury Inflation Protected Securities).
If on the other hand, you already understand how the government "cooks its books" when it comes to prices, then you're also far too smart to call gold an "inflation hedge" - owning gold would be much more accurately described as protecting yourself from the government.
A Stronger Dollar
Sure, the dollar and gold often move in opposite directions, but they don't always. In fact, since 2001, a period during which the gold price has risen every year, the U.S. Dollar Index rose during two of those years. The fact that the dollar has mostly declined in recent years as the metal has risen is again confusing correlation with causation, just like those hair-brained hedge fund managers did when they confused the rise of "index speculators" with supply and demand when trying to explain why energy prices had climbed so high.
What difference does it make how the dollar does against other fiat money when it's all just paper? Of all the reasons to buy or sell gold, the movement of the U.S. dollar versus other paper money has to be the dumbest one of the lot.
Reduced Demand from India
OK, anyone thinking that the price of gold is going to go substantially higher because of its use for jewelry or industrial applications has surely missed something along the way. It is investment demand - people like you and me realizing that we had better do something about the declining purchasing power of our paper money, something about which the U.S. government doesn't appear to give a damn - that will drive the gold price higher.
There just aren't that many good places for people with lost of paper money to put it these days. A slowdown in physical demand must be compensated for by even stronger investment demand, but with the amount of paper money and rich people in the world today who desperately want to remain rich, the monied class will eventually figure it out and easily pick up this slack.
A Weak Economy is Improving
Well, anyone who believes that the U.S. economy is going to heal itself sometime over the next year or so has been drinking far too much kool-aid for far too long to think clearly about "alternative" investments. They'll be much poorer as a result. The U.S. economy is going to need massive amounts of stimulus (i.e., borrowed/printed money) to avoid another Great Depression between now and 2010 or 2011 and policy makers appear to be up to the task.
Anyone who doesn't think that trillion dollar deficits are a good reason to exchange U.S. dollars for something more tangible is probably equally unaware of the entitlement tsunami that will hit if another Great Depression is successfully avoided. When looking at the relative long-term prospects of U.S. money and God's money (just heard that one for the first time the other day), the decision about which to hold is a no-brainer.
The Fed Will Raise Interest Rates
No, the Fed can't raise interest rates. Not this year, not next year, and maybe not even the year after that. Actually, if they wanted to get this whole mess over with so we could all try to start over again, that would be a sure-fire way to get the ball rolling. Heck, if short-term rates were raised to 6 or 8 percent, I'd be the first one in line to sell my gold and park the money in a nice government insured CD that pays something within hailing distance of even the "official" rate of inflation.
Ben Bernanke and Congress will go kicking and screaming toward "baby-step" rate hikes that won't even begin until another asset bubble can be identified and sufficiently inflated. Surely, the last twenty years of history are clear on this point. Until modern economists have a "come-to-Jesus moment" where they realize most of what they were doing was wrong, things will get worse, not better.
A Golden Opportunity
None of the commonly cited reasons for excluding gold from an investment portfolio make much sense when you stop and think about them, but much of what happens in financial markets doesn't make sense either. Just look at how much devastation has resulted because people simply assumed that home prices would never go down - who would have thought that an entire industry, and perhaps the global financial system, could be brought to its knees by thinking that home prices went in only one direction.
Gold at $877 per ounce (as this is written) is presenting an opportunity of a lifetime, but, just like most people failed to see the stock market bubble or the housing bubble, most people still haven't got a clue, thinking that $1,000 gold was nothing more than another bubble that has burst - just like the last two.
Slowly, but surely, people will convert more and more paper money into God's money and the gold price will move much, much higher.
When and how far is anyone's guess, but, probably sooner rather than later.
The Cyclical Nature of Markets
posted on: August 07, 2008
Bill Cara
Yesterday, I stated that “…the answers are in the data.” One look at the extreme Cara 100 winners and losers shows that the falling commodity prices (oil, metals, fertilizer) was the driver.
With a bullish mindset, good corporate earnings become great ones and cautionary guidance is ignored. Why? It’s because smart traders are covering shorts and it’s stupid to stand on a train track presuming the engineer knows what he or she is doing.
Yes, hot money or speculative money runs two ways. Yesterday, it went against commodities without regard to fundamental, quantitative, economic or long-term technical factors. That was yesterday. Tomorrow, the hot money might flow the other way. When the Bear market is over, well in the future, there will have been a series of lower highs and lower lows between now and then.
Only then, at the cycle bottom, will market conditions be normalized where the hot money has been played out, and the long-term Bulls can once again look forward to (somewhat) rational decision-making.
So, to answer a flood of mail as to whether or not I believe the precious metals market is now in a secular Bear, like the equity market, which turned that way a year or more ago—before the cycle high—I say no, this is still a secular Bull for precious metals as well as other commodities; what’s changed is that slowing of demand and simultaneous squeezing by lending banks (eg, credit not so freely available) and central banks (eg, higher margins required at the commodity exchanges) has combined to take the wind from the sails of the promoter and their prey, the speculator.
In other words, I believe this is merely a cyclical turn down, of a short or intermediate-term duration, ie, from a couple weeks to several months, but certainly not more than a year. A year from now, I believe the commodity markets will be flying higher than their previous highs, which will set the conditions of your future decision-making. Yes, avoid the banks and most other financials as they will be under-performers for many years.
More to the point, after credit loosens up (or even if it’s just the velocity of money growing again) and the economy starts to boom again, the long-term oriented traders ought to look to the junior oil & gas and metal producers & explorers for the growth in your portfolios. Short-term traders, of course, will seek to exploit any price series anomaly, including in the banks that otherwise should be ignored.
The keys to when the goldminer producers and the speculative explorers as well will start to grow in price strength again are more than a single one. First and foremost, a Bear market tends to sink all ships. Failures at hedge funds, withdrawals at mutual funds, margin calls in over-extended retail accounts, stock promoters on vacation, resting up for the next Bull run, bad news across the financial pages, and so forth, will all pull prices down.
If there is one thing I learned by trading juniors, it is the pullback from former highs is a lot more than the promoters or their speculative followers ever expected. I have written here, you might recall, the page after page charts of the junior mines and oils on the Toronto Exchange in 1981. I listed many cases where the pullback was 80% or more, including in companies that had outstanding quantity and quality in-situ resources.
There will always be speculators in junior issues because we all know it’s where capital gains happen fastest. As a rule, speculators want it fast. Unfortunately, when the facts turn against this possibility when it comes to capital gains they panic (like all those newsletter writers did early in July when they saw the writing on the wall), they turn angry (at realists like me), they deny, they cheerlead, and so forth. But the fact is there are more smart people in the market than stupid ones, and ultimately market prices flow on a natural course the way most of us live our lives. That’s true because we are the market.
Every cycle in the market is different because of differing market conditions, eg, one important one is the amount of traders’ debt (and debt service requirements) versus cash-on-hand to exploit opportunities. Every cycle is unique. In this one, the banks are in worse shape than most prudently managed corporations and individual's portfolios.
Nobody knows in advance how much of a fall in prices will occur or how steep the fall will be. That’s why we study the price action and the market dynamics for clues. That’s why I say, the answer is in the data. It’s certainly not going to come from the bitching and moaning from stock promoters, speculators and fund managers who have been burned.
In the next few days, traders will sit back and be impressed that no increase in central bank rates plus the falling commodity prices are sufficient positives for a mini-rally. After that the sellers and short-sellers will return, and prices will sink again. Lower highs, followed by lower lows. This is a Bear market.
Bear markets end, as I have said and repeated many times, when gold speculators are the last ones off the dance floor. When we see that particular capitulation, then a fresh breeze will be sufficient to put wind in your sails for smooth sailing ahead. Just don’t load too many banks in your boat. Hopefully, if you took good advice in the past you have a yacht, and you are set to grow it into a ship. You’ll look down on all those sad faces in their row boats.
Bill Cara
Yesterday, I stated that “…the answers are in the data.” One look at the extreme Cara 100 winners and losers shows that the falling commodity prices (oil, metals, fertilizer) was the driver.
With a bullish mindset, good corporate earnings become great ones and cautionary guidance is ignored. Why? It’s because smart traders are covering shorts and it’s stupid to stand on a train track presuming the engineer knows what he or she is doing.
Yes, hot money or speculative money runs two ways. Yesterday, it went against commodities without regard to fundamental, quantitative, economic or long-term technical factors. That was yesterday. Tomorrow, the hot money might flow the other way. When the Bear market is over, well in the future, there will have been a series of lower highs and lower lows between now and then.
Only then, at the cycle bottom, will market conditions be normalized where the hot money has been played out, and the long-term Bulls can once again look forward to (somewhat) rational decision-making.
So, to answer a flood of mail as to whether or not I believe the precious metals market is now in a secular Bear, like the equity market, which turned that way a year or more ago—before the cycle high—I say no, this is still a secular Bull for precious metals as well as other commodities; what’s changed is that slowing of demand and simultaneous squeezing by lending banks (eg, credit not so freely available) and central banks (eg, higher margins required at the commodity exchanges) has combined to take the wind from the sails of the promoter and their prey, the speculator.
In other words, I believe this is merely a cyclical turn down, of a short or intermediate-term duration, ie, from a couple weeks to several months, but certainly not more than a year. A year from now, I believe the commodity markets will be flying higher than their previous highs, which will set the conditions of your future decision-making. Yes, avoid the banks and most other financials as they will be under-performers for many years.
More to the point, after credit loosens up (or even if it’s just the velocity of money growing again) and the economy starts to boom again, the long-term oriented traders ought to look to the junior oil & gas and metal producers & explorers for the growth in your portfolios. Short-term traders, of course, will seek to exploit any price series anomaly, including in the banks that otherwise should be ignored.
The keys to when the goldminer producers and the speculative explorers as well will start to grow in price strength again are more than a single one. First and foremost, a Bear market tends to sink all ships. Failures at hedge funds, withdrawals at mutual funds, margin calls in over-extended retail accounts, stock promoters on vacation, resting up for the next Bull run, bad news across the financial pages, and so forth, will all pull prices down.
If there is one thing I learned by trading juniors, it is the pullback from former highs is a lot more than the promoters or their speculative followers ever expected. I have written here, you might recall, the page after page charts of the junior mines and oils on the Toronto Exchange in 1981. I listed many cases where the pullback was 80% or more, including in companies that had outstanding quantity and quality in-situ resources.
There will always be speculators in junior issues because we all know it’s where capital gains happen fastest. As a rule, speculators want it fast. Unfortunately, when the facts turn against this possibility when it comes to capital gains they panic (like all those newsletter writers did early in July when they saw the writing on the wall), they turn angry (at realists like me), they deny, they cheerlead, and so forth. But the fact is there are more smart people in the market than stupid ones, and ultimately market prices flow on a natural course the way most of us live our lives. That’s true because we are the market.
Every cycle in the market is different because of differing market conditions, eg, one important one is the amount of traders’ debt (and debt service requirements) versus cash-on-hand to exploit opportunities. Every cycle is unique. In this one, the banks are in worse shape than most prudently managed corporations and individual's portfolios.
Nobody knows in advance how much of a fall in prices will occur or how steep the fall will be. That’s why we study the price action and the market dynamics for clues. That’s why I say, the answer is in the data. It’s certainly not going to come from the bitching and moaning from stock promoters, speculators and fund managers who have been burned.
In the next few days, traders will sit back and be impressed that no increase in central bank rates plus the falling commodity prices are sufficient positives for a mini-rally. After that the sellers and short-sellers will return, and prices will sink again. Lower highs, followed by lower lows. This is a Bear market.
Bear markets end, as I have said and repeated many times, when gold speculators are the last ones off the dance floor. When we see that particular capitulation, then a fresh breeze will be sufficient to put wind in your sails for smooth sailing ahead. Just don’t load too many banks in your boat. Hopefully, if you took good advice in the past you have a yacht, and you are set to grow it into a ship. You’ll look down on all those sad faces in their row boats.
Wednesday, August 6, 2008
Eldorado Gold outlook bullish
As Eldorado Gold continues to experience some success in navigating the political minefields of Turkey, Haywood Securities Tuesday declared, "We remain bullish on the outlook for Eldorado, as the company has a solid growth profile from good-quality, low-cost operations."
Haywood Metals Analysts Kerry Smith and Shane Nagle increased Eldorado's 2008 EPS estimated by two-cents to US27-cents due to "lower than expected cash costs at Tanjianshan and a slight increase in Tanjianshan production this year."
Gold production estimates at Tanjianshan have been increased from Haywood's previous estimate of 110,000 ounces to 125,000 ounces annually.
However, Haywood's other forecasts, target price of $9.75/sh, and SECTOR OUTPERFORM rating remain unchanged. Haywood is now forecasting 320,000 ounces of gold production this year at a total cash cost of US$250/oz, generating US$0.34 per share of cash flow.
"Eldorado continued to exhibit expanding margins in Q2, with a realized margin of 71%," said Smith and Nagle. "Eldorado continues to report costs in the bottom 15% of the world cost curve, and with increasing energy and commodity prices, maintaining low cash costs is extremely important moving through H2/08."
Haywood also noted that Eldorado restarted operations at the Kisladag mine, while start-up of the Efemçukuru gold mine is now expected in the first quarter of 2010. The company's Villa Nova iron ore JV project in Brazil is expected to start production in the first quarter of 2009 as BHP Billiton purchases 100% of the product under a long-term contract.
Eldorado reported a consolidated net income for the second quarter of 2008 of $25.2 million or $0.07 per share, compared with net income of $26.7 million or $0.08 per share in the second quarter of 2007. Revenues increased 7% over the same period in 2007 due to increases in selling prices, partially offset by lower ounces sold.
In the second quarter of 2008, the company reported selling 88,610 ounces of gold at an average price of $904/oz, compared to 112,702 ounces at an average price of $664/oz in the second quarter of 2007.
BRAZAURO RESOURCES SHARE PURCHASE
Meanwhile, Eldorado announced Tuesday that the company will own 12,304,000 common shares representing 14.4% of Brazauro Resources' issued and outstanding common shares (as of July 31, 2008). In addition, Eldorado owns 4,400,000 Warrants. If Eldorado exercises all of the Warrants, it will own 16,704,000 common shares of Brazauro (TSX-V: BZO), representing approximately 18.6% of the junior explorer's shares.
Eldorado is seeking an option to acquire an initial 60% interest in Brazauro's Tocantinzinho gold project in Pára State, Brazil. A scoping study suggests a 13-year mine life with an annual average annual gold production of 123,000 ounces. Capex was initially estimated at $128 million, with an operating cash cost of $367/oz.
More gold takeovers to come
Posted: August 05, 2008, 4:00 PM by Peter Koven
Mining
The action in the gold sector was fast and furious in the last couple of weeks with two big takeovers: Aurelian Resources Inc. and Gold Eagle Mines Ltd. And according to Paradigm Capital analysts Don MacLean and Don Blyth, this could be just the start.
Thanks to weak credit markets over the last six months, the small-cap gold companies have had trouble raising money and their stock prices have plummeted. The big gold miners have performed much better, so the conditions are better for them to make acquisitions, the analysts noted in their "Takeover 20" report.
They pointed out that in the cases of Aurelian and Gold Eagle, Kinross and Goldcorp picked up very large, economically robust projects, "yet the margins to the buyers are among the best that we have seen since we began the Takeover 20 analysis [in 2005]."
The "margin" refers the spot gold price minus the investor's total cost to acquire, build, and operate the assets. For their "Takeover 20" list of potential companies, that average margin is now a whopping US$303 an ounce. And the implied internal rate of return on these takeovers is above 10%. What that means is that it can be cheaper to buy ounces on Bay Street than go to the trouble of developing them yourself.
The analysts also listed their top five takeover candidates: Andean Resources Ltd., Andina Minerals Inc., Bear Creek Mining Corp., Detour Gold Corp., and Osisko Mining Corp. They were selected because they have strategic deposits that are attractive to a number of possible buyers, and are also potential "company-makers." They are also in safe jurisdictions. Honourable mentions went to Guyana Goldfields Inc. and Rainy River Resources Ltd.
Mining
The action in the gold sector was fast and furious in the last couple of weeks with two big takeovers: Aurelian Resources Inc. and Gold Eagle Mines Ltd. And according to Paradigm Capital analysts Don MacLean and Don Blyth, this could be just the start.
Thanks to weak credit markets over the last six months, the small-cap gold companies have had trouble raising money and their stock prices have plummeted. The big gold miners have performed much better, so the conditions are better for them to make acquisitions, the analysts noted in their "Takeover 20" report.
They pointed out that in the cases of Aurelian and Gold Eagle, Kinross and Goldcorp picked up very large, economically robust projects, "yet the margins to the buyers are among the best that we have seen since we began the Takeover 20 analysis [in 2005]."
The "margin" refers the spot gold price minus the investor's total cost to acquire, build, and operate the assets. For their "Takeover 20" list of potential companies, that average margin is now a whopping US$303 an ounce. And the implied internal rate of return on these takeovers is above 10%. What that means is that it can be cheaper to buy ounces on Bay Street than go to the trouble of developing them yourself.
The analysts also listed their top five takeover candidates: Andean Resources Ltd., Andina Minerals Inc., Bear Creek Mining Corp., Detour Gold Corp., and Osisko Mining Corp. They were selected because they have strategic deposits that are attractive to a number of possible buyers, and are also potential "company-makers." They are also in safe jurisdictions. Honourable mentions went to Guyana Goldfields Inc. and Rainy River Resources Ltd.
Tuesday, August 5, 2008
Monday, August 4, 2008
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