According to reports on Reuters today, merger and acquisition activity in Canada's mining patch will heat up again, but it is tough to predict when big miners will decide the time is right.
"The increasing valuation gap between the senior and intermediate producers and the junior explorers/developers suggests to us that M&A activity will likely heat up going into 2009," Dundee Securities said in a note to clients.
Analysts have fingered a handful of juniors that are likely takeover candidates. Here is a list of some potential targets:
* Aquiline Resources (AQI.TO) - The owner of Navidad silver project in Argentina needs to raise funds to finance immediate capital needs, analysts say. "If the company can continue to move toward development, potential acquirers may take an interest in its large, world-class silver project," Dundee Securities said in a note.
* Corriente Resources (CTQ.TO) - Developing the big Panantza-San Carlos copper project in Ecuador, Corriente is looking for partners. The owner of the Mirador and Mirador Norte projects, has a "good probability of being taken over," Wellington West Capital Markets said in a report.
* Candente Resource (DNT.TO) - Said in late September it was looking for a joint venture partner for its Canariaco copper, gold and silver project in Peru.
* Detour Gold (DGC.TO) - The past-producing Detour Lake project has a good chance of being acquired by a senior producer in the coming year, Wellington West said. Buyers may have to go through PDX Resources (PLG.TO: Quote, Profile, Research, Stock Buzz) which holds a 42 percent stake in Detour.
* South American Silver (SAC.TO) - "The size and scope of the Malku Khota project makes South American Silver Corp a takeover candidate by a major with cash or cash flow," said Wellington West.
Noront Resources (NOT.V) - Owns a promising nickel, copper and platinum property at its Double Eagle property in northern Ontario. Complicated by a recently settled proxy battle.
* Osisko Mining (OSK.TO) - Developing the Malartic gold project in Quebec with an estimated 8.4 million ounces.
Friday, October 31, 2008
Barrick CEO Said Gold's Outlook Is "a hell of a lot more positive than anything else"
"...I think the outlook for gold is a hell of a lot more positive than anything else you can think of, "Barrick Chairman and interim CEO Peter Munk told analysts Thursday during a conference call Thursday to discuss financial results.
We have never seen such volatility. We have never seen such dislocations. And in fact we have never seen such turmoil," Munk said.
"If ever there was an expectation for gold to shine, we could not have imagined a more suitable, global macroeconomic climate than what we have seen over the last 90 to 120 days," he noted.
Nevertheless, Munk admitted, "You have to be disappointed-just like we are-that, despite the external factors falling in line with all the guys who predicted Doomsday and gold going to $10,000 an ounce, Doomsday has almost arrived. Certainly we are on the precipice a number of times. And gold grows slowly." As hundreds of institutional funds sold their gold holdings to cover stock losses, Munk noted that the pressure on gold "was absolutely unprecedented. And, that, I think, really explains why gold never really fulfilled its promise."
"The one thing that we have all learned from this crisis is the almost flawless correlation...the inverse correlation between the U.S. dollar and gold," he asserted.
Despite gold's current wild ride, Barrick retains an "exceptionally positive view" on gold, Munk declared.
We have never seen such volatility. We have never seen such dislocations. And in fact we have never seen such turmoil," Munk said.
"If ever there was an expectation for gold to shine, we could not have imagined a more suitable, global macroeconomic climate than what we have seen over the last 90 to 120 days," he noted.
Nevertheless, Munk admitted, "You have to be disappointed-just like we are-that, despite the external factors falling in line with all the guys who predicted Doomsday and gold going to $10,000 an ounce, Doomsday has almost arrived. Certainly we are on the precipice a number of times. And gold grows slowly." As hundreds of institutional funds sold their gold holdings to cover stock losses, Munk noted that the pressure on gold "was absolutely unprecedented. And, that, I think, really explains why gold never really fulfilled its promise."
"The one thing that we have all learned from this crisis is the almost flawless correlation...the inverse correlation between the U.S. dollar and gold," he asserted.
Despite gold's current wild ride, Barrick retains an "exceptionally positive view" on gold, Munk declared.
Sprott says redemptions loom
According to Globe and mail today, Eric Sprott expects more redemptions in his firm's hedge funds from international investors soon, which he says could "ultimately be significant."
Mr. Sprott made the comments after the Toronto-based money manager's third-quarter results missed analysts' expectations. The firm reported a profit of $3.7-million or 2 cents a share, compared with $3.5-million a year ago when it was a private company. Analysts polled by Thomson Reuters First Call expected 7 cents a share.
During the quarter ended Sept. 30, assets under management tumbled 27 per cent or $2.1-billion to $5.6-billion as the market carnage shaved off much of the market value. Net sales came in at $122-million.
"Our long-only funds have been significantly affected by the market," but the hedge funds have done better because of their short positions, he said.
Mr. Sprott's said his bearish view on financial stocks has borne fruit with the collapse of venerable U.S. financial institutions, but his bullish outlook on gold has yet to take hold.
"If certain things unfold as we expect, it's not out of the realm for us to imagine that gold could go to $1,500 (U.S.) or $2,000 an ounce," he said.
Much of Sprott's assets are concentrated in the small- to mid-capitalization resource sector that has taken a beating in the market meltdown.
But as of Wednesday, the Sprott Opportunities Hedge Fund LP, run by Jean-François Tardif, was up 0.9 per cent year to date, while the Sprott Hedge Fund LP II, run by Mr. Sprott, was only down 3.7 per cent. The S&P/TSX composite fell 31 per cent in the same period.
"The break-even line is not a bad resolution to a market that has fallen as much as it has around the world," Mr. Sprott said.
Most of the mutual funds, however, are sharply in the red. They include the flagship Sprott Canadian Equity Fund, down 47 per cent; Sprott Gold and Precious Metals, 66 per cent; Sprott Energy, 59 per cent; Sprott Growth, 70 per cent and Sprott Small Cap Equity, 50 per cent.
Mr. Sprott made the comments after the Toronto-based money manager's third-quarter results missed analysts' expectations. The firm reported a profit of $3.7-million or 2 cents a share, compared with $3.5-million a year ago when it was a private company. Analysts polled by Thomson Reuters First Call expected 7 cents a share.
During the quarter ended Sept. 30, assets under management tumbled 27 per cent or $2.1-billion to $5.6-billion as the market carnage shaved off much of the market value. Net sales came in at $122-million.
"Our long-only funds have been significantly affected by the market," but the hedge funds have done better because of their short positions, he said.
Mr. Sprott's said his bearish view on financial stocks has borne fruit with the collapse of venerable U.S. financial institutions, but his bullish outlook on gold has yet to take hold.
"If certain things unfold as we expect, it's not out of the realm for us to imagine that gold could go to $1,500 (U.S.) or $2,000 an ounce," he said.
Much of Sprott's assets are concentrated in the small- to mid-capitalization resource sector that has taken a beating in the market meltdown.
But as of Wednesday, the Sprott Opportunities Hedge Fund LP, run by Jean-François Tardif, was up 0.9 per cent year to date, while the Sprott Hedge Fund LP II, run by Mr. Sprott, was only down 3.7 per cent. The S&P/TSX composite fell 31 per cent in the same period.
"The break-even line is not a bad resolution to a market that has fallen as much as it has around the world," Mr. Sprott said.
Most of the mutual funds, however, are sharply in the red. They include the flagship Sprott Canadian Equity Fund, down 47 per cent; Sprott Gold and Precious Metals, 66 per cent; Sprott Energy, 59 per cent; Sprott Growth, 70 per cent and Sprott Small Cap Equity, 50 per cent.
Cramer Interviewed Sean Boyd, CEO of Agnico-Eagle Mines
Gold is usually considered an ideal port in a financial storm, but it hasn’t worked as a hedge in this dismal market. The reason is that gold usually is a good protection when faced with inflation, but currently the market is in a deflationary cycle, noted Cramer. As a result, he is “eating crow” over his failed Agnico-Eagle Mines call; the stock dropped $22 from $68 reflecting gold’s fall from $897 to $738 an ounce. However, Cramer thinks gold will make a comeback in a few quarters, and a good choice may be Agnico-Eagle Mines. CEO Sean Boyd discussed the company’s projection of a 23% production increase along with the creation of 5 new mines between 2008 and 2010. Boyd says AEM’s dividend is modest because the gold industry is capital-intensive. Cramer says AEM might be a good investment for the patient investor who can wait a few quarters for an upturn in gold.
Thursday, October 30, 2008
Gold Fields CEO said Gold to reach $1,000 next year and stay there
Interviewed on SAfm Radio in Johannesburg yesterday by Mineweb Editor in Chief, Alec Hogg, Gold Fields CEO, Nick Holland, gave some interesting views into his take on the gold price. "I believe gold will go through $1000 and stay there during the course of 2009", said Holland.
While to an extent this may be wishful thinking from someone whose company depends on gold for its income and on the gold price for its profitability, Holland's reasons for his views are compelling. He feels gold underperformed during the run-up in the oil price at the mid-year and that then, when oil came down in price, gold was dragged down with it without making earlier commensurate gains. Thus gold hasn't really performed in line with the overall situation - yet!
However Holland feels that with negative real interest rates around the world, contracting supplies and physical demand at almost record levels, the time is ripe for a re-evaluation of gold by the market.
When asked whether he felt the price would rise much beyond the $1,000 level, Holland wasn't prepared to fuel speculative flames in this respect: "I wouldn't say beyond $1,000" said Holland. "Some people will say it should be much higher. I'd be very grateful with $1000 because right now the industry at $800 - or at $764 today, I think - doesn't make any money after you take the all-in costs into account. So just to actually restore the margin and keep this industry going, we need something close to $1,000."
On Gold Fields itself, on a day when the stock price bounced 16 percent, Holland feels the company is significantly undervalued if one assesses the underlying valuations of all the company's assets.
As far as the future is concerned, Holland feels that a number of companies will be cutting back on projects and a number of gold mining projects which had been scheduled to go ahead will not be able to as it is proving virtually impossible to raise finance through equity or loans in the current climate. However this does not apply to most of Gold Fields' own plans with Cerro Corona and the Tarkwa expansion both virtually complete. With the completion of safety related work on its South African mines, together with the new developments overseas, Gold Fields expects output to be back to an annual rate of 4 million ounces a year b the end of the first quarter next year.
As to South Deep, Holland is extremely confident about the future of this massive gold resource seeing it as a "wonderful investment going forward". Although deep, it will be a fully mechanised mining operation and will be able to produce its gold more safely and more efficiently with a fraction of the workforce used in most current South African mining operations. Currently Gold Fields is aiming for production from South Deep in 2014. He went on to say about South Deep that it "is something different, and I think this could be the greatest deep-level mechanised gold mine in the world when we get this to full production.
Tuesday, October 28, 2008
John Embry: Gold’s Game-Changing Moment Could be Fast Approaching
In a recent Business News Network interview, Amanda Lang talks with John Embry, Chief Investment Strategist at Sprott Asset Management, about his position on precious metals (bullish) and base metals (bearish). While hesitating to make a definitive prediction in the midst of such widespread asset destruction, Embry nonetheless looks beyond the carnage to what he suggests could be the seminal event for gold—the possibility of default on physical delivery for the December futures contract. He also explains why gold has failed to rise to the occasion of the worst-case financial scenario in history. Below are some excerpts from the interview, edited for length and clarity.
Amanda Long: People say gold really should be doing better than it is now and that actually becomes a justification for not buying it. It’s not doing what it should be doing in a crisis and, therefore, I don’t want to own it.
John Embry: That is a wonderful analysis because that is exactly the mindset the guys who are driving the price down are trying to create. Gold doesn’t work so keep away from it. They’re able to control the price quite easily in the paper markets because the paper markets are so huge in comparison. “The guys” – the central banks and their bullion bank accomplices—have a lot of power and a lot of money, so they can overwhelm the other side. But what’s happening is that the physical supply is diminishing dramatically. It’s getting harder and harder to purchase gold and silver through traditional avenues. You can’t get it in coin shops to any extent. You can’t get it through your banks. The physical side is really constricted by supply. That, to me, is the reality. The paper stuff is just the illusion.
AL: Now the problem, of course, for investors is that the paper market is the one you’ve got to play and, for the most part, it affects the price. How will that be resolved?
JE: What will have to happen is the people that are on the long side of the paper market in, say, on Comex, are going to have to call for delivery. When they call for delivery and there isn’t enough gold available to meet that call, the game changes. That is probably going to be the event that changes the perception. There’s a suggestion that something may happen around the time of the maturity of the December contract.
AL: Would you expect them to do that out of fear? In other words, they’d literally want to take delivery so that they have gold in their vaults?
JE: I would think that would be the best reason to do it for the simple reason that I want physical gold today. I mean that is the one thing you can trust. Paper gold, who knows? You may have a force majeure in the sense that people in the end will settle for paper and you won’t have the gold protection you think you have. You’ll get your money’s worth, but you’ll have paper. So that to me is the reason why I think somebody’s going to say, wait a minute, I want the gold. [Ed. Note: Force Majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as war, strike, riot, crime, act of nature (e.g., flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract.]
AL: In that transaction people ask for delivery. Will that trade crush a lot of people? Are there a lot of people who are short this market?
JE: Yes, without question. For the people who are short this market, there will be a force majeure and they will have to settle in paper because they can’t meet the requirements of gold. That is going to be the seminal event that defines this whole situation.
Embry has a solidly bullish view of the precious metals. On the other hand, his short-term stance on the base metals is bearish. He clearly regards the precious metals as being in an altogether different category and explains why in the edited segment of the interview below.
JE: At this stage of the game, gold and silver are monetary metals. All the rest of the commodities are industrially driven. I’m not a long-term bear in base metals. I’m a short-term bear based on the fact that I think we’re in considerable demand destruction at the same time that there were some significant positions held by leveraged hedge funds in London and the U.S. that are being unwound. As you know, the hedge fund business, particularly the leveraged ones, are just getting slaughtered.
AL: When will that be over? When will the margin call stop being a major factor in daily trade?
JE: It’s happening so fast that I’d hoped it would be over sooner rather than later. I’m really reluctant to make hard and fast predictions because we’re dealing with a situation that we’ve never seen before. We’ve never had this much leverage in the system and it’s been amped up by derivatives. The authorities have a huge task on their hands trying to recapitalize the banking system and getting this thing moving in the other direction, but time will tell.
AL: The perception is that a lot of base and precious metals and all the commodities have been affected by the inflow of capital from ETFs and hedge funds—and that really increased the impact of the speculative element…
With copper below $2—assuming China doesn’t go to zero—at what point do say, this isn’t a bad entry point?
JE: We’re getting pretty close to breakeven in copper now because costs have gone up so much. But things can often go through breakeven in the short term. Gold and silver are already there. Consequently, I think that we could still see a spike down. Who knows how low? But I think a longer-term copper price would probably be at $4.00 or realistically somewhere in the current area.
AL: Is it too soon to start thinking about buying a base metal producer?
JE: Well, the problem is that the base metal producers have done really well because they were able to put some fat on their bones; whereas, precious metals producers have never made any money in this cycle to speak of. Now that it’s come back hard, I think they’re getting so cheap. If the company’s really well-financed and it has a low quartile cost mine, this is the time you get into these things as a long-term investment when everybody else is fleeing for other reasons.
In closing, Embry discusses the case for platinum. The chart for the metal “looks like it’s just gone off the side of a cliff.” He attributes platinum’s precipitous fall to the demand destruction that has accompanied the devastated automobile industry. “At some point you have to start looking at the cost of mining platinum and we’re getting down to that level.” He regards the economics for gold and platinum as being linked. “That’s why I always thought gold was suppressed because platinum was trading at over two times the price of gold. Now platinum’s come way back for demand reasons and it’s reaching a level where I would certainly look at it because it is a precious metal.”
Monday, October 27, 2008
Buy American. I Am.
Here is Warren Buffett's latest writing in New York Times
Omaha
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Omaha
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Sunday, October 26, 2008
Even gold can't hedge a nuclear implosion
This is from 321Gold.com
We have had another week of carnage in the markets with gold hitting new lows and gold shares getting hammered yet again. It's enough to make a gold bug slit his throat. Wasn't gold supposed to be some magic commodity that acted as an insurance policy against financial chaos? We have the financial chaos but gold has tanked.
Actually gold has been a hedge but an imperfect hedge. If you were Canadian or Australian or English, you would wonder what all the hoopla was about from the Americans because in their currencies gold is hitting new record highs. Gold worked exactly as advertised and those investors are all standing in high cotton.
Even the hedge funds used gold to hedge. I use the term hedge funds lightly. I'm not sure who made up the name "hedge funds" because they functioned far more as out of control casinos with crooked dealers.
The hedge funds did hedge using gold. They may have had 5-10% in gold. Since gold was $660 an ounce only in August of last year, the hedge funds actually made money on gold before chaos appeared and they were forced to sell their gold. They had to sell their gold because the other 90-95% of their bets were leveraged 50 to 1 and when those went south, they sold their gold because they could.
Gold hasn't gone down in US dollar terms because it has lost its role as an insurance policy against chaos. It went down because it was being used as a hedge and it was the last thing of value the bankrupt hedge funds could sell. But if you think gold going down $40 in a day gets exciting, just wait a few days until it starts going up. Lots of hedge funds shorted gold and when they get forced out of their positions, gold is going to roar higher $100 a day. The $87 dollar move higher in a day that came 6 weeks ago was just the first of many barnburner days.
It's a confusing time for everyone. We are in a place the world has never been before; in uncharted waters. I've made the comment in the past that only 10 people in the world actually understood derivatives. That number is probably up to 100 by now, more people are catching on.
Derivatives are simple to understand. They are financial instruments that derive their value from something else. Gold calls are derivatives, stock options are derivatives, futures are derivatives, credit default swaps are derivatives. Securitized mortgages sold in large lots are derivatives.
But derivatives grew totally out of control and indeed were growing 50% a year and no one took any notice. I did. With derivatives growing 150% faster than the total underlying economy, there had to be a lot of fraud involved. There was and it's all coming to the surface. The hedge funds were similar to giant casinos where when they won a bet, they took the winnings home in real money and when they lost, they paid off in Monopoly money, secure in the knowledge that the government would bail them out.
Well, the governments of the world have been dumping piles of $100 bills on the bonfire and every day the situation becomes worse as markets realize the government action is counterproductive. So far the US administration of George Bush has nationalized Fannie Mae, Freddie Mac and the entire banking system. It nationalized insurance giant AIG about a month ago and the company has already gone through $123 billion dollars in two tries at the feeding trough and is back for another feeding. Ford, GM and Chrysler have had $25 billion thrown at them and want more. The government of California wants $7 billion. State and local governments across the country are whining to be bailed out.
Is there no price to be paid for stupidity and cupidity? Are we going to bail out every fool who made foolish bets? Under the Bush administration is failure the new "No Chump left behind?" Where are we going to get the printing presses required to make all the new money?
The solution is going back to a real Bretton Woods agreement where all currencies are tied to gold directly. Where all international currencies are denominated in units of gold. We have total financial chaos yet you can still, for the time, buy an insurance policy in the form of physical gold and silver. If you never have before, you need to quickly.
Someone sent me a copy of a list put out by Canaccord Capital on Friday showing about 100 resource companies selling for cents on the dollar. I want my readers to understand that these are good companies who have been dumped by hedge funds because of deleveraging and nothing more. When you can buy $1 bills for $.80 and get a free mine and mill with it, it's a situation that won't last long.
Evolving Gold has a market cap of $13.6 million and cash of $19.5 million. Olympus Pacific has an $11.6 million dollar market cap and $16.2 million in the bank. Full Metal Minerals has a market cap of $8.1 million and cash of $9.8 million. My favorite, ATW Gold, has a market cap of $14.6 million and $14.7 million in cash and owns two gold mines and two mills and will be in production in March of 2009 at a rate of 50,000 ounces of gold a year. It doesn't get any better than that.
To conclude, gold won't hedge totally against a nuclear implosion and we have had that. Nobody really called how bad it would get even if there were a lot of people who knew it would be bad. Bob Hoye did the best job of timing and recommendation that I have seen.
The system is breaking apart. We are not past the shoals; there are some really bad times ahead. TA and Fundamental analysis are both pretty useless because we don't have anything to compare where we are or where we are headed. It's a time to be prudent, very prudent.
And while gold and gold production stories are not a perfect hedge, they are better hedges than anything else.
We have had another week of carnage in the markets with gold hitting new lows and gold shares getting hammered yet again. It's enough to make a gold bug slit his throat. Wasn't gold supposed to be some magic commodity that acted as an insurance policy against financial chaos? We have the financial chaos but gold has tanked.
Actually gold has been a hedge but an imperfect hedge. If you were Canadian or Australian or English, you would wonder what all the hoopla was about from the Americans because in their currencies gold is hitting new record highs. Gold worked exactly as advertised and those investors are all standing in high cotton.
Even the hedge funds used gold to hedge. I use the term hedge funds lightly. I'm not sure who made up the name "hedge funds" because they functioned far more as out of control casinos with crooked dealers.
The hedge funds did hedge using gold. They may have had 5-10% in gold. Since gold was $660 an ounce only in August of last year, the hedge funds actually made money on gold before chaos appeared and they were forced to sell their gold. They had to sell their gold because the other 90-95% of their bets were leveraged 50 to 1 and when those went south, they sold their gold because they could.
Gold hasn't gone down in US dollar terms because it has lost its role as an insurance policy against chaos. It went down because it was being used as a hedge and it was the last thing of value the bankrupt hedge funds could sell. But if you think gold going down $40 in a day gets exciting, just wait a few days until it starts going up. Lots of hedge funds shorted gold and when they get forced out of their positions, gold is going to roar higher $100 a day. The $87 dollar move higher in a day that came 6 weeks ago was just the first of many barnburner days.
It's a confusing time for everyone. We are in a place the world has never been before; in uncharted waters. I've made the comment in the past that only 10 people in the world actually understood derivatives. That number is probably up to 100 by now, more people are catching on.
Derivatives are simple to understand. They are financial instruments that derive their value from something else. Gold calls are derivatives, stock options are derivatives, futures are derivatives, credit default swaps are derivatives. Securitized mortgages sold in large lots are derivatives.
But derivatives grew totally out of control and indeed were growing 50% a year and no one took any notice. I did. With derivatives growing 150% faster than the total underlying economy, there had to be a lot of fraud involved. There was and it's all coming to the surface. The hedge funds were similar to giant casinos where when they won a bet, they took the winnings home in real money and when they lost, they paid off in Monopoly money, secure in the knowledge that the government would bail them out.
Well, the governments of the world have been dumping piles of $100 bills on the bonfire and every day the situation becomes worse as markets realize the government action is counterproductive. So far the US administration of George Bush has nationalized Fannie Mae, Freddie Mac and the entire banking system. It nationalized insurance giant AIG about a month ago and the company has already gone through $123 billion dollars in two tries at the feeding trough and is back for another feeding. Ford, GM and Chrysler have had $25 billion thrown at them and want more. The government of California wants $7 billion. State and local governments across the country are whining to be bailed out.
Is there no price to be paid for stupidity and cupidity? Are we going to bail out every fool who made foolish bets? Under the Bush administration is failure the new "No Chump left behind?" Where are we going to get the printing presses required to make all the new money?
The solution is going back to a real Bretton Woods agreement where all currencies are tied to gold directly. Where all international currencies are denominated in units of gold. We have total financial chaos yet you can still, for the time, buy an insurance policy in the form of physical gold and silver. If you never have before, you need to quickly.
Someone sent me a copy of a list put out by Canaccord Capital on Friday showing about 100 resource companies selling for cents on the dollar. I want my readers to understand that these are good companies who have been dumped by hedge funds because of deleveraging and nothing more. When you can buy $1 bills for $.80 and get a free mine and mill with it, it's a situation that won't last long.
Evolving Gold has a market cap of $13.6 million and cash of $19.5 million. Olympus Pacific has an $11.6 million dollar market cap and $16.2 million in the bank. Full Metal Minerals has a market cap of $8.1 million and cash of $9.8 million. My favorite, ATW Gold, has a market cap of $14.6 million and $14.7 million in cash and owns two gold mines and two mills and will be in production in March of 2009 at a rate of 50,000 ounces of gold a year. It doesn't get any better than that.
To conclude, gold won't hedge totally against a nuclear implosion and we have had that. Nobody really called how bad it would get even if there were a lot of people who knew it would be bad. Bob Hoye did the best job of timing and recommendation that I have seen.
The system is breaking apart. We are not past the shoals; there are some really bad times ahead. TA and Fundamental analysis are both pretty useless because we don't have anything to compare where we are or where we are headed. It's a time to be prudent, very prudent.
And while gold and gold production stories are not a perfect hedge, they are better hedges than anything else.
Heed the advice of The Smartest Man
DEREK DeCLOET
Globe and Mail Update
October 25, 2008 at 6:00 AM EDT
Crackpot. Crank. Scaremonger. Alarmist.
The Smartest Man We Know has heard the slurs. When you make your living on Wall Street, yet hold the opinion that Wall Street is populated by incompetent fools, you're not going to win a lot of friends at dinner parties, are you?
And when you bet millions that the American financial system is going to fall apart, that its economy will be seized with fear – and when you were doing this and saying this before there was any hint of real trouble – well, you couldn't really expect other people to welcome the message, could you?
The Smartest Man, when delivering his prophesies, did not sugar-coat them. “This could potentially make Long-Term Capital [the financial crisis of 1998] look like some kind of walk in the park,” he predicted. “The reckoning has started.” No soft landing this time: It could even be “like the Great Depression of this century.” He said these things not last week, not last month, but on July 26, 2007. That day, the Dow Jones industrial average closed at 13,473.
But The Smartest Man was just getting warmed up. Checking in with him again this January, he was every bit as gloomy. By that point, credit fires were burning all over the place; the Dow was at 12,500; the world's biggest banks had been forced to turn, cap in hand, to Singapore, China, the Middle East and elsewhere for billions of dollars. It won't be enough, he said. “There's a whole bunch of companies that just have to hit the wall. They can't survive.”
What kind of companies? U.S. financial institutions, mostly. Wachovia looks bad. The major investment banks are shaky. It's about to get a lot uglier, warned The Smartest Man. “The implications of what's going on for the U.S. economy, credit, for lending over all, are not that pleasant to think of.” Two months and two days later, Bear Stearns was gone.
So you can imagine our surprise when the Smartest Man – his real name is Krishnamurthy Narayanan, and he goes by Nandu – showed up in town this week and was bullish.
“I think we're ending the financial crisis now,” he said. “There will be countries, like the U.S., that will go into recession. But this need not be a global recession. And there are some encouraging signs on that front.”
In a different era, The Smartest Man might have been a rocket scientist, or an engineer, or a medical researcher, or maybe a university professor. The academic résumé says: MBA, PhD in finance and economics from the Massachusetts Institute of Technology, studied under Paul Krugman, who just won the Nobel prize for economics. But this is – or at least was – the age of finance, and The Smartest Man became a hedge-fund manager, placing money on his views rather than just writing them.
Lately, that has worked out rather well. His CI Global Opportunities Fund has returned 57 per cent in the past year, 19 per cent (compounded) over the past five. Nice numbers, but once you've made your money calling the credit crisis and short selling Washington Mutual, what do you do then?
You buy Canada, says Mr. Narayanan, who can't believe the way the loonie has been savaged. “The currency is ridiculously undervalued. I can't think of any country in the world that has no fiscal deficit, no trade deficit and no inflation – except Canada. I think the Canadian dollar should go through parity.
“I like the whole Canadian market. I don't particularly dig the banks because I just don't know what's in there [on the balance sheet]. But I'd say virtually everything else is fine.”
You buy some emerging markets, even though they, too, have collapsed in the meltdown. “You can't play the emerging markets by listening to the market action. If the Indian market's down 50 or 60 per cent from its peak, I can assure you nothing's really changed in India. Nothing's changed. The vast majority of people in India don't believe in the stock market,” said Mr. Narayanan, who was born in Chennai, India.
You look to the currencies of Asian countries that are growing and still financially healthy. Singapore, Malaysia and Thailand all have trade surpluses and single-digit inflation. “Most of the Asian emerging markets and emerging currencies are ridiculously priced right now.”
You buy uranium stocks: “Ridiculously cheap.” Gold miners: “Ridiculously cheap.” Pipelines, too: “How bad a business is that? It's a fantastic business. You're just shipping gas. Why are people selling those?” Energy: “Unless there's an absolute collapse in oil demand, you really can't see oil plunge all that much [more].”
There are, however, some things The Smartest Man wouldn't touch. They happen to be the assets the investing masses have flocked to in this crisis: U.S. Treasuries and the greenback. “I don't think it can hold for that much longer.” Once the world has to absorb trillions of dollars in new U.S. debt – watch out. In fact, he thinks the odds of the U.S. having its own currency crisis are “at least 30 per cent.”
Would you want to bet against him?
Globe and Mail Update
October 25, 2008 at 6:00 AM EDT
Crackpot. Crank. Scaremonger. Alarmist.
The Smartest Man We Know has heard the slurs. When you make your living on Wall Street, yet hold the opinion that Wall Street is populated by incompetent fools, you're not going to win a lot of friends at dinner parties, are you?
And when you bet millions that the American financial system is going to fall apart, that its economy will be seized with fear – and when you were doing this and saying this before there was any hint of real trouble – well, you couldn't really expect other people to welcome the message, could you?
The Smartest Man, when delivering his prophesies, did not sugar-coat them. “This could potentially make Long-Term Capital [the financial crisis of 1998] look like some kind of walk in the park,” he predicted. “The reckoning has started.” No soft landing this time: It could even be “like the Great Depression of this century.” He said these things not last week, not last month, but on July 26, 2007. That day, the Dow Jones industrial average closed at 13,473.
But The Smartest Man was just getting warmed up. Checking in with him again this January, he was every bit as gloomy. By that point, credit fires were burning all over the place; the Dow was at 12,500; the world's biggest banks had been forced to turn, cap in hand, to Singapore, China, the Middle East and elsewhere for billions of dollars. It won't be enough, he said. “There's a whole bunch of companies that just have to hit the wall. They can't survive.”
What kind of companies? U.S. financial institutions, mostly. Wachovia looks bad. The major investment banks are shaky. It's about to get a lot uglier, warned The Smartest Man. “The implications of what's going on for the U.S. economy, credit, for lending over all, are not that pleasant to think of.” Two months and two days later, Bear Stearns was gone.
So you can imagine our surprise when the Smartest Man – his real name is Krishnamurthy Narayanan, and he goes by Nandu – showed up in town this week and was bullish.
“I think we're ending the financial crisis now,” he said. “There will be countries, like the U.S., that will go into recession. But this need not be a global recession. And there are some encouraging signs on that front.”
In a different era, The Smartest Man might have been a rocket scientist, or an engineer, or a medical researcher, or maybe a university professor. The academic résumé says: MBA, PhD in finance and economics from the Massachusetts Institute of Technology, studied under Paul Krugman, who just won the Nobel prize for economics. But this is – or at least was – the age of finance, and The Smartest Man became a hedge-fund manager, placing money on his views rather than just writing them.
Lately, that has worked out rather well. His CI Global Opportunities Fund has returned 57 per cent in the past year, 19 per cent (compounded) over the past five. Nice numbers, but once you've made your money calling the credit crisis and short selling Washington Mutual, what do you do then?
You buy Canada, says Mr. Narayanan, who can't believe the way the loonie has been savaged. “The currency is ridiculously undervalued. I can't think of any country in the world that has no fiscal deficit, no trade deficit and no inflation – except Canada. I think the Canadian dollar should go through parity.
“I like the whole Canadian market. I don't particularly dig the banks because I just don't know what's in there [on the balance sheet]. But I'd say virtually everything else is fine.”
You buy some emerging markets, even though they, too, have collapsed in the meltdown. “You can't play the emerging markets by listening to the market action. If the Indian market's down 50 or 60 per cent from its peak, I can assure you nothing's really changed in India. Nothing's changed. The vast majority of people in India don't believe in the stock market,” said Mr. Narayanan, who was born in Chennai, India.
You look to the currencies of Asian countries that are growing and still financially healthy. Singapore, Malaysia and Thailand all have trade surpluses and single-digit inflation. “Most of the Asian emerging markets and emerging currencies are ridiculously priced right now.”
You buy uranium stocks: “Ridiculously cheap.” Gold miners: “Ridiculously cheap.” Pipelines, too: “How bad a business is that? It's a fantastic business. You're just shipping gas. Why are people selling those?” Energy: “Unless there's an absolute collapse in oil demand, you really can't see oil plunge all that much [more].”
There are, however, some things The Smartest Man wouldn't touch. They happen to be the assets the investing masses have flocked to in this crisis: U.S. Treasuries and the greenback. “I don't think it can hold for that much longer.” Once the world has to absorb trillions of dollars in new U.S. debt – watch out. In fact, he thinks the odds of the U.S. having its own currency crisis are “at least 30 per cent.”
Would you want to bet against him?
Friday, October 24, 2008
Paulson says China's role critical
As the credit crunch has struck markets worldwide, one lingering question has been how the turmoil will affect China's burgeoning economy. Tuesday evening in New York, Treasury Secretary Henry Paulson spoke about China's economic health and addressed its relationship with the United States in a speech to the National Committee on U.S.-China Relations.
It's clear that from Paulson's perspective, the strength of the Chinese economy can serve as a buffer against the chaos in the American and European markets.
"While some see China as a threat that must be countered or contained, I believe that the only path to success with China is through engagement," Paulson said. "We must recognize that China's growth is an opportunity for U.S. companies and consumers, for our producers, exporters and investors. A stable, prosperous and peaceful China is in the best interest of the Chinese people, the American people and the rest of the world."
The full transcript of Paulson's remarks can be found after the jump.
Here is a transcript of Paulson's remarks:
The world's financial markets are undergoing the most serious stresses in recent memory and this financial crisis has begun to negatively impact real economies here and around the world. China is feeling this stress as well, but fortunately its economy is expected to continue to be an important engine for global growth during this period. In the United States, recent collaborative actions by the Federal Reserve, the FDIC and the Treasury clearly demonstrate that our government will do what is necessary to significantly strengthen our banks and financial institutions, enabling them to increase financing for the consumption and business investments that drive U.S. economic growth. Through a multitude of powerful actions we have and will demonstrate our commitment to unlocking our credit markets and minimizing the impact of the current instability on the rest of the U.S. economy.
Addressing the effects of financial market turmoil around the world requires the dramatic steps we are taking here in the United States, and it requires close international corroboration and cooperation. We have been in close contact with Chinese leaders, as well as with leaders of many other nations. And we welcome Premier Wen's statement that China will play a constructive and cooperative role in global efforts to deal with the current financial market turmoil. Throughout this turbulent time, I have stayed in close touch with Vice Premier Wang Qishan, who has now been appointed to lead China's newly established international financial crisis committee. Our conversations have been useful and constructive. It is clear that China accepts its responsibility as a major world economy that will work with the United States and other partners to ensure global economic stability.
Governments must continue to take individual and collective actions to provide much-needed liquidity, strengthen financial institutions through the provision of capital and the disposition of troubled assets, prevent markets abuse, and protect the savings of their citizens. We must also take care to ensure that our actions are closely coordinated and communicated so that the action of one country does not come at the expense of others or the stability of the system as a whole.
Ten days ago leaders from the world's 20 largest economies met in Washington and found ways to further enhance our collective efforts to lessen the effects of global market turmoil. Those meetings brought concrete actions that have supported world markets. I am heartened that the international community is working together for stability and to regain a footing of confidence. As confidence returns to the system, normal financial activities will resume. And we are all grateful for President Bush's leadership during this time. As the President said on Friday, "The American people...can have confidence that this economy will recover. We're a country where all people have the freedom to realize their potential and chase their dreams." As the President knows, Americans are a strong and optimistic people. Although we expect current challenges to continue for a number of months, we will overcome them as we have overcome every challenge our Nation has ever faced.
We will elect a new president two weeks from today, and our new President should start from the perspective that China will continue to play a key role in the world economy. As a matter of fact, today more than ever the world is looking to China to be a big contributor to global economic growth. While some see China as a threat that must be countered or contained, I believe that the only path to success with China is through engagement. We must recognize that China's growth is an opportunity for U.S. companies and consumers, for our producers, exporters and investors. A stable, prosperous and peaceful China is in the best interest of the Chinese people, the American people and the rest of the world.
U.S.-China relations are more productive today than ever before, largely because we have engaged China as it is, not as we might wish or imagine it to be. We have acted to lessen misperceptions and miscommunication between our countries.
An important part of the engagement has been through the Strategic Economic Dialogue established in 2006 by President Bush and President Hu. We have worked from the understanding that robust and sustained economic growth is a social imperative for China and that Beijing views its international interactions primarily through an economic lens. We have worked with Beijing on economic issues that are of mutual interest, and we have found that we can produce tangible results in both economic and noneconomic areas. Our recent close and frequent communication and cooperation as we address the challenges in the financial markets is a tangible example of the power and utility of a Strategic Economic Dialogue based on mutual trust
Over the past two years we have built a strong foundation for this dialogue by focusing on policy areas in which China's reform agenda and U.S. interests intersect. The SED has found new and constructive ways to address some of the most important matters in our economic relationship --- including growth imbalances, energy security and environmental sustainability, trade and investment issues, product safety, and China's position in the world economy. Addressing these questions serves China's interests, and is also vital to the U.S. and global economic future.
One of the SED's major achievements is the Ten Year Energy and Environment Cooperation Framework. This framework is a bilateral mechanism to create a new energy-efficient model for sustainable economic development and to address the factors that cause climate change. Greater breakthroughs can be expected in the years ahead, and this framework provides the next administration a critically important platform for U.S. economic engagement with China.
Trade and investment, once the glue of U.S. -Chinese relations now also represent a source of increased tension. Any dynamic economy that is constantly creating new, higher-value jobs faces factory closings and job losses that are real and painful. The benefits of free trade are often spread across an entire country, while the lost jobs are more immediately visible. But succumbing to the temptation to make trade and foreign investment a scapegoat only breeds support for isolationist policies that will make us worse off, sacrificing future job opportunities and higher standards of living.
American investors in China, and Chinese investors in America, question whether the other country is truly open to investment and provides adequate legal protections. To answer this question, we sent a powerful and clear signal at the June SED meeting by launching negotiations of a U.S. - China bilateral investment treaty. Through these negotiations, we seek to assure our people and the world that our two nations welcome investment and will treat each other's investors in a fair and transparent manner. And we will work even harder to resolve a critical issue for American companies working in China --- better enforcement of intellectual property laws, to help China on its path to become an innovation society, while accelerating the development and competitiveness of its economy.
In the area of product safety, we have made real progress but need to intensify our work together to enhance China's regulatory and legal infrastructure, to help them build quality into each stage of the manufacturing and distribution process.
In the financial sector, we have worked steadily to help China develop and open up its institutions. Some in China look at the recent failures in our financial markets and conclude that they should slow down their reforms. But there is a great opportunity for China to learn from our significant mistakes and move forward with reforms that have the potential to produce important gains for China and its people.
For example, a capital markets reform agenda will advance China's economic goals in four important ways. It will rebalance the sources of China's growth to ensure that it is more harmonious, more energy and environmentally efficient, and provides greater welfare for Chinese households. It will create effective macroeconomic policy tools to ensure stable, non-inflationary growth. It will support China's transition to a market-driven and innovation-based economy; and, finally, it will assist China in dealing with its demographic challenges.
The SED has also provided an excellent forum for discussing the value of the RMB; I am pleased that China has appreciated the RMB by over 20 percent since July of 2005.
The SED has shown that active economic engagement between the highest levels of U.S. and Chinese leadership can keep our relationship on an even keel even as we tackle our most challenging issues and manage short-term tensions.
Chinese leaders understand that if the SED is to be sustained, it must be more than talk; it must continue to yield specific, tangible results, what I call signposts along the path toward transformational reform. We look forward to further progress in the on-going discussions with Chinese officials and at our next SED meeting in Beijing in December.
The successes of the SED in the past two years have created a foundation of mutual understanding and trust and a platform for further progress. And perhaps most importantly the SED has established a new model for communication, enabling us to address urgent issues such as turmoil in our financial markets, energy security and climate change. I hope that the next U.S. president will expand on the SED to take U.S.-Chinese relations to the next level. Thank you.
The Shipping Blues for China’s Small Builders
Today’s WSJ reports on the impact of the economic slowdown across the shipping industry, from railroads and cargo ships to trucks and package delivery firms. In the first nine months of this year, the number of containers entering the U.S. via its top 10 container ports was 7.2% lower than in the same period last year, the report notes.
The impact is being felt as far afield as China, where a building boom among small, privately owned ship makers seems set to come to an end. The global financial crisis and fears of recession were topics of conversation at a recent forum on ship financing in Shanghai, the China Securities Journal reports.
Large shipbuilders such as China State Shipbuilding Corp. stand to benefit from industry consolidation (Photo by Imaginechina via AP Images)
In recent years, small shipbuilders have proliferated in China, buoyed by a revival in river transport from inland China. Despite the limited technology available to these builders, their eagerness to secure customers led some firms to build unordered boats first and then market the finished product to potential buyers.
Now these firms are seeing cancellations and falling orders, leading to speculation that a major industry consolidation will come next. Larger private shipbuilders and state-owned enterprises are better positioned to weather an economic downturn, since they have more advance orders lined up and generally receive up front payments of 70% to 80% of a ship’s cost, which can run $30 to $50 million for smaller boats and up to $200 million for a large ship.
“What buyer would risk losing the advance payment by canceling an order?” Tan Zoujun, the general manager of China State Shipbuilding Corp., a large state owned firm, asked reporters. “Right now, the industry is certainly looking at a pretty major economic adjustment, but we are definitely not the worst off,” Tan said, according to the China Securities Journal. “At the most difficult time for everyone, we can still eat some big hairy crab,” he said, referring to the Chinese seasonal delicacy.
Tan said his firm would consider acquiring smaller shipbuilders.
The real tragedy of this financial crisis is that people will die
By Thomas Kostigen, MarketWatch
Last Update: 8:25 PM ET Oct 23, 2008
SANTA MONICA, Calif. (MarketWatch) -- The harsh reality of the economic fallout isn't that Joe the plumber can't buy his business or that people's retirement funds are being lost or that unemployment is rising; the harsh reality is that people will die.
Already, since food prices began to rise 100 million more people have been pushed into poverty, according to the World Bank, with as many as two billion on the verge of disaster. Almost half the world's population, let's remember, live on less than $2.50 per day. Millions die annually of hunger and starvation, and more than a billion do not have access to fresh water.
These numbers are poised to rise dramatically with population growth, dwindling natural resources and higher consumer prices across all goods and services. So as the stock market tumbles and the world economy falters, it's important to remember that it's more than financial losses we are talking about, it's the loss of life.
And increasingly it isn't just people in far-off places around the world who are succumbing to such extreme hardships. Note this: Job losses in the state of Indiana have caused the child poverty rate there to spike 29% since 2000. The wealth gap in the United States and around the world is at record levels -- and it has serious consequences.
The Organization for Economic Cooperation and Development reported this week that the gap between the rich and the poor is getting bigger around the world, and that the U.S. is experiencing the biggest dichotomy.
We are experiencing the largest wealth gap in history. Further erosion of the economic floor will only send more people plunging into destitution.
This is why it's so important to fix the economic crisis -- now.
We're all linked
Wealthy nations are trying mightily to correct the daily economic woes plaguing the world. An emergency economic summit has been called. Brash measures have been taken. Interventions of all sorts have been enacted.
Developed nations realize that they are intricately tied to one another's economies because of sophisticated financial instruments. When one nation loses so do the others, as we are finding out these days from as far away as China and Korea.
But there's another link that hasn't been much talked about: the emerging markets. The emerging markets rely on the strength of the bigger economic powers to grow, more so even than bigger economic powers rely on each other. The capital-markets erosion has yet to be fully felt in these countries as the trickles they rely on may stop coming down.
And here is the sad end game of the ripple effect: it takes food out of the mouths of children, it shuts the water taps and it sends hordes of people into lives of despair.
We need to solve the world's economic crisis not only for ourselves so we can continue to live at the standard to which we are accustomed, but also so people can continue to live -- period.
The economic crisis we are facing today and likely tomorrow is about more than numbers. There are faces to go along with every digit of value lost. And that is something we will never be able to quantify.
However, we should recognize the losses we are incurring daily before our eyes -- every five seconds a child dies because of a lack of food or water -- are a matter of life and death.
Thomas M. Kostigen is the author of "You Are Here: Exposing the Vital Link Between What We Do and What That Does to Our Planet" (HarperOne). www.readyouarehere.com
Last Update: 8:25 PM ET Oct 23, 2008
SANTA MONICA, Calif. (MarketWatch) -- The harsh reality of the economic fallout isn't that Joe the plumber can't buy his business or that people's retirement funds are being lost or that unemployment is rising; the harsh reality is that people will die.
Already, since food prices began to rise 100 million more people have been pushed into poverty, according to the World Bank, with as many as two billion on the verge of disaster. Almost half the world's population, let's remember, live on less than $2.50 per day. Millions die annually of hunger and starvation, and more than a billion do not have access to fresh water.
These numbers are poised to rise dramatically with population growth, dwindling natural resources and higher consumer prices across all goods and services. So as the stock market tumbles and the world economy falters, it's important to remember that it's more than financial losses we are talking about, it's the loss of life.
And increasingly it isn't just people in far-off places around the world who are succumbing to such extreme hardships. Note this: Job losses in the state of Indiana have caused the child poverty rate there to spike 29% since 2000. The wealth gap in the United States and around the world is at record levels -- and it has serious consequences.
The Organization for Economic Cooperation and Development reported this week that the gap between the rich and the poor is getting bigger around the world, and that the U.S. is experiencing the biggest dichotomy.
We are experiencing the largest wealth gap in history. Further erosion of the economic floor will only send more people plunging into destitution.
This is why it's so important to fix the economic crisis -- now.
We're all linked
Wealthy nations are trying mightily to correct the daily economic woes plaguing the world. An emergency economic summit has been called. Brash measures have been taken. Interventions of all sorts have been enacted.
Developed nations realize that they are intricately tied to one another's economies because of sophisticated financial instruments. When one nation loses so do the others, as we are finding out these days from as far away as China and Korea.
But there's another link that hasn't been much talked about: the emerging markets. The emerging markets rely on the strength of the bigger economic powers to grow, more so even than bigger economic powers rely on each other. The capital-markets erosion has yet to be fully felt in these countries as the trickles they rely on may stop coming down.
And here is the sad end game of the ripple effect: it takes food out of the mouths of children, it shuts the water taps and it sends hordes of people into lives of despair.
We need to solve the world's economic crisis not only for ourselves so we can continue to live at the standard to which we are accustomed, but also so people can continue to live -- period.
The economic crisis we are facing today and likely tomorrow is about more than numbers. There are faces to go along with every digit of value lost. And that is something we will never be able to quantify.
However, we should recognize the losses we are incurring daily before our eyes -- every five seconds a child dies because of a lack of food or water -- are a matter of life and death.
Thomas M. Kostigen is the author of "You Are Here: Exposing the Vital Link Between What We Do and What That Does to Our Planet" (HarperOne). www.readyouarehere.com
Thursday, October 23, 2008
The golden mystery
Posted: October 23, 2008, 2:01 PM by Jonathan_Chevreau at national post
These must be frustrating times for gold bugs. For years they’ve been waiting for financial armageddon and now that it appears finally to have arrived, the price of gold bullion and gold stocks is plummeting with most stocks and commodities, even though most suppliers of gold coins don't have enough on hand to meet demand. Something strange is happening.
All of which doesn’t stop John Embry, chief investment strategist at Sprott Asset Management from declaring in the Oct. 17th issue of Investors Digest that the U.S. government’s “Rescue will send gold to surreal price level.”
Embry should know about surreal prices. As an owner of Sprott Precious Metals myself, I can confirm the fund is trading at surreal levels – surreally low. There's a big difference between physical gold and the stocks of gold miners and exploration firms. I never thought we'd see gold in the low 700s in this kind of global crisis but if you're in the "5% gold as insurance camp" as are some investment advisors (for example at Rogers Group Financial), then the better play might be the SPDR Gold Trust [GLD/NYSE].
Go to the Gold-Eagle site and you can see various explanations for why gold hasn’t soared as it should have – most revolve around the fact there is a “conspiracy” to suppress the gold price by the central banks, governments and other members of the “fiat” or paper money cartel that rules the world.
Maybe there is, in which case gold could go even lower. You have to hand it to the “fiat” crowd – keeping a lid on gold during the Great Credit Crisis of 2007-2008 is some kind of accomplishment. I borrow that phrase from David Smick, whose The World is Curved published last month should be a must read for investors concerned about the many hidden dangers to the global economy.
I don't count myself in the "gold bug" crowd but am familiar with the arguments. Once upon a time a dollar was backed by gold and in theory you could trade paper dollars for the gold the paper promised. That era was ended in the early 1970s by Richard Nixon and with the exception of the Islamic Dinar, most developed nations run the printing presses with little concern for the fact their paper money is backed only by faith. The U.S. and other developed economies are essentially adding zeros to their computers somewhere in order to create liquidity -- in theory, what they're doing is no different than what Zimbabwe is up to. The difference is Robert Mugabe can't get away with it and so that nation is afflicted with runaway inflation. The U.S. is more subtle about it and the U.S. dollar has actually been moving up in recent months even as gold languishes.
As commodities expert Bob Tebbutt commented today in his daily market update, “Lead should be a buy along with Gold but the general market panic selling is not helping any fundamentally strong market situation. Gold may be the best bet on the board but not when it is declining as fast as it is now.”
Consider too what Larry Swedroe says in his just-published The Only Guide to Alternative Investments You'll Ever Need. Swedroe classifies precious metals equities in his "flawed category" -- behind "The Good" but ahead of "The Bad" and "The Ugly." He concedes PMEs do provide a good hedge against inflation and "there could be a large rebalancing (diversification) bonus" but says for the latter PIMCO's Commodity Real Return Strategy Fund (or an ETF or equivalent) is a better alternative than bullion funds or precious metals equity funds.
Consider too what columnist Jane Bryant Quinn wrote this week: Gold only good for maximum despair. She notes that buying physical gold as insurance against a currency collapse is a rich man's game and warns that "gold isn't even a reliable hedge against inflation." Note too her comment on the GLD ETF: that "you don't own the gold directly."
BMG Bullion Fund [aka Millennium Bullion Fund] does hold precious metals for you, but you have to take equal parts platinum and silver with your gold.
Where do I sit currently? I've always been in the "5% insurance camp" and if the gold price keeps dragging down the value of precious metals funds below the 5%, at some point it may be necessary to "rebalance" back up to 5% by taking profits from some other asset class. But there's the rub: find me an asset class that's in the plus column right now.
Wednesday, October 22, 2008
Cost of living was being replaced by the cost of survival
Up until the Boskin/Greenspan agendum surfaced, the CPI was measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept. The identical basket of goods would be priced at prevailing market costs for each period, and the period-to-period change in the cost of that market basket represented the rate of inflation in terms of maintaining a constant standard of living.
The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.
Sunday, October 19, 2008
Agnico Expects Share Declines, Bankruptcy for Mineral Explorers
Oct. 17 (Bloomberg) -- Agnico-Eagle Mines Ltd., the Canadian gold producer planning to increase output fivefold, said smaller mining and exploration companies may go bankrupt as their cash dwindles and the credit freeze makes borrowing more difficult.
There is another ``leg down'' for shares of so-called junior miners, which rely on external financing to develop their first projects or to fund the search for new metal deposits, Agnico Chief Financial Officer David Garofalo said yesterday in a telephone interview. Agnico will wait for those stocks to drop before making any acquisitions, he said.
``We haven't seen the bankruptcies in the junior market, but those are inevitable,'' Garofalo said from the company's headquarters in Toronto. ``There's no need to rush after opportunities, because the valuations will come down again.''
Mineral-exploration and development stocks have dropped this year as credit markets seized up and metal prices cratered on expectations that a global recession would hurt demand. The shares also have been hurt by the forced sale of investments by hedge and mutual funds required to return clients' cash amid a wave of redemptions.
Agnico fell C$5.24, or 11 percent, to C$41.92 yesterday in Toronto Stock Exchange trading, taking its decline this year to 23 percent and paring its market value to C$6.03 billion ($5.1 billion).
Others have fared worse. Osisko Mining Corp., planning to develop its first gold mine in Canada, declined 63 percent, Detour Gold Corp. is 59 percent lower and Orezone Resources Inc. has plunged 85 percent.
`Roadkill' Companies
Tom Winmill, president of New York-based Midas Management, which invests in gold and natural-resource stocks, said in an interview last week that mining companies with no cash flow are ``roadkill.''
The current conditions for obtaining credit are worse than Garofalo has seen in more than two decades in the mining industry, and there is no indication of when things will ease, he said. Credit has become ``virtually impossible'' for miners and companies in other industries to access, he said.
Agnico doubled its credit line to $600 million last month before the credit squeeze intensified and had $110 million in cash at the end of last month, he said. The company will continue developing new mines in Canada, Mexico and Finland, he said. The projects together will cost about $1.4 billion and will increase output to 1.2 million ounces by 2010.
Additional projects to expand production beyond what already was planned at the Pinos Altos, Kitilla and Meadowbank mines will have to be studied closely before capital is committed, Garofalo said.
There is another ``leg down'' for shares of so-called junior miners, which rely on external financing to develop their first projects or to fund the search for new metal deposits, Agnico Chief Financial Officer David Garofalo said yesterday in a telephone interview. Agnico will wait for those stocks to drop before making any acquisitions, he said.
``We haven't seen the bankruptcies in the junior market, but those are inevitable,'' Garofalo said from the company's headquarters in Toronto. ``There's no need to rush after opportunities, because the valuations will come down again.''
Mineral-exploration and development stocks have dropped this year as credit markets seized up and metal prices cratered on expectations that a global recession would hurt demand. The shares also have been hurt by the forced sale of investments by hedge and mutual funds required to return clients' cash amid a wave of redemptions.
Agnico fell C$5.24, or 11 percent, to C$41.92 yesterday in Toronto Stock Exchange trading, taking its decline this year to 23 percent and paring its market value to C$6.03 billion ($5.1 billion).
Others have fared worse. Osisko Mining Corp., planning to develop its first gold mine in Canada, declined 63 percent, Detour Gold Corp. is 59 percent lower and Orezone Resources Inc. has plunged 85 percent.
`Roadkill' Companies
Tom Winmill, president of New York-based Midas Management, which invests in gold and natural-resource stocks, said in an interview last week that mining companies with no cash flow are ``roadkill.''
The current conditions for obtaining credit are worse than Garofalo has seen in more than two decades in the mining industry, and there is no indication of when things will ease, he said. Credit has become ``virtually impossible'' for miners and companies in other industries to access, he said.
Agnico doubled its credit line to $600 million last month before the credit squeeze intensified and had $110 million in cash at the end of last month, he said. The company will continue developing new mines in Canada, Mexico and Finland, he said. The projects together will cost about $1.4 billion and will increase output to 1.2 million ounces by 2010.
Additional projects to expand production beyond what already was planned at the Pinos Altos, Kitilla and Meadowbank mines will have to be studied closely before capital is committed, Garofalo said.
Friday, October 17, 2008
Why the Fall in the Gold Price When Physical Gold Remains in Huge Demand?
"Why was gold down so sharply yesterday?" asks gold guru Jeff Nichols of American Precious Metals advisers - "and this in the face of reportedly record demand from investors for bullion coins and small bars?"
This seeming disparity in the overt supply demand situation looks like an anomaly, but Nichols points out that news that European central banks sold 7.6 tons of gold in the week ending October 10th has certainly been a heavy burden on the price and helps explain why the metal could not move higher last week and, if selling has continued, in the past few days.
But, Nichols reckons, it has been central bank gold loans, even more so than official gold sales, that have really pulled the rug out from under gold. Gold loans by central banks are an alternative, and invisible, means of injecting liquidity into the banking system. These gold loans to banks and bullion dealers by the leading central banks are probably a significant multiple of outright official sales.
In simple terms, a central bank may lend or deposit gold with a banker or bullion dealer who simultaneously sells forward. Even with the recent substantial increase in gold-lending rates, at the end of the day the dealer receives cash in the transaction at a cost that may be advantageous to short-term money-market borrowing costs. Central banks have great freedom to lend gold outside their government-mandated rescue programs and these lending activities are typically hidden by their accounting practices...
But, Nichols avers, in contrast to the day's gold headline news, continuing strong physical demand for gold has to be a harbinger of gold's ultimate ascent. "It's no longer just "gold bugs" buying the yellow metal but regular investors and savers of all stripes." says Nichols. "These are not traders looking for quick gains but scared people driven by fear seeking to protect their wealth."...
This seeming disparity in the overt supply demand situation looks like an anomaly, but Nichols points out that news that European central banks sold 7.6 tons of gold in the week ending October 10th has certainly been a heavy burden on the price and helps explain why the metal could not move higher last week and, if selling has continued, in the past few days.
But, Nichols reckons, it has been central bank gold loans, even more so than official gold sales, that have really pulled the rug out from under gold. Gold loans by central banks are an alternative, and invisible, means of injecting liquidity into the banking system. These gold loans to banks and bullion dealers by the leading central banks are probably a significant multiple of outright official sales.
In simple terms, a central bank may lend or deposit gold with a banker or bullion dealer who simultaneously sells forward. Even with the recent substantial increase in gold-lending rates, at the end of the day the dealer receives cash in the transaction at a cost that may be advantageous to short-term money-market borrowing costs. Central banks have great freedom to lend gold outside their government-mandated rescue programs and these lending activities are typically hidden by their accounting practices...
But, Nichols avers, in contrast to the day's gold headline news, continuing strong physical demand for gold has to be a harbinger of gold's ultimate ascent. "It's no longer just "gold bugs" buying the yellow metal but regular investors and savers of all stripes." says Nichols. "These are not traders looking for quick gains but scared people driven by fear seeking to protect their wealth."...
Thursday, October 16, 2008
Paulson regrets mistakes on economy
The Associated Press
October 16, 2008 at 12:55 PM EDT
WASHINGTON — U.S. Treasury Secretary Henry Paulson on Thursday expressed regret for the many errors made that led to the biggest financial crisis in seven decades, but he insisted the administration is pursuing the correct course now to end the debacle.
“We're not proud of all the mistakes that were made by many different people, different parties, failures of our regulatory system, failures of market discipline that got us here,” Mr. Paulson said in an interview on Fox Business Network.
But he said he had “no regrets” about the steps the government is taking now to address the problem.
“We will mitigate the impact on the real economy and we'll get this financial system working again,” he said.
Mr. Paulson rejected criticism about the new approach the administration announced on Tuesday to have the government purchase $250-billion (U.S.) in stock from private banks, in effect partially nationalizing the banking system.
He said the initial stock purchases would total $125-billion with the money going to the country's nine largest banks, whose executives were summoned to a meeting with Mr. Paulson at the Treasury on Monday where he applied pressure to make sure they all participated.
Mr. Paulson said it was essential that the nine banks, which hold 50 per cent of the nation's bank deposits, to participate so that there would not be a stigma attached to the program. He said it would encourage other banks who were in greater need of capital to take part.
“When there's fear in the marketplace and there's concern in the marketplace, no one wants to raise their hand and say, I need capital,” Mr. Paulson said.
He said there had been an interest “from a good number of other banks” for the other $125-billion the government has to spend to purchase bank stock. Potentially thousands of banks could be eligible for a portion of those funds.
The $250-billion is part of the $700-billion bailout program for the financial system that Congress passed on Oct. 3 in an effort to get banks to resume more normal lending.
As the plan was rushed through Congress, Mr. Paulson and other officials stressed that the money was needed to buy up bad loans and mortgage-backed securities that are sitting on the books of banks and making them reluctant to make new loans.
Mr. Paulson said Thursday that the program's emphasis was changed after the legislation passed when market developments showed how critical it was to quickly shore up bank balance sheets with fresh capital. He said government was still moving ahead with the program to buy bad assets and the administration has allocated $100-billion for that portion of the program.
In a separate interview on Bloomberg television, Mr. Paulson refused to rule out the possibility that some of the $700-billion program could be used to shore up giant hedge funds, largely unregulated pools of investments, or insurance companies. But he said that he was focused now on dealing with the problems at banks.
“This program is for banks and thrifts,” he said, adding later, “Right now, we're focused on financial institutions that are regulated financial institutions.”
October 16, 2008 at 12:55 PM EDT
WASHINGTON — U.S. Treasury Secretary Henry Paulson on Thursday expressed regret for the many errors made that led to the biggest financial crisis in seven decades, but he insisted the administration is pursuing the correct course now to end the debacle.
“We're not proud of all the mistakes that were made by many different people, different parties, failures of our regulatory system, failures of market discipline that got us here,” Mr. Paulson said in an interview on Fox Business Network.
But he said he had “no regrets” about the steps the government is taking now to address the problem.
“We will mitigate the impact on the real economy and we'll get this financial system working again,” he said.
Mr. Paulson rejected criticism about the new approach the administration announced on Tuesday to have the government purchase $250-billion (U.S.) in stock from private banks, in effect partially nationalizing the banking system.
He said the initial stock purchases would total $125-billion with the money going to the country's nine largest banks, whose executives were summoned to a meeting with Mr. Paulson at the Treasury on Monday where he applied pressure to make sure they all participated.
Mr. Paulson said it was essential that the nine banks, which hold 50 per cent of the nation's bank deposits, to participate so that there would not be a stigma attached to the program. He said it would encourage other banks who were in greater need of capital to take part.
“When there's fear in the marketplace and there's concern in the marketplace, no one wants to raise their hand and say, I need capital,” Mr. Paulson said.
He said there had been an interest “from a good number of other banks” for the other $125-billion the government has to spend to purchase bank stock. Potentially thousands of banks could be eligible for a portion of those funds.
The $250-billion is part of the $700-billion bailout program for the financial system that Congress passed on Oct. 3 in an effort to get banks to resume more normal lending.
As the plan was rushed through Congress, Mr. Paulson and other officials stressed that the money was needed to buy up bad loans and mortgage-backed securities that are sitting on the books of banks and making them reluctant to make new loans.
Mr. Paulson said Thursday that the program's emphasis was changed after the legislation passed when market developments showed how critical it was to quickly shore up bank balance sheets with fresh capital. He said government was still moving ahead with the program to buy bad assets and the administration has allocated $100-billion for that portion of the program.
In a separate interview on Bloomberg television, Mr. Paulson refused to rule out the possibility that some of the $700-billion program could be used to shore up giant hedge funds, largely unregulated pools of investments, or insurance companies. But he said that he was focused now on dealing with the problems at banks.
“This program is for banks and thrifts,” he said, adding later, “Right now, we're focused on financial institutions that are regulated financial institutions.”
Friday, October 10, 2008
President Bush Discusses the Economy
THE PRESIDENT: Good morning. Over the past few days, we have witnessed a startling drop in the stock market -- much of it driven by uncertainty and fear. This has been a deeply unsettling period for the American people. Many of our citizens have serious concerns about their retirement accounts, their investments, and their economic well-being.
Here's what the American people need to know: that the United States government is acting; we will continue to act to resolve this crisis and restore stability to our markets. We are a prosperous nation with immense resources and a wide range of tools at our disposal. We're using these tools aggressively.
The fundamental problem is this: As the housing market has declined, banks holding assets related to home mortgages have suffered serious losses. As a result of these losses, many banks lack the capital or the confidence in each other to make new loans. In turn, our system of credit has frozen, which is keeping American businesses from financing their daily transactions -- and creating uncertainty throughout our economy.
This uncertainty has led to anxiety among our people. And that is understandable -- that anxiety can feed anxiety, and that can make it hard to see all that is being done to solve the problem. The federal government has a comprehensive strategy and the tools necessary to address the challenges in our economy. Fellow citizens: We can solve this crisis -- and we will.
Here are the problems we face and the steps we are taking:
First, key markets are not functioning because there's a lack of liquidity -- the grease necessary to keep the gears of our financial system turning. So the Federal Reserve has injected hundreds of billions of dollars into the system. The Fed has joined with central banks around the world to coordinate a cut in interest rates. This rate cut will allow banks to borrow money more affordably -- and it should help free up additional credit necessary to create jobs, and finance college educations, and help American families meet their daily needs. The Fed has also announced a new program to provide support for the commercial paper market, which is freezing up. As the new program kicks in over the next week or so, it will help revive a key source of short-term financing for American businesses and financial institutions.
Second, some Americans are concerned about whether their money is safe. So the Federal Deposit Insurance Corporation and the National Credit Union Administration have significantly expanded the amount of money insured in savings accounts, and checking accounts, and certificates of deposit. That means that if you have up to $250,000 in one of these insured accounts, every penny of that money is safe. The Treasury Department has also acted to restore confidence in a key element of America's financial system by offering government insurance for money market mutual funds.
Thirdly, we are concerned that some investors could take advantage of the crisis to illegally manipulate the stock market. So the Securities and Exchange Commission has launched rigorous enforcement actions to detect fraud and manipulation in the market. The SEC is focused on preventing abusive practices, such as putting out false information to drive down particular stocks for personal gain. Anyone caught engaging in illegal financial activities will be prosecuted.
Fourth, the decline in the housing market has left many Americans struggling to meet their mortgages and are concerned about losing their homes. My administration has launched two initiatives to help responsible borrowers keep their homes. One is called HOPE NOW, and it brings together homeowners and lenders and mortgage servicers, and others to find ways to prevent foreclosure. The other initiative is aimed at making it easier for responsible homeowners to refinance into affordable mortgages insured by the Federal Housing Administration. So far, these programs have helped more than 2 million Americans stay in their home. And the point is this: If you are struggling to meet your mortgage, there are ways that you can get help.
With these actions to help to prevent foreclosures, we're addressing a key problem in the housing market: The supply of homes now exceeds demand. And as a result, home values have declined. Once supply and demand balance out, our housing market will be able to recover -- and that will help our broader economy begin to grow.
Fifth, we've seen that problems in the financial system are not isolated to the United States. They're also affecting other nations around the globe. So we're working closely with partners around the world to ensure that our actions are coordinated and effective. Tomorrow, I'll meet with the finance ministers from our partners in the G7 and the heads of the International Monetary Fund and World Bank. Secretary Paulson will also meet with finance ministers from the world's 20 leading economies. Through these efforts, the world is sending an unmistakable signal: We're in this together, and we'll come through this together.
And finally, American businesses and consumers are struggling to obtain credit, because banks do not have sufficient capital to make loans. So my administration worked with Congress to quickly pass a $700 billion financial rescue package. This new law authorizes the Treasury Department to use a variety of measures to help bank [sic] rebuild capital -- including buying or insuring troubled assets and purchasing equity of financial institutions. The Department will implement measures that have maximum impact as quickly as possible. Seven hundred billion dollars is a significant amount of money. And as we act, we will do it in a way that is effective.
The plan we are executing is aggressive. It is the right plan. It will take time to have its full impact. It is flexible enough to adapt as the situation changes. And it is big enough to work.
The federal government will continue to take the actions necessary to restore stability to our financial markets and growth to our economy. We have an outstanding economic team carrying out this effort, led by Secretary of the Treasury Hank Paulson, Federal Reserve Chairman Ben Bernanke, SEC Chairman Chris Cox, and FDIC Chair Sheila Bair. I thank them and their dedicated teams for their service during this important moment in our country's history.
This is an anxious time, but the American people can be confident in our economic future. We know what the problems are, we have the tools we need to fix them, and we're working swiftly to do so. Our economy is innovative, industrious and resilient because the American people who make up our economy are innovative, industrious and resilient. We all share a determination to solve this problem -- and that is exactly what we're going to do. May God bless you.
END 10:33 A.M. EDT
Barclays Capital analysts see gold price reaching $1,000 again this year
LONDON (Reuters) -
Gold prices could exceed $1,000 an ounce within the next few months as investors exit other commodities on heightened fears over a global economic downturn, said Barclays Capital.
Barclays' metal analysts, speaking at a press briefing on Thursday, said the current market turmoil is likely to lead to short-covering in base metals while long-term investors head for gold which is perceived a relatively safe asset.
"In current volatility, I certainly wouldn't rule out $1000 with investors turning more positive toward gold," said Suki Cooper, a commodity analyst at Barclays Capital.
Earlier on Thursday, spot gold hit an intra-day high of $908.90 an ounce -- near a 1-week high of $920 touched on Wednesday well below a record high of $1,030.80 hit in March as the dollar fell and financial worries deepened.
With the credit crisis sending global markets around the world into a downward spin in recent months, Barclays analysts said demand for base metals worldwide is likely to worsen.
"Huge uncertainty in the global economy and sharp downward revision to growth expectations suggest a period of very weak metals prices for the rest of this year and into early 2009," said Barclays analyst Kevin Norrish.
Norrish added that in the base metals complex, prices for lead, nickel and zinc could fall further and trade below their marginal cost of production with a potential longer period of attrition.
Copper and tin were seen as long-term winners, as the two markets are dogged by tight-supplies.
Barclays' forecasts for 2009 are copper at $6,500 a tonne, tin at $17,000 and aluminum at $2,600.
Copper for three-months delivery on the London Metal Exchange was at $5,335 a tonne by 1622 GMT, while tin was at $14,700 and aluminum at $2,300.
Ahead of LME Week, Norrish said the fall in metal prices and bearish outlook "how bad will things get" is set to be a main focus.
But Norrish was optimistic due to the majority of demand for metals now coming from developing rather than industrialized economies as was the case in previous slowdowns.
"Thing's won't be quite as bad as in previous downturns," he said, although a difficult 3-6 months awaited metal investors.
Gold prices could exceed $1,000 an ounce within the next few months as investors exit other commodities on heightened fears over a global economic downturn, said Barclays Capital.
Barclays' metal analysts, speaking at a press briefing on Thursday, said the current market turmoil is likely to lead to short-covering in base metals while long-term investors head for gold which is perceived a relatively safe asset.
"In current volatility, I certainly wouldn't rule out $1000 with investors turning more positive toward gold," said Suki Cooper, a commodity analyst at Barclays Capital.
Earlier on Thursday, spot gold hit an intra-day high of $908.90 an ounce -- near a 1-week high of $920 touched on Wednesday well below a record high of $1,030.80 hit in March as the dollar fell and financial worries deepened.
With the credit crisis sending global markets around the world into a downward spin in recent months, Barclays analysts said demand for base metals worldwide is likely to worsen.
"Huge uncertainty in the global economy and sharp downward revision to growth expectations suggest a period of very weak metals prices for the rest of this year and into early 2009," said Barclays analyst Kevin Norrish.
Norrish added that in the base metals complex, prices for lead, nickel and zinc could fall further and trade below their marginal cost of production with a potential longer period of attrition.
Copper and tin were seen as long-term winners, as the two markets are dogged by tight-supplies.
Barclays' forecasts for 2009 are copper at $6,500 a tonne, tin at $17,000 and aluminum at $2,600.
Copper for three-months delivery on the London Metal Exchange was at $5,335 a tonne by 1622 GMT, while tin was at $14,700 and aluminum at $2,300.
Ahead of LME Week, Norrish said the fall in metal prices and bearish outlook "how bad will things get" is set to be a main focus.
But Norrish was optimistic due to the majority of demand for metals now coming from developing rather than industrialized economies as was the case in previous slowdowns.
"Thing's won't be quite as bad as in previous downturns," he said, although a difficult 3-6 months awaited metal investors.
Gold should move to new records
BMO Global Portfolio Strategist Donald G. M. Coxe forecasts that commodity stocks will reach new profit peaks as they "lick their wounds, while still recording high returns on equity and still boasting high quality balance sheets.
In his report, Basic Points Homeicide: the Crime of the Century, Coxe predicts, "When the next global economic recovery takes flight, their [commodity stock] profit will reach new peaks."
Although gold prices actually fell last week (recovering again later), delighting central banks and giving Fed Chairman Ben Bernanke greater freedom to cut interest rates in the first financial crisis in more than thirty years in which gold failed to rally, Coxe firmly remains bullish on gold.
On July 13th, many of the best-performing equity hedge funds were heavily invested in commodities and commodities stock, when U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke deliberately acted to force hedge fund liquidation of commodity futures and commodity stocks.
"They succeeded brilliantly partly because political pressure forced unwinding of many large pension funds' passive investment in commodities at the same time hedge funds were in panic liquidation," Coxe said. "After the July 13th massacre, these funds were hit hard and faced withdrawals."
"In recent weeks, other hedge funds have been feasting on their brethren. Knowing that the high-fliers were loading leading commodity stocks...the predators shorted their stocks," he suggested.
These hedge funds are "delighted to find stocks they can short, so going after Potash, Monsanto, Deere, Mosaic, Suncor, and other major winners is like shooting fish in a barrel as long as overlevered hedge funds are still having to raise cash," he added.
"History may well record that the "Midnight Massacre [the July 13th massacre], which was a devastating attack on hedge funds and commodity investors, was the most brilliantly executed piece of surgical intervention in modern mining history, Coxe asserted. He believes Paulson and Bernanke stopped the total collapse of Fannie Mae and Freddie Mac, triggered a 40% short-covering rally in the bank stocks, and ultimately will lower the top-line Consumer Price Index for months to come.
Meanwhile, Coxe suggested that "mining stocks have been savaged by falling base metal prices, rising metal inventories, and a fast-spreading global recession. The base metal stocks' collapse is one big selloff that is based on actual economic data, rather than runaway pessimism."
But the bright spot in the panic-driven selloff in commodity stocks is that China could make "several bold and assertive" commodity acquisitions abroad, using some of its vast hoard in Treasuries and Fannie-Freddie paper to buy reserves in the ground in politically-secure areas of the world-or undersea," he suggested.
INVESTMENT RECOMMENDATIONS
Coxe advised "Long-term investors should not delay much longer in picking among the wounded commodity stocks on the market's bloodied battlefield. The best of these companies are among the best the world has to offer, in terms of importance to the global economy, competitive position, balance sheets, cash flow and management quality. At current prices, many of them sell for no more than a discounted value of their reserves in the ground, with no allowance for their balance sheet assets."
While commodity prices fall during recessions, Coxe noted that "the real value of great commodity stocks does not."
"Why? Because recessions are devastating to smaller, undercapitalized commodity producers, and they become easy pickings for the majors once they see light at the end of the tunnel."
"`There's nothing surer, the rich get rich and the poor get poorer' was a Depression song, but it will doubtless have relevance as the big commodity companies survey the landscape," he said.
Meanwhile, Coxe stressed that "gold and gold mining shares remain the best way to reduce endogenous risk within an equity portfolio. Although inflation is bound to recede for at least a few months, the amount of stimulus being injected into the global system will prove highly intoxicated once the downturn bottoms out, and gold should move to new records."
In his report, Basic Points Homeicide: the Crime of the Century, Coxe predicts, "When the next global economic recovery takes flight, their [commodity stock] profit will reach new peaks."
Although gold prices actually fell last week (recovering again later), delighting central banks and giving Fed Chairman Ben Bernanke greater freedom to cut interest rates in the first financial crisis in more than thirty years in which gold failed to rally, Coxe firmly remains bullish on gold.
On July 13th, many of the best-performing equity hedge funds were heavily invested in commodities and commodities stock, when U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke deliberately acted to force hedge fund liquidation of commodity futures and commodity stocks.
"They succeeded brilliantly partly because political pressure forced unwinding of many large pension funds' passive investment in commodities at the same time hedge funds were in panic liquidation," Coxe said. "After the July 13th massacre, these funds were hit hard and faced withdrawals."
"In recent weeks, other hedge funds have been feasting on their brethren. Knowing that the high-fliers were loading leading commodity stocks...the predators shorted their stocks," he suggested.
These hedge funds are "delighted to find stocks they can short, so going after Potash, Monsanto, Deere, Mosaic, Suncor, and other major winners is like shooting fish in a barrel as long as overlevered hedge funds are still having to raise cash," he added.
"History may well record that the "Midnight Massacre [the July 13th massacre], which was a devastating attack on hedge funds and commodity investors, was the most brilliantly executed piece of surgical intervention in modern mining history, Coxe asserted. He believes Paulson and Bernanke stopped the total collapse of Fannie Mae and Freddie Mac, triggered a 40% short-covering rally in the bank stocks, and ultimately will lower the top-line Consumer Price Index for months to come.
Meanwhile, Coxe suggested that "mining stocks have been savaged by falling base metal prices, rising metal inventories, and a fast-spreading global recession. The base metal stocks' collapse is one big selloff that is based on actual economic data, rather than runaway pessimism."
But the bright spot in the panic-driven selloff in commodity stocks is that China could make "several bold and assertive" commodity acquisitions abroad, using some of its vast hoard in Treasuries and Fannie-Freddie paper to buy reserves in the ground in politically-secure areas of the world-or undersea," he suggested.
INVESTMENT RECOMMENDATIONS
Coxe advised "Long-term investors should not delay much longer in picking among the wounded commodity stocks on the market's bloodied battlefield. The best of these companies are among the best the world has to offer, in terms of importance to the global economy, competitive position, balance sheets, cash flow and management quality. At current prices, many of them sell for no more than a discounted value of their reserves in the ground, with no allowance for their balance sheet assets."
While commodity prices fall during recessions, Coxe noted that "the real value of great commodity stocks does not."
"Why? Because recessions are devastating to smaller, undercapitalized commodity producers, and they become easy pickings for the majors once they see light at the end of the tunnel."
"`There's nothing surer, the rich get rich and the poor get poorer' was a Depression song, but it will doubtless have relevance as the big commodity companies survey the landscape," he said.
Meanwhile, Coxe stressed that "gold and gold mining shares remain the best way to reduce endogenous risk within an equity portfolio. Although inflation is bound to recede for at least a few months, the amount of stimulus being injected into the global system will prove highly intoxicated once the downturn bottoms out, and gold should move to new records."
Thursday, October 9, 2008
China's Premier says country's resources demand will stay strong
CANBERRA (Reuters) -
Australia's Prime Minister Kevin Rudd said China has assured him that demand for Australian resources will stay strong, shielding the commodities-dependent economy from the global financial crisis.
Mandarin-speaking Rudd said he telephoned Chinese Premier Wen Jiabao on Monday and was told commodity demand would hold up despite China's growth slipping from "11 and 12 percent down to 9 and 10 percent". "Part of the long-term strategy of this government, and the strategy for the period immediately ahead, is how to more deeply and broadly engage with the Chinese economy," Rudd told Australian media on Thursday.
Australia is pinning its hopes on China to ride out the current turmoil on international financial markets. The country's central bank slash interest rates by 1 percentage point this week to try and maintain economic growth and liquidity.
Shares in Australia's fourth largest iron ore producer, Mount Gibson Iron Ltd, dropped sharply on Thursday after the company said key Chinese customers had requested shipment delays due to stockpiles at Chinese ports and less steelmaking.
Markets saw the move as a sign of weakening Chinese demand for Australian commodities amid global market uncertainty.
China's economy may be critical to Rudd's fledgling centre-left government, elected only last year, with polls slipping and analysts warning that a severe downturn could see Rudd ousted after only one three-year term in 2010 elections.
The IMF's latest World Economic Outlook this week predicted strong Chinese and Asian demand for Australia's mineral and energy exports would help Canberra dodge any global recession, although growth would slip from 4.2 percent in 2007 to 2.5 percent in 2008 and 2.2 percent in 2009.
China vies with Japan as Australia's biggest trading partner, with two-way trade worth A$52 billion ($34 billion). Beijing now accounts for 14.2 percent of all Australian exports, mostly in iron ore, and economic ties are growing at 16.8 percent a year.
Australian Finance Minister Lindsay Tanner said Australia was well placed to lift exports to China beyond the mining boom as the two countries moved nearer to a free trade pact during the latest round of talks last week in a three-year negotiation.
"Because of our proximity to China and because of connections through things like mining and of course the imports we get from China we're well positioned to broaden that relationship into things like professional services and financial services," Tanner told Australian radio.
Australia's Prime Minister Kevin Rudd said China has assured him that demand for Australian resources will stay strong, shielding the commodities-dependent economy from the global financial crisis.
Mandarin-speaking Rudd said he telephoned Chinese Premier Wen Jiabao on Monday and was told commodity demand would hold up despite China's growth slipping from "11 and 12 percent down to 9 and 10 percent". "Part of the long-term strategy of this government, and the strategy for the period immediately ahead, is how to more deeply and broadly engage with the Chinese economy," Rudd told Australian media on Thursday.
Australia is pinning its hopes on China to ride out the current turmoil on international financial markets. The country's central bank slash interest rates by 1 percentage point this week to try and maintain economic growth and liquidity.
Shares in Australia's fourth largest iron ore producer, Mount Gibson Iron Ltd, dropped sharply on Thursday after the company said key Chinese customers had requested shipment delays due to stockpiles at Chinese ports and less steelmaking.
Markets saw the move as a sign of weakening Chinese demand for Australian commodities amid global market uncertainty.
China's economy may be critical to Rudd's fledgling centre-left government, elected only last year, with polls slipping and analysts warning that a severe downturn could see Rudd ousted after only one three-year term in 2010 elections.
The IMF's latest World Economic Outlook this week predicted strong Chinese and Asian demand for Australia's mineral and energy exports would help Canberra dodge any global recession, although growth would slip from 4.2 percent in 2007 to 2.5 percent in 2008 and 2.2 percent in 2009.
China vies with Japan as Australia's biggest trading partner, with two-way trade worth A$52 billion ($34 billion). Beijing now accounts for 14.2 percent of all Australian exports, mostly in iron ore, and economic ties are growing at 16.8 percent a year.
Australian Finance Minister Lindsay Tanner said Australia was well placed to lift exports to China beyond the mining boom as the two countries moved nearer to a free trade pact during the latest round of talks last week in a three-year negotiation.
"Because of our proximity to China and because of connections through things like mining and of course the imports we get from China we're well positioned to broaden that relationship into things like professional services and financial services," Tanner told Australian radio.
Wednesday, October 8, 2008
Democracy My Ass
.Source: James West, Midas Letter 10/07/2008
During the most recent turn in the financial debacle, and in a masterful display of “perception management”, the bill to inject a further $700 Billion dollar remedy into the $500 TRILLION dollar (derivatives-driven) problem was amped up to $812 Billion and passed during a late Friday vote. Raising the maximum insurable amount for bank deposits to $250,000 from $100,000 during the process is actually a sneaky and effective way to add untold trillions more ostensibly to the total bailout number if banks continue to fail in quanitity.
Any semblance of a democratic or capitalistic appearance to addressing this problem has now been thoroughly abandoned, even as market observers suggested the first bill was voted down because it was perceived as “exceedingly socialist”.
Since it would appear that “democracy” has been redefined to embody government of the masses by the select few richest groups that wield absolute influence over the government, I thought it relevant to here include a more traditional definition of democracy courtesy of Merriam Webster.
1. a government by the people; especially : rule of the majority; 1b. a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections; 2. a political unit that has a democratic government; 3. the common people especially when constituting the source of political authority; 4. the absence of hereditary or arbitrary class distinctions or privileges.
Institutional money managers obviously support the continuing injection of capital into the markets to prevent the total collapse in value of their portfolios that further erosion in the confidence of the monetary system might induce.
But it is this very system which has cause the current problem, and shoring up a broken system that preserves itself is ludicrous. Let the damn thing fall down and break so we can set about rebuilding a more equitable system that is not so prone to abuse by those in positions of influence.
As individuals, it is high time we acknowledged that the duplicitous priority of our elected officials when it comes to colluding with those who prioritize self enrichment over responsible government negates the very possibility of a democratic free market system.
How is a democracy possible when the financial requirements of even participating in a municipal level election preclude that participation by all except those of substantial financial means. The ensures that representation is ONLY possible by the wealthy, whose interests are inherently opposed to the un-wealthy population..
According to democracywatch.com:
A democracy a society in which all adults have easily accessible, meaningful, and effective ways: 1. to participate in the decision-making processes of every organization that makes decisions or takes actions that affect them, and; 2. to hold other individuals, and those in these organizations who are responsible for making decisions and taking actions, fully accountable if their decisions or actions violate fundamental human rights, or are dishonest, unethical, unfair, secretive, inefficient, unrepresentative, unresponsive or irresponsible; so that all organizations in the society are citizen-owned, citizen-controlled, and citizen-driven, and all individuals and organizations are held accountable for wrongdoing.
The bi-partisan structure of the U.S. political arena negate the possibility of either of these tenets achieving any sort of reality.
It is important for investors and more importantly citizens to understand that the administration of the global economy is undertaken inconsistent with both democracy and capitalism. The actual philosophical descriptors applicable to the elitist hierarchical structure that dominates the global economy would more accurately be “fascist authoritarianism”. Whereas America is generally portrayed and believed by its citizens to be the pillar of western ideals characterized by the concepts of “freedom” and “democracy”, the reality is that those, combined with the stipulation of an “un-biased media”, are in fact smokescreens designed to obscure the reality, and over-burden the thinking of the average individual with corporate messaging designed to keep the consumer engine firing on all cylinders while simultaneously ensuring civil obedience through a collectively shared over-stimulated work ethic.
There is absolutely no reason why a government by referendum is not possible on major issues that affect every voter such as monetary policy, health care, and social spending. Given the advanced state of our interconnected world, a responsible democratic government should concern itself more with the improvement of the baseline standard of living for its citizenry as opposed to ensuring the unfettered profiteering of the rapacious minority of human beings playing ball in the biggest financial stadium.
Agitating for a complete redesign of the financial system – particularly that associated with the twin systems is the responsibility of every single citizen out there.
That this is impossible given the currently falsely labeled “democracy” is a given, and so it is the political system that must be revamped alongside the financial to ensure that each and every voice has a direct vote on policy, not just candidacy.
Winston Churchill said “Democracy is an imperfect system…but it is better than the alternatives.” That may be true, but it is some time now that we haven’t really been living under that system to find out. Now is the time for the establishment of real democracy, and an end to the elitist tiered authoritarian shadow government that currently prevails.
Unfortunately, the barrier to this necessary evolutionary step is first encountered at the educational level. When it is elite donors who are able to exclusively influence the curriculum of the top post secondary institutions on pain of withdrawing their financial support, a education balanced by the immersion by the student in both a classical liberal education (from which perspective is derived) in tandem with that of modern business and political theory. So add a redevelopment of how education is governed to the list of our cultural institutions that are now outdated and churning out mal-educated students
During the most recent turn in the financial debacle, and in a masterful display of “perception management”, the bill to inject a further $700 Billion dollar remedy into the $500 TRILLION dollar (derivatives-driven) problem was amped up to $812 Billion and passed during a late Friday vote. Raising the maximum insurable amount for bank deposits to $250,000 from $100,000 during the process is actually a sneaky and effective way to add untold trillions more ostensibly to the total bailout number if banks continue to fail in quanitity.
Any semblance of a democratic or capitalistic appearance to addressing this problem has now been thoroughly abandoned, even as market observers suggested the first bill was voted down because it was perceived as “exceedingly socialist”.
Since it would appear that “democracy” has been redefined to embody government of the masses by the select few richest groups that wield absolute influence over the government, I thought it relevant to here include a more traditional definition of democracy courtesy of Merriam Webster.
1. a government by the people; especially : rule of the majority; 1b. a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections; 2. a political unit that has a democratic government; 3. the common people especially when constituting the source of political authority; 4. the absence of hereditary or arbitrary class distinctions or privileges.
Institutional money managers obviously support the continuing injection of capital into the markets to prevent the total collapse in value of their portfolios that further erosion in the confidence of the monetary system might induce.
But it is this very system which has cause the current problem, and shoring up a broken system that preserves itself is ludicrous. Let the damn thing fall down and break so we can set about rebuilding a more equitable system that is not so prone to abuse by those in positions of influence.
As individuals, it is high time we acknowledged that the duplicitous priority of our elected officials when it comes to colluding with those who prioritize self enrichment over responsible government negates the very possibility of a democratic free market system.
How is a democracy possible when the financial requirements of even participating in a municipal level election preclude that participation by all except those of substantial financial means. The ensures that representation is ONLY possible by the wealthy, whose interests are inherently opposed to the un-wealthy population..
According to democracywatch.com:
A democracy a society in which all adults have easily accessible, meaningful, and effective ways: 1. to participate in the decision-making processes of every organization that makes decisions or takes actions that affect them, and; 2. to hold other individuals, and those in these organizations who are responsible for making decisions and taking actions, fully accountable if their decisions or actions violate fundamental human rights, or are dishonest, unethical, unfair, secretive, inefficient, unrepresentative, unresponsive or irresponsible; so that all organizations in the society are citizen-owned, citizen-controlled, and citizen-driven, and all individuals and organizations are held accountable for wrongdoing.
The bi-partisan structure of the U.S. political arena negate the possibility of either of these tenets achieving any sort of reality.
It is important for investors and more importantly citizens to understand that the administration of the global economy is undertaken inconsistent with both democracy and capitalism. The actual philosophical descriptors applicable to the elitist hierarchical structure that dominates the global economy would more accurately be “fascist authoritarianism”. Whereas America is generally portrayed and believed by its citizens to be the pillar of western ideals characterized by the concepts of “freedom” and “democracy”, the reality is that those, combined with the stipulation of an “un-biased media”, are in fact smokescreens designed to obscure the reality, and over-burden the thinking of the average individual with corporate messaging designed to keep the consumer engine firing on all cylinders while simultaneously ensuring civil obedience through a collectively shared over-stimulated work ethic.
There is absolutely no reason why a government by referendum is not possible on major issues that affect every voter such as monetary policy, health care, and social spending. Given the advanced state of our interconnected world, a responsible democratic government should concern itself more with the improvement of the baseline standard of living for its citizenry as opposed to ensuring the unfettered profiteering of the rapacious minority of human beings playing ball in the biggest financial stadium.
Agitating for a complete redesign of the financial system – particularly that associated with the twin systems is the responsibility of every single citizen out there.
That this is impossible given the currently falsely labeled “democracy” is a given, and so it is the political system that must be revamped alongside the financial to ensure that each and every voice has a direct vote on policy, not just candidacy.
Winston Churchill said “Democracy is an imperfect system…but it is better than the alternatives.” That may be true, but it is some time now that we haven’t really been living under that system to find out. Now is the time for the establishment of real democracy, and an end to the elitist tiered authoritarian shadow government that currently prevails.
Unfortunately, the barrier to this necessary evolutionary step is first encountered at the educational level. When it is elite donors who are able to exclusively influence the curriculum of the top post secondary institutions on pain of withdrawing their financial support, a education balanced by the immersion by the student in both a classical liberal education (from which perspective is derived) in tandem with that of modern business and political theory. So add a redevelopment of how education is governed to the list of our cultural institutions that are now outdated and churning out mal-educated students
Monday, October 6, 2008
Why markets are plunging, why it's worse in Canada
ROB CARRICK
Globe and Mail Update
October 6, 2008 at 2:10 PM EDT
OTTAWA — What happened in stock markets Monday?
The S&P/TSX composite index plunged more than 1,000 points, or about 9.5 per cent, by mid-morning, then bounced higher so that the loss for the day came in around 650 points just before noon. The big U.S. indexes, the Dow Jones industrial average and S&P 500 stock index, were both down about 4 per cent, while European and Far Eastern markets were down sharply as well. The early morning plunge put the Canadian market in sight of its 11.3-per-cent drop on Oct. 19, 1987, which is known as Black Monday. The Dow fell 22.6 per cent that day.
What's driving the markets lower?
Markets in Canada and around the world are being hit hard by concern that the $700-billion (U.S.) bailout of the U.S. financial sector won't be enough to alleviate a worsening credit crunch, where major banks are drastically curbing their lending and hurting the ability of companies and even some governments to finance their operations. Worries that an economic slowdown in the United States will lead to a global recession are also hurting the stock markets. The Canadian market is being hit harder than most today because the S&P/TSX composite index is heavily influenced by resource stocks, which are being hammered on fears that demand for oil, metals and fertilizers will fall as global economic growth slows. Oil prices were off a few dollars a barrel today, putting them about 40 per cent below where they were at their July peak, though they're still higher than they were a year ago.
Are there any safe places to invest right now?
The old cliché “cash is king” applies. Government Treasury Bills and short-term bonds are safe, and so are guaranteed investment certificates and high-interest savings accounts offered by banks, trust companies and credit unions that are members of a deposit insurance scheme like the federally-backed Canada Deposit Insurance Corp. Money market funds are not loss-proof, but they are an option if you're looking for a place to park some money.
Are any parts of the stock market doing OK right now?
Not really. It's more a matter of finding sectors that are less beaten up than others. Consumer staples – think groceries and drugstores – is one. Telecom companies are another. Financials, believe it or not, have also hung in comparatively well in the recent market downturn after some big losses previously.
What should you do now?
Selling now means locking in potentially gut-wrenching losses that will ease when the market turns around. One common feature of bear markets for stocks: They all end and are replaced by bull markets. If you can stand the potential for more losses in the near term, buying now will set up long-term gains in stocks.
What's happening in the credit markets?
The Bank of Canada continued its efforts to add some grease to the financial system , but there was no sign of any change for the better. In the United States, pressure has been building on the Federal Reserve to push through an emergency interest rate cut to bolster confidence. There has been talk that other countries would similarly cut rates.
Globe and Mail Update
October 6, 2008 at 2:10 PM EDT
OTTAWA — What happened in stock markets Monday?
The S&P/TSX composite index plunged more than 1,000 points, or about 9.5 per cent, by mid-morning, then bounced higher so that the loss for the day came in around 650 points just before noon. The big U.S. indexes, the Dow Jones industrial average and S&P 500 stock index, were both down about 4 per cent, while European and Far Eastern markets were down sharply as well. The early morning plunge put the Canadian market in sight of its 11.3-per-cent drop on Oct. 19, 1987, which is known as Black Monday. The Dow fell 22.6 per cent that day.
What's driving the markets lower?
Markets in Canada and around the world are being hit hard by concern that the $700-billion (U.S.) bailout of the U.S. financial sector won't be enough to alleviate a worsening credit crunch, where major banks are drastically curbing their lending and hurting the ability of companies and even some governments to finance their operations. Worries that an economic slowdown in the United States will lead to a global recession are also hurting the stock markets. The Canadian market is being hit harder than most today because the S&P/TSX composite index is heavily influenced by resource stocks, which are being hammered on fears that demand for oil, metals and fertilizers will fall as global economic growth slows. Oil prices were off a few dollars a barrel today, putting them about 40 per cent below where they were at their July peak, though they're still higher than they were a year ago.
Are there any safe places to invest right now?
The old cliché “cash is king” applies. Government Treasury Bills and short-term bonds are safe, and so are guaranteed investment certificates and high-interest savings accounts offered by banks, trust companies and credit unions that are members of a deposit insurance scheme like the federally-backed Canada Deposit Insurance Corp. Money market funds are not loss-proof, but they are an option if you're looking for a place to park some money.
Are any parts of the stock market doing OK right now?
Not really. It's more a matter of finding sectors that are less beaten up than others. Consumer staples – think groceries and drugstores – is one. Telecom companies are another. Financials, believe it or not, have also hung in comparatively well in the recent market downturn after some big losses previously.
What should you do now?
Selling now means locking in potentially gut-wrenching losses that will ease when the market turns around. One common feature of bear markets for stocks: They all end and are replaced by bull markets. If you can stand the potential for more losses in the near term, buying now will set up long-term gains in stocks.
What's happening in the credit markets?
The Bank of Canada continued its efforts to add some grease to the financial system , but there was no sign of any change for the better. In the United States, pressure has been building on the Federal Reserve to push through an emergency interest rate cut to bolster confidence. There has been talk that other countries would similarly cut rates.
Junior mining sector to be trimmed, analysts say
TORONTO, Oct 4 (Reuters) - The number of publicly-traded junior mining companies should fall as tight credit conditions and plunging commodity prices force explorers to either find deep-pocketed partners or disappear, a Canadian mining conference was told on Saturday.
Speaking at the Toronto Resource Investment Conference, equity analyst and "Bottom Fish Report" publisher John Kaiser said smaller mining players with proven resources or production have the best chance to survive the recent shift in market conditions.
"What we are going through now is a winnowing of the 1500 companies that are out there," said Kaiser, referring to small explorers who mostly trade on Canada's resource-dominated TSX Venture Exchange.
"Only the ones with truly competent management ... and ounces and pounds in the ground that are worth defending from predators or worth keeping (will survive)."
Resource stocks have been hit particularly hard in the recent stock sell-off, with smaller players bearing the worst of it as tight credit conditions have forced some to cancel or delay building mines.
The TSX Venture Exchange composite index , which tracks companies on Canada's junior stock market and is largely made up of mine exploration companies, is down more than 51 percent since mid June.
Meanwhile, the S&P/TSX materials subgroup , which tracks Canadian mid-to-large cap mining stocks, is down 44 percent over the same period.
The sell-off has come as metals prices have retreated, but not at nearly the same rate. Gold is down about 10 percent since June, while copper MCU3 is down 29 percent and zinc MZN0 is down 18 percent.
"If you do a simple valuation measure ... most of them are trading at ratios we've never seen before," said independent analyst David Skarica.
The analysts said the sell-off has been in large part due to hedge funds, which have had to liquidate their higher-risk stocks. Such selling is likely not over, said Kaiser.
"We're going to see another round of redemption selling in this quarter," due to late-season selling to use stock losses as a tax benefit, said Kaiser.
The bright spot for miners who are able to stay independent, said Kaiser, is that the clearing out of smaller players and delay of some projects will pinch metal supply in the longer term, which should drive resource prices higher.
"We might see a period of metal taking off again and spiking to crazy levels," he said.
Speaking at the Toronto Resource Investment Conference, equity analyst and "Bottom Fish Report" publisher John Kaiser said smaller mining players with proven resources or production have the best chance to survive the recent shift in market conditions.
"What we are going through now is a winnowing of the 1500 companies that are out there," said Kaiser, referring to small explorers who mostly trade on Canada's resource-dominated TSX Venture Exchange.
"Only the ones with truly competent management ... and ounces and pounds in the ground that are worth defending from predators or worth keeping (will survive)."
Resource stocks have been hit particularly hard in the recent stock sell-off, with smaller players bearing the worst of it as tight credit conditions have forced some to cancel or delay building mines.
The TSX Venture Exchange composite index , which tracks companies on Canada's junior stock market and is largely made up of mine exploration companies, is down more than 51 percent since mid June.
Meanwhile, the S&P/TSX materials subgroup , which tracks Canadian mid-to-large cap mining stocks, is down 44 percent over the same period.
The sell-off has come as metals prices have retreated, but not at nearly the same rate. Gold
"If you do a simple valuation measure ... most of them are trading at ratios we've never seen before," said independent analyst David Skarica.
The analysts said the sell-off has been in large part due to hedge funds, which have had to liquidate their higher-risk stocks. Such selling is likely not over, said Kaiser.
"We're going to see another round of redemption selling in this quarter," due to late-season selling to use stock losses as a tax benefit, said Kaiser.
The bright spot for miners who are able to stay independent, said Kaiser, is that the clearing out of smaller players and delay of some projects will pinch metal supply in the longer term, which should drive resource prices higher.
"We might see a period of metal taking off again and spiking to crazy levels," he said.
Friday, October 3, 2008
Wealthy investors drain supplies of gold by hoarding bullion bars
By Javier Blas in Kyoto
Published: October 1 2008 03:00 | Last updated: October 1 2008 03:00
Investors in gold are demanding "unprecedented" physical levels of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen.
Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.
"There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars."
The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds.
Philip Clewes-Garner, associate director of precious metals at HSBC, added that investors were not flying into gold simply because they saw it as a haven amid Wall Street's woes. "It is a flight into gold because it is a physical asset," he said.
"Vault staff are also doing overtime," another banker at the LBMA meeting said, adding that investors in some countries were paying premiums of up to $25 an ounce above the London spot price to secure scarce gold bars.
Spot gold prices in London yesterday traded at about $900 an ounce, more than 25 per cent above the level before Lehman Brothers' collapse. Although some traders said the rush into physical gold could boost prices, others cautioned that prices were depressing jewellery demand, capping any price gain. Industry executives said gold refineries and government mints were working at full throttle to keep up with investor demand, but acknowledged they were suffering from shortages, particularly on coins.
Johan Botha, a spokesman for the Rand Refinery in South Africa, which manufactures the Krugerrand, the world's most popular gold coin, said the plant was now running at full capacity seven days a week. "Even so, now and then we have shortages," he said.
The Austrian mint, which manufactures the Vienna Philharmonic, a popular gold coin in Europe, said it had extended work to the weekends to accommodate soaring demand.
Last week, the US mint suspended the sale of its American Buffalo coin after it ran out of stocks.
Original Post
Published: October 1 2008 03:00 | Last updated: October 1 2008 03:00
Investors in gold are demanding "unprecedented" physical levels of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen.
Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.
"There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars."
The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds.
Philip Clewes-Garner, associate director of precious metals at HSBC, added that investors were not flying into gold simply because they saw it as a haven amid Wall Street's woes. "It is a flight into gold because it is a physical asset," he said.
"Vault staff are also doing overtime," another banker at the LBMA meeting said, adding that investors in some countries were paying premiums of up to $25 an ounce above the London spot price to secure scarce gold bars.
Spot gold prices in London yesterday traded at about $900 an ounce, more than 25 per cent above the level before Lehman Brothers' collapse. Although some traders said the rush into physical gold could boost prices, others cautioned that prices were depressing jewellery demand, capping any price gain. Industry executives said gold refineries and government mints were working at full throttle to keep up with investor demand, but acknowledged they were suffering from shortages, particularly on coins.
Johan Botha, a spokesman for the Rand Refinery in South Africa, which manufactures the Krugerrand, the world's most popular gold coin, said the plant was now running at full capacity seven days a week. "Even so, now and then we have shortages," he said.
The Austrian mint, which manufactures the Vienna Philharmonic, a popular gold coin in Europe, said it had extended work to the weekends to accommodate soaring demand.
Last week, the US mint suspended the sale of its American Buffalo coin after it ran out of stocks.
Original Post
Barrick, Goldcorp cut on lower copper price estimates
Blackmont Capital has reduced its copper forecast, sending price targets lower on Canada's gold giants.
Precious minerals analyst Richard Gray told clients in a note that Blackmont has lowered its copper price forecast to US$3 per pound for the fourth quarter of 2008 from US$3.65. The research firm also now expects US$3 copper until 2012. Blackmont's previous estimates were for US$4 copper in 2010 and US$3.50 copper in 2011.
Mr. Gray said Barrick Gold Corp. will be impacted by the slumping copper prices, due to its copper production at the Zaldivar and Osborne mine.
"We are lowering our NAVPS to US$29.50 (from US$30); our EPS estimates by 3% (2008), 10% (2009), and 16% (2010); and our CFPS estimates by 2% (2008), 7% (2009), and 11% (2010)," he wrote.
As a result, he dropped his price target on the stock from $53 to $49, but with upside of 47% still available, he maintained his "buy" rating.
"Barrick [is] expected to benefit from a flight to quality and liquidity in the gold sector," he said
For similar reasons, Mr. Gray lowered his price target on Goldcorp Inc. from $50 to $45, while maintaining his "buy" rating on the stock. His said Goldcorp, which is impacted due to the copper production from the 37.5% owned Alumbrera mine, will see its NAVPS drop from US$24 to US$23, while his EPS estimate falls 9% and 15% in 2009 and 2010, respectively and his CFPS estimate slumps by 6% and 11% over that same period.
The analyst also cut price targets at Newmont Mining Corp., Yamana Gold Inc. and Northgate Minerals Corp. due to the copper price revision. All three stocks are remain recommended as "buys."
Precious minerals analyst Richard Gray told clients in a note that Blackmont has lowered its copper price forecast to US$3 per pound for the fourth quarter of 2008 from US$3.65. The research firm also now expects US$3 copper until 2012. Blackmont's previous estimates were for US$4 copper in 2010 and US$3.50 copper in 2011.
Mr. Gray said Barrick Gold Corp. will be impacted by the slumping copper prices, due to its copper production at the Zaldivar and Osborne mine.
"We are lowering our NAVPS to US$29.50 (from US$30); our EPS estimates by 3% (2008), 10% (2009), and 16% (2010); and our CFPS estimates by 2% (2008), 7% (2009), and 11% (2010)," he wrote.
As a result, he dropped his price target on the stock from $53 to $49, but with upside of 47% still available, he maintained his "buy" rating.
"Barrick [is] expected to benefit from a flight to quality and liquidity in the gold sector," he said
For similar reasons, Mr. Gray lowered his price target on Goldcorp Inc. from $50 to $45, while maintaining his "buy" rating on the stock. His said Goldcorp, which is impacted due to the copper production from the 37.5% owned Alumbrera mine, will see its NAVPS drop from US$24 to US$23, while his EPS estimate falls 9% and 15% in 2009 and 2010, respectively and his CFPS estimate slumps by 6% and 11% over that same period.
The analyst also cut price targets at Newmont Mining Corp., Yamana Gold Inc. and Northgate Minerals Corp. due to the copper price revision. All three stocks are remain recommended as "buys."
Wednesday, October 1, 2008
Back from the Future: Gold in January 2012
By Jeff Clark, Editor
Casey Research – BIG GOLD
What’s more valuable than one ounce of gold? How about the news release I brought back with me from the future that reveals the price of gold then? It’s with nothing but unabashed excitement that I republish an article that I saw cross the AP wires
on January 21, 2012...
Gold Rockets Past $5,000 in Heavy Trading
Jan. 21, 2012 (AP) For the fifteenth straight day, the price of gold rose on record-setting volume, reaching a milestone few believed possible just a few short years ago. Roaring inflation and a fading U.S. dollar, combined with the continuing stress and uncertainty of World War III, pushed gold past the psychological barrier of $5,000 (to gold bugs, the “Big Nickel”), to close at $5,108 per ounce. Gold is now up an astonishing 66% since December 31, matching its percentage ascent of January 1980.
“It was another peak day,” proclaimed an exhausted trader on the floor of the NYSE, whose daily order flow, he said, included hardly any gold stocks as recently as a year ago. “The orders for mining stocks and the bullion ETFs are pouring in so fast and in such large volume that the computers needed help from us humans on the trading floor.” Floor traders had been widely considered obsolete in 2008.
The excitement is thick and palpable in this bastion of capitalism, as each trader tries to scream louder than the next. Goaded by the fear of being left behind, gold buyers keep pouring in, and the price continues rocketing upward. “This is a once in a lifetime opportunity,” shouted an ecstatic floor broker, who admitted he had been slipping in orders for his own account.
Meanwhile, outside the exchange, worried-looking buyers formed long lines at coin shops around the city. Already swamped with orders, the shops became financial refugee centers when a rumor ignited that Congress was considering confiscating gold, something that hasn’t happened since 1933 under President Roosevelt. The rumor gained strength from last year’s imposition of exchange controls. Supposedly needed for national security reasons, they gave rise to the “northern gaucho,” a term used to describe Americans who risk jail time to slip dollars across the border into Canada.
More violence was reported in the coin shop lines again today. In Manhattan, one incident was so serious that a life-flight helicopter had to be called in when a women stabbed a man who reportedly had cut into the line and then tried to enter the shop without a ticket. E-tickets for coin shop entry are now required by a city ordinance, something many consider very Orwellian. Some bullion shops have gone a step further and placed armed guards at entrances, who are reportedly none too polite when frisking customers for weapons.
While most are stunned by the yellow metal’s price trajectory, the rise in gold stocks has been even more dizzying. In spite of the tremendous gains they have had in the past year, the influx of new, first-time buyers has not slowed. Given the small number of real gold and silver companies, the buying pressure is, as one gold bug noted, “equivalent to pushing the flow of Niagara Falls through a garden hose.”
As seemingly every investor has learned by now, gold stocks are leveraged to the price of gold. While the metal is up five-fold in the last three and a half years, many stocks are up ten- and even twenty-fold. But it is the Canadian juniors that have shown the greatest leverage; a few of the better-managed companies have given shareholders returns of 50-to-1 or better.
“Our recommended Canadian stocks are up an average of 1,000% over the past three years,” said well-known speculator Doug Casey, speaking to a reporter with the good luck to find him in a hotel elevator. “However, our better performers have returned 5,000% to date. Our biggest winner closed today at $101 per share; we first recommended it at 87 cents.
“Adjusted for inflation, gold is just now reaching its 1980 top,” explained Casey. “This is something we’ve been expecting for years.”
But joy for some is regret for others – especially those who sold in 2008, when the metal lost 23%. “I panicked during the sell-off that summer,” lamented an investor. “I went another direction with my money, and I can’t tell you how many times I’ve regretted it. I sold most of my gold stocks for a big loss that year. But what I really lost was all the future profits I threw away.”
Scares from a fleeting rise in the dollar and a whiff of deflation convinced much of the public to dump gold and gold shares back then. And yet, as Doug Casey commented, “That was the buying opportunity of a lifetime and the last time the train stopped at a station with a 3-digit gold number.”
The buying is not expected to stop anytime soon. Time magazine just announced that its lead story in its upcoming issue will be a chronicle of the gold bull market that started in 2001, with a front-cover picture of a gold bull stampeding outside a derelict NYSE building.
With the widespread bullish sentiment for gold, it came as a surprise when someone in the elevator jokingly asked Doug Casey if he was considering selling. Mr. Casey gave no answer but got out at the next floor and explained that he needed to put something together for his subscribers.
Jeff Clark is the editor of BIG GOLD, a newsletter that focuses on the most prudent ways to profit from the gold bull market. Try BIG GOLD risk-free, with our 3-month, 100% money-back guarantee. With your subscription, you can access Jeff’s August interview with Doug Casey, where Doug gives specific numbers on the returns he experienced in the 1970s, and why he thinks the profit potential is even greater now.
Casey Research – BIG GOLD
What’s more valuable than one ounce of gold? How about the news release I brought back with me from the future that reveals the price of gold then? It’s with nothing but unabashed excitement that I republish an article that I saw cross the AP wires
on January 21, 2012...
Gold Rockets Past $5,000 in Heavy Trading
Jan. 21, 2012 (AP) For the fifteenth straight day, the price of gold rose on record-setting volume, reaching a milestone few believed possible just a few short years ago. Roaring inflation and a fading U.S. dollar, combined with the continuing stress and uncertainty of World War III, pushed gold past the psychological barrier of $5,000 (to gold bugs, the “Big Nickel”), to close at $5,108 per ounce. Gold is now up an astonishing 66% since December 31, matching its percentage ascent of January 1980.
“It was another peak day,” proclaimed an exhausted trader on the floor of the NYSE, whose daily order flow, he said, included hardly any gold stocks as recently as a year ago. “The orders for mining stocks and the bullion ETFs are pouring in so fast and in such large volume that the computers needed help from us humans on the trading floor.” Floor traders had been widely considered obsolete in 2008.
The excitement is thick and palpable in this bastion of capitalism, as each trader tries to scream louder than the next. Goaded by the fear of being left behind, gold buyers keep pouring in, and the price continues rocketing upward. “This is a once in a lifetime opportunity,” shouted an ecstatic floor broker, who admitted he had been slipping in orders for his own account.
Meanwhile, outside the exchange, worried-looking buyers formed long lines at coin shops around the city. Already swamped with orders, the shops became financial refugee centers when a rumor ignited that Congress was considering confiscating gold, something that hasn’t happened since 1933 under President Roosevelt. The rumor gained strength from last year’s imposition of exchange controls. Supposedly needed for national security reasons, they gave rise to the “northern gaucho,” a term used to describe Americans who risk jail time to slip dollars across the border into Canada.
More violence was reported in the coin shop lines again today. In Manhattan, one incident was so serious that a life-flight helicopter had to be called in when a women stabbed a man who reportedly had cut into the line and then tried to enter the shop without a ticket. E-tickets for coin shop entry are now required by a city ordinance, something many consider very Orwellian. Some bullion shops have gone a step further and placed armed guards at entrances, who are reportedly none too polite when frisking customers for weapons.
While most are stunned by the yellow metal’s price trajectory, the rise in gold stocks has been even more dizzying. In spite of the tremendous gains they have had in the past year, the influx of new, first-time buyers has not slowed. Given the small number of real gold and silver companies, the buying pressure is, as one gold bug noted, “equivalent to pushing the flow of Niagara Falls through a garden hose.”
As seemingly every investor has learned by now, gold stocks are leveraged to the price of gold. While the metal is up five-fold in the last three and a half years, many stocks are up ten- and even twenty-fold. But it is the Canadian juniors that have shown the greatest leverage; a few of the better-managed companies have given shareholders returns of 50-to-1 or better.
“Our recommended Canadian stocks are up an average of 1,000% over the past three years,” said well-known speculator Doug Casey, speaking to a reporter with the good luck to find him in a hotel elevator. “However, our better performers have returned 5,000% to date. Our biggest winner closed today at $101 per share; we first recommended it at 87 cents.
“Adjusted for inflation, gold is just now reaching its 1980 top,” explained Casey. “This is something we’ve been expecting for years.”
But joy for some is regret for others – especially those who sold in 2008, when the metal lost 23%. “I panicked during the sell-off that summer,” lamented an investor. “I went another direction with my money, and I can’t tell you how many times I’ve regretted it. I sold most of my gold stocks for a big loss that year. But what I really lost was all the future profits I threw away.”
Scares from a fleeting rise in the dollar and a whiff of deflation convinced much of the public to dump gold and gold shares back then. And yet, as Doug Casey commented, “That was the buying opportunity of a lifetime and the last time the train stopped at a station with a 3-digit gold number.”
The buying is not expected to stop anytime soon. Time magazine just announced that its lead story in its upcoming issue will be a chronicle of the gold bull market that started in 2001, with a front-cover picture of a gold bull stampeding outside a derelict NYSE building.
With the widespread bullish sentiment for gold, it came as a surprise when someone in the elevator jokingly asked Doug Casey if he was considering selling. Mr. Casey gave no answer but got out at the next floor and explained that he needed to put something together for his subscribers.
Jeff Clark is the editor of BIG GOLD, a newsletter that focuses on the most prudent ways to profit from the gold bull market. Try BIG GOLD risk-free, with our 3-month, 100% money-back guarantee. With your subscription, you can access Jeff’s August interview with Doug Casey, where Doug gives specific numbers on the returns he experienced in the 1970s, and why he thinks the profit potential is even greater now.
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