Month: June 2013

By Profit Confidential

This shouldn’t be a surprise to the readers of Profit Confidential.

According to an analysis done last week by the Wall Street Journal, in the first quarter of 2013, corporate earnings growth of companies in the key stock indices like the S&P 500 wasn’t really due to companies doing better. Rather, “research tax breaks” are what pushed 1Q13 earnings up for many S&P 500 companies. (Source: Wall Street Journal, June 14, 2013.)

Consider Intel Corporation (NASDAQ/INTC). The company spent $10.1 billion on research and development, which essentially lowered its effective tax rate from 28.2% in the first quarter of 2012 to 16.3% in the first quarter of 2013! This bolstered Intel’s corporate earnings.

Other big names in the S&P 500 like Google Inc. (NASDAQ/GOOG), Abbott Laboratories (NYSE/ABT), The Boeing Company (NYSE/BA), Yahoo! Inc. (NASDAQ/YHOO), and Xerox Corporation (NYSE/XRX) were able to use “research tax breaks” to also boost their corporate earnings.

While this technique helped companies boost 1Q13 earnings, profit expectations aren’t so rosy going forward.

Expectations for corporate earnings for the S&P 500 companies continue to drop. At the end of the first quarter (March 31), second-quarter corporate earnings were forecasted to grow at 4.5%. Now, corporate earnings growth for the second quarter is estimated to be only 1.3%. (Source: FactSet, June 7, 2013.)

Only four out of 10 industry sectors in the S&P 500 are expected to show corporate earnings growth in 2Q13. The information technology sector of the S&P 500 is expected to report a decline of 6.3% in corporate earnings this quarter and the health care sector could see its profits slide four percent!

Estimates for 2Q13 corporate earnings, in my opinion, are still too high. Underlying economic conditions haven’t improved and companies face severe revenue pressures. After all, the U.S. economy isn’t an island isolated from events in the global economy.

A significant portion of U.S.-based S&P 500 companies (about 40%) operate in regions like the eurozone and China—regions that are experiencing economic slowdowns. This means corporate earnings of companies based here at home are fragile.

Optimism surrounding rising key stock indices are not supported by corporate earnings. Investors beware!

Michael’s Personal Notes:

There has been increased volatility in gold bullion prices as investors run from precious metals. According to data compiled by Bloomberg, gold bullion’s 60-day historical volatility reached 28.9% on June 13. This was the highest level since December of 2011. Average volatility over the past five years for gold bullion prices has been around 20%. (Source: Bloomberg, June 14, 2013.)

As the volatility continues in gold bullion prices, the fundamentals remain strong. Actually, demand for gold coins is unprecedented right now.

Aside from individual investors buying gold bullion, central banks continue to diversify their reserves into gold bullion as fiat currencies fail to protect their wealth. In spite of the decline in gold bullion prices, as has been well documented in these pages, central banks form Russia, Turkey, and Kazakhstan continue to add precious metals to their reserves.

Bullish stock advisors are forgetting that we are standing on the cusp of a global economic slowdown—an event that bodes well for gold bullion. It may be difficult for my readers to envision right now, but with the recent exodus by investors out of U.S. bonds, once the stock market starts declining, there will be few other “stores of wealth” for investors to seek aside from gold.

Major economic hubs have been slowing down for some time and now, they are taking with them smaller nations that rely on their demand. China, Japan, India, Australia, Germany, and France—they are all begging for economic growth.

But instead of getting growth, world economies are slowing. The World Bank lowered its forecast for global growth last week. It now expects the global economy to grow by only 2.2% in 2013, down from its previous estimate of 2.4%—and by the end of this year, I wouldn’t be surprised to see that forecast fall again

Meanwhile, while the politicians say there is no inflation, even the government’s own out-of-whack official figures show inflation is a problem.

The Producer Price Index (PPI), an early indicator of inflation, increased 0.5% last month (source: Bureau of Labor Statics, June 14, 2013)—annualized, that’s six percent a year in wholesale inflation that will eventually make its way to consumers!

The Federal Reserve continues to print $85.0 billion a month to purchase government bonds and mortgage-backed securities, even after seeing that aggressive money printing did not work for the Japanese economy.

Dear reader, the historical fundamental reasons that drive gold prices are still present. Gold bullion prices have come under pressure, because there’s a notion that the U.S. economy is improving and conditions are getting better. Imagine that: the U.S. economy has turned the corner because the Federal Reserve has printed trillions of dollars in new money! That doesn’t sound right to me; it actually sounds artificial.

Gold bullion prices still have a bright future. And I don’t expect the scrutiny in the precious metal to last much longer. When all the pieces of the puzzle come together, the gold bears will realize they were wrong.

What He Said:

“We will wish Greenspan never brought rates down so low as to entice so many consumers to have such big mortgages.” Michael Lombardi in Profit Confidential, April 27, 2004. Michael first started warning about the negative repercussions of Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.

Article by profitconfidential.com

By Profit Confidential

If there is going to be genuine economic growth in mature economies, the leadership will have to come from the U.S. economy.

The convulsions taking place in the Japanese capital markets are emblematic of the monetary exuberance that both captivates investor sentiment and distorts its reality.

It’s a trader’s paradise with such volatility, based not on Main Street fundamentals, but on the ability and willingness of policymakers to puppeteer capital markets.

While liquidity and certainty are hugely important to investor sentiment, all the financial engineering should soon produce its own blowback. Investment risk in capital markets remains high.

Investor sentiment among institutional investors in U.S. equities still has strength to carry this market higher if corporations perform.

Corporate earnings are managed, but that’s how the system works. There’s been a paring down of earnings estimates for the second quarter.

E. I. du Pont de Nemours and Company (NYSE/DD), or simply DuPont, reduced its expectations for its first half of operating profits due to the weather (the wettest spring in almost 120 years in the farmbelt states). The company said full-year earnings per share will be at the low end of its forecast, between $3.85 and $4.05. Agriculture is the company’s most important operating division. (See “Why DuPont’s Earnings Results Are So Typical for This Stock Market.”)

Capital markets, especially the equity market, are looking for catalysts. From what I read, there are still great expectations for the Japanese equity market. Unscientific investor sentiment among fund managers maintains an outlook of perpetual volatility in that market.

Getting back to the U.S. market, economic news is not robust, but there is a positive disposition to the data. Last week’s retail sales growth number was good and lower-than-expected initial claims for jobless benefits also surprised, turning investor sentiment around.

Economic data are helping investor sentiment at a time when it needs it—the lull between earnings seasons. Capital markets will still convulse in this overly monetized world, but volatility in bonds and currencies should diminish as we get into corporate earnings.

Along with many equity market participants, I have low expectations for the second quarter. I think the earnings results will mimic the economic news demonstrated throughout the quarter. There was a real mixed basket of performance with no one statistic galvanizing investor sentiment.

The great monetary experiment that’s unfolded has definitely left a profound hesitation in capital markets. While outlooks always change, there is a lack of conviction on the part of Wall Street analysts and economists as to how things are going to unfold.

Predictions about the equity market were way off. Predictions about oil prices and the U.S. dollar were off the mark, too.

The profound intervention in capital markets by central banks around the world has left a vacuum of indecisiveness and fragility. Investor sentiment has no conviction.

The only certainty is the collective bewilderment of what happens when all this monetary stimulus is withdrawn.

The Federal Reserve is going to surprise capital markets sometime soon with a reduction in quantitative easing. While I recognize what central banks have done in terms of providing liquidity and stabilizing investor sentiment since the stock market crash, it’s time to get central banks out of their turbocharged monetary easing modes.

Capital markets have been cavitating recently, butting heads against monetary forces that are clearly untenable. While it will be a rocky road (and lucrative for traders and hedge funds), it’s time to let capital markets chart their own paths.

Article by profitconfidential.com

By Profit Confidential

I was recently out to dinner with a friend who manages tens of millions of dollars in private equity. While the Dow and the S&P 500 are still within two to three percent of their recent highs, my friend is not happy. In fact, he is kind of disappointed with the current trading action in the stock market.

As we move along into our discussion and dinner, I was really not surprised to hear that he was disappointed by the lack of a pullback in the stock market.

The S&P 500 was down five percent a few weeks back. At that point, I was hoping for a more sustained pullback; just like my friend, I had cash around and was ready to pounce on a buying opportunity in the stock market that subsequently really never materialized.

I could have accumulated on the five-percent adjustment, but my feeling was that there was more to come and there would be a bigger sale on Wall Street. (Read “Bull Market Not Over, but a Correction May Be on the Horizon.”)

The current 23% correction in the Nikkei 225 would be ideal here, but I doubt that will happen, as the Japanese stock market was way overextended and due for a setback.

When I asked my friend what kind of adjustment he was looking for, to my surprise, he responded that he was not really sure and would need to evaluate the situation at that time.

Yet by the time our second bottle of wine arrived, he was more open to questions; he suggested he would need to see a correction of at least 10% before making the jump.

Of course, my friend also added that a market correction of seven percent would suffice if the Federal Reserve decided to hold tight for the third quarter, beginning to ease off on its bond buying in the fourth quarter instead.

Like the rest of the investment world, while my friend was somewhat pleased with the economic renewal in the U.S., he was also less than enthused about the jobs market and was fearful that Federal Reserve Chairman Ben Bernanke would cut stimulus sooner—or at least before his third term is over at year-end.

By the time dessert had arrived, we were both on the same page and agreed that the global stock markets were clearly driven in large part by the monetary stimulus.

He also was beginning to add some hedging to his portfolio in the way of put options and was writing covered calls to generate premium income in case the stock market stalled.

It was a great dinner. And what I learned about the stock market was not a surprise; in fact, it is likely shared by many in the investment community who are running professional money.

Article by profitconfidential.com

Source: Kevin Michael Grace of The Gold Report (6/17/13) – http://www.theaureport.com/pub/na/15376

The price of gold remains in the doldrums, but Jay Taylor, host of the radio show “Turning Hard Times into Good Times,” expects the bull market to come roaring back. In this interview with The Gold Report, Taylor cautions that not all miners are equal and advises investors to look for companies with cash flow and the potential for organic growth.

The Gold Report: Many believe that the price of gold represents a market referendum on the value of paper money and the health of the world economy. Do you agree?

Jay Taylor: Yes, I do. Gold rose from the mid-$200s/ounce (mid-$200/oz) in 2002 to as high as $1,900/oz. That clearly suggests that things are not all right in the global economy. Politicians like to create the illusion that they can create something out of nothing and give it to people in exchange for votes. Gold gets in the way of that falsehood politicians wish to use to deceive voters for their own gain and the gain of those who fund their election campaigns.

TGR: Gold has fallen from $1,900/oz to below $1,400/oz. Some people say this proves the bubble has burst.

JT: I wish that were the case because that would mean that the policymakers—the people in charge of the Federal Reserve, the Treasury and of other countries and banks around the world—had fixed everything, but I don’t believe that for a minute. If anything, their policies are making things worse.

I wish there was a reason to be optimistic about the global economy. Keynesian economic policies didn’t work in the 1930s, and they’re not working now. Franklin Roosevelt’s Treasury secretary and a personal friend of the president said after the second term, “We have just as much unemployment as we had at the start of the downturn, and we have a huge amount of debt to boot.” And the same thing can be said now if we use the same measure of unemployment as we did in the 1930s.

As David Stockman said recently, Fed Chairman Ben Bernanke is in the process of destroying capitalism. Pushing interest rates to zero destroys savings and creates malinvestment. That works very well for the people who control the supply of money and credit, but it doesn’t work very well for the people who are actually contributing to the economy: miners, manufacturers, farmers. The middle class is being destroyed. That’s why, if you are not on Wall Street or in government, you have to own gold and silver because the currency is being used to reallocate wealth from most of us to those who rule us from Washington and Wall Street.

TGR: But we keep hearing that the recovery is just around the corner.

JT: Well, that’s what they said in the 1930s, too.

TGR: You’ve talked about gold “being increasingly a bipolar market.” Do you think we’re going to see a divorce between the paper and physical gold markets?

JT: I think that, ultimately, physical will win, especially as those in the futures markets demand delivery, only to find the gold doesn’t exist. ABN Amro has already defaulted on its delivery obligations and required settlement in paper. As long as people think they can take paper money and still go out and buy the gold or whatever else they want, this fraudulent system can hold together. But ultimately, as trillions upon trillions of new money is created, it will fail. I don’t know how long that will take. The paper markets are controlled and dominated by Wall Street, which joins Washington in this con game. But the real markets for gold are not only the Chinese but also average Americans and average citizens everywhere who have their eyes open and their ears shut to mainstream propaganda. They know the ruling elite are the parasites eating away at their wealth.

TGR: If there were a divorce between the physical and paper gold markets, wouldn’t this be a severe blow to financial instruments generally?

JT: Yes, ultimately it should be. But we have had all manner of immoral behavior on Wall Street with the housing bubble, yet nobody has gone to jail. The fox is in charge of the chicken coop. If the markets force some sort of honesty on these evildoers, it would be a good thing. But it wouldn’t necessarily be pleasant for anyone. A fair amount of circumstantial evidence from the Gold Anit-Trust Action Committee (GATA) and other sources supports the contention that the big bullion banks are manipulating the precious metals markets. That’s supposed to be against the law. But as Dr. Karen Hudes, former chief counsel at the World Bank, pointed out on my radio show on June 11, there is a powerful group of corporations that rule America and that are above the law. That would include the bullion banks, the mainstream media and the governments of the Western world.

TGR: Why do you think the big run-up in the equities markets has not buoyed the prices of precious metals stocks?

JT: Mining stocks have not performed well relative to the price of gold even before the price of gold fell. Part of the reason is that the cost of production has gone up faster than metals prices. Mining profits started to erode as Quantitative Easing 2 (QE2), QE3 and QE infinity started pumping up the prices of other commodities such as energy and materials. In addition, the gold mining companies were scaling up and became fairly reckless. I watch very closely the “real” price of gold, which I define in terms of the Rogers Raw Materials Index. After Lehman Brothers, the “real” price of gold rose dramatically and with that so did the earnings of major gold producers.

Earnings Per Share of Major Gold Producers

Note from the charts above that the upward trend in the “real” price of gold has been broken and with that major gold mining company profits have also declined and are projected to decline further this year.

TGR: New Gold Inc.’s (NGD:TSX; NGD:NYSE.MKT) takeover of Rainy River Resources Ltd. (RR:TSX.V) and its Rainy River project in Ontario is not a big takeout. It’s $310 million, but it’s the first of any size that we’ve seen for some time. Do you think this is a one-off, or do you think that we can expect bigger companies taking advantage of the depressed share prices of the smaller ones?

JT: No, I think it’s not a one-off. It’s likely to become a trend. Something like 50% or more of the junior resource companies are on death’s door; they don’t have enough money to stay in business for another year. Many of those companies can now be had for a song. Shareholders will say, gee, at least I’m getting something out of it. They won’t have a choice.

TGR: Which of the bigger companies are actively looking for acquisitions?

JT: Certainly Sandstorm Gold Ltd. (SSL:TSX), which employs a streaming model, is a company that’s looking to pick up some assets. I suppose some of the really big miners that I don’t follow as much, the household names like Newmont Mining Corp. (NEM:NYSE) and Goldcorp Inc. (G:TSX; GG:NYSE), will be in a position to pick up some of the smaller juniors.

But it’s not so much mergers and acquisitions that I’m interested in. My target is mostly smaller juniors that are cash-flow positive, don’t have to issue tremendous numbers of shares, have great exploration potential and can grow organically. For example, Dynacor Gold Mines Inc. (DNG:TSX) is one of my favorites. The company will produce about $0.30/share in cash flow this year. It is selling at around $1.15/share and will probably double its production to over 100,000 oz by 2014. Dynacor also has some wonderful exploration targets. The company has about 28 million shares outstanding, and it never issues more. It funds its needs internally from cash flow.

One of the biggest risks that shareholders have to be cognizant of in this industry, especially among the exploration companies, is dilution. Dynacor has been patient and has grown slowly but steadily over the past several years. It provides milling facilities in Peru to high-grade mom-and-pop operators. Peru has something like 75,000 small, licensed operators, so Dynacor has really carved out a niche business and its growth prospects are very substantial.

Timmins Gold Corp. (TMM:TSX; TGD:NYSE.MKT) is another company with good cash flow and is certainly in a position to grow organically from its San Francisco mine in Mexico.

TGR: There has been a fair amount of protests against foreign mining companies in Peru. Do you think that Peru is solid from a mining viewpoint?

JT: I do, though you have to look at companies in Peru on a case-by-case basis. Dynacor has been there for a long time, and it has done an extremely good job of working with the government and the people. Dynacor has not been arrogant, like many of the majors. I’m not saying Peru is risk free. I don’t think any place on earth is risk free, including the United States. But Jean Martineau, the president and CEO of Dynacor, has worked from the bottom up, and the company is viewed as almost a Peruvian company. The capital has come from outside, but it’s really the Peruvian people that are the company and they are benefitting from Dynacor’s business model. Rather than a Canadian company going into Peru and grabbing major tracts of land and putting smaller producers out of business, Dynacor enables small mining operations to continue producing gold and building the wealth of middle- to upper-class family wealth.

TGR: Could you comment on some other companies that you follow?

JT: I met with Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK) management a couple of weeks ago. The company is really on to something very significant with its Chinchillas silver project in Argentina. The project already has outlined some 110 million ounces (110 Moz) silver equivalent, and it has barely scratched the surface of its exploration targets. Joe Grosso, the chairman, has really done a remarkable job of forming relationships with the local people in Argentina.

San Gold Corp. (SGR:TSX.V) is a completely different story. The company’s operating performance over the last number of years has been a big disappointment. But I believe we’re going to see a turnaround. San’s revised management team has a much better grasp of costs and is employing capital to make its mining operations in Manitoba much more efficient by linking high-grade zones together. San should be able to pull more high-grade ore out of the ground. That’s why I placed a fairly heavy bet on it personally and in my newsletter. San’s infrastructure is in place. I could be wrong, but if I’m right, we could be looking at a $1.80/share price instead of a $0.14/share stock.

TGR: You met with Prophecy Platinum Corp. (NKL:TSX.V; PNIKF:OTCPK; P94P:FSE) CEO and President Greg Johnson at the World Resource Investment Conference in Vancouver. Afterward, you said that this company’s story “stood out head and shoulders above the rest.” What is it about Prophecy’s Wellgreen platinum group metals and nickel-copper project in the Yukon that so impresses you?

JT: A whole lot of factors. I visited the project a couple of years ago before Prophecy brought on Greg Johnson, and I’ve always believed that it was perhaps one of the greatest PGM projects in the world. I didn’t feel at that time that the company had the management in place to really pull it off. A project of this scale is going to require a massive amount of technical talent. Greg was a co-founder of NOVAGOLD (NG:TSX; NG:NYSE.MKT) and also worked with South American Silver Corp. (SAC:TSX; SOHAF:OTCBB).

After Johnson came on, John Sagman was added to the team. He was with Xstrata Plc (XTA:LSE) and also with Vale S.A. (VALE:NYSE), handling the nickel and platinum group metals operations. I think Sagman and Johnson form a management team core that can actually get it done. Wellgreen’s scale, size and dimensions of mineralization and the grades of the platinum group metals are remarkable. We’re looking at widths and thicknesses that exceed anything that Ivanplats Ltd. (IVP:TSX) and the other companies in South Africa have. The big question here has to do with metallurgy. This is a deposit of 7 Moz platinum group metals plus gold, 2 billion pounds (2 Blb) nickel, 2 Blb copper and the exploration potential is absolutely enormous. But can Prophecy get enough of the metals out? Can it be optimized to the point where the deposit is economic? I think with Prophecy’s new management team the answer to those questions is most likely yes.

TGR: Wellgreen’s preliminary economic assessment shows a capital expenditure (capex) of $863 million. Is that going to be a problem considering the current economic conditions for raising money?

JT: Absolutely. That is certainly the other major concern here. Close to a $1 billion in capex is not very easy for a company selling at $0.65/share. But management is looking at the potential to develop high-grade starter pits, which would enable it to start out at a smaller scale with a much smaller capex.

TGR: Do you like the prospect-generator model?

JT: Yes, mainly because prospect generators use other people’s money to derisk projects and avoid dilution. Prospect generators, at least the companies that I follow and respect, have very strong technical talents in exploration. They’ve identified projects that have a reasonable potential to host meaningful ore deposits. Most companies have a couple of projects and blow through huge amounts of money to drill them out. Prospect generators do some low-cost preliminary work to establish a geological thesis for exploration. Then they get other companies to come in and spend their money.

TGR: What companies do you like in this area?

JT: Eurasian Minerals Inc. (EMX:TSX.V) is my favorite. There are other companies that I would call hybrid prospect generators, companies like Aurvista Gold Corp. (AVA:TSX.V), Bravada Gold Corp. (BVA:TSX.V)and Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX). But among pure project generators, Eurasian has the biggest projects and the most money, and it is allied with the biggest mining companies. I think it’s just a matter of time before Eurasian comes up with at least one major economic deposit that sends the stock to much higher levels.

There are others I like, such as Riverside Resources Inc. (RRI:TSX). John-Mark Staude, the president and CEO, is doing a remarkable job. Riverside has projects in Mexico and in the United States and also now some base metals deposits that are being explored by major companies in British Columbia. The company just announced some excellent high-grade silver results from trench assays and drill core on its Jesus Maria mine on its Penoles project in Durango, Mexico. This could be the first discovery that catapults the company from a $0.35/share stock into the mining big leagues.

Millrock Resources Inc. (MRO:TSX.V) has copper and gold projects that major companies are spending some serious dough to explore. Miranda Gold Corp. (MAD:TSX.V) just hooked up with Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) as a strategic partner in Colombia. Miranda has an ample amount of cash but is looking hard at picking up good projects from companies unable to stay alive in this difficult market.

Paramount is definitely a takeover target. This is a company with a little less than 10 Moz gold equivalent in Mexico. Lots of exploration upside remains on both of its projects. Paramount has deep pockets. I like this one a lot.

And I like Aurvista quite a bit as well. I think that if we get a rise in the equity markets, the company is going to be fine. Aurvista’s grades are around 1 gram/tonne, with lots of exploration potential. It could be a multimillion-ounce deposit. Aurvista could be a takeover target somewhere down the road.

Bravada is skating on thin ice right now. The company just lost its partner in the Wind Mountain gold-silver project in Nevada, Argonaut Gold Inc. (AR:TSX), but that project is very strong. Argonaut walked away not because it didn’t like the project, but it just picked up Prodigy Gold Inc.’s projects, so it had to preserve its capital. The geologists loved the project. I think Bravada will get another partner in there and will do extremely well, if it survives.

TGR: John Kaiser expects a wholesale cull of mining juniors: 500 companies or more. What do you think?

JT: I think John’s right. Some will disappear in acquisitions, and some will just stop doing what they’re doing. As much as I love gold and silver, the mining sector is not immune to malinvestment. Some stocks rise in the good times but can’t be sustained because there’s no organic growth, no cash flow to sustain them. And thanks to the creation of money out of thin air, they were born as public companies but no doubt should never have been on the scene in the first place, thanks to dishonest fiat money, which funds the yachts for Vancouver stockbrokers, but ends up sending average people to the poor house.

TGR: A great many investors in mining stocks have moved from gloom to despair. Do you have any words that would cheer them up?

JT: We are still in the bull market of a lifetime in gold. I follow the work of Charles Nenner, who is a cycles analyst. Charles is calling for a mid-June turnaround in gold and silver. I’m 66 years old. I was around for the last gold bull market in the 1970s. This is going to make that one look like child’s play. I think we can expect something comparable to what we saw in the 1970s, when gold went from $35 to $200 to $100 and then from $100 to $850/oz. It’s not necessarily something to be happy about because it portends a lot of trouble geopolitically and in the global economy, and that’s not something I want to see. I don’t invest in gold because I’m cheering for the world to fall apart. I invest in gold and silver because I believe the policymakers are guaranteeing the world will fall apart.

TGR: If this big run-up starts this summer, how long before the benefits start accruing to mining companies?

JT: That’s a very good question. I’m not absolutely sure they will. I hope so, but this will happen only if we see deflation rather than hyperinflation. If we have a hyperinflationary event, I think the only real thing to do is to own the metals itself. If we head into a deflationary depression, I think gold mining will do extremely well as it did in the 1930s. But mining is like any other business. Revenues need to be higher than expenses. In a hyperinflationary environment, costs tend to rise faster than the price of gold.

TGR: Gold producers did well during the Great Depression.

JT: Extremely well. Homestake rose by six or sevenfold, while the Dow went down 89%; gold producers did well because the real price of gold rose. While the price of gold was fixed at $35/oz, deflation caused wages and materials costs to decline and profits to surge.

TGR: Thanks, Jay.

JT: My pleasure.

As he followed the demolition of the U.S. gold standard and the rapid rise in the national debt, Jay Taylor’s interest in U.S. monetary and fiscal policy grew, particularly as it related to gold. He began publishing North American Gold Mining Stocks in 1981. In 1997, he decided to pursue his avocation as a new full-time career—including publication of his weekly Gold, Energy & Technology Stocks newsletter. He also has a radio program, “Turning Hard Times into Good Times.”

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:

1) Kevin Michael Grace conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Goldcorp Inc., Timmins Gold Corp., Golden Arrow Resources Corp., Prophecy Platinum Corp., NOVAGOLD, Aurvista Gold Corp., Paramount Gold and Silver Corp. and Argonaut Gold Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Jay Taylor: I or my family own shares of the following companies mentioned in this interview: Aurvista Gold Corp., Bravada Gold Corp., Dynacor Gold Mines Inc., Eurasian Minerals Inc., Golden Arrow Resources Corp., Millrock Resources Inc., Miranda Gold Corp., Riverside Resources Inc., Paramount Gold and Silver Corp., Prophecy Platinum Corp., San Gold Corp., Sandstorm Gold Ltd. and Timmins Gold Corp. I have never been paid by any of the companies mentioned in this interview in exchange for their coverage in my newsletter. However, with the exception of Sandstorm Gold, the companies my family or I own as noted in 3), all of the other companies have at one time or another in the past been sponsors on my radio show, “Turning Hard Times into Good Times.” I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.

6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise – The Gold Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110

Petaluma, CA 94952

Tel.: (707) 981-8999

Fax: (707) 981-8998

Email: [email protected]

By MoneyMorning.com.au

What’s the difference between a root canal and owning silver?

Answer: A root canal is more fun.

As a silver owner myself, I can vouch for this!

Silver has been falling for the last two years.

But the thing about silver is that when it moves, it can really move. As we saw in 2008, a 50% loss can very quickly turn into a 150% gain.

And if I’m reading the market right, it looks as though a major ‘whipsaw rally’ in silver could be just weeks away…

Three different signals warning of a whipsaw rally have gone off in the last few weeks.

Before I get to them though, ask yourself how much you’ve heard about silver recently. Silver’s really fallen off the radar, and ‘market buzz’ is as low as I can recall.

Alexa.com is a free website that lets you measure website traffic. And you can see here that silver website silverprice.org has fallen 90% over the last two years. I’m not singling out this website, which is in fact pretty good; it’s a similar story for all silver websites.

No One is Looking at Silver Websites Any More – a Signal to Buy?

Source: Alexa

The point is this: silver is simply not on punters’ radars any more. However, this is perfect, as that is usually the best time to buy something: before the speculative frenzy begins.

That’s assuming a speculative frenzy happens of course, so let me explain why I think one is on its way.

A Bullish Outlook

First of all, the positioning in the futures market has shifted.

You see, futures traders have to declare what they are up to, and this is then reported in the Commitment of Traders (COT) report. And this COT report has been a great way of picking major turning points in the past.

The thing that stands out right now is that commercial traders are net short just 5,000 contracts, the smallest net short position I can recall. Just six months ago it was a massive 60,000, but it has shrunk rapidly.

These commercial traders include the big banks and the big producers. No one has a better view of the market than them, and it’s hard to say why they’d be positioned like this – that is unless they are expecting higher prices.

Secondly, the technical charts are peppered with bullish signals as well.

First off, the silver price has now carved out a 55% fall since peaking in April 2011. This is comparable to silver’s fall during the 2008 crash. And as painful as that move was, it set silver up for a 2.5 year rally that saw the silver price increase five-fold. The chance of something similar happening again is increasing.

Silver – Technicals Looking Good for a Turnaround

Source: StockCharts

The recent fall in silver also brings it to the same moving average line (350 week, in blue) as during the 2008 crash. The other supporting technicals look good too.

The RSI (above the main chart) is extremely low, and you can see that in the past this has been a good signal for the next rally. The same thing goes for the MACD (below the main chart). Let’s just say the silver charts have got my full attention.

The third big reason to expect a new bull-market in silver is the ratio of the gold price to the silver price.

Another way to think of this ‘gold-silver ratio’ is that it is the number of ounces of silver it would take to buy an ounce of gold. So, when the ratio is high, it means silver is relatively cheap.

Right now, silver is so cheap that the ratio is at a three-year high.

It doesn’t tend to stay this cheap for long. For example, the last time the ratio was this high was in August 2010. And this was RIGHT before silver broke out and rallied 170%, from $18/ounce to peak at $49/ounce in just nine months.

With the mega-bullish futures positioning, the soaring gold silver ratio, and the red-hot technicals, as well as the sheer lack of interest in silver, in all, it’s a pretty compelling set up.

The last time I saw the stars line up like this I went out and bought my first silver. Funny thing is, over a beer I was telling a hedge fund buddy about my bet.

A year later I found out he had thought there was something in it, and after further research had taken a position. But whereas I bought a few grands worth of the metal, he took a multi-million dollar position for his fund. He made out like a bandit on that trade, and got a pretty tidy bonus!

Silver is a cruel mistress though, and likes to make a mockery of investment theories. Many people far smarter than me have been calling silver up for the last few years, only to see it continue to tumble.

Watch This Key Announcement

My message here is that if you buy silver today and expect it to be up next month, you’re more likely to be disappointed that not. But if you are still holding in 2-3 years time, then I think you will be sitting on a 100-200% gain from this level. This is why I’m still sitting on our ‘family silver’.

As for when exactly it could turn, it’s impossible to say. Market timing is a dark art, but in a market gruesomely distorted by major central bank policy, it is nigh on impossible.

It’s a big week for the central bankers too. The Fed meets tomorrow (Thursday morning for Australians). The prospect of the Fed tapering the QE program has got the markets super- twitchy.

So much so, that last night the markets swung wildly simply on the back of a Financial Times story about the Fed tapering. And last week, it was a story in the Wall Street Journal that did it.

If the Fed backs off from tapering talk, expect to see a jump in gold and silver. I think they have to back off. US data is still too weak to take the stabilisers off, and the Fed has witnessed the abject chaos they have caused globally by testing the water with Bernanke’s trial suggestion of tapering QE.

US bond yields have risen, emerging markets have crashed, and major currencies have moved more in a night than a typical month. Not happy Ben.

So keep an eye on markets on Thursday morning. It should be a decisive turning point one way or the other. And it should mark a decisive turning point for silver too.

Dr Alex Cowie
Editor, Diggers & Drillers
Join me on Google+

From the Port Phillip Publishing Library

Special Report: The Sixth Revolution Has Just Begun

Daily Reckoning: All Eyes on The US Federal Reserve

Money Morning: D-Day for Australian Investors

Pursuit of Happiness: Government Spies: I Warned of This Trend More Than a Year Ago…

Diggers and Drillers:
Why You Should Invest in Junior Mining Stocks Now

By MoneyMorning.com.au

Sir Mervyn King has an oft-quoted story about central banking. He talks about Diego Maradona scoring a particular goal.

He looked like he was going to move left, so the defenders reacted. Then he looked like he’d move right, so they reacted to that. And in the end, he scored by simply running in a straight line down the middle of the pitch.

I’m sure someone who’s actually interested in football could give you a much more compelling rendition of that story, so my apologies to any fans out there.

But the outgoing Bank of England governor’s point is that a big part of a central banker’s job is to manage expectations. What the market thinks you’ll do is at least as important as what you actually do.

So the big question for this week is: what does Ben Bernanke want us all to think?

Ben Bernanke Tries to Do a Maradona

The big central bank story this week is the meeting of the Federal Reserve’s policy making team on Wednesday. Fed chief Bernanke will make a statement afterwards, and investors will be hanging on his every word.

Why does this matter so much? Well, in case you hadn’t noticed, the big slump in most stock and bond markets around the world is down to fears that the Federal Reserve is going to turn the money taps off by ending its quantitative easing (QE) programme.

At the start of this year, we’d hit a ‘Goldilocks’ moment. Growth wasn’t strong enough to justify stopping QE. But it was good enough to justify rising stock markets.

But then Bernanke and other Fed members opened their mouths and hinted that it might be time to start thinking about possibly winding things down, depending on how the economic data panned out.

It’s important to understand: all the Federal Reserve has done is suggested that it might pull back if the US economy looks like it’s recovering. It’s still manning the monetary pumps. There’s still $85bn being shoved into the markets every month.

Yet the suggestion it would end has been enough to inspire a correction in most markets (that’s a 10% fall), and send others into a bear market (a 20% or more fall).

So is Bernanke pulling a Maradona? Is he faking this move to tighten things up, just to keep markets on their toes?

The Federal Reserve Has Every Excuse to Keep the Money Flowing

The truth is, I find it hard to believe that the Federal Reserve will start tightening monetary policy as early as markets are worried that it will.

Bernanke is probably the most famous student of the Great Depression on the planet. It’s his view that the problem both back then and in Japan is that the central banks didn’t do enough. Any time it looked as though they were going to succeed, they pulled out too early.

He’s not going to take that risk, and he doesn’t have to. The Fed has all the excuses it needs to keep monetary policy slack.

Inflation – at least by official measures, which is all that counts for Fed policy – is really not a problem in the US. With commodity prices under pressure, you could even make an argument that deflation is a threat.

I don’t want to get into a debate over the merits or otherwise of deflation here (though I’d argue that falling commodity prices are a good thing, and not to be countered by monetary policy). The point is, Bernanke is under no pressure to withdraw QE.

So having given over-exuberant investors a sobering reminder of the abyss we are all tightrope-walking over, I suspect the Fed will extend some words of comfort at its meeting this week. And if that’s the case, then markets would probably bounce.

But we can’t be sure. This is the problem with expectations management. Maybe the Federal Reserve doesn’t think investors are scared enough yet. Or maybe now that investors have had a wake-up call, it’ll take more than a few soothing words to get them to stop fleeing risky assets.

So what can you do? Simple. Don’t get sucked into this central bank game-playing. Warren Buffett once said that the market is a voting machine in the short-term, and a weighing machine in the long run.

So from day to day, it’s all about how investor mood swings and fads affect where money is flowing to. But in the longer term, quality and value will out – buy decent companies and assets at relatively cheap prices, and you’ll make money.

John Stepek
Contributing Writer, Money Morning

Join The Daily Reckoning on Google+

From the Archives…

Don’t Make Investing a Chore… Invest in an Innovative Business
14-06-2013 – Kris Sayce

The Technology Revolution Begins in Four Days…
13-06-2013 – Kris Sayce

Zero G for the Australian Dollar is a Shot in the Arm for Miners
12-06-2013 – Dr Alex Cowie

There’s More to Technology Than Facebook and Spying
11-06-2013 – Sam Volkering

Four Great Australian Technological Achievements
10-06-2013 – Sam Volkering

EURUSD remains in uptrend from 1.2796, the fall from 1.3390 is treated as consolidation of the uptrend. Support is now located at the lower line of the price channel on 4-hour chart. As long as the channel support holds, the uptrend could be expected to resume, and one more rise to 1.3500 area is still possible. On the downside, a clear break below the channel support will suggest that lengthier consolidation of the uptrend is underway, then the pair will find support around 1.3200.

Daily Forex Forecast

By OilPrice.com

India’s relentless search for hydrocarbons to fuel its booming economy has managed the rather neat diplomatic trick of annoying Washington, delighting Tehran and intriguing Baghdad, all the while leaving the Indian Treasury fretting about how to pay for its oil imports, given tightening sanctions on fiscal dealings with Iran.

On 7 June the US State Department reluctantly announced that it was renewing India’s six-month waivers for implementing sanctions against Iran, along with seven other countries eligible for waivers from the sanctions owing to good faith efforts to substantially reduce their Iranian oil imports. In New Delhi’s case, it is the U.S. and EU-led sanctions rather than any willingness on India’s part that has seen a fall in its Iranian oil imports. India is the second largest buyer of Iranian oil, a nation with whom it has traditionally had close ties. U.S. Secretary of State John Kerry said that India, China, Malaysia, South Korea, Singapore, South Africa, Sri Lanka, Turkey, and Taiwan had all qualified for an exception to sanctions under America’s Iran Sanctions Act, based on additional significant reductions in the volume of their crude oil purchases from Iran. Kerry told reporters, “Today’s determination is another example of the international community’s strong and steady commitment to convince Iran to meet its international obligations. This determination takes place against the backdrop of other recent actions the administration has taken to increase pressure on Iran, including the issuance of a new executive order on June 3. The message to the Iranian regime from the international community is clear: take concrete actions to satisfy the concerns of the international community, or face increasing isolation and pressure.”

But even with Washington’s beneficence, New Delhi is struggling to find ways to pay for its Iranian oil imports.

The U.S. and European sanctions have deeply affected Iran’s international oil trade, reducing its exports by more than 50 percent and costing Iran billions of dollars in revenue since the beginning on last year. Tightening the screws, the Obama administration is now attempting to reduce Iran’s oil exports even further, to less than 500,000 barrels per day through tighter sanctions. Nevertheless, despite plummeting sales overseas, Iran, OPEC’s second largest oil exporter, remains one of the world’s largest oil producers, with sales bringing in tens of billions of dollars in revenue annually.

And Iran is anxious to keep India as a favored customer. Last month Iran offered India lucrative terms for developing its oilfields, routing a proposed natural gas pipeline through the sea to avoid Pakistan as well as insurance to Indian refiners provided New Delhi raised oil imports. Making its case, Iran sent a high-level delegation led by Oil Minister Rostam Ghasemi to India to urge New Delhi to raise its oil purchases, which slid to 13.3 million tons in 2012-13 from 18 million tons in 2011-12. Heightening Iran’s concerns, later this year Indian imports are slated to fall further to around 11 million tons.

After meeting Ghasemi Indian Oil Minister M. Veerappa Moily issued a statement noting, “The Iranian side encouraged the Indian side to increase its crude purchase. “The Indian side explained that it would encourage companies to maintain their engagement in terms of crude oil purchase, taking into account their requirements, based on commercial and international considerations.”

While Iranian-Indian trade ties continue to deepen, with Indian-based Consul General of Iran Hassan Nourian predicting that bilateral trade between India and Iran will be worth $25 billion by 2017, India is hedging its bets about energy imports, and where to make up the shortfall from the increased sanctions regime.

…and what better place to look than the Middle East’s rising petro-state, Iraq?

India’s External Affairs Minister Salman Khurshid is heading for Baghdad for a two-day visit beginning 19 June.

Top of the agenda?

Oil – Iraq is now India’s second largest supplier of oil after Saudi Arabia, having replaced Iran and become a “critical partner” of India.

It is a potential marriage made in heaven. Iraq needs an assured market for its increasing crude production, having set itself a production target of 7 million bpd from its current 3 million bpd, while India is in search of a long-term partnership with a major oil producer.

While such deepening ties will thrill Washington as much as they distress Iran, there is still a wild card in the Iraqi mix – China, now Iraq’s biggest customer, already purchasing nearly half the oil that Iraq produces, almost 1.5 million barrels a day. Worse still for Indian aspirations, China is now trying for an even bigger share, bidding for a stake currently owned by Exxon Mobil in one of Iraq’s largest oil fields, West Qurna.

New Delhi’s choices are stark – make Washington happy, alienate long-time partner Iran, and keep fingers crossed that Beijing doesn’t stitch up any further Iraqi concessions.

Tough call.

Source: http://oilprice.com/Geopolitics/International/Indias-Energy-Ties-with-Iran-Unsettle-Washington.html

By. John C.K. Daly of Oilprice.com

By The Sizemore Letter

Most of us would agree that Greece is not a “developed market” on par with the United States, Canada, or Western Europe.  Its instability, pitiful economic governance, corruption and cronyism—all of which contributed to its spectacular sovereign debt crisis—prove that the country is not quite ready for the big leagues.

Morgan Stanley Capital International (“MSCI”), the provider of the indexes that comprise the popular iShares MSCI Emerging Markets ($EEM) and  iShares MSCI EAFE ($EFA) ETFs, among many, many others, acknowledged as much last week.  The MSCI Greece Index will no longer be classified as a “developed market” and has officially been demoted to “emerging market.”

I’m on board with Greece being declassified as “developed.”  But I do take issue with it being reclassified as “emerging.”

“Emerging” implies that the country will eventually emerge.  It implies that the country is going somewhere.  It implies a young population of upwardly mobile labor and rising living standards.  More than anything, it implies a country with a future.

By even the most generous interpretation, does Greece fit this (admittedly subjective) description?  Let us consider:

1. The median age of Greek citizens is 43 years old.  To put that in perspective, the median American is 37 years old and the median Frenchman is 40.  Greece has a median age only three years younger than that of Japan (at 46)—which, with its massive population of elderly citizens, is fast becoming the world’s first nursing home nation.  Greece also has one of the lowest birth rates in the world. (Source: CIA World Factbook)
2. Living standards are falling.  By some estimates, the standard of living in Greece will fall by fully 50% before the crisis and the assorted reform programs run their course.  By any objective measure, living conditions have deteriorated in Greece and won’t be improving any time soon.
3. Even after more than three years of severe economic depression, Greece has a large trade deficit of nearly $17 billion.  And unlike most emerging markets, which have large manufacturing and agricultural sectors, services make up 80% of the economy.

Greece is not an emerging market…but you can’t by any stretch of the imagination call it developed either.  It’s a country that is stuck in something of a no man’s land: a country that is politically and culturally underdeveloped and unprepared for life as an “adult,” but too old, too urbanized, and with too bleak a future to be “emerging.”

Sadly, the best analogy I can come up with is an elderly person with advanced dementia who has regressed to the mental level of a child.

While it can be tempting to beat up on Greece, I have a legitimate and far more pressing reason for bringing all of this up.  When you buy an emerging market mutual fund or ETF, you need to take a look under the hood to see what you are buying.

Let’s revisit the iShares MSCI Emerging Market ETF ($EEM).  South Korea and Taiwan together make up a quarter of the ETF’s holdings.

Nothing against South Korea or Taiwan, of course.  But both of these countries have living standards close to those of Europe.  It’s hard to call these true “emerging” markets because they have already largely emerged.  Samsung ($SSNLF), the single largest holding in the fund, is arguably the world leader in smart phones, TVs and home appliances.  Great company, but not what I would think of as an “emerging market stock.”

This brings us back to Greece.  After the downgrade, will Greek stocks dominate the portfolio of EEM and other emerging market ETFs and funds?

Probably not.  And even if they did, that might not be such a bad thing in the short-term.  Greek stocks were one of the favored investments in InvestorPlace’ s Best Stocks of 2013 contest.

But my point remains: when you buy an ETF or mutual fund—emerging market or otherwise—you should spend that extra five minutes to visit the fund’s website and see what it owns.

Sizemore Capital has no positions in any security mentioned.

By The Sizemore Letter

Back in March, I recommended that readers use the recent weakness in Daimler (DDAIF) shares to add to their positions.   American and Japanese automakers had enjoyed a fantastic first quarter while German automakers Daimler, BMW (BAMXY) and Volkswagen (VLKAY) had seriously underperformed.

The reason for the rough ride?

Investors had been punishing the German automakers for a handful of reasons:

1. They had the misfortune of being domiciled in Europe, which happened to be spooking the market at the time with Italian and Spanish political drama and the bungled Cyprus bailout.
2. They were distinctly not domiciled in Japan.  The drop in the value of the yen was seen as a boost to Japanese auto exporters at the expense of their German rivals.
3. The German luxury cars are the favorites of wealthy Chinese, and China had recently begun to crack down on extravagance by political figures.  (Giving a new Mercedes or Rolex watch to a public official was a good way to grease the wheels, so to speak).

I viewed each of these issues as temporary distractions that would run their course.  Europe has been “in crisis” and China has been “slowing” for the better part of three years now, and yet luxury auto sales have never been stronger.  And given the dynamics of the luxury market,   a weaker yen is not catastrophic for the German exporters.  If you can afford a $70,000 car, then you’re going to buy the car you want;  price competitiveness would matter much more to mass-market automakers like Volkswagen.

And even if I had been underestimating the macro risk, Daimler was already priced for zero growth.  At time of writing Daimler traded for 12 times earnings and yielded over 5% in dividends.  Roughly a third of the company’s market cap was in cash.  Barring an end-of-the-world apocalypse, it seemed to me that it would be difficult to lose money on an investment in Daimler over any decent time horizon.

What a difference a couple of months can make.  Daimler’s stock has come roaring back to life, and my recommendation has shot from 7^th place to 2^nd place in the InvestorPlace Best Stocks of 2013 contest with a year-to-date return of 20%, including dividends.

That’s all fine and good, but what about now?  Is Daimler still a buy?

Yes.  Even after the recent run-up in price, Daimler is far from expensive.  Based on 2013 estimates, it trades for just 10 times earnings 0.4 times sales.  It yields 4.6% in dividends, though I should warn you that the American ADR only pays a dividend once per year, in April, so don’t buy this stock for the dividend unless you’re willing to hold on to it for a while.

Meanwhile, Daimler’s profit outlook is looking up, and demand for the redesigned S-Class—its high-end flagship model—has been strong.

As investors continue to rotate out of defensive sectors and into more cyclical, economically sensitive sectors, automakers such as Daimler should continue to do well.   I’m expecting a strong finish to 2013.

If you don’t own shares of Daimler already, I recommend buying on any dips.

Disclosures: Sizemore Capital is long Daimler. This article first appeared on InvestorPlace.

SUBSCRIBE to Sizemore Insights via e-mail today.