Month: June 2013

By www.CentralBankNews.info     The Bank of England (BOE) maintained its bank rate at 0.5 percent and its target for asset purchases at 375 billion pounds, as expected, in the final meeting of its retiring governor, Mervyn King.
    King, the last remaining member of the BOE’s policy-setting Monetary Policy Committee since the bank was granted operational independence in 1997, will be handing over the reins to Mark Carney of the Bank of Canada on July 1.
    King, along with two other members, has voted to expand the BOE’s asset purchase program by 25 billion pounds in the previous four meetings by the MPC but has failed to convince a majority of the nine-member committee.
    Minutes of today’s MPC meeting will be available on June 19.
    The BOE has held rates steady since March 2009 when it also started its asset purchase program, known as quantitative easing. The last time the BOE expanded its target for asset purchases was in July 2012 when it was raised by 50 billion pounds.
    Britain’s economy has recently shown signs of improvement with Gross Domestic Product rising by 0.3 percent in the first quarter from a quarterly contraction of 0.3 percent in the fourth – averting the third recession since the global financial crises – for annual growth of 0.6 percent, the strongest growth rate in five quarters.
    Last month King said a recovery of the U.K. economy was “in sight” and the BOE expects a gradual strengthening of economic growth.
    The bank is continuing with its Funding for Lending Scheme (FLS), together with the U.K. Treasury, and during first quarter 13 banks drew down 2.6 billion in funds to lend at favourable terms to households and businesses, raising the total amount of funds drawn to 16.5 billion, covering 80 percent of the stock of lending to the U.K. economy.
    Inflation in Britain, which has remained “stubbornly above” the BOE’s 2.0 percent target since December 2009, eased to 2.4 percent in April, breaking six consecutive months with inflation rates of 2.7 percent and above.
    The BOE expects inflation to remain above its target until the third quarter of 2015 due to higher regulated and administered prices and the impact of a depreciation of sterling.
    Today pound sterling was trading at 1.54 to the U.S. dollar, above a 2-1/2 year low of 1.4830 in mid-March, but down 5 percent from 1.62 at the start of the year.

    www.CentralBankNews.info

Source: Brian Sylvester of The Metals Report  (6/4/13)

Much has been said of the massive scope of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Lisa Reisman, managing editor of MetalMiner.com, sees opportunity in the controversial provisions governing conflict minerals. In this interview with The Metals Report, Reisman discusses how companies are dealing with the new requirements and names companies closest to production in the crucial tantalum, tungsten and tin space.

The Metals Report: Lisa, how will the Dodd-Frank Wall Street Reform and Consumer Protection Act affect industrial users of metals like tantalum, tin and tungsten?

Lara Reisman: The Securities and Exchange Commission (SEC) adopted a rule mandated by the Dodd-Frank Act that requires companies to publicly disclose if they use “conflict minerals” that originated in the Democratic Republic of Congo (DRC) or a neighboring region.

It’s a very broad-brush piece of legislation impacting about 6,000 manufacturers and tens of thousands of their suppliers.

TMR: I understand it gets really complicated on a number of levels. Certain metals mined in certain parts of the DRC are OK, but not in other parts of the DRC. Questions have arisen as to whether the SEC is the right agency to be implementing this sort of restriction and legislation.

LR: You’re correct: It is not banning these minerals from all of the DRC but from within certain regions. The problem with a rule like that is that its implementation is typically more of a kneejerk reaction.

We’ve already seen companies saying that they are not sourcing any materials at all from the DRC—period—even those that are coming from conflict-free sources within the DRC and neighboring regions. Many manufacturers are trying to make sure that they are completely disassociated with the entire area.

Hopefully, companies will begin implementing conflict-mineral compliance programs as an alternative. But there’s even some controversy about what kind of report needs to be submitted to the SEC.

Some legal challenges have been mounted over if the SEC even has the right to regulate this kind of thing because it’s really about human rights as opposed to shareholder value.

TMR: It seems as if this legislation has enough holes to drive a truck through.

LR: I’d agree. A lot of questions came up before the rule was even published formally. Steel mills that basically take scrap were wondering how they are ever going to find out whether a washing machine manufactured in 1955 has conflict minerals in it. That is impossible to figure out. Some of the issues have bordered on the absurd.

TMR: When is that compliance deadline?

LR: Publicly traded companies have to file the first report in May 2014. Despite the legal challenge to the law, most companies are preparing for the worst, even though it’s still possible for the whole regulation to be struck down.

TMR: Companies can submit a report saying they’re not sure where its supply came from— that they are pretty sure it’s conflict free, but not 100% certain—and they get a pass. Is there a chance that companies see this as an opportunity to stockpile to guard against supply shortages of these metals that are crucial to their businesses?

LR: No, because the clock started Jan. 1. Stockpiling would have had to have been completed by the end of last year in order for those materials to be allowed in a supply chain without knowledge of where they came from.

But is it happening? I think companies have stockpiled. Those companies are not the publicly traded original equipment manufacturers here in the U.S., but the suppliers in China and other places. They buy the conflict material, process it and shove it in the backyard and let it sit there. Then they mix it with their “good” material, and say, “Gee, I don’t know if it has conflict materials or not. It’s all mixed together.”

How can you expect the publicly traded U.S. company to respond to that? If you’re a tungsten buyer in the U.S. and your powder came from China, it probably does contain conflict minerals. You’re not going to know for sure, and you’re not going to be clear on that. Regardless, by next year, that little gimmick is going to have to be over.

TMR: MetalMiner.com and SpendMatters.com recently held a conference to make sense of where U.S. manufacturing stood on conflict-minerals compliance. What were some things you learned during those meetings?

LR: I learned that the more questions you ask, the fewer answers we seem to have. I say that jokingly, but the real issue is that nobody has tested this. Nobody has to file anything until May 2014.

A lot of basic questions still remain. For example, what counts as manufacturing?

“If you’re a tungsten buyer in the U.S. and your powder came from China, it probably contains conflict minerals.”

A friend, who’s the assistant chief legal counsel at a well-known media company, said to me, “Ping me the second that rule comes out and let me know what the findings are.” I looked at her, and I thought, “Are you crazy? Why do you care about it?” But the company has merchandising that it contract manufactures—little electronic devices, promotional items that have its brand and logo. It feels that it could be impacted by the rule. Companies that you never would have thought would be impacted are impacted.

This could also be a very large burden for smaller, privately held companies that supply publicly traded companies, which will be demanding they fill out extensive and comprehensive forms, tools and templates. They don’t have compliance managers on staff. It is a big burden for small and middle-market companies to comply with their customers’ requests, but they’re fearful of losing business if they don’t.

TMR: This legislation wouldn’t have happened unless somebody was making money. Who is making money here?

LR: That’s a great question. I would say the accounting firms are going to make money here. Software companies that have suites of products geared toward a company’s sourcing, procurement and supplier relationship management stand to gain.

Hopefully, the people in the DRC ultimately benefit from this. However, a lot of people have lost their livelihood as many artisanal mines were shut down due to a kneejerk drop in demand.

TMR: What percentage of American industrial manufacturers that are using conflict metals and minerals are ready to comply with the legislation governing their uses?

LR: A lot of companies have no idea whether or not they’re using conflict minerals. Most manufacturing supply chains are very long, in some cases easily 10 suppliers deep.

Take Apple assembling its iPhone—there are hundreds of components, parts, subassemblies and assemblies that make up that product.

Even Starbucks is probably impacted by this. You might scratch your head, but it has a new coffee machine that has an LCD display. It is not the contract manufacturer, but it designed the product so it is responsible for complying with the law. Does it know whether or not its LCD assembly has conflict minerals? I don’t think a lot of companies know whether or not they actually have conflict metals.

TMR: Do investors realize what this law could mean to some publicly traded companies?

LR: It’s a huge unknown at this point. Do companies that source ethically, use corporate social responsibility programs and have sustainability and green initiatives get rewarded by the stock price? I don’t know the answer to that.

TMR: Could the regulation spawn more offtake or end-user agreements with resource companies that have viable deposits of these commodities in desirable jurisdictions?

“Invest in mining companies that are closest to production. That’s still a very viable play.”

LR: Definitely. Companies are not looking to skirt the law. They want to try to comply with it. To do that, they are going to be forced to look at alternative sources to develop the supply chain. It’s a good opportunity for junior mining companies.

To some extent, the markets already work like that. Tantalum is a great example of a metal where companies basically buy forward. They’re not buying on the spot market. They’re buying on contracts. They’re looking to shore up and lock-in long-term supply contracts. We will see more, not less, of that.

The other question is: Will this legislation effectively choke off certain sources of supply, which could trigger shortages? There will be opportunity on that front for tin, tungsten and tantalum.

TMR: Can you tell us about the market right now for tantalum, tungsten and tin?

LR: The U.S. government put out a Strategic Minerals Report recently that identified those three metals as critical and potentially problematic from a supply standpoint.

Tantalum is not necessarily in short supply right now, but the price is well supported. It’s behaving differently than other metals, like steel, aluminum, copper and others that have fallen in price since the start of the year.

There are elements of the tantalum supply chains that are in short supply—a lot of domestic or non-DRC is available. In 2012, the U.S. imported $314 million ($314M) worth of tantalum. Of that, $108M came from China, $51.7M came from Kazakhstan and $43M came from Germany.

Tungsten looks a bit like tantalum except the majority of its concentration and processing is in China. From a conflict minerals standpoint, if your Chinese supplier tells you that the ore is conflict-free, can you believe it? Most manufacturers would probably say no.

The U.S. has only a small handful of producers, including Kennametal Inc. (KMT:NYSE), Allegheny Technologies Inc. (ATI:NYSE), a division within General Electric Co. (GE:NYSE) and privately held Buffalo Tungsten Inc., among a few others.

Tin has a lot of production in Malaysia and Indonesia, providing other supply options. Whether those are friendly sourcing locales where everybody wants to set up joint ventures is a different issue.

TMR: What are some examples of development-stage tantalum, tungsten and tin projects in conflict-free jurisdictions that manufacturers might be interested in starting relationships with?

LR: Commerce Resources Corp. (CCE:TSX.V; D7H:FSE; CMRZF:OTCQX) is an obvious one. It is extremely close to production this year or next. It is probably at the point where it is doing offtake agreements.

TMR: When is the earliest that its Blue River tantalum and niobium project in British Columbia, Canada, could be in production?

LR: Commerce is targeting 2014. It made the shift from being institutionally focused to being more end-user focused. It is trying to better understand who the big players are in the North American market and tying those relationships together. It is more visible to end users. It used to only be at rare earth metal conferences, but now I’m seeing it at places where end users of tantalum are.

There are other projects as well: one in Egypt that’s quite substantial, Critical Elements Corp. (CRE:TSX.V) in Canada and NOVENTa (NVTA:AIM). Many of these companies are far from actually becoming operational, but Commerce and some of these others should make it to market.

Meanwhile, Buffalo Tungsten is quietly making its way. It’s a family-owned company that’s at least 30 years old, but who has heard of it? However, it is trying to make a splash in the tungsten industry, investing heavily in new equipment, trying to get some processing capability and making substantial investments.

TMR: NOVENTa is an interesting company because it’s producing tantalum in Mozambique. Is that considered a conflict area?

LR: No, it’s not. That’s a really interesting opportunity. We are going to see alternative sources come from other countries within Africa. NOVENTa is completely viable.

TMR: And it is already in production.

LR: Exactly. If you were to go sniffing around NOVENTa’s website, I’m sure you’d find that it has gone through quite a rigorous conflict-free smelter program. I’d be shocked if it hadn’t.

TMR: About 80% of tungsten comes from China. Are there any smaller companies with tungsten deposits that are on your radar?

LR: There are several. However, no tungsten is mined in the U.S. Some of the smaller producers are EMC Metals Corp. (EMC:TSX), Buffalo Tungsten and Elmet Technologies Inc. The larger players are Global Tungsten & Powders Corp. , General Electric, Kennametal, and Allegheny Technologies. For Allegheny, tungsten is a much smaller operation. The U.S. does not mine it. It’s the actual powder form. To be sure, we have a hole further up in the chain.

TMR: And tin?

LR: There is little to no tin production in the U.S. There are processors, but we don’t mine tin in the U.S. There’s Cookson Electronics Assembly Materials. The big 800-pound gorilla, Malaysia Smelting Corp. Berhad (MSGCF:OTC), is in Malaysia.

Tin is used in electronics, but also in steel production. Some forms of copper and bronze require tin as well. There is plenty of tin in the world. All you need to do is look at the London Metal Exchange price to see that that’s true.

TMR: Is demand for tin weak?

LR: It’s pretty weak right now. It’s still a concern, though, because the U.S. doesn’t have any tin mining. We are dependent on others, and conflict minerals compliance complicates the situation. It just adds another layer of pressure to that. I don’t think tin is as worrisome as tantalum or tungsten.

TMR: What’s your advice for investors who may want to gain some exposure to small- and mid-cap companies that are developing tantalum, tungsten or tin assets or are already in production?

LR: Invest in those mining companies that are closest to production. That’s still a very viable play. I am definitely bullish on the “T” metals—tantalum, tungsten and tin. Unfortunately, a lot of the tungsten players are privately held companies. There is no exchange-traded fund (ETF) or stockpile-type fund that people can invest in.

TMR: Do you think that that could ever happen—a tungsten or tantalum ETF—or are these just too small?

LR: They’re too small, and the industry is too concentrated. You’d have to get the big industry players to agree to do it to make it viable. There’s an opportunity to stockpile. Whether or not you can create a fund around it, I’m not so sure. It’s possible with tin because the price per unit of measure is expensive, relatively speaking. Tin has the most opportunity.

TMR: Thanks for your time today.

LR: Certainly.

Lisa Reisman is a third-generation metals enthusiast who began trading semi-finished aluminum metals in 1994, after earning her master’s degree in public administration at New York University. Reisman eventually went on to the supply-chain management practices of Arthur Andersen Business Consulting, where she earned the nickname “Shredder.” She then went on to Deloitte Consulting. She has worked with a range of industrial manufacturing firms, including Caterpillar, Motorola, Johnson Controls, Sanford Office Products, Hamilton Beach, Proctor-Silex and others. Reisman has primarily helped firms remove costs from their global supply chains. In 2004, the CEO of a Tier-1 automotive company challenged her to save his company money, so Reisman formed Aptium Global with partner Stuart Burns. The rest is history.

Want to read more Metals 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) Brian Sylvester conducted this interview for The Metals Report and provides services to The Metals 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 Metals Report: Commerce Resources Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Lisa Reisman: I or my family own shares of the following companies mentioned in this interview: None. I personally or my family am paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. 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.

London Gold Market Report
from Adrian Ash
BullionVault
Thurs 6 June, 08:25 EST

The WHOLESALE price of gold flipped yet again either side of $1400 on Thursday in what dealers called “choppy” trade ahead of tomorrow’s much-anticipated US jobs data for May.

Asian stock markets followed Wall Street’s overnight loss to finish lower, but European equities rallied as major government bonds held flat.

Commodities slipped even as the Dollar fell to new 4-week lows after the Bank of England and the European Central Bank both left monetary policy unchanged at their June meetings.

Silver ticked higher to $22.65 per ounce.

“On any downside below $1400 per ounce,” said Standard Bank analysts in a note, “we still feel that physical demand should once again return and thereby limit moves lower.

“Since April this support from the physical market has prevented gold from pushing significantly below $1360 per ounce.”

Officials in India – the world’s No.1 – today urged banks to deter consumer demand for gold after raising import duty to 8% on Wednesday.

In China – the world’s second-largest gold buying nation – “The ongoing Shanghai arbitrage is the main attraction for demand,” says a trader in Sydney, quoted by Reuters.

Prices of Shanghai gold futures held some $20 about international benchmarks on Thursday. China’s markets will be closed for the first three days of next week for the Dragon Boat Festival.

In the United States – world No.3 for gold jewelry and investment purchases – demand for American Eagle gold coins remains “unprecedented” according to US Mint acting director Richard Peterson.

“We are buying all the coin blanks [which suppliers] can make.”

Anti-government protests meanwhile continued in Turkey, the fourth-largest market for gold in 2012.

“While [India’s] duty hike may make bullion more expensive,” writes HSBC analyst James Steel, “it is important to note that gold prices in local currency terms are currently lower than at any time in the last year”

Prices to buy gold in Indian Rupees “are still at attractive levels,” says Steel.

A day after imposing new blocks on legal gold imports, the Indian government yesterday hiked bullion import duty from 6% to 8% by value – an 8-fold increase from the start of 2012, when New Delhi began blaming gold jewelry and investment purchases for India’s large balance of trade deficit.

“This shows that the Indian government is very serious about reducing gold imports,” says one bullion dealer.

While the immediate impact will be higher prices for Indian households, “The nature of demand at the retail level is such that restricting supply will not be effective in the long run,” says India’s managing director at market-development organization the World Gold Council, P.R.Somasundaram.

“[It’s] likely to lead to…demand being met increasingly through unauthorised channels, which will not be positive for either the economy or for society.”

Also known as the “parallel market”, smuggling may account for 20% or more of India’s total imports in 2013, according to one estimate quoted by the Economic Times.

Called “wasteful expenditure” by one senior official this morning, household gold demand should be further deterred by advising customers against buying gold coins, finance minister P.Chidambaram told the same banking conference in Mumbai.

The new import duty should be positive for the Indian Rupee, albeit short term, agree analysts at Societe Generale, Bank of America-Merrill Lynch and Kotak Mahindra Bank.

Thursday morning however the Rupee fell, down to 57 per US Dollar for the first time in 12 months and very near its all-time record low.

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Profit Confidential

Change in the railroad business is not something you expect, but it is happening with Bakken oil.

The Association of American Railroads (AAR) is the industry group for North American railroad stocks, and while all trade groups are to be taken with a grain of salt, you can garner insight on the U.S. economy by reading the AAR’s data.

Even if you aren’t interested in railroad stocks, business conditions for railroads are still very relevant. They remain the backbone of North America and the industrial economy.

According to the AAR, U.S. Class I railroad stocks originated a record 97,135 carloads of crude oil in the first quarter of 2013. This represents a gain of 20% from 81,122 carloads in the fourth quarter of 2012 and a substantial increase of 166% from 36,544 carloads originated in the first quarter of 2012.

While the shipment of oil—Bakken oil, in particular—is the source of renewed growth for railroad stocks, the numbers also reveal a flatness that coincides with the rest of the U.S. economy.

The AAR reported that in the first 21 weeks of 2013, U.S. railroad stocks reported volume of 5.8 million total carloads, down 1.8% from the comparable period in 2012. Total U.S. traffic for the first 21 weeks of 2013 was 10.8 million carloads and intermodal units, up 0.8% comparatively.

For the same period, Canadian railroads reported volume of 1.6 million carloads, up 2.3% comparatively, and 1.1 million intermodal units, up 4.7%.

Volume on Mexican railroads came in at 315,377 carloads, up nine percent, with 192,060 intermodal units, down 0.3% from last year.

Railroad stocks have been on a tear lately and are only now taking a little bit of a break. Most railroad companies are right close to their stock market highs.

The AAR, as a trade group, is promoting rail transportation for oil, including Bakken oil, and is citing a number of statistics suggesting that transporting Bakken oil by rail is safer and offers greater reliability over pipelines.

According to the group, total railroad oil spills are less than one percent of total pipeline spills. The group estimates that pipelines spill three-times more oil than railroads.

Weaker shipments of coal, due to the increasing use of natural gas for power plants, has not dented the enthusiasm that institutional investors have to invest in railroad stocks so far. (See “Keeping It Rolling—U.S. Energy Boom Good News for Railroad Stocks.”)

Bill Gates likes railroad stocks. His private investment firm, Cascade Investment, LLC, is now the single largest shareholder in Canadian National Railway Company (NYSE/CNI; TSX/CNR), now owning about 10% of the company. With the addition of the Bill & Melinda Gates Foundation Trust, Gates owns 12% of Canadian National (CN).

Railroad stocks have proven over time to be excellent stock market investments, but they have experienced long periods of nonperformance.

Railroad stocks are very sensitive to general economic conditions and changing preferences among investors. If technology stocks are roaring, who wants to own real railroad stocks?

In my view, there definitely is room in a long-term equity market portfolio for one railroad company.

The railroad sector is an old economy industry that continues to pay.

Article by profitconfidential.com

By Profit Confidential

The battle is on in the online streaming of videos and other shows, according to my stock analysis.

Yet the main combatants include not only incumbent Netflix, Inc. (NASDAQ/NFLX) but also upstart Amazon.com, Inc. (NASDAQ/AMZN), which in two short years is likely causing some stir at Netflix’s corporate headquarters due to its own video streaming service.

If I was Netflix CEO Reed Hastings, I would be more than worried about the aggressive push of Amazon.com into the video streaming market, based on my stock analysis.

No longer is Amazon.com merely a seller of books and related items, as the company is looking at expanding its business line. My stock analysis suggests this strategy makes a lot of sense, considering that Amazon.com has a significant membership base to draw business from. This is the very real reason why Facebook, Inc. (NASDAQ/FB) needs to monetize its more than one billion users and make money, as my stock analysis indicates. (Read “Facebook Does an About-Face: Set to Move Higher?”)

There is speculation that Amazon.com may have paid as much as $200 million to Viacom Inc. (NASDAQ/VIA) for the rights to show hundreds of shows on its “Amazon Prime Instant Video” streaming service, including those from Nickelodeon, MTV Comedy Central, and others. The move comes after a similar licensing deal between Viacom and Netflix expired. For Amazon.com, it appears to be a great move and hits hard at Netflix. (Source: “Amazon and Viacom reach multiyear licensing deal,” Associated Press, Yahoo! Finance web site, June 4, 2013.)

My stock analysis suggests that Amazon.com has clout, and Netflix better be watching.

With a market cap of $122 billion, Amazon.com is much bigger than Netflix, whose market cap pales in comparison at just less than $13.0 billion.

Sometimes, when a bigger company wants something, it will get it, one way or another, based on my stock analysis.

And while Amazon.com may be behind now, according to my stock analysis, the fact the company has access to its huge membership base is a major advantage over Netflix. According to Morningstar analyst R.J. Hottovy, the Amazon Prime service may have over 10 million members. (Source: Thomas, O., “Amazon Has An Estimated 10 Million Members For Its Surprisingly Profitable Prime Club,” Business Insider, March 11, 2013.) Netflix currently has over 36 million users in 40 countries (source: Netflix, Inc., web site, last accessed June 5, 2013), so it’s ahead of Amazon.com for now.

The comparative cost of the two services is close. Netflix charges $8.00 a month, versus $79.00 year-long subscription fee for Amazon.com. But for Amazon.com members, there’s the extra benefits, including unlimited free two-day shipping on goods and free access to the “Kindle Owners’ Lending Library” that has over 300,000 e-books that can be borrowed.

But what it will come down to is not only the movie offering, but the special programming that can be viewed only on one or the other’s service, according to my stock analysis.

The chart below shows the recent outperformance of Netflix (shown in the red candlesticks) over Amazon.com (indicated by the solid green line), based on my technical analysis.

Chart courtesy of www.StockCharts.com

It will be a fierce battle online, but given the size of Amazon.com and its membership base, I would probably give the edge to Amazon.com in the long run, based on my stock analysis.

Article by profitconfidential.com

By Profit Confidential

Economic conditions in the global economy are taking a quick turn in the wrong way!

Consider the Purchasing Managers’ Index (PMI) of the U.S. economy tracked by the Institute of Supply Management. Last month it contracted for the first time since November of 2012 and only the second time since July of 2009!

The PMI registered 49.0 in May, compared to 50.7 in April. (Source: Institute of Supply Management, June 3, 2013.) Any reading below 50 suggests the manufacturing sector is experiencing a contraction.

But it’s not just the U.S. economy that’s experiencing a contraction in manufacturing (and affirming the possibility of an economic slowdown). China, the second-biggest hub in the global economy, is seeing the same. In May, the Chinese PMI also showed contraction. The HSBC China Manufacturing PMI registered at 49.2 in May, compared to 50.4 in April. (Source: Markit, June 3, 2013.) Again, any reading below 50 suggests a contraction in the manufacturing sector—which happens to be China’s biggest industry.

Germany, the fourth-biggest producer in the global economy, has been seeing its manufacturing sector contract for some time now. The German PMI registered below 50 in May, the same month the International Monetary Fund slashed the country’s growth outlook in half! The German economy is expected to grow by only 0.3% this year, compared to 0.6% in its previous forecast. (Source: Wall Street Journal, June 3, 2013.)

All of this shouldn’t come as a surprise to Profit Confidential readers. I have been harping on about this issue in these pages for some time now: the global economy is on the brink of an economic slowdown.

Warning: we have a significant amount of information pouring in each day suggesting an economic slowdown in the global economy is pacing faster. Remember, the U.S. economy is very reactive to the global economy, and the direction of the economic trajectory and the stock market are highly dependent on it.

Unfortunately, to fix these softening economies, central banks in the global economy have taken the same approach as the Federal Reserve and the Bank of Japan—lower interest rates and print more money.

Dear reader, the problem in the global economy is that demand is anemic; printing more paper money doesn’t create demand.

Being cautious is the best investment strategy right now.

Michael’s Personal Notes:

As economic conditions in the U.S. and the global economy deteriorate, and as central banks around the world print more money in their misguided attempts to spur growth, more and more analysts are saying that gold bullion’s best days are behind it. Their reasoning: the economy is improving, the Fed will cut back on its monetary stimulus, the worst is behind us, and there’s no more crisis, so there’s no more reason for gold to rise—this is the exact opposite of what I’m saying!

The gold bears fail to realize there are fundamental forces at play behind the gold bullion bull market.

Central banks around the world are looking at gold bullion as an alternative to the currencies they hold in their reserves. It is well documented in these pages how major central banks like the ones from Russia and Turkey continue to buy gold bullion.

Then there is the central bank of China. Its official reserve reached a value of $3.44 trillion in the first quarter of 2013—similar to the size of Germany’s economy. China increased its reserve by $128 billion in the first quarter, making it the biggest increase in reserve since the second quarter of 2011. (Source: Financial Times, April 11, 2013.) My bet is that most of that reserve is in U.S. dollars, which China would desperately like to get rid of.

With that said, China doesn’t have as much gold bullion to back its reserves as countries like the U.S., Germany, and France have. As a matter of fact, the Chinese central bank only holds 1.6% of its reserves in gold bullion, compared to 75.6% for the U.S. and 72.0% for Germany. (Source: World Gold Council, May 2013.)

To bring its total gold bullion holdings to 10% of its reserves, the central bank of China would need to allocate about $344 billion of its reserves to buy gold bullion.

Add strong demand from countries like India to the fact that China needs to increase its gold reserves, and the fundamental demand behind gold bullion is clear. According to the World Gold Council’s estimates, demand for gold bullion in India is expected to jump 150% by the end of June as compared to last year. (Source: Wall Street Journal, June 3, 2013.)

The amount of gold bullion and silver imported in India reached $7.5 billion in April—more than double the amount from a year earlier. The Indian government has increased its import tax from two percent to six percent in a matter of just 1.5 years to curb demand. (Source: Wall Street Journal, May 20, 2013.)

The demand for gold bullion is as strong as ever.

What He Said:

“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major homebuilder will go bankrupt in 2008.” Michael Lombardi in Profit Confidential, January 10, 2008. WCI Communities, the largest U.S. luxury home builder, filed for Chapter 11 protection on August 4, 2008.

Article by profitconfidential.com

By Profit Confidential

As economic conditions in the U.S. and the global economy deteriorate, and as central banks around the world print more money in their misguided attempts to spur growth, more and more analysts are saying that gold bullion’s best days are behind it. Their reasoning: the economy is improving, the Fed will cut back on its monetary stimulus, the worst is behind us, and there’s no more crisis, so there’s no more reason for gold to rise—this is the exact opposite of what I’m saying!

The gold bears fail to realize there are fundamental forces at play behind the gold bullion bull market.

Central banks around the world are looking at gold bullion as an alternative to the currencies they hold in their reserves. It is well documented in these pages how major central banks like the ones from Russia and Turkey continue to buy gold bullion.

Then there is the central bank of China. Its official reserve reached a value of $3.44 trillion in the first quarter of 2013—similar to the size of Germany’s economy. China increased its reserve by $128 billion in the first quarter, making it the biggest increase in reserve since the second quarter of 2011. (Source: Financial Times, April 11, 2013.) My bet is that most of that reserve is in U.S. dollars, which China would desperately like to get rid of.

With that said, China doesn’t have as much gold bullion to back its reserves as countries like the U.S., Germany, and France have. As a matter of fact, the Chinese central bank only holds 1.6% of its reserves in gold bullion, compared to 75.6% for the U.S. and 72.0% for Germany. (Source: World Gold Council, May 2013.)

To bring its total gold bullion holdings to 10% of its reserves, the central bank of China would need to allocate about $344 billion of its reserves to buy gold bullion.

Add strong demand from countries like India to the fact that China needs to increase its gold reserves, and the fundamental demand behind gold bullion is clear. According to the World Gold Council’s estimates, demand for gold bullion in India is expected to jump 150% by the end of June as compared to last year. (Source: Wall Street Journal, June 3, 2013.)

The amount of gold bullion and silver imported in India reached $7.5 billion in April—more than double the amount from a year earlier. The Indian government has increased its import tax from two percent to six percent in a matter of just 1.5 years to curb demand. (Source: Wall Street Journal, May 20, 2013.)

The demand for gold bullion is as strong as ever.

What He Said:

“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major homebuilder will go bankrupt in 2008.” Michael Lombardi in Profit Confidential, January 10, 2008. WCI Communities, the largest U.S. luxury home builder, filed for Chapter 11 protection on August 4, 2008.

Article by profitconfidential.com

By Profit Confidential

In the effervescent realm of books on business, there are the biographies on industry titans, the how-tos, the books on leadership (or lack thereof), the postulations on the next cycle, or books about “the secret” (the perpetual media premise about visualizing your success).

But there are very few good books about trading capital markets. Two excellent works regarding capital markets that feature highly successful traders/investors are Market Wizards and The New Market Wizards, both written by Jack D. Schwager. These two books may be older titles, but they are still required reading for any serious trader/investor.

Schwager chose an interview format for his books, asking specific and learned questions to very successful traders that made it big from capital markets.

Interviewees ran the gamut from equity fund managers, to derivatives traders, to individuals who quit their jobs and each became a full-time trader/investor. Schwager’s goal was to help readers get an understanding of what it takes to become a winning trader in capital markets, encompassing stocks, bonds, commodities, and currencies.

In the books, Schwager interviewed Marty Schwartz who worked as a Wall Street equity research analyst and lost money investing in stocks for a good 10 years. He quit his job, and with his savings, he bought a seat on the American Stock Exchange for $92,500. He had $20,000 left and borrowed $50,000 from his in-laws. Trading for himself and moving to a home office, in three years, he was earning no less than seven figures annually.

Schwartz couldn’t make money investing in stocks; rather, he changed his approach to capital markets. He switched to technical analysis and traded S&P contracts.

His most important advice: admit when you’re wrong, learn to take losses early, and don’t increase the size of your bets until you’ve doubled or tripled your capital.

James B. Rogers, Jr. offered the following: everything in global capital markets is just a cycle. A paper loss is very much a real loss. Buy change (after a lot of research). Be flexible and invest in anything. Never follow conventional wisdom. Wait for a good trading opportunity to present itself; do nothing in the absence of such an opportunity. (See “Investor’s Manifesto: Five Motivations for Beating Market Chaos and Risk.”)

Richard Driehaus was in research, but opened an account as a trader/investor in stocks at the brokerage firm he worked for. A person in the office who reconciled his trades saw his picks were pretty good, so she gave Driehaus $104,000 to manage. This was his beginning as a fund manager.

Driehaus said that most people look at stock market action negatively, while not being constructive about the trading. Synthesize all news in capital markets, he said, but don’t follow anyone. Buying high to sell higher is often profitable for a trader. Only through your own research can you develop an investing philosophy that earns. Do what works in the stock market, not what is comfortable, said Driehaus.

Among the traders that Schwager interviewed, I noticed a number of commonalities. Here are 10:

1. Take losses early

2. Hard work and consistent discipline are required to be successful

3. Trade infrequently, but trade with conviction

4. Winning is more important than being right

5. Vary the size of your bets based on conviction and investment risk

6. Study capital markets for the action; everything else is noise

7. Home runs are essential to keeping you in the game over time

8. The equity market is neither efficient nor random

9. Learn from mistakes; it is a big treasure hunt

10. Remove your ego from the game

Market Wizards and The New Market Wizards are quite old now, but the words still resonate. Most of the traders viewed speculating in capital markets as a zero-sum game. At the end of the day, the only thing that matters is the trading action and how you are positioned.

Article by profitconfidential.com

By Profit Confidential

When I look at potential trading opportunities, I like to scan for stocks that have high short selling positions in them. These are the traders betting against the stock.

Now, while there’s always some validity to why a stock becomes a short selling target, it’s not always the case; this is where I see contrarian trading opportunities.

Going against the grain does work, but there have been cases where a contrarian strategy has blown up in my face. The key here, like any other situation, is to make sure you have an exit strategy. So while some traders view heavy short selling positions as a negative, I view extreme short selling as a possible trade opportunity to make money by betting against the herd.

An excellent example of this is the case with Tesla Motors, Inc. (NASDAQ/TSLA), which saw 62.9% of its float shorted in mid-April, when the stock was trading at the $46.00 level. In my view, the amount of short selling was extreme and worthy of a look for the aggressive trader. The company subsequently reported some numbers and its outlook—all excellent.

The result was a significant pop in the share price of Tesla from investors buying and short-sellers covering. The stock surged 147% in about six weeks, with the shorts falling to 36.9% of the float as of May 15, according to data on Yahoo! Finance. A call option trade on Tesla would have yielded even greater returns due to the leverage used.

Take a look at the chart of Tesla below, and note the two major opening upside gaps as indicated by the purple circles, based on my technical analysis.

Chart courtesy of www.StockCharts.com

Another short selling squeeze that played out is Internet stock Groupon, Inc. (NASDAQ/GRPN), which rocketed 175% from $2.60 in mid-November to its current level at $7.07 per share. (Check out some other top Internet stocks in “Why There’s No Stopping the Internet Sector.”) The upward surge was driven by both new investors and major short covering. On March 28, prior to the major upward push, there were 41.7 million shares shorted on Groupon or 20.1% of the float. (Source: Yahoo! Finance, last accessed June 4, 2013.) As of May 15, shorts accounted for a mere 6.5% of the float.

Chart courtesy of www.StockCharts.com

While Tesla and Groupon were great short selling squeeze opportunities, there are other potential heavy short selling squeeze candidates that could be set to pop, based on their short positions as of May 15.

Some stocks currently being kicked about by traders include: Vera Bradley, Inc. (NASDAQ/VRA), at 72.5% of float; Uni-Pixel, Inc. (NASDAQ/UNXL), 43.2% of float; Pitney Bowes Inc. (NYSE/PBI), 38.1% of float; First Solar, Inc. (NASDAQ/FSLR), 35.8% of float; and GameStop Corp. (NYSE/GME), at 34.9% of float.

Article by profitconfidential.com

By Profit Confidential

In May, the bond market suffered the biggest monthly sell-off since 2004. (Source: Bloomberg, June 3, 2013.) To gauge the extent of the selling, take a look at the chart below, which shows the yield on a 30-year U.S. Treasury.

From the first trading day of May to the last trading day of the month, the yield on a 30-year U.S. bond increased more than 17%—soaring from 2.81% to above 3.3%. This move is significant for the bond market, because as the yields on bonds rise, the prices of bonds fall.

Chart courtesy of www.StockCharts.com

What does this mean? Traditionally, rising bond yields indicate inflation ahead, something I have been warning about. But if I had to bet, I would say investors have tired on the low yields of bonds and are moving into higher-risk investments, such as the stock market.

What we already know is that as the yields on the U.S. bonds declined, bond investors moved from the security of U.S. government bonds into higher-yielding bonds—those that are higher-risk and are often considered speculative by credit rating agencies.

We can see the move to higher-risk bonds in the number of new non-government bond issues. In the first four months of this year, $115.1 billion worth of high-yield U.S. corporate bonds were issued. (Source: Securities Industry and Financial Markets Association, May 14, 2013.) In 2012, $329.2 billion worth of high-yield debt was issued in the bond market, and in 2011, this number was $224.1 billion. That adds up to $670 billion in corporate bonds in 28 months!

Taking all this into consideration, as the yield on 30-year U.S. bonds moves higher, the yield on corporate bonds in the bond market will rise further and bond prices will go lower—that means bond investors will take a loss if they sell early! And, of course, they will sell early as few investors actually hold long-term bonds until maturity.

According to Lipper Data, high-yield bond funds in the U.S. witnessed withdrawals of $875 million in the week ended May 31. This was the biggest outflow from these types of funds since February. (Source: Bloomberg, May 31, 2013.)

Bond investors need to practice extreme caution, because the dynamics of the bond market have changed. The most basic indicator of the bond market, the 30-year U.S. Treasury, is showing weakness ahead. If this continues further, it will result in an even steeper sell-off throughout the bond market.

Dear reader, when the yields in the bond market fall, bond investors face severe losses. I wouldn’t rule out a mass exodus from the bond market.

Article by profitconfidential.com