Month: June 2013

By Profit Confidential

There’s a lot of talk about economic recovery these days. Mainstream economists are saying the U.S. economy will continue to grow, and the stock advisors are telling investors to buy on dips because everything is headed upward. Their arguments are: housing is hot, the unemployment rate is declining, and consumers are spending.

But I have to disagree with those claims. I believe this isn’t a real economic recovery. What we have seen since 2009 has been nothing more than a result of artificially low interest rates, money printing, and increased government spending. Real economic recovery only occurs when conditions improve across the board and return to their historical averages.

The jobs market, which should improve during an economic recovery, is actually stalled and tormented. The official unemployment rate has come down from 10% to 7.6% in May. But the official unemployment rate is not an accurate indicator of the jobs market, as it does not take into account the soaring rate of involuntary underemployment.

There is a spur of job creation in retail and other low-wage sectors, but the 4.4 million long-term unemployed in the U.S.—those who have been out of work for more than six months—aren’t seeing robust improvements. Each month, just 10% of them find jobs, and that number hasn’t changed in the last two years. (Source: Wall Street Journal, June 24, 2013.)

According to estimates from the Brooking Institution’s Hamilton Project, after adjusting for population growth, it could take up to three years for the unemployment rate in the U.S. economy to get back to its prerecession level.

The fact: American consumers are the ones that drive the U.S. economy towards economic recovery. But they are struggling right now. According to a survey by Bankrate.com, 76% of Americans live paycheck-to-paycheck. The survey, with 1,000 respondents, showed that 50% had savings that wouldn’t last them for three months without income and that 27% didn’t have any savings at all. (Source: CNN Money, June 24, 2013.)

The so-called “economic recovery” is tepid at best. The U.S. economy is growing at a much slower rate than its historical average—an annual pace of 2.2%, far below its decades-long average of 3.3%. (Source: Wall Street Journal, June 24, 2013.)

There are problems in the making for any real economic recovery. The long-term bonds rate yields are increasing very quickly. Keep in mind that the long-term bonds are used as a benchmark to price not only the mortgage rate, but also what rate the banks will charge their clients on loans. If these yields continue to skyrocket, you can expect loan rates to increase, putting businesses already struggling into greater danger—which is hardly an environment of economic recovery.

As my readers know, the anemic economic recovery and stock market rally we have seen since the financial crisis was a result of easy monetary policies. If Bernanke goes ahead with his warning last Wednesday that the Fed will pull back on printing money (and I’m still skeptical if the Fed will actually pull the trigger), the ramifications for the U.S. economy, stock market, and housing market will be more severe than most analysts can fathom.

Michael’s Personal Notes:

It hasn’t been too long since I started to warn readers of Profit Confidential about what might happen in the U.S. bond market. (See “Bond Market Shows Signs of Weakness Ahead.”) As I have said many times before, the sell-off in the bond market will start slowly and then eventually pick up speed. And, as predicted, it’s all coming together.

Take a look at the chart of the 10-year U.S. bond prices below:

Chart courtesy of www.StockCharts.com

The selling in the U.S. bond market has escalated. The 10-year U.S. bonds were trading in a down channel—making successively lower lows and lower highs since the middle of 2012. Recently, after the Federal Reserve, which has turned into a major buyer of long-term U.S. bonds, said it might pull back on its purchases, it all turned. The bond prices started to come down quickly (as you can see in the red circle on the chart above).

Since the beginning of the year, the 10-year U.S. bonds prices are down about four percent—from $131.00 to below $126.00 now. The image elsewhere in the bond market is very similar. The 30-year U.S. bonds are also shifting gears, and the bonds with higher risks, such as junk bonds, are seeing an even steeper sell-off.

Investors are running for the doors, fleeing the bond market at a very fast pace. According to the Investment Company Institute’s data, in April of 2012, long-term bonds mutual funds witnessed an inflow of $24.7 billion. In April of this year, these types of mutual funds had an inflow of only $12.1 billion—51% less. (Source: Investment Company Institute, June 19, 2013.)

In this month, June, it is possible that the long-term bonds mutual funds will witness an outflow for the first time since August of 2011. For the weeks ended on June 5 and June 12, the long-term bonds mutual funds witnessed outflows of $10.8 billion and $13.4 billion, respectively.

As the U.S. bonds prices come down and the bond market faces severe pressure, I see a significant number of mainstream economists missing its implications. Here’s one: the pension funds rely heavily on the bond market; they will face losses as the bond prices continue to slide lower.

The sell-off in the bond market shouldn’t be taken lightly, because it’s much bigger than the equity markets. Investors are fleeing on speculation over when the Federal Reserve will stop purchasing U.S. bonds; if inflation starts to pour into the U.S. economy, as I expect it will, the “slowly declining” bond market will become a “crashing” bond market.

What He Said:

“When property prices start coming down in North America, it won’t be a pretty sight because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It’s only a matter of logic, reality and time.” Michael Lombardi in Profit Confidential, June 23, 2005. Michael was already warning investors of the coming crisis in the U.S. real estate market right at the peak of the boom, now widely believed to be in 2005.

Article by profitconfidential.com

By Profit Confidential

It hasn’t been too long since I started to warn readers of Profit Confidential about what might happen in the U.S. bond market. (See “Bond Market Shows Signs of Weakness Ahead.”) As I have said many times before, the sell-off in the bond market will start slowly and then eventually pick up speed. And, as predicted, it’s all coming together.

Take a look at the chart of the 10-year U.S. bond prices below:

Chart courtesy of www.StockCharts.com

The selling in the U.S. bond market has escalated. The 10-year U.S. bonds were trading in a down channel—making successively lower lows and lower highs since the middle of 2012. Recently, after the Federal Reserve, which has turned into a major buyer of long-term U.S. bonds, said it might pull back on its purchases, it all turned. The bond prices started to come down quickly (as you can see in the red circle on the chart above).

Since the beginning of the year, the 10-year U.S. bonds prices are down about four percent—from $131.00 to below $126.00 now. The image elsewhere in the bond market is very similar. The 30-year U.S. bonds are also shifting gears, and the bonds with higher risks, such as junk bonds, are seeing an even steeper sell-off.

Investors are running for the doors, fleeing the bond market at a very fast pace. According to the Investment Company Institute’s data, in April of 2012, long-term bonds mutual funds witnessed an inflow of $24.7 billion. In April of this year, these types of mutual funds had an inflow of only $12.1 billion—51% less. (Source: Investment Company Institute, June 19, 2013.)

In this month, June, it is possible that the long-term bonds mutual funds will witness an outflow for the first time since August of 2011. For the weeks ended on June 5 and June 12, the long-term bonds mutual funds witnessed outflows of $10.8 billion and $13.4 billion, respectively.

As the U.S. bonds prices come down and the bond market faces severe pressure, I see a significant number of mainstream economists missing its implications. Here’s one: the pension funds rely heavily on the bond market; they will face losses as the bond prices continue to slide lower.

The sell-off in the bond market shouldn’t be taken lightly, because it’s much bigger than the equity markets. Investors are fleeing on speculation over when the Federal Reserve will stop purchasing U.S. bonds; if inflation starts to pour into the U.S. economy, as I expect it will, the “slowly declining” bond market will become a “crashing” bond market.

What He Said:

“When property prices start coming down in North America, it won’t be a pretty sight because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It’s only a matter of logic, reality and time.” Michael Lombardi in Profit Confidential, June 23, 2005. Michael was already warning investors of the coming crisis in the U.S. real estate market right at the peak of the boom, now widely believed to be in 2005.

Article by profitconfidential.com

By Profit Confidential

The deleveraging that’s taking place around the world is obviously echoed in tumultuous capital markets, but a retrenchment in the bond and stock markets has been overdue for ages.

As is usually the case, several catalysts came together at the same time to produce an unsurprising stock market sell-off. These included: comments from the Federal Reserve regarding quantitative easing, rising 10-year Treasury yields, weak earnings from benchmarks, and concern over China’s real estate market and its banks.

While China’s stock market has been in a pronounced downtrend since the first week in June, its banks are still controlled by the government, so any potential banking crisis in that country is a different game than we’ve seen before because of China’s $3.3 trillion in foreign currency reserves (mostly in U.S. Treasuries).

But that very game could have serious consequences for the U.S. stock market if China needed that money to flood its capital markets with liquidity. With a different approach to saving, money creation, and fiscal management in general, currency destabilization from China is an ongoing risk.

It was just a few years ago that capital markets treated economic news from China as emerging market news only. Now, China’s economic news is taken very seriously by the global economy, and the country’s numbers directly affect the U.S. stock market.

It’s just one more reason to be very conservative with your equity holdings now. Investment risk across all financial asset classes is high.

One thing that China and many of its U.S.-listed companies have proven is that they’re unreliable with their numbers. After countless missteps with U.S. regulators and outright frauds on the stock market, the biggest Ponzi scheme the world has ever seen might not be the U.S. monetary policy, but rather China’s domestic banking system.

It’s a growing investment risk for all financial assets. Because China is not an open economy, we just can’t quantify the degree to which the world is at risk due to its management. The entire “Red Dragon” (forecast to be larger than the U.S. economy by 2016) is a powder keg of ambiguity.

It’s just one of the many reasons why I’m an advocate for keeping retirement stock market holdings as blue-chip and domestic as possible. Financial control for U.S. investors continues to be on the decline.

Both Treasuries and the U.S. stock market have been due for a major correction for some time. On the cusp of a new earnings season, more stock market weakness is likely. I don’t expect corporate earnings to surprise to the upside.

There should be no doubt that China’s domestic economic situation directly affects U.S. capital markets and now the stock market.

Recent trading action in all asset classes illustrates the degree to which all investors are vulnerable in a supercharged monetary world. Reliability of data, processes, the regulatory environment, market participants, and cash itself is untenable. (See “Crash, Down Quarter, Major Correction—It’s All in the Cards.”)

For investors, only the safest names will do. Generally speaking, I still feel the stock market isn’t worth buying after its big run-up.

More China-related turmoil in capital markets is highly likely in the near term.

Article by profitconfidential.com

By Profit Confidential

The major stock indices started the week with another downward blast, just as I had warned.

You shouldn’t be surprised; in fact, it was more obvious as the stock market traded higher and higher (sometimes for no reason) that a time of reckoning was on the horizon. Even at a 5% discount in the recent months, I was still hesitant to jump into the stock market with reckless abandon. (Read “Buyer Beware: Stocks May Be Signaling More Weakness to Come.”)

Now with the 7% correction in the S&P 500, my senses are beginning to tingle, but I’m still not ready to join the market yet. Recall my recent dinner with my investment manager friend (see “Wine, Steak, and the State of the U.S. Economy”). I came away from that dinner thinking my friend was expecting a major correction in the stock market and was buying put options as a hedge. Well, the stock market could be in the midst of a major correction.

If stocks don’t settle down and find a place to pause, it could easily translate into more losses. A 10% adjustment is possible. I would love to see a more significant correction, as I would then be looking more seriously at nipping the stock market.

The Federal Reserve created this current stock market drama. But don’t forget—you also owe Fed chairman Ben Bernanke a big “thank you” for the money you’ve made over the past few years.

Let’s go back to a chart of the S&P 500 that I first created in May (featured below). Note the purple ovals that pointed to a correction. I was quite concerned about the advancement this year and said it was not sustainable at the same pace. Now take a look at the current deterioration on the chart, highlighted by the selling that has driven down the S&P 500 by more than 110 points from its peak in May.

Chart courtesy of www.StockCharts.com

The 1,550 level appears to offer some support, but failure to hold here could see the index become vulnerable to dropping below 1,500.

The chart below shows the downward move of the S&P 500 stocks that had been above their respective 200-day moving averages. The reading was in excess of 93% during its peak in May, but it has since collapsed to below 80%.

 Chart courtesy of www.StockCharts.com

Over the next few weeks, the key will be to see how the stock market behaves and whether the so-called “bargain hunters” start to surface.

I would rather just take a seat and wait for potentially more selling before jumping in. The fact is that there will be opportunities to make money on the market swings to be sure.

Article by profitconfidential.com

By Profit Confidential

No matter where I look, it seems as if there’s a rush to sell gold bullion.

For the week ended June 21, assets in the SPDR Gold Trust (NYSEArca/GLD)—the biggest gold bullion exchange-traded product (ETP)—declined below 1,000 tons. This is the first time since February of 2009 that the fund’s gold bullion holdings have reached this level. (Source: Bloomberg, June 24, 2013.)

That’s not all. Gold bullion holdings in ETPs have declined 533.3 metric tons this year alone and Societe Generale—one of the biggest banks in France, also referred to as SocGen—expects gold bullion investors to sell another 285 tons this year.

As readers of Profit Confidential know, I am a contrarian. Increased selling and a significant amount of negativity towards gold bullion is actually a bullish indicator to me. The decline is really separating the men from the boys. Remember: buy when there’s blood in the streets.

The prospects for gold remain very strong in spite of the price decline.

At the very core, what gold bullion essentially does is provide safety from uncertainty. The economic troubles we’ve had recently haven’t gone away—in fact, new troubles are emerging.

The health of the global economy looks to be deteriorating. As the eurozone problems have already exacted a toll, now problems in China are sending threats to the global economy. The country is expected to show anemic growth this year, and worries of a credit crunch in the Chinese economy are growing very quickly.

What gold bears don’t realize is that central banks in the global economy are still printing money. The Bank of Japan, through its quantitative easing, is buying almost $72.0 billion worth of bonds; the European Central Bank (ECB) has lowered its interest rates after it promised it will do whatever it takes to save the region.

Our own central bank, the Federal Reserve, is still printing money at $85.0 billion a month and buying government bonds and mortgage-backed securities (MBS). It hasn’t stopped just yet, but it has provided hints to the market that it soon might be pulling the punch bowl from the party.

On top of all this, the central banks around the global economy are still purchasing gold bullion to diversify their reserves. They can’t rely much on the “reserve currency,” the U.S. dollar, because it has become prone to wild swings.

Furthermore, the demand for gold is increasing among retail investors as well. They now have another chance to buy more gold bullion. It has been very well documented in these pages how the gold bullion-consuming countries in the global economy, like India and China, are seeing exuberant demand, and that here at home investors are rushing to buy more.

In the midst of negativity about gold bullion, I see bullish signs and I maintain my stance on the precious metal. When the gold bullion price will hit the bottom is very difficult to tell, but it doesn’t seem very far away.

Article by profitconfidential.com

By Profit Confidential

Red Lobster and Olive Garden are popular restaurants, but that doesn’t seem to be enough for Darden Restaurants (DRI). The parent company just can’t seem to grow its earnings from these brands.

Darden actually reported decent revenue growth in its fourth fiscal quarter of 2013, based largely on the strengths of its less well-known brands, but earnings continued to disappoint.

Darden also owns LongHorn Steakhouse, The Capital Grille, Eddie V’s Prime Seafood, Seasons 52, Yard House, and Bahama Breeze. It’s the largest full-service restaurant business in the world with more than 2,100 locations.

Total sales from continuing operations grew 11.3% to $2.3 billion. U.S. same-restaurant sales grew 3.5% for LongHorn Steakhouse, 3.2% for Red Lobster, and 1.1% for Olive Garden.

Fourth-quarter diluted net earnings per share from continuing operations were $1.01, a decrease of 12% from $1.15 per diluted share in the fourth quarter of 2012. Net earnings from continuing operations were $133.3 million, down from $151.6 million.

For fiscal year 2014, the company expects total sales growth to be between six and eight percent. Earnings will be affected by the acquisition of 40 Yard House restaurants, with diluted net earnings per share forecast to be down three to five percent compared to fiscal 2013.

Overall, the company’s top-line growth is still good, and its stock market valuation is fair.

Darden’s company stock chart is featured below:

Chart courtesy of www.StockCharts.com

Darden actually increased its quarterly dividend by 10% in an attempt to keep shareholders happy with minimal earnings growth. The stock is now yielding close to four percent, which is attractive.

Before Darden’s recent earnings release, Wall Street analysts were boosting their estimates. Still, the earnings growth outlook isn’t particularly strong enough to make the stock a buy right now. It’s likely the position will be a valuation play for the next couple of quarters.

Restaurant stocks have been generally stronger over the last several years. Even established brands with less health-conscious menus have done well, and those offering dividends have been reliable.

For most equity market portfolios, it makes sense to consider restaurant stocks. For some investors, more than one restaurant stock could be considered; like pairing a mature dividend-paying chain firm and an up-and-coming company.

As I have said before, restaurants are susceptible to the business cycle, but they are among the first to make a comeback when consumer spending improves. (See “How Peter Lynch Got It Right 20 Years Ago.”)

With meaningful revenue growth, investors will reward a growing restaurant company with a high valuation. Wall Street forgives operating losses in this group if the concept has proven to be successful and a company is expanding into new markets.

I wouldn’t say that Darden is struggling; its brands have real staying power. However, the problem for this mature chain is earnings growth and consistency.

Article by profitconfidential.com

By Profit Confidential

Ben Bernanke has spoken, but we all knew the news was coming, so why was there subsequent selling in the stock market?

Yes, the Federal Reserve has set its timeline to begin to cut its bond-buying program by the year’s end, as long as the economy continues to strengthen. By 2014, the bond stimulus may be over, and we will subsequently see an upward move in bond yields and mortgage rates.

But in spite of all of the doom and gloom, there is some optimism. The end of the bond tapering means that the economy is fine and expanding. Moreover, interest rates will continue to be at record lows until perhaps late 2014 or 2015 depending on improvement of the jobs market, economy, and inflation. Isn’t that good?

Maybe not. The rapid rise in stocks that we have seen will likely come to an end, but I still don’t see a market crash. As long as interest rates continue to hold near their record lows, stocks should be fine. But of course, the easy gains that we have seen are likely a thing of the past.

As long as the economy improves, stocks will likely ratchet higher in spite of the rising yields. But if the yields double from the current level, stocks could take a big hit.

For instance, the yield on a five-year U.S. government bond is 1.29%, up 46 basis points in just a month. The 10-year yield is now at 2.40%. I think it’s going to take much higher yields to convince investors to switch from stocks, specifically the high-yielding dividend stocks, to bonds.

I’m not saying it won’t happen, but I just don’t see it until after 2015, when interest rates will begin to ratchet higher. And like I said, it will take a major jump in bond yields to drive any asset shift.

In fact, the current selling is exactly what the market needs given what was an extremely rapid rise that was clearly not sustainable. This may actually be the correction we’ve been hoping for and expecting. (Read more in “Bull Market Not Over, but a Correction May Be on the Horizon.”)

The S&P 500 is down 4.8% since last Thursday. If the selling continues and the index retrenches to closer to 10%, I would definitely be looking to accumulate shares.

For now, investors should stay on the sidelines and perhaps even take some money off the table, as a bigger discount may soon be on the horizon.

Article by profitconfidential.com

By Chris Vermeulen – TheGoldAndOilGuy.com

The life cycle of most things not matter what it is (living, product, service, ideas etc…) go through four stages and the stock market is no different. Those who recently gave in and bought gold, silver, mining stocks, coins will be enter this stage of the market in complete denial. They still think this is a pullback and a recover should be just around the corner.

Well the good news is a recovery bounce should be nearing, but if technical analysis, market sentiment and the stages theory are correct then a bounce is all it will be followed by years of lower prices and dormancy.

I really do hate to be a mega bear or mega bull on anything long term but the charts have painted a clear picture this year for precious metals and I want to share what I see. Take a look at the chart below which shows a typical investment life cycle using the four stage theory.

The Four Stages Theory

Classic economic theory dissects the economic cycle into four distinct stages: Accumulation, Markup, Distribution, and Decline.  Stock, index or commodities are no different, and proceeds through the following cycle:

• Stage 1 – Accumulation: After a period of decline a stock consolidates at a contracted price range as buyers step into the market and fight for control over the exhausted sellers.  Price action is neutral as sellers exit their positions and buyers begin to accumulate.
• Stage 2 – Markup: Upon gaining control of price movement buyers overwhelm sellers and a stock enters a period of higher highs and higher lows.  A bull market begins and the path of least resistance is higher.  Traders should aggressively trade the long side, taking advantage of any pullback or dips in stock price.
• Stage 3 – Distribution: After a prolonged increase in share price the buyers now become exhausted and the sellers again move in.  This period of consolidation and distribution produces neutral price action and precedes a decline in stock price.
• Stage 4 – Decline: When the lows of Stage 3 are breached a stock enters a decline as sellers overwhelm buyers.  A pattern of lower highs and lower lows emerges as a stock enters a bear market.  A well-positioned trader would be aggressively trading the short side, taking advantage of the often quick decline in share price.

Gold Price Weekly Chart – Stages Overlaid

Silver Price Weekly Chart – Stages Overlaid

Gold Mining Stocks – Monthly Chart

This chart is a longer term picture using the monthly chart. I wanted to show you the 2008 panic selling washout bottom in miners which I think is about to happen again. While physical gold and silver are in a bear market and should be some a long time, gold mining stocks will likely find support and possibly have a strong rally in the coming months.

Many gold stocks pay high dividends and are wanted by large institutions and funds. The lower prices go the higher the yield is making them more attractive. So I figure gold miners will bottom before physical metals do. A bounce is nearing but at this point selling pressure and momentum continue to plague the entire PM sector.

Precious Metals Investing Conclusion:

In short, I feel with Quantitative Easing (QE) likely to be trimmed back later this year, and with economic numbers slowly improving along with solid corporate earnings the need or panic to buy gold or silver is diminishing around the globe.

While there are still major issues and concerns internationally they do not seem to have any affect on precious metals this year. Long terms trends like the weekly and monthly charts shown in this report tends to lead news/growth/lack of growth by several months. So lower precious metals prices may be telling us something very positive.

The precious metals sector is likely to put in a strong bounce this summer but after sellers will likely regain control to pull prices much lower yet.

Get My Daily Analysis and Trade Alerts: www.TheGoldAndOilGuy.com

Chris Vermeulen

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 26 June 2013, 08:00 EDT

SPOT MARKET gold fell to its lowest level since August 2010 Wednesday, trading as low as $1224 an ounce, as stocks rallied along with the Dollar following better-than-expected US economic data a day earlier.

 By Wednesday lunchtime in London, gold in Dollars was trading around 4% down on where it started yesterday’s London session.

 The Euro gold price also hit a fresh three-year low this morning, dipping below €940 an ounce, as did gold in Sterling which traded as low as £797 an ounce.

 In contrast with April’s price drop, gold’s recent fall has not been met with a surge in demand for physical bullion, Asian dealers report.

 “We have not seen a substantial increase in demand,” agrees Victor Thianpiriya, commodities analyst at ANZ Bank.

 “We are going through a whole bunch of stop losses…the liquidity issue in China is also hurting sentiment,” he adds, referring to the recent spike in short-term interbank borrowing rates in Shanghai, which saw China’s central bank yesterday step in with short-term lending to keep interest rates at a “reasonable level”.

 The world’s largest gold exchange traded fund SPDR Gold Trust (ticker: GLD) saw outflows totaling 16.2 tonnes of bullion yesterday, taking total holdings down to their lowest level since February 2009 at 969.5 tonnes.

 “This is a seriously large daily decrease and shows the general lack of demand for gold as an investment tool at the moment,” says David Govett, head of precious metals at brokerage Marex Spectron.

 “All in all, these are not happy times for the precious metals markets and for the time being I remain happy to sell rallies.”

 “There has been 550 tonnes of gold sold out of ETFs since mid-February,” adds Bernard Dahdah, precious metals analyst at Natixis.

 “That’s the equivalent of saying we’ve added to the gold market an additional 11% on top of 2012’s gold [mining] output.”

 On the currency markets, the Euro fell to a three-week low against the Dollar this morning, with the US currency strengthening following the release of positive economic data yesterday.

 European stock markets meantime extended yesterday’s gains during Wednesday morning’s trading, following gains a day earlier for US markets following better-than-expected data on US durable goods orders, home prices and consumer confidence.

 “The first leg of the correction [in stocks] is close to over and the markets should be more stable going into month end,” says Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote & Cie. in Neuchatel, Switzerland.

 “The Chinese central bank’s liquidity pledge has calmed markets in the short term, but the picture is not that clear in the medium term.”

 Silver meantime dipped below $18.50 an ounce this morning, as with gold its lowest level since August 2010.

 Over in India, the world’s biggest source of private gold demand, jewelry maker Rajesh Exports said Wednesday it expects its sales and earnings to grow 10% during the current financial year. This is below previous expectations, with the dip the result of India’s recently introduced measures aimed at curbing gold imports, such as raising the import duty to 8% and restricting importation on credit.

 Rajesh Exports added however that it does not plan to suspend sales of gold bars and coins, despite a request from the All India Gems & Jewellery Trade Federation.

 “We don’t feel stopping these sales would solve the problem [of India’s high level of gold imports],” the firm’s chairman Rajesh Mehta tells Reuters.

 “If genuine people stop the sale then all other spurious people will come into the market.”

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

(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.

Source: Zig Lambo of The Energy Report (6/25/13)

http://www.theenergyreport.com/pub/na/15403

Remember when oil shot up to $148 a barrel? Chen Lin does, and he sees potential for Wall Street market manipulation to push the oil price in the opposite direction—as low as $47 a barrel. Plus, he’s bearish on China now. The good news is that Lin, publisher of What Is Chen Buying/Selling?, was willing to share his personal investment strategy in his interview with The Energy Report. Find out where Lin booked profits this year and get the names he’s turning to for protection against oil price downside.

The Energy Report: What have been the most important changes in the oil and gas markets since your last interview in February?

Chen Lin: Yes, there has been a major change: I turned bearish on China, and I warned my subscribers about that in Q1/13. I shorted copper, the Australian dollar and U.S. government bonds and I just booked a nice profit after the Fed decision. I also shorted oil as a hedge. I have short positions in both copper and oil.

TER: Where’s the downside risk?

CL: It’s very hard to say. Commodities, I believe, are highly manipulated by Wall Street. I told my subscribers that there were Wall Street firms that pushed oil all the way to $148 per barrel ($148/bbl) in 2008. These same firms can push oil down to $47/bbl. It’s very hard for individual investors to see what is going to happen and when it will happen. I personally recognize the conditions for a major, potentially sharp decline for the oil price, but I just don’t know if or when it will happen. For example, China is slowing down rapidly and has huge pollution problems. The smog cover is a thousand miles long. So there is a great possibility that the Chinese government will control car registrations and force people to drive smaller and more energy-efficient cars. That will reduce oil demand.

Furthermore, in the U.S., we have a shale oil boom and the dollar is getting stronger. Both of these factors could trigger a price decline in oil. Most energy investors I’ve talked to are quite complacent. They all seem to believe that high oil prices are here to stay. But that actually makes it quite dangerous. I’m not saying oil will crash this year. I just see that the ingredients for a potentially sharp oil decline are here and I personally want to play it safe in my oil portfolio.

TER: What do you think about the natural gas situation?

CL: Right now the U.S. has a lot of natural gas. The only question is how high the price needs to be to get all of it out of the ground. I expect prices to climb gradually as the demand increases, but not by a lot and not quickly.

TER: There’s a lot of talk about exporting liquefied natural gas (LNG), yet the Energy Information Administration’s (EIA) recently published Short-Term Energy Outlook states that the U.S. is exporting a record amount of gas by pipeline to Mexico, which saw its usage rise almost 29% from a year earlier to an average 1.6 billion cubic feet per day in early May. How soon could new LNG terminals realistically have a significant impact on domestic production and gas prices?

CL: I see LNG exports as likely, especially to Europe. Every winter, Europe is living at the mercy of Russian natural gas exports. So if the U.S. could export its natural gas to Europe to help it through the winter, I think it would be a win-win situation. As for the impact on the natural gas price, I believe there are so many reserves in the U.S. that it will have some impact, but not too much.

TER: What are the most attractive investment opportunities in the energy sector today?

CL: Energy exploration companies or energy juniors were hit very hard this year. Investors have really been throwing the baby out with the bathwater. Personally, I would play it safe and choose energy companies that have strong balance sheets and can produce at a very low cost. I also want to emphasize that I try to stay with companies with no leverage. When the oil price goes up, leverage can be very good. But when it goes down, leverage can be ugly. I want to remind people of Oilexco Inc. and ATP Oil & Gas Corp. as two examples of companies that went bankrupt when oil went down because of high leverage.

TER: Who have been your best performers this year?

CL: I had a very nice run with refiners this year. I discussed it a little bit in our last interview. I invested heavily in refiners at the beginning of this year. The refiners had quite a few home runs. I got a tenbagger out of Valero Energy Corp. (VLO:NYSE) call options; I bought the call options at the beginning of the year. When it came out with a huge earnings report, the stock exploded. Right now, I’m completely out of refiners because I wanted to put that capital in biotech.

TER: Which companies are you still holding?

CL: My favorite is still Mart Resources Inc. (MMT:TSX.V). It’s doing very well and paying about a 14% dividend. We can see production at least triple later this year when the new pipeline is built, which it expects in Q3/13. It could be delayed a month or two, which is normal in Nigeria. My plan is just to hold onto my shares, collect the dividend and wait. It’s one of the few stocks that you’re getting paid on while waiting for it to turn around. The stock has actually declined along with many of the energy stocks. It was over $2 at one point in January. Now it’s $1.50, but the good thing is the dividend rate is going much higher because it’s paying a $0.20/year dividend.

TER: What’s the political situation in Nigeria? Anything positive or negative that might have an influence on the company?

CL: Nigeria is trying to pass a new petroleum law that could actually reduce the tax the company is paying by up to 65%. That’s quite positive. Let’s hope it gets passed and the company continues paying the dividend.

TER: What other stocks are you sitting on?

CL: Pan Orient Energy Corp. (POE:TSX.V) has been hit extremely hard lately. It was over $4/share at the beginning of the year. Now it’s $1.60. That tells us how pessimistic investors are. However, it’s drilling a very high-impact Indonesian well right now. If successful, we’ll be looking at a very different company. The insider buying has been strong. This company really reminds me of one of my biotech stocks,Vanda Pharmaceuticals Inc. (VNDA:NASDAQ). Vanda was trading below cash just three months ago, and it has quadrupled since then. So I’m holding on to the shares and hoping for good news.

TER: Do you have any new energy holdings you’re excited about?

CL: One of my recent major pickups in energy is Coastal Energy Co. (CEN:TSX.V). The stock recently came down a lot, making it quite a bargain. It was way over $20 at the beginning of the year. Right now, it’s trading around $13-14. It was one of the brokers’ top picks in the past year or two, but the stock didn’t really have a lot of success in the past year and a half. It looks as if a lot of people got frustrated. One of its issues is that Thailand has a windfall tax that makes the company not very sensitive to the oil price. That makes it a very good stock to own right now, especially if oil declines. Also, Coastal Energy is a very good takeover target because of its very large oilfield in Thailand, which would be attractive to a Chinese company.

TER: How would you sum up your energy outlook?

CL: I have to say that I’m not extremely positive on the energy sector and believe energy investors need to be extra careful this year and next. I personally would examine every stock I own to see if that company can survive if oil goes to $70 or $80/bbl. Investment-wise, I’m sticking with a strategy of buying low-cost producers with strong balance sheets. I’m also shorting oil as a hedge for any potential decline in the oil price.

TER: Thanks for bringing us up to date on your thinking, Chen.

CL: Yes, thank you.

Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors Inc. While a doctoral candidate in aeronautical engineering at Princeton, Chen found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.

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DISCLOSURE:

1) Zig Lambo of The Energy Report conducted this interview and provides services to The Energy Reportas 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 Energy Report: Mart Energy Resources Inc. and Pan Orient Energy Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Chen Lin: I or my family own shares of the following companies mentioned in this interview: Mart Energy Resources Inc., Coastal Energy Co. and Pan Orient Energy Corp. I personally am or my family is 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.

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