By www.CentralBankNews.info
Poland’s central bank said its latest rate cut, which should help the economy recover in the second half of this year and limit the risk of inflation remaining below its target, ends its cycle of easing monetary policy.
The National Bank of Poland (NBP), which earlier today cut its benchmark reference rate for the third time in a row, said domestic economic activity remained weak in the second quarter, which will support weak wage growth, though some indicators had improved lately, including a halt in the fall of employment in the corporate sector and a slight fall in the seasonally-adjusted unemployment rate.
Although the central bank cut its forecast for economic growth and inflation, it said growth should gradually pick up from the second half of this year and this should also help boost inflation.
“The Council assesses that the significant reduction of NBP interest rates implemented since November 2012 supports economic recovery and limits the risk of inflation running below the NBP target in the medium term. The decision to lower NBP interest rates made at the current meeting ends the loosening cycle of monetary policy,” the NBP said in statement.
The NBP cut its reference rate, along with other key rates, by 25 basis to 2.50 percent, bringing this year’s rate reduction to 175 basis points.
Since the central bank started cutting rates in November last year – a move that was criticized as too late to cushion the economy from the euro area’s recession – the NBP has cut rates by 225 points. In April the bank froze rates to assess the impact but then started cutting again in May.
Global economic activity remained low in the first half of this year, the NBP said, noting that “signals of a possible tapering of monetary expansion by the Federal Reserve have recently led to a deterioration of sentiment in financial markets.”
“This, in turn, resulted in some outflow of capital from emerging markets and depreciation of their currencies, including the zloty,” it added.
Like other emerging markets, Poland’s zloty has weakened since early May, having depreciated some 6.0 percent since the start of the year, with a marked decline since late May. It was quoted at 4.34 to the euro today. Last month the central bank intervened in foreign exchange markets to limit volatility in zloty trading.
Last month a member of the bank’s monetary council had said further rate cuts should be avoided due to the risk of weakening the zloty further and triggering capital outflows.
Poland’s inflation fell further in May to 0.5 percent from 0.8 percent in April, sharply below the central bank’s 2.5 percent target, due to lower energy prices.
A strong fall in producer prices and low core inflation confirms “persistently low demand and cost pressures in the economy,” the NBP said, with inflation expectations by households and businesses also falling further.
The NBP’s latest forecast calls for inflation in a range of 0.6 to 1.1 percent this year, lower than the March forecast of 1.3-1.9 percent, then between 0.4 and 2.0 percent in 2014, as against the previous forecast of 0.8 to 2.4 percent, and between 0.7 and 2.4 percent in 2015, steady from 0.7-2.4 percent.
Poland’s Gross Domestic Product is forecast to grow between 0.5 and 1.7 percent this year, down from the March forecast of 0.6-2.0 percent, rising to 1.2-3.5 percent in 2014, compared with 1.4-3.7 percent, and within 1.6-4.2 percent in 2015, down from the March forecast of 1.9-4.4 percent.
“The July projection, however, indicates that from the second half of 2013 – together with the expected improvement of global economic activity – a gradual acceleration of GDP growth can be expected, which will be conducive to rising inflation in the coming years,” the bank said.
In the first quarter of this year, Poland’s economy expanded by only 0.1 percent from the fourth quarter for annual growth of 0.5 percent, the weakest rate in four years.
Gold futures climbs as investors concerns on sentiment rises
Gold futures advanced from its previous loss, surpassing $1,250 per ounce. The yellow metal futures for August delivery jumped to 0.96% trading at $1,255.44 per ounce as of 7:28 GMT, while the silver futures for September delivery gained 2.54% to $19.79 per ounce and the same time.
Earlier, the precious metal dropped, opening at a negative territory. However, the gold futures picked up at the early hours of the European trading session at $1,248 an ounce.
After the announcement the Federal Reserve made regarding possible cut to its $85 billion bond-buying monthly program, investors are concerned the precious metal may weaken and loose its safe-haven status.
In the previous week, gold fell steeply, losing more than 7%. While on Friday, the precious metal reached its three-year low of $1,182.85 an ounce.
The Shanghai Gold benchmark contract has surpassed 14,000 kilograms, after an all-time high of 43,272 kilograms on April 22, while the SPDR Gold Trust, lowered to 964.69 metric tons on Tuesday.
Gold may be heading to its worst quarterly performance in over 90 years, after losing 25% in its second quarter so far, according to data released from the US central bank. The Goldman Sachs predicted that gold may reach $1,050 an ounce by next year, while the Credit Suisse Group predicted prices will drop to $1,150 an ounce next year.
The post Gold futures climbs as investors concerns on sentiment rises appeared first on | HY Markets Official blog.
Article provided by HY Markets Forex Blog
WTI crude climbs above $100 on Egypt’s political turmoil
The West Texas Intermediate crude futures climbed above $100 a barrel during the late Asian trading session, the highest since September on concerns over the tension in Egypt’s political turmoil.
WTI crude futures jumped 2.27% to $101.80 a barrel as of 4:43am GMT, while Brent crude rose 1% to $105.20 a barrel at the same time.
Egypt’s President Mohammed Morsi rejected the use of the army forces to resolve the country’s political turmoil. The ongoing protest have raised concerns that the crises may affect the oil transported through the country , as the U.S crude futures dropped by 9.4 million barrels last week , according to reports from the American Petroleum Institute.
“Given that Mursi is rejecting the army’s demand to step down, this is going to, in my opinion, throw the country into a crisis with no clear resolution,” said Andy Lipow, the president of Lipow Oil Associates LLC in Houston. “The market reaction will be bullish due to the uncertainty of the event and of what may ultimately happen,” he added.
Egypt controls the Suez’s canal and the Suez-Mediterranean pipeline, which is important for the transportation of crude oil and petroleum products. According to the US Energy Information Administration (EIA), 2.24 million barrels of oil a day was shipped through Suez’s canal to Europe and North America in 2011. Signifying, approximately 3.2% of daily transportation of crude oil.
The post WTI crude climbs above $100 on Egypt’s political turmoil appeared first on | HY Markets Official blog.
Article provided by HY Markets Forex Blog
Gold Drop “Done Enough”, Traders “Too Short” as Bears Turn “Slightly” Bullish
London Gold Market Report
from Adrian Ash
BullionVault
Wednesday, 3 July 08:15 EST
GOLD ROSE more than 1.4% from an overnight low at $1242 per ounce in London on Wednesday morning as world stock markets sank and the US Dollar rose.
Commodity prices ticked higher with major government bonds. Silver rallied 2.8% to rise again above last week’s finish at $19.69 before dropping with gold.
New private-sector data meantime showed 188,000 jobs being added in the US last month.
Friday’s official Non-Farm Payrolls report is expected to show unemployment at 7.5%, a full percentage point above the Federal Reserve’s stated target for reconsidering its loose monetary stance.
“We’ve changed our view on gold slightly,” says Macquarie Secutiries analyst Matt Turner in a CNBC interview, and now forecasting a rise to $1370 by end-2013.
“Markets have been getting ahead of themselves on the end of QE,” says Turner. “Gold in particular factored in a lot of this, but our economists don’t think it will happen until later in 2014 and 2015.”
More urgently, says Turner, investment positioning in Comex gold futures is now “too short – the smallest net long position since 2002.”
Outflows from exchange-traded gold investment trusts have meantime totaled 600 tonnes already this year, equal says Turner to mining production from Africa and Latin America combined.
Gold ETF holdings fell a further 1.4 tonnes Tuesday to 2042.5 tonnes, according to Bloomberg data, “the lowest since May 2010.”
“Gold has fallen because 3 things are up,” said Morgan Stanley’s chief investment strategist David Darst in a separate interview Tuesday – “interest rates, stock markets, and the US Dollar.”
The Dollar today spiked to a near-5 week high against the Euro currency, helping the gold price in Euros reach a 1-week high above €971 per ounce – more than 7% above last week’s 34-month low.
Dollar-gold around $1200 per ounce offers a “good entry point”, reckons private-bank Coutts’ Gary Dugan, chief investment officer for Asia and the Middle East.
“At this point [however] it is too early to tell whether we have formed a bottom,” says the latest chart analysis from bullion market-maker Scotia Mocatta.
“Given the bearishness of the overall technicals, the risk remains for another test to the downside.”
Sixteen pro-government protesters were meantime reported killed overnight in Cairo, where the Egyptian army’s deadline for elected-president Mohammed Morse to open talks with demonstrators is set to expire at 14:30 GMT.
Cairo yesterday sold only half a planned auction of new 5-year debt to investors, and at a sharply higher interest of 15.8% per annum.
Portuguese bond yields led weaker Eurozone rates higher on Wednesday, breaking 8-month highs above 8% after a minority member of the coalition government stepped down in protest at continued budget cuts.
“It sounds the alarm bell of austerity fatigue,” reckons Commerzbank strategist David Schnautz in New York.
Officials from Eurozone lenders and the IMF yesterday gave the Greek government 3 days to confirm its budget cuts, or risk losing €2.2 billion needed to repay bonds maturing next month.
Athens stock market fell to new 2013 lows, down 1.9% on the day. Lisbon’s main stock index lost 5.5% to its lowest level since November.
“After a year and a half of relentless gold selling, earlier this week I turned bullish for the first time in a long while,” said trader and publisher Dennis Gartman on CNBC last night.
Saying only last week that gold could fall to perhaps $900 per ounce, “I’m bullish of gold but I’m not a true believer,” Gartman now explains. “I think that the worst is over.”
Gold futures in China – forecast to become the world’s No.1 consumer market thanks to India’s import restrictions – today held steady, with Shanghai premiums holding around $30 per ounce above international benchmark prices.
Premiums in Hong Kong and also Singapore, where Swiss bank UBS has now followed Deutsche Bank in offering Singapore gold storage to clients, also held steady and “elevated”, according to Reuters.
“Asian buyers believe that gold has probably done enough on the downside for now,” the newswire quotes broker Marex Spectron.
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.
Poland cuts rate by 25 bps for third time in a row
By www.CentralBankNews.info Poland’s central bank cut its policy rate by 25 basis points to 2.50 percent, its third cut in a row, along with its other main interest rates. The National Bank of Poland’s (NBP) monetary policy council will explain its decision at a press conference later today.
The NBP’s reference rate was cut to 2.50 percent, the lombard rate was cut to 4.0 percent, the deposit rate to 1.0 percent, and the rediscount rate to 2.75 percent.
The central bank has now cut rates by 175 basis points this year in response to weaker-than-expected economic growth due to the drag from recession in the euro area.
In June, the NBP said uncertainty over the scale and timing of the euro area’s economic recovery could adversely affect the Polish economy but it did not issue a specific guidance for rates though the central bank’s governor, Mark Belka at the news conference said the easing cycle may be ending.
However, he also added that a clearer direction for policy would be issued after today’s meeting after the council reviews the latest economic projections.
Earlier this month, a member of the monetary council said the central bank should avoid cutting rates further due to the risk of weakening the Polish zloty further and triggering capital outflows.
Like other emerging markets, the zloty has weakened since early May and is down almost 6.0 percent this year, quoted today at 4.34 to the euro. The NBP intervened in early June to limit volatility.
Poland’s Gross Domestic Product rose by only 0.1 percent in the first quarter from the fourth quarter for annual growth of 0.5 percent, the weakest rate in four years. Last month the central bank said indicators showed that second quarter growth was also weak.
Poland’s economy recovered from the global financial crises with growth rising in 2010 but in 2012 growth slowed sharply due to lower exports to the euro area, with average economic growth slowing to 1.9 percent growth, down from 4.5 percent in 2011.
The central bank started cutting rates in November 2012 but this was criticized as being too late to cushion the impact from the euro zone recession. In April this year the NBP froze rates to review the impact of its easing but then started cutting rates again in May.
The NBP has forecast growth this year of 1.3 percent.
Poland’s inflation rate fell further to 0.5 percent in May from 0.8 percent in April, well below the central bank’s target of 2.5 percent, plus/minus one percentage point.
Sweden holds rate, sees rate rise in H2 2014, growth better
By www.CentralBankNews.info Sweden’s central bank held its benchmark repo rate steady at 1.0 percent, as expected, and expects to maintain the rate for another 12 months to support higher economic growth and inflation before starting to raise the rate gradually in the second half of 2014.
The Riksbank, which has held rates steady this year after cutting by 75 basis points in 2012, repeated its forecast from April that the repo rate would on average be 1.0 percent this year and in 2014, and then be increased to an average of 1.9 percent in 2015.
By the third quarter of 2015 the repo rate is seen at an average 2.0 percent and at 2.8 percent by the third quarter 2016.
But the Riksbank has turned more confident about the outlook since its last policy meeting in April, revising upward its growth forecast and saying the “Swedish economy is on the way to a recovery” while “gradual increases in the repo rate are expected to begin during the second half of 2014.”
This compares with its statement in April when it said that “growth prospects are gradually brightening” and “increases in the repo rate are not expected to begin until the second half of 2014.”
But while the outlook for economic growth this year was revised up from April, inflation is expected to remain lower for longer than previously expected and the unemployment was seen higher.
A cut in the repo rate could help inflation meet the Riksbank’s 2.0 percent somewhat sooner but this “could lead to a further increase in the risks related to high household debt,” the central bank said.
“The monetary policy conducted is therefore considered to be a reasonable balance that stabilizes inflation and the real economy in the short turn, at the same time as taking into account more long-term risks linked to households’ high indebtedness,” the Riksbank said.
The Riksbank’s latest forecast calls for Gross Domestic Product to rise by 1.5 percent this year, up from April’s forecast of 1.4 percent, then 2.8 percent in 2014, up from 2.7 percent, and by 3.6 percent in 2015, up from 3.5 percent.
In the first quarter of this year, Sweden’s economy expanded by a faster-than-expected 0.6 percent from the previous quarter for annual growth of 1.7 percent, the highest growth rate in six quarters.
Sweden’s export-dependent economy has been hit by the euro area’s recession and the Riksbank expects exports to pick up as the global economy improves.
Headline inflation is expected to rise by only 0.1 percent this year, unchanged from the April forecast, then rise by 1.3 percent in 2014, down from April’s 1.4 percent, and by 2.6 percent in 2015, down from 2.7 percent. The Riksbank’s preferred gauge of underlying inflation, CPIF, is seen at 0.9 percent this year, down from a previous forecast of 1.0 percent, then rise to 1.4 percent in 2014, the same as forecast in April, rising to 1.9 percent in 2015, down from 2.0 percent.
In May Swedish consumer prices fell by 0.2 percent, the seventh month in a row with deflation but the Riksbank said the import prices and labour cost would rise at a faster rate when economic activity improves at the same time that companies are able to raises their prices.
Two of the Riksbank’s six board members favored cutting the repo rate to 0.75 percent, including Deputy Governor Karolina Ekholm, who has often voted for lower rates, and Deputy Governor Martin Floden, who joined the board in May and participated in his first policy meeting.
The Safest Way to Earn a 29% Yield
Last Wednesday, Zhongpin Inc. (HOGS) finalized its going private transaction, handing investors $13.50 per share in cold, hard cash.
You’ll recall, I originally put the company on your radar back in February because it represented an attractive merger arbitrage opportunity.
At the time, the stock traded for $12.85. That means anyone who purchased shares on my recommendation earned a 5.1% yield in just 135 days. Not bad, considering the average money market fund still yields less than 1%.
On an annualized basis, we’re talking about a whopping 13.7% yield. And who wouldn’t want that in this zero-yield world?
I know, I know. We can’t spend “annualized” yields. So comparing annualized yields from one merger arbitrage deal to the going rate for a money market fund isn’t truly an apples-to-apples comparison.
And to be completely honest, I loathe analysts who try to pump up their results by annualizing returns like that. So why did I just do it? To prove a point…
Shoulda Coulda Woulda
For almost a year now, I’ve been serving up compelling merger arbitrage opportunities whenever I come across them. To date, I’ve shared a total of seven. And six of them closed successfully.
I’ll share more about the seventh in a moment. For now, I want to focus on this fact: If you invested in any one of the opportunities I shared, you could have earned yields ranging from 5% to 8%. In as little as 20 days, in some cases.
Take a look:
But here’s the rub… I’m afraid most of you fall into the “could have” category. As in, you didn’t invest in the deals because they weren’t high yielding enough.
Big mistake! Here’s why…
Lather, Rinse, Repeat!
While I don’t expect you to be distressed about missing out on a single opportunity for a 5% yield, I do expect you to regret missing out on a 28.6% yield. And you just did!
You see, the power of merger arbitrage investing comes from stringing three or four deals together over the course of a year.
I’ll admit the odds of that happening with most investing strategies are slim to none. When it comes to merger arbitrage, though, it’s a cinch!
How could that possibly be? Well, it’s not because I’m some investing genius. Far from it.
It’s simply because we’re not trying to predict the future (i.e. – whether a stock will go up or down). We already know the future in a merger arbitrage situation. We know the exact price a company is going to be bought for and when it’s going to happen.
Add it all up, and as the table shows above, if you invested in four out of the six deals I shared – and reinvested the proceeds every time – you would have earned a bona fide 28.6% yield. Total time? 306 days.
Now, if you decided to spend your income from each deal and only reinvested the principal in the next one, you still could have earned a 25.9% yield.
Better Late Than Never
I hope I’m wrong. I hope many of you did follow my lead. If so, please let me know how you personally fared by sending an email to [email protected].
If not… well, what are you waiting for?
The seventh deal that I alluded to earlier wasn’t a bust that I was conveniently glossing over. (Longtime readers know that I don’t hide my mistakes.) To the contrary, the opportunity – which I shared with you back in April – is still active.
The company, NTS Realty Holdings (NLP), is set to go private by the end of the third quarter. Terms of the deal call for shareholders to receive $7.50 in cash. So if you buy the stock for $7.14 or less, you stand to pocket a 5% yield in 90 days (or less).
And since I’m certainly not going to stop looking for new opportunities, chances are I’ll have another one lined up for you to consider before the deal even closes. So what are you waiting for?
Bottom line: If you’re interested in safe yields of almost 30%, don’t be so quick to write off merger arbitrage investing. It’s a battle-tested strategy that’s been used by institutional and high-net-worth investors for decades. And there’s no reason we can’t use it, too. Starting today.
Ahead of the tape,
Louis Basenese
The post The Safest Way to Earn a 29% Yield appeared first on | Wall Street Daily.
Article By WallStreetDaily.com
Original Article: The Safest Way to Earn a 29% Yield
Here’s Your Six-Point Stock Buying Checklist
You won’t find a single person more bullish than your editor here in the Port Phillip Publishing office in Albert Park.
But as positive as we are about the outlook for the market, we’ll admit that yesterday’s 123 point, 2.63% gain even took us by surprise.
Not that we’re complaining. We’ll take a 123-point gain any day of the week. So, what was behind the big triple digit gain?
We’ve got no idea…and we don’t care. Here’s why…
As we explained last Friday, it’s pointless trying to figure out which way the market will turn based on big picture macro-economic events or data.
We showed you this diagram to illustrate how crazy things had become:
Source: Port Phillip Publishing
That’s why we prefer to stick to the basics. We know that macro-economic news will impact stock prices. We know stocks will rise and fall based on comments from the Reserve Bank of Australia.
But we also know something else. If you buy a quality dividend-paying stock, regardless of what happens in the short term, longer term you should make money on the investment.
Higher Dividends Means Higher Stock Prices
The thing is, how do you know whether a stock is a quality investment or not? One method is to run a stock through a simple checklist. This is a method we use to filter small-cap dividend stocks for Australian Small-Cap Investigator.
But it’s not just useful for small-cap stocks. You can adapt it and use it for blue-chip dividend stocks too.
We break the checklist down into six simple questions:
- Is it a genuine business? Here we need to know if the company makes a product or provides a service. If it doesn’t then it’s unlikely the company has revenue. If it doesn’t have revenue then it probably doesn’t make a profit. And if it doesn’t make a profit then it can’t pay a dividend.
- Is it a project-specific company? In other words we need to make sure it isn’t a one trick pony. A mining company with a single project, or a medical company with a single drug doesn’t fit into this investment strategy. While those stocks are great for speculation, they’re not great for long-term reliable investment income.
- Does it have solid cash flows? In order to pay a sustainable dividend, a company needs strong cash flows. A company with strong cash flows can more accurately predict cash inflows and outflows. That means the company is more likely to pay a regular and ongoing dividend.
- Can the business grow? If the company can grow its business by introducing new product lines or diversifying its services, that should lead to increased revenue…
- Does it have revenue growth? If the business can grow revenue in a growth industry, that should lead to increased profits…
- Does it have profit growth? If the company can grow profits and if the profit growth is sustainable, it should allow the company to increase dividends.
And if a company can increase dividends in this low interest rate environment, that spells good news for the share price. Because all else being equal, higher dividends will translate into a higher share price.
We’re Happy to be an Insider
We know, stock market investing isn’t that simple. Even though companies are increasing dividends, the main Aussie index still fell 10% from May through to the end of June.
But that’s to be expected. Share prices never rise in a straight line. On any given day investors will worry about the future – they’ll worry about the RBA, or the US Federal Reserve, or the latest economic numbers out of China.
That’s why you get a volatile market.
And that’s why it’s more important than ever that you have a checklist to run a stock through before you click the ‘buy’ button.
If you don’t like our list, make up your own. That’s OK. The key is to make sure that big bullish days like yesterday don’t cause you to panic into buying any old stock.
In fact, often the best thing to do with blue-chip dividend stocks is to just buy more of stocks you already own…or to take part in the company’s dividend reinvestment program (DRP). That’s especially useful if you don’t need to live off the cash income.
It remains a great time to buy stocks. Even some of the small-cap stocks that have taken a pounding in recent months are starting to rebound. It’s too early to tell if they can keep up this momentum, but we know one thing for sure…
With a well laid out plan of how to play this market, we’re much, much happier being on the inside of the market looking out, carefully buying stocks, than we would be if we were on the outside of the market looking in…missing out on the chance to make some pretty spectacular gains.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: Just What are ‘Turbo Cap’ Stocks?
Daily Reckoning: How the Power of Tweets Saved Tesla Motors
Money Morning: Don’t Get Caught in the Market Crossfire
Pursuit of Happiness: Is Technology the Most Exciting Industry in the World?
Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks
You Need Gold As Insurance Against A Financial System Crash
Precious metals have had an awful time recently.
The Federal Reserve is threatening to withdraw quantitative easing (QE). That’s been bad news for precious metals for two reasons.
Firstly, the end of money printing removes one of the more widely-cited reasons for holding precious metals. Secondly, the resulting strong US dollar tends to batter the commodities and precious metals sectors, because they are all by and large priced in dollars.
At MoneyWeek, we’ve moved from holding gold as an investment, to owning it as portfolio insurance. But is it even worth holding as insurance anymore?
I believe so, for reasons I’ll outline below. And if you’re a trader, now might even be a good time to take a little punt on gold…
The Financial System is Being Rebuilt – Hold on to Your Insurance
As long-term readers of MoneyWeek will know, we’ve been suggesting people should own gold since the bull market took off in the early 2000s. Gold was clearly cheap. It was – not hated (as it is in some quarters now) – so much as defeated. The worst thing you could say about gold is that it wasn’t even despised. It just wasn’t on the radar.
Of course, it went up and up through the credit bubble of the 2000s. It then peaked in late summer 2011 at around $1,900 an ounce. If there’s one thing you could say about gold for sure, it was no longer cheap. It wasn’t necessarily massively overvalued either – but it was hardly off the radar. It was widely loved – and widely detested.
Later that year, my colleague Merryn Somerset Webb noted that she was taking some profits on her gold. Since then, we’ve viewed gold as portfolio insurance, rather than a value investment. Have about 5-10% of your portfolio in it. If everything goes horribly wrong with the global financial system, it’ll go up. That’ll be some consolation as everything else in your portfolio goes down.
If everything goes wonderfully right with the global financial system, your gold will go down in value. But you shouldn’t be too bothered, because the rest of your portfolio – your Japanese stocks, your cheap eurozone stuff, your US-exposed UK blue chips, and all the other stuff we’ve suggested you buy – will be going up.
To cut a long story short, that’s still our view. Insurance is insurance after all. You have it because you can’t predict the future.
That said, I probably wouldn’t feel as comfortable about having even a small holding in gold, if not for the fact that I think the threat of a nasty monetary surprise remains very high. I’m holding this insurance for a reason at the end of the day.
The global financial system is a rickety old thing. We need a new version. And en route, it’s likely to get chaotic and a bit scary.
I’ll explain what I mean. I spent yesterday at the Wired Money conference (if you don’t know, Wired is a glossy monthly magazine about technology. If you’re even remotely geeky – as I am – I thoroughly recommend it).
Most of the speakers were talking about ways to cut the middleman out of transactions – ‘peer-to-peer’ being the buzzword. Companies like Zopa, which enable you to lend money to individuals directly, without going through a bank. Or TransferWise – a really clever currency exchange service, that lets you swap your pounds for euros (or whatever) without being ripped off by banks or bureaux de change.
A lot of the services sounded great. There were lots of idealistic – but successful – entrepreneurs talking about how to make financial services that are focused on making the consumer’s life better, rather than ripping them off in the name of boosting profits. If I was running a bank, I’d be worried.
But what really struck me was that more and more people are questioning the very nature of money. Some speakers grappled with the role that trust plays in securing credit, or services. Others speculated on how the huge processing power we now have could feasibly make it possible to return to a barter economy, as trades can be so easily matched to one another.
It’s not just ‘cutting edge’ thinkers. You may or may not have noticed, but there’s been a rash of books recently, trying to explain what money is, and how it came to be.
The point is, our faith in the monetary system has been badly shaken. As a whole, our society realises that what it thought was a solid, reliable system, is actually built on very shaky foundations and riven with special interests. We’re also realising that it doesn’t necessarily have to be like that. At some level, we’re groping towards a redefinition of money.
The thing is, gold has a long history of being involved in the monetary system. I’m not saying for a minute that we’ll go back to a gold standard. That system had a lot of flaws too.
But revolutions tend to be messy things. So for as long as the nature of money and our financial system are being questioned and redesigned, I’m happy to hang on to an object that people have a long history of trusting as ‘money’.
A Trading Opportunity in Gold
So that’s my view on the long-term for gold. What about the short term?
Well, I’m no trader, so I wouldn’t normally bother bringing this up. And let me be clear – this is separate to holding gold as insurance. This is for someone who fancies a short-term punt that might turn a quick profit.
But in the short term at least, I do think my colleague John C Burford (who is a long-term gold bear) might be right in suggesting that a significant ‘bottom’ is either in, or nearly in, for gold.
You can read the piece yourself. But in short, John looked at the way that investors are positioned in the market, and noted that investors were pretty much as bearish last week as they were bullish at gold’s 2011 peak. So a contrarian would bet that the bears will have just about exhausted themselves.
Looking at the papers and internet over the weekend, I’d say he’s right. Sentiment in the media is a very tricky thing to gauge. But I think it’s fair to say that there was a bit of a ‘beargasm’ about gold at the weekend – lots of quotes about it being in freefall, lots of reports of ‘bloodbaths’ – even as the price started to recover.
John Stepek
Contributing Editor, Money Morning
This article first appeared in Money Week on 2 July, 2013
From the Archives…
Why Your Financial Advisor Won’t Like This Investment Advice…
28-06-2013 – Kris Sayce
Is This Your Last Chance to Sell Before the Stock Market Sinks?
27-06-2013 – Murray Dawes
Is This the Ultimate Contrarian Opportunity…Or a Death Wish?
26-06-2013 – Dr Alex Cowie
How Central Bank Zombies Control the Stock Market
25-06-2013 – Dr Alex Cowie
Why The ‘Asia-Zone’ Crisis Makes Australian Stocks a Buy…
24-06-2013 – Kris Sayce
How a Professional Investor Uses Twitter to Trade Smarter: Mike Havrilla
Source: George S. Mack of The Life Sciences Report (7/2/13)
http://www.thelifesciencesreport.com/pub/na/15410
Drug development is full of surprises, and those surprises are hitched to the catalysts that move biotech company stocks. Mike Havrilla, co-founder and analyst with BioRunUp, processes and trades on the news flow surrounding biotech and specialty pharma companies as they navigate the turbulent development cycle. In this interview with The Life Sciences Report, Havrilla talks about his methods and shares three rich ideas that could create doubles or triples for investors.
The Life Sciences Report: Do you think of yourself as an investor or a trader? I’m asking because your BioRunUp subscription service seems to be focused on trading.
Mike Havrilla: We are focused on short-term, catalyst-based trading in biomedical companies that are developing new products and tests. We trade around all events, including data coming from clinical trials and movement through the U.S. Food and Drug Administration (FDA) approval process.
BioRunUp’s short-term focus has evolved given the events of the last several years, with the financial crisis, the Flash Crash in May 2010 and other catalysts. There are so many different opportunities available on a daily basis that the old buy-and-hold strategy doesn’t make sense. It really doesn’t even apply—especially with small, innovative biomedical companies where fortunes change over hours. The news flow can change a company’s value on a daily basis.
TLSR: So you are catalyst-focused. How do you keep your databases and calendars of events updated? Do you use an automated process or are you constantly sifting through FDA calendars of advisory committee meetings and Prescription Drug User Fee Act IV (PDUFA) dates? Even if you were only following 20 stocks, the amount of data would be immense. How do you do it?
MH: The closest thing to automation—and what’s emerging as a big way for traders to keep up with the news—is Twitter. Twitter is the first thing I look at, because it integrates all the news, depending on who you follow. Twitter aggregates everything from commentary, which is a sentiment indicator, to the “actual news,” such as Securities and Exchange Commission (SEC) filings and company presentations. It’s all public information and all free. Twitter is the closest thing to an automated one-stop shop you will find.
That said, much of what I do is manual, where I’m tracking more than 200 companies myself in the database. The vast majority of these companies are small caps, under $1 billion ($1B) in market value. It’s just a matter of keeping up with company news on a daily basis. Like you said, the amount of news flow and information to sort through is enormous.
TLSR: I want to address catalysts. Depending on the disease indication, a phase 3 trial could take three to five years. A confirmatory trial could add time to that. When you’re dealing with a binary-event company or situation, what do you look for during long periods when no data are emanating? Do you look for other stocks to play?
MH: Yes. Because we’re tracking over 200 companies, there is always some near-term event. But, in general, I try to focus on events that are three to four months away or less.
TLSR: How is this information translated into actionable information for your investor subscribers?
MH: For us, it’s mostly just sharing the different trades that we’re making.
TLSR: So you tell your subscribers what trades you’re making now. Is that right?
MH: Yes, as close to real time as possible. We use a private Twitter feed at BioRunUp for our subscribers, so they know exactly what we’re buying and selling. Then we publish our trades, what we hold and our watch list stocks.
TLSR: You’re posting simultaneous to your trades, and not trying to front-run your subscribers—is that right?
MH: That’s true. We want to share as close to real time as we can.
TLSR: Mike, how do you rate catalysts with regard to their ability to move shares? Which events offer the most leverage to move stocks?
MH: The ideal setup is a late-stage, phase 3 pivotal study, which will set the product up for a new drug application (NDA) filing with the FDA. There are also advisory committee meetings and FDA decisions at the PDUFA dates (see the Approval Process in Action).
TLSR: You just listed three events: pivotal phase 3 trials, advisory panel or advisory committee meetings and PDUFA dates. Of the three, which is the most important?
MH: I’d say the most reliable trade corresponds to the advisory panel meeting, because that date is firm. You know that briefing documents are going to be posted two business days before the panel meets. Typically there aren’t any surprises, whereas with a clinical trial, you have an estimate about when results will be released, but you never know exactly when the data are going to come out. You could get a surprise. And there could be an event, such as a serious safety issue, that could derail everything for a company at any time. With regard to final approval, sometimes the FDA comes out early with a decision, instead at the PDUFA date. That is another opportunity for surprise. In terms of a trading catalyst, the advisory panel meeting, along with its vote on the product, is the most reliable.
TLSR: If a stock is too tiny, you may have no marketability of shares during quiescent periods. If it’s too large, you won’t get a powerful percentage move on data. Is there an ideal market cap to get the most powerful bump without sacrificing liquidity during inactive periods?
MH: That question ties into why a lot of the companies we trade and follow are in the small-cap area, with market caps of $1B or less. Data are more important to these companies. If Pfizer Inc. (PFE:NYSE),Johnson & Johnson (JNJ:NYSE) or Roche Holding AG (RHHBY:OTCQX) has a clinical trial failure or an FDA approval, it’s not going to move the stock like it would for a company that is completely dependent on a single drug, or a company with only one or two products in development.
As for liquidity, let me go back to near-term catalysts for a moment. Even in very small-cap stocks that are otherwise illiquid, we see an increase in trading volume and share price as a trial data release or an FDA catalyst approaches. I get more out of trading low enterprise value stocks regardless of current liquidity status because I like to find stocks that are flying under the radar. You could make 50–100% on a trade if you wait for that liquidity to come, because it typically does.
TLSR: You’re so catalyst- and leverage-oriented that I wonder if you use derivatives in your own trading. Do you?
MH: Actually, I rarely use derivatives because I look for stocks that are trading like options. In general, a $1–5 share price stock is my sweet spot. I try not to trade too many penny stocks, below $1. In the $1–5 range, it’s already like you’re trading like an option, but without the concern of option expiration.
TLSR: Can we talk about some companies, please? Would you go ahead with your first choice?
MH: I’ll start with Avita Medical Ltd. (AVH:ASX; AVMXY:OTCQX). It’s got what I’d call a disruptive technology in the regenerative medicine space. Avita is developing an autologous (derived from the patient) product called ReCell Spray-On Skin, initially intended for burn victims. It’s an improvement over current wound-healing cellular products, and at a much lower cost—it’s priced at about $1,000 per procedure, compared to 10–20 times that amount for a skin graft.
ReCell is actually on the market right now in Europe, and is in a pivotal study in the U.S. The initial market, for burn victims, is $50–100 million ($50–100M), but there is big potential to expand into venous leg ulcers, cosmetic uses and more. Eventually it could be a $500M+ market. At the moment ReCell is not generating huge sales, but sales are growing in Europe. The pivotal study in the U.S. is expected to be finished by early to mid-2014. At that time, the company would be able to file for FDA approval.
The reason I like Avita is that it’s currently under the radar and is a good example of a stock that is pretty illiquid right now. It trades at an enterprise value of around $20M, and market cap of about $43M. This is a stock where a trade won’t yield a 5, 10 or 20% return, but if an investor has a one-year timeframe, it could easily double or more. Investors with a longer timeline are going to start to recognize Avita. Its primary stock listing is actually in Australia, where the company started. But it is expanding globally now, and I think the stock will get a lot more traction as it gets picked up by U.S. investors. I think Avita will uplist onto the NASDAQ as it progresses through the regulatory process and ultimately files for FDA approval.
TLSR: Mike, what is the regulatory pathway for ReCell? I’m looking at the trial (NCT01138917), and I see that the estimated enrollment is 106 patients, but don’t see any phase 1 or 2 trial designation associated with it. Is it a device pathway?
MH: Yes. ReCell is classified as a device by the FDA, so Avita plans to file through the premarket approval (PMA) route. The next update will be in late July, when the company comes to the end of its fiscal year. In the last update, as of February, the trial was 85% enrolled. I’m looking at this summer as the timeline for the company to complete enrollment, and for final data to support the approval filing by early to mid-2014.
The trial has taken a little longer than the company originally thought it would. It expected, at one point, to be able to file with the FDA in mid-2013. I’m very positive on the prospects for the trial. The company has some validation from the U.S. government—the trial is co-sponsored by the U.S. Department of Defense, with some grant funding under a U.S. Army agreement. Obviously, the army would have interest in a treatment like this.
TLSR: It’s interesting to note that ReCell already has several regulatory approvals. It has the CE mark in Europe, which you have already referenced. It’s also approved in China and Australia. Are data from these regions of any use in the FDA trials?
MH: Yes. The product is generating sales, so the data from other countries would help from a post-marketing safety database perspective.
TLSR: Estimated enrollment for the venous leg ulcer trial with ReCell is for 65 patients. The estimated final data collection date is April 2014, less than a year from now. Would that be a catalyst date?
MH: It is a big catalyst date. The chronic-wound market includes about 12M patients, which is about 20 times bigger than the burn victim market. I think Avita has a good strategy in looking for the quickest way to get on the market in the U.S., and to expand into the biggest market.
TLSR: I know that you’re a short-term, catalyst- and event-focused investor, but I wonder how much you think Avita Medical could ultimately be worth?
MH: As of now, with only about 16M shares outstanding and $12M in cash on its balance sheet, Avita has an enterprise value of only $20M. Looking at comparables in the regenerative medicine space in the U.S.— Cytori Therapeutics Inc. (CYTX:NASDAQ), Osiris Therapeutics Inc. (OSIR:NASDAQ), and some earlier-stage companies like StemCells Inc. (STEM:NASDAQ) and Athersys Inc. (ATHX:NASDAQ)—they are valued from $50–300M on an enterprise value basis, and they are not generating the sales that Avita is, just in Europe. You hear so much about the promise of stem cells and regenerative medicine, but I think Avita is poised to be very successful commercially. The company’s enterprise value could easily push $100M by next year, assuming the pivotal results are successful and ReCell is up for FDA approval.
TLSR: So you’re looking at a 200% implied return between now and a year from now.
MH: I certainly think Avita could trade there. When the company’s shares originally started trading on the OTC in the U.S., less than two years ago, they were in the $5 range, so there is no reason they couldn’t go to high mid- or even upper single digits by next year, when the therapy should be up for FDA approval.
TLSR: What’s your next idea?
MH: Another company I’m looking at is Ventrus Biosciences Inc. (VTUS:NASDAQ). It is trading at a very small enterprise value currently, with shares trading in the low $2 range but with $1.88 per share in cash. Its burn rate is about $4M per quarter. It has pivotal phase 3 trial results due this fall, in the second of three phase 3 trials. The product is a novel topical formulation—a cream—of diltiazem (VEN 307), which is an approved and established drug for treatment of anal fissures and associated pain. The product already presented positive phase 3 results last year, with its European partner SLA Pharma AG (private). The company will file for FDA approval under the 505(b)(2) pathway for a new formulation of an approved drug.
The company’s lead drug last year, iferanserin, which was being developing for hemorrhoids, failed a phase 3 trial. That’s why the shares are trading so cheap. The company did its initial public offering a few years ago at $10/share, and it has certainly come off of that. It needs this trial to succeed. It’s all or nothing from a catalyst standpoint, so Ventrus will be a great trade.
TLSR: The trial has 400 patients enrolled. Does the estimated primary completion date of December 2013 sound reasonable to you?
MH: Yes. The guidance is to finish up this year and be able to file with the FDA by late this year or early next year at the latest.
TLSR: What is the mechanism of action for diltiazem?
MH: It’s a calcium channel blocker.
TLSR: Was it originally a blood pressure medication?
MH: Yes. The drug is primarily used to control blood pressure and for heart patients as an oral medication, although it is used for anal fissures off-label, obtained from compounding pharmacies as a topical treatment.
TLSR: Go ahead with your next idea.
MH: The next one also has a low valuation and offers a rich opportunity. Venaxis Inc. (APPY:NASDAQ), a diagnostics company, is developing a blood-based test called APPY1 to screen for appendicitis. It’s a rapid, 20-minute screening test focused on children and adolescents who present in pain in the emergency room. It measures three inflammatory markers, one of which is proprietary and one general, the C-reactive protein. It also incorporates the white blood cell count, which is part of the triage process now. Then physicians come up with what the company calls an APPY score. The idea is to avoid unnecessary CT scans for kids, because these can produce a greater incidence of cancer later in life.
TLSR: Clearly this is not a blockbuster indication, but relative to Venaxis’ $24M market cap, any revenue could be significant. How much could it be worth to investors?
MH: This is another case where the company has a CE mark in Europe, although it doesn’t expect to generate any meaningful sales until next year—it is still in the early stages of marketing and distribution. The company is targeting a 10–15% market share, which would translate into sales in the $20–50M range by 2015–2016. Given the company’s lean capital structure, this could be very profitable. By 2016, Venaxis could have earnings power of $0.50 per share, which is substantial given that the current share price is hovering in the low $1s. A lot of shareholder value is going to be contingent on pivotal study results that are expected later this fall. Those results are going to be a big driver. The timing is similar to that with Ventrus.
TLSR: Mike, thank you. I’ve enjoyed talking to you and hearing your ideas.
MH: Thank you very much.
Mike Havrilla is a pharmacist, marathon runner, writer and biotech stock trader with experience that includes being a licensed pharmacist since January 2004, online investing since August 1997 and writing for investors since April 2007. Havrilla holds a doctorate in pharmacy and a bachelor’s degree in biology from the University of Pittsburgh. He worked in the pharmaceutical industry for Wyeth prior to pharmacy school. He is also an avid runner and has completed 22 marathons. Havrilla merged his previous site with BioRunUp.com/Mark Messier in October 2010, resulting in a biotech stock research and trading subscription service. For more information, visit Havrilla’s LinkedIn profile.
Want to read more Life Sciences 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) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences 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 Life Sciences Report: Avita Medical Ltd., Athersys Inc., Johnson & Johnson. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. Johnson & Johnson is not affiliated with Streetwise Reports.
3) Mike Havrilla: I or my family own shares of the following companies mentioned in this interview: Avita Medical Ltd. 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: My trading account positions change frequently and are updated at BioRunUp.com for subscribers. 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 Life Sciences 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 Life Sciences Report. These logos are trademarks and are the property of the individual companies.
101 Second St., Suite 110
Petaluma, CA 94952
Tel.: (707) 981-8204
Fax: (707) 981-8998
Email: [email protected]
