Month: August 2013

Source: Peter Byrne of The Energy Report (8/6/13)

http://www.theenergyreport.com/pub/na/bill-newman-as-argentina-backpedals-will-oil-and-gas-companies-step-on-the-gas

Argentina’s nationalist seizure of YPF’s assets last year stunned markets, but loss of foreign investment compromised the nation’s energy self sufficiency. Now, says Bill Newman of Mackie Research, the government is taking steps in the right direction. In this interview with The Energy Report, Newman outlines the political landscape and identifies promising plays in the region.

The Energy Report: How is the news that Argentina holds the fourth-largest shale oil reserve in the world affecting business plans for companies that operate there?

Bill Newman: The U.S. Energy Information Administration (EIA) report that was released in June 2013 showed that Argentina has a technically recoverable shale oil resource of 27 billion barrels, so it reaffirms the large potential of Argentina. Although the shales plays are in an early stage of appraisal, we don’t believe the potential of the shale is the key issue for oil and gas companies investing in Argentina. The political risk is still the chief concern. However, this year the government started to move away from its nationalist policies, so we think the political climate is slowly improving.

TER: When we talked last year, Argentina had recently expropriated the assets of Yacimientos Petrolíferos Fiscales (YPF:NYSE) (YPF) from Spain’s Repsol (REP:MC) without compensation. And the government temporarily froze the Argentinean assets of Chevron Corp. (CVX:NYSE) in response to a $19 billion ($19B) judgment in Ecuador. Has the danger of nationalization of foreign owned oil and gas assets receded or increased?

BN: We believe that since the nationalist events that occurred late in 2011 and in early 2012, the Argentina Government has realized that it needs foreign investment in order to achieve its energy self sufficiency goal. We believe the likelihood of additional nationalization of oil and gas assets is small. In fact, with oil and natural gas declines accelerating, we believe that commodity prices in Argentina will continue to rise and that the government could introduce new incentives to promote investment similar to Decree 929, announced on July 15, 2013.

TER: YPF has access to prime drilling properties in the Vaca Muerta shale formation. Is that good or bad news for foreign drilling concerns?

BN: I believe YPF holds about 50% of prospective land in the Vaca Muerta shale, so if a major or supermajor company wants to establish a large position in the Vaca Muerta, it will likely have to deal with YPF, as was the case with the recently announced $1.24B Chevron join venture. Repsol has already filed a lawsuit against Chevron and this is going to be an ongoing issue until YPF and the Argentina Government compensate Repsol for its YPF shares that were expropriated. Repsol has asked for $10.5B in compensation, which is far more than what has been offered so far. However, Madalena Energy Inc. (MVN:TSX.V) and Americas Petrogas Inc. (BOE:TSX.V) are both in early-stage discussions to farm out an interest in high-working-interest blocks in return of a significant carried work program. Neither of these companies have the baggage that comes with the YPF and Repsol dispute. As for the Los Moles and Agrio shales, a lot less is known about these plays, and the near-term focus will be on the Vaca Muerta, but in time we expect these plays to get more attention, just like what happened in North America with the development of the Barnett shale and then the Bakken and so on.

TER: What is the drilling infrastructure situation in the Neuquén Basin? Is there infrastructure to transport product into domestic and/or export markets?

BN: Argentina does have a big advantage over other shale basins in that the country has good production infrastructure. So the timeline from exploration to appraisal and full scale development is much shorter. Argentina used to be a net exporter of natural gas to Brazil and Chile but now has to import about 20% of its natural gas from Bolivia at about $11 per million British thermal units ($11/MMBtu) and liquified natural gas [LNG] at $17/MMBtu. The high cost of imports is hitting Argentina’s foreign currency reserves, so the country is motivated to stop the production declines and eventually become an exporter again. Argentina has strict foreign currency exchange policies and this has definitely been a deterrent to investment. But Argentina realizes this is a problem. The new Decree 929 allows companies that invest over $1B over a five-year period to sell 20% of the production at world prices and without paying export taxes, and the proceeds can be kept outside of Argentina. That’s a step in the right direction.

TER: Do you have any names in that space of firms that already have well-placed land positions?

BN: Madalena Energy Inc. is an oil and gas exploration and production company with an interest in three blocks in the prolific Neuquén Basin in Argentina, and 92,800 acres in Paddle River Alberta. Oil and natural gas prices are expected to continue to rise in Argentina and we are hopeful that the government will implement additional investment incentives that could be beneficial to Madalena. The shale plays in the Neuquén Basin of Argentina offer world-class resource potential and Madalena is well positioned to capitalize on the unconventional plays. The company continues to make progress on all three of its blocks located in Argentina.

Americas Petrogas Inc. is another junior international exploration company in the Neuquén Basin in Argentina. In September 2012, Americas Petrogas and partner Exxon Mobil Corp. (XOM:NYSE)completed a five-stage frack of the Vaca Muerta shale in the Lte.x -1 well. The following December, the companies drilled and cased the ADA.x-1 well on the Los Toldos II block. An independent assessment of the unconventional shale resource on its properties is expected to be released in early Q3/13. In addition, Americas Petrogas has secured two loans equivalent to US$9.4M from the Commercial Bank of China. With cash and cash flow, Americas Petrogas does not expect to issue a new equity in the short term.

TER: Are vertical wells the status quo technique for accessing the petroleum reservoirs in this and similar formations, or will horizontal fracking play a increasing role in Argentina?

BN: Currently, most wells targeting the shales are vertical because companies are still assessing the best methods to complete and produce the wells. In most cases the shale zone is so thick that it might be more economical to drill, frack and complete vertical wells versus drilling horizontally, but the jury is still out on that. As for the juniors operating in Argentina, the cost to develop the plays, whether using vertical or horizontal wells, will be in the billions of dollars, so most smaller companies will likely sell down to a much smaller working interest or just sell the entire block—or even the company. Argentina does require foreign fracking expertise and ExxonMobil, Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE), Chevron, BP Plc (BP:NYSE; BP:LSE) and Total S.A. (TOT:NYSE) are already operating in Argentina and provide that expertise.

TER: As times goes by, how is government’s control of the oil and gas sector likely to evolve as the shales are opened up? Will this be a gradual or a long-term process?

BN: We think the government of Argentina now realizes it needs to attract capital in order to reverse its production declines and return to energy self-sufficiency, so we expect commodity prices will continue to increase over time and that the government will slowly introduce new incentives for oil and gas companies. It’s not going to be a complete turnaround to a free market, but given the potential of the prize, we think as the political and investment climate stabilizes, investment will come back to Argentina.

TER: Are there other countries and jurisdictions that you find attractive in the South American oil and gas space?

BN: There is an interesting shale play developing in the Middle Magdalena Basin in Colombia. Canacol Energy Ltd. (CNE:TSX) has signed agreements with ConocoPhillips (COP:NYSE), ExxonMobil and Shell to explore the potential of the La Luna and Tablazo shale oil plays. Colombia offers much better fiscal terms than Argentina, but because these policies have been so successful in increasing investment, the production infrastructure is nearly full and it will take some time to expand capacity. Also,Gran Tierra Energy Inc. (GTE:TSX; GTE:NYSE) is exploring a new oil resource play in the Recôncavo Basin in Brazil, which is at an early stage.

TER: Decree 929, which you touched on earlier, provides new incentives for explorers and producers in the Vaca Muerta shale. What is the content of these incentives and how could they improve the situation for foreign and domestic companies with large stakes in Argentina?

BN: Argentina’s expropriation of Repsol’s share in YPF in 2012 was a bit of a shock and it forced oil and gas companies to step back a bit to wait and see what the government’s next move would be. But I think the government quickly realized that it couldn’t fund growth internally and that it needs foreign investment to reserve its production declines. So I think the threat of additional expropriation in the oil and gas sector is remote. The new investment incentive brought in with Decree 929 somewhat confirms that the government understands that it needs foreign investment. The Decree makes it more likely that the major and super major oil and gas companies will continue to invest in Argentina and this is good news for Americas Petrogas and Madalena because both companies are in the process of farming out highly prospective block. Madalena hopes to find a partner for its Curamhuele block before year-end and Americas Petrogas is looking to partner on the Loma Ranqueles block and probably the Totoral blocks. The new Decree increases the probably that this will happen.

TER: Do you see the decree turning around the import/export ratio in Argentina?

BN: Reserves and production of both oil and natural gas in Argentina is in steep decline and Argentina is even more dependent on imports to satisfy demand. The energy deficit is depleting Argentina’s foreign currency reserves, which is a problem, especially because the government has limited access to external sources of capital. It will take a large amount of capital just to reverse the production decline, and I think the government understands it can access some of this capital by providing incentives to international oil and gas companies. Again, Decree 929 was a step in the right direction.

TER: Can the government be trusted not to reverse its liberalizing course once it has weathered its current set of energy problems?

BN: That’s a good question. Unfortunately, history has shown that this is not the case. Hopefully, Argentina will look at the turnaround that happened with Colombia over the last 10 years after the government overhauled its fiscal terms, which stimulated investment and helped production to almost double to approximately one million barrels of oil per day.

TER: Are the majors looking harder at possible acquisitions in the Argentina shale plays, or are they going to play coy for a while longer? Any names there?

BN: I think it’s more likely that the majors will joint venture than acquire companies at this stage. But as the shale plays mature, it’s likely that the smaller companies will be acquired. Madalena and Americas Petrogas have a large land base in the heart of the shale play, so they are natural targets.

Bill Newman is vice president of international oil and gas with Mackie Research Capital Corp. He has been an energy analyst for 16 years. He holds a Bachelor of Commerce from the University of Calgary and has a CFA designation.

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DISCLOSURE:

1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy 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 Energy Report: Madalena Energy Inc. and Royal Dutch Shell Plc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Bill Newman: I or my family own shares of the following companies mentioned in this interview: None. 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: See complete Mackie Research disclosure statements. 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 Energy 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 Energy Report. These logos are trademarks and are the property of the individual companies.

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Source: Brian Sylvester of The Metals Report (8/6/13)

http://www.theaureport.com/pub/na/eight-catalysts-that-can-move-your-mining-stocks-jocelyn-august

Catalysts can move mining equities substantially up or down, so being aware of upcoming news and events is key to portfolio management. Sagient Research’s Jocelyn August advises investors to look for miners with good management teams that are transparent in their announcements and consistently meet their deadlines. In this interview with The Metals Report, August outlines the eight biggest catalysts in the mining space and discusses companies with anticipated near-term catalysts.
The Metals Report: Which catalysts continue to positively move share prices in the small-cap junior gold equities market?

Jocelyn August: Ones that demonstrate the economic viability or the potential success of projects, like the announcement of positive feasibility study results, the completion of a feasibility study, the announcement of favorable drill results and the announcement of favorable regulatory permit decisions.

TMR: Rank the following eight catalysts on their likelihood to move a stock price: drill results, publishing of resource estimate, publishing of preliminary economic assessment (PEA), publishing of feasibility study, a change in the board or management team, investment by a strategic partner or investment bank, commodity price increases or decreases and the issuance of a mining permit.

JA: We generally don’t follow or have analytical numbers on changes in management teams or commodity prices, so I’ll rank just six of those.

These numbers relate to the stock prices the day after a catalyst has occurred: Investment by a strategic partner or an investment bank moves a stock up or down by 8.5%. This is a positive or negative number—an absolute number.

Drill results are after that, moving a stock by 7.92%. The issuance of mining permits moves a stock 7.36%. Feasibility study results or publishing of the feasibility study moves a stock around 7.2%. An initial resource estimate moves a stock 7.1%. There’s a drop-off in the stock prices for an update to the resource estimate. The initial resource estimate really gives the big pop. The PEA is around 6 or 6.5%.

TMR: Did we miss any others that could be meaningful to investors?

JA: A go/no-go decision—a green light/no green light decision—is actually the largest. That doesn’t happen as frequently, but it can move the stock an average of 9.918%.

A completion of construction announcement moves the stock around 7.8%, more than a production start does.

TMR: Have some catalysts become more important than they were when you first started?

JA: We started following the natural resource space in 2008. Since then we’ve seen minor changes in the rankings based on what catalysts have occurred and how different companies have moved. But catalysts that show a project’s economic viability and the amount of the resource present remain the large movers.

TMR: Have you noticed any jostling of the rankings over the last four months?

JA: Really positive catalysts move the share prices more in this price environment. Whereas a positive feasibility study or drill results would usually move a stock 10–15%, they’re now moving it upward of 15–20% for some of the junior miners, despite the depressed price of gold.

TMR: Why don’t you factor in things like commodity prices? Why do you eschew that?

JA: We follow anything that can be anticipated and that is publicly available information—something you can put a time frame on, like H2/13 or Q4/13. A commodity price is more of a trend than an actual event.

TMR: But a change in a board or management team is public information, and you can track that kind of thing.

JA: But it’s not an anticipated catalyst that has a specific time frame. You can track it afterward, but you can’t anticipate it.

TMR: Your Q3 CatalystTracker includes junior gold developer International Tower Hill Mines Ltd. (ITH:TSX; THM:NYSE.MKT), which recently published its feasibility study. International Tower Hill’s CEO, Don Ewigleben, made this announcement: “While the large project feasibility results are not economically robust in today’s gold market, the Livengood project remains a very significant gold deposit in one of the most favorable jurisdictions in the world.” This is obviously not a positive catalyst, but could it become one with a higher gold price?

JA: The effect of this announcement on the stock price wouldn’t change, but if the price of gold goes up in the future, it could become a positive thing for the company.

On Tuesday, July 23, the day of the announcement, the company’s price was up 16.88%, suggesting that investors were anticipating positive results. The day after the announcement the price was down net 46.75%, showing that investors were disappointed in the results. But the project would be economically viable at a gold price of $1,500/oz. or above. At a price of $1,700/oz. or above, it would actually have a positive net present value.

TMR: Sagient Research also publishes information that tracks private investment in public equity investments by large institutions. Do certain institutional investors move junior stocks higher?

JA: Deals with named institutional investors move the junior mining stock more significantly than deals without named investors. When a large institutional investor publicly invests in these companies, the stock price can move a lot in the short term, within a week of the announcement. Some large investors are Ironridge Global Partners and Brookfield Asset Management, which just invested in North American Palladium Ltd. (PDL:TSX; PAL:NYSE). There was big movement after that. That information is available on our PlacementTracker website.

TMR: Is there similar movement when a senior gold producer takes a position in an explorer or a junior gold developer?

JA: I know it was a very positive thing for Silver Bull Resources Inc. (SVB:TSX; SVBL:NYSE.MKT) whenCoeur Mining Inc. (CDM:TSX; CDE:NYSE) invested in it, but I can’t comment on the overall trend.

TMR: What types of small-cap mining equities should investors seek in this market?

JA: Look for a good management team that is transparent in its announcements and consistently meets its milestones. If it says it’s going to finish its feasibility study within six months or within H2/13, it makes that deadline and announces its results within that deadline. Even if it has a negative or disappointing result, that shows it has a good management team that is setting and meeting goals.

TMR: What companies with near-term catalysts can you tell us about?

JA: We expect several near-term catalysts for Silver Bull’s Sierra Mojada project within the current quarter—its maiden PEA and the announcement of metallurgical results. It plans to announce those together, and when it does, it will be a pretty big mover for the company. This is definitely a milestone. If the PEA and the metallurgical results are positive, the company plans to advance the project to feasibility in 2014. We discuss those two catalysts in our Q3/13 Outlook report, published on the Streetwise website.

TMR: If Coeur added to that position, would that be a further catalyst?

JA: That would show its confidence in the project and would be a great thing for Silver Bull.

TMR: What’s another example of a catalyst?

JA: On July 31^st, Richmont Mines Inc. (RIC:TSX; RIC:NYSE.MKT) announced the completion of the bulk sampling phase at Monique, the estimated mineral reserves for the project, and a positive production decision for the project. In the month prior to this announcement, the stock price rose approximately 18%. Once this announcement was made, the stock was relatively flat, actually down almost 2% on the day of the announcement. This suggests to me that investors were already anticipating this type of big announcement, hence the large increase in the stock price in the month prior to the announcement.

TMR: You’re on a roll, Jocelyn. Tell us about more companies with near-term catalysts.

JA: Colossus Minerals Inc.’s (CSI:TSX; COLUF:OTCQX) Serra Pelada project is expected to go into production by the end of the year, but it hasn’t announced an initial resource estimate. That may be because it’s a historically producing mine, but it really needs to make that announcement as soon as it can. It will definitely help it or hurt it.

TMR: Colossus recently did a $33 million equity financing, underwritten by a group of brokerage houses. Did that have an impact on the share price?

JA: The share price is still only $0.74/share. If it had the resource estimate, it probably would have gotten a better share price.

We are also looking at two catalysts this quarter for Global Minerals Ltd. (CTG:TSX.V; DPF:FSE)—an updated resource estimate and a PEA. They are both expected in Q3/13. The partner is Esperanza Resources Corp. (EPZ:TSX.V), and the project is Strieborná, in Slovakia. We’re also looking for permit approval by the end of the year.

TMR: How likely is that? Global Minerals seems to have good connections with the Slovakian government.

JA: It has an excellent relationship with the community, which it needs. You see projects where companies don’t have a good relationship with the local community or government, and things don’t work out for them.

TMR: Does CatalystTracker go into intangibles like that?

JA: When we track upcoming catalysts, we put in a lot of information about relationships with the local community. For permitting decisions, particularly, we’ll put in information about court decisions or decisions by the local government. For example, Pascua Lama keeps getting pushed back, and things are happening within Chile that are making it a not very positive experience for Barrick Gold Corp. (ABX:TSX; ABX:NYSE). Even if we’re tracking the production start catalyst, we will include information about the permitting and the project’s environmental aspects.

TMR: Are you following other mine commodities?

JA: We follow silver, copper, nickel and iron. We’re following Rogue Iron Ore Corp. (RRS:TSX.V) and anticipating a resource estimate for its Radio Hill project in the current quarter.

TMR: The end of August? The end of September?

JA: It gave the Q3/13 timeframe in May of this year. We’re still looking at Q3/13, but one third of it has already passed.

TMR: What’s moving the big names in the gold space?

JA: Earnings seem to move them the most, moving the stock 5–6%. Obviously, the stock price has a lot to do with it. With a larger stock price, events won’t move the stock the same percentage as they will with a smaller junior miner. For companies like Barrick or Goldcorp Inc. (G:TSX; GG:NYSE), announcements about particularly large projects can also move the stock price.

TMR: Either way, we’ve found out.

JA: Pascua Lama is a good example of that. There was also some movement with Goldcorp and the Éléanore project.

TMR: There were some forest fires in the area of the Éléanore project. Does that tend to impact the share price, or do investors typically figure it’s just a temporary problem?

JA: It may impact the share price in a lesser way, but forest fires seem like a temporary thing. If a company was having difficulties with permitting or with environmental groups, that would be a negative catalyst for the longer term.

TMR: Do Barrick or Goldcorp have any positive catalysts coming up?

JA: Nothing is expected for Goldcorp’s Éléanore until 2014. Barrick has been scaling back its exploration and development in light of the gold price.

TMR: Do you have any parting thoughts on catalysts, maybe a tip for investors?

JA: A lot of investors are scared. Obviously, there is a lot of negativity, but if you can find the companies doing good things, there is still money to be made. You can’t just throw a dart and expect to hit one the same way you used to do, but you can find good value and investment opportunities. You just have to find the right companies and the right catalysts.

TMR: Jocelyn, thank you for your time.

Jocelyn August is currently the senior analyst and product manager for CatalystTracker, Sagient Research’s proprietary research product of focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the “Catalyst Impact Study: Natural Resources Sector.” Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a Master of Business Administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a Bachelor of Arts degree in sociology.

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

DISCLOSURE:

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

2) The following companies mentioned in the interview are sponsors of The Metals Report or The Gold Report: International Tower Hill Mines Ltd., Silver Bull Resources Inc., Richmont Mines Inc., Colossus Minerals Inc., Global Minerals Ltd. and Goldcorp Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Jocelyn August: I or my family own shares of the following companies mentioned in this interview: None. 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.

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

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

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

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

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

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

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

101 Second St., Suite 110

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AUDUSD stays within a downward price channel on 4-hour chart, and remains in downtrend from 0.9317, the rise from 0.8847 is treated as consolidation of the downtrend. Resistance is at the upper line of the channel, as long as the channel resistance holds, the downtrend could be expected to resume, and further decline to 0.8800 area is still possible. On the upside, a clear break above the channel resistance will indicate that the downward movement from 0.9317 has completed, then the following upward movement could bring price back to 0.9150 – 0.9200 area.

Provided by ForexCycle.com

By MoneyMorning.com.au

So, the Reserve Bank of Australia (RBA) has cut Australian interest rates to a record low 2.5%.

As we’ve explained all year, interest rates are going lower. And they will go lower than this. A cut to 2.25% is almost inevitable, and a cut to 2% is more likely than not. (Family wealth expert Vern Gowdie says rates will go towards 1%! You can read more from Vern below.)

You know what that means. The RBA continues to follow the central banking playbook.

So if you thought the stock market was already risky, it’s just got a whole lot riskier. Sadly, you’ve got no choice but to play along…

What we’re about to explain is important.

The key thing you need to focus on in this market is the concept of risk.

When we talk about the market being risky as heck and super volatile, most people immediately think of the negatives.

They think about falling share prices. They think about huge price drops such as those in 2008. But that’s only one side of risk.

Risk is two-sided. It has a positive side too. And if you don’t appreciate that you’ll miss out on the big gains that the stock market could give you over the next two years…

A Bad Year for Stocks? Think Again…

Think about it this way. When you buy a share you think about the risk of the share price falling. If that happens you’ll lose money. That’s bad.

But when you short sell a share you think about the risk of the share price rising. If that happens you’ll lose money (short sellers profit from falling share prices). That’s bad too.

In other words, depending on your investment, you view risk in a different way. What’s risky to one investor is a profit opportunity to another.

You should think about this when you look at today’s ‘risky’ market. Yes, there’s a risk share prices could fall if the Australian economy worsens. But there’s also the ‘risk’ that share prices could go up if – as we expect – lower interest rates and government spending provide a short-term boost to the economy.

The fact is when a market is this volatile there’s no telling which way stock prices will go.

You only have to look at a chart of the S&P/ASX 200 Index to see that stock prices have gone all over the place in recent months:

Source: Google Finance

Stocks have traded in a 10% range. That’s enough to qualify as a crash from top to bottom. And yet, since the start of the year, the Australian share market is up 9.8%. That’s a pretty good return by anyone’s standards.

We’ll say it again: just as there is the risk that share prices could fall, there’s just as much risk that share prices could rise. This is exactly what we told you when stock prices plummeted during May and June.

We told you not to sell. In fact, we told you to buy even as prices fell. We told you that if you ‘scaled in’ to the market by buying one-third or one-half of your normal position size you’d soon be in the black as the market recovered.

Don’t Bank on Rising Interest Rates

Today, the main index is within 100 points of the May top. Hopefully you didn’t waste any money on broker commissions by unnecessarily selling stocks since May (if you incurred broker commissions from buying stocks that’s a different story, that’s money well spent).

As we’ve mentioned before, we took a lot of flak from some folks who said it was foolish not to sell in May.

We took that view because we had a high degree of confidence we were right. The fears of rising interest rates just didn’t gel. It seems to us that it was a short-term readjustment of interest rates, to correct a position where rates had gone too low.

It was a simple reversion to the mean. But you shouldn’t assume interest rates will skyrocket from here, because we’re certain they won’t.

The fact that the Reserve Bank of Australia has just cut rates is more proof that the trend is for rates to stay low. The RBA still has more room to cut rates further, and we expect it to do just that.

As for the US, UK, Europe, and Japan, you shouldn’t assume rates will rise there any more than they already have. And you also shouldn’t assume the central banks will suddenly stop buying bonds – so-called tapering.

The markets are set to stay this ‘risky’ and volatile for many more years. You’ll see a constant stream of booms and busts where share prices rally and then fall. Opinions will change on the economic outlook and on the prospects for sustained lower interest rates.

But remember, Japan has experienced zero percent interest rates for 20 years. The US is only four years into its zero percent experiment…and Australia hasn’t even started its experiment yet.

The Positive Risk of Stocks

Ultimately a time will come when it’s right to sell stocks. But if you follow the relatively conservative approach we suggest of 20-40% of your wealth in stocks (mostly dividend-payers with some growth stocks) you’ll benefit if we’re right about Aussie stocks rallying to a record high in 2015.

We’ve outlined a strategy here that can help investors make big gains from this volatile market.

On the flip side this conservative approach also means you’ll have most of your capital protected should the worst happen and stock prices fall.

This market is all about risk. It was super risky in late May when most people said sell. Yet we told you to buy and stock prices have gained almost 10% since then.

In short, just because something is risky doesn’t mean you should think it’s a negative risk. When stocks shoot around as they have in recent months but are higher than where they were at the start of the year, it can be a positive risk too.

Cheers,
Kris+

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From the Port Phillip Publishing Library

Special Report: The Sixth Revolution

Daily Reckoning: The Global Trend Towards Wealth Protection

Money Morning: Two Approaches to Investing…

Pursuit of Happiness: Learning to Avoid the Governments ‘Noble Wealth Trap’

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks

By MoneyMorning.com.au

On Monday the headline in The Australian declared, ‘Retirees more worried about future‘.

The latest Household Financial Comfort Report from ME Bank (see chart below) shows Retirees are the only household group to show a descrease in financial comfort over the past six months.

ME Bank surveyed 1,500 households. The aim was to find out how comfortable they feel about their current household financial situation, their future, and confidence in their finances. The scale ranges from 1 (least comfortable) to 10 (most comfortable):

Click to enlarge

It’s no surprise that retirees feel squeezed. While the RBA is busy lowering interest rates to make life easier for indebted households, it means cutting income for the poor old retiree (saver).

In August 2008 the official cash rate was 7.25%. Five years later it sits at an all-time low of 2.5%. Anyone living off the interest from their savings has suffered a 65% income cut.

Imagine the outcry from the unions if this happened to the average worker. But without a powerful lobby group to help, savers suffer in silence and make the necessary household budget changes. This isn’t easy.

Over the same period that retiree income has fallen, the cost of living has gone up (rates, electricity, fuel, food, health insurance etc.). Finding the fat in an already lean budget is no mean feat.

This catches retirees in a vice of falling income and rising costs.

So as interest rates fall further, expect to see the retiree discomfort level rise higher.

The Reserve Bank of Australia’s actions are proof of ‘one man’s food is truly another’s poison’.

The ME Bank survey blames the rising financial discomfort of retirees on:

‘The negative impact of lower deposit rates on their investments given their relatively high and defensive exposure to bank deposits rather than growth assets such as shares and investment properties‘.

Therein lies the challenge for retirees. The alternative to the safety of cash and fixed interest is to put more investment capital in higher yielding shares. But with the capital destruction of the GFC still in their memory, this option has little allure for retirees.

Little wonder the survey found retirees ‘increasingly worried about their investments, living standards and income stability.’

Retirees have these sentiments even though most retirees get the Age Pension (full or part) and the associated health benefits.

The Age Pension is obviously a welcome source of income but it hardly affords a life of travel and indulgence. A single pensioner receives a maximum of $19,000 per annum and couples can get $28,760.

The interest earned on savings was that little bit extra for the occasional treat that makes life worthwhile.

So is there a way out of the vice? And what lessons can baby boomers learn before retirement?

In the short term – next 2-3 years – a large position in cash and fixed interest will be both bitter and sweet.

The bitter part is interest rates will continue to fall as global economic conditions weaken. The RBA standard (and, only) response to worsening conditions is to turn the interest rate dial down.

You can expect rates to fall into the 1% zone (like Europe, USA & Japan). If a cash rate of 2.75% caused retiree discomfort levels to rise (the survey was conducted before yesterday’s rate cut), they are set to go much higher as rates fall.

The sweet bit is that the softening global economy should expose the impotency of the central bankers’ attempt to manipulate the market.

Without artificial stimulants, the so-called ‘growth’ assets of shares and property will return to earth with a thud. Cashed up retirees (as long as they are brave enough to be contrarian) will be in a position to buy assets at a cheaper price.

In the meantime they’ll need to fund any budget shortfalls from their investment capital. Knowingly reducing the capital base is far better than seeing it disappear in a severe market correction.

Waiting for the investment planets to align can be awfully frustrating and will test comfort levels. The key to remember in the investment world is nothing lasts forever. Markets always move in cycles.

For retirees there is light (however dim it may seem) at the end of the tunnel.

The lesson for newly and soon-to-be retired baby boomers (used to a higher standard of living than the older retirees) is to understand two huge trends that will impact their later years.

Firstly baby boomers will live (on average) longer – probably into their 90′s. Secondly, the age pension – due to demographics and low growth – will become harder to access.

The result of these two trends is that saved capital will have to do two things. It will need to last longer and deliver a higher percentage of living costs.

Managing these objectives requires spending time to learn how markets and the global economy work. There are no shortcuts. The fact you’re reading this shows you’re committed to building knowledge. That’s great.

After all, your retirement capital may have to sustain you for 30+ years. Over this time markets and interest rates are certain to rise and fall several times. It will be a challenge to stay ahead of these trends, to enable you to allocate capital to the best asset class.

The only thing I’m reasonably certain of is the next 30 years won’t be anything like the past 30 years.

As credit leaves the system, there will be all sorts of unintended consequences (historically low interest rates are one of those).

No one knows what havoc and opportunities The Great Credit Contraction will bring. However, informed investors may have a better chance of exploiting what looks set to be a volatile period in financial markets.

Vern Gowdie
Editor, Gowdie Family Wealth

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From the Archives…

Is This the Spark to Send Australian Property Crashing?
26-07-2013 – Kris Sayce

Why it’s Deflation…Not Inflation, that’s Heading Our Way
25-07-2013 – Vern Gowdie

Why You Must Avoid This Big Investing Mistake…
24-07-2013 – Kris Sayce

The Dark Side of Technology: Part 2
23-07-2013 – Sam Volkering

The Dark Side of Technology: Part 1
22-07-2013 – Sam Volkering

Article by Investazor.com

As I mention a few months ago, in an article about Yahoo! Inc. which you can find here, this company may worth you full attention. Since then, the CEO at Yahoo Marissa Mayer, continued with buying startups and made 9 new brand acquisitions. When will she stop? It looks like the main purpose of Marissa Mayer is to buy people instead of the ideas behind the startups. She is actually pointing towards the engineers of these little organizations which will be kept by 2 to 4 years contracts.

Apparently, the new CEO found the malfunction of the company and now is taking steps in order to fix it. Definitely there is an urgent need of creative engineers and Marissa Mayer is doing nothing but to provide the company with this medicine in return of billions of dollars. It will take time in order to see whether or not this strategy will work and indeed the company will produce new value and attract and retain new users. Revenue for the full year of 2013 is projected to be in the range of $108.0 million to $112.0 million without dropping far below the last year’s figures.

The post Why You Should Pay Attention to Yahoo! Inc.? appeared first on investazor.com.

Article by Investazor.com

Today, the Australian dollar was one of the top movers as the Central Bank decided to cut again the interest rate, reducing it to an historical low, at 2.5%. Even if this decision makes the Aussie dollar depreciate and therefore makes it less attractive for the investors, it is intended to help the economy get back to growth. Lately, Australians have had a less encouraging economic climate as the country’s economy kept deteriorating. One of the major concerns is the growing unemployment rate which pointed to 5.7% as well as a serious breakdown of the mining industry.

As two of the core industries are the coal and iron ore, a slowdown of one of them is seriously affecting the overall picture. China is at fault for these negative news, as its economy is cooling. If previously they used to invest significant amounts of money in their infrastructure and building factories, increasing the demand of natural resources from Australia, now, the leaders of China would rather not to boost the economy for a while. The slowing down of the mining industry is expected to cause further damages like: increasing the unemployment rate, reducing the investments, affecting the exports and the price of these resources. On the medium term (until the final of 2013), the Australian economy will be closely watched before additional measures will be taken, as they are not excluded.

The post The Australian Dollar, on the Right Path? appeared first on investazor.com.