Month: September 2013

By Profit Confidential

Last week I wrote about how auto loans have reached their highest level since the third quarter of 2007 and how easy access to these loans was pushing car sales higher. (See “Scary Story on the Booming Auto Sales No One is Talking About.”)

Yes, ballooning auto loans are a problem, but there is a bigger ticking debt time bomb…

Student debt in the U.S. economy is taking the shape of a bubble.

The U.S. government has effectively become the biggest creditor to students. It has gotten to a point where it is forcing the big banks to move away from issuing student debt.

Take JPMorgan Chase & Company (NYSE/JPM), for example. This bank has decided that it will stop accepting student loans applications on October 21of this year. Richard Hunt, President of the Consumer Bankers Association, said that the government giving student debt is creating “less competition in the marketplace.” (Source: “JPMorgan to stop making student loans: company memo,” Reuters, September 5, 2013.)

Sure, on the surface it’s a good idea. The government issuing student debt promotes education. But there’s a problem. Student debt in the U.S. economy has increased significantly. It currently sits around the $1.0-trillion mark—with a majority of that student debt guaranteed by the U.S. government. If we see defaults on this student debt, we will see the U.S. government rapidly increasing its national debt as it deals with the student debt fiasco.

We are already seeing a sharp increase in the delinquency rate on student debt. According to the Federal Reserve Bank of New York, in the second quarter of 2013, the 90-day-plus delinquency rate on student debt was almost 11%. (Source: Federal Reserve Bank of New York, August 2013.)

We all know the jobs market in the U.S. economy is dismal. Considering this, I ask one question: will graduates from colleges be able to pay off the debt they have incurred if they will most likely only be able to find a job in a low-wage-paying sector?

I can see the delinquency rate on student debt skyrocketing.

Too few are concerned about the student debt crisis in the U.S. Sure, politicians think it’s a great idea—students getting an education with the government’s help—just like the politicians thought making mortgage lending easier was a great idea during the early to mid-2000s.

As it stands now, our national debt is just under $17.0 trillion, and the government is expected to use the entire line of credit available to it by October.

We are going through the same motions again: the Secretary of the Treasury has asked Congress to increase the national debt limit or the U.S. government will face default.

The student debt crisis is only one of many “costs” the government will need to make good on. What to do about the cities and states in the U.S. economy facing bankruptcy has not been dealt with. Nor do we know the real costs of “Obamacare.”

With U.S. gross domestic product (GDP) running at $16.6 trillion and the U.S. national debt headed towards $20.0 trillion over the next five years, we are already projecting a debt-to-GDP multiple of 120% for the U.S. economy—that is if nothing goes wrong, like the student debt time bomb blowing up in our faces, an unexpected war, or a natural catastrophe.

But have no fear, the price of gold is telling us all is well… Yah, right.

Michael’s Personal Notes:

It has been very well documented in these pages how the demand from India and China for gold bullion is increasing. We have also seen central banks buying the precious metal to protect their reserves.

But when I look at other side of the equation, the supply side, the case for higher gold bullion prices becomes even stronger.

The biggest sources of gold bullion are obviously the gold producers—the companies that actually do the “dirty work,” digging the ground and extracting gold bullion. When the price of gold bullion declines, it gives them less incentive to produce at higher-cost mines as profitability is at stake.

In April of this year, and then later in June, we saw gold bullion prices decline significantly in value in the face of strong demand for the precious metal. That price action caused a new trend to start among gold producers—they’ve started to cut their exploration budgets.

Graham Ehm, Executive Vice President of South African-based AngloGold Ashanti Limited (NYSE/AU), one of the biggest gold producers in the global economy, stated the company is looking to save $500 million over the next 18 months, as capital expenditures will only be going towards their highest-quality assets. (Source: Mining Weekly, August 5, 2013.)

In its second-quarter corporate earnings report, Newmont Mining Corporation (NYSE/NEM), another massive gold producer, said the company reduced its exploration spending by $362 million from the same period in 2012. (Source: Newmont Mining Corporation, July 25, 2013.)

How does this all come into play with the gold bullion prices?

When gold producers invest less in exploring for new projects, the overarching effect is less future production, which leads to less supply. We’ve heard from senior gold producers about cutting costs; just imagine how severe the pain is for gold producers who have significantly higher costs!

If the prices of gold bullion remain suppressed, we could potentially see many gold producers shut down mines that produce the precious metal above the spot price, the end result of which will be an even smaller supply of gold bullion.

Where do I think gold bullion prices are going next? The “technical” damage done to gold bullion price charts in April and June was very significant. It can take some time for gold bullion prices to recover, especially as price manipulation continues, but if we continue to see supply decrease and demand increase, “regression to the mean” may happen a lot quicker than most expect.

What He Said:

“Over the past few weeks I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fueled the housing boom that peaked in 2005, have yet to arrive.” Michael Lombardi in Profit Confidential, March 22, 2007. At the same time Michael wrote this, former Fed Chief Alan Greenspan was quoted as saying “the worst is over for the U.S. housing market and there will be no economic spillover effects from the poor housing market.”

Article by profitconfidential.com

By Profit Confidential

It has been very well documented in these pages how the demand from India and China for gold bullion is increasing. We have also seen central banks buying the precious metal to protect their reserves.

But when I look at other side of the equation, the supply side, the case for higher gold bullion prices becomes even stronger.

The biggest sources of gold bullion are obviously the gold producers—the companies that actually do the “dirty work,” digging the ground and extracting gold bullion. When the price of gold bullion declines, it gives them less incentive to produce at higher-cost mines as profitability is at stake.

In April of this year, and then later in June, we saw gold bullion prices decline significantly in value in the face of strong demand for the precious metal. That price action caused a new trend to start among gold producers—they’ve started to cut their exploration budgets.

Graham Ehm, Executive Vice President of South African-based AngloGold Ashanti Limited (NYSE/AU), one of the biggest gold producers in the global economy, stated the company is looking to save $500 million over the next 18 months, as capital expenditures will only be going towards their highest-quality assets. (Source: Mining Weekly, August 5, 2013.)

In its second-quarter corporate earnings report, Newmont Mining Corporation (NYSE/NEM), another massive gold producer, said the company reduced its exploration spending by $362 million from the same period in 2012. (Source: Newmont Mining Corporation, July 25, 2013.)

How does this all come into play with the gold bullion prices?

When gold producers invest less in exploring for new projects, the overarching effect is less future production, which leads to less supply. We’ve heard from senior gold producers about cutting costs; just imagine how severe the pain is for gold producers who have significantly higher costs!

If the prices of gold bullion remain suppressed, we could potentially see many gold producers shut down mines that produce the precious metal above the spot price, the end result of which will be an even smaller supply of gold bullion.

Where do I think gold bullion prices are going next? The “technical” damage done to gold bullion price charts in April and June was very significant. It can take some time for gold bullion prices to recover, especially as price manipulation continues, but if we continue to see supply decrease and demand increase, “regression to the mean” may happen a lot quicker than most expect.

What He Said:

“Over the past few weeks I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fueled the housing boom that peaked in 2005, have yet to arrive.” Michael Lombardi in Profit Confidential, March 22, 2007. At the same time Michael wrote this, former Fed Chief Alan Greenspan was quoted as saying “the worst is over for the U.S. housing market and there will be no economic spillover effects from the poor housing market.”

Article by profitconfidential.com

By Profit Confidential

The broader market is showing renewed strength in anticipation of the Federal Reserve’s decision on quantitative easing and third-quarter earnings season.

Typically, September is a volatile and tough month for stocks, but there’s a real resilience to the current stock market. Even the NASDAQ Composite is holding up well, considering Apple Inc.’s (AAPL) drop last week.

A key metric for me remains the Dow Jones Transportation Average and the components of the Dow Jones Industrial Average. Top- and bottom-line growth for blue chips is very modest, but balance sheets remain strong, and the institutional drive towards stock market safety and consistency remains a solid investment theme.

Dividends and the prospect for more dividends remain highly attractive in a slow-growth economy, and new funds for equities have to go somewhere. I see no reason why the Dow Jones Industrials can’t come through with their earnings outlooks going into the last quarter of the year.

But regardless of corporate fundamentals, the Federal Reserve has been and will continue to be the clear driver of this stock market. Institutional investors are still of the mantra that it doesn’t pay to fight the Fed and betting against it by those who get paid to play the stock market is highly unlikely.

Unless there is some new shock to the system, the stock market is likely to finish off a very good year.

If corporations are still wary about investing in new plant, equipment, and employees, the outlook for balance sheets and rising dividends remains strong. For years now, it’s been much easier for corporations to borrow cheap money and buy back shares in order to pay for increasing dividends. The financial health of countless blue chips is strong enough to carry their share prices right into 2014. (See “Why I View the Blue Chip Retrenchment as a Good Thing.”)

Getting back to the stock market, the Dow Jones Transportation stocks remain a top—though somewhat old-school—stock market indicator, and their performance continues to be robust after experiencing consolidation since May.

This index looks just about ready for a meaningful breakout from this consolidation, and if it holds convincingly around 6,600, then there are the makings of a further advancement to finish out the year.

An important component, FedEx Corporation (FDX) reports on Wednesday, and this should be market-moving news. The company’s numbers are on the pulse of the U.S. and global economies. Sales growth in its latest quarter is only expected to be around two percent.

Still, the stock market will bid the company’s shares if it beats the Street. Everything in this market is relative. In normal conditions, without strong central bank intervention, there would obviously be way less enthusiasm for such lackluster growth.

It will be very interesting to see how the stock market finishes out September. The combination of new policy action by the Federal Reserve and another earnings season could result in some robust trading action.

Article by profitconfidential.com

By Profit Confidential

I love the smell of coffee brewing in the morning—and in the afternoon and evening. As you can tell, I do enjoy my coffee—but I also like watching some of the market’s top coffee stocks.

At the top of my watch list in the coffee sector is Starbucks Corporation (NASDAQ/SBUX), just because of its strong brand recognition not only in the United States but worldwide. Whether it’s in Asia, Europe, or Latin America, you can always find that familiar green Starbucks logo.

However, when I have a craving for a baked treat (though I seldom do), I do like the “Boston Kreme” donut and “Cheddar Cheese Bagel Twist” at Dunkin’ Donuts, operated by Dunkin Brands Group, Inc. (NASDAQ/DNKN), which also owns Baskin-Robbins. Dunkin is known more for its donuts than its coffee; nevertheless, it is a coffee shop that many customers will venture out to for a sweet treat.

Chart courtesy of www.StockCharts.com

Dunkin is still primarily an American brand, but the company is considering returning to the United Kingdom. The company is looking at opening 50 outlets in the greater London area within five years, but that number could run as high as 150 outlets in the United Kingdom. (Source: Rocco, M., “Dunkin’ Donuts Plans Return to U.K.,” Fox Business Network web site, September 12, 2013.) The company also has plans to move into Moscow.

While the expansion plans are encouraging, I really doubt the Dunkin brand can become the global icon that Starbucks has become. In China, for instance, Starbucks is rapidly growing.

An alternative investment opportunity to Dunkin—and a company that the people at Dunkin should be keeping an eye on—is Canada-based Tim Hortons Inc. (NYSE/THI). The company’s product is similar to Dunkin’s, and it is rapidly growing in the United States. As of June 30, 2013, there were 4,304 Tim Hortons outlets in the network, including 807 in the U.S.

Chart courtesy of www.StockCharts.com

In my view, Tim Hortons is more of a threat to Dunkin than Starbucks, especially in the U.S. market, which is growing in importance to Tim Hortons.

The valuation of Tim Hortons is also more attractive, trading at 17.47X its 2014 earnings-per-share (EPS) and a price/earnings-to-growth (PEG) of 1.63; Dunkin is trading at 24.38X its 2014 EPS and a PEG of 1.75.

Dunkin is more of a play on the U.S. coffee market, with its 10,600 outlets, which makes it the second-largest coffee chain in the country after Starbucks.

At this point, from a valuation perspective, I would look more seriously at Tim Hortons than Dunkin.

One final coffee player to watch that is sizzling on the charts is Green Mountain Coffee Roasters, Inc. (NASDAQ/GMCR), which I profiled at the $39.00 level in December. The stock is now trading above $83.00. (Read “Never Mind Starbucks: Green Mountain Coffee Is Worth the Beans.”)

Article by profitconfidential.com

By MoneyMorning.com.au

Day one at SIBOS started bright, hot and early. By the time the first bus departed the hotel it was 32 degrees. If you hadn’t guessed so far, I’m not a fan of intense heat.

So when I stepped off the bus at the Dubai World Trade Centre and saw queues outside…I genuinely thought my life was over. I actually considered running through the fountain at 8:30 in the morning. I decided to stick it out.

click to enlarge

Luckily the queues were only so everyone could pass through the airport-like security checkpoint before heading in to register for the week. After assuring them my Sony camera wasn’t a weapon of mass destruction I grabbed my pass and was good to go.

The day was jam packed with sessions, kicking off with ‘The Future of Money’. Straight into the good stuff, just how I hoped it would be.

A Revolution Begins

Today reinforced my view of the world. We are at the start of a digital revolution. Change is already well underway for industries like medicine, manufacturing, travel, publishing and shopping. The next industry that’s going to take the full force of the digital revolution is the global banking system.

In the very first session I heard from Scott Bales (Head of Mobile, MovenBank), Patrick Murch (General Council, Bitcoin Foundation), Gottfried Leibbrandt (CEO, SWIFT) and Dave Gray (Author of The Connected Company).

click to enlarge

And there’s one thing that’s crystal clear about global banks. They are all petrified. And those that aren’t are delusional.

Why are they all petrified? Because the very banking system they’ve all pillaged and plundered for decades is experiencing a revolution.

Bank revenues are under threat from the likes of Amazon, Google, Bitcoin and other disruptive companies. The funny thing is it’s a systemic problem. It’s something the whole system faces. It’s been years in the making and exacerbated by the uncertain global economic environment.

The biggest problem banks have is their own arrogance. For so long they operated on the basis they had, and controlled, the trust of their customers. They abused this trust. They made and sold products and services that were good for the bank. That increased revenues and ultimately led to the downfall of many.

And this led to many losing trust in the banks. But you have to put your trust (and money) in something. Fortunately, a number of tech companies and technologies were ready and waiting.

It’s why Bitcoin is more than a fad. It’s why Google and Apple already hold banking licenses. It’s why Amazon is starting to offer loans. It’s all a part of the future of money.

Here’s a comparison of trust. If you went to an ATM and before you had a chance to select how much cash you wanted, the ATM displayed ‘same amount of cash as last time?’

Would that bother you? Or what if the bank came to you out of the blue and offered you a loan for no good reason (that you’re aware of). Would you be impressed with their service, or concerned they were trying to hook you into something you didn’t want?

These kinds of predictive behaviours are very common. Google knows what you want before you actually do. Amazon quite happily suggests things to buy based on your prior purchases. But when a bank uses predictive technology, it feels wrong. We’re reluctant to give the bank our mother’s maiden name and the street we grew up on. We don’t want them to have our location, and money preferences. Because we don’t trust banks. And nor should we.

But what if tomorrow the main headline in the paper read, ‘The Bank of Amazon is Here’? Or perhaps, ‘Google Opens First Bank’?

My guess is many people would switch across in a matter of hours, or probably minutes should the chance arise.

And it’s because there’s a fundamental difference between banks and companies like Amazon and Google. One of these groups’ focuses on services that are best for the customer…the other doesn’t. I’ll leave it up to you to decide which is which.

The Consumer of the Future

Imagine being a ‘Digital Native’ today. By that I mean someone who only knows iPads, Facebook, Google, Amazon. Someone who has only ever known a digital life. They have a psychological framework different to other people. They’re connected, social, and for them opening a bank account should be as easy as signing up for Gmail.

This new generation, the Digital Native, has a willingness to express data with transparency. And they do this only with their trusted sources. And their trusted sources are social media. Instagram, Twitter, Foursquare are just some of those social media platforms.

And this Digital Native is going to be the financial customer of the future. They’ll be the employees of the future. But when technology at home is often better than in the workplace, it’s not going to be a fun experience, so they push back.

If a start-up comes along that engages with the Digital Native in the right way, they become a trusted source too. That’s why young financial companies like PayPal, Xoom and MovenBank are all breaking the traditional shackles that hold back the incumbent institutions of today.

The thought of technology companies coming and invading the banking landscape is genuinely running fear through the global banks.

And they’re afraid for good reason too. It’s widely accepted that the barriers of entry to banking are capital, infrastructure and regulation. All conditions met by tech companies. Apple could buy Visa outright tomorrow. That eliminates capital as a barrier to entry into the banking landscape.

Obviously tech companies have the technologies and infrastructure to compete against the best banks in the world. So that’s not a barrier to entry either. And in terms of regulation, tech companies deal with regulation complexity as much as any major bank. So to think that might be a barrier to entry is foolish.

What I’m saying is if they wanted, these tech companies could step in tomorrow. Banking would be a natural extension of their business. It wouldn’t faze them in the slightest. In fact I’m certain that within the next five years one of the major global tech companies will have a distinct banking arm.

The Threat to the Big Banks

How do I know this? Because according to Scott Bales, ‘Google knows a mortgage buyer seven months before the banks do.’

He’s spot on too. Think about it. When you’re in the market for a property you Google search the area, look for public transport lines, schools, restaurants and dining areas, parks, public facilities, and a whole range of other digital data.

With the complex algorithms and analytics Google has at their disposal, these digital signatures are easily interpreted to flag that you might be looking for a mortgage.

Tech companies already have the trust of the next generation of mortgage buyers and account holders. The Digital Natives share their data with ease and transparency. And should Google or Amazon launch a bank, they have this data on tap.

And when they do, and they will soon, it will completely change the banking landscape. Some banks simply won’t make the cut. You can expect mergers, acquisitions…failures.

The banks that recognise the fundamental shift in how we transact, exchange and manage our money will survive. Those wrapped up in their own hubris will not survive. You only need to Google search ‘Bank of America Twitter fail’ to see an example of a bank that won’t survive.

So be ready. The global economy is in a fragile state. There are start-up companies invading the banking landscape. And customers are as jaded with banks as ever before.

It’s a perfect storm to start a revolution in money.

Sam Volkering+

Technology Analyst, Revolutionary Tech Investor,

Reporting from SIBOS in Dubai

Ed note: You can follow Sam at SIBOS on his Google+ page here…

Join Money Morning on Google+

By MoneyMorning.com.au

All the current talk is about the US Federal Reserve and the question of will-it or won’t-it taper. The Fed will answer that question this week.

Until then it’s worth looking at the central bank that has become the model for the US Federal Reserve, the Bank of Japan.

Japan’s all-out assault on deflation has taken global economic management to a new low. Japan’s central bank – at the behest of the government – plans to double its money supply (twice as much paper money in the system) over the next two years.

The aim of this ‘strategy’ or more correctly ‘stupidity’ is to try to generate a 2% inflation rate in order to head off deflation.

As a consumer I quite like deflation – it means goods and services become cheaper each year. Falling costs have been a major driver behind Japan being a nation of savers – why buy today when prices will be lower tomorrow?

Whether Japan will succeed in its stated aim is the subject of great debate…

However what isn’t in dispute is the impact the Bank of Japan (BoJ) announcement had on the Japanese share market, the Nikkei 225.

click to enlarge

Source: Bloomberg

Since the BoJ proudly declared its intentions on 4 April 2013 the Nikkei has risen around 20% in value.

The abundant supply of cheap money has become a plaything of the investment institutions (just like in the US) – so just how much actually reaches the real economy is yet to be seen. The only inflation the BoJ may end up generating is the inflation of a share market bubble.

Just what the world needs right now – another asset bubble.

How Global Forces Will Impact Australia

Japan is already the proud owner of one of the biggest bubbles in history – the highest debt/GDP ratio. The following chart from The Economist shows how the temptation to borrow at the lowest rates in history proved too much for successive Japanese governments.

Nearly 25% of Japan’s tax revenue is now committed to paying the interest on their Everest pile of debt. Imagine the budget chaos if interest rates merely drift back up to the 2% range?

click to enlarge

The following chart, also from The Economist, shows that all major economies have flat lining interest rates and the forecast is for them to remain this way.

click to enlarge

The reason for this is none of these countries can afford an increase in interest rates. The interest payments on their existing (and growing) public debt are consuming more and more of their tax revenues – and this is with interest rates at historically low levels.

Even a modest 1% rise in interest rates would add tens and even hundreds of billions of dollars to their interest servicing costs. Governments are already running massive budget deficits (with the lowest rates in history), so what hope would they have if interest rates rose? The term ‘buckleys and none’ comes to mind.

There has been some conjecture that Australian interest rates may have finished falling and the next move (according to some) will be for rates to rise.

The prospect of Australia raising interest rates against a global backdrop of ultra low rates is pretty slim. The other reason I suspect rates will go even lower in Australia is the comparative strength of our dollar. The recent fall from $1.05 to the low 90-cent range is not enough to restore our international competitiveness.

The recent news about a softening jobs market and a contributing cause being the high dollar is likely to bring a lot of political pressure on the Reserve Bank to wade into the forex market and force the Aussie dollar lower.

The Reserve Bank will have a battle on its hands. The currency war Japan has escalated means the major economies will actively try to debase their currencies in order to protect their export industries.

In my opinion the Aussie is destined to be swept aside when the unintended consequences of the global currency war, QE to infinity or one of the other central bank fixes causes markets to panic.

The rush of money to buy US Treasuries (for perceived safety) will greatly strengthen the US dollar. The Aussie in the 50-cent range within the next 2-3 years is a distinct possibility.

Not that the US is any great safe haven – it’s just that in times of panic it is the best looking horse in the glue factory.

Here’s Why You Shouldn’t Buy the US ‘Recovery’

 In spite of Bernanke’s herculean efforts with the printing press, the US economy is still a very sick puppy.

click to enlarge

The above chart is a combination of various US economic indicators. The large grey shaded area in 2008/09 is the GFC induced recession. Economic activity went into free fall during this period.

Post-GFC the resurgence in economic activity has been closely correlated with the Federal Reserve’s various stimulus efforts. In dollar terms and in duration, each stimulus effort has been greater than its predecessor. Yet the boost to economic activity is diminishing.

There is a point when excessive drug use is counterproductive, and this appears to be the case with the US economy.

Here are some interesting charts from ZeroHedge.com on gasoline and petroleum usage in the US. You can identify the weaker trend in the past few years (post-GFC).

The first chart tracks the sales of Motor Gasoline (black line) and Petroleum Products – heating oil, propane and kerosene (red line).

click to enlarge

The red line is back to sales levels last seen in 1997.

The next chart shows daily Gasoline retail sales have fallen 50% since the GFC.

click to enlarge

Normally increased energy is one of the indicators of an economy in recovery mode. These trends suggest the underlying economy is weak and getting weaker.

This is how the analyst at ZeroHedge.com summed up the data in these charts:

‘Perhaps, just perhaps, Occam’s razor (the principle of the simplest answer being correct) applies in this situation as well, and the collapse in energy demand in the US has little to do with MPG efficiency, higher productivity, and throughput mysteriously achieved just when the entire economy was imploding in the months after the Lehman failure, and despite the re-emerging proliferation of cheap Fed debt funded SUVs and small trucks … and everything to do with the US consumer being slowly but surely tapped out?

‘Of course, if that is the case, than the US economy is far, far weaker than even we could have surmised, although it certainly would explain the desperation with which the Fed is doing everything in its power to preserve the levitation of the S&P…’

When the real state of affairs of the US and global economy can no longer be disguised by funny money and statistical trickery, then watch out below. Then the tables will be turned. Instead of rising share markets and falling interest rates, the reverse will happen.

As share markets plummet, it’s likely interest rates will rise as the bond market starts to price in the sovereign default risk it has ignored for so long.

This is the yin and yang of markets. Complacency and misplaced trust in the ability of central bankers has investors only focused on the former and not the considering the latter.

Vern Gowdie+

Chairman, Gowdie Family Wealth

Ed Note: Vern’s personal mission is to secure your family’s wealth over the challenging years ahead. To see the urgent action you need to take today, click here.

Vern has been involved in financial planning in Australia since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

From the Port Phillip Publishing Library

Special Report: Are You Waiting for a Real Estate Crash That Isn’t Going to Come?

USDCHF remains in downtrend from 0.9455, the rise from 0.9229 is likely consolidation of the downtrend. Resistance is now located at the upper line of the price channel on 4-hour chart, as long as the channel resistance holds, the downtrend could be expected to resume, and another fall towards 0.9000 is still possible. Key resistance is at 0.9340, only break above this level will signal completion of the downtrend, then another rise towards 0.9600 could be seen.

Provided by ForexCycle.com

Article by Investazor.com

Chart: EURUSD, H4

EURUSD doesn’t find itself in a very easy to read situation. On a larger time frame it can be seen that the price has moved sideways between 1.2740, the demand area, and 1.3420, the offer area. If the time frame will be lowered it can be seen that the price is pretty close to the resistance area.

On the four hour chart we can see an up move that was confirmed today by the positive gap. But the sellers have pushed the price back to a former resistance at 1.3321. If a 4 hour candle will close under this current support, we are expecting for the drop to continue to 1.3254, the next support. If the gap will not be fully closed and the price will rise above 1.3400 the price might rally above the latest high and touch 1.3500.

Even though the Technical Analysis proved to work and offer high probability signals for trading no one should omit the fundamental factors that move the market. At this point EURUSD’s price action is pretty sensible and could turn the statistics around.

This week’s main event is the FOMC meeting from Wednesday. Investors are waiting for news regarding the Quantitative Easing. Tapering or maintaining the program will trigger volatility and the markets might react different from what the technical analysis is signaling.

The post EURUSD Technical Overview for 16 – 19 September appeared first on investazor.com.

Source: Brian Sylvester of The Gold Report (9/16/13)

http://www.theaureport.com/pub/na/is-the-peruvian-government-becoming-more-mining-friendly

With a credit rating higher than Mexico and Brazil, Peru should be high on the list of mining investors, but confidence has been shaken over the last few years when the government revoked some high-profile mining licenses. According to Lima-based Kallpa Securities Managing Director Ricardo Carrión and President Alberto Arispe, recent government actions might signal a reset, with the government even acting as a mediator between mining companies and the local communities. In this interview with The Gold Report, Carrión and Arispe detail the state of mining exploration in Peru and discuss companies actively exploring, including one that just received its long-awaited environmental approval.

The Gold Report: Ricardo, in June 2011 investors were surprised to learn that Bear Creek Mining Corp.’s (BCM:TSX.V) license had been revoked for its wholly owned Santa Ana silver project. The Santa Ana licensing incident and other moves happened shortly after Ollanta Humala was elected Peru’s president and tarnished the country’s reputation as a destination for mining investment. That was then. Please tell us about what’s happening now.

Ricardo Carrión: The government of Alan García revoked the license for the Santa Ana project, so Humala inherited that situation. Newmont Mining Corp. (NEM:NYSE) suspended the Minas Conga project, which was a flagship mining project of the Peruvian government, because of social and political issues.

The Peruvian government realizes that mining is a very important item on the agenda and is a cash cow. It has been upgrading the regulatory framework in Peru and simplifying the process.

The government has developed a new strategy to avoid another Minas Conga situation. We can see that strategy with Minera IRL Ltd. (IRL:TSX; MIRL:LSE; MIRL:BVL), Sulliden Gold Corp. (SUE:TSX; SDDDF:OTCQX; SUE:BVL) and Bear Creek’s Corani project. The government has been supporting the Corani project by working with the mining group in structuring the environmental impact assessment (EIA). That doesn’t mean that the government will immediately approve the project, but it wants to bring to the community a fair project.

TGR: Do you think Minas Conga will ever reach production?

RC: It all depends on Newmont and Compania de Minas Buenaventura (BVN:NYSE; BUE:BVL), but we expect Conga to move forward in the next two or three years.

TGR: Standard & Poor’s just gave Peru a new credit rating of BBB+ and that’s higher than either Mexico or Brazil. However, many investors would prefer to put their mining investment dollars elsewhere. Why doesn’t the perception match the reality in Peru?

Alberto Arispe: Peru is a smaller country than Mexico and Brazil, so it’s not as much on the radar of investors. Also, most of the mining in Peru is in the highlands, the poorest area of the country. The risk of mining is higher in these areas than around Lima. There is a lot of inequality in the highlands, which leads to cultural clashes. That’s why some of these companies have problems with local communities in the highlands.

Some companies have no problems, others have minor problems and others have a lot of problems. For example, Bear Creek is now working with the government of the local community with a lot of success in Corani, but it did a relatively poor job with the government in Santa Ana. Newmont did a pretty poor job in dealing with the locals in Cajamarca, but Freeport McMoRan Copper & Gold Inc.’s (FCX:NYSE) Cerro Verde has a very good relationship in Arequipa. There are projects that are going ahead with good community relations and there are projects that are not going ahead because they have done a bad job in dealing with the local communities.

TGR: So is it really about a lack of community engagement on behalf of the companies in most cases?

AA: I think so. It depends a lot on the company.

TGR: There is lots of good news too. Peru’s central bank says it expects to see more than $40 billion ($40B) in private investment between 2013 and 2015 as some of the world’s largest copper mines are built there. Tell us about some of the success stories of mining in Peru.

RC: Some of the most important ones are Las Bambas, which is in the hands of GlencoreXstrata (GLEN:LSE). It has spent about $4B. There is Freeport’s Cerro Verde mine, which is expanding at a cost of another $4B. Newmont’s Minas Conga is on the waiting list for now, but that is a $5B investment. Then you have “smaller” projects such as Toromocho, which is run by Aluminum Corporation of China (Chinalco), and Anglo American Plc’s (AAUK:NASDAQ; AAL:LSE) $3B Quellaveco.

TGR: Do you think that the Peruvian government has learned from the Bear Creek and Minas Conga issues and has taken measures to make sure that those types of problems don’t happen as frequently in the future?

RC: On the approval of the three EIAs, I know that the government has been trying to work closely with the companies and the communities, trying to be the mediator.

There was a situation a few months ago with Candente Copper Corp.’s (DNT:TSX; DNT:BVL) Cañariaco project. The government took a leadership position to solve that problem. It committed to invest 140 million soles (US$50 million) in the community.

TGR: Is Kallpa itself seeing a greater interest from institutional and even retail investors in mining securities?

RC: Obviously we are not isolated from the problems around the world. The TSX Venture has had low liquidities for the last few months and investors are afraid of mining ventures. My impression is that we probably will be out of this problem in the next 6 to 12 months. I think the worst is over.

TGR: I think that’s the general consensus out there. You’ve mentioned some producing companies. What are some names of companies with operations in Peru?

RC: In the lowest risk group—near-term producers or companies that recently switched to producing—we have Trevali Mining Corp. (TV:TSX; TREVF:OTCQX; TV:BVL), which has the Santander mine (a zinc asset in Peru). Last month the company announced the commencement of operations, which was a good catalyst for the market.

TGR: Trevali is producing zinc and a lead-silver concentrate at the Santander mine in Peru. How important is it that the company is about to start producing zinc just as the market is expected to strengthen?

RC: Analysts are predicting a deficit on the zinc supply side. Having a project up and running in this down cycle is a good thing for the company because the expectations are that it will get all the upside in the upcoming years. It’s a very important project for Trevali, one that it has just started. The other project is located in Canada and is supposed to be in operation by the end of next year. If you want to get exposure to zinc, Trevali is one of the best choices.

TGR: Doesn’t Trevali’s board have a couple of members who used to be with Ivanhoe and have a fair bit of operational experience as well?

RC: Yes, Trevali has a very strong board. Also, GlencoreXstrata has a good stake in the project. It has an offtake agreement on Santander. One of the positives of Trevali is that it has the support of a major.

TGR: What other companies would you like to talk about?

RC: Luna Gold Corp. (LGC:TSX; LGC:BVL) has been in operation for several years, but is now gaining the interest of investors. The company’s projects are in Brazil. It’s quite an interesting asset and the company is running very well. The only issue is the correlation with the gold price. Gold prices, as you know, are well off their peak.

TGR: Is Luna listed on the Lima Stock Exchange?

RC: Luna Gold is a very peculiar case because its asset is in Brazil, but it’s listed here in Peru. The project was originally created by Luis Baertl, who is Peruvian, and he was also involved in the Toromocho story, which was one of the most successful transactions that we have seen here in the public market. He has connections with several Peruvian shareholders. That has brought to the company good liquidity in the Peruvian market.

Another company on the radar of many Peruvian and Canadian investors is Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL), mainly because it has a good combination of exposure to a producing asset and exposure to a development asset. The company started production in 2011 and performed better than expected. Now Rio Alto is in the process of starting the second phase, a copper project. It is doing all the engineering to bring to the table a low capital expenditure (capex) project that can be easily financed, which can be the best strategy for that type of project. Rio Alto is advancing very well and it doesn’t have financing needs for now, so it’s a very interesting company where you have a good combination of risks.

TGR: Rio Alto is producing more gold from La Arena than it had issued under its guidance for 2013. How long can that continue?

RC: Rio Alto has had excellent production during the first and second years because in the first year it had the benefit of having higher grades than expected. In the second year it was mainly because Rio Alto began an expansion, so even though the grades were lower, the company was able to put more ore in the plant. For this year, Rio Alto is estimated to have basically the same level of production, around 200,000 ounces (200 Koz) gold. This will become harder to maintain in subsequent years. That’s why the second project is so relevant; in the mid-term that second project will have the capacity to offset the decrease in gold production.

TGR: Does that mean that Rio Alto will need less financing to develop its copper asset?

RC: Rio Alto will need to access several types of funding sources for the project. The project is estimated to cost $250–300 million ($350–300M). In the copper environment we typically hear higher numbers for capex, so the initial investment for this second phase is extremely reasonable. In terms of cash position and according to our estimates, the company will probably have around $100M by that time. To complete the financing it can use several mechanisms, such as streaming, offtake agreements, joint ventures. Because Rio Alto has a good balance sheet from the first project, that will allow it to come up with a good deal.

TGR: The first part of La Arena is gold and the second phase will be copper-gold, correct?

RC: Yes, although it is a copper project, the gold content is three times what is in the first project. It’s around 3 million ounces (3 Moz) of gold.

TGR: What are some of the promising developers in Peru?

RC: We have three companies on the radar of investors, companies in the process of getting final EIA approvals. Sulliden has just received the approval on its very solid gold project, Shahuindo; Bear Creek has Corani, a large-scale silver-lead project; and Minera IRL is also in the process of getting the EIA approval for its Ollachea gold-project.

TGR: Sulliden’s 2012 feasibility study said that it would be producing 90 Koz gold equivalent over 10 years starting in mid-2015 at Shahuindo. Could that happen any faster?

RC: I don’t know if it will happen faster, but Sulliden is on track to be in production within the estimated timeframe (early 2015). It is doing pretty well. One of the main concerns of investors in the case of Sulliden was its proximity to the Conga project. Sulliden did a fantastic job with agreements with the community.

Sulliden just received the EIA approval. This is a big milestone for the company and also a good message for the local mining industry. The approval will allow Sulliden to derisk the Shahuindo project from the social standpoint, which was one of the main concerns of investors. This approval is even more relevant considering its proximity to the Conga project. Next step for Sulliden will be the construction permit.

Out of those three companies, Sulliden is the only one that has already financed the project. It has an arrangement with Barclays and Credit Suisse to provide about 90% of the capital required for the construction. Early this year Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) took a 10% stake in the company for $27M, thus covering the remaining 10% of the capex. It shouldn’t be a problem for Sulliden to ramp up the project very quickly.

TGR: How far away are the EIAs for Bear Creek and Minera IRL?

RC: Bear Creek and Minera IRL also submitted documents in December. We expect to see similar results by the end of this month or maybe next month.

TGR: What’s the situation with Bear Creek’s Santa Ana and Corani projects?

RC: Bear Creek is in discussion with the government on Santa Ana. I think there’s good will on the part of the government to solve the situation, but it will take time. In my opinion, one option can be to sell the project because the government revoked the license to operate in a border zone. That license solely applies to foreign investment. If a Peruvian group were to acquire Santa Ana, it would not need that special license and could put the asset in production very quickly.

Corani is a huge project with a capital expenditure probably around $600–700M. It’s a big deal for the company. When the time comes, Bear Creek will probably need to make an agreement with a major group to develop the project. For now it seems comfortable with the progress on Corani. It has cash, which is very important. Bear Creek raised around $100M around November 2010 that was supposed to be invested in Santa Ana. Bear Creek should have $70–80M left, so for now funding is not an issue.

TGR: Minera IRL just secured the financing to fully develop Don Nicolas in Argentina. What are your thoughts on Minera IRL?

RM: Minera IRL delivered what it promised, which is a plus for the company because Argentina has been an overhang. Minera IRL provided a message to the market early this year that it was going to try to isolate the Argentina asset. The company devised a clever solution, which was to find an Argentinean group that would be willing to finance the construction and it succeeded in doing so. It’s a group called CIMINAS and it came out with an $80M deal in January. Now most analysts are including Don Nicolas in their projections because that project is fully funded and probably will enter production sometime next year. I think that deal was very good for the company.

TGR: And at the bottom of the food chain are the explorers. What are some explorers that you deal with in Peru?

RC: With explorers there is also a wide range of risks. On one side are all those companies that have been drilling for a couple of years, have come up with a bigger resource and are entering the stage of developing the first economic studies, like preliminary economic assessments and prefeasibility studies.

On that low-risk side of explorers we have two companies investors are paying attention to. One is Candente Copper, which has a very good asset in northern Peru, Cañariaco Norte. The company released a prefeasibility study last year and is now preparing the final feasibility study. The only issue has been with dealing with community. In that process the government has been very supportive of the company.

It’s a very big project with 10 billion pounds of copper. It’s one of the largest copper projects that is in the hands of a junior group. It’s undervalued. It’s great that it’s almost ready to go. For a major that wants to get an asset that is very close to production, Candente is an option.

TGR: And the other explorer?

RC: The other company is Panoro Minerals Ltd. (PML:TSX.V: PZN:FSE; PML:BVL), which is a very peculiar company. It has around $18–20M in cash right now and has been extremely successful in drilling the Cotambambas project (one of 12 projects). Panoro provided the market with a resource update last year and came up with a 400-million-ton project with a good grade. Everyone is expecting another resource update by the end of this month. The main deposit, the Cotabambas project, continues to grow.

Cotabambas is located next to the GlencoreXstrata’s project, Las Bambas, which is the largest copper project in Peru (1.1 billion tons) and is under construction right now. I think the future of Las Bambas can potentially impact Panoro. We have to remember that GlencoreXstrata needs to sell a copper asset to fulfill the requirements of the Chinese government in the merger process. I foresee several scenarios. If GlencoreXstrata decides to sell Las Bambas, it would make sense for the buyer to add another project and take advantage of the economies of scale. Cotabambas is right next to Las Bambas and has the same mineral (plus gold content), same infrastructure, good community relations and is a decent size. My impression is that any party willing to pay $5B for Las Bambas should take a look at Cotabambas. On the other side, the seller will have some pressure to invest the funds received for Las Bambas and what better option than Panoro’s flagship project. So both the potential buyer and seller of Las Bambas might be interested in the Cotabambas project.

Panoro’s other project, the Antilla project, is well advanced. Antilla had a prefeasibility study some time ago, which needs to be updated. The project is of interest to several Peruvian and foreign groups. Panoro has plenty of cash for the upcoming years and has an extensive portfolio of projects. Cotabambas and Antilla are the main ones, but it has another 10 projects.

TGR: You once did an interview with The Gold Report where you talked about “tenbaggers,” equities that could increase by 10 times their current value. Are there any companies that have that kind of potential?

RC: Panoro and Candente are two companies that can be included on that list. If you do the calculations, in both cases you see projects that can easily supersede $500M. Panoro and Candente are on the low-risk side of explorers where substantial appreciation in the share price is possible if there is production. In addition, those are companies with an interesting liquidity in the market.

It’s very hard to say which one will be the next tenbagger, but companies like Duran Ventures Inc. (DRV:TSX.V; DRV:BVL) and AndeanGold Ltd. (AAU:TSX.V; AAU:BVL) come to mind. AndeanGold is a very low market-cap (US$3M) company with an interesting silver project in northern Peru. The resource calculation as of today is around 15 Moz silver with the potential to continue growing. This project can be of interest to some local groups.

Another possibility is Lupaka Gold Corp. (LPK:TSX.V; LPK:BVL), which has two main assets. The Invicta project is a well-advanced asset that can be subject to a transaction, and on the exploration side the Crucero project is another good asset. Again, those are companies that are floating at very low levels (but on the other side are also facing low liquidity). Some of those probably could become the next tenbaggers.

TGR: Do you have any parting thoughts on the mining equity space in Peru and investing in mining equities in general at this stage?

RC: One of the main issues that we have now is liquidity in the markets. We have been seeing low volumes in our local exchange, the same as on the TSX and TSX Venture exchanges, but it’s improving. Even though we have had some very bad months, in the last few weeks we have seen a little change. We need to see an improvement in liquidity. Then we need to see stable metals prices. The rapid drop in the gold price in April was a shock for investors and some are still concerned about the gold price. If we have stable metal prices and liquidity coming back to the market, we will see more activity.

The best catalyst for our local market, at least on the mining side, is to see transactions. The junior market is based on confidence and confidence relies on the ability of the junior miners to set up a deal and sell the project. Good transactions can really boost the interest on equities.

TGR: What do you think is going to bring about that kind of confidence? New discoveries? A couple of breakthrough stocks?

RC: The best catalyst for confidence is to see a junior company getting a good deal with a major. We saw such a transaction a month ago. A company named AQM Copper Inc. (AQM:TSX.V; AQM:BVL) sold a portion of its project to a Japanese group at a high valuation. The Asian group wasn’t looking at the share price; it was looking at the intrinsic value of the project. We need to see more transactions at high valuations to bring companies back to the market.

TGR: Thanks for your insights.

Ricardo Carrión is the managing director for capital markets and corporate finance for Kallpa Securities in Lima, Peru. He served as a senior analyst of Banco de Credito in the areas of corporate banking, corporate finance and capital markets and was an adviser to Lima’s Stock Exchange. Carrion holds a bachelor’s degree in business administration from Universidad de Lima with a specialization in finance and capital markets.

Alberto Arispe is CEO of Kallpa Securities SAB, a Peruvian brokerage and boutique investment house. Previously, he was a vice president of emerging markets institutional equity sales at Fox-Pitt Kelton. Arispe has more than 18 years of experience in capital markets. He has a Master of Business Administration from the Stern School of Business at New York University and a bachelor’s degree in economics from the Universidad Catolica del Peru. He is a professor of finance at Universidad de Lima.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: Sulliden Gold Corp. and Trevali Mining Corp.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Sulliden Gold Corp. and Trevali Mining Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Ricardo Carrión: I or my family own shares of the following companies mentioned in this interview: Rio Alto Mining Ltd., Candente Copper Corp., AndeanGold Ltd. and Panoro Ventures 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: Rio Alto Mining Ltd., Sulliden Gold Corp., Trevali Mining Corp., Minera IRL Ltd., AndeanGold Ltd., Duran Ventures Inc., Panoro Ventures Ltd. and Lupaka Gold Corp. 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) Alberto Arispe: I or my family own shares of the following companies mentioned in this interview: Duran Ventures Inc., Minera IRL Ltd., Rio Alto Mining Ltd., Panoro Ventures Ltd. and Trevali Mining Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Rio Alto Mining Ltd., Sulliden Gold Corp., Trevali Mining Corp., Minera IRL Ltd., AndeanGold Ltd., Duran Ventures Inc., Panoro Ventures Ltd. and Lupaka Gold Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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