Month: December 2013

Source: JT Long of The Mining Report  (12/10/13)

https://www.theaureport.com/pub/na/jeb-handwerger-follow-the-fundamentals-in-mining-markets

It may seem like a confusing time to be a mining investor, but Jeb Handwerger, of Gold Stock Trades, insists it doesn’t take a rocket scientist. “Stick to the fundamentals,” he says. “The technicals will eventually reflect the fundamentals.” In this interview with The Mining Report, Handwerger talks about what companies have the right foundation to shine after the market dusts itself off and starts to climb.

The Mining Report: Jeb, you’ve been in the resource market since 1996. Based on what you’ve seen, what are the current trends?

Jeb Handwerger: I first came into this sector when everyone was chasing the dot-com stocks. This was after the Bre-X scandal, where they were falsifying the assays. No one wanted to touch the gold miners, especially exploration stocks. They ran into the dot com sector and energy. Many people quit their jobs to become day traders. Gold had been in a correction since 1981 for 20 years. What we’re seeing right now is very similar to what we saw back at that 30-year low earlier this decade—miners hedging production, miners cutting off production because of low prices, miners laying off workers, write-downs, initial public offerings of tech stocks with ridiculous valuations and zero earnings.

The resource market is basing. There are benefits to this process. You can see which companies are outperforming and you can see which companies have a strong balance sheet to weather the storm. You can see which companies are getting attention from investors and institutions and which companies are still advancing.

Some people I talk to are thinking about leaving the sector. That’s not the right approach. Gains could be exponential. The right approach is to rotate into situations that will outperform, even if gold and silver stay flat. Stick to advisors who are finding the most compelling situations. Corrections take longer than people expect—the longer and the deeper the base, the more powerful the eventual upswing. It could be huge with the record amount of cash on the sidelines and the large number of shorts who may need to cover their position.

TMR: How can investors know which companies are going to outperform?

JH: It doesn’t take a rocket scientist. Pull up a simple chart of which companies are beginning to outperform the index over different time frames, the Market Vectors Gold Miners ETF (GDX:NYSE.A) or PHLX Gold/Silver Sector (XAU:NASDAQ). The charts are a reflection of the fundamentals. During the past year, many junior mining companies have outperformed, many of which we featured in my Gold Stock Trades newsletter. For instance, two of our junior exploration recommendations in Nevada,NuLegacy Gold Corporation (NUG:TSX.V; NULGF:OTCPK) and Corvus Gold Inc. (KOR:TSX) show that significant outperformance is critical during these times as capital seeks out the outperformers.

Source: Jeb Handwerger, Gold Stock Trades

TMR: What are those themes?

JH: A success story that I have followed for about a year and a half is Comstock Mining Inc. (LODE:NYSE.MKT). The company is growing production, with the goal of building free cash flow and sustaining itself. The management and technical team is very impressive, with proven track records.

TMR: Comstock Mining is producing right now, but it’s not profitable. It just got new permitting to expand. What will it take for it to be profitable?

JH: Just a little more time. It is coming closer to creating earnings per share and free cash flow. It expanded its heap-leach pad. It is going up to 40,000 ounces a year (40 Koz/year), which will bring average costs down, generating greater profit. The company has the potential to grow production to possibly 200 Koz. over the next few years. I visited the property and was very impressed by the experienced team that has been put together to advance such a high-quality producing operation.

Comstock is a junior that is actually producing, with good margins. The company could soon generate positive earnings per share possibly, in Q1/14. This cash flow and sustainability could allow Comstock to explore and add to its massive reserves without diluting current shareholders. Comstock is literally just scratching the surface right now. Its geological team is really excited about exploration, as there are numerous high-grade bonanza targets, most notably the Chute zone. The next few quarters could be huge for this company, as it should achieve positive earnings. Do not be surprised to see majors looking at the company’s operations, should the gold price turn higher. Comstock has been flat for two years despite major fundamental progress. To me, this is a screaming buy. The stock is way undervalued and that is why some smart contrarian funds like Century Management have bought millions of shares. Follow the savvy value funds.

TMR: What other companies in Nevada have the balance sheets that would attract investors?

JH: I recommended Corvus back in 2011 and it has been one of my best performers. I have visited the project twice. It is near Death Valley, about 90 minutes from Vegas.

Corvus Gold has been hitting high grades at its Yellow Jacket target. It could be the beginning of a starter pit, which would help out with the economics big time. Corvus is working on a mine plan for the North Bullfrog project, which should be watched as the high grades could significantly improve economics. The company just announced major funding from some of the top investors in the industry to advance this project. The company has an incredible asset, deep pockets, an excellent geological team and a very tight share structure.

TMR: Corvus announced drill results on Bullfrog in October. While the stock is up from May, it’s flattened out short of its 2012 high. What’s going on there?

JH: I think it will break that 2012 high in 2014 and will eventually be listed on the NYSE. Over the past six months since we reinitiated coverage, it went from $0.50 to $1.20 in one of the toughest junior mining markets. It is up 70% in the past six months, while the GDXJ is down 18%. Being able to pick the winners in a junior environment is no easy task. Luckily, my readers have been blessed with several that put us in a stronger position as we stuck to high-quality stories in mining-friendly jurisdictions. Corvus has the share structure and the support of John Hathaway’s Tocqueville Gold Fund and AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) to take the company to the next stage of its growth in 2014.

TMR: Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX) might try to sell its San Miguel mine in Mexico. Could that help it advance the Sleeper project?

JH: Yes. San Miguel is on the radar of the big boys, especially its neighbors Coeur Mining Inc. (CDM:TSX; CDE:NYSE) and Fresnillo Plc (FRES:LSE), two of the biggest silver producers in one of the biggest silver-producing regions of the world, the Sierra Madre. Paramount has the land position surrounding those two companies and has recently published metallurgical results, which may have a significant impact on the project’s economics. When the gold price stabilizes and turns higher, look for Paramount’s San Miguel in the prolific Sierra Madre to be one of the first takeout targets. There has been a large increase in M&A activity there. I also recently visited Paramount’s Sleeper project in August and was very impressed even though the market is giving it a zero valuation, despite it being possibly the largest undeveloped gold and silver asset in the State of Nevada.

Historically, the Sleeper open-pit mine was one of the highest-grade and lowest-cost producers back in the day. I spoke with the geologists, who believe there may be additional high-grade targets. Remember the Sleeper project when it was in production had armed guards in the pit? That’s how rich the gold was there. Sleeper has an advanced preliminary economic assessment showing the positive economics, excellent infrastructure and a huge NI-43-101-compliant resource. Investors can buy it for nearly nothing. It is absolutely a screaming buy.

TMR: People have been mining Nevada for 200 years. Is there still more left to be found?

JH: Yes, there are many projects that are buried and not visible to the human eye. I’ve always been interested in the Cortez Trend. I’ve invested in a lot of different situations in the Cortez Trend that never panned out. I finally found a junior that could make it. It has also been one of our major outperformers up over 70% in the past six months, while the index was down 18%. NuLegacy Gold is run by Dr. Roger Steininger, who found the first Cortez Trend deposit, the Pipeline deposit, with Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) in 1989. It eventually got bought out by Barrick Gold Corp. (ABX:NYSE). He has a good relationship with Barrick, and that’s how he got this joint venture between NuLegacy and Barrick for the Red Hills project, on land contiguous to Barrick’s Goldrush discovery.

I like the joint venture because once NuLegacy spends $3.9 million ($3.9M), Barrick has to either carry it or buy it out. It just closed on an over-subscribed private placement. It raised $2M with Global Resources Investment Trust.

TMR: What else in Nevada should investors watch?

JH: I’ve always told my subscribers to watch Kinsley Mountain. Let me back up a little. In 2011, Fronteer Gold Inc. (FRG:TSX; FRG:NYSE.MKT), which had the Long Canyon discovery, was our major pick. Many of my subscribers and I made a lot of money off of the takeout by Newmont Mining Corp. (NEM:NYSE) for $2.3 billion ($2.3B). Pilot Gold Inc. (PLG:TSX) is the spin out of Fronteer. Pilot has one of the top geologists who helped advance Long Canyon for Fronteer, Moira Smith. Pilot recently hit nice results from Kinsley Mountain. After selling Fronteer after the Newmont takeout, I just got back in and took an initial position after the good results. It’s very impressive. Once this market turns, people are going to become aware that this may have the potential to be the next Long Canyon.

I also just bought Canamex Resources Corp. (CSQ:TSX.V; CX6:FSE), which is hitting unbelievable results on its Bruner project. These are some of the best results I have ever seen in Nevada and don’t understand why investors don’t realize the potential at this project located in Nye County. The stock is trading at only $0.07. Hecla Mining Co. (HL:NYSE) has made a large investment in this company at much higher prices and is represented on the board of directors and the technical advisory. It’s a steal for new investors.

TMR: Where else can investors go to prepare for an upswing?

JH: Alaska. Check out the numbers from the Fort Knox mine for Kinross Gold Corp. (K:TSX; KGC:NYSE). Fort Knox is right down the road from International Tower Hill Mines Ltd.’s (ITH:TSX; THM:NYSE.MKT)Livengood project. It has a lot of similarities and advantages to Fort Knox but has been underperforming ever since it announced a feasibility study that most investors and analysts completely misunderstood.

TMR: What does the price of gold have to be for International Tower Hill to make sense?

JH: According to the last feasibility, it needs $1,500 gold to get close to breaking even. But that feasibility was based on a mine plan that was done back at the height of the market in 2010. There are many different options on this project and in many ways it is superior to Fort Knox. That is how the company attracted the people who built Fort Knox and Pogo to advance Livengood. I am confident that one day this will be a mine as it is located in a mining part of the state and it has a technical team that knows how to build mines. One has to be patient with a massive 20 million-ounce asset like this as it has been underperforming. However, it has the potential if gold starts moving higher to significantly outperform to the upside.

TMR: Will there be a new feasibility study?

JH: It is looking at different optimizations. There are strategic partners that are seriously considering it because they may want a mine on their books that can have large production numbers. International Tower Hill is one of those few projects that have the potential to produce 500 Koz/year. It has huge optionality and leverage.

TMR: Are you finding any gold opportunities in Canada?

JH: I recently took a position in Probe Mines Limited (PRB:TSX.V). Probe is developing the Borden Lake project in Ontario. It has made a high-grade discovery near infrastructure and has potential to expand. This project is a unique find because it’s a totally new discovery. It may be a totally new district. The potential for it to be huge and grow is great. It’s one of the few stocks that’s outperforming in one of the toughest junior resource markets. The outperforming companies are going to be the first to build value for shareholders in the coming upswing. Probe recently announced metallurgy, which was very impressive with good recoveries and key for the preliminary economic assessment.

TMR: You also follow uranium. The sector is still way down since Fukushima. Is it too early to get in?

JH: Smart investors look for the biggest bang for the buck. Uranium recently hit eight-year lows, but the fundamentals show there are more reactors under construction today than there were before Fukushima. China, Saudi Arabia, and the U.S., for the first time in 30 years, are building reactors. All around the world there are new reactors being built to provide a diverse energy mix that’s safe, clean and economic.

For Asian nations, natural gas is expensive. They’re building huge liquefied natural gas (LNG) terminals in British Columbia to help bring down those costs. There is a huge energy boom in Canada, not only in the oil sands, but also in uranium.

CNOOC Ltd. (CEO:NYSE), China National Offshore Oil Corp., bought out Nexen Inc. (NXY:TSX; NXY:NYSE) for close to $15B. It also signed a uranium deal with Cameco Corp. (CCO:TSX; CCJ:NYSE).

I just took a position in Enterprise Group Inc. (E:TSX.V). It’s getting awarded contracts in the energy services field. It is earning $0.05/share/quarter. There are great growth aspects there and the company is making some impressive acquisitions.

The Athabasca Basin and Western Canada is an area that’s going to be of great interest because the Chinese need energy. Talk about a boom—just look at some of the news coming out of Western Canada with the massive building of liquefied natural gas plants.

In addition, the last shipment from the Russian Megatons to Megawatts program has happened. That’s 24 million pounds coming out of the uranium market that the U.S. had for more than 20 years. Utilities are going to have to look for new sources.

But it takes many years to build a mine in the Athabasca Basin. Cigar Lake has taken more than 30 years to build. We think the Athabasca Basin is a great area, but a lot of the activity is very early-stage stuff.

TMR: What about the Preston Lake area, where the Western Athabasca Syndicate is working?

JH: The Syndicate is a strategic partnership between four companies—Skyharbour Resources Ltd. (SYH:TSX.V), Noka Resources (NOV:TSX.V), Athabasca Nuclear Corp. (ASC:TSX.V) and Lucky Strike Resources (LKY:TSX.V). Each company has an option to earn 25% on the property. It’s not far from a highway that runs through the land package. It’s still very early stage.

In the Athabasca Basin, I focus on Lakeland Resources Inc. (LK:TSX.V). That’s mostly because I followed Jody Dahrouge for many years with Fission Energy Corp. He was one of the major forces behind the J Zone and Patterson Lake discoveries. The Western Athabasca Syndicate is in the area of Patterson Lake South, the southwestern area, which is gaining a lot of interest. It’s one of the highest-grade discoveries in the Athabasca Basin, which is home to the highest-grade uranium in the world.

TMR: You mentioned that this activity is early stage. How many years or decades will it take to get to production?

JH: If they find a deposit, it would take at least 10 years. That’s why I look at near-term producers that are trading cheaply. One of the best is Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT), which just closed on a $20M loan from the state of Wyoming and announced a new president that came from Cameco. I like its strategic land position in the Powder River Basin. Uranerz is coming into production and should be a takeout target. It has offtake arrangements with some of the largest nuclear utilities in the U.S. It has a processing agreement with Cameco. It should be in construction in Q1/14 with the help of the recently closed low-cost loan from the state of Wyoming. It will be one of the few juniors that will be able to bring in some revenue and sales in a commodity that’s highly in demand.

TMR: Are you still following rare earth elements (REEs)? Most REE commodity prices have been way down this year.

JH: Keep an eye on rare earth elements (REEs) as China may cut down exports. Pele Mountain Resources Inc. (GEM:TSX.V) is in the Elliot Lake area, which used to be known as the uranium capital of the world, and was producing uranium when it was selling for less than $20 per pound. It also has REEs, which can be produced as a byproduct. It was a source of REEs back in the 1980s, but now REEs are much more valuable. If uranium starts ticking higher, the Elliot Lake region is another place to watch. The company just added a significant former cabinet minister of Ontario to the board, which could help Pele advancing this project.

Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE) and Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) are two other names that have the REEs, infrastructure and a lot of support from their jurisdictions.

TMR: What are you doing to prepare your portfolio and readers for 2014?

JH: There are still stocks that are outperforming even during this bear market, as I highlighted above. You need to stick to the fundamentals and the companies with the potential to outperform the index. Focus on companies in stable jurisdictions with the ability to fund and build value in this tough financial environment.

TMR: Are there some questions that investors should ask themselves to determine how they should move forward?

JH: If you believe the dollar is strong and healthy, then you should avoid these precious metals and mining stocks. If you think that the U.S. and all the European nations can deal with these astronomical debts and will pay it down, then sell your precious metals and miners. If you believe that there is no significant chance of inflation, then get out of these sectors. But if you think the opposite and decide to stay in the sector, rotating to the higher-quality outperformers, you’ll see potentially phenomenal gains. Eventually, there will be a return of the masses and retail investors. Combine renewed accumulation with short covering and you get a parabolic potential spike.

Euphoria will end in social media and bitcoins. The equity and real estate market are extremely overbought. Yet the commodity market and the precious metals market are still providing real value to investors. You have to go against the tide. Follow the value funds and the experienced investors. Master your emotions. The time to buy is when things couldn’t look worse. The worse things appear the better they will get.

TMR: I enjoyed chatting with you.

JH: My pleasure.

Jeb Handwerger is a newsletter writer who is syndicated internationally and known throughout the financial industry for his accurate and timely analysis of the equities markets—particularly the precious metals and natural resources sectors. Subscribe to his free newsletter, Gold Stock Trades.

Want to read more Mining 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 The Mining Report.

DISCLOSURE:
1) JT Long conducted this interview for The Mining Report and provides services to The Mining Report as an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Mining Report: Comstock Mining Inc., NuLegacy Gold Corporation, International Tower Hill Mines Ltd., Pilot Gold Inc., Probe Mines Limited, Skyharbour Resources Ltd., Tasmen Metals Ltd., Royal Gold Inc. and Uranerz Energy Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Jeb Handwerger: I or my family own shares of the following companies mentioned in this interview: Corvus Gold Inc., NuLegacy Gold Corporation, Comstock Mining Inc., Paramount Gold and Silver Corp., Pilot Gold Inc., Canamex Resources Corp., Probe Mines Limited, International Tower Hill Mines Ltd., Enterprise Group Inc., Lakeland Resources Inc., Uranerz Energy Corp., Pele Mountain Resources Inc., Tasman Metals Ltd. and Ucore Rare Metals Inc. 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 as they are sponsors on my website and newsletter: Corvus Gold Inc., NuLegacy Gold Corporation, Comstock Mining Inc., Paramount Gold and Silver Corp., Canamex Resources Corp., International Tower Hill Mines Ltd., Enterprise Group Inc., Lakeland Resources Inc., Uranerz Energy Corp., Pele Mountain Resources Inc., Tasman Metals Ltd., Ucore Rare Metals Inc. 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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By MoneyMorning.com.au

The worse things get, the better they become.

We hope you’ll excuse the cryptic opening to today’s article.

And don’t worry, we haven’t gone all ‘we’re glad the stock market is falling’. Nonsense.

No one wants to see stocks fall. However, when stocks do fall, that’s when it’s up to the canny investor to make the most of things.

That’s what we’re doing right now…

When we say ‘the worse things get the better they become’, we mean that when a stock takes a beating, there’s the opportunity to buy that stock at a much cheaper price.

Of course, that doesn’t necessarily mean you should rush in right away to buy the stock. If the stock has taken a beating, it’s usually for a reason.

Most of the time that beating is justified. But sometimes it’s not justified. Not often, but sometimes.

‘Radioactive’ Stock Investing Makes a Comeback

The best example we can still think of is the 2008 and 2009 market crash. We remember it well. A whole bunch of stocks took a beating.

But it also meant that good, profitable, and well run companies took a hit along with some of the most speculative stocks on the market.

That’s why, during and immediately after the crash, we started tipping what we called ‘Main Street’ stocks. Those were what we saw as the most resilient of companies.

The kind of companies that were boring household names. Companies that made things everyone used on a daily basis…but without really appreciating that they used them.

A great example at the time was a company that made kitchen products and women’s hair accessories. The company made a profit but had just gone through a rough patch. To our mind there seemed little chance the company would go bust. So we recommended that our readers buy it.

We were spot on. The stock gained 338% over the next six months.

But it wasn’t just the relatively low risk stocks that caught our attention back then. We also saw it as a great time to speculate on the Australian market’s riskiest stocks. At the time we called those stocks ‘Radioactive’ stocks.

It wasn’t that they were necessarily involved in the uranium mining industry; it was just that for most investors these stocks were too hot to handle.

We bring this up because the past few weeks have produced a number of stocks that could qualify as ‘Radioactive’ stocks today. Only this time, they aren’t small-cap stocks. We’re talking about blue chip stocks…

Blue Chip Stock Beat-Down

As we explained yesterday, the S&P/ASX 200 is down around 5% since the October peak.

The financials index has fallen even further. It’s down around 6%. That’s a pretty poor performance for any stock or index over a six-week period.

And yet it’s nothing compared to the stocks in the following chart:

Source: Google Finance
Click to enlarge

The chart shows the three-month share price performance of Qantas [ASX: QAN], QBE Insurance [ASX: QBE], WorleyParsons [ASX: WOR], and Newcrest [ASX: NCM].

Three of them have dropped 30% in three months. One of them has fallen 45.8%. That one is Newcrest. And it’s that one which has gained the attention of Diggers and Drillers resource analyst Jason Stevenson.

But if you think that price drop looks bad, just bear in mind that barely two years ago Newcrest was a $44 stock. Today it’s just $6.99. That means it has fallen 84% from peak to what could be the trough.

Just remember, even though a stock has fallen by that much, it doesn’t mean you should buy it right away.

A Falling Market Creates Opportunity

So, is Newcrest a buy today?

We’ll put it this way. We call stocks like Newcrest ‘roulette’ stocks.

We’re not much of a casino gambler…the games bore us too quickly. But have you ever sat at the roulette table and seen the same colour come up many times in a row?

We remember that happening the last time we went to the casino in Melbourne. The scoreboard at one of the tables showed that black had come up seven times in a row. What are the odds on that? It’s bound to be red next…only it wasn’t.

As we recall, red didn’t come up on that table for another four or five spins.

In the case of roulette, gamblers have to remember that the result of each spin is independent of the result of the previous spin. Each spin has roughly a 50/50 chance (ignoring the presence of zero and double zero) of falling on either red or black.

In the case of the stock market, just because a stock has fallen 30% doesn’t mean it can’t fall 40%…or 50%…or in Newcrest’s case, maybe it could fall 90% or more from peak to trough. That’s what makes it so dangerous to buy a stock as it’s falling.

That said, it seems ridiculous to think a big stock like Newcrest could fall so much without being a buying opportunity at some point. So we’ve asked Jason to keep his eye on it for Diggers and Drillers readers.

It’s now just a matter of weighing up the investment case to pick the best time to buy.

As we said at the top of this letter, the worse things get, the better they become. Things have certainly gotten worse for Newcrest, and they could get even worse still. But that also creates opportunity. Newcrest is a stock worth watching.

Cheers,
Kris+

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By MoneyMorning.com.au

By MoneyMorning.com.au

There are numerous hot items on my radar today – below I’ll share with you my five favourites for right now.

In short, I feel that through the end of 2013 and into the beginning of 2014 we’ll have plenty of ‘investable’ opportunities in the resource sector.

In the spirit of the holiday season, let’s give thanks for the following investment opportunities…

#1. Broad Stock Markets – Be thankful. Clearly, ‘big’ market indexes are strong. The Dow Jones is up this year. The Nasdaq is up. The Standard & Poor’s is up. Big mutual funds that ride these waves are doing well. Things look good. Of course, stock markets climb the proverbial ‘wall of worry.’ In other words, people bellyache about this or that — pick your economic poison – and then they still buy shares. In 2013, you can’t argue with ‘up’.

Consider a couple of other points. The Federal Reserve is still doing that ‘quantitative easing’ (QE) thing. That’s $85 billion per month of Fed support to Wall Street and big banks. I doubt that Fed Chairman Ben Bernanke wants to exit his current job on a downbeat note. Thus, I suspect that we’ll enjoy more QE for a while, until he rides off into the sunset. So party like it’s 2013! Oh wait…it’s still 2013. Maybe start worrying about your exit strategy for 2014.

#2. Fracking – More for which to be thankful! Indeed, we are just sooo lucky to be alive right now! The fracking revolution is unlocking all but incalculable new amounts of hydrocarbon resources. Without this unexpected revolution, you’d be paying US$150 per barrel for oil while freezing in the dark.

For now, all this ‘new’ energy can wallpaper over many macro mistakes by politicians. That, and fracking is investable – the ‘trifecta’ of service companies come to mind, Schlumberger (SLB), Halliburton (HAL) and Baker Hughes (BHI). All that and more.

Speaking of fracking, allow me to get parochial about my home state of Pennsylvania (yes, that old Rust Belt jurisdiction west of New Jersey). If Pennsylvania were an independent country, it would be – right now, today – the eighth-largest gas-producing nation in the world. Why? Fracking. More than 6,200 new oil and gas wells in just the past five years. Astonishing!

Indeed, just the Marcellus Shale play of Pennsylvania already appears to be the second-largest natural gas deposit on the planet. When you throw in related plays like Utica and the Upper Devonian? This part of the world where I live is nearly off the charts with energy potential. Pennsylvania! Go figure!

#3. Gold and Silver – With stock markets up and the US in the midst of an energy boom (see above), the dollar is strong and precious metals are weak. Bummer for gold and silver, right?

Then again, be thankful. With nominal prices down, you can add to your stock of physical metal for the long haul. Yes, I mean buy physical metals. Just to be clear, don’t ‘back up the truck’ and use all of your cash. But it’s OK to nibble away and add to your position at regular intervals. Metal prices could go down some more – because the dollar is looking good as the US increases its internal energy production. But long term?

Well, speaking of long term, remember, back in President John Kennedy’s day, a quarter-dollar coin was made out of 90% silver and 10% copper and worth all of ’25 cents’. Today, that same metal coin is worth over $3.60 just for the melt value. That is, over the long term, US currency is subject to inflation and loss of purchasing power. That’s why SOME of your portfolio – 5%, 10%, 15% – ought to be in precious metals. Buy low. Hang on. Sleep well as the future unfolds.

#4. Uranium – Be thankful for uranium. Uranium? Who cares, right? Well, not very many people care just now. Which is why uranium is ‘on sale,’ so to speak, if you’re a long-term buyer. Prices are low, which means what? No new supply coming to market.

Meanwhile, our friends the Russians just shipped out the last pounds of their Cold War nuclear weapons stockpile subject to the ‘Megatons to Megawatts’ program. That is, the pipeline from Russia is now empty!

Without Russian uranium keeping a lid on pricing, I expect yellowcake prices to creep up. This price trend will benefit the likes of big miners in that space – keep an eye out.

#5. The Astonishing Future – And lastly, be thankful for really smart people who are changing the world. Heck, they’re making big parts of the world obsolete as we know it. In 10 years, you might not recognize the place. And it’s investable.

Last month I was in New York at a conference. On a Sunday, and yes, I work Sundays! — I witnessed an absolutely astonishing experiment! Astounding! Mind-bending! It was one of those ‘OMG!’ moments. Seriously. Oh! My! God! What? Was? That? How? Can? That? Happen?

What happened? I’m sorry, but I’m under a nondisclosure agreement. I can’t tell you. Except…I can say this. The experiment involves carbon. The results certainly must be based on some laws of physics. Which laws? Ummm…right now it beats the hell out of me. I’m almost ready to call up a couple of acquaintances at Harvard and ask if I could borrow lab space and investigate something that involves quantum effects on ultra-thin crystal layers.

For now, I’d say that shares in carbon technology plays are…undervalued. Companies that understand carbon technology are going to change the world. I suspect that 2014 will be a good year for carbon.

I’ll leave it at that and wish you all the best this holiday season.

Byron W. King
Contributing Editor, Money Morning

Publisher’s Note: Five Big-Picture Investing Opportunities- Fracking, Gold, Carbon And More! originally appeared in The Daily Reckoning USA

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By Moe Zulfiqar for Daily Gains Letter

As each day passes, more and more evidence builds up against the housing market in the U.S. economy. A significant amount of data is suggesting that the housing sector is cooling and will not continue to increase like it did in 2012, when institutional investors came in and bought homes in bulk, causing prices to skyrocket in some areas.

When I am looking at the housing market, I want to see home buyers. If the number of home buyers in the market increases or there are indicators that suggest it will increase, then I see no problem in thinking the housing market in the U.S. economy is going to see an uptick. But as it stands, this is not the case; home buyers are shying away from the housing market.

The first evidence we’ve seen is through mortgage application activity tracked by the Mortgage Bankers Association. For the week ended November 28, applications for home loans in the U.S. economy declined 12.8% from the previous week. They have been declining for five consecutive weeks and now sit at their lowest level since September. If buyers were rushing into the U.S. housing market, we would see these numbers soar higher, not edge lower. (Source: “U.S. mortgage applications slide for fifth straight week: MBA,” Reuters web site, December 4, 2013.)

Secondly, existing home sales in the U.S. economy are suggesting a very similar phenomenon—buyers are not present. I look at first-time home buyers to see demand and, as I have said before, they are just not excited to buy. (See “More Evidence Housing Market Is Turning Cold.”)

Last but not the least, another indication that home buyers are running away from the housing market is the homebuilder companies’ cancellation rate (the rate of home buyers canceling their purchase contracts compared to overall sales). Consider Lennar Corporation (NYSE/LEN), a company involved in residential construction. In the third quarter of this year, the company’s cancellation rate was 18%; in the second quarter, this rate was 14%. (Source: “Lennar Reports Third Quarter EPS of $0.54,” Corporate-IR.net, September 24, 2013.)

Just like in the stock market, there’s too much optimism hovering around the housing market. When I look at the number of home buyers, I get worried and continue to believe that the U.S. housing market will slow and not see growth like that of last year. Please note that I am not saying that we are going to see an outright collapse in the housing market; I just see a slowdown and possibly a few months of declining prices.

If the housing market derails, those who are closest to it will be the ones facing scrutiny. One example would be the homebuilder stocks and their share prices. Without home buyers rushing to the housing market, homebuilder will have troubles selling their projects, and this may lead these companies to either lower their prices or just outright cancel their projects—both result in lower profits.

However, investors may be able to profit from this by shorting exchange-traded funds (ETFs) like the SPDR S&P Homebuilders ETF (NYSEArca/XHB).

By Louis James, Chief Metals & Mining Investment Strategist, Casey Research

In April of 2008, Casey International Speculator published an article called “Gold—Relative Performance to Oil” by Professor Krassimir Petrov, then at the American University in Bulgaria, now a visiting professor at Prince of Songkla University in Thailand. He told us he thought the Mania Phase of the gold market was many years off, which was not a popular thing to say at the time:

“In about 8-10 years from now, we should expect the commodity bull market to reach a mania of historic proportions.

“It is important to emphasize that the above projection is entirely mine. I base it on my own studies of historical episodes of manias, bubbles, and more generally of cyclical analysis. In fact, it contradicts many world-renowned scholars in the field. For example, the highly regarded Frank Veneroso and Robert Prechter widely publicized their beliefs that during 2007 there was a commodity bubble; both of them called the collapse in commodity prices in mid-March of 2008 to be the bursting of the bubble. I strongly disagree with them.

“I also disagree with many highly sophisticated gold investors and with our own Doug Casey that the Mania stage, if there is one, will be in 2-3 years, and possibly even sooner… Although I disagree that we will see a mania in a couple years, I expect healthy returns for gold.”

It turned out that Dr. Petrov was right. Five and a half years later, here’s his current take on gold and the metal’s ongoing correction…

Louis James: So Krassimir, it’s been a long and interesting five years since we last spoke… Gold bugs didn’t like your answer then, but so far it seems that you were right. So what’s your take on gold today?

Krassimir Petrov: Well, most gold bugs won’t like my answer again, because I think we are still between six to ten years away from the peak of the gold bull. We are exactly in the middle of this secular bull market, and a secular bull market is usually punctuated or separated by a major cyclical bear market. I think that the ongoing 24-month correction is that typical big major cyclical correction—a cyclical bear market within the context of the secular bull market.

Thinking in terms of behavioral analysis, most investors are very, very bearish on gold. People who are not gold bugs overall still dismiss gold as a good or even as a legitimate investment. That, too, is typical of a mid-cycle. So as far as I’m concerned, we are somewhere in the middle of the cycle, which may easily go for another 10 years.

I expect that this secular bull market for gold will last a total of 20 to 25 years, dating back to its beginning in 2000. Some people like to date the beginning of this secular bull market at the cyclical bottom in 1999, while others date it at the cyclical bottom in 2001. I prefer to date it at 2000, so that the secular bottom for gold coincides with the secular top of the stock market in 2000.

L: That’s interesting. But I’m not sure gold bugs would find this to be bad news. The thing they’re afraid to hear is that the market has peaked already—that the $1,900 nominal price peak in 2011 was the top, and that it’s downhill for the next two decades. To hear you say that there is a basis in more than one type of analysis for arguing that we’re still in the middle of the bull cycle—and that it should go upwards over the next 10 years—that’s actually quite welcome.

Petrov: Yes, it’s great news. But we’re still not going to get to the Mania Phase for at least another two, but more likely four to six years from now.

Now, we should clarify what we mean by the Mania Phase. Last time, it was the 1979 to early 1980 period. It’s the last phase of the cycle when the price goes parabolic. Past cycles show that the Mania Phase is typically 10% or 15% of the total cycle. So it’s important to pick the proper dates for defining a gold bull market. I prefer to date the previous one from 1966 as the beginning of the market, to January of 1980 as the top of the cycle. That means that the previous bull market lasted 14 years, and it’s fair to say that the Mania Phase lasted about 18 months, or just under 15% of the cycle.

So I expect the Mania Phase for the current bull cycle to last about two to three years, and it’s many years yet until we reach it.

In terms of market psychology, we still have many people who believe in real estate; we still have many people buying and believing in the safety of bonds; we still have many people who believe in stocks. All of these people still outright dismiss gold as a legitimate investment. So, to get to the Mania Phase, we need all of these people to convert to gold bull market thinking, and that’s going to be six to eight years from now. No sooner.

L: Hm. Your analysis is a combination of what we might call the fundamentals and the technicals. Looking at the market today—

Petrov: Let’s clarify. When I say fundamental analysis, I mean strictly relevant valuation ratios. For example, according to the valuation of gold relative to the stock market, i.e., the Dow/gold ratio, gold is extremely undervalued, easily by about 10 times, relative to the stock market.

Fundamental analysis can also mean the relative price of gold to real estate—the number of ounces necessary to buy a house. Looked at this way, gold is still roughly about 10 times undervalued.

Thus, fundamental analysis refers to the valuation of gold relative to the other asset classes (stocks, bonds, real estate, and currencies), and each of these analyses suggests that gold is undervalued about 10 times.

In terms of portfolio analysis, gold today is probably about one percent of an average investor’s portfolio.

L: Right; it’s underrepresented. But before we go there, while we are defining things, can you define how you look at these time periods? Most people would say that the last great bull market of the 1970s began in 1971, when Richard Nixon closed the gold window, not back in 1966, when the price of gold was fixed. Can you explain that to us, please?

Petrov: Well, first of all, we had the London Gold Pool, established in 1961 to maintain the price of gold stable at $35. But just because the price was fixed legally and maintained by the pool at $35 doesn’t mean that there was no underlying bull market. The mere fact that the London Gold Pool was manipulating gold in the late 1960s, before the pool collapsed in 1968, should tell us for sure that we already had an incipient, ongoing secular bull market.

The other argument is that while the London Gold Pool price was fixed at $35, there were freely traded markets in gold outside the participating countries, and the market price at that moment was steadily rising. So, around 1968 we had a two-tiered gold market: the fixed government price at $35 and the free-market price—and these two prices were diverging, with the free price moving steadily higher and higher.

L: Do you have data on that? I never thought about it, but surely the gold souks and other markets must have been going nuts before Nixon took the dollar completely off the gold standard.

Petrov: Yes. There have been and still are many gold markets in the Arab world, and there have been many gold markets in Europe, including Switzerland. Free-market prices were ranging significantly higher than the fixed price: up to 10, 20, or 30% premiums.

There’s also a completely different way to think about it: in order to time gold secular bull and bear markets properly, it would make the most sense that they would be the inverse of stock market secular bull and bear markets. Thus, a secular bottom for gold should coincide with the secular top for stocks. And based on the work of many stock market analysts, it is generally accepted that the secular bear market in stocks began in 1966 and ended in 1980 to 1982. This again suggests to me that it would make a lot of sense to use 1966 for dating the beginning of the gold bull market.

L: Understood. On this subject of dating markets, what is it that makes you think this one’s going to be a 25-year cycle? That’s substantially longer than the last one. We have a different world today, sure, but can you explain why you think this cycle will be that long?

Petrov: Well, based on all the types of analyses I use—cyclical analysis, behavioral analysis, portfolio analysis, fundamental analysis, and technical analysis—this bull market is developing a lot slower, so it will take a lot longer.

The correction from 1973 to 1975 was the major cyclical correction of the last gold bull cycle, from roughly $200 down to roughly $100. Back then, it took from 1966 to 1973—about six to seven  years—for the correction to begin. This time, it took roughly 11 years to begin, so I think the length of this cycle could be anywhere between 50 and 60% longer than the last one.

Let’s clarify this, because it’s very important for gold bulls who are suffering through the pain of correction now. If we are facing a 50-60% extended time frame of this cycle and the major correction in the previous bull market was roughly two years, we could easily have the ongoing correction last 30 to 35 months. Given the starting point in 2011, the correction could last another six, eight, or ten more months before we hit rock bottom.

L: Another six to ten months before this correction hits bottom is definitely not what gold investors want to hear.

Petrov: I’m not saying that I expect it, but another six to ten months should not surprise us at all. A lot of people jumped on the gold bull market in 2008, 2009, 2010, 2011, and these people haven’t given up yet. Behaviorally, we expect that these latecomers—maybe 80-90% of them—should and would give up on gold and sell before the new cyclical bull resumes.

L: Whoa—now that would be a bloodbath. Can we go back to your version of fundamental analysis for a moment and compare gold to other metrics? You mentioned that gold is still relatively undervalued in terms of houses and stocks and some things, but I’ve heard from other analysts that it’s relatively high compared to other things—loaves of bread, oil, and more.

Petrov: Let’s take oil, for example. We have a very stable long-term ratio between oil and silver, and that ratio is roughly one to one. For a long time, silver was about $1.20, and oil was roughly $1.20. At the peak in 1980, silver was about $45, and oil was about $45. Right now, silver is four to five times undervalued compared to oil, so in terms of oil, I would disagree for silver. The long-term ratio of gold to oil is about 15 to 20, depending on the time frame, so gold may not be cheap, but it’s not overvalued relative to oil either.

But suppose gold were overvalued relative to other commodities—which I doubt, but even if we suppose that it’s correct, it simply doesn’t mean that gold is generally overvalued. The other commodities could be even more—meaning 10, 15, 20 times—undervalued relative to the stock market, or real estate, or bonds. There is no contradiction. In fundamental analysis, it is illegitimate to compare gold, which is largely viewed as a commodity, to other commodities. We should compare it as one asset class against other asset classes.

For example, we could compare gold relative to real estate. By this measure, it is easily five to ten times undervalued. Separately, we could evaluate it relative to stocks. When you compare gold to stocks in terms of the Dow/gold ratio, it’s easily five to ten times undervalued. Separately again, we could evaluate it relative to bonds, but the valuation is much more complicated, because we need to impute a proper inflation-adjusted long-term yield, so it’s better not to get into this now. And finally, we could evaluate it separately against currencies. More on that later.

Now, I believe that when this cycle is over, we are going to reach a Dow/gold ratio far lower than in previous cycles, which have ended with a Dow/gold ratio of about 2:1 (two ounces of gold for one unit of Dow). This time, we are going to end up with a ratio of 1:2—one ounce of gold is going to buy two units of Dow. So, if the ratio right now is about 8:1, I think gold could go up 16 times relative to the stock market today.

L: That’s quite a statement. Government intervention today is so extreme and stocks in general seem so overvalued, I can believe the Dow/gold ratio could reach a new extreme—but I have to follow up on such an aggressive statement. What do you base that on? Why do you think it will go to 1:2 instead of 2:1?

Petrov: If I remember correctly, we had a 2:1 ratio during the first bottom in 1932; the Dow Jones bottomed out at $42 and gold was roughly about $20 before Roosevelt devalued the dollar. That was also the beginning of the so-called “paper world,” when we embarked on the current paper cycle.

The next cycle bottomed in 1980; gold was roughly 850 and the stock market was roughly 850, yielding a ratio of 1:1. Now, if we look at it in terms of the “paper” supercycle, beginning in the early 20th century and extending to the early 21st century, you can draw a technical line of support levels for the Dow/gold ratio. If you do this, you end up with Dow/gold bottoming at 2:1 (in 1932), then at 1:1 (in 1980), and you can project the next one to bottom at 1:2.

Another way to think about it is that we are currently in a so-called supercycle—whether it’s a gold supercycle or a commodity supercycle—and this supercycle should last 50 to 70% longer than the previous one. It will overcorrect for the whole period of paper money over the last 80 years.

From a behavioral perspective, I could easily see people overreacting; we could easily see that at the peak we’re going to have a major panic with overshooting. I expect the overshooting to be roughly proportional to the length of the whole corrective process.

In other words, if this cycle is extended in time frame, we would expect the overshooting of the Mania Phase to be significantly larger. It should be no surprise, then, if we get a ratio of 1:1.5 or 1:2, with gold valued more than the Dow.

L: That’s a scary world you’re describing, but the argument makes sense. How many cycles do you have to base your cyclical analysis on, to be able to say that the average Mania Phase is 15% of the cycle?

Petrov: Well, gold is the most complicated investment asset. It is half commodity, and it behaves as a commodity, but it’s also half currency. It’s the only asset that belongs in two asset classes, properly considered to be a financial asset (money) and at the same time a real asset (commodity). So, even though gold prices were fixed in the 20th century, you can get proper cycles for commodities over the time period and include gold in them. If you look into commodity cycles historically, there are four to five longer (AKA Kondratieff) commodity cycles you can use to infer what the behavior for gold as a commodity might be.

L: So would it be fair, then, to characterize your projections as saying, “As long as gold is treated by investors as a commodity, then these are the time frames and the projections we can make”?

Petrov: Right.

L: But if at some point the world really goes off the deep end and the money aspect of gold comes to the forefront—if people completely lose confidence in the US dollar, for example—at that point, the fact that gold is a commodity would not be the main driver. The monetary aspect of gold would take over?

Petrov: No, not exactly, because you will still have a commodity cycle. You will still have oil moving up. Rice will still be moving up, as will wheat, all the other commodities pushing higher and higher, and they will pull gold.

Yet another important tangent here is that in commodity bull markets, gold is usually lagging in the early stages. In the late stages of a commodity bull market, as gold becomes perceived to be an inflation hedge, it begins to accelerate relative to other commodities. This is yet another very good indicator that tells me that we are still in the middle of a secular bull market in gold. In other words, because gold is not yet rapidly outstripping other commodities like wheat, or copper, or crude oil, we’re not yet in the late stages of the gold bull market.

L: That’s very interesting. But if I remember the gold chart over the last great bull market correctly, just before the 1973-1976 correction, there was quite an acceleration, such as you’re describing—and we had one like it in 2011. Gold shot up $300 in the weeks before the $1,900 peak.

Petrov: Absolutely correct. This acceleration before the correction is exactly what tells me that the correction we’re in now is a major cyclical correction, just like in the mid-1970s. The faster the preceding acceleration, the longer the ensuing correction. This relationship is what tells me that this correction will be very long and painful. Yet another indicator. Everything fits in perfectly. All of these indicators confirm each other.

L: Could you imagine something from the political world changing or accelerating this cycle? If the politicians in Washington are stupid enough to profoundly shake the faith in the US dollar that foreigners have, could that not change the cycle?

Petrov: Yes, that’s a possibility. This is exactly what a gray swan is; a gray swan is an event that is not very likely, that is difficult to predict, but is nonetheless possible to predict and expect. One example of a gray swan would be a nuclear war. It’s possible. Another could be a major currency war, à la Jim Rickards. There are a number of gray swans that could come at any time, any place, accelerating the cycle. It’s perfectly possible, but not likely.

Now, going back to your question about monetizing or remonetizing gold—the monetary aspect of gold taking over that you mentioned. The remonetization of gold wouldn’t short-circuit the commodity cycle; the commodity cycle would continue. Actually, you’d expect the remonetization of gold to go hand in hand with a commodity bull market.

You also need to understand that the remonetization of gold would not be a single event, not a point in time. Remonetization of gold is a process that could easily last five to ten years. No one is going to declare gold to be the monetary currency of the world tomorrow.

What will happen is that countries like China will accumulate gold over time. Over time, gold will be revalued significantly higher, and there will be global arrangements. The yuan will become a global currency, used in international transactions. Many institutional arrangements need to be in place around the world, including storage, payments, settlements, and some rebalancing between central banks, as some central banks have way too little monetary gold at the moment.

L: I agree, and see some of those things happening already. But I don’t expect any government to lead the way to a new gold standard. I simply expect more and more people to start using gold as money, until what governments are left bow to the reality. I believe the market will choose whatever works best for money.

Petrov: Indeed, and that’s a process that will take many years. Getting back to gold in a portfolio context, relative to currencies, gold is extremely cheap. Historically, gold will constitute about 10-15% of the global investment portfolio relative to the sum of real estate, stocks, bonds, and currencies. Estimates suggest that right now gold is valued at roughly about one percent of the global investment portfolio.

L: That implies… an enormous price for gold if it reverts to the mean. Mine production is such a tiny amount of supply; the only way for what you say to come true is for gold to go to something on the order of $20,000 an ounce.

Petrov: Correct. $15,000 to $20,000. That’s exactly what I’m saying.

In a portfolio context, gold is undervalued easily 10 to 15 times. On a fundamental basis, gold is undervalued relative to stocks 10 to 15 times, and relative to real estate about 10 times. When we use the different types of analyses, each one of them separately and independently tells us that we still have a lot longer to go: about six to 10 more years; maybe even 12 years. And we still have a lot higher to rise; maybe 10-15 times.

Not relative to oil, nor wheat, but gold can easily rise 10 to 15 times in fiat-dollar terms. It can rise 10 times in, let’s say, stock market terms. And yes, it can go 10 to 15 times relative to long-term bonds. (We have to differentiate short-term bonds and long-term bonds, as bond yields rise to 10 or 15 percent.)

So, portfolio analysis and fundamental analysis tell me that we still have a long way to go, and cyclical analysis tells me we are roughly mid-cycle. It tells me that from the beginning of the cycle (2000) to the correction (2011) we were up almost eight times, from the bottom of the current correction (2013-2014) to the peak in another six to ten years, we are still going to rise another 10 times.

Whether it’s eight years or 12, it’s impossible to predict; whether it’s eight times or 12, again, impossible to predict; but the order of magnitude will be around 10 times current levels.

L: You’ve touched on technical analysis: do you rely on it much?

Petrov: Well, yes, but in this particular case, technical subsumes or incorporates a great deal of cyclical analysis. It’s very difficult to use technical analysis for secular cycles. We usually use technical analysis for daily (short-term) cycles, or weekly (intermediate) cycles, or monthly (long-term) cycles. We use them as described in the classic book Technical Analysis of Stock Market Trends by Edwards, Magee, and Bassetti.

If we apply technical analysis to our current correction, it doesn’t appear to be quite over yet. It could still run another three to six months, possibly nine months. But when we talk about the secular cycle, we need to switch from technical to long-term cyclical analysis.

L: Okay. Let’s change topic to the flip side of this. Can you summarize your view of the global economy now? Do you believe that the efforts of the governments of the world to reflate the economy are succeeding? Or how does the big picture look to you?

Petrov: The big picture is an austere picture. Reflation will always succeed until it eventually fails. The way I see it, the US is going down, down, and down from here—the US is a very easy forecast. The UK is also going down, down, and down from here—another easy forecast. The European Union is going to be going mostly down. However, most of Asia is in bubble mode. Australia is in a major bubble that’s in the process of bursting or is about to do so; it’s going to go through a major depression. China is a huge bubble, so China will get its own Great Depression, which could last five to ten years. This five- to ten-year China bust would fit within my overall 10-year forecast for the remainder of the secular bull market in gold.

I see a lot of very inflated and overheating Asian economies. I was in Hong Kong in January, and the Hong Kong economy is booming to the point of overheating. It’s crazy. I was in Singapore just three months ago, and the Singapore economy is clearly overheating. Last year I was teaching in Macao for a few months, and the economy is overheating there as well—real estate is crazy; rents are obscene; five-star hotels are full and casinos crowded.

Right now I’m teaching in Thailand. It’s easy here to see that people are still crazy about real estate—everyone’s talking about real estate; we still have a peaking real estate bubble here. Consumption is going crazy in the whole society, and most things are bought on installment credit.

Another easy forecast is Japan; it too will be going down, down, and down from here. Japan has nowhere to go but down. It’s been reflating and reflating, and it hasn’t done them any good. Add all this up and what I actually see is a repeat of the 1997 Asian Crisis, involving most Asian countries.

L: So your overall view is that reflation works until it doesn’t, and you believe that on the global scale we’re at the point where it won’t work anymore?

Petrov: Not exactly. We’re at the point where reflation doesn’t work anymore for the US, no matter how hard it tries. It doesn’t work for the UK; not for most of Europe; not for Japan—no matter how hard they try. But reflation is still working in China. Reflation is still working for most of Asia and Australia. As I see it, Asia is overheating significantly, based on that global reflation.

Even the Philippines was overheating when I was there two years ago. Malaysia is overheating big time—consumerism at its finest—and I’m hearing stories about Indonesia overheating until recently as well. Maybe we have the first sounds of that bubble bursting in countries like India, Malaysia, and Indonesia. The Indian currency is weakening significantly; so is the Malaysian currency. If I remember correctly, the Indonesian currency is weakening significantly, and I know well that their money market rates are skyrocketing in the last few months.

So we may have now the beginning of the next Asian Financial Crisis. Asia is still going to be able to reflate a little longer, another year or two, maybe three. It’s very hard to say how long a bubble will last as it is inflating. The same thing for Australia; it will continue to reflate for a few more years. So for Asia and Australia, we are not yet at the point when reflation will no longer work. Very difficult to say when that will change, but we’re there for the US, UK, Europe, and Japan.

L: Why won’t reflation work for the US and its pals?

Petrov: Reflation doesn’t work because of the enormous accumulated economic distortions of the real sector and the labor market. All the dislocations, all the malinvestments have accumulated to the point where reflation has diminishing returns.

Like everything else, inflation and reflation have diminishing returns. The US now needs maybe three, four, or five trillion annually to reflate, in order to work. With each round, the need rises exponentially. The US is on the steep end of this exponential curve, so the amount needed to reflate the economy is probably way more than the tolerance of anyone around the world—confidence in the US dollar won’t take it. The US is at the point where it is just not going to work.

L: I understand; if they’re running trillion-dollar deficits now and the economy is still sluggish, what would they have to do to get it hopping again, and is that even possible?

Petrov: Correct. The Fed has tripled its balance sheet in a matter of three to four years—and it still doesn’t work. So what can they do? Increase it 10 times? Or 20 times? Maybe if they increased it 10 or 20 times, they could breathe another one or two or three years of extra life into the economy. But increasing the Fed’s balance sheet 10 or 20 times would be an extraordinarily risky enterprise. I don’t think that they will dare accelerate that much that fast!

L: If they did, it would trash the dollar and boost gold and other commodities.

Petrov: Yes, that’s clear—the bond and the currency markets would surely revolt. That’s a straight shot there. The detailed ramifications for commodities, if they decide to go exponential from here, are a huge subject for another day. For now, we can say that they have been going exponential over the last three to four years, and it hasn’t worked.

Also, we know well from the hyperinflation of the Weimar Republic that they went exponential early on, and it stopped working in 1921. For two more years, they went insanely exponential, and it still didn’t work. I think the US is at or near the equivalent of 1921 for Weimar.

L: An alarming thought. So what happens when Europeans can no longer afford to pay the Russians for gas to heat their homes? Large chunks of Europe might soon need to learn Russian.

Petrov: Not necessarily, but Europe is going to become Russia’s best friend and geopolitical ally. The six countries in the Shanghai Co-op are already close allies of Russia. So is Iran. So Russia has seven or eight very strong, close allies. European countries will, one by one, be joining Russia. Think about it from the point of view of Germany: why should Germans be geopolitical allies of the US or the UK? Historically, it doesn’t make any sense. It makes a lot more sense for them to join the Russians and the Chinese and to let the Americans and British collapse. So that’s what I expect, and Russia will use all its energy to dictate geopolitics to them.

L: Food for thought. Anything else on your mind that you think investors should be thinking about?

Petrov: Well, it’s fairly straightforward. First, I do expect that the stock market is going to lose significant value over the next five to ten years. Second, I believe that real estate is still grossly overvalued; as interest rates eventually rise, real estate will fall hard—overall, it will not hold value well. Third, I also believe that bonds are extremely overvalued and that yields are extremely low. I expect interest rates to begin to rise and bond prices to fall, so I strongly discourage investors from staying in bonds. Finally, I expect that governments will continue to inflate, even though it doesn’t work, and that currencies will devalue.

I strongly encourage investors to stay out of all four of these asset classes. Investors should be staying well diversified in commodities. They shouldn’t ignore food—agriculture. They shouldn’t ignore energy. But their portfolios should be dominated by precious metals.

L: That’s what Doug Casey says, and that the reason to own gold is for prudence. To speculate for profit, we want the leverage only the mining stocks can give us.

Thank you very much, Krassimir; it’s been a very interesting conversation. We shouldn’t let this go another seven years before we talk again.

Petrov: [Laughs] Okay. Hopefully a lot sooner.

Hopefully you’ll be prepared when the gold bull market reaches the Mania Phase… and hopefully you are taking advantage of the low gold price to stack up on your “hard money” safety net. Find out the best ways to invest in gold, when to buy, and what to watch for—in Casey’s 2014 Gold Investor’s Guide. Click here to get your free special report now.

By CentralBankNews.info
    Botswana’s central bank cut its bank rate by 50 basis points to 7.50 percent, saying inflation is set to remain within the bank’s target range and “the current state of the economy, in which unemployment remains high alongside below-trend economic activity, suggests scope for monetary policy easing to stimulate stronger output growth.”
    The Bank of Botswana has now cut rates four times this year for a total reduction of 200 basis points in sync with a decline in inflation since a 2013-high of 7.6 percent in March.
    In October inflation dropped to 4.8 percent from September’s 5.0 percent and within the bank’s target of 3-6 percent.
    “Weak domestic demand and the forecast benign external price developments contribute to the positive inflation outlook in the medium term, with the likelihood of a further fall in inflation in the short term,” the central bank said.
    The bank cautioned, however, that this outlook could be negatively affected by large increases in administered prices and government levies, along with higher-than-forecast international food prices.
    Botswana’s Gross Domestic Product expanded by an annual 7.9 percent in the second quarter, up from 3.3 percent in the first quarter but the bank said non-mining GDP is expected to remain below potential in the medium term and generate minimal inflationary pressures.
    The central bank said it expects commercial banks to adjust their own interest rates to reflect its rate cut and in order “to protect the interest of depositors, banks are required to offer and publish a 91-day deposit or equivalent deposit product which pays and interest rate that is at least 350 basis points (3.5 percentage points) below the prevailing bank rate.”
    At the current bank rate of 7.5 percent, this 91-day deposit rate should be a minimum of 4 percent, with higher interest rates for longer deposits, the bank said.

    www.CentralBankNews.info

By George Leong, B.Comm. for Profit Confidential

The objective of Black Friday shopping for consumers this year was simple: find the best discounts in the retail sector. And while discounts seem to be everywhere, consumers are more focused on saving a dollar. There will surely be some sad retailers in the retail sector this holiday shopping season.

The retail sector will likely face some hard times that could get worse as we move through the final two weeks of the key shopping season prior to Christmas.

While the likes of Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), and Kohls Corporation (NYSE/KSS) struggled to attract shoppers, discounter Dollar General Corporation (NYSE/DG) reported a strong fiscal third quarter that supports why I favor the discounters in the retail sector. (Read “What the Changing of the Guard at Wal-Mart Means for the Stock.”)

Discount retailers like Dollar General will likely continue to perform well and attract customers, since the economy continues to appear fragile, especially in the jobs market. And even as the economic renewal picks up, I still sense the discount retail sector will continue to fare well.

In the case of Dollar General, the fiscal third quarter (ended November 1, 2013) showed net sales jumping 10.3% year-over-year to $4.38 billion, up from $3.96 billion in the year-earlier fiscal third quarter. The key same-store sales metric jumped 4.4% year-over-year.

The company reported adjusted earnings of $231 million, or $0.72 per diluted share, in the third quarter, up 10% from $210 million, or $0.63 per diluted share, in the comparative quarter.

And while Dollar General is up 21.4% over the past 52 weeks as of December 5, the company has been consistently buying back its shares, which I view as a positive insider signal. The company has bought back 27.1 million shares since December 2011, and it just announced another $1.0 billion in share buybacks.

At its current valuation of 15.7 times (X) its fiscal 2015 earnings per share (EPS) and a price-to-earnings growth (PEG) ratio of 1.14, the stock still has some upside left. Dollar General’s current 52-week high is $60.25.

The chart of Dollar General below shows a nice run-up since September 2012, in which the stock has doubled in price and appears to be heading higher if it can break out of its current sideways channel near $60.00.

Chart courtesy of www.StockCharts.com

In addition to Dollar General in the discount retail sector, other discounters that I like include Dollar Tree, Inc. (NASDAQ/DLTR) and Family Dollar Stores, Inc. (NYSE/FDO), which is the smallest of these three discounters in the retail sector.

This article The Stock That Will Perform the Best as Consumer Spending Pulls Back is originally published at Profitconfidential

By Michael Lombardi, MBA for Profit Confidential

Finally some good news in the U.S. jobs market?

The Bureau of Labor Statistics (BLS) reported Friday that, in November, 203,000 jobs were added to the U.S. jobs market. As a result, the unemployment rate went down to 7.0% from 7.3% in October. In addition to this, the BLS also revised the job numbers from October and September, saying 20,000 more jobs were created than previously reported. (Source: Bureau of Labor Statistics, December 6, 2013.)

Yes, the jobs market report for November is a step in the right direction. And, while I’m certain the politicians and the mainstream will have a field day with this news, the underlying statistics in the jobs market are not improving.

The underemployment rate, which includes people who have given up looking for work and those who have part-time jobs that want full-time jobs, still sits at 13.2%.

In addition, the number of long-term unemployed, those who are out of work for more than six months, made up 37.3% of all unemployed in November! There are 4.4 million long-term unemployed people in the U.S. and the longer they stay out of work, the harder it will be for them to get back into the market.

Finally, the majority of jobs created in the U.S. economy continue to be created in the low-wage-paying sectors.

The bottom line here is that the “official” unemployment numbers do not reflect what’s really going on in the jobs market. But the official rate is going in the right direction…and moving close to the point (6.5% unemployment) where the Federal Reserve said it would start pulling back on its money printing program.

As we all know, the stock market is terrified of the Fed pulling back on money printing. So an improving official unemployment rate has now become a bad thing for the stock market. A scary thought.

Michael’s Personal Notes:

On the surface, the recent U.S. GDP numbers looked great. I hear the U.S. economy grew at a revised annual pace of 3.6% in the third quarter of 2013—its fastest GDP growth rate since at least the financial crisis. (Source: Bureau of Economic Analysis, December 5, 2013.)

But when I look closer at the numbers released by the government, I discover the U.S. economy didn’t grow due to consumer spending, the most important factor of economic growth, but rather due to a lack of consumer spending!

Let me explain…

In the third quarter, real personal consumption expenditure (a measure of consumer spending) increased by only 1.4%. That’s down 30% from the second quarter!

So how did GDP rise so much in the third quarter while consumer spending pulled back?

U.S. GDP increased in the third quarter because businesses stockpiled more of their goods. In the third quarter, private inventories increased by $116.5 billion; in the second quarter, they increased by $56.6 billion; and, in the first quarter, they increased by $42.2 billion.

The way GDP is calculated, an increase in business inventories pushes up GDP growth! Now the kicker: almost 50% of the increase in U.S. GDP in the third quarter came from an increase in business inventories!

This worries me a lot.

Rapidly increasing business inventories is a major sign that consumer spending isn’t growing. Those who say there’s economic growth in the U.S. economy have to be very careful in their conclusion. Consumer spending is the backbone of U.S. economy. If it declines, we will have economic suffering across the board.

As some point, businesses will have to stop stockpiling the goods they produce and start laying off staff if those inventories are not taken down; they can’t just go on creating more and more inventory if that inventory isn’t moving.

The statistics I see and interpret tell me that consumer spending in the U.S. economy is in trouble. Obviously, this is not good for corporate earnings. But have no fear, dear reader. The stock market is continuing to rise, the “official” government statistics show that the unemployment picture is improving, and the U.S. GDP is improving. Now, if I could only believe those statistics…

This article Why Last Month’s Employment Numbers Should Worry Investors is originally publish at Profitconfidential

Guest Post By John Mauldin – See Original Article: Outside the Box: Cool Tech for Your Workouts

I know that what you’ll encounter in today’s Outside the Box is not macroeconomics. But we all have to live in the real world, and our health is as real as it gets. So this is just one guy telling his friends about something he found that has helped make his world a lot better.

My friend and colleague Pat Cox is always finding something new and different. When Pat first introduced me to this idea, I thought he was being a little over the top. But I happened to be in Palo Alto the following week and met with the scientists Pat mentioned and saw their results. Then I got a beta unit and used it for the first time on my last birthday last year.

I am in reasonable shape for my 64 years. I can do 50 pushups relatively easily and then go on to other parts of the gym, but I could never get past 40 for the second set and then even less if I attempted a third set. I would hit maybe 8 machines and exercises as part of one full upper-body set. The first time I used the AVAcore device you’re going to read about, I did three sets of everything, including 3×50 pushups over about 75 minutes, then went home and told the kids – who expressed a certain amount of skepticism. I immediately dropped and did another 39. All in less than two hours. It was a good birthday.

And I was not sore the next day, which was even stranger. But let Pat explain the science. It all makes sense. I have talked with and seen interviews with lots of real athletes who swear by this. This is for real, but as Pat emphasizes, it is not Miracle-Grow. It will do nothing for you if you don’t work out, and baby workouts won’t cut it, either. But if you train seriously – and you should –this is the coolest thing ever (pardon the pun). It will increase your stamina and workout effectiveness.

This is really the first time the device has been offered to a general public audience. And yes, in one year it will be a different and better model and likely cost less. That’s the way of the world. So you can keep your current workout if you like, or you can do much better workouts, starting today. And you’ll amaze your friends. This is a rather cool thing to take to the gym.

Your keeping cool and pounding reps analyst,

John Mauldin, Editor
Outside the Box [email protected]

Cool Tech for Your Workouts

By Patrick Cox

Two Stanford University biologists have discovered a way to dramatically increase the benefits of exercise. I’ve used this technology for the last year and, like many other early users, have seen remarkable improvements in strength, endurance, and muscle mass. In fact, my results are better than they were thirty years ago when I was in my thirties.

I understand, by the way, that this sounds like the claims made in spam e-mails. Fortunately, you don’t have to take my word for it. Multiple third-party studies from important academic institutions have verified that the device, about the size of a coffee maker, delivers benefits that are superior to those associated with moderate doses of anabolic steroids – with none of the negative side effects.

Moreover, use of this biotechnology is spreading rapidly through the world of professional athletics. Though these organizations are not quick to publicize competitive advantages, we know that the San Francisco 49ers, the Seattle Seahawks, and some US Olympic training facilities use it. Internationally, at least one major soccer team is employing the device, but they haven’t said so publicly. The same is true in professional MMA and basketball.

If I have to convince you that exercise should be a priority in your life, you’re probably not the person I want to talk to. Nevertheless, I’ll point out that research has shown that cardiovascular and strength training can increase your life expectancy by preventing or reversing many serious health risks. These include arthritis, osteoporosis, obesity, loss of muscle mass (sarcopenia), age-related loss of function, diabetes, and cardiovascular and other chronic diseases. Exercise improves sleep, mood, metabolism, appearance, and creativity. Investors who do not recognize the economic value of their own health and longevity are not truly serious investors.

I understand, however, that it can be hard to find time for fitness. It can also be frustrating when results are slow in coming and the aftermath of exercise includes joint pain and muscle soreness. This is particularly true for those of us who are older, and the older you are the more true it becomes.

Until I started using the device a year ago, I felt I was only slowing my descent into age-related frailty. It was a fight I took seriously, but slow failure is not fun. Since integrating this technology into my workouts, however, I’ve put on serious muscle mass while increasing flexibility, strength, and endurance.

You’re not going to see me on stage in a bikini bottom any time soon, but now I’m having serious fun and feeling better than I have in many, many years. I look forward to every workout and start planning the next one as soon I’ve finished the last. In the interest of full disclosure, I’m also engaged in a program of nutritional supplementation that includes clinically validated but little-known products. I don’t have the space to get into that area today, however.

So, please allow me to give you the big scientific picture so you understand how this device radically improves the results of exercise. I should emphasize that I’m not speaking for the inventors of this technology. Some of what I say about cellular processes probably falls into the realm of speculation, but it is my best attempt to explain why this technology is so important and why it works as well as it does.

Cool Science

The story begins with two esteemed Stanford biologists, Drs. Craig Heller and Dennis Grahn, the world’s leading authorities in the field of mammalian thermoregulation. Thermoregulation, the ability to moderate body temperature, is the key to steroid-like exercise gains, as I’ll explain shortly.

Grahn and Heller are not minor actors in the area of biological research. Grahn is a senior research scientist in the Biological Sciences Department at Stanford University who has authored numerous important papers. Heller is past chairman of the Biological Sciences Department at Stanford and former chairman of the Defense Advanced Research Projects Agency (DARPA). He has coauthored a leading biology text and numerous research papers. I could go on, but I need to get to thermoregulation.

Heller and Grahn have studied hibernating mammals for decades, puzzling out the means by which animals maintain core body temperatures in both freezing cold and intense heat. Using modern electronics, including remote sensors and infrared photography, they solved a medical mystery that goes back to the time when researchers began dissecting corpses in ancient Egypt and Greece.

Specifically, I’m referring to the masses of densely packed veins found in the palms of your hands as well as the soles of your feet and cheeks. These veins are capable of expanding many times to carry large quantities of blood.

These are the retia venosa, and they present an evolutionary puzzle. Why, after all, would we have veins that bleed so profusely, if cut, near the surface of the skin, located where we are most likely to be injured? Ask any chef who has sliced a palm on a mandoline or a swimmer who has lacerated the arch of the foot on a sharp seashell.

Heller and Grahn solved the puzzle by observing bears and other well-insulated hibernating animals. Infrared photography of bears, who are covered in layers of fat and thick fur, revealed heat being vented from the pads in their paws as well as their noses. Humans are not furred animals, but we share the same characteristic of heat dissipation through our extremities.

Further research revealed that all mammals, including humans, have an alternative circulatory system that kicks in when core body temperature rises. Arterial blood is rerouted away from the normal capillary system that handles oxygen and nutrition delivery. Instead, blood moves into the arteriovenous anastomoses (AVA).

Seriously, this is so cool. When your body heats up, blood is routed away from the other tissues in your limbs and into the specialized AVA, where it travels directly to the retia venosa in your extremities. The veins of the retia venosa swell to many times their normal size to enable venting of excess heat. As you radiate heat, cooled blood then flows directly back to the heart and is used to protect the vulnerable brain, heart, and other organs of your core from overheating.

Meet the Wall

This is a marvelous system, of course. Unfortunately, this cooling system has its limits. Vigorous exercise can overwhelm your thermoregulatory system. When this happens, very bad things can happen, starting with heat stroke. However, your body, has several defense mechanisms to stop the overproduction of heat that can cause permanent damage to your brain and other organs.

One safety mechanism resides right in the brain, which tells you to stop exerting yourself. Exertion becomes extremely unpleasant. You may try to exert yourself at maximum force, but your brain won’t send the signals needed to do it. You can still move your muscles, but with much less force.

On the cellular level, important changes are also taking place in muscle cells. As blood is routed away from limbs to protect the core, the normal flow of nutrients and oxygen is cut off. Heat and waste materials, such as lactic acid, build up. The mitochondria that convert food into usable biological energy (adenosine triphosphate) stop functioning, so cells run out of power.

While all these responses to overheating may seem dire, they are actually extremely important safety mechanisms. If you work out seriously, you’ve undoubtedly “hit the wall.” The wall is your body’s way of stopping the heat production that could seriously damage the organs of your core.

What’s good for your core, however, can be hard on muscle and connective tissues, which are second-class citizens in the hierarchy of your body’s priorities. While critical organs are being protected, muscle and connective tissues “slow cook” until core temperature and normal circulation are restored.

Delayed-onset muscle soreness is one result of this heat buildup, but it’s by no means the most serious. Exercise provokes adaptation and strengthening, of course, but too much can create enough heat to cause serious cellular damage. If you hit the wall often and hard enough, overtraining can erase the health benefits of working out. Serious overtraining can cripple the immune system and lead to illness and death.

As a result, we have to walk the line between too little and too much exercise. One way to shift the balance toward muscle growth is through the use of anabolic steroids, which promote protein synthesis and recovery. Steroids, however, entail risks.

A better solution would be to rapidly cool the core during and after exercise. Normal circulation would then be restored to muscle and connective tissues. Excess heat would be cleared out within minutes and mitochondrial energy production would resume.

Cellular repair and adaptive strengthening would therefore be accelerated. The flow of oxygen and nutrients would return to muscle and connective tissues while waste gases and other products would be cleared. In short, adaptive strengthening would be maximized while the damage done by exercise, as well as the associated pain, would be minimized. The capacity to exercise would go up and recovery would be much more rapid. The gains from exercise would therefore be significantly greater.

This is not just theory; it is clinically validated reality. The story of how it came to pass is, in my opinion, fascinating.

Beat the Wall with AVAcore CoreControl

Once Heller and Grahn understood how the body deals with excess heat, they began to wonder if they could give it a hand. And they succeeded.

First, they figured out that they could drain heat and accelerate core cooling using cold moving water. Construction workers, by the way, already knew this. If overcome by heat, some know to put their palms under cold running tap water until they feel better.

Heller and Grahn, through exhaustive research, learned that they could do this optimally by putting the palm of one hand in contact with cold water at precisely the right temperature range. For convenience sake, they learned to move the cold water through a kind of soft plastic network of tubes called a perfusion pad. The big breakthrough, though, was discovering that a slight vacuum caused the veins in the retia venosa to expand and give up heat much, much faster.

Initially, they concentrated on the many medical uses that their technology opened up. By accident, however, they discovered that post-exercise recovery was radically improved, making workouts far more productive. So, while continuing to work on medical applications, they decided to make their technology available to people interested in maximizing the outcome of physical exercise.

The device has two parts. One contains ice water, a pump, and the microchip that controls water temperature and vacuum. The other portion is a kind of vacuum glove that seals around one hand. In it, water at the optimal temperature passes through the perfusion pad in contact with the palm.

This device, called AVAcore CoreControl, can restore core temperature in just a few minutes for individuals who are heated due to exercise. Typically, it can take hours after intense exercise for normal temperature to be restored.

In practical terms, this means that the cellular damage done by exercise is minimized while recovery is accelerated dramatically. This applies both to resistance and cardiovascular training. Results of resistance training, according to various studies, are comparable to the use of 600 mg of testosterone enanthate weekly, which is significant.

Unlike with steroids, however, the benefits of thermoregulatory augmentation accrue to aerobic and endurance training as well as strength training. Though it’s not practical to run with the device at this time, it can be used on a treadmill, elliptical, or other stationary cardio machine.

Moreover, gains that come with use of the device can be maintained through normal exercise even if you stop using it. Personally, I think that the advantages of this device are particularly important for older people, because thermoregulatory abilities decline with age. As I said earlier, my current progress is better than it was when I was half my current age of 62.

Though studies have not been done yet to prove it, I believe the most important benefit to older people will be proven to be that the device protects and allows the strengthening of connective tissues. I’m doing exercises now that I couldn’t do a year ago because of joint problems.

I feel like I should share some of what I’ve learned about optimizing the use of this technology after a year of regular usage, but this article is already long. Maybe I’ll discuss supersets and other techniques on my own website, TransTechDigest.com, for those who do buy the AVAcore CoreControl.

I could easily go on for another ten thousand words, as I’m completely obsessed with this breakthrough and enormously grateful to Heller and Grahn. I believe thermoregulatory augmentation is the most important advancement in fitness technology since the ancient Greeks pioneered progressive training.

I’m also enthusiastic because this entirely unexpected breakthrough demonstrates a central premise of my work, that the most important impact of computer technology is its ability to unlock and exploit the secrets of a much older and more sophisticated system: human biology.

Regardless, I ought to make it clear that this is a relatively new technology and the device is, in a sense, at the beta testing stage. It’s a little bit kludgey right now and will undoubtedly be improved in years to come, shrinking in size and improving in ease of use. I would not wait, however, if you want to improve your level of fitness.

If you are already serious about exercise, the AVAcore CoreControl device could help you recover quicker from your workouts and derive more impressive gains from your current fitness routine.

AVAcore’s CoreControl device sells for $995. If you are interested in obtaining a CoreControl device for yourself or a family member, you may learn more and place your order here. If you want the device delivered in time for the upcoming holiday, you should place your order by noon on Thursday, December 19, and be sure to select the 3-day shipping option.

In the interest of full disclosure, you should know that Mauldin Economics will receive a referral fee if you purchase a CoreControl device. But as I mentioned earlier, I use the CoreControl device myself to aid in workout recovery. John uses the device as well and has reported gains similar to those I described. We are both serious about fitness and love AVAcore’s technology.

I reiterate, however, that CoreControl is meant for you only if you already have a rigorous exercise routine in place. If you are more casual about exercise, this is probably not for you. But if you are serious, this product could help you reach the next level of health and fitness.

Here’s the link to the company’s website.

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By Moe Zulfiqar for Daily Gains Letter

The global economy looks to be in trouble, as there may be an economic contraction on the horizon. If all the pieces of the puzzle fall into place, companies on key stock indices might face issues in delivering corporate earnings.

Major economic hubs in the global economy are witnessing an economic slowdown. Those economies aren’t marching ahead, and their growth rates seem to be stagnant. If this continues, then it wouldn’t be a surprise to eventually see the global economy cave in, resulting in a global economic slowdown.

The eurozone, one of the biggest economic hubs in the global economy, remains under severe scrutiny. In the third quarter, the gross domestic product (GDP) growth rate for the common currency region declined to 0.1%, while in the second quarter, the GDP growth rate was 0.3%. (Source: “Second estimate for the third quarter of 2013,” Eurostat web site, December 4, 2013.)

The troubled countries in the eurozone, including Greece, Spain, and Portugal, are stuck in depression-like conditions, but major countries in the region also face economic pressures. For example, Germany’s third-quarter GDP growth rate came in at 0.3% compared to the second quarter, which saw 0.7% GDP growth from the previous quarter. (Source: Ibid.)

Australia, another major economic hub in the global economy, is facing headwinds as well. In the third quarter, the Australian economy grew by only 0.6% from the previous quarter. The annual GDP growth rate of Australia registered at 2.3%. In the second quarter, the Australian economy grew 0.7% and the annual growth rate was 2.4%. (Source: Kewk, G., “Australia’s economic growth falling short,” The Sydney Morning Herald web site, December 4, 2013.)

Japan, the third-biggest economy in the world, continues to suffer despite the unprecedented measures taken by the government and central bank of that country to fight the economic slowdown and spur growth. Japan’s GDP growth rate was 0.9% in the second quarter and 0.5% in the third. (Source: Kajimoto, T. and White, S., “Japan third quarter GDP slows, consumption expected to pick up again,” Reuters web site, November 4, 2013.)

Why should the global economy matter to investors?

If the global economy faces headwinds, companies on the key stock indices will see their sales and profits decline. Consider this: in 2012, 46.6% of all the sales of the S&P 500 companies that report their global sales came from outside of the U.S. economy—their reliance on the global economy has slightly increased. In 2011, this number was 46.1%, and in 2010, it was 46.3%. (Source: “S&P 500 2012: Global Sales,” S&P Dow Jones Indices web site, August 2013.)

Many people tend to forget that companies that trade on key stock indices heavily rely on the global economy, so any fluctuation in global demand will affect them. Investors can profit form this situation by looking at an exchange-traded fund (ETF) like the ProShares Short MSCI EAFE (NYSEArca/EFZ). This ETF essentially lets investors profit as global stocks decline in value.

Source: http://www.dailygainsletter.com/investment-strategy/why-i-wont-be-surprised-if-the-global-economy-caves/2182/