Fibonacci Retracements Analysis 23.01.2014 (EUR/USD, USD/CHF)

Article By RoboForex.com

Analysis for January 23rd, 2014

EUR/USD

Euro is still consolidating, but may yet start new descending movement. Main target is still in lower area close to 1.3490, where there are several fibo-levels. Possibly, price may break local minimum during the day.

At H1 chart we can see, that market tested local correctional level of 50% one more time and rebounded from it again. According to analysis of temporary fibo-zones, predicted targets may be reached during the next 24 hours.

USD/CHF

Franc is also moving sideways so far; upper target area is formed by three fibo-levels. If later price rebounds from it, pair may start new and more significant correction.

As we can see at H1 chart, yesterday market rebounded from level of 50% again. I’m keeping two buy orders with target near upper levels. According to analysis of temporary fibo-zones, bulls may reach them by Friday.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

 

 

Ichimoku Cloud Analysis 23.01.2014 (GBP/USD, GOLD)

Article By RoboForex.com

Analysis for January 23rd, 2014

GBP/USD

GBPUSD, Time Frame H4. Tenkan-Sen and Kijun-Sen intersected below Kumo Cloud and formed “Golden Cross” (1). Ichimoku Cloud is going up (2), and the price is above the lines. Short‑term forecast: we can expect support from Tenkan-Sen, and growth of the price.

GBPUSD, Time Frame H1. Tenkan-Sen and Kijun-Sen are influenced by “Golden Cross” (1). Ichimoku Cloud is going up (2), Chinkou Lagging Span is above the chart. Short‑term forecast: we can expect support from Tenkan-Sen – Kijun-Sen, and growth of the price.

GOLD

XAUUSD, Time Frame H4. Tenkan-Sen and Kijun-Sen intersected above Kumo Cloud and formed “Dead Cross” (1). Ichimoku Cloud is closed (2); Chinkou Lagging Span is on the chart, and the price is inside Kumo. Short-term forecast: we can expect resistance from Senkou Span A – Tenkan-Sen, and attempts of the price to stay below Kumo Cloud.

XAUUSD, Time Frame H1. Tenkan-Sen and Kijun-Sen are influenced by “Dead Cross” (1). Ichimoku Cloud is going down (2), Chinkou Lagging Span is on the chart, and the price is below Kumo Cloud. Short‑term forecast: we can expect resistance from Senkou Span A, and decline of the price.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

 

 

The United States: Are the Seeds Already Sown for the Next Macro-Market Deflation Crisis?

By John Mauldin

Greg Weldon has long been my favorite slicer and dicer of data – his charts and insights on charts really help me keep my eyes peeled. But in order to get across to us the drastic state of the economy as we plunge headlong into 2014 – a year that we all know will be pivotal – Greg has felt it necessary to resort to a rather trenchant metaphor from the year just past. Yes, says Greg, the economy is … Breaking Bad.

But – listen up now – bad is now good. At least temporarily.

Good, because bad macroeconomic data means an ongoing (if slightly tapering) supply of monetary steroids (Greg’s term) will be forthcoming from our pushers, the central banks of the developed world.

Greg reminds us that the “Breaking Bad Era” actually got underway decades ago. He traces its history back to pre-WWII manipulation of the bullion market; to the historic post-WWII Bretton Woods agreement that gave the US currency “seigniorage,” thus setting it up to become the world’s reserve currency; and right on through to the closing of the gold window by Richard Nixon in 1971.

Since then, the US economy has been dependent on steady – and of course ever-growing – doses of monetary steroids, with only one brief drug-free stint in the Paul Volcker Rehabilitation Center in the 1980s.

And of course the Greenspan Fed did try to do the tighten-up from time to time; but each attempt brought greater pain during withdrawal … and the ever-compassionate Dr. Greenspan took pity on us and increased our monetary prescription.

Now, Greg really socks it to us (and we haven’t even gotten to those charts yet … but we will):

Who, even a short ten years ago, would have ever thought that the most popular shows on US television would be about hero-serial-killers and methamphetamine ‘cooks’?? We could extrapolate to suggest that this reflects the intensifying socio-economic impact of the secular trend related to the polarization of wealth, the expanding production-output efficiency generated by technology, the rise in the level of poverty in the US, and the increased social unrest evidenced by ever more incidents of seemingly random, premeditated violence.

The story line in the award-winning US television show Breaking Bad is ‘Milton-esque’, in that it explores the internal war between good and evil as manifest within the lead character, a high school chemistry teacher who contracts brain cancer. In need of money to pay bills that his health insurance will not cover, the teacher turns to the nefarious underworld of ‘cooking’ crystal-meth.

Greed leads to violence, which in turn leads to chaos and intensifying desperation. Ultimately, things spin out of control, as the teacher-turned-meth-cook finds it impossible to maintain a balance between family values and the ruthlessness of his business.

Therein lies the analogy, as the global situation finally reached the desperation point and threatened to spiral out of control in 2008-09 … when withdrawal from Fed monetary tightening led to organ failure in the housing market, which nearly spilled over into the banking system, [leaving] the US economy perilously close to ‘death’.

We are tempted to say that the US has been in and out of a coma ever since, in the sense that “real” reflation remains flat-lined.

You get the picture.

But now Greg wants us to dig even deeper. Yes, the Fed has “saved” the banking system – for now. And yes, the Fed has refloated the US consumer – on the bloated back of the stock market. (“Note,” says Greg, “the exceptionally ‘tight’ positive-correlation between the Fed’s Balance Sheet, the US S&P 500 stock index, and US Household Net Worth” – great chart follows.)

But in doing all this saving of the economy from itself, Greg wants to argue, the Fed has already sown the seeds of the next macro-market deflationary wave. So let’s give Greg the floor and let him paint the Big Bad Picture for 2014. And be sure to catch his special offer for Outside the Box readers, at the end.

I write this note from Vancouver where I will shortly be speaking to the local CFA organization before traveling on to Edmonton and Regina to speak for their respective CFA groups. I came in to Vancouver early yesterday so that I could finally get the opportunity to meet Frank Giustra, one of the more storied and colorful names in the natural resources field. We have many mutual friends who had been suggesting we get together. The son of an immigrant miner, he is one of those wonderful rags to riches stories that you see from time to time.

Frank hosted a small dinner at his home. Randomly, there was a natural resources conference going on in Vancouver the same day, so Frank was able to get decades-long friend Frank Holmes of US Global to come along, as well as my business partner Olivier Garret, energy maven and speculator Marin Katusa, and a few others. It was one of those special nights where the conversation flowed vibrantly from one topic to the next. Of course we talked about natural resources, but also about robotics and the still-approaching Singularity, the future of work, and the nature of progress – etc. For those who aren’t familiar with Frank, he made most of his money investing in natural resources, was also a founder of the movie production giant Lionsgate, and is a running buddy of Bill Clinton’s. So naturally the talk turned to politics and movies. (Turns out Frank just purchased half the rights to Blade Runner, which may be my pick for all-time best science fiction movie. I am ready for an updated remake!)

Vancouver is one of the most beautiful cities I get to visit. The weather has been spectacular, although I’m told it will turn cold just about as soon as I head east to Edmonton and Regina.

(Wow! I just got word that my old friend Ross Beatty is in town and would like to get together. It’s been a long time. I first met him in the ’80s when he was trying to figure out how to get a little silver out of the ground. I understand that he’s made a few billion here or there in the meantime, mining all sorts of minerals and creating lots of wealth for his investors. Ross Beatty was always and still is a winner. It will be fun to catch up.)

You have a great week and stay warm.

You’re looking for his Under Armor gear analyst,

John Mauldin, Editor
Outside the Box
[email protected]

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Fourteen-For-Fourteen

Fourteen Macro-Market Trading Themes to Watch For During 2014

A Preview of Our Number-One Theme: The United States

The United States: Are the Seeds Already Sown for the Next Macro-Market Deflation Crisis?

We recently finished our 2014 outlook piece entitled “Fourteen-For-Fourteen”, with fourteen separate macro-market ‘trading themes’, all of which offer numerous specific ways in which to participate in a broad and diversified batch of global markets. Our coverage extends from stock indexes, individual equities, ETFs and ETNS, foreign exchange, fixed-income, precious and industrial metals, energy, and agricultural commodities, sectors we discuss every day in our Weldon LIVE research publication.

I have teamed up with my golf buddy John Mauldin to offer a slice (no pun intended) of our first, and perhaps most important, macro-market trading-theme for 2014, as it relates to US Federal Reserve policy, the US consumer, the US stock market, and US Bonds.

(Details on how to get our “Fourteen-For-Fourteen“, at a special, discounted, Outside the Box price, can be found at the end of our preview.)

We begin with a headline that caught my eye the other morning, culled from Bloomberg …

… “India’s SENSEX rose 1.8 percent today, the most in three weeks, after an unexpected drop in factory output spurred optimism that the central bank will not raise interest rates.”

We might call this the ‘Breaking Bad Era’.

Bad is now good.

Good, because bad macro-data means … a continued flow of monetary steroids from Central Banks.

Indeed, whether it be India, the UK, Japan, the EU, or the US, bad economic data is celebrated, as is so grossly evidenced by the reaction seen on television, amid stock market exuberance and the resultant extension in net worth/wealth reflation.

Indeed, just like any addict, the global markets, not to mention the underlying global macro-economy, have come to RELY ON a steady dose of monetary steroids, without which withdrawal kicks in, muscle atrophy intensifies, and eventually organ failure ensues.

We see this already, within the US labor market … atrophy without a steady, if not ever increasing, dose of monetary “roids”.

Our regular readers know that we have been all over this ‘theme’ for years.

In my book “Gold Trading Boot Camp” (Nov-2006) I examined the then-intensifying trend towards a blow-out in the massive credit bubble in US Housing facilitated by the Fed’s response to the 1997-98 global crisis, and the 2000-01 tech-bubble-bursting crash. I laid out the scenarios in which the Federal Reserve would need to ride their monetary white-horse to the rescue, to avert a full-blown credit crash and debt deflation …

… by conducting outright purchases of US Treasury securities.

Even as late as 2006, anyone opining such a blasphemous thought was considered a monetary heretic.

Now the history books are being ‘re-written’, while the un-written mandate of the US Federal Reserve and other global Central Banks  has subtly-yet-significantly shifted, exactly as we said it would way back in the nineties, from preventing a repeat of the 1970’s inflation, to circumventing a full-blown debt deflation and macro-economic depression.

We said quite blatantly, two decades ago, that … “someday the Fed will pursue inflation.”

Blasphemy !!! Pure monetary heresy !!!

Now it’s called the “new normal”.

But, as we laid-out in “Gold Trading Boot Camp”, what we now call the ‘Breaking Bad Era’ began decades ago.

We traced the history back to pre-WWII manipulation of the bullion market, the historic post-WWII Bretton Woods agreement that gave the US currency ‘seigniorage’, thus setting it up to become the ‘world’s reserve currency’, right through to the closing of the Gold window by US President Richard Nixon in August of 1971, the spark that truly started this ‘fire’.

The US macro-market has been taking monetary steroids since 1971, with a brief stint spent ‘drug free’, while residing in the Paul Volcker rehab center.

Each successive tightening brings greater pain during withdrawal, which then drives Central Bankers to increase the monetary dosage, to the point where the once unthinkable has occurred, and the Assets Held Outright by the Fed will balloon to more than $4 trillion, most of which is held in US government debt.

Indeed, consider this … who, even a short ten-years ago, would have ever thought that the most popular shows on US television would be about hero-serial-killers and methamphetamine ‘cooks’ ?? We could extrapolate to suggest that this reflects the intensifying socio-economic impact of the secular trend related to the polarization of wealth, the expanding production-output efficiency generated by technology, the rise in the level of poverty in the US, and the increased social unrest evidenced by evermore incidents of seemingly random, pre-meditated violence.

The story line in the award-winning US television show “Breaking Bad” is ‘Milton-esque’, in that it explores the internal war between good and evil as manifest within the lead character, a high school chemistry teacher who contracts brain cancer. In need of money to pay bills that his health insurance will not cover, the teacher turns to the nefarious underworld of ‘cooking’ crystal-meth.

Greed leads to violence, which in turn leads to chaos and intensifying desperation. Ultimately, things spin out of control, as the teacher-turned-meth-cook finds it impossible to maintain a balance between family values, and the ruthlessness of his business.

Therein lies the analogy, as the global situation finally reached the desperation point, and threatened to spiral out of control in 2008-09 … when withdrawal from Fed monetary tightening led to organ failure in the housing market, which nearly spilled over into the banking system, putting the US economy perilously close to ‘death’.

We are tempted to say that the US has been in and out of a coma ever since, in the sense that “real” reflation remains flat-lined.

Yet, there have been some bright spots, some limb movements and facial expressions emanating specifically from the US consumer, and from corporate America as it relates to streamlined efficiency and increased competitiveness.

The Fed successfully ‘saved’ the banking system, for now.

The Fed successfully kept the US consumer afloat.

Moreover, the Fed has facilitated an unprecedented reflation in US Net Worth. But, this reflation comes in PAPER wealth, NOT wage-income, which is still glaringly lacking.

Witness the chart below plotting the path of US Household Net Worth, which has spiked to a new all-time high, with a near-$22 trillion expansion from the 2009 secular crisis low.

But in so doing, we could argue that the Fed has already sown the seeds for the next macro-market deflationary wave.

We can directly connect the dots.

It all starts with Fed purchases of government debt …

… which has led to the reflation in the US equity market …

… almost single-handedly generating a huge expansion in US Net Worth.

From there we can continue to draw a straight-line to the fact that the strongest improvement within the underlying macro-economy has been seen specifically in sentiment-derived numbers …

… which leads us directly to the virtually unnoticed renewed blow-out in US consumer credit…

… which has ‘funded’ the robust recovery in retail sales and US final household demand.

And finally, it is an easy link to the upside outperformance and leadership exhibited in the stock market since the advent of QE, by the Consumer Discretionary sector.

Note the exceptionally ‘tight’ positive-correlation between the Fed’s Balance Sheet, the US S+P 500 stock index, and US Household Net Worth, as evidenced in the overlay chart below. Indeed, since the advent of QE-III the movements of the US stock market and the Fed’s Balance Sheet have become almost identical.

With US Households ‘feeling’ STRONG thanks to massive injections of monetary steroids, and a renewed feeling of invincibility among stock market investors, consumers are flexing their muscles by borrowing significant amounts of ‘cash’.

We offer hard-core data as evidence. As seen in the chart below, we can identify more months of double-digit (as in more than $10 billion) growth in the Fed’s own measure of Consumer Credit over the last three-years, than during ANY other period in the post-WWII timeline.

Note further, that the 5-Year Average of monthly borrowing has almost returned to the pre-2007 crisis highs.

In essence, we can very comfortably argue that the Fed has facilitated another credit-fueled recovery, wherein the US consumer is, again, borrowing aggressively against a collateral base that is ‘defined’ by paper wealth, rather than ‘real’ income growth.

The stock market has replaced the housing market as that collateral base against which the US consumer is now borrowing hand-over-fist.

Yes, there are differences, the ”breadth’ of this ‘reflation’ is not the same as it was with the mortgage market debacle. Banks are (allegedly) not involved, with bank lending growth remaining less than overtly reflationary.

But the similarities are intriguing, if not somewhat frightening, as US households place massive bets, again, that the stock market is in a Nirvana-like, perma-bull market, and that ‘tapering’ is not a threat …

… just like US households placed massive bets that housing prices were incapable of deflating.

Not only that, but tapering has a major impact on the US bond market, with buyers having become increasingly scarce, against which the tide of supply does NOT recede for several years, if even then.

A rise in interest rates that has a negative impact on the US stock market would require another dose of monetary steroids, because the implications of a deflation in stocks would be too significant for the underlying macro-economy to handle.

To simplify, the unwritten mandate of the Fed is now singular; to prevent the stock market from failing.

The greater fear stems from thoughts that the macro-market dynamic has been internally ravaged by years of steroid abuse, and anything less than an increase in ‘roid’ dosage from the Fed may lose its effectiveness in fighting macro-muscle atrophy.

We could say we see evidence of this already, in the expanding and recently developed divergences exhibited within the overlay chart on display below.

Notice how Gold led the charge into QE-II, peaked first, and rolled over first, breaking down, and plunging amid disinvestment and a rotation out of safety, and into risk assets.

Next it was Home Prices, peaking, and most recently … breaking down.

We could add Emerging Market stock indexes, Emerging Market Bond prices, Emerging Market currencies … and … the CRB Index … all of which have followed Gold to the downside, in a GLARING example of the ‘internal atrophy’ taking place, as per the global market’s narrowing response to Fed QE.

Subsequently, we theorize that there is significant risk associated with tapering, particularly when tapering turns into ‘tapping out’, when the Fed reaches the point where they are no longer buying-to-accumulate any assets. There is risk that ‘extends’ to the stock market, for its tight, reliant relationship with the Fed’s Balance Sheet (our detailed “Fourteen-For-Fourteen” digs deeper into this dynamic, with specific ‘predictions’ for the path of the S+P 500 in 2014, based on the pace of tapering).

But more pointedly the risk emanates from the potential impact on US Treasury Bond and Note yields, as a result of an eventual ‘tap out’ by the Fed.

We find it most interesting to observe the overlay chart below in which we plot the Fed’s Assets Held Outright (black line) versus Custody Holdings (foreign official holdings of US Treasury securities, red line). We first focus on the rise in the Fed’s Balance sheet associated with QE-III, during which time bond and note yields in the US have risen.

Secondly, and most importantly, we shine the spotlight on the peak in Custody Holdings, and the DECLINE in 2013. For sure, it is NOT a coincidence that foreign officialdom turned NET SELLERS of US Treasuries in May, precisely on the back of Fed Chair Ben Bernanke’s first mention of ‘taper’.

Demand from foreign officialdom is flat, at best.

The US ‘public’ is not buying bonds.

The US ‘public’ has followed the lead of the Pied Piper Ben Bernanke, the monetary maestro, who has carried the day on his back with some spectacular flute playing, calming the masses, resurrecting confidence, and facilitating a rotation out of safety (bonds, gold) and back into risk assets, stocks specifically.

So, from where will the marginal buyer of US Treasury bonds appear ??

No doubt, there is NO dearth of supply.

We examine the ‘schedule’ of ‘Treasury Obligations’ seen below.

Need we say more ??

A tsunami of Treasury supply, no matter how you slice-and-dice it.

And the Fed is potentially, probably, pulling the plug on a half-trillion a year in ‘support’??

Moreover, that ‘support’ which is to be removed represents pure monetization, actual evaporation of debt (for all intents and purposes).

Tapering to a ‘tap-out’ also means more supply in ‘perpetual roll-over’.

Over the next five-years, that is virtually $2.5 trillion.

When we add the new debt, needed to finance this year’s (fiscal) deficit, well the numbers start to add up very quickly. Yes, seeing the annual US deficit ‘shrink’ (laughter) by half, from $1 trillion, to something closer to $500 billion, could be labeled ‘improvement’. But, just five years ago the current deficits would have been record breaking, and still represent a significant, on-going, supply side issue.

So, who is the ‘marginal’ buyer of US debt ?? Who will help maintain ‘equilibrium’ to where Treasury yields will not rise ??

From a simple supply-demand dynamic, the risk-reward skew is to the upside in bond yields.

Of course things are never simple.

Especially in the Breaking Bad Era, where BAD is GOOD !!!

Evidence last week’s US payroll data … and the hundreds of thousands of chronically unemployed who simply fell out of the ‘equation’. This alone speaks volumes to the dysfunction in the US labor market.

But still, even during any initial ‘positive’ reaction to the ‘negative’ news, we might offer a thought: any macro-economic deflation that is deep enough to sway the Fed, will also have an impact on the fiscal side of this dual-headed coin … most probably towards increased bond supply.

Yet still, some might hypothesize that there is a major difference now, than during the housing-credit-deflation induced event of 2008-09, the banking system was saved, and is now solid.

As evidenced, of course, in this new era … by rising bank share prices.

For sure, banks are more ‘liquid’.

No debate.

Thanks to the Fed, and the Fed only, as is clear upon a survey of the overlay chart below revealing the link in Bank Balance Sheets, a distinctively direct link … to the Fed’s Balance Sheet.

And while bullish for the bank shares, this dynamic is not ‘positive’.

Indeed, only in the ‘Breaking Bad Era’ could this be construed as ‘positive’. But it is not positive, not when it means banks sit on their own mountain of ‘cash’ (aka, US Treasury securities), instead of lending that money.

Moreover, with huge holdings of US Treasuries, In the advent of another deflationary wave banks could well turn net sellers of government debt.

In other words, do not look to US financial institutions to plug any hole that might develop in the US bond market.

Another, less obvious reason that we say the rise in ‘cash’ held by banks is not ‘positive’, has to do with what is happening in the background with Bank Balance Sheets. The level of cash-securities held by US Commercial Banks, about $2.7 trillion, is peanuts compared to the level of risk banks are carrying in terms of ‘Derivative Holdings’.

In fact, as we try to comprehend the figures shown in the chart below, extracted from the FDIC’s Quarterly Banking Profile’s breakdown of Commercial Bank Balance Sheets … we are continually shocked.

Shocked to think that during this period of Fed largesse, during this period where the banks are allegedly healing as they do dispose of some non-performing assets … the risk is rising again, and rising rapidly.

Most troubling is the fact that the vast majority of the rise in, and the total of, Derivative holdings, roughly $225 trillion, yes trillion, are labeled as Derivatives Held for “Trading Purposes”, as opposed to being held for “Hedging Purposes’.

Indeed, it appears that risk and leverage in the banking system is still alive and well. No wonder the biggest banks, who hold the lion’s share of the derivative risk, now carry the moniker of ‘too big to fail.

They are called that because they are, literally … “too big” … specifically as it applies to their holdings of Derivatives for Trading Purposes (again, pegged at $225 trillion).

The simple fact that in the twelve-months ending June-2013 (data release lagged by the FDIC, one reason it goes largely unnoticed), Bank holdings of Derivative contracts linked to ‘trading'(aka profit generation) rose by more than $11 trillion …

… which dwarfs the expansion in Bank cash holdings …

… dwarfs the expansion in Bank Deposits …

… and, even more ‘tellingly’, dwarfs the expansion in the Fed’s Balance Sheet, over that same period, by about ten-to-one.

And most acutely frightening is the fact that the expansion in derivative exposure is most focused in Fixed-Income derivatives, by far, as seen below ($188.3 trillion, yes, trillion, in Fixed-Income contracts alone).

Clearly, the Fed is walking a tightrope.

Again, in our view, the risk-reward skew in the US Treasury market, for 2014, is tilted towards rising yields, which points us in the direction of strategies that accept that premise.

In our “Fourteen-For-Fourteen” we offer an even more detailed look at the US Treasury market specifically, from a technical perspective, and a strategic perspective.

We also take a closer look at the US consumer, household net worth, retail sales, and even gasoline prices, as factors that will play into the US based theme during 2014.

And that, is just our first of fourteen major macro-market themes for 2014, which encompass more than 200 pages of charts, graphs, and data slides covering both fundamental and technical analysis.

It is with a heartfelt thank-you that I nod in the direction of my colleague and conference-golf buddy John Mauldin; the man behind the curtain, Ed D’Agostino; the gang at Mauldin Economics; and my Kiawah Island golf buddy Grant Williams, for their willingness to participate with us in offering this preview of our 2014 Outlook.

Our fourteen market themes for 2014 include careful examinations of the monetary policy challenges faced by multiple Central Banks’ and the potential impact on the bond, FX and stock markets (including Exchange Traded Funds).

We also highlight some very specific currency challenges in some key regions especially as it relates to devaluations and competitive depreciation, and how that will impact the global markets. And, we shine the spotlight on a few very specific metals and energy opportunities with some compelling market charts and inter-market analysis.

Finally, we offer a few commodity plays in line with their underlying supply-demand fundamentals, including focus on the parallel opportunities within the commodity ETN universe.

All fourteen themes have been produced as separate chapters in video form (and come with a printable pdf version), all of which include detailed market charts and audio commentary.

ACT NOW to get all Fourteen Macro Themes at a special discounted rate (over 15% off) for readers of John Mauldin’s Outside the Box.

SEND $249.99 to [email protected] via www.paypal.com

Or email [email protected] and get special access now.

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Eric Lemieux: What Does 2014 Hold for Metals?

Source: Brian Sylvester of The Gold Report  (1/22/14)

http://www.theaureport.com/pub/na/eric-lemieux-what-does-2014-hold-for-metals

Eric Lemieux, a mining analyst with Laurentian Bank Securities in Québec, is a realist, which makes his optimistic outlook for miners in 2014 that much more compelling. Lemieux believes that with the wheat separated from the chaff over the past tumultuous year, the truly strong companies have emerged. But you may be surprised by the jurisdictions he predicts will come to life in 2014. Lemieux makes some startling, but happy forecasts in this interview with The Gold Report.

The Mining Report: Eric, your top stock pick in 2013— Virginia Mines Inc. (VGQ:TSX)—outperformed the S&P/TSX SmallCap Index. What’s your recipe for picking stocks in 2014?

Eric Lemieux: The secret to success in picking stocks in 2014 will be simple: management. The senior vice president of Laurentian Bank Securities, who recruited me, asked me a question during my interview way back in 2007: What was the most important element when I was looking at a company? I started to talk about some financial ratios, etc. He began to laugh. He said there are three things: management, management and management. I know that’s easy to say, but it is true. It is the team that’s behind the company. That’s the most important secret for success.

TMR: What’s your top pick for 2014?

EL: It remains Virginia Mines because the company has an exceptionally well-managed team and a focused business model. CEO André Gaumond has said he wants to be at the beginning of the food chain and the end of the food chain with a royalty portfolio. I think he is adamant about applying what he’s good at and that’s being a top explorer and being able to decipher royalty portfolio opportunities. He has always said he is not a producer and I respect that. So far he has been proven right. That should remain the same in 2014.

TMR: The royalty that you’re referring to is Goldcorp Inc.’s (G:TSX; GG:NYSE) Éléonore project in the James Bay region of Québec, which should go into production in 2014. What’s interesting is that some exploration done by Goldcorp seems to have delineated an entirely new zone of mineralization. What do you know about that?

EL: Goldcorp disclosed a new zone called 494, which would be about 500 meters (500m) north of the Roberto zones. It appears as a new ore shoot. It still has to be fully defined, but the hypothesis is that its geometry looks to be another Roberto. It’s most interesting because it’s not too far from the mining infrastructure that’s being built. It could effectively double the size of Éléonore; which is also wide open at depth. That deposit is set to grow.

The key catalysts for the Éléonore royalty in 2014 are 1) new reserve and resource numbers that most likely will be disclosed by Goldcorp in February and 2) the start of production by the end of the year. There could be a major rerating of the value of Virginia’s royalty. It is tremendous. I think it is going to be a world-class operation soon.

TMR: You’re predicting an average gold price of $1,400/ounce ($1,400/oz) in 2014. That’s down from the previous estimate of $1,750/oz. Nonetheless, most observers would call $1,400/oz optimistic given the current spot price. What gives you confidence that the gold price will rise in 2014?

EL: I’m fairly optimistic. The price of gold is gravitating around $1,200/oz, so there’s a substantial difference. I’m looking at the global picture. Yes, the price of gold has gone down, but it’s approaching a floor of production costs. By midyear the price of gold will be higher.

TMR: Many of the companies you cover operate in Québec, which just passed a new mining act. Is that good news for investors?

EL: By and large, all this is good news for companies operating in Québec. It’s not perfect. There are a few irritants, but it is a middle ground—a relatively well-balanced law.

TMR: An application for a mining lease now requires a feasibility study. What do you make of that?

EL: Well, feasibility studies are necessary. A company needs to go through the steps of a feasibility study for the normal process of calling a mineral reserve and getting financing, etc. The industry has to realize certain levels of obtainment and it is a normal process to have feasibility studies to receive the proper permits to achieve the proper level. The new act (as amended) states that an application for a mining lease must be accompanied with a scoping study and market study; note that previous Bill 43 had proposed a feasibility study for securing second and third transformation. The new dispositions are fair and less burdensome.

TMR: Does Québec remain the best jurisdiction in Canada in which to operate a junior mining exploration company?

EL: I would simply say no, but I would point out the positive is that Québec has stopped dropping in the standings. We’ve gained clarity with the Québec mining law and royalty revisions. All in all, we’re not the best jurisdiction anymore, but at least we’re not falling down the slope. I would highlight, however, that Goldcorp’s recent offer to acquire Osisko suggests that Québec has seen the worst, and perception is improving.

TMR: What would you say is the best jurisdiction?

EL: This is an ever-evolving element. What is considered the best jurisdiction today could not be so a year from now. Québec is a case-in-point. It was one of the best jurisdictions a few years ago and it slid down. At least with the passage of the royalty and mining law, the worst is over.

TMR: Despite your optimism for precious metals, you’ve rolled back almost all of the target prices on the companies you cover, some by as much as 35%. What prompted that action?

EL: General market sentiment has obliged me to remove or decrease substantially my exploration goodwill, which was a proxy of the quality of the teams, the quality of the projects and the general market sentiment. I had to bring that goodwill down, and for certain explorers I had to completely remove it. Having said that, companies that are well managed, have a good portfolio of projects and are able to sustain a minimum of activities will be poised to bounce back eventually. Although I brought down the target price, I kept my recommendations. That’s a powerful statement. I just needed to effectively downsize some of the expectations.

TMR: What are some of the companies you cover with speculative buy ratings?

EL: There are quality explorers in Québec, Balmoral Resources Ltd. (BAR:TSX; BAMLF:OTCQX) andMidland Exploration Inc. (MD:TSX.V), for example.

Midland has more than $4 million ($4M) in its coffers. That is not a lot compared to other strong companies, but Midland uses the partnership model so its exploration costs are quite low as its partners are funding the programs. Partners for Midland are the likes of Teck Resources Ltd. (TCK:TSX; TCK:NYSE), Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) and the Japanese consortium JOGMEC. Midland has the financial capacity to maintain some level of good activity. That’s a testament to a well-managed company.

TMR: Which of its projects are you most excited about?

EL: There are a few of them. You never know which one will be the star that will finally emerge. Maritime-Cadillac, a partnership with Agnico-Eagle, is right beside Agnico’s Lapa mine, which has just a few years left of production. Agnico would want to sustain, or at least continue to build on, the infrastructure that it has invested in there. Anything that’s found in the Maritime-Cadillac project will probably go through the Lapa head frame.

The Éléonore Centre project is 100% owned by Midland, but it could eventually find a partner. It’s working slowly but surely and as Goldcorp’s Éléonore mine is about to go into production; that whole area will reignite interest once people realize Éléonore is a world-class deposit. Any acreage around there will gain value directly. Midland will have to decide if it wants to find a partner before it drills Éléonore; it has the financial capacity to do that. No matter what happens, that area will light up from Éléonore’s conservative production of 40,000 to 60,000 oz of gold in 2014.

TMR: Tell us about what those potential partners could look like.

EL: Midland has a diversified portfolio of properties: a palladium-platinum project in the northern part of the Labrador Trough near Kuujjuaq, some base metal projects in areas not known as mining camps, some early-stage zinc projects. Midland has a lot of arrows in its quiver. Any time some of these arrows could attract some attention. It also has a track record of good relationships in current and previous partnerships. Midland is well positioned to find new strategic partners for its different portfolio of projects.

TMR: Let’s delve into Balmoral.

EL: Balmoral has done a very good job in amassing a strong portfolio of properties in the Detour Trend. Balmoral is a shining star right now in Québec. The company was nominated as the prospector of the year in November 2013, a testament to the good work that CEO Darin Wagner and his team are doing.

The Martiniere project along the Detour Trend holds some more surprises. The drilling Balmoral has done—about 90 holes—has shown that there’s a gold system there. The deepest hole, at about 400m, is just scratching the surface.

Balmoral is well positioned to continue to work in 2014, with about $8M in cash and equivalents. It has a hot project, the financial capacity, a good team and the geological knowledge—it’s a very well-positioned project in 2014.

TMR: Balmoral received a $6M private placement in October. Did that surprise you?

EL: A little bit. I found the timing a bit questionable. Having said that, when the money is on the table, maybe you take it.

TMR: Have some of the struggles at Detour Gold Corp. (DGC:TSX) trickled down to Balmoral?

EL: The Detour story has had a major impact. The whole area has lost its shine with the difficulties (for example a slower ramp-up) going on at the Detour Lake mining operations. There’s a direct impact for Balmoral, Midland and Adventure Gold Inc. (AGE:TSX.V), which is another company I cover.

Having said that, the target is of a higher grade on the Québec side. So far, Balmoral has been hitting high grade. Midland’s drilling last winter with Osisko Mining Corp. (OSK:TSX) did not hit a homerun, but it was a solid single. Smoke could lead to fire. All in all, the Québec Detour Trend will be able to hold its own in 2014.

While the Detour Lake operations have had an impact, it’s more of a step back to eventually take two steps forward.

TMR: Detour Gold recently closed its mill and scaled back its guidance again for 2013.

EL: Detour is going through hardships. Ramping up a mining operation takes time and there are always some surprises. I still believe that it has the capacity to make this a winning proposition. There’ll be hiccups, but it should be able to press all the wrinkles and make this a viable operation.

TMR: What about outside of Québec?

EL: Every jurisdiction has its issues and Ontario is no exception, but overall it is one of the better places in the world to work. Goldcorp and other majors are there, but there is still mining to be done in Ontario.

Premier Gold Mines Ltd. (PG:TSX) is in Ontario. The company’s assets in the Red Lake and Geraldton areas and its Hardrock and Trans Canada projects are sitting on solid footing. It also has projects in Nevada. Premier has the financial capacity to remain active. It’s my understanding that in 2014 Premier will come out with a scoping study for the Hardrock project, which will be able to move quickly into the prefeasibility stage.

 

TMR: What did you make of the initial resource estimate on the Helen zone, which is part of the Cove project in Nevada?

 

EL: It was a little bit below my expectations, but it’s important to underpromise and overdeliver in this business. The Helen zone was Premier’s first resource estimate. It is an improvement from what was done previously by Victoria Goldfields, which was a terrible saga where the company had to restate its numbers. Premier’s numbers should be rock solid. There’s potential to increase that internally, in infill drilling and with some proximal works. I feel comfortable with the Helen zone for the Cove property.

 

TMR: Is that the same case for Eastmain Resources Inc. (ER:TSX)?

 

EL: I have to confess that there was some disappointment over the pace of work in 2013 and 2012. I’ve always been quite forthright about thinking Eau Claire is an excellent project, but I’m still in the dark about how Eastmain can mine it. It’s something that I’ve been pestering management about for the last few years. There was an expectation that there would be a new mineral resource estimate in 2013 and that hasn’t come out yet. Eastmain did put out a press release recently saying that it had retained mining engineer Serge Bureau, who has a background with Barrick Gold Corp. (ABX:TSX; ABX:NYSE), as a special adviser. It’s very positive news that Eastmain realizes the importance of bringing Eau Claire to the next level. I take a lot of comfort in Serge Bureau counseling Eastmain CEO Donald Robinson and his team on how to best advance Eau Claire, as well as the Eastmain-Ruby Hill project.

 

Eastmain is focused in the James Bay area near Éléonore, again the area that I believe might reignite. Éléonore will become a world-class operation and anything that’s around there will gain from that. Hopefully Eau Claire will be able to monetize that.

 

TMR: What’s going to keep you optimistic in 2014?

 

EL: I’m optimistic. It was a difficult year for the mining industry in 2013. The fundamentals are still strong and the long-term story is solid. I believe that this will be able to set in during 2014. Companies have been tightening their belts and streamlining operations. Juniors are going back to the basics. There’s no more waste. There’s been a reality check. The companies that have been able to survive and sustain a minimum of operations and activities are going to be set for 2014.

 

The mining industry is a necessity. There’s always a reason to go out and search for metals and commodities because the population continues to grow and needs resources. It may be through electronic devices. It may be through food or infrastructure. The overall portrait is interesting and positive. I’m optimistic for 2014.

 

TMR: Thanks for chatting today. I’ve enjoyed it.

 

EL: You’re certainly welcome and as we say in French—merci!

 

Eric Lemieux is a mining analyst who joined Laurentian Bank Securities in 2008. He worked for nine years as a consultant responsible for applying Regulation NI 43-101. He has worked at the Montreal Exchange, and prior to that managed exploration projects for Cambior, Noranda and Soquem. He holds two masters degrees, in mineral economics from the Colorado School of Mines and in metamorphic-structural geology from Laval University.

 

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

 

DISCLOSURE:
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Virginia Mines Inc., Balmoral Resources Ltd., Midland Exploration Inc. and Premier Gold Mines Ltd. Goldcorp Inc. is not affiliated with The Gold Report. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Eric Lemieux: I or my family own shares of the following companies mentioned in this interview: Agnico-Eagle Mines Ltd., Barrick Gold Corp., Adventure Gold Inc., Eastmain Resources Inc., Midland Exploration Inc., Teck Resources Ltd. and Virginia Mines 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: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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USDCHF stays within a upward price channel

USDCHF stays within a upward price channel on 4-hour chart, and remains in uptrend from 0.8986. As long as the channel support holds, further rise could be expected after a minor consolidation, and next target would be at 0.9200 area. On the downside, a clear break below the channel support will indicate that lengthier consolidation of the longer term uptrend from 0.8799 is underway, then pullback to 0.9000 area could be seen.

usdchf chart

Provided by ForexCycle.com

An Aggressive Way to Achieve Amazing Growth in the Market

By MoneyMorning.com.au

There’s one thing about the markets that strikes me a few weeks after Christmas, year after year.

As investors get back to work, they ponder the ways to beat the investment returns they achieved in the previous twelve months. They skim through the yearly outlook pieces that large brokerage firms and investment banks love to produce.

And they notice something. It’s the same thing they notice every year.

The authors of these yearly outlooks almost invariably predict that the Australian share market will move in the same direction as it did the previous year. And almost every time they predict the same returns ; somewhere in the region of 5 -10%.

Why is that?

It’s probably because that’s about the average return for stocks. If there’s one thing mainstream analysts want to avoid, it’s being an outlier. So it’s no surprise that the crystal balls the pin-striped analysts peer into always seem to tell such similar stories.

That was clear to me in the wake of the global financial crisis, when I worked on the London equity desk of an international investment bank. And it’s clear to me now as I cast my eye across Australia’s mainstream financial press.

You need look no further than the chart below. It’s a survey of five strategists from five of the world’s highest-profile investment banks. Their consensus: a 10% gain for the index in 2014.


Source: AFR Smart Investor
Click to enlarge

Here’s some food for thought. When polled at the end of 2012, the strategists from the five banks listed above forecast 2013 stock market returns averaging -3.2%. The analysts underestimated then, as they do now, the powerful effect of globally coordinated quantitative easing.

So much for the markets being forward-looking.

Let me tell you what’s also highly predictable. The factors that drive any year’s stock returns will be different from the factors that drove the previous year’s market.

That means the sectors, styles and stocks that outperform in 2014 are most likely poles apart from what worked well in 2013.

What do these two highly predictable outcomes tell us?

And how can they help keep your investment growth humming along after a successful year in the markets, like the one we’ve just witnessed?

The moral of the story is this…you can’t just set it and forget it.

Your portfolio, that is. That approach might work for your home air conditioning, but don’t try it here.

The secret to improving your returns is as simple as this: Take control. Get active. And when the facts change, so too should your investment strategy.

An Upturn in Profits?

Taking control is particularly important now that the S&P/ASX 200, at 14.9 times future earnings, is trading above its long-run average.

The easiest gains may have already been made.

There are still plenty of potential winners trading on the stock market. You just have to look harder to find them.

So, what’s changing, and how should you respond?

Let’s take a quick look at two important data points.

First, let’s look at employment. The ANZ index of monthly job ads for December was released last week. It showed that the number of jobs advertised online – which covers more than 95% of all jobs advertised – fell 0.7% month-on-month. That means this series has fallen by 9% over the course of 2013.

At face value, fewer job ad listings is bad news. You might argue that this points to rising unemployment in coming months. But it’s important to look behind the headlines.

Job ads in certain markets have been rising for months now. There’s been a real pick-up in the non-mining sectors of the economy. And it’s companies in New South Wales that are leading the charge.

That 0.7% monthly decline is the smallest fall recorded in months. That means we’re looking at signs of a turnaround. And it means companies whose earnings are sensitive to employment trends could be set for an upturn in profits.

That’s a topic I covered in some detail in this month’s issue of Australian Small-Cap Investigator.

A Key Money-Multiplying Theme for 2014

Second, the valuations of the ‘Big Four’ banks look stretched. The banks have had a charmed run. If you’ve taken the view that the best time to sell Aussie bank stocks is ‘never’, then you have probably done well over the past year.

The banks have done so well, in fact, that their valuations have blown out to a historic premium against their peers.

Bloomberg data shows that the share prices of the Commonwealth Bank [ASX: CBA], Westpac [ASX: WBC], Australia & New Zealand Banking Group [ASX: ANZ] and National Australia Bank [ASX: NAB] are at their most expensive since before the global financial crisis.

The big banks now trade at 2.1 times the net value of their assets. They’re more expensive than they’ve been at any point since 2007. And as measured by the MSCI World Bank index, they’re 75% more expensive than their global peers!

Given the run they’ve had, the major banks will probably struggle to deliver the level of earnings in the future that’s implied by their share prices today. Although this group drove the S&P/ASX 200 in 2013 with a 22% stock price surge, you’ll have to dig a little deeper to find the sectors and stocks that will lead growth in 2014.

If you’re looking for growth in 2014, I prefer smaller financial firms that are flexible enough to embrace alternative lines of business. I’m talking about anything from purchasing non-performing debt, to short-term lending, to coming up with innovative structured transactions.

In other words: places where the big banks fear to tread.

These are the areas where nimble, aggressive firms can rack up amazing growth in a matter of months. The company I profiled in the latest issue of Australian Small-Cap Investigator fits into this mould. It grew revenues by 40% last year and has just expanded into a highly attractive complimentary business.

This will be a key theme for investors this year. And in a market where investors are eager to find value, opportunities like this tend to be short-lived.

Tim Dohrmann
Analyst, Australian Small-Cap Investigator

From the Port Phillip Publishing Library

Special Report: 2014 Predicted

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By MoneyMorning.com.au

Commodities Priced For Perfection?

By MoneyMorning.com.au

It’s taken me nearly 10 years but I’ve finally found a way to profit from global warming (and other extreme weather events.)

In the past I’ve simply lamented about the global warming pandemic. Fact is, with all of the back and forth in the media it’s hard to discern any real truth in the matter. But, regardless of which side of the argument you’re on, you’ve got to admit one thing: there’s a lot of money sloshing around. (Think: billions and billions.)

Let’s look at what could be the year’s best contrarian commodities play…
This from Bloomberg:

The past decade included Europe’s hottest summer in at least 500 years in 2003, while 2010 brought western Russia’s hottest summer in centuries and record rain in Pakistan and Australia, according to the Potsdam study published in the journal Nature Climate Change. Japan and some states registered all-time-high rainfall in 2011, while the Yangtze River basin in China had a record drought.

Weather extremes may cause agricultural production to move away from “extreme specialization,” where farmers who can no longer be certain of spring rain for a particular crop may grow four or five different ones instead, according to Hermann Lotze-Campen, a researcher at the Potsdam institute.

Over the past few years, commodity farmers dealt with the reality of extreme weather events – from 100-year droughts to 100-year floods. Growing staples like corn, wheat, soybeans, rice, coffee, cocoa, orange juice and more, farmers have seen many ups and downs – and I expect to see a lot more of these large-scale weather events in the coming years.

For our purposes here it doesn’t matter much if these events are caused directly by global warming or not – in fact, we’ll leave that up to the experts to debate.

Indeed, it almost doesn’t matter that heat waves, droughts, tsunamis or other volatile weather patterns wreak havoc on crops. Just the threat of these 100-year weather events is enough to goose prices.

The idea behind my thesis is simple. A heat wave or cold snap across the globe could urge farmers to up their ante on crop insurance, buy more resilient seeds, try a stronger type of fertiliser or go to any other further measures to prevent crop spoilage. In short, farmers are paying more to protect their crops from one-off events.

Furthermore, each year the world is demanding more and more foodstuffs. Demand is ratcheting up in emerging markets for grains and feed for livestock. Add it all up and demand is pushing farmers to their limits. In that sense farmers MUST get everything they can out of each crop.

When it comes to preparing for extreme weather events, the cost of farming is likely to rise. And that will lead to a simple but surefire rise in the price of many commodities.

Never Bet On Perfection

The debate surrounding global warming and volatile weather is just one example of things that can go wrong in the world of growable commodities. It’s a clear-cut reminder that no matter how much we think we’re set for another year of the status quo, we may not get what we expect.

Indeed, over the past few years, even in the face of on-and-off weather events we’ve seen bumper crops world over. Whether it’s coffee in Vietnam and Brazil or wheat in Russia and the US, we’ve seen stockpiles consistently grow over the past few years.

Lately, the market has started to factor in all but perfection for many of the most common staple commodities.

But today I’d like to warn you not to bet on this ‘perfect’ scenario.

I’ve said this in the past but it’s worth reiterating today: all it takes is one bad season for prices to rise. Drought, flood, crop-plague, strike, political up rise…any of these events could lead to a short-term disaster.

And when ‘perfection’ is built into the price of commodities, there’s a straight forward opportunity for investors like us.

This looks to be the case in the corn market…

A Contrarian Commodities Play

2012 is a distant memory for corn traders these days. Back then, a summer drought (one of the worst seen in generations) wreaked havoc on the corn crop – cutting the year’s crop by 13%.

2013, however, was a bumper crop. The US produced the most corn on record – and stock houses were filled to the brim.

Today traders are pricing in perfection – a perfect, bumper crop – for the corn market. A quick look at the price of corn, and you’ll see that prices are the lowest they’ve been since 2010.

Add together the recent string of weather volatility and an all but perfect estimate for this year’s yet to be planted crop, and you’ll see that we could be in for a pop in corn prices.

Matt Insley,
Contributing Editor, Money Morning

Ed Note: The above is an edited version of an article originally published in Daily Resource Hunter.

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By MoneyMorning.com.au

Binary Options in MT4 What You Should Know

By clmforex.com

Since binary options were introduced back in 2011 they have definitely exceeded expectations in terms of popularity. As a result the number of binary option brokers has increased exponentially to help meet Public demand. Brokers and exchanges like NADEX have reported record volumes for 2013 and from all indications the trend will continue into 2014.

Recently some of the largest FX brokers in the world have begun to offer their clients the ability to trade binary options.  The vast majority of these brokers are using web-based platforms to offer their clients binary options trading. This puts the binary options trader at a big disadvantage as they do not have any of the analytical tools necessary to make trading decisions. Another issue with these platforms is that most of them require the trader to open a real account in order to see the platform work. It can be very frustrating to see a platform work and then have a message

Over the past several years FX traders have become accustomed to using software like MT4. This software which is not just known for its analytical tools but also for its ability to allow automated trading systems with expert advisors.  A new recent technology regarding binary options allows traders trade through select brokers binary options on MT four. This gives the binary options trader full transparency of the market as well as access to the tools necessary in making a trading decision. Traders are also welcomed to test out the Binary Options MT4 as a demo account.

Some of the advantages of trading binary options MT4 are:

  • The ability to trade both FX and Binary Options in the same platform
  • Easily change expirations from 1 minute to 1 hour
  • Trade with a little as $5
  • The ability to trade binary options using expert advisors
  • Trading Binary Options in MT4 offers a greater level of security

To learn about trading binary options in MT4 please visit www.clmforex.com

 

Disclaimer: Trading of foreign exchange contracts, contracts for difference, derivatives and other investment products which are leveraged, can carry a high level of risk. These products may not be suitable for all investors. It is possible to lose more than your initial investment. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. A Product Disclosure Statement (PDS) is available from the company website . Please read and consider the PDS before making any decision to trade Core Liquidity Markets’ products. The risks must be understood prior to trading. Core Liquidity Markets refers to Core Liquidity Markets Pty Ltd. Core Liquidity Markets is an Australian company which is registered with ASIC, ACN 164 994 049. Core Liquidity Markets is an authorized representative of Direct FX Trading Pty Ltd (AFSL) Number 305539, which is the authorizing Licensee and Principal.

 

 

Peak Over for U.S. Travel Stocks, but China’s Travel and Lodging Stocks Just Getting Started

by George Leong, B. Comm.

The Chinese are on the move and unless you enjoy crowds and mass chaos on the roads, rails, and in the sky, I don’t advise you ever go and visit China during this time of the year.

This very intensive travel period is the busiest in the Chinese calendar year—akin to Christmas and Thanksgiving Day, but much more chaotic when you consider the size of the population. In China, it’s known as “Chunyun”—a 40-day period around the Chinese New Year when the masses (and we mean masses when talking about China) scramble to travel. This is the time when families reunite for big dinners, to set off fireworks, and to share their plans for the year ahead.

If you think Black Friday or New York City at their peaks were bad, it’s nothing compared to what happens in China during this stretch, which would even make the native NYC commuter queasy.

According to the National Development and Reform Commission (NDRC), about 3.62 billion passenger trips will be undertaken during this 40-day stretch. (Source: “Transport system to be fully stretched for ‘Chunyun,’” ChinaDaily.com, January 14, 2014.) That’s a lot of people.

And whether it’s the roads, rails, or sky, everything will be one big massive network of travel: Approximately 258 million train rides will occur during the period, according to the China Railway Corporation. In the sky, there are estimated to be around 42 million flights, based on predictions from the Civil Aviation Administration of China. And the roads…well, think “parking lot.” (Read “My Favorite Chinese Car Company.”)

Yet while we can avoid this somewhat-organized chaos, you can rest assured that the Chinese hotel and travel industry is going to make money off of it.

In the rail area, a mid-cap U.S.-listed Chinese railroad stock that I follow is Guangshen Railroad Company Limited (NYSE/GSH, $19.93, market cap: $2.81 billion), which trades as American depositary shares (ADS). The company is focused on the passenger segment, which includes the Guangzhou–Shenzhen inter-city train service in southern China, which connects these two economic and manufacturing hubs, along with the Hong Kong Through Train passenger service, operated in conjunction with MTR Corporation in Hong Kong.

Guangshen Railroad provides a possible longer-term buying opportunity with above-average growth for the aggressive investor.

            Chart courtesy of www.StockCharts.com

Now many of the travelers also need a place to hunker down unless, of course, they don’t mind squeezing in with their families or relatives. (Personally, I would opt for the hotel.)

On this note, a value-oriented U.S.-listed Chinese hotel chain worth a look is China Lodging Group, Limited (NASDAQ/HTHT, $29.79, market cap: $1.83 billion). You could say that China Lodging is kind of like the “Super 8,” “Howard Johnson,” or “Comfort Inn” of China.

            Chart courtesy of www.StockCharts.com

 

China Lodging operates more than 1,200 high-quality, conveniently located, and reasonably priced economy to mid-scale hotels. While I haven’t stayed at one of the company’s hotels, I have stayed at other major Chinese hotel chains and can say they are a pretty good value, which makes them an attractive choice to travelers.

So for the next 40 days, stay away from China unless you want to vaporize into the traveling masses that promise to take hold. Instead, experience the joys of Chunyun from the comfort of your own home through U.S.-listed Chinese travel and lodging stocks.

This article Peak Over for U.S. Travel Stocks, but China’s Travel and Lodging Stocks Just Getting Started  was originally posted at Profit Confidential

 

 

Canada holds rate, notes growing downside inflation risks

By CentralBankNews.info
    The Bank of Canada (BOC) maintained its policy rate at 1.0 percent, as widely expected, but cautioned that inflation “is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance” despite an apparent strengthening of the fundamental drivers of economic growth and future inflation.
    The BOC, which has maintained its target for the overnight rate at 1.0 percent since September 2010,  said inflation was now expected to be lower than previously expected and first return to the bank’s target in about two years as the effect of heightened competition in the retail sector and excess capacity in the economy is absorbed.
    The central bank, which dropped a slightly tightening bias in November, was neutral in its guidance, saying the “timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks.”
    Among the risks identified by the BOC is high household debt, which the BOC said had not materially changed, though it added that recent data confirmed that the housing market is undergoing a soft landing and the ratio of household debt to income is stabilizing.
   In its latest policy report, the BOC trimmed its forecast for inflation this year compared with its October projection but maintained the forecast that headline inflation would hit the bank’s 2.0 percent target by the fourth quarter of 2015.

    The forecast of economic growth this year was raised while the forecast for 2015 was lowered.
    “Real GDP growth is projected to pick up from 1.8 percent in 2013 to 2.5 percent in both 2014 and 2015. This implies that the economy will return gradually to capacity over the next two years,” the BOC said.