Month: April 2014

By HY Markets Forex Blog

Gold is seen as a safe haven for investors when other markets are too volatile. For example, when equities are on the decline, chances are gold prices will rise. For this reason, gold options traders should keep a close eye on economic data that impacts the stock and other markets to attempt to predict movement of the precious metal.

One report that has had an impact is on manufacturing, which was recently released showing U.S. factory activity increased in March. Production posted its biggest gain since the recession – a sign that the economy could be headed in the right direction after a slow winter, according to Reuters. If the economy continues to gain momentum, gold options traders should be aware the prices may fall.

However, experts say not to expect too steep of price declines, as demand could pick up if prices fall steeply.

“Given gold’s recent drop below $1,300 an ounce, we have noticed a slight increase in physical demand from Asia,” James Steel, chief precious metals analyst at HSBC, told Reuters. “Further weakness to gold prices may elicit stronger buying from the emerging markets and help cushion further losses.”

In fact, prices increased from a seven-week low based on speculation that declines could spur purchases of bars and jewellery in China, according to Bloomberg.

“People are betting on increased physical buying and bargain hunting at these levels,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, told Bloomberg.

With an improving U.S. economy driving gold prices down, and the potential for Chinese demand pushing it the other way, a boundary option on gold could be a good move right now if traders can identify upper and lower levels in which they believe gold prices will remain.

The post Strong U.S. Manufacturing Data Pushes Gold Down appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By MoneyMorning.com.au

The future of money dominated the World War D conference — but Greg Canavan’s presentation charted the history of money.

His first task was to define money. Why would you define money? It’s just the stuff you put in your wallet, right?

Well Greg gave the audience this simple definition: money = credit = debt. All money created in the economy is simply debt.

Think about it. When you take out a loan, the bank assesses your credibility and then credits your account — money is created out of thin air. It happens on a bigger scale with business loans too.

But it wasn’t always like this, said Greg.

Up until 1914 gold was money. Money was not debt, it was not credit, it was simply gold. The classical gold standard ensured only the credible borrower got credit, and most of the credit extended was business credit.

It was a stable system, but when the First World War came along the system couldn’t cope. There was a run on banks, which led to shrinking credit and shrinking money supply. Gold’s virtue is that it acts as a natural break on the economy when things start to heat up, but as the First World War ramped up this virtue became a failing.

And so in 1922 the system was slowly unravelled with the introduction of the Gold Exchange Standard, which allowed British pounds and US dollars to be exchanged for gold. It ‘…enabled countries to pay for goods and services with debt. Money stopped being gold and became debt,’ said Greg. ‘The world went on a massive credit expansion, leading to the roaring twenties, technological advancement and a global stock market boom.’

Booming debt, technological advancement…does it sound familiar? Greg went on: ‘Credit was created to the point where anyone with a shred of credibility could borrow.’ The system was unsustainable, and the Great Depression struck in 1929, ending the world’s addiction to debt.

‘It took many, many years for the world to accept debt again,’ said Greg. After the depression, the credible person saw debt as something to be avoided, and it had major implications for the financial system.

So another system was introduced in 1944. Known as the Breton Woods System, it pegged gold at the rigid price of $35 per ounce. And for a while the system worked and the global economy chugged along nicely.

But by 1960 the first strains hit. The gold price spiked to $40 an ounce in London, which was a ‘major warning sign something wasn’t right in the system,’ according Greg. It doesn’t sound like much of a price shock, but prior to this the gold price moved in the range of 5–10 cents. So in the early 1960s the US, the Bank of England and European banks got together to control the price of gold by secretly trading with each other — this was known as the London Pool System. That also worked — but only for a while.

Again, war brought shock to the system. Following its decision to invade Vietnam the US printed a lot of money. That money flowed through the global system, and people who ended up with US dollars in their hand decided to swap their dollars for gold. By 1968 volumes in the London gold market spiked massively, forcing the US to fly plane loads of gold to the UK every week.

When the gold market eventually closed for two weeks to cope with the shock, the unofficial price of gold was $44 per ounce. It took another three years for the US to move on from the gold standard entirely.

So what does that tell us about today? ‘If you take a step back and realise the flow of money is slow to manifest in larger changes, it makes you realise these things take time to evolve,’ said Greg. ‘We know the current system [of huge debts] is absurd but could quite possibly go on for 5–10 years. When you think something is unsustainable, it is.’

Today’s unsustainable global finance system took off in the 1980s as debt to GDP exploded, led by what Greg termed ‘iceberg finance’.

(Catch Greg’s full presentation by snapping up the World War D DVD now. Go here for details.)

The tip of this iceberg, the small visible part, is securitisation. That’s where banks package up the debts on their balance sheets and sell them as securities.

The mostly invisible mass of the submerged iceberg is the shadow banking system where hedge firms, investment banking and insurance companies exist, lending large sums to borrowers.

But to facilitate this lending, securities are swapped between borrowers and lenders as a form of collateral. The same securities are passed on and on to the point where one Treasury note supports a whole bunch of credit.

It’s as dodgy as it sounds, and prone to collapse, according to Greg. ‘It’s not going to take much of a chink in the chain to bring that system down,’ he said.

We saw the disastrous effects of shadow banking when Lehman Brothers went under. It was using securitised mortgage debt as collateral to borrow money and speculate. As a property market collapse swept through everyone realised that this collateral had no value. This caused a run on the banks that nearly brought the whole financial system down with it.

This is how the world got lumped with QE. Greg said that after the financial crisis, government debt was the only form of collateral left in 2008. But Governments can’t just go to the bank to get a loan when they want debt. The government requires the market to buy its debt, but without liquidity in the market, that’s impossible. QE provided this liquidity, so government borrowing could continue. Global debt is now US$100 trillion and perceived credibility — the belief that this debt will be paid back — is all that’s keeping it together. With QE set to ease in the future, what will happen?

‘I’m not sure how the world is going to cope,’ said Greg.

Greg recommended a prudent approach to navigating this risk. ‘Gold is a great wealth preserver over the long time.’

Holding on to a decent amount of cash is very important too — since no one knows when the proverbial will hit the fan. So too are good value, quality stocks — though Greg believes there aren’t any around at the moment. The search for yield and dividends mean most of the quality stocks in the market are overpriced and share markets look set to deliver very low long term returns at these prices, according to Greg.

If the history of money is anything to go by, then you can bet on a bumpy ride ahead.

Callum Denness
For Money Morning

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By MoneyMorning.com.au

By MoneyMorning.com.au

Satyajit Das, a man gifted with a unique insight into financial markets, was welcomed to the stage at the World War D conference on Tuesday. Part of his introduction was a mention that he doesn’t own a mobile phone.

Yes, that’s right. Apparently it’s news if someone doesn’t own a mobile phone.

The crowd politely laughed. Das wasn’t here to talk about technology, so it didn’t matter that he doesn’t own a mobile phone.

What did matter to the audience was Das’s take on the current mess we call a financial system…

Now Das is an entertaining speaker. His turn of phrase and emphasis had the masses laughing almost every minute. But underneath every line to elicit a giggle or snort was a serious message.

As he stood in front of the attendees, he opened with ‘Problems, what problems? We’re rich. Every minute of every day the Dow makes a new high.’

He then bombarded the audience with truly frightening statistics to demonstrate the absurdity of this statement.

Like the fact that Japan’s market is almost 50% below its all-time highs, and Australia’s share market is about 20% below its all times high. ‘But,’ he paused, ‘You are rich.’

Alarming the crowd further were the inflation-adjusted figures for superannuation over the period of 2000–2013.  His calculations show we’re only up 3.51% on average. ‘But again, you ARE rich,’ Das told the room.

If anyone knows how to keep a crowd hanging, it’s Das. From here, no one dared shift in their seat…just in case they missed some valuable information from his rapid-fire presentation.

Americans on food stamps have risen to 47 million today, from 27 million in October 2007. These are essential, he argued, to keep people from rioting in the streets. He may have been joking. But that one line demonstrates two things: The rise in poverty in a ‘rich’ nation and the increasing dependency on the government to provide.

Moving on, Das wanted to ‘…look at the real economy, where they don’t shuffle papers around.’

But looking at the real economy paints a bleak picture, Das noted.

America needs US$1.6 trillion to create US$300 billion dollars of ‘growth’ in the economy. What’s more, debt levels haven’t been this high since the Napoleonic Wars.

Emerging markets, America and the other countries considered ‘rich’, financialised their economies. They spend more time shuffling assets and financial engineering rather than any real engineering.

Increases in debt levels, financial imbalances and entitlement culture were the causes of the crisis Das tells us.

‘The real solution is to reduce debt, reverse the imbalances, decrease the financialisation of the economy and bring about major behavioural changes,’ says Das.

‘But rather than deal with the fundamental issues, policy makers substituted public spending, financed by government debt or central banks, to boost demand.’

What no politician or central banker will ever tell you, expresses Das, is that we need a 30% drop in gross domestic product.

The historically low interest rates also got a mention from Das on Tuesday. This, he reasons, continues to create imbalances in the economy. However central banks have to keep fiddling with the interest rate. Simply because no one in the Western world has sustainable debt.

‘As an example’ Das explains, ‘a 1% rise in rates would increase the debt servicing costs to the US government by around $170 billion. A rise of 1% in G7 interest rates increases the interest expense of the G7 countries by around US$1.4 trillion.’

Without economic growth, you can’t pay back your debt. However, there is no economic growth. So interest rates won’t go any higher for now.

He points out when then Federal Reserve Chairman Ben Bernanke announced QE3 — quantitative easing — Bernanke said himself that it would not significantly increase economic activity directly.

This leads to the relevance, and perhaps stupidity, of central banks.

Forward guidance, he declared is an abused term in the central bankers handbook of doublespeak.

‘Nobody actually believes central banks anymore,’ he declared.

He likens their language to something similar to a Monty Python skit.

One European Central Bank member said last year, that ‘[forward guidance is] a change in communication but not in monetary policy strategy.’

Or this, from the current US Federal Reserve chairwoman, Janet Yellen. ‘If I thought that was a situation we will likely encounter in the next several years we would probably have revised our forward guidance in a different way. We revised it as we did, eliminating that language because it didn’t seem at all likely.’

However, Das said, nothing ever lives up to the comments from Alan Greenspan (former Fed Chairman): ‘I know you believe you understand what you think I said, but I am not sure you realise that what you heard is not what I meant.’

Later, Greenspan added: ‘If I have made myself clear then you have misunderstood me.’

Finally, when the crowd stopped laughing, Das reminded everyone that, ‘They get paid to do this.’

After the sledging on central bankers was over, he moved on to how we get out of this mess.

And right now, there is no ‘stage left’, according to Das.

Higher interest rates will crash the economy. And the actual limit of money printing isn’t known yet. Das wondered aloud just how much more the world can handle.

Policy incompetence, ‘pointy heads in financial markets’ and plenty of people talking but not actually saying anything aren’t going to dig the world out of the ongoing financial calamity.

From here, Das reckons there’s no path to normalisation. Perhaps secular stagnation or slow global bankruptcy.

More likely, he thinks we’re looking at a life of financial repression from governments. ‘After all, isn’t the art of taxation to pluck the goose with the least amount of hissing?’

With that, he offered the crowd a tip or two on where to stick their money (hint: it’s not shares). And then told the attendees ‘there’s no way out.’

Shae Smith+
Contributing Editor, Money Morning

PS: We captured Das’s full 90 minute presentation on tape. You can find out how to watch it, plus more than 15 hours-worth of other intriguing material and financial insight from the conference, here.

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By MoneyMorning.com.au

By OilPrice.com

There is only one certainty in Ukraine: The energy sector must and will be transformed, and how long this takes will depend on who ends up in the driver’s seat and how serious they are about becoming a part of Europe and reducing dependence on Russia. But by then, investors will have missed the boat.

The driving factor for any energy investor in Ukraine is the pricing environment. There is nowhere else in Europe—or some would even argue in the world—where you are going to get significant access to resources and potential resources for the price. Gas is selling at $13.66/Mcf, while it costs $4-$5 to produce and operate. That means producers are netting anywhere between $8 and $9/Mcf.

Whether it likes it or not, kicking and screaming, Ukraine will have to transform its energy sector, if it hopes to see promised IMF money. Kiev will have to start selling off assets and making the industry much more transparent. Greater transparency coupled with an already-favorable gas price environment, will make Ukraine one of the best places to be over the next 5-7 years.

While everyone is now closely watching the campaigns unfold in the run-up to 25 May presidential elections, in the end who wins the presidency—and even the energy ministry—will determine not if, but how fast the country moves to transform its energy sector.

The crucial next step is a psychological one: Ukraine’s new leaders must come to the realization that their energy assets, particularly the pipeline system, are not strategic assets, rather they are valuable commercial assets. Privatizing these assets could raise $50 billion.

Right now, the pipeline system is nothing but a conduit for Russian gas into Europe. It could be much more. The pipeline system, and the state-run company that manages it, should be turned into a transparent public company in London, for instance. The sale of 50% of the company could generate sizable profits—half of which could be used to pay down debt to Russia, while the other half could be invested in modernization, turning a potentially valuable assets into a commercially realistic one.

Without the right people in place in the new government, we could perhaps lose a year in getting the necessary reforms in place. And continued talk about the “strategic” nature of these assets could cause investors to lose faith in Ukraine’s seriousness about reducing its dependence on Russia. Eventually, it will happen, and what elections will tell us simply is how long it will take.

There are a lot of resources to be developed in Ukraine, and there are also quite a few companies who have assets they cannot development, primarily due to lack of funding or marginal management teams. These companies will now be seeking to transact with larger players.

Historically, the most significant red flag for new investors in Ukraine has been working with the government. It’s too early to determine whether that will change. Bureaucracy generally kills deals more than anything, and foreign companies coming in will never be able to understand how the bureaucracy works. The smart investor will employ capital through a Ukrainian private entity to maximize investment dollars. Western management teams, without help from local partners, won’t be able to operate in this venue even if they are top-notch managers.

The smart investor will also realize that there is no better time to invest in Ukraine’s energy sector. Once it is transformed, the best opportunities will have been seized.

Source: http://oilprice.com/Energy/Energy-General/The-Most-Profitable-Gas-in-the-World.html

By Robert Bensh of Oilprice.com

By OilPrice.com

On March 28, the White House released a multi-pronged strategy to reduce methane emissions from a variety of sources, a step the administration says is an outgrowth of the President’s Climate Action Plan announced last year. Methane is a powerful greenhouse gas, about 20 times more potent than carbon dioxide. The federal government will target four key areas of methane emissions – landfills, coal mines, agriculture, and the oil and gas industry. The fact sheet indicates that the administration may release a flurry of regulations in the coming months across these sectors. According to the White House, 36% of methane emissions come from agriculture, 28% from natural gas, 18% from landfills, and 10% from coal mining.

For oil and gas drillers, the prospect of regulations on emissions from flaring and fugitive methane has been watched closely by both the industry and environmental groups for several years now. With little action to date from the federal government, steps to control methane have been left to the states. Colorado, for example, adopted the nation’s first standards on methane, with the help of the energy industry.

Oil and gas companies cite that methane emissions have actually declined by 11% since 1990, meaning there is little need to fix a problem that doesn’t exist. On the other hand, environmental groups point to the fact that methane emissions may actually be much higher than what is being currently measured, and in any case, they will rise significantly in the future if nothing is done. If methane emissions are higher than what shows up in the data, natural gas’ environmental benefit over coal may not be as big as many think.

The White House’s methane plan won’t have a huge impact on oil and gas drilling in the short-term. The White House says that the EPA will merely release a series of white papers this year on “potentially significant sources of methane in the oil and gas sector and solicit input from independent experts.” Then, by the fall, the administration will decide whether or not it wants to take further action. If the EPA does decide to pursue regulatory action, the White House will ensure that the rules are completed by the end of 2016, just before Obama leaves office.

However, regulations on flaring will come sooner. The Bureau of Land Management will propose standards on flaring, known as “Onshore Order 9,” later this year. BLM will also publish an Advanced Notice of Proposed Rulemaking in April to highlight its intent to find a solution to capturing methane from coal mines.

Beyond these steps, the Department of Energy will support the development of new technologies that can track, detect, monitor, and capture methane. DOE will do this through loan guarantees, and appropriations proposed in the President’s budget (which hasn’t been passed).

The methane plan from the White House is not exactly overwhelming, and the initial reactions from stakeholders indicate that, at least at this stage, it appears to be pretty innocuous (or vague enough so as not to anger any one constituency). “We all share the goal of a safe, resilient, clean energy infrastructure and natural gas utilities are working with state regulators and key stakeholders to do our part,” said Dave McCurdy, president and CEO of the American Gas Association, according to The Hill. Environmental groups indicated cautious support for the plan. “President Obama’s plan to reduce climate-disrupting methane pollution is an important step in reining in an out of control industry exempt from too many public health protections,” said Deborah Nardone of the Sierra Club. “However, even with the most rigorous methane controls and monitoring in place, we will still fall short of what is needed to fight climate disruption if we do not reduce our reliance on these dirty fossil fuels,” she added. As always, the devil will be in the details.

Source: http://oilprice.com/Energy/Energy-General/White-House-Targets-Methane-Emissions.html

By Nicholas Cunningham of Oilprice.com

By John Mauldin

 

I’m sitting in the British Airways lounge at Heathrow terminal 5, or in other words in my usual office, and trying to catch up on my reading. I was particularly intrigued by my good friend and economic philosopher Ben Hunt’s latest Epsilon Theory post, which he calls “Hollow Men, Hollow Markets, Hollow World.” As he points out, an increasingly smaller portion of trading in the markets is between individuals looking to actually own a fractional portion of a public company for the long term. Instead, trading is gravitating to machines competing with each other in milliseconds and for a profit of milli-cents.

I get the rationale behind the supposed benefits of high-speed trading; but I have to confess, I just don’t buy it. If it was just another way to truly profit from normal commercial activity, I would pretty much have a hands-off attitude. But from everything I can see, high-speed trading is sucking billions of dollars out of the market that would otherwise go to individuals and institutions who are actually there to serve what was once the purpose of Wall Street: to provide new companies with capital and individuals with the chance to participate in the growth of the country. High-frequency trading is a zero-sum game. It takes money from “us” and gives it to funds with instant access to the exchanges.

The fact that high-frequency trading does not work half a mile across the Hudson River because even that short distance slows down the transactions too much, is testimony to the fact that something is truly out of whack. When the speed of light is a barrier to entry, you know we have entered a new era. I am not one to stand in front of the accelerating wave of technology and cry “Stop!” I am rather simpleminded, and it seems to me that if you simply instituted a rule that all buy and sell offers have to at least exist for an outrageous amount of time like one half second, that it would at least begin to level the playing field. The fact that large institutions are gravitating to exchanges where high-frequency trading is not allowed is evidence that the deck is stacked against the smaller investor. A point here and a point there, and pretty soon you’re talking real money.

But in today’s OTB, Ben Hunt doesn’t really focus all that much on high-frequency trading but rather on the fact that so much of economics and investing itself is hollow. Our job, he says, is to find the signal amidst all the noise. This is an Outside the Box that you will need to think through as opposed to merely read.

They will be calling my flight to South Africa in a few minutes. I’ve been thinking back over the ten times or so that I’ve flown to South Africa in the last 20 years. I first went there in the apartheid era. The moods in the country seem to shift with each visit. I can remember talking with people who were sure that South Africa would become the next Zimbabwe. “Apocalypse Now” could certainly describe the mood of those times. And then there are times when there is an optimism so intense it is hard not to get infected. I wonder how South Africa will feel this time.

South Africa really is one of my favorite countries in the world. I think my vote for most beautiful city would have to go to Cape Town (although I admit it comes down to personal taste, as there are quite a few spectacular harbor cities dotted around the world). If the weather permits, I will take my first hot air balloon ride. I’ve tried three or four times over the years and always had bad weather postpone my flight. Flying over the African savannah, looking down on lions and elephants, antelope and rhinoceros, zebra and giraffe sounds rather idyllic. I need to enjoy my time at Kruger National Park, because my hosts have put together a rather aggressive schedule for next week. Even so, I will get to meet scores of South African businesspeople and investors and hopefully gain a renewed sense of where one of the more important countries in the world is heading. I will report back from the frontlines. Until then, have a great week.

Your ready to be in a real bed analyst,

John Mauldin, Editor
Outside the Box[email protected]

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Hollow Men, Hollow Markets, Hollow World

Apocalypse Now (1979), based on “Heart of Darkness” by Joseph Conrad

Kurtz: Did they say why, Willard, why they want to terminate my command?

Willard: I was sent on a classified mission, sir.

Kurtz: It’s no longer classified, is it? Did they tell you?

Willard: They told me that you had gone totally insane, and that your methods were unsound.

Kurtz: Are my methods unsound?

Willard: I don’t see any method at all, sir.

Kurtz: I expected someone like you. What did you expect? Are you an assassin?

Willard: I’m a soldier.

Kurtz: You’re neither. You’re an errand boy, sent by grocery clerks, to collect a bill.

It is my belief no man ever understands quite his own artful dodges to escape from the grim shadow of self-knowledge. The question is not how to get cured, but how to live. Joseph Conrad (1857 – 1924)

Billions of dollars are flowing into online advertising. But marketers also are confronting an uncomfortable reality: rampant fraud.

About 36% of all Web traffic is considered fake, the product of computers hijacked by viruses and programmed to visit sites, according to estimates cited recently by the Interactive Advertising Bureau trade group.

–   Wall Street Journal, “The Secret About Online Ad Traffic: One-Third Is Bogus”, March 23, 2014

Over the last decade, institutional management of equity portfolios has increased from 54% to 81%. …

Institutional buys and sells accounted for 47% of trading volume between 2001 and 2006, but only 29% of trading volume since 2008. …

One of the most significant results of the tension between fewer market participants and larger parent order sizes is that the share of ‘real’ trading volume has declined by around 40% in the last five years.

–   Morgan Stanley QDS, “Real Trading Volume”, Charles Crow and Simon Emrich, April 11, 2012

I first saw Apocalypse Now as a college freshman with two roommates, a couple of years after it had been released, and I can still recall the dazed pang of shock and exhaustion I felt when we stumbled out of the theatre. Nobody said anything on the drive back to campus. We were each lost in our thoughts, trying to process what we had just seen. Our focus was on Marlon Brando’s Col. Kurtz, of course, because we were 18-year old boys and he was a larger than life villain or anti-hero or superman or … something … we weren’t quite sure what he was, only that we couldn’t forget him.

When I reflect on the movie today, though, I find myself thinking less about Kurtz than I do about Martin Sheen’s Capt. Willard. Both Kurtz and Willard were self-aware. They had no illusions about their own actions or motivations, including the betrayals and murders they carried out. Both Kurtz and Willard saw through the veneer of the Vietnam War. They had no illusions regarding the essential hollowness of the entire enterprise, and they saw clearly the heart of darkness and horrific will that was left when you stripped away the surface trappings. So what made Willard stick with the mission? How was Willard able to navigate within a world he knew was playing him falsely, while Kurtz could not? I don’t want to say that I admire Willard, because there’s nothing really admirable there, and this isn’t going to be a web-lite note along the lines of “Three Things that Every Investor Should Learn from Apocalypse Now”. But there is a quality to Willard that I find useful in recalling whenever I am confronted with hard evidence that the world is playing me falsely. Or at least it helps keep me from shaving my head and going rogue.

The WSJ article cited above – where it now seems that more than one-third of all Web traffic is fake, generated by bots and zombies to create ad click-throughs and fake popularity – is a good example of what I’m talking about. One-third of all Web traffic? Fake? How is that possible? I mean … I understand how it’s technologically possible, but how is it possible that this sort of fraud has been going on for so long and to such a gargantuan degree that I don’t know about it or somehow feel it? I’m sure that anyone in e-commerce or network security will chuckle at my naïveté, but I was really rocked by this article. What else have I been told or led to believe about the Web is a lie?

But then I remember conversations I have with non-investor friends when I describe to them how little of trading volume today is real, i.e., between an actual buyer and an actual seller. I describe to them how as much as 70% of the trading activity in markets today – activity that generates the constantly changing up and down arrows and green and red numbers they see and react to on CNBC – is just machines talking to other machines, shifting shares around for “liquidity provision” or millisecond arbitrage opportunities. Even among real investors, individuals or institutions who own a portfolio of exposures and aren’t simply middlemen of one sort or another, so much of what we do is better described as positioning rather than investing, where we are rebalancing or tweaking a remarkably static portfolio against this generic risk or that generic risk rather than expressing an active opinion on the pros or cons of fractional ownership of a real-world company. Inevitably these non-investor friends are as slack-jawed at my picture of modern market structure as I am when I read this article about modern Web traffic structure. How can this be, they ask? I shrug. There is no answer. It just is.

My sense is that if you talk to a professional in any walk of life today, whether it’s technology or finance or medicine or law or government or whatever, you will hear a similar story of hollowness in their industry. The trappings, the facades, the faux this and faux that, the dislocation between public narrative and private practice … it’s everywhere. I understand that authenticity has always been a rare bird on an institutional or societal level. But there is something about the aftermath of the Great Recession, a something that is augmented by Big Data technology, that has made it okay to embrace public misdirection and miscommunication as an acceptable policy “tool”. It’s telling when Jon Stewart, a comedian, is the most authentic public figure I know. It’s troubling when I have to assume that everything I hear from any politician or any central banker is being said for effect, not for the straightforward expression of an honest opinion.

The question is not “Is it a Hollow World?”. If you’re reading Epsilon Theory I’m pretty sure that I don’t have to spend a lot of words convincing you of that fact. Nor is the question “How do we fix the Hollow World?” Or at least that’s not my question. Sorry, but being a revolutionary is a young man’s game, and the pay is really bad. More seriously, I don’t think it’s possible to organize mass society in a non-hollow fashion without doing something about the “mass” part. So given that we are stuck in the world as it is, my question is “How do we adapt to a Hollow World?” As Conrad wrote, the question is not how to get cured, but how to live. How do we make our way through the battlefield of modern economics and politics, a world that we know is hollow and false in so many important ways, without losing our minds and ending up in a metaphorical jungle muttering “the horror, the horror” to ourselves?

Two suggestions for adapting to the Hollow Market piece of a Hollow World, one defensive in nature and one for offense.

On defense, recognize that modern markets are, in fact, quite hollow and everything you hear from a public voice is being said for effect. But that doesn’t mean that the underlying economic activity of actual human beings and actual companies is similarly fake or bogus. The trick, I think, is to recognize the modern market for what it IS – a collection of socially constructed symbols, exactly like the chips in a casino, that we wager within games that combine a little skill with a lot of chance. There is a relationship between the chips and the real-world economic activity, but that relationship is never perfect and often exists as only the slimmest of threads. The games themselves are driven by the stories we are told, and there are rules to this game-playing that you can learn. But it’s a hard game to play, and it’s even harder to find a great game-player who will bet your chips on your behalf. A better strategy for most, I think, is to adopt an attitude of what I call profound agnosticism, where we assume that ALL of the stories we hear (including the narratives of economic science) are equally suspect, and we make no pretense of predicting what stories will pop up tomorrow or how the market will shape itself around them. What we want is to have as much connection to that underlying economic activity of actual human beings and actual companies as possible, and as little connection as possible to the game-playing and story-telling, no matter how strongly we’ve been trained to believe in this story or that. I think what emerges from this attitude can be an extremely robust portfolio supported by more-than-skin-deep diversification … a portfolio that balances historical risks and rewards rather than stories of risk and reward, a portfolio that looks for diversification in the investment DNA of a security or strategy as well as the asset class of a security or strategy.

On offense, look for investment opportunities where you have information that reflects an economic reality at odds with the public voices driving a market phenomenon. This is where you will find alpha. This is where you can generate potential returns when the economic reality is ultimately revealed as just that – reality – and the voices shift into some other story and the market matches what’s real. These opportunities tend to be discrete and occasional trades as opposed to long-standing strategies, because that’s the nature of the information beast – you will rarely capture it in a time and place where you can act on it. Almost by definition, if the information is being generated by a public voice it’s probably not actionable, or at the very least the asymmetric risk/reward will have been terribly muted. But when you find an opportunity like this, when you have a private insight or access to someone who does against a market backdrop of some price extreme … well, that’s a beautiful thing. Rare, but worth waiting for.

I’ll close with a few selected lines from TS Eliot’s The Hollow Men, because I’m always happy to celebrate a time when poets wore white-tie and tails, and because I think he’s got something important to say about information and communication, authenticity and deception. Between the idea And the reality Between the motion And the act Falls the Shadow

What is the Shadow? I believe it’s the barrier that communication inevitably creates among humans, including the mental barriers that we raise in our own minds in our internal communications – our thoughts and self-awareness. Sometimes the Shadow is slight, as between two earnest and committed people speaking to each other with as much authenticity as each can muster, and sometimes the Shadow is overwhelming, as between a disembodied, mass-mediated crowd and a central banker using communication as “policy”. Wherever you find a Shadow you will find a hollowness, and right now the Shadows are spreading. This, I believe, creates both the greatest challenge and opportunity of our investment lives … not to pierce Eliot’s Shadows or to succumb to Conrad’s Heart of Darkness in our hollow markets, but to come to terms with their existence and permanence … to evade their influence as best we can, all the while looking for opportunities to profit from their influence on others.

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By Casey Research

Gloom Boom & Doom Report publisher Marc Faber discusses the fragile state of the US and global financial systems… how rising inflation will affect the average American… how soon the bubble will burst… and why gold and silver will triumph.

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Here are a few highlights:

“The US is a country that likes to create trouble, but they don’t like to clean up things.”

“We’ve now been five years into the bull market and the US economy bottomed out in June 2009. We already had a crack-up boom—not in the economy of the typical household, but in the economy of the super-well-to-do people, whose asset prices rose dramatically and as a result created a huge wealth inequality.”

“My view would be that we have already printed so much money, and to accelerate it will be bringing about numerous other problems, so my time frame is that the [bubble], maximum, will burst in three years’ time.”

“Once the collapse happens, the power of central banks will be curtailed greatly because people will realize who brought along first the Nasdaq bubble in 1999: The Federal Reserve. Who brought about the housing bubble between 2001 and 2007? The Federal Reserve. And who is bringing now along another great credit bubble and asset bubble? The Federal Reserve.”

“I don’t think that anything is very cheap, but if I have to compare different asset prices, say real estate, stocks, bonds, commodities, gold, art, and so forth—and old cars—then I think that gold and silver [are] relatively inexpensive because they have had big corrections already, and you should not forget that the global bond market now is over $100 trillion.”

Source: Kevin Michael Grace of The Gold Report (4/2/14)

http://www.theaureport.com/pub/na/looking-for-1-000-gains-resource-investor-oliver-gross-has-some-junior-mining-names-for-you

The bottom is in, declares Oliver Gross of Der Rohstoff-Anleger (The Resource Investor), and the bulls are ready to charge. In this interview with The Gold Report, Gross says that the woefully undervalued juniors will exploit their leverage advantage, with best-in-class companies gaining as much as 500% to 1,000%—or more. And he lists more than a dozen gold, silver and copper companies most likely to soar.

The Gold Report: Gold has fallen in the second half of March. Why?

Oliver Gross: I think it’s a correction after the strong rally since December. And the situation in Ukraine has quieted down. We’ve also seen a strong uptrend since the beginning of 2014 and now it feels like a healthy consolidation.

TGR: Since December, we’ve had a very significant rise in gold equities. What is the cause? Gold rising from $1,180/ounce ($1,180/oz)? Or is it a cyclical change?

OG: It’s a combination of bottom-building in the gold price and the end of the bear market, which resulted in one of the heaviest selloffs ever. The gold equities [NYSE Arca Gold BUGS Index (HUI)] to gold price ratio hit a multidigit low in 2013 (HUI:Gold). We have a solid double-bottom formation in the gold price in place and the end of the selling pressure from the gold exchange-traded funds (ETFs) and exchange-traded products.

We also see continuous strength in the physical gold market, especially the huge buying power from China, now the world’s largest gold consumer and producer. And you can assume that China isn’t a speculator regarding its aggressive purchases, but rather a prudent long-term investor. Maybe it has already developed a gold-backed yuan currency model that could be the new world currency.

The first quarter is always very important for equities. More and more market players have now realized the tremendous performance potential in gold mining stocks and joined the recent rally.

HUI:Gold Ratio (1996–2014)
Source: macrotrends.net

TGR: The NYSE Arca Gold BUGS Index has risen even as the broader market has been shaky. What do you make of that?

OG: It wasn’t a surprise, as valuations in the gold mining sector were not far from complete depressions. In addition, the gold producers have reformed after the big selloff in their equities. We have noted a significant change in business philosophy and a newfound drive to create a more robust and sustainable business model. The gold producers have successfully changed their focus from growth at any cost to maximization of profitability, growth in capital efficiency and real shareholder value.

The gold producers’ income margins at price levels around $1,300/oz are still extremely slim. So there is a fantastic leverage in place, and with higher gold prices, the margins are going to explode. With a new gold bull market, which could lead to gold prices far above $2,000/oz in the next two to three years, we might see new, all-time highs in the NYSE Arca Gold BUGS Index. But I believe the next bull market rally will be more specific and focused on the best-in-class stocks.

TGR: Could we see the broader equities markets taking substantial losses, even as precious metal stocks increase in price?

OG: That would make sense, as we have had a very strong bull market in the broad equity markets and a very tough bear market in precious metals and other mining stocks.

TGR: The Market Vectors Junior Gold Miners ETF (GDXJ:NYSE.MKT) has risen significantly higher than the majors. Does this surprise you?

OG: The Market Vectors Junior Gold Miners ETF fell from an all-time high of nearly 180 points at the end of 2010 to a historic all-time low of only 29 points at the end of 2013. So its strong rally didn’t surprise me. Most important has been the astonishing rise of trading volume. This is the key in every turning point. The juniors, with their low valuations, usually have far higher leverage, and that is the reason why we see even more volatility in both directions.

Source: bigcharts.com

It’s a very good sign that the juniors have outperformed the majors, as appetite for risk in the junior mining space is essential. We have seen a strong increase in financings and financing volumes in the junior gold equities market during Q1/14. That’s a very healthy development.

TGR: There was a significant drop across the board in gold and silver equities in March. Was this mere profit taking, or have we reached an intermediate plateau?

OG: It really feels that we have seen the bottom now, and the bottom-building process always takes some time. The next few years will be a very attractive period to invest in high-quality resource companies.

TGR: How do you determine the price buy limits for the stocks you recommend? In other words, why are stocks good buys at one price and not another?

OG: When it comes to choosing mining stocks, I put a strong emphasis on deep research and fundamental analysis. This is crucial in a market where more than 80% of all junior mining companies will ultimately fail. It’s all about quality and investors always have to be very, very picky in selecting picks that could become their favorites.

After my thorough due diligence and conversations with managements and fund managers, I select my favorites, which I buy for the middle to long term. The other crucial factor is timing. For instance, you could have invested in the best-of-class companies from 2011–2013, and it wouldn’t have made any difference, as the whole sector was punished. But when the timing is right, which seems to be now, it doesn’t matter if an investor buys a great junior mining company at $1 or $1.50/share.

TGR: What are the specific criteria you seek in your research and analysis?

OG: I seek experienced and excellent management teams with strong track records and large networks; companies with healthy cash balances, solid financing outlooks and tight share structures with patient and successful investors; and projects that are decent-sized, attractive and well-located with exploration and expansion potential, projects that are economic even in low metal price environments. Aggressive project-development schedules are also very important. I also want to see strong and clear ambitions.

TGR: What gold companies come to mind in this respect?

OG: Columbus Gold Corp. (CGT:TSX.V) is led by very smart and prudent people. Most are well-versed geologists and genuine resource experts. Additionally, they have experienced financial experts and a strong network of investors and supporters. Columbus is developing one of the most promising early-stage gold projects in South America, the Paul Isnard project in French Guiana.

Paul Isnard already contains a 5+ million ounce (5+ Moz) deposit. Exploration potential is outstanding. The resource contains a higher-grade ore body with decent grades of about 2 grams/ton (2 g/t) gold. The whole deposit is very flat and the continuity and quality of gold mineralization are favorable. There is still a lot of work to be done, but I see solid potential for a large-scale, very profitable gold mining operation.

Columbus’ management acted to avoid heavy dilution yet develop its project on a fast track by making a deal with the Russian company Nordgold N.V. (NORD:LSE), one of the top 20 gold producers worldwide. It speaks for itself that four substantial gold companies are already involved in Paul Isnard: Nordgold and its well-capitalized project partner, the French producer Auplata S.A. (ALAUP:PA), mid-cap producer IAMGOLD Corp. (IMG:TSX; IAG:NYSE) and Sandstorm Gold Ltd. (SSL:TSX.V; SAND:NYSE.MKT), which bought a lucrative net smelter return last year.

TGR: What else do you like in that region?

OG: In Guyana, there is Sandspring Resources Ltd. (SSP:TSX.V) and its Toroparu project, which has 10 Moz gold and decent copper credits. I have tracked this company for years and decided to recommend it after its agreement with Silver Wheaton Corp. (SLW:TSX; SLW:NYSE). This is a game changer. I hear that Silver Wheaton selected Sandspring over 50 other juniors with decent gold assets.

The overall economics of Toroparu project are pretty good, with a solid return on investment. It has great support from the Guyana government. With the Silver Wheaton agreement, Sandspring now has the funds to reach the feasibility stage. I also like the company’s high insider holdings, more than 25%. This is a perfect leverage play for me at its current valuation, as it will benefit greatly from what we expect will be a significant upturn in the gold price.

TGR: What other regions do you like in South America?

OG: I like the Antioquia Department in northwest Colombia, which is still widely underexplored. This is home to Continental Gold Ltd.’s (CNL:TSX; CGOOF:OTCQX) Buriticá project, one of the world’s best. It already boasts 6+ Moz of over 10 g/t gold and will soon publish a new resource estimate. I believe it will ultimately contain 10+ Moz. This could be a huge cash cow.

Continental Gold has a great management team with a fantastic track record, including CEO Ari Sussman and Chairman Robert Allen, the company’s largest shareholder. In December 2012, Continental raised CA$86.3 million (CA$86.3M), a truly outstanding amount for a junior gold company. This financing avoided dilution and enabled one of the largest gold exploration programs in South America. With a current cash balance of more than CA$100M, the company is perfectly positioned to bring Buriticá to feasibility and the final milestones in the permitting process.

TGR: Do you like any other companies in Antioquia?

OG: Not far from Buriticá, Red Eagle Mining Corp. (RD:TSX.V) has found a lucrative, 5+ g/t gold ore body at its Santa Rosa project. Its key deposit, San Ramon, has very attractive economic numbers, even at lower gold price levels, and a fantastic return on investment. Also, there is great infrastructure access, which leads to positive cost reductions. Red Eagle is on track to reach feasibility this year. It also has great exploration and expansion potential at its huge flagship property.

What really makes this special is the low capital expense (capex) of about CA$85M. Financing shouldn’t be a problem, as Red Eagle is backed by two financially sound, strategic investors that own more than 30% of the company. The first is Liberty Metals & Mining Holdings LLC, which is a daughter company of the insurance giant Liberty Mutual of Boston. The second-largest shareholder (after management) is Appian Natural Resources Fund L.P., a new mining-focused fund that is led by two successful former J.P. Morgan bankers.

Red Eagle’s CEO, Ian Slater, is a smart and talented manager who has put together an amazing team that is doing fine community work in Colombia.

TGR: This is a stock that is trading at only $0.335/share.

OG: Absolutely great leverage there. It did its IPO at $1.25.

TGR: Do you like any gold companies in Brazil?

OG: Brazil Resources Inc. (BRI:TSX.V; BRIZF:OTCQX). Its genius chairman is Amir Adnani, the mastermind behind Uranium Energy Corp. (UEC:NYSE.MKT). Brazil Resources is his new darling, and he has huge ambitions. The company has a strong team of resource experts and well-connected finance people, as well as an excellent share structure and shareholder structure. It is backed by the Brasilinvest crew, which has attracted funds of more than $16 billion ($16B) since its establishment.

Other prominent investors and backers of Brazil Resources are the Casey Group and Sprott. So it’s a pretty good sign that most of the outstanding shares are in strong and highly qualitative hands.

Brazil Resources owns a huge and promising land package of gold mining concessions in Brazil, including a multimillion-ounce gold resource with plenty of exploration potential.

In addition, the company holds a highly interesting land package next to Fission Uranium Corp.’s (FCU:TSX.V) Patterson Lake South discovery in Saskatchewan. This project is in a lucrative joint venture with a uranium major, AREVA SA (AREVA:EPA), so it could be a very profitable offtake.

One my friends from Vancouver is a strong supporter of this story: Mr. Gianni Kovacevic is a great investor with a huge network and the chief editor of The MEDAP Letter, which has Brazil Resources in its resource portfolio.

With Brazil Resources we have a great team, very attractive projects, sufficient funds, first-class investors and a strong schedule. These are the fundamentals I want to see in a junior gold story.

TGR: You mentioned ambitious management. Which other teams come to mind?

OG: Two gold juniors I follow closely are True Gold Mining Inc. (TGM:TSX.V) and Pilot Gold Inc. (PLG:TSX). Both companies are led by the masterminds of Fronteer Gold, which was acquired by Newmont Mining Corp. (NEM:NYSE) in a $2.3B deal. The former president and CEO of Fronteer is Mark O’Dea, one of the most skilled managers in global junior mining. He is now the executive chairman of True Gold and the chairman of Pilot. Both companies are backed by first-class strategic investors and mining companies and have great financials. I really like the business philosophy and the strong ambitions of the stunning head management here.

TGR: What can you say specifically about these companies and their projects?

OG: True Gold is developing in Burkina Faso one of the most promising and profitable gold projects worldwide: Karma. It is already approaching mine financing and the start of construction. In gold mining today, it’s all about margin, and True Gold owns a margin leader with district-sized potential.

Pilot Gold has had a very impressive gold discovery at its Kinsley Mountain project in Nevada this year. This could be a world-class gold deposit comparable to Fronteer’s Long Canyon deposit. In Turkey, the company is developing the huge TV Tower project, which is in a joint venture with resource giant Teck Resources Ltd. (TCK:TSX; TCK:NYSE). TV Tower seems to contain several decent gold, silver and copper deposits and has great development and exploration potential.

TGR: Do you like any other African companies?

OG: My favorite among the major gold producers is Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE). And I have a Buy rating on explorer Legend Gold Corp. (LGN:TSX.V), which has just joint-ventured with Randgold in an amazing land package below the biggest gold mine in Mali.

TGR: And elsewhere in the world?

OG: I have a Buy rating for junior producer Timmins Gold Corp. (TMM:TSX; TGD:NYSE.MKT). Its San Francisco gold mine in Mexico is one of the lowest-cost producers in the world. And I have a Buy rating for developer Dalradian Resources Inc. (DNA:TSX) in Northern Ireland. Its Curraghinalt project is one of the highest-grade gold projects in the world.

TGR: You favor very few silver companies as compared to gold. Why?

OG: When things get serious, gold is the best storage of wealth and the best protection against turbulence. Silver’s role will always be a combination of industrial metal and investment asset. And most silver supply comes from base metal mines as a byproduct, so its producers don’t really care about the silver price.

Moreover, the silver market is extremely tight and thus even more so than gold subject to manipulation by the likes of J.P. Morgan, Goldman Sachs, HSBC and other influential players in the paper markets. I try to play the trends regarding the gold-silver ratio, which remains extremely high. If this trend reverses, I will buy more silver and silver mining stocks.

TGR: It sounds as if you are sympathetic to the manipulation argument made by the Gold Anti-Trust Action Committee (GATA).

OG: COMEX is the biggest gold exchange in the world and has by far the most influence on daily and short-term gold prices. J.P. Morgan and the others I mentioned are the biggest players in COMEX, and we can assume they have the biggest influence on daily and short-term gold prices. Facts don’t lie: J.P. Morgan and other big financial players control more than 80% of all precious metals derivatives and you can assume that these influential players always know about the crucial positioning at the COMEX.

It seems that these players are always doing the opposite of what they say publicly. For example, Goldman published a gold report in 2013 in front of the huge selloff. It made more than $500M in this selloff, then turned around and reinvested heavily in gold. So it also made millions in the recent gold price recovery. Goldman has recently invested more than $80M in the SPDR Gold Trust ETF. We can assume that Goldman and J.P. Morgan are, in fact, long on gold. That also demonstrates to me that the gold price bottom is in.

Source: goldchartsrus.com

TGR: Which silver companies are you keen on?

OG: I like two. The first is Wildcat Silver Corp. (WS:TSX.V). It is led by Richard Warke, the man behind the glorious Ventana Gold story, which was bought out for $1.56B in 2011.

The company is developing the Hemosa project in Arizona, which has the potential to be the only large manganese producer in the U.S., as well as one of the largest silver producers in North America.

Hermosa will reach the feasibility stage this year. Its economics are solid, and it should be a big cash cow, considering the next bull market and anticipated higher silver prices. Insiders own more than 30% of Wildcat. The company has also attracted Silver Wheaton as a strategic investor. Wildcat offers one of the best leverages on the silver price in a portfolio. Its valuation is far below $0.50 per silver ounce.

TGR: And the second is?

OG: Santacruz Silver Mining Ltd. (SCZ:TSX.V; 1SZ:FSE). This could be another First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE). Santacruz already achieved production at its Rosario mine in Mexico and has a tremendous portfolio of promising Mexican projects. I think Santacruz has the right people to succeed.

TGR: Which companies stand out in the junior copper sector?

OG: I like two in Arizona and one in Nevada. My favorite is Augusta Resource Corp. (AZC:TSX; AZC:NYSE.MKT) and its world-class Rosemont copper project near Tucson. Richard Warke is a director. Augusta is currently in a takeover battle with its largest shareholder, HudBay Minerals Inc. (HBM:TSX; HBM:NYSE). I believe that Augusta is worth more and remains a Hold recommendation. Mostly likely, a higher takeover price will be reached. When Rosemont gets its final construction permit—this should happen in Q2/14—it will lead to a lucrative revaluation.

TGR: What’s the other in Arizona?

OG: Curis Resources Ltd. (CUV:TSX.V; PCCRF:OTCPK) and its Florence copper project. Like Augusta, Curis is in the final phase of the permitting process. I see excellent potential here for a revaluation after it gets its final permit. Florence will be a highly profitable copper mine with strong investment returns and an attractive and financeable mine capex. This story is led by the successful Hunter Dickinson Inc. mining crew, and the company has a very tight share structure.

Curis is employing a revolutionary in situ production method at Florence. It did its homework thoroughly and had great samples from BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK), one of the former operators. Especially interesting is the recent strategic investment by major copper producer Taseko Mines Ltd. (TKO:TSX; TGB:NYSE.MKT). So Curis is a promising potential takeover target.

TGR: What’s your Nevada copper pick?

OG: Nevada Copper Corp. (NCU:TSX) and its Pumpkin Hollow project. In view of its last cash balance, its overall valuation is extremely low—its enterprise value is really choked right now. But with the strong support of its largest shareholder, Pala Investments, it will be able, in my opinion, to put the first phase of its project into production. There is also tremendous development and expansion potential here.

TGR: Do you think that the recent downturn in gold equities might scare off investors who have become gun-shy since 2011?

OG: The last three to five years in gold, especially junior mining, have been really traumatic and unnerving for investors. I really hope, however, that they will not be unduly influenced by the high volatility in these markets and sell after a 30% or 50% rally when there’s potential for a 300% to 1,000% rally.

We have just seen the bottom. The cyclical nature of this market should lead to gains in best-in-class mining stocks of 500% to 1,000% and more. Investors must be not only long-term ambitious but also patient.

TGR: Oliver, thank you for your time and your insights.

Oliver Gross is a passionate resource expert, prudent investor and adviser with more than 10 years of experience in the mining and junior sector. He is the chief editor and analyst of the newsletter Der Rohstoff-Anleger (The Resource Investor), which specializes in the global junior resource sector. It is backed by the GeVestor Financial publishing group, the largest online publishing house in Germany.

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DISCLOSURE:

1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Columbus Gold Corp., Continental Gold Ltd., Red Eagle Mining Corp., Brazil Resources Inc., True Gold Mining Inc., Pilot Gold Inc., Timmins Gold Corp., Fission Uranium Corp. and Santacruz Silver Mining Ltd. Streetwise Reports does not accept stock in exchange for its services.

3) Oliver Gross: I own, or my family owns, shares of the following companies mentioned in this interview: Augusta Resource Corp., Brazil Resources Inc., Continental Gold Ltd., Red Eagle Mining Corp., Silver Wheaton Corp., True Gold Mining Inc. and Wildcat Silver Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: 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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By CentralBankNews.info
    Brazil’s central bank raised its benchmark Selic rate by another 25 basis points to 11.0 percent, its ninth rate rise since April 2013 but said its next move would depend on inflation and growth, signaling that it could be nearing the end of its monetary tightening campaign.
    The Central Bank of Brazil, which has now raised its rate by a total of 375 basis points since last April and by 100 points this year, said its monetary policy committee, known as Copom, had decided to raise the rate unanimously and without bias.
    “The Committee will monitor the evolution of the macroeconomic scenario until its next meeting to define the next steps in its monetary policy strategy,” the central bank said.
    The guidance is more neutral than in February and January when the bank said the rate rises were a continuation of the adjustment of the basic interest rate process that was started in April last year.
    The rate rise was widely expected after headline inflation rose to 5.68 percent in February after dropping to 5.59 percent in January and the central bank in its quarterly inflation report last month raised its 2104 forecast to 6.1 percent from a previous projection of 5.6 percent as severe drought in Southern Brazil has affected the harvest and raised food prices.
    The central bank, which targets inflation at a midpoint of 4.5 percent, plus/minus 2 percentage points,  also raised its 2015 forecast to 5.5 percent from 5.4 percent. Inflation has exceeded the bank’s midpoint target in the last four years.

   
 

Today the markets favored the upside for CAD/CHF, with intentions to test the 0.8060/85 resistance and position the pair in this area ahead of tomorrow’s busy news schedule, which includes the Canadian Trade Balance, expected to come at 0.2B.

Technical Analysis

Following the rejection from 0.8060/80 resistance, CAD/CHF slipped lower in search of a good support. The major 0.8000 handle appeared to keep prices in check, but eventually the pair dipped to 0.7969, finding support on the 200 Simple Moving Average on the 4H timeframe. The 38.2% Fibonacci retracement level on this recent upswing is also located in that area. A continuation of the upswing with such a small retracement would suggest traders are winding down their short positions at a fast pace. 0.8222 remains the first target above the current pivot zone.

While the 50-Day Moving Average no longer offers resistance, CAD/CHF has to stabilize above 0.8060 for the bullish sentiment to remain strong. If the pair fails to make a new high in the coming sessions, a deeper pull back towards 0.7962 and 0.7911 is likely. A drop below 0.7911, the 61.8% Fibonacci retracement on the upswing, would invalidate almost all present bullish scenarios for the pair.

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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets