Gold World News Flash |
- ECB must buy 'hundred of billions' of bonds to tame Europe's debt crisis
- Hourly Action In Gold From Trader Dan
- In The News Today
- TNR Gold Spin Out ILC Looks Attractive
- Watching Grass Grow
- Pricing Deflation in Aussies Per Oz
- U.S. Fights Global Hangover: Getting Drunk in the Process?
- The 2010 Silver Buying Guide
- LGMR: Gold & Silver Rise vs Falling Dollar as Real US Rates Beat 70s Sub-Zero Record
- Spanish debt wilts amid ?250bn rescue plan confusion
- Three Reasons to Invest in Frontier Markets and Frontier Funds
- Just One Stock: Good Cash, Low Debt Mark a Different Kind of Developer
- The $5 Trillion Dollar Bet
- Why Deflation Is Good News for Gold
- Notes on France's Credit Stress, New Brazil ETF and China's Housing 'Bubble'
- Gold's Rally on Economic Weakness Is Perfectly Intuitive
- Real Estate: What's on the Horizon?
- Ira Epstein's Weekly Metal Report
- Vietnam and Gold
- The Goldsmiths—Part CXLVI
- Ten Reasons Why This Has Been a Weak Recovery
- Our Dependency on Foreign Oil
- Another Reason to Not Hate CPI
- €47 Billion Down, Several Hundred Billion More To Go: Europe's Monetization Is Just Warming Up
- Hedge Fund Ucits Boom?
- Philly Fed Business Index Dramatically Slows, Lowest Reading in 10 Months
- Debt Not a Problem After All
- Will Gold Shares Catch Up To The Gold Price?
- Gold Seeker Closing Report: Gold and Silver Gain About 1.5%
- Putting the Weak Philly Fed Numbers in Context
- Canada's Fintrac singles PM's for money laundering
- Nevada: Depression Unemployment Numbers
- Gold not a currency and doesn't pay interest? In Vietnam it is and does
- Jeff Nielson: 50 years of silver price suppression make default inevitable
- Hugo Salinas Price: The gold standard is the generator and protector of jobs
- Gold Prices Close at Record High, Silver Rises 1.8%
- Hinde Capital’s gold report draws on GATA’s work
- Another High for Gold Portends Higher Commodity Prices
- Gold Back Near All-Time Highs
- Capital Gold Group Report: Uncertainty Restores Glitter to an Old Refuge, Gold
- Zambia needs stable mining laws to attract investment
- Browder is buying commodities to profit from looming currency crisis
- Guest Post: What Do BP And The Banks Have In Common? The Era Of Corporate Anarchy
- Exxon Apostasy
- Hinde Capital's gold report draws on GATA's work
- Hinde Capital's gold report draws on GATA's work
- E.U. Faces Shortages of Key Tech Minerals
| ECB must buy 'hundred of billions' of bonds to tame Europe's debt crisis Posted: 17 Jun 2010 07:42 PM PDT June 17, 2010 11:19 AM - Fitch Ratings warns that it may take massive asset purchases by the ECB to prevent Europe's crisis escalating. Read the full article at the Telegraph......
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| Hourly Action In Gold From Trader Dan Posted: 17 Jun 2010 07:42 PM PDT View the original post at jsmineset.com... June 17, 2010 10:34 AM Dear CIGAs, Gold is running as the "anti-Dollar" once again in today's session moving higher as the greenback drops lower. This comes on the heels of the US equity market showing weakness as a result of the horrific unemployment numbers and a very disappointing Philly Fed Factory Index reading. Two weeks ago, this would have sent the Dollar higher as a "risk averse" trade but now the Dollar is moving lower on lousy US economic news. My how fickle the sentiments of investors has become – "She loves me; she loves me not". All of this is serving to reinforce the skepticism that abounds in regards to any so-called "recovery". One gets the distinct impression in watching the gold price action that the metal is beginning to simply trade on its own merits, independent of the conflicting cross currents swirling hither, thither and yon. As mentioned previously, nervous, uncertain investors want something tangible and f...
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| Posted: 17 Jun 2010 07:42 PM PDT View the original post at jsmineset.com... June 17, 2010 06:34 PM Question For The Day: Even though there has been compelling reasons, how do you feel about Washington’s intervention in the management of public corporations (motors, insurance, financial entities, oil producers)? Might the thesis of free markets be dead? Jim Sinclair’s Commentary I promised you this would happen 7 years ago. Central banks join gold rush Foreign banks and investors alike have been flocking to the precious metal over the last year, sending it soaring to record highs. More… Jim Sinclair’s Commentary Come on, let’s be serious. In the midst of an attack by the CDS, ratings agency and IMF comments, who bought those bonds? I wager you get it right on your first try. Spain Sells $4.3 Billion of Debt; Bonds, Euro Gain (Update1) By Emma Ross-Thomas June 17 (Bloomberg) — Spain sold 3.5 billion euros ($4.3 billion) of bonds, the maximum set for...
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| TNR Gold Spin Out ILC Looks Attractive Posted: 17 Jun 2010 07:42 PM PDT Richard (Rick) Mills [COLOR=black][FONT=Times New Roman]Ahead of the Herd [/FONT][/COLOR] [COLOR=black][FONT=Times New Roman]As a general rule, the most successful man in life is the man who has the best information TNR Gold Corp (TSX.V:TNR) is a project generation company active in precious, base metals, Lithium, rare metals and rare earth elements (REEs). Project generators, after finding and securing a property, do the initial mapping, sampling and maybe a small drill program. Upon making a discovery, basically finding something of interest, they turn it over to a joint venture partner who puts up the money and or its own shares to earn into the property over a number of years while investigating the discovery. Yes the project generator's shareholder's eventual ownership of a discovery is diluted, BUT, their ownership in the prospect generating company is not diluted because there is very little dilution of the generators outstanding shares. This is be...
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| Posted: 17 Jun 2010 07:42 PM PDT Gold traded within a $10 range all of Wednesday. Volume was, once again, very low... and the highs and lows of the day were irrelevant... although they were both set in New York. Just another day off the calendar. Silver was much the same... but the high of the day was at the London open at 3:00 a.m. Eastern time. From that point, the price drifted lower through the rest of London and all of Comex trading in New York... with the low tick of $18.40 coming minutes before 10:30 a.m. Eastern time. The dollar tacked on a quick third of a cent starting shortly before 3:00 a.m. Eastern time... the opening of the London gold market. The dollar rally ended at precisely 4:00 a.m. Eastern time... and the price stayed up there until moments after the Comex opened in New York... and from that point, lost about 40 basis points... with the low of the day coming at precisely 12:00 noon Eastern Daylight time. How's that for natural market forces? Wit...
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| Pricing Deflation in Aussies Per Oz Posted: 17 Jun 2010 07:42 PM PDT by Adrian Ash BullionVault Wednesday, 16 June 2010 Unlike the Australian Dollar, gold pays less interest than even the US Dollar or Japanese Yen... IF GROWING INFLATION is our future, then a likely-looking bolt-hole for retained capital must be the Australian Dollar. Offering the strongest developed-world interest rates since long before the global financial crisis, the Aussie's exchange rate maps investor sentiment towards the "commodity super-cycle" theory, thanks most of all to Australia feeding China's fast-growing appetite for raw materials. But the Aussie Dollar also points, therefore, to investor fears of deflation – most spectacularly in its currency cross with gold bullion... Unlike the Aussie, gold pays no interest. It has little industrial use, finding economic value instead in its social use of storing value when other, more growth-reliant investments fail. And yet, as our chart shows, gold has just signalled a huge swing in sen...
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| U.S. Fights Global Hangover: Getting Drunk in the Process? Posted: 17 Jun 2010 07:42 PM PDT To understand how the ongoing global credit crisis may evolve, let’s look at some cultural and structural considerations. Last decade, despite being told that there may be no money to fund retirement, American consumers ramped up vast amounts of credit card debt; the European consumer, in contrast, reined in spending. Presently, European countries have recognized their debt burdens and are committed to austerity measures – contrast this with the U.S. approach: despite Federal Reserve (Fed) Chairman Bernanke’s warnings about unsustainable deficits, policy makers in the U.S. have proposed a $200 billion mini-stimulus package, advising the world to stimulate consumption now, with little apparent concern over future deficit implications. The cultural divide in approach between the U.S. and much of the rest of the world did not start with the Greek debt debacle, but has roots dating back decades. Bernanke, for example, has testified that going of...
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| Posted: 17 Jun 2010 07:42 PM PDT By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report Silver has been sizzling and causing lots of buzz in the industry. Investors are excited. Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low. This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record. Take a look at the jump in U.S. Mint coin sales since 2007. Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006. There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is ...
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| LGMR: Gold & Silver Rise vs Falling Dollar as Real US Rates Beat 70s Sub-Zero Record Posted: 17 Jun 2010 07:41 PM PDT London Gold Market Report from Adrian Ash BullionVault 10:40 ET, Thurs 17 June Gold & Silver Rise vs. Falling Dollar as Real US Rates Beat '70s Sub-Zero Record THE PRICE OF both gold and silver jumped against the Dollar on Thursday, rising as world stock markets gained and the US currency dropped to a 3-week low against the Euro. Gold gained 1.4% from Wednesday's low to hit a 7-session high at $1245 an ounce. Silver jumped to its best level in a month at $18.80. Broad commodity markets held flat, meantime, as crude oil edged down to $77.20 per barrel. New inflation data showed US consumer prices rising 2.0% year-on-year in May, matching Wall Street expectations. Sitting at 0.20%, the Federal Reserve's key interest rate – inflation adjusted – has now paid less-than-zero for 55 of the last 94 months, one month longer than during the strongly inflationary 1970s. "[Gold's] fall in momentum of the past few days is against the backdro...
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| Spanish debt wilts amid ?250bn rescue plan confusion Posted: 17 Jun 2010 07:41 PM PDT June 16, 2010 11:15 AM - EU debt markets remain under stress after reports Spain is in secret talks for a support package of up to ?250bn (£208bn), the largest rescue in history. Read the full article at the Telegraph......
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| Three Reasons to Invest in Frontier Markets and Frontier Funds Posted: 17 Jun 2010 07:39 PM PDT Luckless Hero submits: The recent trend and suggestions that I have heard from many news sources and investment firms is to move to an asset allocation strategy that is heavy in the large U.S. domestic stocks and to be heavy in the emerging markets. I personally have decided to go one step bolder and like the great explorers of old I have put my money and chips out on the table with a bet on the expanding Frontier markets. Emerging markets are starting to lose some of their luster and shine as an investment class through ETF, ETN and mutual fund strategies. Part of the loss of allure will occur due to the reclassification of some countries currently considered emerging as developed countries (example Israel). What is a risk hungry investor to do in this situation, where some of the golden sons of returns are graduating? Move to the Frontier and find your own gold. Frontier funds are like the emerging markets of emerging markets. Volatility is high. Danger level… set to YES and ALWAYS. But there are some good opportunities for long term growth that has the potential to accelerate over time. Complete Story »
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| Just One Stock: Good Cash, Low Debt Mark a Different Kind of Developer Posted: 17 Jun 2010 07:30 PM PDT Ben Strubel submits:  Several times a week, Seeking Alpha's Jason Aycock asks money managers about their single highest-conviction position - what they would own (or short) if they could choose just one stock or ETF. Ben Strubel is founder, president and portfolio manager of Strubel Investment Management, an RIA based in Lancaster, Pa. If you could only hold one stock position in your portfolio, what would it be? Complete Story »
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| Posted: 17 Jun 2010 07:28 PM PDT Did any of you know that you just made a $5 trillion bet? You didn't place the bet yourself of course because it was made for you without your consent. You can call your politicians and thank them for betting your financial future if you wish (click on chart to enlarge): 
Complete Story »
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| Why Deflation Is Good News for Gold Posted: 17 Jun 2010 07:12 PM PDT Garrick Hileman submits: Yesterday the U.S. Labor Department released its May Consumer Price Index report, considered a key inflation barometer. There was a 0.2% decline in CPI in May, the largest decline since December 2008's 0.7% decline. The May report also comes on the heels of a 0.1% decline in April. Back-to-back monthly declines in CPI may be a warning signal that deflation is gaining a toehold. Yet yesterday the price of gold, which in theory should tank in a deflationary environment, was rallying up 1.5% to $1250/oz as I wrote this. What gives? And how could deflation be good news for gold bulls? Complete Story »
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| Notes on France's Credit Stress, New Brazil ETF and China's Housing 'Bubble' Posted: 17 Jun 2010 07:11 PM PDT Global Investing Editor submits: On Wednesday I attended two conferences, one by Old Mutual on outlook for markets, and the other by the Qwafafew quantitative analyst drinking club about data mining. At the first conference Jerome Heppelmann CFA, the star manager of the Old Mutual large cap core fund, warned of mounting French credit stress and predicted "a long and difficult summer". His concentrated portfolio is focused on large caps because of "visibility". Complete Story »
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| Gold's Rally on Economic Weakness Is Perfectly Intuitive Posted: 17 Jun 2010 07:00 PM PDT Henry Reach submits: Most official government estimates for GDP growth over the coming quarters are exceptionally robust. The Fed, the CBO, and others foresee upwards of 4% real growth stretching out over at least the next six quarters. It should be obvious that they have no choice other than to be exceedingly optimistic for a number of important reasons. First, the only way to justify the massive fiscal hole that the US finds itself in today is to assume that we'll "grow our way out of it". Mathematically, the CBO's estimates of ~4% real growth for the next several years are about the lowest possible number they could solve to justify their conclusion that US public debt to GDP will level off at credible ratios. In contrast, a more reasonable 2% real rate makes the US look increasingly insolvent over the very near future. Complete Story »
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| Real Estate: What's on the Horizon? Posted: 17 Jun 2010 06:32 PM PDT Jeffrey Dow Jones submits: This week we take a look at what might be in store for the real estate market. By this point, you all have probably read Some Straight Talk on Housing, so this piece will serve as an update to that one. Residential real estate has been a troubled sector, especially from an investment perspective. But what might be on the horizon? Is the deflationary phase of great housing bubble finally over? What should homeowners and investors expect from this point forward? Complete Story »
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| Ira Epstein's Weekly Metal Report Posted: 17 Jun 2010 06:14 PM PDT Gold today hit what I term a "key" resistance point. I think some sideways action will soon develop if prices are to embark to the $1300 price level. More importantly, other than for technical action, there seems little reason to expect to see large breaks in gold given the current fundamentals.
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| Posted: 17 Jun 2010 06:08 PM PDT Many Asian countries have strong affinity for gold, with Vietnam apparently at the top of the list. On a per-capita-income basis, Vietnam consumes twice as much gold as India and 10 times that of China.
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| Posted: 17 Jun 2010 06:03 PM PDT The Coast to Coast AM radio program with George Noory had a guest on for a few minutes on May 20 to talk about the US economy in the vein of the reported melt down of the EURO/EU over the Greek debt crisis. The guest suggested the demise of both the EURO and the dollar with a soon move to a new one world currency based in some manner on the Special Drawing Rights (SDRs) now being used by the International Monetary Fund and various central banks in the world.
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| Ten Reasons Why This Has Been a Weak Recovery Posted: 17 Jun 2010 05:55 PM PDT Edward Harrison submits: Comstock Partners' latest weekly note called "Why it’s Still A Secular Bear Market" is in line with my view of the economy and market. They see the core issue as a longer-term deleveraging that cannot be solved by fiscal and monetary stimulus. I have said that this likely means lower inflation-adjusted stock prices when the stimulus-induced recovery fades. This is a view they also hold. However, they also provide ten specific reasons why we should see the recovery as already under attack. Complete Story »
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| Posted: 17 Jun 2010 05:31 PM PDT Kid Dynamite submits: Jon Stewart's eight minute piece illustrating the populist talking point that is U.S. Presidents vowing to reduce our dependence on foreign oil is a must watch. Click and watch and laugh at the absurdity of the ceaseless rhetoric, which continued this week. As Stewart says, "Fool me once, shame on you. Fool me twice, shame on me. Fool me eight times - am I a fucking idiot?" EDIT: here's the embedded video:
Complete Story »
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| Another Reason to Not Hate CPI Posted: 17 Jun 2010 05:01 PM PDT Stocks launched higher near the close of trading, pushing the market back to an unchanged close after trading slightly lower for most of the day. The second consecutive day of nearly-unchanged finishes, combined with the fact of five consecutive low-volume trading days, would tend to suggest indecision and argue that a reversal lower may be imminent. However, I am a bit cautious about that technical interpretation in this case, for two reasons. First, the entirety of both ranges was above the previous range high on June 3rd; thus, these last two days may represent quiet consolidation of gains and non-rejection of these prices. Second, the market Wednesday managed the unchanged feat despite some pretty weak data. (As an aside, the Note contract gained 21/32nds and the 10y yield fell to 3.19%.) Economists had forecast Initial claims to decline, like they forecast every week; instead, however, Claims rose to 472k. Again, much to the consternation of economists, the economy isn’t spontaneously improving and there is no evidence at this point to suggest a self-sustaining economic expansion is underway. The Initial Claims rise was underscored by a drop in the “Employment” subcomponent of the Philly Fed Index (which itself surprised by declining to 8.0) to -1.5, indicating contracting employment (albeit only marginally). Complete Story »
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| €47 Billion Down, Several Hundred Billion More To Go: Europe's Monetization Is Just Warming Up Posted: 17 Jun 2010 04:53 PM PDT
The world's undisputed monetization grossmaster (Electronic Liability Outsourcing rating of around 1.8 trillion), representing Wall Street, the Federal Reserve, may be about to see some stiff championship title competition from the little Central Bank that could - the ECB, in a blitz (and very much blind) game of quantitative easing. In a speech, that not too surprisingly missed all the main wires earlier, Fitch head of sovereign ratings, Brian Coulton, warned a banking conference, in discussing the ECB's monetization activity to-date, that "there has been an unwillingness to follow through, and markets are going to want to see the ECB's money. It will require hundreds of billions in my opinion." Which means that Bob Pisani will report on many "extremely successful" Spanish bond auctions over the next year or so, as the ECB buys up every single primary issuance not just out of Madrid, but every single country in Europe, where the non-subsidized (i.e. private) capital markets are now officially dead. Courtesy of Greece, and the fatal decision to bail it out, the Eurozone will one day be described in textbooks as the greatest ponzi scheme ever created (or, at worst, joint in first place by the Fed). And since the Fed will never stand idly by and watch as Europe's manufacturing sector actually has someone to export to, courtesy of the 0.97 EURUSD that BNP wrote about earlier, he will rerereraise his quintuple all in, and announce the $5 trillion or so in QE that Bob Janjuah discussed previously. The Telegraph adds some additional detail in this pursuit to the teleological Keynesian bottom:
The gross inexperience of the ECB is even being lamented by European financial analysts:
And for all those counting down the days to the Mayan TEOTWAWKI, the catalytic event may in fact emerge out of the old continent:
At this point the course before the ECB is certain: sooner or later the bank will have to go all in on monetization, and pray that its intervention is more successful than that of the SNB in the CHF market. Which only leaves the Bernanke wildcard - the Princetonian is still biding his time, knowing that the ECB will be forced to take the next step, yet comforted that the world still thinks that the dollar is a reserve currency. Alas, he may be a little confused here, as confirmed by his recent remarks highlighting his "misunderstanding" of the acrobatics in the price of gold. Should more and more investors shift their assets to gold before the time of the next QE iteration announcement, at the end of the day, it may just end up being Europe that outwits the "smartest" nouveau-Ponziers in the room. Which really wouldn't be all that surprising: after all Europe has been learning from (failed) monetization and devaluation attempts going all the way back to the Romans, while the Fed has not even been around for a hundred years. The endspiel in the blind blitz will be one to watch.
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| Posted: 17 Jun 2010 04:49 PM PDT
Reuters reports, Hedge funds leave Monaco conference in bleak mood: As the Mediterranean resort was hit by stormy weather this week, managers attending the GAIM hedge fund conference focused on the problems that could hit their businesses rather than the past year's client inflows and bumper 20 percent returns. "There are reservations, and concerns have not yet been rectified... The industry's recovering but has not yet recovered," Ken Heinz, president of Hedge Fund Research (HFR), told Reuters. "The mood is better than a year ago but it's not as good as several years ago." Hedge funds lost 2.73 percent in May, according to Credit Suisse/Tremont, wiping out much of this year's gains and raising fears of an extended period of turbulence. The losses were the biggest since November 2008, near the nadir of the credit crisis, according to Hedge Fund Research, which provides another industry index. Convincing clients to part with their money continues to be tough, delegates said. The $30 billion or more of net inflows since last summer has not gone far in plugging the gap left by $330 billion of outflows in the year to June 2009. "(The mood) is mixed, to say the least," Aarnout Snouck, director at AXA Investment Managers, told Reuters. "May changed the perspective for a lot of managers. Everyone believes we're in for quite some months of substantial volatility... Raising money is very tough in this environment." Man Group CEO Peter Clarke warned delegates of "a world of volatility and uncertainty," while Mike Powell, head of alternative assets at 30 billion pound ($43.99 billion) pension fund USS, told Reuters he was moving into short-term computer-driven funds due to concerns about the market. REGULATION Executives are also worried by the prospect of tougher regulation, particularly the European Union's plans to regulate managers and the possibility of a widening of Germany's ban on naked short selling. "The hedge fund industry is going to be the subject of some really rash and nasty and intense regulation," said Rick Sopher, chairman of fund of funds LCH Investments. "There are going to be some really difficult moments for our managers." Europe's proposed Alternative Investment Fund Managers directive (AIFM) is still being debated and could affect the ability of hedge fund managers outside Europe to sell into the bloc. Olwyn Alexander, head of Irish alternatives practice at PricewaterhouseCoopers, told Reuters that many U.S. hedge fund firms were postponing business decisions until European regulation was resolved. If regulation turns out to be tough, it could provoke a backlash from the United States and could even divide the European and U.S. industries, Alexander said. "Regulation and tax are the two biggest challenges the industry faces. Uncertainty is a huge issue for the industry currently," she said. "You may see a bifurcation of the industry. It's increasingly expensive to manage money in Europe, and it may make sense to have a European product and a fund for the rest of the world." Meanwhile, accountants are fretting over U.S. tax proposals which may require much more detailed information on fund investors and which could penalize non-compliant funds. But not everyone was gloomy. One Swedish-based statistical arbitrage manager, for example, told Reuters he had found investors more open to his fund than he had expected. And FRM Capital Advisors' Patric de Gentile-Williams said his funds had raised a net $70 million so far this year and investors such as pension funds and sovereign wealth funds were once again looking at seeding small hedge funds. If I were running a hedge fund portfolio again, I would be focusing almost exclusively on smaller hedge funds run by smart, experienced but hungry managers who know how to add alpha. I'd set up managed accounts and focus on liquid strategies which gives me full control over the portfolio. This way, if anything goes wrong, I can pull the plug fast (remember, the flip side of transparency is liquidity; the former is useless without the latter). One thing investors are underestimating is liquidity. I had a chance to speak with a senior VP at one of Canada's largest pension funds on Thursday. He shared some insights with me:
On hedge funds, we both agreed that most deliver leveraged beta and liquid strategies will remain in favor as anything too illiquid and too complicated will get shunned. He finds it "crazy" that investors are rushing back into hedge funds with lock-ups and gates. "These people have short memories and are vulnerable if there is another liquidity crunch".
Sounds like Ucits will be the next big hedge fund flop. If you're reading this, do me a favor, before you get all hot and horny on the next hedge fund hype, think carefully about the risks attached to these investments. If you think there are none, you're likely going to get your head handed to you.
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| Philly Fed Business Index Dramatically Slows, Lowest Reading in 10 Months Posted: 17 Jun 2010 04:40 PM PDT
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| Posted: 17 Jun 2010 04:38 PM PDT These pig-headed would-be fascist bureaucratic monsters are trying to bore us to death and get us to settle for some watered down version of a resource rent tax. It's a tax that would reduce investment in Australia's mining industry, lead to lower employment, lower export volumes, and put taxpayers on the hook for failed mining projects. By the way, you'd think miners would love to flog off losses on taxpayers. It's worked so well for bankers. So why haven't the miners embraced it? Well, for starters, most miners (the ones you want to invest in) don't go into business to make losses. But more importantly what self-respecting entrepreneur or company would get in bed with the Australian government on a deal that theoretically promised to pay for losses later? After all, as this legislation shows, this is a government that is willing to change the rules in mid-stream. Fickle. Temperamental. Impulsive. Vindictive. In this case, the impulsiveness takes the form of the retro-active taxation of projects that were made with an entirely different set of assumptions by the companies and their shareholders. What's to prevent the government from telling the miners at some point in the future, "Sorry, we know we promised to offset your losses, but we don't have the money! We already spent it! Suckers!" Ever since our plane landed in Melbourne early Wednesday morning we have been channeling the energy from all those wide open Western spaces we flew over in America. It's turning into aggravation over how much time we have to spend dealing with plundering and arrogant politicians. Granted, these are the duly elected representatives of the people. But they seem to be behaving in a pretty high-handed fashion. Something about big sky and open space reminds you that countries like Australia and America were built and made great by risk-taking settlers and entrepreneurs and explorers. Not by grasping, lecturing, hectoring, scolding, smarmy and dreadfully boring career politicians. Another by the way...why hasn't the government revealed some of the basic assumptions of its tax scheme, like what it expects commodity prices to be? One answer: its $9 billion RSPT cash haul for next year is probably based on the assumption of high commodity prices. If the government is basing its projections on an analysis of the mining industry done by the Treasury, that analysis probably also figures high but gently declining commodity prices. You can bet it doesn't figure crashing commodity prices from a blown up Chinese real estate bubble. Because that could never happen again..like it did in 2008 (by the blowing up of the American real estate bubble). Frankly, we'd be surprised if there was a lot of thought put into a scenario where commodity prices fall. Why? After all, if the world is coming off a 20-year credit boom and is now reducing leverage and debt, you'd expect lower economic growth and lower demand for the key commodities which Australia exports and which the government wants to tax. You'd expect that if you had two brain cells to rub together and weren't running for public office. But if you're trying to cover a huge hole in your budget because you spent the nation's accumulated $20 billion budget surplus in an act of blind devotion to a failed orthodoxy (Keynesian stimulus), you don't do much thinking. You act first and make excuses later! And you spend more of other people's money to buy votes. And when you don't have the money, you find ways to take it from people that do (the miners). In any event, we wish nothing but abject failure and embarrassment for the government in its mining policy. A wholesale repudiation of the plan (and the leadership of the government) might begin to restore some of Australia's credibility on foreign capital markets. And as a bonus, we wouldn't have to endure being lectured to and bored to death by the Prime Minister. Yet why so cranky Daily Reckoning? Stocks are up eight days in a row. Gold is rising. Though it looks like Spain is the next Greece (only bigger), stock markets are again embracing risk and turning their back on the possibility that widespread asset deflation is inevitable. Is it time to hold your nose and buy? With central banks determined to keep interest rates low, doesn't money have to go somewhere? And if not bonds, why not stocks? Gee. That doesn't sound like speculation at all, does it? -Back here in Australia, we hadn't realised that RBA Governor Ric Battellino had once and for all settled all those pesky but mostly irrelevant concerns about the level of debt in Australia. Thank goodness he did! We were beginning to think that having your banks borrow overseas to fund a house price boom was a case of inflating an asset class with other people's money and putting lots of your own people in debt to keep an entire industry of bankers, real estate agents, and real estate spruikers happy, stylishly-dressed, and no-doubt well coiffed. But that's not what's going on at all. According to Battelino, Australia has borrowed mostly to buy assets, and that makes people richer. What's more, even though debt levels have grown relative to GDP and income, low interest rates make the debt serviceable. Battelino says that financial deregulation and "the structural decline in interest rates" contributed most to the house price boom. Phew. That is SUCH a relief to know. Global deregulation and a worldwide credit boom drove down the cost of capital for Australian home buyers. Even though prices are way ahead of income growth, houses are affordable because credit is still cheap. What's that? What happens if the cost of capital rises and credit becomes harder to come by? Oh...well that would never happen. Ever. Or would it? If one of the consequences of deregulation was a worldwide credit boom, doesn't it follow that in a worldwide credit bust, credit is going to be less available to households, including Australian households? And doesn't it follow that houses inflated by capital inflows into Australia would be deflated by a dearth of new capital or buyers? Both probably follow. But Battelino persists. He says, "This structural decline in interest rates has facilitated the increase in household debt ratios because it reduced debt-servicing costs. Households have therefore found that they can now service more debt than used to be the case." They can as long as they have jobs and rates stay low. In a real China bust, unemployment in Australia is going to rise. And then? And then, in a true China-bust, the cost of capital is going to rise too as bad credits are written down globally and balance sheets are de-levered and banks get back to prudent lending. We realise there is a very real debate about whether long-term interest rates can rise when central banks are determined to keep short-term rates low. But we'll leave that one for next week. Until then...enjoy your weekend. Dan Denning
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| Will Gold Shares Catch Up To The Gold Price? Posted: 17 Jun 2010 04:36 PM PDT
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| Gold Seeker Closing Report: Gold and Silver Gain About 1.5% Posted: 17 Jun 2010 04:30 PM PDT Gold climbed to as high as $1250.80 (just shy of its all time intraday record high of $1251.68 set this past June 8th) by early afternoon in New York before it fell back off a bit in the last hour of trade, but it still made a new record closing high and ended with a gain of 1.43%. Silver climbed to as high as $18.86 by about 9:20AM EST before it pared its gains a bit, but it still ended with a gain of 1.68%.
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| Putting the Weak Philly Fed Numbers in Context Posted: 17 Jun 2010 04:19 PM PDT Edward Harrison submits: Yesterday at 10AM ET the The Federal Reserve Bank of Philadelphia released its general economic index. The data were not good as the index came in at 8 for June down from 21.4 the previous month. Because numbers above zero signal economic growth, the data confirm that we are still in a technical recovery. Moreover, the Empire State Manufacturing State for New York registered a slight improvement in its general business conditions index. The June data came in at 19.6, its 11th consecutive month above zero. The bottom line is both data sets show an expanding economy. Obviously I have been downplaying the double dip talk that has escalated since the ECRI data last week because I don’t see a double dip as imminent. On the other hand, I do think the data point to a serious slowdown ahead and that US policymakers should be worried about the exacerbating impact of the European credit crisis and fiscal austerity. Moreover, US jobless claims numbers were weak at 472,000 initial claims. It will be hard for consumer spending to expand unless more private sector jobs come online. Complete Story »
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| Canada's Fintrac singles PM's for money laundering Posted: 17 Jun 2010 03:57 PM PDT found these two items on the fintrac site Quote: Money laundering through precious metals A Miami man, Audie Watson, was convicted on fraud, money laundering and immigration charges on September 24 after selling identification documents that granted memberships to the Native American "Pembina Nation Little Shell" tribe. Memberships were sold at US$1,500 per individual and US$2,000 per couple, earning Watson a total over US$2 million. Watson deposited a part of the money into the account of his non-profit corporation called "Universal Service Dedicated to God Inc." at the Bank of America. Payments for other memberships were transferred to his personal accounts by PayPal, EverBank (a deposit-taking institution specializing in mortgages), and by Kitco (a Canadian precious metals broker). With the funds from his Kitco account, Watson bought 100 gold Krugerrands worth nearly US$100,000.10 Quote: Money laundering through digital currencies Five Eastern European men have been indicted on September 3 in New York for their alleged roles in the theft of 95,000 credit card numbers, and laundering more than US$4 million via "anonymous digital currencies, such as Egold and Webmoney". Viatcheslav Vasilyev, Vladimir Kramarenko, Egor Shevelev, Dzimitry Burak, and Oleg Covelin, all participated in an Internet-based criminal enterprise known as the "Western Express Cybercrime Group". The group bought and sold large volumes of stolen credit card numbers and stolen identity information using Egold and Webmoney. It has also been reported that the group used a New York-based corporation named Western Express International Inc. to coordinate the ring's Internet-based payments. The corporation was used to convert more than US$600,000 of criminal proceeds in Egold digital currency and then exchanged into Webmoney digital currency. Western Express also used conventional banks and money transmitters to anonymously move large sums of money. The group used nicknames, false identities, anonymous instant messenger, email, and digital currency accounts to conceal their involvement in the scheme.17 with money laundering The ridiculous thing is..it's only he only bought 100 Krugs! here is the link http://www.fintrac-canafe.gc.ca/publ...009-11-eng.asp
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| Nevada: Depression Unemployment Numbers Posted: 17 Jun 2010 03:53 PM PDT Nevada now has the highest unemployment rate in the nation. The official numbers come out tomorrow, but News 4 has learned that the statewide jobless rate will reach 14 percent for May. That surpasses Michigan, which had held the number one spot until this week, when its unemployment rate dipped to around 13.5 percent. With most of the Silver State's population living in Clark County, it is likely that southern Nevada's unemployment rate will also set another record when the official numbers are released Friday from the Department of Employment, Training and Rehabilitation. The numbers reflect the continued collapse of construction employment, and continued layoffs by government, small businesses and resorts. "Our economy is very heavily dependent upon tourism," said UNLV Department of Economics' Stephen Miller. "And the current recession, the drivers for the recession, were leisure and hospitality, finance and insurance and real estate, and construction. And we know we're big players in at least two of those markets. That's why the recession has been so severe, unlike previous recessions in Nevada." More Here.. 
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| Gold not a currency and doesn't pay interest? In Vietnam it is and does Posted: 17 Jun 2010 03:30 PM PDT Vietnam's Gold Habit Weighs Down Dong By Tim Johnson http://www.ft.com/cms/s/0/83a29cdc-5cb9-11df-bd7e-00144feab49a.html HANOI, Vietnam -- Buying 500 Vietnamese taels of gold, a large but not exceptional purchase equivalent to a little under 19 kilogrammes, takes more than 2.5 times that weight in local bank notes. For purchases of that size, Bao Tin Minh Chau, a Hanoi gold dealer, offers complimentary armoured car service and home deliveries. Per dollar of income, the Vietnamese consume more gold on average than anyone else on earth: in 2009, more than twice as much as Indians, 10 times as much as Chinese, and 44 times as much as Americans, according to World Gold Council data. This heavy habit is creating concerns in the corridors of power by contributing to the country's chronic trade deficit, as most gold is imported. This in turn adds to pressure on the dong, Vietnam's currency. ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php The World Gold Council estimates that Vietnam's net imports of gold were worth $2.3 billion last year, or more than 20 per cent of the country's current account deficit. At the official exchange rate, the dong has lost almost 11 per cent of its value against the dollar since the beginning of last year, although it has become more stable over the past couple of months and the black market rate indicates that it would fall still further if the currency was allowed to float freely. "People want to invest in gold because they believe that the dong is overvalued," says Do Xuan Quynh, a manager at Bao Tin Minh Chau. Gold demand dropped by 37 per cent in 2009, partly as a result of the global slowdown and as investors sold off holdings into a rising market. But Mr Do believes that as the economy recovers, gold consumption could grow as much as 50 per cent this year. "Demand is still growing because people don't believe in any other channel of investment," Mr Do says. Speculative and largely unregulated margin trading in gold grew so rapidly -- trading volumes fluctuated between $1 billion and $1.5 billion a day late last year, as opposed to $200 million to $500 million a day on the dollar foreign exchange market -- that the government stepped in at the end of last year and ordered gold trading floors to close. The feeding frenzy on the trading floors is symptomatic of a country where gold holds a unique emotional and economic significance. Houses are frequently priced in gold, jewellers have illuminated signs displaying buy and sell rates on their walls -- bangles and chains are sold by weight, with little if any premium for the jewellers art -- and there are an astonishing number of streetside shops in Hanoi and Ho Chi Minh City selling safes. In the run up to Tet, the Vietnamese new year which fell in February and is a time of traditional spending, Saigon Jewellery, the state-owned goldsmith that controls 40 per cent of the market, released 30,000 taels of gold a day (1,120kg) to satisfy demand. Gold is effectively a parallel currency, says Scott Robertson, a senior economist with Dragon Capital in Ho Chi Minh. "It is a form of savings, people transact in it and it earns interest on deposit," he says. Many Vietnamese banks were offering 4.5 per cent interest by weight on gold deposits last year, 300 basis points above the rate they were offering for dollar deposits, and banks took in some $3 billion worth of gold deposits in 2009, more than double what they held the previous year. There are no accurate surveys as to how much gold Vietnamese hold, but Mr Robertson estimates that "street gold," sums held outside the banking system, amounts to about $30 billion, or 29 per cent of gross domestic product, and more than triple the volume of "street dollars." The wars and vast political upheavals that have ripped across Vietnamese society over the past six decades created a disposition toward assets that are liquid, portable, and hold their value independent of bureaucrats, Mr Robertson says. But he also says that Vietnamese investors have become expert hedgers of their currency and of equity risks. He points out that there was a huge spike in gold imports in mid-2008, just before the world stumbled into the financial crisis, although he declines to say whether he thought the move was driven by good luck or good judgment. Dollars are popular but have a number of shortcomings. Many Vietnamese have lingering memories of January 1996, when the US Treasury introduced new $100 bills and local currency dealers began refusing to accept older bills at par. That is not the only problem. "Dollars fall apart in a highly humid environment. They go off," says Mr Robertson. Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Jeff Nielson: 50 years of silver price suppression make default inevitable Posted: 17 Jun 2010 02:53 PM PDT 10:50p ET Thursday, June 17, 2010 Dear Friend of GATA and Gold (and Silver): GATA Board of Directors member Adrian Douglas figures in the new essay by Jeff Nielson of Bullion Bulls Canada, who figures that decades of silver price suppression have made default inevitable in the silver futures market. Nielson's essay is headlined "Fifty Years of Suppressing Silver" and you can find it at Bullion Bulls Canada here: http://www.bullionbullscanada.com/index.php?option=com_content&view=arti... Or try this abbreviated link: CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Hugo Salinas Price: The gold standard is the generator and protector of jobs Posted: 17 Jun 2010 02:41 PM PDT 10:40p ET Thursday, June 17, 2010 Dear Friend of GATA and Gold: In his latest essay, Hugo Salinas Price, president of the Mexican Civic Association for Silver and a longtime GATA supporter, elaborates on a theme he has been pressing for many years: that a gold standard is vital for local production and that a world financial system in which one country alone issues the world reserve currency destroys and dislocates industry. Salinas Price's essay is the clearest and most important sort of macro-economics and implies the moral underpinnings of GATA's work. The essay is headlined "The Gold Standard: Generator and Protector of Jobs" and you can find it at the Mexican Civic Association for Silver's Internet site here: http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=1... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Gold Prices Close at Record High, Silver Rises 1.8% Posted: 17 Jun 2010 02:13 PM PDT
Other metals followed with their own gains. Silver jumped 1.8 percent, palladium advanced 1.3 percent and platinum rose 0.3 percent. In other news, crude oil broke away from yesterday's six-week high to finish a full percentage point lower and U.S. stocks edged slightly higher — of the major indexes, the Dow advanced the most but only by 0.24 percent. (…) © CoinNews.net for Coin News, 2010. |
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| Hinde Capital’s gold report draws on GATA’s work Posted: 17 Jun 2010 02:07 PM PDT 9:38p ET Thursday, June 17, 2010 Dear Friend of GATA and Gold: Hinde Capital in London, whose CEO Ben Davies mentioned GATA on CNBC Europe on May 26 (http://www.gata.org/node/8683), has just published a wonderful report on gold that draws on GATA's work. The report is titled "Gold: The Currency of First Resort," and among other things it remarks: "… the free market is once again dictating that gold is money. This will ultimately overwhelm any governmental suppression." And echoing GATA's complaints about the main gold and silver exchange-traded funds: "ETFs straddle two different investing arenas — securities and commodities. The needs of shareholders are not necessarily addressed by the issues in the commodity market. There is not full disclosure and proper alignment of regulation between commodities and securities markets. It is not outlined that there is a conflict of interest. The two largest custodians, JPM and HSBC, hold significant OTC gold and silver derivatives as well as significant short positions on the paper gold and silver futures on the Comex exchange. In theory for every short in a commodity, the seller should be able to 'cover' the position by holding or borrowing actual inventories. It would be fair to say such custodial holdings would prove a tempting source of gold. This may be a moot point. So significant are these shorts that the CFTC has undertaken to investigate talk of market manipulation. Allegations, if proved to be founded, on ETFs would be detrimental for ETF holders. This all should be disclosed to participants. Should it also not be disclosed the relationship between such entities and the Federal Reserve System and in particular the Federal Bank of New York and how it acts as a depository for the U.S. government and Exchange Stabilization Fund?" As far as your secretary/treasurer knows, unless they were in the crowd at GATA's presentation to fund managers at Fleming Family & Partners in London in May 2009 (http://www.gata.org/node/7409), GATA has never had any direct contact with the people at Hinde Capital, so it's great to see that the word is percolating to financial houses through ordinary channels. We'd love to buy the Hinde Capital folks a beer some time — or, better still, love to have them buy us a beer, or three. You can find the report at the Hinde Capital Internet site here: http://www.hindecapital.com/docs/hil_reports/HindeSight%20June%202010%20… CHRIS POWELL, Secretary/Treasurer * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Another High for Gold Portends Higher Commodity Prices Posted: 17 Jun 2010 02:07 PM PDT Calafia Beach Pundit submits: 
Gold today closed at yet another new high against the dollar. The euro has jumped against the dollar of late, so gold is about €30 off its highs against the euro; ditto for the yen. The big story, however remains that all currencies have lost significant ground to gold in recent years. That all currencies have lost so much value against a gold benchmark at the same time overwhelms the movements of one currency vis a vis another.
 As this next chart shows, gold is highly correlated with commodity prices (0.86 over this 30-year period), and gold tends to lead commodity prices. I've heard many arguments for why gold is marching to the beat of its own drummer these days (e.g., the Chinese and the Indians are flush with money and can't help but spend it on gold), but I would argue that it is very hard to dismiss gold when you consider how gold and commodities have tracked each other over the decades. Commodity prices have dipped a bit since April, but they are already on the rebound, and this chart suggests they could have substantial upside remaining. This would add significant fuel to the inflationary pressures that are already building (see earlier post).
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| Posted: 17 Jun 2010 02:07 PM PDT
The euro goes down, gold rallies. The euro goes up, and gold rallies! Although sovereign debt problems have been pushed off the front page, gold is once again back near new all-time highs. (Click to enlarge)
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| Capital Gold Group Report: Uncertainty Restores Glitter to an Old Refuge, Gold Posted: 17 Jun 2010 02:07 PM PDT
By Nelson D. Schwartz
Published: June 12, 2010It is the resurgent passion of the doomsday crowd, a bet that everything Inflation, deflation, And gold bugs, often dismissed as crackpots who hoard gold bars in the "I just think you're in a world where a lot of chickens are coming home The most visible new gold enthusiasts range from the Fox News Now, individual investors are following their example around the world. The debt crisis in Europe and the ensuing drop in the value of the euro If governments print more money to pay off their debts, the logic goes, To be sure, gold buyers have always been motivated by fear. What has "In recent years, we have gone from one bubble and bailout to the next," Since ancient times, gold has been deemed intrinsically valuable, Still, gold can go down — sometimes sharply. After peaking in 1980 at These days, gold is also something of a political Rorschach test. On Tongue only half in cheek, Glenn Beck advised his audience to consider Of course, the right hardly has a monopoly on gold. Mr. Soros, a Daniel J. Arbess, who manages more than $2 billion in Perella Weinberg's Spiraling deficits in the United States, Japan and Britain are "Indebted countries may soon be forced to choose among three politically True believers note that gold has risen in each of the last nine years, For all its newfound respectability, gold still manages to bring out the "People probably still think I'm nuts," Mr. Hathaway said. "But I'm not
Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA
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| Zambia needs stable mining laws to attract investment Posted: 17 Jun 2010 02:06 PM PDT The GM of the Chamber of Mines of Zambia said that future investment into the southern African country's mines would depend on stability in legislation.
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| Browder is buying commodities to profit from looming currency crisis Posted: 17 Jun 2010 02:06 PM PDT The veteran fund manager says burgeoning debt and budget deficits in Europe and the United States will lead to the debasement of these currencies
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| Guest Post: What Do BP And The Banks Have In Common? The Era Of Corporate Anarchy Posted: 17 Jun 2010 01:44 PM PDT
Submitted by Gonzalo Lira (Update: I've cut material which I cannot support with convincing, unequivocal evidence regarding BP's actions immediately following the disaster of the Deepwater Horizon. These edits do not change or detract from the points about corporate anarchy that I am trying to make. Additionally, at the end of this piece, I provide a short discussion of BP share prices in NYSE and FTSE.)
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| Posted: 17 Jun 2010 01:43 PM PDT
I wrote this article in January 2009, but this analysis of Exxon (and other religion stocks) still applies today. A basic property of religion is that the believer takes a leap of faith: to believe without expecting proof. Often you find this characteristic of religion in other, more unexpected places–like the stock market. It takes a while for a company to develop a “religious” following: Only a few high-quality, well-respected companies with long track records ever become worshipped by millions of investors. The stock has to make a lot of shareholders happy for a long period of time to form this psychological link. The stories (which are often true) of relatives or friends buying a few hundred shares of the company and becoming millionaires have to percolate a while for a stock to become a religion. Little by little, the past success of the company turns into an absolute and eternal truth. Investor belief becomes set: The past success paints a clear picture of the future. Gradually, investors turn from cautious shareholders into loud cheerleaders. Management is praised as visionary. The stock becomes a one-decision stock: buy. This euphoria is not created overnight. It takes a long time to build it, and a lot of healthy pessimists have to become converted into believers before a stock becomes a “religion.” Religion stocks are held on faith. The traditional analysis is rarely applied, as it is perceived that these companies operate in a different gravitational field and that the laws that drive the valuations of the rest of the market are suspended when it comes to them. Take General Electric. Until recently, it was perceived as an infallible, can-do-nothing-wrong corporate icon. Its shares were passed from generation to generation with a whisper: “Never sell GE.” However, once the religious, unconditional, in-GE-we-trust veil was lifted, many found it to be just another complex, un-analyzable financial conglomerate that is suffering from addiction to the commercial paper market. There is nothing new I can really say about GE except that it represents what is wrong with religion stocks–it is bought (and actually in most cases held) on faith. Few attempted to value it beyond looking at reported ruler-like earnings that were played like a fiddle by management by manipulating pension plan assumptions and shifts in reserves in opaque GE finance. Today’s discussion is not about GE but about another religion stock that is about to get its religious veil stripped. I have to warn you, it is another infallible corporate icon that can do nothing wrong: Exxon (XOM 62.6 ↑0.14%) Mobil–the biggest (nongovernment-owned) oil company in the world, the $400 billion market cap gorilla that brought wealth to generations of people. What is wrong with Exxon? On the surface, very little. It has $25 billion of net cash (cash less debt); it grew revenues and earnings on per share basis at 16.5% and 25%, respectively, over the last five years; it pays a decent dividend of 2.1%; and the stock is a true bellwether, as it is down only 15% year-to-date, when the market is down at least double that. Here is the best part: It trades at only nine times estimated 2008 earnings of $8.75 per share. Wait a second, this does sound like a perfect stock! This type of superficial, on the surface analysis is only granted to religious stocks. Their long-term track and an aura of reverence establish the leap of faith that eases us into drawing straight lines from the past into the future, and this is very dangerous. Arguably, a similar “religious” attitude created by a consistent 12% a year, ruler-like performance and a blue chip pedigree ( as a founder of Nasdaq) allowed Bernard Madoff to lower the guard of even very sophisticated investors and deprive them of billions. If you were to take off the religious veil from Exxon and look under the surface, you’ll find quite a different story. The incredible double-digit revenue and earnings growth came completely from the big rise in oil and natural gas prices. XOM spent close to $90 billion finding new oil and natural gas, but oil reserves have not increased at all. Gas reserves are up 25% since 2003, but gas production increased very little. I invite you to spend some time with XOM’s annual report. You’ll find that volumes of production and reserves in all its segments have not moved much since 2003. In many cases, they declined. So the magic behind all that growth over the last five years had little to do with XOM’s operating performance but was totally driven by commodity prices and share buybacks. You might say that XOM is at only nine times earnings, and there’s not much growth built into the stock. Keep in mind, however, that XOM only trades at that valuation if it can earn what it earned in 2008 when oil prices were between $85 and $150. Unfortunately for XOM, fortunately for rest of us, oil prices are making five-year lows, revisiting the mid-30s. My motto in life that I borrowed from Keynes is “I’d rather be vaguely right than precisely wrong.” Let’s figure what XOM’s vaguely right valuation is. Exxon’s earnings overstate its true earnings power. To estimate XOM’s earning power at today’s prices, let’s look what it made when oil prices were in the 30s and 40s. In 2003 and 2004, when oil prices averaged $28 and $38, XOM made about $3 and $4 a share, respectively. Since XOM’s reserves are not growing, it is reasonable to expect no growth of production in the future. Don’t deceive yourself: XOM is just an operationally leveraged proxy for oil (and natural gas). If oil stays where it is today XOM will not earn $8.75, as the Street expects it to earn in 2008. Is earnings will be around $3 or $4. It is trading at 20 to 25 times these earnings. This is a very high valuation for today’s environment, where companies with similarly strong balance sheets, with pricing power (XOM is a price taker), and whose cash flows are increasingly independent of what commodities are doing (non-cyclical) pay higher dividend yields and trade 10 or 12 times true earnings. Yes, there is a 50% downside in XOM’s stock. My crystal ball on oil prices is as good as the next guy’s, but it is reasonable to expect that demand for oil will only be declining while the global economy is in a recession that only started in earnest a couple of months ago. Also, despite OPEC’s “production cuts,” the economies of its members are one-trick-ponies–they export petro chemicals and import everything else. As their oil revenues collapse, despite their threats, they cannot afford to produce less oil, and they have to keep building those golden palaces in the desert. So demand is declining, and supply may actually rise. Let’s call today’s $30-$40 oil the seminormal case, though it could get worse. But what if oil prices go to $150? It is an unlikely scenario, at least while the global economy is in a recession, but in this case XOM has an upside of about 20%, as this summer it traded in the 90s when oil went to $147. Exxon may be a great company. It made a lot of investors happy, but its success is in the past–it is simply too big to grow and it can barely find enough oil to replenish its reserves. Probably not in the very distant future its reserves will start declining–over 90% of oil reserves are owned by foreign governments, and they are not really looking forward to parting with them. Investors who own Exxon are gambling on oil and natural gas prices, and the odds are stacked against them: tails (high probability) you are down 50%, heads (low probability) you are up 20%. Even Vegas slot machines have better odds. Emotions have no place in investing. Faith, love, hate and disgust should be left for other aspects of our life. More often than not, emotions guide us to do the opposite of what we need to do to be successful. Investors need to be agnostic toward “religion stocks.” The comfort and false sense of certainty that those stocks bring to the portfolio come at a huge cost: prolonged underperformance. P.S. There are couple additional but important caveats to XOM’s valuation: XOM bought almost a quarter of its shares since 2004, thus if XOM were to make the same income today as it did 2004 for its EPS would higher (net income divided by lower share count gives you higher EPS). Second, costs have increased substantially: cost of finding new oil doubled from 2003 and getting oil out of the ground up 40% from 2003. These two factors cancel out each other. Another point on valuation: XOM’s capital expenditures exceeds it depreciation expense thus on free cash flows – a true determinate of company’s worth, is lower than net income by about 30%. For the simplicity of the analysis, I used P/E with unadjusted E, but you really need to adjust your E down to reflect lower free cash flows. Vitaliy N. Katsenelson, CFA, is a portfolio manager/director of research at #0066cc;">Investment Management Associates in Denver, Colo. He is the author of #0066cc;">“Active Value Investing: Making Money in Range-Bound Markets” (Wiley 2007). To receive Vitaliy’s future articles my email, #0066cc;">click here.
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| Hinde Capital's gold report draws on GATA's work Posted: 17 Jun 2010 01:36 PM PDT 9:38p ET Thursday, June 17, 2010 Dear Friend of GATA and Gold: Hinde Capital in London, whose CEO Ben Davies mentioned GATA on CNBC Europe on May 26 (http://www.gata.org/node/8683), has just published a wonderful report on gold that draws on GATA's work. The report is titled "Gold: The Currency of First Resort," and among other things it remarks: "... the free market is once again dictating that gold is money. This will ultimately overwhelm any governmental suppression." And echoing GATA's complaints about the main gold and silver exchange-traded funds: "ETFs straddle two different investing arenas -- securities and commodities. The needs of shareholders are not necessarily addressed by the issues in the commodity market. There is not full disclosure and proper alignment of regulation between commodities and securities markets. It is not outlined that there is a conflict of interest. The two largest custodians, JPM and HSBC, hold significant OTC gold and silver derivatives as well as significant short positions on the paper gold and silver futures on the Comex exchange. In theory for every short in a commodity, the seller should be able to 'cover' the position by holding or borrowing actual inventories. It would be fair to say such custodial holdings would prove a tempting source of gold. This may be a moot point. So significant are these shorts that the CFTC has undertaken to investigate talk of market manipulation. Allegations, if proved to be founded, on ETFs would be detrimental for ETF holders. This all should be disclosed to participants. Should it also not be disclosed the relationship between such entities and the Federal Reserve System and in particular the Federal Bank of New York and how it acts as a depository for the U.S. government and Exchange Stabilization Fund?" As far as your secretary/treasurer knows, unless they were in the crowd at GATA's presentation to fund managers at Fleming Family & Partners in London in May 2009 (http://www.gata.org/node/7409), GATA has never had any direct contact with the people at Hinde Capital, so it's great to see that the word is percolating to financial houses through ordinary channels. We'd love to buy the Hinde Capital folks a beer some time -- or, better still, love to have them buy us a beer, or three. You can find the report at the Hinde Capital Internet site here: http://www.hindecapital.com/docs/hil_reports/HindeSight%20June%202010%20... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Hinde Capital's gold report draws on GATA's work Posted: 17 Jun 2010 01:36 PM PDT 9:38p ET Thursday, June 17, 2010 Dear Friend of GATA and Gold: Hinde Capital in London, whose CEO Ben Davies mentioned GATA on CNBC Europe on May 26 (http://www.gata.org/node/8683), has just published a wonderful report on gold that draws on GATA's work. The report is titled "Gold: The Currency of First Resort," and among other things it remarks: "... the free market is once again dictating that gold is money. This will ultimately overwhelm any governmental suppression." And echoing GATA's complaints about the main gold and silver exchange-traded funds: "ETFs straddle two different investing arenas -- securities and commodities. The needs of shareholders are not necessarily addressed by the issues in the commodity market. There is not full disclosure and proper alignment of regulation between commodities and securities markets. It is not outlined that there is a conflict of interest. The two largest custodians, JPM and HSBC, hold significant OTC gold and silver derivatives as well as significant short positions on the paper gold and silver futures on the Comex exchange. In theory for every short in a commodity, the seller should be able to 'cover' the position by holding or borrowing actual inventories. It would be fair to say such custodial holdings would prove a tempting source of gold. This may be a moot point. So significant are these shorts that the CFTC has undertaken to investigate talk of market manipulation. Allegations, if proved to be founded, on ETFs would be detrimental for ETF holders. This all should be disclosed to participants. Should it also not be disclosed the relationship between such entities and the Federal Reserve System and in particular the Federal Bank of New York and how it acts as a depository for the U.S. government and Exchange Stabilization Fund?" As far as your secretary/treasurer knows, unless they were in the crowd at GATA's presentation to fund managers at Fleming Family & Partners in London in May 2009 (http://www.gata.org/node/7409), GATA has never had any direct contact with the people at Hinde Capital, so it's great to see that the word is percolating to financial houses through ordinary channels. We'd love to buy the Hinde Capital folks a beer some time -- or, better still, love to have them buy us a beer, or three. You can find the report at the Hinde Capital Internet site here: http://www.hindecapital.com/docs/hil_reports/HindeSight%20June%202010%20... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| E.U. Faces Shortages of Key Tech Minerals Posted: 17 Jun 2010 01:18 PM PDT http://dealbook.blogs.nytimes.com/20...als/?src=busln E.U. Faces Shortages of Key Tech Minerals June 17, 2010, 12:34 am The European Union is facing shortages of 14 "critical" raw materials needed for mobile phones and emerging technologies like solar panels and synthetic fuels, according to a study by the European Commission that was scheduled for release on Thursday. The commission is ringing the alarm bell on raw materials as China again plans to tighten its control over its rare-earth minerals by allowing just a handful of state companies to oversee the mining of the scarce elements. The 14 materials identified by the commission out of 41 minerals and metals it analyzed are antimony, beryllium, cobalt, fluorspar, gallium, indium, germanium, graphite, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten. The study found that a key factor behind the shortages is that production of the materials was concentrated in just four countries: China, Russia, Congo and Brazil. The study underlined that the markets for such materials could be highly volatile because the "rapid diffusion of new technologies can drastically change the demand for critical raw materials." Demand for gallium for use in emerging technologies could be 603 tons by 2030 compared with total current production of 152 tons, according to the study. Demand for neodymium, a rare earth found in China, could be 27,900 tons by 2030 compared with current production of 16,800 tons. To tackle the problem, the commission proposed that the European Union improve its recycling policies, develop products that require fewer raw materials and encourage research on finding substitutes. But the commission also attributed the shortages to the way emerging economies use policies on trade, taxation and investment to reserve their resource bases for their exclusive use. "We need fair play on external markets," the European Union commissioner for enterprise, Antonio Tajani, wrote in a draft statement he was scheduled to deliver Thursday at a conference in Spain. "It is our aim to make sure that Europe's industry will be able to continue to play a leading role in new technologies and innovation, and we have to ensure that we have the necessary elements to do so," Mr. Tajani said in the statement. The study also recommended that the Union "consider the merits of pursuing dispute settlement initiatives" at the World Trade Organization because "such actions may give rise to important case law."
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New York 
Hickey and Walters (
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