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- Controversial report could explain the outrageous real reason the economy has been booming
- Why one essential commodity was "left behind" by the great 10-year bull market
- Mining Shares Continue Weak
| Controversial report could explain the outrageous real reason the economy has been booming Posted: 04 Oct 2013 01:50 PM PDT From Zero Hedge: Something very curious caught our eye in today's non-manufacturing ISM. It wasn't the "unexpected" drop in the data, which we reported on previously, but what one of the respondents said far in the back of the report. It was the following: "The federal government's spending is increasing greatly as agencies execute their final budgets and utilize fiscal year 2013 appropriated funds prior to their expiration on September 30th. This has caused a major increase in procurement activity for goods and services. Budgets are uncertain for fiscal year 2014, so some items requiring funding in future years are not being purchased." (Public Administration) Which got us thinking: September 2013 saw a big bounce in various economic indicators leading many to speculate that this was yet another indication that the "sustainable recovery" has finally arrived. Of course, it was not just this year but also last year, and in prior years, that there has been a very distinct pick up in the late Summer economic indicators, only to promptly fade away into the fall and winter. This can be seen on the chart below... More on the economy: |
| Why one essential commodity was "left behind" by the great 10-year bull market Posted: 04 Oct 2013 01:50 PM PDT From Matt Badiali, editor, S&A Resource Report: An unusual thing happened over the past decade... one of the most common metals didn’t go up in price. Most metal prices soared over the last decade. The price of gold rose 375%, from around $400 per ounce to peak around $1,900 per ounce. The price of silver, copper, lead, zinc, platinum, palladium and nickel all soared over that period too. However, there is one metal that sat out the bull market. In fact, at $2,000 per ton, it’s the same price that it was back in the 1980’s. That metal is aluminum. Aluminum is the second most used metal after iron. It’s consumed in enormous quantities to make everything from soda cans to car bodies. The problem is supply, because there is a lot of aluminum out there. About 8.2% of the world’s crust is aluminum. It’s the most common element in the world. The problem is, it is the elemental world’s hook-up king. It is never alone. It’s always bonded to oxygen or potassium and sulphur. To get the aluminum to separate takes a lot of energy. So much energy, that aluminum giants Alcoa, Rio Tinto, and Century Aluminum all built smelters in Iceland. Iceland has volcanoes, which produce lots of heat. The companies can tap the heat to make steam and generate cheap electricity. So the companies ship aluminum ore – called bauxite - from the mine to Iceland. Then they ship the finished aluminum ingots to consumers. As you would expect, with lots of supply and high costs, aluminum producers are struggling to make money. One of the world’s largest producers, Russian giant Rusal, is in real trouble. It costs Rusal $1,970 per ton to produce, but in the second quarter of 2013, the company could only sell it for $1,886 per ton. That’s a loss of nearly $90 per ton. As my good friend Rick Rule would say, the company is trying to make up its loss on volume. U.S. companies are facing similar trouble. For example, Century Aluminum sold $1.27 billion in aluminum in 2012. It cost the company $1.22 billion to do it. In other words, the company’s operating margin (that’s before it paid its taxes, electric bill, rent, etc...) was less than 4%. That’s terrible. Credit rating agency Moody’s recently downgraded giant aluminum producer Alcoa’s bonds from investment grade to junk grade. They pointed to the poor price forecast for aluminum as the reason. Alcoa isn’t some tiny stuggling miner. This is the iconic company that leads the aluminum industry...and its shares are back where they started 20 years ago. You can see what I mean in this chart:  As you can see here, the market hates aluminum, but the world doesn't. This is an incredibly valuable commodity. As longtime readers know, this is the best kind of market to look for value. Commodity prices cycle, high...then low...and then high again. When Moody's dumps the credit rating of a giant, blue-chip producer, I get interested in the sector. Crux note: If you're interested in the Matt's No. 1 buy in the resource sector today, check out the latest issue of his S&A Resource Report, published earlier this week. At just $39 dollars for a full year of research, it's affordable for every investor... and with a four month, 100% satisfaction guarantee, there's absolutely no risk to you. Click here for immediate access. More on commodities: |
| Posted: 04 Oct 2013 01:26 PM PDT While I would dearly love to be able to provide some bullish news for those who favor gold, unfortunately I cannot. The charts are simply not showing any reason to refute the bearish case. Consider in particular the HUI, or index of mining shares. I have deliberately included a weekly chart to provide a longer term perspective.  Notice the second indicator which is a proprietary one that I employ - it is basically a trending indicator. What is really striking is just how bearish the price action in this sector has been for the last two years. As you can see, this indicator only flipped positive for a mere 12 weeks out of the entire period since October 2011. In other words, 12 weeks out of 104 week total. That is just horrendous! What is most discouraging is the indicator has resumed moving lower once again as it is now down for the last 5 weeks in a row. For a brief moment, it appeared that it was going to make an effort to cross above the "0" line and become positive but hopes for that faded at the end of August. About the only thing I can say the least bit positive about this particular indicator right now is that it has the "possibility" of setting up a bullish divergence if the HUI moves down to the previous low made in late June but even at that, it would only confirm the existence of a friendly divergence, but not necessarily an actual buy signal.  Below that indicator is the Directional Movement Indicator, another trend following tool. Note that the Red Line or Negative Directional Movement has been above the Blue Line, or Positive Directional Movement for most of the last two year period. It is currently far above that blue line even now. In other words, though the solid ADX line is moving lower indicating that the downtrend has been broken or suspended which is perhaps a better way of saying things, the bias is still to the DOWNSIDE unless or until proven otherwise. When you look at the 50 week moving average which is over 100 points ABOVE the current price and headed lower, it is impossible to make any sort of bullish argument for this sector. One can argue that the gold shares might be attractive from a "Value" buying perspective but the problem with that is that many expect them to fall even further yet and are certainly in no hurry to buy. Maybe in 2014... who knows at this point.... Like I said, it is very difficult to find any bullish consolation in the entire sector. What has me concerned is this bearish price action in the shares is suggesting that the worst is not over for the actual gold price. We will see how predictive these things are, one way or the other. |
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