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Government Shutdown Threatens U.S. Dollar World Reserve Currency Status
Oct 7 2013
Michael Fitzsimmons
SeekingAlpha
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
While the dysfunctional US government is playing a deadly game of cat-n-mouse, it threatens to kill the golden goose: the US dollar's role as the global reserve currency of choice. Without reserve currency status, the US will not have be able to continue financing its massive debt at low interest rates. All this should be very bearish for the US dollar and very bullish for gold and silver. The longer the crisis moves closer to October 17th, odds are gold will take a step-function pop higher.
The chart below, taken from a recent article by the Pew Research Center, show the recent history of debt ceiling increases in relation to total public debt.
click to enlarge)
Yet in spite of the massive run-up in the US national debt over the past two administrations, America has continued to enjoy the privilege of printing the world's reserve currency. Uncle Sam has been financing its national debt very cheaply.
Although the US is not likely to use this advantage anytime soon, anything that undermines the creditworthiness of the US government, as the current shutdown is obviously doing, is raising the risk of other nations accelerating their efforts to reduce exposure to US debt. The effect of a US default on global financial markets are unpredictable, but I am sure you would agree with me that it would not be a positive event.
The financial press is already reporting a rise in the price of US debt default insurance. CNBC reports the cost of insuring one-year U.S. government bonds against default rose 5 basis points to 35 basis points on Wednesday, above the rate of insuring five-year debt. Short term insurance rising above long term insurance (a curve inversion) is considered to be a sign of credit stress. Investors are concerned about the US government's ability to raise the debt limit in coming weeks and the risk that a U.S. default would lead to unstable global markets.
It would appear the Republicans are setting a precedent that, if successful, would make governing impossible for the foreseeable future. If a party with a small majority can shut the government down unless the other side repeals a law it does not like, it seems as though any legislation could be up for repeal by the minority. This would lead to paralysis, uncertainty, and volatile markets. It is certainly no way to run a country.
Gold Price in US Dollars Chart
Gold Price in US Dollars data by YCharts
All this should be very bullish for gold and silver bullion. Yet gold has not rallied and I cannot tell you why. The weakness in gold has been blamed on the prospect of Fed "tapering". Considering the Fed is currently printing over $80 billion a month as part of its "QE" program, a "small" $10-20 billion slowdown in the rate of printing money doesn't mean there isn't still a lot of printing going on. Nor does it mean there has been any meaningful change in trajectory of the national debt graph shown above.
As a result, there has been more talk than ever about an alternative to the US dollar. In a recent Forbes article, Jim Rickards, author of the best selling book Currency Wars: The Making of the Next Global Crisis, says the end result will be a move toward a basket of currencies, referred to as the Special Drawing Rate (SDR), to be the next global reserve currency. Rickards says:
Everybody knows that the U.S. dollar's days are numbered but there is really no currency to take its place except for the SDR. What the world is trying to do is move to the SDR and China is fine with that.
The article references IMF records to report China's central bank has 1,054 metric tons of gold - a gold reserve China has not updated since 2009. Rickards believes China continues to buy gold. He said China has a pattern of announcing gold reserves every 6 years:
Prior to 2009 the last time they announced [their reserves] was in 2003, so this is nothing new. If you extrapolate that tempo, what you would expect is their next announcement maybe late 2014 early 2015. I don't know the number, but my first approximation would be between 4,000 5,000 [metric tons].
In addition to reserve diversification, China is buying gold because of their large exposure to US debt. Likewise, most Americans are 100% exposed to the US dollar and/or US debt, so why shouldn't they be buying gold too? It's a mystery to me. But gold moves very quickly, and I expect continued US government dysfunction will accelerate the move to a global currency SDR (could that be their unstated goal for acting so irresponsibly?). Gold would likely be part of the SDR basket. As such, American investors would be prudent to do like the Chinese and increase their exposure to gold. One can do it with paper gold like the gold ETF (GLD) or buy bullion at websites like APMEX.com or Kitco.com. When the light bulb goes off, gold will move very quickly higher. Now is a great time to take advantage of recent gold weakness as a result of over-optimistic expectations any Fed tapering might have on fundamental long-term US debt projections as a result of a dysfunctional government.
Additional disclosure: I am long gold and silver.
http://seekingalpha.com/article/1731772-government-shutdown-threatens-u-s-dollar-world-reserve-currency-status
The US-EU Transatlantic Free Trade Agreement (TAFTA): Big Business Corporate Power Grab
By Colin Todhunter
Global Research, October 04, 2013
The Transatlantic Free Trade Agreement (TAFTA) between the US and EU intends to create the world’s largest free trade area, ‘protect’ investment and remove ‘unnecessary regulatory barriers’. Corporate interests are driving the agenda, with the public having been sidelined. Unaccountable, pro-free-trade bureaucrats from both sides of the Atlantic are facilitating the strategy (1)
In addition to the biotech sector and Big Pharma, groups lobbying for the deal have included Toyota, General Motors, IBM and the powerful lobby group the Chamber of Commerce of the US. Business Europe, the main organisation representing employers in Europe, launched its own strategy on an EU-US economic and trade partnership in early 2012. Its suggestions were widely included in the draft EU mandate.
An increasing number of politicians and citizens groups have criticised the secretive negotiations and are demanding that they be conducted in an open way. This is growing concern that the negotiations could result in the opening of the floodgates for GMOs and shale gas (fracking) in Europe, the threatening of digital and labour rights or the empowering of corporations to legally challenge a wide range of regulations which they dislike.
One of the key aspects of the negotiations is that both the EU and US should recognise their respective rules and regulations, which in practice could reduce regulation to the lowest common denominator. The official language talks of ‘mutual recognition’ of standards or so-called reduction of non-tariff barriers. For the EU, that could mean accepting US standards in many areas, including food and agriculture, which are lower than the EU’s.
The US wants all so-called barriers to trade, including controversial regulations such as those protecting agriculture, food or data privacy, to be removed. Even the leaders of the Senate Finance Committee, in a letter to U.S. Trade Representative Ron Kirk, made it clear that any agreement must reduce EU restrictions on genetically modified crops, chlorinated chickens and hormone-treated beef.
The public in Europe does not want such things. People want powerful corporations to be held to account and their practices regulated by elected representatives who they trust to protect their interests, the public good. However, the TAFTA seems an ideal opportunity for corporations to force wholly unpopular and dangerous policies through via secretive, undemocratic means. They have been unable to do this in a democratic and transparent manner, so secret back room deals represent a different option.
Corporate demands include an “ambitious liberalisation of agricultural trade barriers with as few exceptions as possible.” Food lobby group Food and Drink Europe, representing the largest food companies (Unilever, Kraft, Nestlé, etc.), has welcomed the negotiations, with one of their key demands being the facilitation of the low level presence of unapproved genetically modified crops. This is a long-standing industry agenda also supported by feed and grain trading giants, including Cargill, Bunge, ADM and the big farmers’ lobby COPA-COGECA. Meanwhile, the biotech industry on both sides of the Atlantic is offering its “support and assistance as the EU and the US government look to enhance their trade relationship.”
New Report
If the pro-free-market bureaucrats and corporations get their way and successfully bar the public from any kind of meaningful information input into the world’s biggest trade deal ever to be negotiated, Europeans could end up becoming the victims of one of the biggest corporate stitch ups ever. Left unchallenged, it will allow huge private interests to dig their profiteering snouts into the trough of corporate greed at the expense of ordinary people.
And that’s not hyperbole. Such a view is confirmed by the release of a new report on the eve of the second round of negotiations that are due to begin in Brussels next week.
The report, published by the Seattle to Brussels Network (S2B) (2), reveals the true human and environmental costs of the proposed TAFTA. ‘A Brave New Transatlantic Partnership’ highlights how the European Commission’s promises of up to 1% GDP growth and massive job creation through the EU-US trade deal are not supported even by its own studies, which predict a growth rate of just 0.01% GDP over the next ten years and the potential loss of jobs in several economic sectors, including agriculture.
The report also explains how corporations are lobbying EU-US trade negotiators to use the deal to weaken food safety, labour, health and environmental standards as well as undermine digital rights. Attempts to strengthen banking regulation in the face of the financial crisis could also be jeopardised as the financial lobby uses the secretive trade negotiations to undo financial reforms, such as restrictions on the total value of financial transactions or the legal form of its operations.
Kim Bizzarri, the author of the report:
“Big business lobbies on both sides of the Atlantic view the secretive trade negotiations as a weapon for getting rid of policies aimed at protecting European and US consumers, workers and our planet. If their corporate wish-list is implemented, it will concentrate even more economic and political power within the hands of a small elite, leaving all of us without protection from corporate wrongdoings.”
The report also warns that the agreement could open the floodgate to multi-million Euro lawsuits from corporations who can challenge democratic policies at international tribunals if they interfere with their profits.
Pia Eberhardt, trade campaigner with Corporate Europe Observatory and author of ‘A transatlantic corporate bill of rights’:
“The proposed investor rights in the transatlantic trade deal show what it is really about: It’s a power grab from corporations to rein in democracy and handcuff governments that seek to regulate in the public interest. It’s only a matter of time before European citizens start paying the price in higher taxes and diminished social protection.”
Consumer watchdogs, digital rights and trade activists, environmentalists and trade unions are preparing to fight the corporate dystopia put forward in the EU-US trade deal.
Luis Rico of Ecologistas en Acción, a member of the Seattle to Brussels network:
“We hope that the disturbing evidence we provide will show why all concerned citizens and parliamentarians on both sides of the Atlantic need to urgently mobilise against the proposed EU-US trade deal. We have to derail this corporate power grab that threatens to worsen the livelihood of the millions of people already seriously affected by the financial crisis and by the crippling consequences of Europe’s austerity reforms.”
Do we want increasingly bad and unhealthy food, our rights at work being further eroded, the environment being damaged in the chase for profit, ever greater reckless gambling in the financial sector or our elected representatives being by-passed via international tribunals? Of course we don’t.
Where is the democracy surrounding this proposed TAFTA? Where is ordinary people’s protection from the ‘free’ market corporate-financial cabals that ultimately drive global economic policy and geo-political strategies? By translating corporate power into political influence at the G8, G20, WTO, NATO or elsewhere, whether it is by war, threats, debts or coercion, secretive and undemocratic free trade agreements are but one tool that very powerful corporations use in an attempt to cast the world in their own image (3,4).
The TAFTA is little more than an attempt at a corporate power grab masquerading as something that promotes growth, freedom, harmony and job creation. Those claims are bogus. It must be stopped
Please note: More concerns from environmental and consumer groups will be raised in a press conference on Monday, 7 October, 11am in the International Press Center, Résidence Palace, in Brussels. On Tuesday, 8 November, 9am, a protest stunt will take place in front of the Berlaymont building, 200 Rue de la Loi, Brussels.
Contact francesca.gater@foeeurope.org for further information.
http://www.globalresearch.ca/the-us-eu-transatlantic-free-trade-agreement-tafta-big-business-corporate-power-grab/5352885
Gold And Silver – Central Bank Death Dance, Part II. Good News/Bad News.
Posted on October 5, 2013 by admin
Saturday 5 October 2013
- See more at: http://edgetraderplus.com/market-commentaries/gold-and-silver-central-bank-death-dance-part-ii-good-newsbad-news#sthash.q2fnqD4y.dpuf
great article!
Silver Miners Analyst Watch: October Edition
Oct 4 2013, 15:50
includes: AG, CDE, EXK, FSM, HL, PAAS, SSRI, SVLC, SVM
Disclosure: I am long AG, HL, EXK, SVLC. (More...)
Another month, another analyst watch summary for silver miners from your humble scribe. We are finding it hard to fathom that October has started, and with that the last quarter of this year is already upon us.
As in previous installments we are summarizing our observations of analysts' price targets for primary silver mining companies as published on Yahoo.com. In this October instalment comparisons will be made to the data given in our September edition.
As in previous reports we included the following silver miners in alphabetical order: Coeur Mining (CDE), Endeavour Silver (EXK), First Majestic Silver (AG), Fortuna Silver Mines (FSM), Hecla Mining (HL), Pan American Silver (PAAS), Silver Standard (SSRI), Silvercorp Metals (SVM) and SilverCrest Mines (SVLC).
We duly note that most companies considered for this article are covered by more analysts than reported in our table. This article only considers analyst reports available through Yahoo.com and not all analysts are providing their data free of charge on this platform.
The table below summarizes our data. The first three columns list the company name, ticker symbol and share price at the time of writing. Price targets (low, median and high) are listed in the following three columns. These targets are followed by a column giving the number of analysts providing data to Yahoo.com and the mean recommendation given by these analysts ranging from 1.0 (strong buy) to 5.0 (sell). This concludes the data sourced directly from Yahoo.com.
The following columns are colored in light green and contain data derived from our source data. These data points are given in percentages related to the share price at the time of writing. The column titled "median-price" gives the difference between the share price and the median target price. The column titled "high-low" gives the difference between the high and the low target. The last four columns titled "target change" document the changes in price targets since the September report with the last columns giving the average change over the low, median and high price targets.
(click to enlarge)
Shares trading significantly below the median price target can be viewed as having a greater potential than shares trading closer to this level. Values in column "median-price" can therefore give some indication on the potential of a stock. This way of thinking does not apply for companies that have had significant events moving the share price in recent times since analysts will take their time to update their data accordingly.
A diagram visualizing this difference between the medium price target and the current share price is given below.
Applying the logic outlined above would indicate the greatest potential for Silver Standard closely followed by First Majestic Silver and SilverCorp Metals. Hecla Mining and Endeavour Silver can be found at the lower end of this ranking.
(click to enlarge)
Column "high-low" measures the difference between the high and the low target and represents a measure for the divergence in analyst opinions.
This Divergence in analyst targets is greatest for Coeur Mining this time around. The price target range is smallest for SilverCrest and SilverCorp. The diagram below illustrates our data.
(click to enlarge)
On average price targets were lifted by 2.69% during the past month. This is in fact the first time this year that we are reporting an average price target increase, however modest it may be. SilverCorp Metals received the greatest boost in price targets, while Endeavour Silver's targets were cut yet again with Silver Standard and First Majestic Silver sharing this fate.
Column "target change average" lists the average change in price targets and the diagram below illustrates them.
(click to enlarge)
The final diagram illustrates column "Recommendation" from the table above. We have introduced a new feature for this diagram. The little red bars indicate changes in analysts' recommendation from last month. The diagram shows four such indicators for First Majestic Silver, Fortuna Silver Mines, Endeavour Silver and Coeur Mining. These four companies are currently receiving slightly better recommendations than one month ago.
Obviously, analysts are still liking First Majestic Silver best, ahead of SilverCrest and Fortuna Silver Mines. The least attractive of the bunch, at least in the analysts' minds, continues to be PanAmerican Silver, presumably owing to the company's botched hedging 'strategy'.
(click to enlarge)
Our pick of the month
Granted, it's hard to look past First Majestic Silver but we have picked it too often in a row on past occasions.
This time around our thumbs-up goes to SilverCorp Metals. Only two analysts are providing data accessible through Yahoo.com, but both are in agreement about the high potential for this company and both have lifted their targets considerably in recent weeks.
http://seekingalpha.com/article/1729772-silver-miners-analyst-watch-october-edition
Obamacare Law Creates “Data Services Hub” And Tracks “Social And Behavioral” Data
TND Exclusive / By O.D. of PoliceStateUSA.com /
thenewsdoctors.com
Oct. 2, 2013
If the IRS or NSA scandals involving misuse of private data were troubling, consider the implications of the new information databases created in the name of health care. The newly-launched Affordable Care Act creates a massive electronic registry of private information that is accessible to bureaucrats in agencies ranging from the Internal Revenue Service to the Department of Homeland Security. Its a wonder how Americans who are becoming increasingly concerned with federal surveillance and domestic spying programs could in any way approve of the so-called Obamacare law.
The Affordable Care Act opened exchanges for customer enrollment on October 1st, the federal furlough notwithstanding. The federally-run exchanges, euphemistically called “new health insurance marketplaces,” are accompanied by collection of a wide variety of personal data, which can now be legally shared numerous faceless government agencies — agencies which previously had to snoop, steal, or spy to get it. No longer will any of our intimate medical details be reasonably considered either private or protected.
To facilitate this forfeiture of individual privacy, the Department of Health and Human Services has created a massive, comprehensive database to record and store Americans’ personal information called the Federal Data Services Hub. The Government Accountability Office (GAO) reports that the purpose of the Data Hub is to provide “electronic, near real-time access to federal data” and “access to state and third party data sources needed to verify consumer-eligibility information.” No longer will any of our intimate medical details be reasonably considered either private or protected.
The Electronic Health Records (EHR) — which we are repeatedly told will improve the quality of healthcare — are also the most convenient way for the government to create this permanent database of information on every American citizen. Americans are expected disclose all the information for the Hub under the guise of ensuring that everyone enrolled in the Obamacare exchanges obtains the best insurance coverage for themselves. Medicaid now wishes to require patients’ “social and behavioral” information included in these records and have these patients’ records linked to public health departments.
To read more, click here.
http://thenewsdoctors.com/obamacare-law-creates-data-services-hub-and-tracks-social-and-behavioral-data/
Gold trading or gold hoarding – which will win out?
“The old order changeth yielding place to new”- Tennyson. As the West relinquishes its gold through manipulative trading and China picks it up, the global financial order will likely move East.
Author: Lawrence Williams
Posted: Thursday , 03 Oct 2013
LONDON (MINEWEB) -
There are, and always have been since I’ve been following it, strange goings on in the gold and silver markets. Manipulation is rife – but whether this is by traders, commercial bankers, central banks, other government entities – or a combination of all of these remains unclear. Probably all have had a hand in the continuing volatility of the gold price – and through its close association that of silver too. But then manipulation is rife in any open market you care to name.
That’s the way the game is played in these days of high frequency trading with absolutely enormous quantities of paper assets being used to manipulate virtually any market for the purposes of financial gain – or perhaps for political reasons too in the case of gold.
GATA – the Gold Anti Trust Action Committee – has been pushing its gold manipulation theory for a number of years now and is perhaps one of the true prophets of what was beginning to take place in financial markets, although it has only really been wholly focused on gold, and by association, silver. Here it theorises that governments, central banks and their bullion bank allies have been working together to control the price of gold – probably with the aim of trying to stabilise the global financial system in these days of fiat currencies.
For years, scorn was heaped on the GATA ideas, despite some substantial evidence being produced to support them. But, of late, given some increasingly strange gold market movements flying in the face of political and financial events which would at any other time have had the effect of leading to an upwards run on gold, GATA’s views, and those of a number of others on the fringe, are becoming mainstream – particularly as these adverse price movements in gold appear to have been orchestrated by massive ‘sales’ of paper metal in volumes that have absolutely no relation to the amounts of gold being mined or available to the markets in physical form. “There are no markets anymore, only interventions.” says Chris Powell, GATA’s Secretary - apparently some 5 years ago as it has been pointed out to the writer. How time flies! All markets are open to manipulation for those with the political and/or financial backing to do so - as are government statistics which may be aimed at helping move markets in the way governments wish.
Here at Mineweb we have often expressed the view that it is far from surprising that gold may be being manipulated by central banks and their allies. After all, if you view gold as money – i.e. a currency in its own right – one already knows that governments have openly manipulated exchange rates (money) ever since countries’ currencies went off a gold standard which would have maintained fixed valuations. So why would they not try and control the price of gold too, given the underlying history of gold as a bellwether of government financial prudence.
Central Bankers may quote John Maynard Keynes’ statement that adhering to a gold standard was a ‘barbarous relic’ (often nowadays attributed to the precious metal itself) – but deep down, built into their psyche, is the inherent understanding from hundreds, perhaps thousands, of years of history, that gold remains the currency of last resort. They may not, in themselves, even recognise this understanding, but it is there, instilled from fairy tales and historical fact from their mothers’ knees and early schooling. And if, perhaps, they can control this key element in terms of their own currencies then they can make the world believe that all is right with the system – when patently it is not.
How long can this go on? In theory indefinitely as far as the West is concerned, but the West may well be running out of the physical gold necessary to maintain the pretence that all is well. After all the mighty dollar is nowadays only worth a fraction of its value in terms of buying power than it had when President Nixon took the U.S. off gold convertibility. If paper money has no physical gold backing at all then it is just worthless paper and will eventually be seen as such bringing the whole house of cards crashing down.
But the growing powers of the East – the hoarders – do not see gold as an asset that can be readily manipulated, although they may be party to some kind of manipulation themselves for their own financial and political ends until they can totally dominate the global market. China is the main proponent of this view nowadays and is building itself into a position where it can use its financial power to usurp the U.S.A.’s position as top dog in global trade.
China’s policy on this is not wholly transparent – it likes to keep the world guessing as to its true position. There is a strong body of opinion that believes that China has been building its official gold reserves substantially, but without announcing this. What we do know for sure is that Chinese banks have been actively encouraging Chinese citizens to buy precious metals for some years now – and the Chinese banks are effectively arms of the state. And the belief is that the Chinese state, which invented paper money and has a long history of reliance on gold as the principal recognition of wealth, believes that the more gold the state and its citizens can accumulate, the stronger its position will become in the world order.
This year, China looks likely to import perhaps 1200 tonnes of gold through Hong Kong. (It has so far retained Hong Kong’s transparent statistical reporting set up by the British). It will also produce around perhaps 420 tonnes of gold in its own right this year. Together this accounts for around 60% of all the world’s new annual gold supply. What we don’t know is whether Chinese gold imports also come in through other centres than Hong Kong too. If they do, the percentage could be far higher. With India reckoned likely to import close on 1,000 tonnes of gold this year too, despite the government’s attempts to control imports for trade balance reasons, these two countries alone will account for perhaps all of 2013’s global new gold production.
Strong gold imports into other eastern nations too – Thailand, Indonesia, Vietnam, Singapore etc. as well as into former Soviet bloc countries, Russia, Kazakhstan and into the Middle East, - suggests that perhaps substantially more gold is being shifted to firm hands than is being produced, with the balance coming out of Western holdings, as witness the decline in ETF gold holdings, the dive in COMEX gold inventories - and, some surmise, a steady flow of leased gold from the central banks, perhaps never to be returned.
The flow of gold into firm hands in the East, MidEast and FSU coffers seems to be accelerating year on year with the logical conclusion that the West will end up with little or none of the precious metal if this trend continues over time. What this will do to the world financial order no-one really knows, but the Eastern, Mid Eastern and FSU countries, and China in particular, reckon it will put them at the head of the world order once it becomes recognised that they control virtually all the global gold. Chinese companies (all effectively arms of the state) are also investing in mid tier Western gold miners too, further consolidating their control on global gold production.
I remember seeing, in my distant youth, a 1950s film called the Million Pound Note – based on a Mark Twain story. The brief plot was that the Bank of England, back in 1903 when one million pounds was worth enormously more than it would be today, was persuaded by two eccentric millionaire brothers to issue a 1 million pound banknote, giving it to a penniless American seaman (Gregory Peck) with the condition that if he returns it unspent at the end of the month they will give him a job.
The Peck character is, of course, unable to spend the note as no-one has the funds to offer change and, assumed to be an eccentric millionaire, he has no trouble getting food, clothes and a hotel suite on credit, just by showing his note. The story of the note is reported in the newspapers and he is welcomed into Society while he is also persuaded to give his name to supporting a company that is, coincidentally, trying to develop a new gold mine. His mere association with the company is enough to enable the financier to raise the money to start the mine.
The story gets a little more complicated, but to cut it short, Peck still has the note at the end of the month, is by then effectively a wealthy man in his own right without actually spending anything and is able to return the note, unused and claim his job.
To an extent, controlling the world’s gold is likely to have the same result, but on a huge global scale. You may not have to use it, just have it. The U.S. built its position as the keeper of the world’s reserve currency on such a basis with its initially convertible stock of gold in New York and Fort Knox which has dominated world official gold holdings. The then hoarder of last resort! Officially it still has all this gold, but increasingly there are those expressing doubt of this provenance.
If China usurps this position as the hoarder of last resort, through its official holdings and those of its citizenry (and to an extent the Western gold traders, looking to the short term only, are perhaps unconsciously colluding in this by keeping the gold price low), then logic and history suggests it will win out in the end. China looks to the long term – the west to the profits to be made next week! In the process gold will likely remain hugely volatile, but once the perception that the West is running out of physical metal becomes understood, and the paper gold merchants have nothing with which to back their market manipulations, there will be a period when the gold price will likely soar. And then, maybe, some other form of manipulation will be ultimately be reintroduced under Chinese dominance. What goes around comes around.
iPad Version: Picture - An employee arranges gold jewellery in the counter as her arm is reflected in the mirror at a gold shop in Wuhan: REUTERS/Stringer China
http://www.mineweb.com/mineweb/content/en/mineweb-gold-analysis?oid=207314&sn=Detail
Currency Wars and the Ghost of Bear Stearns - The Mass Exodus of Gold Bullion
Oct. 4, 2013
by: Jesse
Here is one take on the gold inventory conundrum that I posted about last night. I am not entirely comfortable with the full extent of this analogy. Perhaps it is because I had always imagined that coat check rooms were for the most part honestly run.
“Quoted gold prices are like a coat check room at a nice hotel. Imagine that over time things develop so that there are 60-100 coat check tickets for every coat in the coat room.
If the insiders that ran the coat room suddenly realized that the value of coats was much greater than the quoted price, what should happen? The supply of physical coats should fall & the “price” of coat check tickets should fall as well as insiders realize that with 60-100x leverage, 59-99% of the coat check tickets are actually worthless because there aren’t coats to back them.
Think about the bank run on George Bailey’s bank in ‘It’s a Wonderful Life.’ How many people get 100% of their deposit claim checks? Only one, right? Everyone else that wants immediate access to their claim check takes a BIG haircut to the ‘face value’ of that claim. What you are watching in gold markets is a slow-motion version of a classic bank run on a highly-levered depository.”
My correspondent goes on to say that a strong message was contained in the valuation that was given to the Cypriot gold during their recent crisis.
"In the summer of 2007, the BSC subprime mortgage hedge fund basically went to $0, and the message to the markets should have been that 'big chunks of the subprime market are worthless.' But that message at the time was so extreme that very few traded off it.
Similarly, the Cyprus bail-in math (10 tons of Cypriot gold for $10B from ESM, IMF) would suggest that physical gold collateral is worth $31,250/oz in a crisis and that most, but not all, market participants are discounting it because it is such an extreme number.'
It probably is extreme, but some big smart people are buying gold like it is not so extreme, in much the same way that some of those same big smart people turned big sellers of subprime protection right after the BSC mortgage hedge fund blow up.”
That is possible, although one could dismiss the actual valuation as a token gesture to a weakened country. But the international organizations' desire for gold, and the extreme valuation placed to entice it, does suggest that the true valuation of a large quantity of gold in a financial crisis is significantly higher than where it is now.
As you know I tend to mark the realization that there was a serious problem with the request from the Bundesbank for the repatriation of German gold that was refused and deferred for seven years by the Fed. It still amazes me that so few are trading on that event. It was like the earth shifted when I heard about it. How Germany Disrupted the World Gold Market
My correspondent goes on to say:
"I think if something 'breaks' in gold markets, the COMEX futures, and perhaps other futures exchanges, would be settled out at the prior last trade, in cash."
I think quite a few people believe in that outcome. We would expect a variation in premiums and valuations depending on how great the counterparty risk, and the ease which one might have to obtain any bullion for which they have a claim. As you have seen from posting here in the chart below, the claims per ounce on some venues are quite high.
And as for what will come of the actual assets, the gold bars, that do exist after the claims may be force settled there might be some precedent for it.
In a crisis possession is nine tenths of the law, as was obvious to many unfortunate account holders in the collapse of the highly leveraged MF Global. Even when it comes to clear title to assets and the sanctity of customer accounts, actual physical possession and a good set of lawyers, not to mention political influence, is a powerful argument.
Do we know of any big players that have gone long gold this year, signaling perhaps a well informed change in their sentiment, even if it is not reflected in their own positions? I suppose we might suggest a few.
Why would anyone force or risk such an outcome that would be damaging to the bullion banks, and risk the Western banking system?
"Global physical trading patterns are hitting critical tipping points whereby emerging markets are becoming the lion’s share of some global goods and services demand/production and oil demand. And they have NO interest in maintaining the status quo, because they appear to be acutely aware of the fact that the Anglo-American 'exorbitant privilege' has been funded directly by their sweat equity.
Or to put it more bluntly, why would the BRICs want to settle their trades between themselves in dollars so that they can help to fund their own military encirclement that has consistently acted against their interests?”
This brings to mind the Chinese best seller Currency Wars by Song Hongbing that was the Harry Potter of the Chinese intelligentsia about 2006. I have written about it several times as a phenomenon in Asian thinking, in much the same way that some would point to Ayn Rand's influence on thought in the West.
The rise of the BRICs as an economic force is a meaningful development.
"For the 1st time we have someone big enough, in both economic size and military strength, to break the status quo, the means to do so by moving physical trade settlement amongst themselves away from USD, and the motive of satisfying intense domestic political desires to improve living standards for their people and to obtain more control over the basis for settlement of commodities, which among other things would result in lower oil prices."
It is possible that if this is true, we will see some initial indications of tension in the commodity marketplace in the manner of Lehman Brothers.
I have the feeling that a resolution for this currency war is being crafted behind the scenes, with Russia attempting to broker a gradual currency compromise using their chairmanship of the G20 this year. The Anglo-Americans are resisting, but primarily for terms, and for time to allow their favorite banks to square themselves up in the face of this change.
Regardless of the background and motives, the remarkable decline in Western gold inventory and the enormous buying in Asia and the Mideast is something to be considered. To my mind the inability of the US to return Germany's gold in a reasonable timeframe was a watershed event.
Let them eat billion dollar platinum coins.
And the difficulty of the US dollar in maintaining its status as the world's reserve currency is highlighted by current events, not only the political deadlock in Washington, but also the many bilateral agreements to settle trade in non-US dollar terms.
In summary, there are a number of odd things going on. And the unhappiness of the BRICs with the status quo is public.
My correspondent and I believe that there will be an 'aha' or even a 'holy shit' moment coming. But predicting when it will and how it will arrive is not possible. What snowflake will trigger the next avalanche, or what I call trigger event will set the tipping point in motion?
Let's see what happens. But all things considered, unless I was considered TBTF I would not wish to have a significant obligation to deliver gold bullion in this market structure, even if I had hedged the risk. Sometimes risk can be remarkably hard to measure or even define.
http://jessescrossroadscafe.blogspot.com/
The Silver Summit 2013
Oct 24 - 25, 2013
Thursday, October 24 at 8:30am - October 25 at 6:00pm
The Davenport Hotel
10 South Post Street Spokane WA 99201 United States
The world’s premier silver event, at 11 years running includes all things silver. Explorers, producers, bullion dealers and media will fill the booths while the world`s silver gurus will educate and deliver advice to silver investors. This conference is a must attend for anyone involved in the silver sector and is sure to be a brilliant two day event.
Speakers See All
David Morgan
The Morgan Report | Silver-Investor.com
Lawrence Roulston
Resource Opportunities, Editor
Greg McCoach
Mining Speculator
Scott Gibson
Kitco Gibson, Managing Director
Bill Murphy
GATA
Jeff Berwick
Dollar Vigilante, The
Leonard Melman
The Melman Report, Editor Industry Analyst
John Kaiser
Kaiser Research
Jeffrey Christian
CPM Group, Managing Director and Founder
Exhibitors: See All
http://cambridgehouse.com/event/silver-summit-2013
Currency Wars and the Ghost of Bear Stearns - The Mass Exodus of Gold Bullion
Oct. 4, 2013
by: Jesse
Here is one take on the gold inventory conundrum that I posted about last night. I am not entirely comfortable with the full extent of this analogy. Perhaps it is because I had always imagined that coat check rooms were for the most part honestly run.
“Quoted gold prices are like a coat check room at a nice hotel. Imagine that over time things develop so that there are 60-100 coat check tickets for every coat in the coat room.
If the insiders that ran the coat room suddenly realized that the value of coats was much greater than the quoted price, what should happen? The supply of physical coats should fall & the “price” of coat check tickets should fall as well as insiders realize that with 60-100x leverage, 59-99% of the coat check tickets are actually worthless because there aren’t coats to back them.
Think about the bank run on George Bailey’s bank in ‘It’s a Wonderful Life.’ How many people get 100% of their deposit claim checks? Only one, right? Everyone else that wants immediate access to their claim check takes a BIG haircut to the ‘face value’ of that claim. What you are watching in gold markets is a slow-motion version of a classic bank run on a highly-levered depository.”
My correspondent goes on to say that a strong message was contained in the valuation that was given to the Cypriot gold during their recent crisis.
"In the summer of 2007, the BSC subprime mortgage hedge fund basically went to $0, and the message to the markets should have been that 'big chunks of the subprime market are worthless.' But that message at the time was so extreme that very few traded off it.
Similarly, the Cyprus bail-in math (10 tons of Cypriot gold for $10B from ESM, IMF) would suggest that physical gold collateral is worth $31,250/oz in a crisis and that most, but not all, market participants are discounting it because it is such an extreme number.'
It probably is extreme, but some big smart people are buying gold like it is not so extreme, in much the same way that some of those same big smart people turned big sellers of subprime protection right after the BSC mortgage hedge fund blow up.”
That is possible, although one could dismiss the actual valuation as a token gesture to a weakened country. But the international organizations' desire for gold, and the extreme valuation placed to entice it, does suggest that the true valuation of a large quantity of gold in a financial crisis is significantly higher than where it is now.
As you know I tend to mark the realization that there was a serious problem with the request from the Bundesbank for the repatriation of German gold that was refused and deferred for seven years by the Fed. It still amazes me that so few are trading on that event. It was like the earth shifted when I heard about it. How Germany Disrupted the World Gold Market
My correspondent goes on to say:
"I think if something 'breaks' in gold markets, the COMEX futures, and perhaps other futures exchanges, would be settled out at the prior last trade, in cash."
I think quite a few people believe in that outcome. We would expect a variation in premiums and valuations depending on how great the counterparty risk, and the ease which one might have to obtain any bullion for which they have a claim. As you have seen from posting here in the chart below, the claims per ounce on some venues are quite high.
And as for what will come of the actual assets, the gold bars, that do exist after the claims may be force settled there might be some precedent for it.
In a crisis possession is nine tenths of the law, as was obvious to many unfortunate account holders in the collapse of the highly leveraged MF Global. Even when it comes to clear title to assets and the sanctity of customer accounts, actual physical possession and a good set of lawyers, not to mention political influence, is a powerful argument.
Do we know of any big players that have gone long gold this year, signaling perhaps a well informed change in their sentiment, even if it is not reflected in their own positions? I suppose we might suggest a few.
Why would anyone force or risk such an outcome that would be damaging to the bullion banks, and risk the Western banking system?
"Global physical trading patterns are hitting critical tipping points whereby emerging markets are becoming the lion’s share of some global goods and services demand/production and oil demand. And they have NO interest in maintaining the status quo, because they appear to be acutely aware of the fact that the Anglo-American 'exorbitant privilege' has been funded directly by their sweat equity.
Or to put it more bluntly, why would the BRICs want to settle their trades between themselves in dollars so that they can help to fund their own military encirclement that has consistently acted against their interests?”
This brings to mind the Chinese best seller Currency Wars by Song Hongbing that was the Harry Potter of the Chinese intelligentsia about 2006. I have written about it several times as a phenomenon in Asian thinking, in much the same way that some would point to Ayn Rand's influence on thought in the West.
The rise of the BRICs as an economic force is a meaningful development.
"For the 1st time we have someone big enough, in both economic size and military strength, to break the status quo, the means to do so by moving physical trade settlement amongst themselves away from USD, and the motive of satisfying intense domestic political desires to improve living standards for their people and to obtain more control over the basis for settlement of commodities, which among other things would result in lower oil prices."
It is possible that if this is true, we will see some initial indications of tension in the commodity marketplace in the manner of Lehman Brothers.
I have the feeling that a resolution for this currency war is being crafted behind the scenes, with Russia attempting to broker a gradual currency compromise using their chairmanship of the G20 this year. The Anglo-Americans are resisting, but primarily for terms, and for time to allow their favorite banks to square themselves up in the face of this change.
Regardless of the background and motives, the remarkable decline in Western gold inventory and the enormous buying in Asia and the Mideast is something to be considered. To my mind the inability of the US to return Germany's gold in a reasonable timeframe was a watershed event.
Let them eat billion dollar platinum coins.
And the difficulty of the US dollar in maintaining its status as the world's reserve currency is highlighted by current events, not only the political deadlock in Washington, but also the many bilateral agreements to settle trade in non-US dollar terms.
In summary, there are a number of odd things going on. And the unhappiness of the BRICs with the status quo is public.
My correspondent and I believe that there will be an 'aha' or even a 'holy shit' moment coming. But predicting when it will and how it will arrive is not possible. What snowflake will trigger the next avalanche, or what I call trigger event will set the tipping point in motion?
Let's see what happens. But all things considered, unless I was considered TBTF I would not wish to have a significant obligation to deliver gold bullion in this market structure, even if I had hedged the risk. Sometimes risk can be remarkably hard to measure or even define.
http://jessescrossroadscafe.blogspot.com/
Bernanke's "Syrian Moment"
Oct. 2, 2013
Fabrice Drouin Ristori
Fed Chairman Ben Bernanke’s decision to go ahead with unabated quantitative easing (QE) seems to have taken many by surprise. To such an extent that, from now on, the major market participants are saying they have totally lost faith in Ben Bernanke. True, Ben Bernanke has been saying constantly, for the last four years, he would first taper and then end his QE plans, and then, at each FOMC meeting, he has been saying the opposite. The Fed has printed over $3Trillion since 2007.
At large, we can say that investors and other market participants do not trust Ben Bernanke anymore.
Ben Bernanke cannot and will not stop QE. On the contrary, he will add more to it soon because the markets and the banks’ solvability are kept alive solely by this « quantitative easing ».
Why Bernanke Can’t Stop QE
If the Fed were to end its asset purchases, interest rates would rise and all debt-related financial products would plunge, the derivatives bubble (an astronomical $638.7 Trillion, or 10 times global GDP according to the BIS) would explode, the banks would again become insolvent, and the U.S. bond market would collapse. And let’s not forget the impact higher interest rates would have on real estate and consumption.
The G7, or the seven most industrialised countries, account for half of a world GDP that stands at $30Trillion. The debt of those seven countries amounts to $140Trillion. A simple 1% rise in interest rates would bring in an extra cost of $1.4Trillion.
In this context, Ben Bernanke cannot put an end to QE.
Ben Bernanke’s "Syrian Moment"
There’s a shocking parallel to be established with Barack Obama’s loss of credibility with regards to the recent events surrounding Syria. A majority of countries have stopped having blind faith in the American government and its arguments and justifications for military intervention.
World public opinion is starting to ask serious questions about the real motives behind these wars of the last few years. Many countries, such as China and Russia, know very well that an intervention to de-stabilise Syria (just like in Irak and Lybia) has much more to do with saving the petrodollar than with chemical weapons which, by the way, the United States has been the first to use (Vietnam, Iran, Irak etc).
Sun Tzu was saying that « every war is a lie ». We are seeing that the countries which question the dollar’s hegemony are being systematically declared « terrorist states », using fallacious arguments, these last years. But times are changing and the international leaders, those who have no interest in the dollar surviving, have blocked any intervention in Syria.
Both Ben Bernanke and Barack Obama have become totally defiant, these last weeks. This attitude brings and will bring radical consequences for the dollar and the international monetary system, which we know are built on... trust.
These two events are linked and should be understood as some attempts at imposing the US dollar as the world reserve currency and, thus, preserving this paper-money monetary system.
But the opposite is happening : the dollar is being rejected massively, there’s a loss of global confidence in the dollar, and the United States is more and more isolated.
The actual un-declared war is one for the control of natural resources (natural gas and oil) but, above all, one for determining what currency will be used to trade these vital products (paper money or tangible assets).
Largely speaking, we are witnessing a fight between two « camps » : one, more and more isolated, defending a monetary system based on non-convertible paper money, and the other, not in a position to issue world reserve currency, wanting a monetary system based on real money that everyone trusts and that doesn’t serve any country’s particular interests : gold, that is.
By analysing these economic and geopolitical events while focusing on the dollar, one may better understand how these recent economic and geopolitical events are unfolding and anticipate the consequences of a collapse of the world reserve currency.
A Little Monetary Reminder
Gold has been used as money for as long as 5,000 years. We are living, since the closing of the « gold window » in 1971, through a unique monetary experiment in the history of mankind, since it’s the first time that no currency is convertible into tangible assets anywhere in the world.
Let’s recap : since 1971, we are shunning 5,000 years of human history, 5,000 years during which humanity has systematically revolved around forms of money based on gold, 5,000 years in the course of which every paper money experiment has always ended in its total loss of value.
It is amazing, today, to see that the majority of individuals have totally forgotten the need to own some money that can be converted into tangible assets. Those same people don’t understand where this ravaging inflation that is destroying their purchasing power and leaves them poorer each year comes from.
The Petrodollar System
A paper-money system can only survive as long as its users have faith in and recognise the currency’s capacity of maintaining its real value (purchasing power).
The moment this trust is broken, the system collapses. This is why the issuers of fiat money create a permanent demand for it, thus sustaining its non-convertible value (the value of paper currency is determined by supply and demand).
This permanent demand (sustaining the dollar value) is made possible by the fact that oil is being traded in dollars : that’s the « petrodollar » system.
We understand the will of the United States and the proponents of the actual financial system of making mandatory that oil trade be made in dollars, but they will also go to great lengths in trying to ensure that no petroleum-producing country decides to sell its oil in a different currency... especially in gold, the real antithesis of all forms of paper money.
Irak wanted to sell its oil in euros, Libya in gold, and so did Iran (via Turkey). Russia wishes to sell its natural gas for some money that is not being created at a rate of $85Billion every month, which is destroying the purchasing power of its currency reserves. China will be paying its oil from Iran in Yuan, which I anticipate will eventually become convertible into gold.
The value of the world reserve currency and the exorbitant privilege of issuing it are being defended at all costs since 1971, whether by negotiated accords (notably with Saudi Arabia), by military intervention or by manipulation of the one asset reflecting the devaluation of the dollar : gold.
The Changing Monetary Paradigm
Three pillars of protection for the dollar are progressively crumbling right under our eyes :
1) The events in Syria are very certainly marking the end of the U.S.’s capacity to defend the petrodollar by force. China and, above all, Russia having opposed very strongly with success (to a military intervention), we realise that we’ve slipped into a world of multi-polar powers. The petrodollar system is ending and, with it, trust in the world reserve currency, the U.S. dollar.
2) Many commercial accords are being concluded within the BRICS countries without mentioning the dollar as a means of payment. China, Russia, Brazil and a host of other countries are rejecting the dollar for their energy trade bills or their commercial exchanges. Historically, trading is what has brought evolution to the financial sector. The bi-lateral trade agreements within the BRICS are to be analyzed in the context of a global rejection of the dollar.
3) The gold price manipulation, which must be understood as a defense mechanism for the dollar, will end, while physical gold will be re-introduced as a means of settling international exchanges, with China and Russia leading the way. This manipulation has lasted far longer than I had anticipated, certainly, but it will undoubtedly end, due to the depletion of the central banks’ gold reserves, gold that had to fill the markets. The steep plunge of the available COMEX physical gold (from 11,059 ounces in January to 665,000 today) is proof, and other proofs are accumulating that bank-issued paper-gold-type assets are not convertible into physical gold. Read "GLD ETF Tells Customers You Can’t Have The Gold"
A monetary paradigm change is happening right now. Ben Bernanke just experienced his "Syrian Moment", losing all credibility in the eyes of the remaining few.
Events are accelerating... at the speed at which the currencies’ purchasing power is being destroyed.
What this change will bring, as 5,000 years of history have shown us, makes no doubt : a return to a gold standard, with gold at $7,000 an ounce, to avoid any deflationary crisis; and a monetary change imposed by the new world powers (ex-emerging countries) that never ceased acquiring large quantities of gold in anticipation of the collapse of the international monetary system, based on the dollar.
China has imported 517.92 tonnes of physical gold via Hong Kong in the first six months of 2013, and 116.4 tonnes in July. China, first global gold producer, exports not a single ounce of gold...
In August, Turkey’s central bank acquired 23 tonnes of gold, Russia’s 12.7 tonnes, and the central banks of Ukraine, Azerbaijan and Kazakhstan bought two tonnes each.
www.goldbroker.com
http://www.silverbearcafe.com/private/10.13/syrian.html
Dynacor: An Undervalued, Profitable Niche Company With Big Upside
Sep 5 2013, 07:32
Steve Nicastro
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DNGDF.PK over the next 72 hours. (More...)
It is hard to find a stock that has gone as unnoticed or is as misunderstood as Dynacor Gold (DNGDF.PK). This company is truly a diamond in the rough. While many gold (GLD) and silver stocks (SIL) hold strong multi-bagger potential, I think Dynacor could have the best chance for at least a double or triple in price. Believe it or not, this is a micro-cap stock that has a relatively low-risk business model, plus an exploration project with tremendous potential.
Dynacor is a hybrid gold company that explores for gold in Peru, but also runs a profitable ore-processing business at the same time. This is not your average gold stock because they are not a mining company or a pure explorer. Dynacor generates a substantial amount of cash flow from its wholly owned ore processing plant in Peru. They produce gold from the processing of ore, purchased from artisan miners. Dynacor pays the miners at a discount to the spot price and based on the gold content. They then process the ore and sell it at spot price. They can selectively choose which ore to purchase, opting for the highest grade which leads to more profits.
The higher gold goes, the higher margins they should achieve. While a lower gold price hurts their margins, they still make a good amount of money, as we saw in the latest quarterly earnings report.
Before I get more into detail on the company's operations and business model, here is a financial overview of the company:
(click to enlarge)
Credit: StockCharts.com
*Overview
Symbol: DNGDF.PK, DNG on the TSX
Share Price: $1.42
Shares Outstanding: 36.3 million
Market Cap: $51.55 million
*Financials
Cash Balance: $10 million (Working capital of $15.2 million)
Debt: $0 in debt, following the reimbursement of the $1.2 million outstanding debt in the previous quarter.
Q2 2013 Results:
- "During the period ended June 30, 2013, the Company processed 18,785 dry metric tonnes (DMT) of ore (cumulative of 37,462 DMT for the six-month period) compared to 16,086 DMT in Q2-2012 (cumulative 33,644 DMT) a 16.8% increase over Q2-2012. The plant operated at its full 220 tpd capacity during Q2 2013. This 18,785 DMT ore throughput represents the largest quarterly tonnage processed in the history of the plant (News Release).
- Revenue of $25.9 million, 26 percent increase year-over-year.
- Net income of $900K or .03 EPS, compared to $1.2 million or .03 EPS in the previous year.
- Gross operating margin of $3.8 M compared to $3.0 M in Q2-2012, a 27% increase.
- Cash flow from operating activities before change in working capital items of $1.5 M ($0.04 per share) (1) in Q2-2013 compared with $1.4 M in Q2-2012($0.04 per share).
Dynacor - A Great Value
- In 2012, the company recorded full-year EPS of .22. At current price that gives them a P/E ratio of 6.36.
- So far this year, they have recorded cash flow per share of .30. This gives them a current price/cash flow ratio of just 4.6 and around 4 for the full year!
(click to enlarge)Credit: Dynacor Gold
- While a fall in the price of gold does affect their profitability, it affects them much less than it would for a mining company: "During the quarter, two sudden gold price declines affected the Company's gross operating margin (as accumulated ore inventory had been purchased at costs based on higher gold prices), however, the gross operating margin for the period amounted to $3.8 M (14.5%) compared to $ 3.0 M (14.8%) an increase of 26.7% compared to Q2-2012."
(click to enlarge)
Credit: Dynacor Gold
- The company has a current enterprise value of $41.5 million. They are trading at roughly 2 times EV/Cash flow.
The Process Plant Potential and Cost Reduction Efforts
- The company is working towards expanding their ore processing plant to as much as 600 TPD, from the current 220 TPD. This would increase yearly production to 130,000 ounces, compared to the 2013 estimate of 71,000 ounces. The company says that the construction of the new ore-processing plant is to be financed directly from auto-generated operational cash flow and debt.
- Besides the increase in production, the company is focused on reducing costs. The company anticipates profits per ounce to rise with the new mill as several measures will be taken. They include the conversion to natural power, receiving larger haul shipments, and improving operating efficiency with brand new equipment and machines.
- The company has achieved a number of important steps so far in the plant upgrade. Most notably, the Environmental Impact Assessment permit was received in December of 2012.
- Construction of phase 1 begins immediately upon receipt of the construction permit, which is expected shortly. Construction of the tailings pond will also begin at that time.
- 2014 should be a huge year for Dynacor, with the new plant expected to be commissioned and in operation by the first quarter.
Management Expertise and Experience
- The company is very well respected in the area as they've been active in Peru since 1996. They have a ton of experience and knowledge of the area.
- The President and CEO is Jean Martineau, who has 20 years experience in the industry. He is a former director of Wesdome Gold Mines from 1999 to 2007.
- The Vice President and CFO is Leonard Teoli, who has 20 years experience in accounting and as a finance executive.
- Alonso Sanchex is the Chief Geologist. He has 15 years experience as a mine and exploration geologist and is an expert of Peruvian Geology.
By the Way... Dynacor Has an Exploration Project
I haven't even mentioned a project which perhaps holds the most potential for this company: Tumipampa, a multi-mineralized gold deposit located in the Apurimac copper-gold skarn belt.
If you were a gold exploration company that could choose where you would want your project located, this would have to be the location. The company is surrounded by six senior mining companies, such as Southern Copper and Xstrata. Over $6 billion in mine development is underway in this region. Some of the deposits hold a multi-million ounce gold resource with copper and silver as the by-product.
(click to enlarge)Credit: Dynacor Gold
The belt is host to the following projects:
- Las Bambas (Xstrata Copper) ($4.2B mine development approved)
- Los Chancas (Southern Copper Corp)
- Haquira (Antares Minerals) (Received $460M from First Quantum) in 2011
- Constancia (Norsemont)
The Tumipampa project is also located in a gold-silver rich belt of epithermal veins which host the following resources:
- Orocopampa (2M Au ounce)
- Pierina (770K Au ounce)
- Ares (1.2MM Au ounce)
- Arcata (163K Au ounce)
- Caylloma (600K Au ounce)
- Shi-Paula (653K Au ounce)
- Selene-Pallancanta (300K Au ounce)
- Antapite (220K Au ounce)
- To date, the Company has completed three exploratory drilling campaigns on Tumipampa and collected 1449 surface samples.
- 15 gold veins have been discovered to date.
Here are the most recent drill results, with the company striking high-grade gold:
- Cross Cut Intercepts high grade gold mineralization over 4.85 m assaying 36.48 g/t Au, 1.49 oz/t Ag and 0.43% Cu including 0.75 m with 111.5 g/t Au, 5.14 oz/t Ag and 1.13% Cu.
- The roof sampling returned an average grade of 36.48 g/t Au, 1.49 oz/t Ag, 0.43% Cu, 0.08% Pb and 0.12% Zn over 4.85 m true width (uncut grades) with one sample returning a maximum gold value of 111.5 g/t Au with 5.14 oz/t Ag, 1.13% Cu, 0.26% Pb, and 0.23% Zn over 0.75 m true width.
- The north wall sampling returned an average grade of 15.58 g/t Au, 0.80 oz/t Ag, 0.020% Cu, 0.09% Pb, and 0.20% Zn over 7.40 m true width (uncut grades) and this includes an intersection of 4.90 m (true width) grading 22.35 g/t Au.
- The south wall sampling returned an average grade of 14.35 g/t Au, 0.37 oz/t Ag, 0.03% Cu, 0.03% Pb and 0.06% Zn over 7.40 m true width (uncut grades) and this includes an intersection of 4.75 m (true width) grading 21.26 g/t Au. (Source: July 16 News Release)
These were quite impressive drill results, to say the least.
Conclusion: This Is a Buy, Plain and Simple
- Dynacor has a profitable "niche" business that has the potential to grow profits substantially over the next few years.
- To the naked eye, Dynacor Gold may just look like another gold exploration company. I believe a big reason the company has flown under the radar and is undervalued is because of the "gold" label. The truth is that Dynacor is profitable at any gold price.
- To make things even sweeter, I believe the Tumipampa deposit holds the potential to be a 1+ million ounce gold resource.
- The company is shareholder friendly and will continue to fund exploration through cash flow, unlike most other exploration companies which must issue equity.
I think the company has a couple of different options going forward. First, they could opt to find a partner to drill Tumipampa and focus more on their ore processing business, which I believe holds a bit more potential. Or, the company could continue drilling themselves and hope they strike something big.
Either way, I believe shares of Dynacor Gold possess great value and I think the stock could easily return 200+ percent over the next few years. I am in this stock for the long-term, not quick profits, and will be looking to add shares over the next couple of days and weeks.
Additional disclosure: This article discusses a micro-cap stock.
http://seekingalpha.com/article/1674682-dynacor-an-undervalued-profitable-niche-company-with-big-upside
Gold Miners Analyst Watch: October Edition
Oct 3 2013, 10:18
Itinerant
includes: ABX, AEM, AGI, ANV, AU, AUQ, AUY, EGO, GFI, GG, GOLD, HMY, IAG, KGC, MUX, NEM, NGD, NSU, PPP, SBGL
Disclosure: I am long AEM. (More...)
October is upon us and it is time again for an update on price targets for gold miners provided by analysts and available from Yahoo.com. As in previous installments we will be noting price targets and target changes in comparison with results published in our last edition in this series. We would like to stress that many companies mentioned in this article may have more analysts following their progress than considered in our database. This difference is explained by the fact that not all analysts release their predictions to Yahoo.com. Instead, in many cases analyst data is considered as proprietary information only available to subscribers of the analysts' services.
We continue to consider the following stocks (in alphabetical order): Agnico Eagle (AEM), Alamos Gold (AGI), Allied Nevada (ANV), AngloGold Ashanti (AU), AuRico Gold (AUQ), Barrick Gold (ABX), Eldorado Gold (EGO), Gold Fields (GFI), Goldcorp (GG), Harmony Gold (HMY), IAMGOLD (IAG), Kinross Gold (KGC), McEwen Mining (MUX), Nevsun Resources (NSU), New Gold (NGD), Newmont Mining (NEM), Primero Mining (PPP), Randgold (GOLD), Sibanye Gold (SBGL), Yamana Gold (AUY). We continue to retain Nevsun Resources in our analysis despite a recent change in focus to copper in their mining operations in Eritrea.
The table below summarizes our data. The first three columns list the company names, ticker symbols and share prices at the time of writing. Price targets (low, median and high) are listed in the following three columns. These targets are followed by a column giving the number of analysts providing data to Yahoo.com and the mean recommendations given by these analysts ranging from 1.0 (strong buy) to 5.0 (sell). This concludes the data sourced directly from Yahoo.com.
The following columns are colored in light green and contain data derived from our source data. These data points are given in percentages related to the share price at the time of writing. The column titled "median-price" gives the difference between the share price and the median target price. The column titled "high-low" gives the difference between the high and the low target. The last four columns titled "target change" document the changes in price targets since the September report with the last columns giving the average change over the low, median and high price targets.
(click to enlarge)
http://seekingalpha.com/article/1727372-gold-miners-analyst-watch-october-edition
The Real Crisis Is Not The Government Shutdown: Jobs Offshoring, Dwindling Consumer Spending and a Widening Budget Deficit
By Dr. Paul Craig Roberts
Global Research, October 03, 2013
paulcraigroberts.org
The inability of the media and politicians to focus on the real issues never ceases to amaze.
The real crisis is not the “debt ceiling crisis.” The government shutdown is merely a result of the Republicans using the debt limit ceiling to attempt to block the implementation of Obamacare. If the shutdown persists and becomes a problem, Obama has enough power under the various “war on terror” rulings to declare a national emergency and raise the debt ceiling by executive order. An executive branch that has the power to inter citizens indefinitely and to murder them without due process of law, can certainly set aside a ceiling on debt that jeopardizes the government.
The real crisis is that jobs offshoring by US corporations has permanently lowered US tax revenues by shifting what would have been consumer income, US GDP, and tax base to China, India, and other countries where wages and the cost of living are relatively low. On the spending side, twelve years of wars have inflated annual expenditures. The consequence is a wide deficit gap between revenues and expenditures.
Under the present circumstances, the deficit is too large to be closed. The Federal Reserve covers the deficit by printing $1,000 billion annually with which to purchase Treasury debt and mortgage-backed financial instruments. The use of the printing press on such a large scale undermines the US dollar’s role as reserve currency, the basis for US power. Raising the debt limit simply allows the real crisis to continue. More money will be printed with which to purchase more new debt issues needed to close the gap between revenues and expenditures.
The supply of dollars or dollar denominated assets in foreign hands is vast. (The Social Security system’s large surplus accumulated over a quarter century was borrowed by the Treasury and spent. In its place are non-marketable Treasury IOUs. Consequently, Social Security is one of the largest creditors to the US government.)
If foreigners lose confidence in the dollar, the drop in the dollar’s exchange value would mean high inflation and the Federal Reserve’s loss of control over interest rates. It is possible that a drop in the dollar’s exchange value could initiate hyperinflation in the US.
The real crisis is the absence of intelligence among economists and policymakers who told us for 20 years not to worry about the offshoring of US jobs, because we were going to have a “New Economy” with better jobs.
As I report each month, not a single one of these “New Economy” jobs has appeared in the payroll jobs statistics or in the Labor Department’s projections of future jobs. Economists and policymakers simply gave away a good chunk of the US economy in order to enhance corporate profits. One result has been to create in the US the worst distribution of income of all developed countries and of many undeveloped ones.
In the scheme of things, the enhanced profits are a short-run thing, because by halting the growth in consumer income, jobs offshoring has destroyed the US consumer market. As I noted in a recent column, on September 19 the New York Times reported what I have reported for years: that US median family income has not increased for a quarter of a century. The lack of consumer income growth is why 5 years of massive monetary and fiscal stimulus have not brought economic recovery.
The real crisis cannot be addressed unless the jobs are brought back home and the wars are stopped. As powerful organized interests oppose any such measures, Congress will pass a new debt ceiling and the real crisis will continue.
Do you hear any mention of the real crisis in the media? Today I was on an international TV program for 25 minutes with the chief financial editor of one of England’s major newspapers. Little doubt but that he was a good-hearted and intelligent fellow, but he had no capability of thinking outside the box. He was unable to comprehend my explanations, and resorted to regurgitations of the media’s ignorance or subservience to Washington’s propaganda.
Among his regurgitations was the “solution” of cutting Social Security. The chief financial editor of a major UK newspaper did not know that for the past quarter of a century Social Security revenues exceeded Social Security payments, and that the Treasury spent the surplus to fund the annual operating expenses of the government, issuing non-marketable IOUs to the Social Security Trust Funds.
The chief financial editor also did not comprehend that cutting Social Security payments also cuts consumer spending or aggregate demand, and sends the economy down further, thus magnifying the deficit/debt problem.
Because of the serious decline in the US economy caused by jobs offshoring and financial deregulation, Social Security no longer adds to its surplus. Social Security payments need the supplement to the annual payroll revenues of repayments by the Treasury of the borrowed funds.
The only reasons that Social Security is in trouble is that jobs offshoring and wars have constrained the US Treasury’s ability to make good on its debts except by having the Federal Reserve print money. Every job that is sent abroad does not contribute payroll taxes to Social Security and Medicare.
Insouciant American economists say that manufacturing is an outmoded source of employment, but Chinese manufacturing employment is almost equal to the total US labor force in all occupations, including waitresses and bartenders and hospital orderlies. China’s economy is growing at a rate of 7.5% in real terms, while Western economies cannot move forward and some are regressing.
In order to appease Wall Street, the most corrupt institution in human history, and to prevent Wall Street-financed takeovers of their corporations, executives destroyed the American consumer market by offshoring American incomes in order to enhance profits by substituting cheap foreign labor for US labor.
In my opinion, the US economy is not salvageable in its present form. The economy is running out of water resources. The supply that remains is being decimated by fracking. The soil is depleted by glysophate, a requirement of GMO agriculture. The external costs of production are rising (the costs that the corporations impose on the environment and third parties) and possibly exceed the value of the increase in corporate output. Economists are incapable of independent thought, and elected representatives are dependent on the private interests that finance their campaigns.
It is difficult to imagine a more discouraging situation.
At this time, collapse seems the most likely forecast.
Perhaps out of the ruins, a new, intelligent beginning might occur.
If there are any leaders.
http://www.globalresearch.ca/the-real-crisis-is-not-the-government-shutdown-jobs-offshoring-dwindling-consumer-spending-and-a-widening-budget-deficit/5352698
This Is The Next Sub-Prime Crisis: Jim Rickards
Oct. 3, 2013
By Lauren Lyster | Daily Ticker – 1 hour 50 minutes ago
The Daily Ticker
The staggering cost of student loan debt is daunting -- it tops $1 trillion.
Now there is new data showing that students are increasingly faltering under the weight of this debt.
The U.S. Department of Education says figures reveal one in seven borrowers defaulted on their federal student loans. The default rate also rose to 14.7% from 13.4% the year before, the highest level since 1995 based on a related measure, according to Bloomberg News. (The report is for the three years to Sept. 30, 2012.)
Video (2minutes)
In the above video, Jim Rickards, senior managing director at Tangent Capital and author of Currency Wars: The Making of the Next Global Crisis and the upcoming Death of Money, calls the student loan debt load the “next sub-prime crisis.”
Rickards makes his case based in part on the size of the debt and the nature of its underwriting.
You may ask how this comparison can be made when banks and financial firms were on the hook for the sub-prime loans while the government is on the hook for federal student debt. Check out the video to see Rickards' explanation, and also, how he argues the government may be using student loans to stimulate the sluggish economy.
http://finance.yahoo.com/blogs/daily-ticker/next-sub-prime-crisis-jim-rickards-123457426.html
Why Gold Prices Fell Yesterday
Investors wondering why gold prices fell yesterday need to look farther than the government shutdown and technical selling.
By TONY DALTORIO, Contributing Writer, Money Morning October 2, 2013
Gold prices seem to have stabilized today, trading once again above the $1,300 an ounce mark.
This follows a tumble yesterday of more than $40 an ounce to as low as $1,284 an ounce. That price was nearly a two-month low and put the precious metal down 23% in 2013.
At that level, gold was trading more than $50 below its 50-day moving average. To technical analysts, this confirmed the downtrend in the precious metal, bringing about a wave of selling by those who strictly follow the charts.
However, there were factors at play in gold's selloff other than technical selling.
Why Gold Prices Fell: Government Shutdown Factor
One reason Wall Street pundits gave for the drop in the gold price was risk aversion because of the partial U.S. government shutdown. In other words, traders sold assets with higher price volatility like gold and other commodities.
But stocks were up and U.S. Treasury bonds were down - only in the wacky world of Wall Street, where, thanks to the U.S. Federal Reserve's quantitative easing (QE), stocks are no longer considered a risky asset, but gold and Treasuries are.
Let's take a quick look at what gold did during the last government shutdown.
In the period between Dec. 16, 1995, to Jan. 6, 1996, gold merely bounced around a bit before falling slightly a few days prior to the actual shutdown.
Translation: The government shutdown was a non-event for the gold market.
Jonathan Citrin, founder and executive chairman at investment advisory firm CitrinGroup, told MarketWatch "Gold... now seems to shrug off the majority of fears in the shadow of yet another round of bickering in the nation's capital."
Why Gold Prices Fell: Wall Street Keeps Selling
The real factors behind yesterday's selloff in gold are not risk aversion due to politicians arguing.
Here is what really happened...
One reason was simply the fact that China is out of action through Oct. 7 for the Golden Week holidays. China has become the largest buyer of physical gold, with expectations that the Asian giant will purchase 1,000 metric tons of gold this year.
This absence of strong physical buying allowed Wall Street to pursue one of its favorite pastimes - selling gold.
And they did not pass it up...
The majority of gold's drop occurred between 8:30 and 8:40 a.m. EDT, when 24,000 gold futures contracts were sold.
Howard Wen, a precious metals analyst at HSBC, told the Financial Times, "There was market chatter of a major U.S. fund rebalancing out of gold."
And indeed there were other rumors of at least two major U.S. funds selling gold.
Wall Street funds were also busy in the options pit.
Kitco cited Thomas Philippides, a broker at Capfeather Brokerage Group. He related that "meaningful order flow" in gold futures options occurred in the November, December, and especially the April contracts. The bets were all on the bearish side, selling calls and buying puts.
Why did this all happen yesterday?
Check your calendar. Not only was it the Chinese holiday, but it was the first day of a new quarter.
The start of quarter is when hedge funds and others get fresh money from clients. And the favorite bet right now of Wall Street short-term speculators is to short gold while betting on Ben Bernanke supporting stock prices.
If the speculators knock down gold prices further though, look for strong physical buying to emerge once again from China and elsewhere in the developing economies.
http://moneymorning.com/2013/10/02/why-gold-prices-fell-yesterday/
Case for Gold vs. the Case for Treasuries; Is Bill Gross Talking His Book or Talking Reality?
Thursday, October 03, 2013 12:15 AM
Mish's Global Ecnomic Trend Analysis
On October 1, Bill Gross stated U.S. Will Avoid ‘Catastrophic’ Default on Debt, stating the odds of a default are “a million-to-one”.
Is that reality, or is Bill Gross talking his book?
The answer is yes, to both. The odds of default are probably far greater than a million-to-one.
“The Treasury is not going to default on their debt simply because the debt ceiling isn’t going to be raised. There will be other repercussions like slower economic growth. But the Treasury is not going to default.” said Gross.
I strongly agree. I suggest the debt ceiling will be raised by October 17, and probably a lot sooner.
Moderate Republicans will cave in soon. But even if they don't, there will not be a treasury default.
Where are Treasury Yields Headed?
With default silliness, out of the way, let's turn our focus on a far more serious question: Where are Treasury Yields Headed?
Reuters reports Pimco's Gross: Low interest rates may persist for decades
Bill Gross, manager of The Pimco Total Return Fund, said on Wednesday that the global economy may be facing low policy rates for decades.
Gross wrote in his October investment outlook that investors should "bet against" expectations that the federal funds rate - the U.S. Federal Reserve's benchmark short-term borrowing rate - will rise by one percentage point by late 2015.
"The U.S. (and global economy) may have to get used to financially repressive - and therefore low policy rates - for decades to come," wrote Gross, a co-founder and co-chief investment officer at Pimco, whose flagship Pimco Total Return Fund has roughly $250 billion in assets.
"Right now the market (and the Fed forecasts) expects fed funds to be 1 percent higher by late 2015 and 1 percent higher still by December 2016. Bet against that," he wrote in the letter entitled "Survival of the Fittest?"
Gross's outlook on the level of rates is important because Pimco manages roughly $1.97 trillion and is one of the world's largest bond managers. Gross and co-Chief Investment Officer and Chief Executive Mohamed El-Erian's views on Fed actions and global credit also influence other investors because of the firm's size in the marketplace.
Two Points of Interest
Gross's fund had outflows of $5.4 billion in September, marking the fifth straight month of outflows from the fund, Morningstar data showed on Wednesday. While the withdrawals were sizeable, they were the lowest since May.
Pimco had outflows of $6.5 billion across its U.S. open-end mutual funds last month, marking the fourth straight month of outflows from the funds, according to Morningstar. The outflows marked an improvement from withdrawals of $11 billion in August.
Book-Talking Synopsis
It would be easy to dismiss Gross' opinion as talking his book. Yet, I believe he is quite accurate. That does not mean I see value in treasuries (I don't). I see little value anywhere except gold, cash, and Yen-hedged equities.
Of course, one can accuse me of talking my book. But who doesn't talk their book (except day traders who don't have a book)?
I would rather be long mid-term treasuries than long equities-in-general or long corporate bonds. I believe both equities and corporate bonds are well into bubble territory.
The pertinent question on equities and corporate bonds is "when does the bubble break?" The pertinent question for treasury investors is the same one as gold investors "what if I am wrong?"
Those in long-term treasuries will get clobbered if rate raise. Those in gold face the risk the bull market is over.
The Case for Gold
I have mentioned the case for gold numerous times: Briefly, sentiment is extremely negative, the Fed is unlikely to hike rates, central banks globally are likely to step on the liquidity spigot at the first sign of trouble, and markets in general do not top until nearly everyone is a believer (housing is a perfect example).
The Case for Treasuries
Amusingly, the case for treasuries is similar. The Fed is highly unlikely to hike and probably will be far slower at tapering than most think. Hyperinflationists are in la-la land with no understanding of debt deflation, demographics, or any other pertinent facts.
Gold vs. Treasuries
Bill Gross stated himself Bull Market in Bonds Is Over.
Yet, the primary upside for treasuries will occur if Bill Gross is wrong (and once again, I do not think he is).
On the other hand, gold and miners can do very well on a substantial rally, even if the top is in (and for reasons stated, I highly doubt that it is).
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Read more at http://globaleconomicanalysis.blogspot.com/#yLoxfwxSo6l4kIIs.99
Bernanke's "Syrian Moment"
Oct. 2, 2013
Fabrice Drouin Ristori
Fed Chairman Ben Bernanke’s decision to go ahead with unabated quantitative easing (QE) seems to have taken many by surprise. To such an extent that, from now on, the major market participants are saying they have totally lost faith in Ben Bernanke. True, Ben Bernanke has been saying constantly, for the last four years, he would first taper and then end his QE plans, and then, at each FOMC meeting, he has been saying the opposite. The Fed has printed over $3Trillion since 2007.
At large, we can say that investors and other market participants do not trust Ben Bernanke anymore.
Ben Bernanke cannot and will not stop QE. On the contrary, he will add more to it soon because the markets and the banks’ solvability are kept alive solely by this « quantitative easing ».
Why Bernanke Can’t Stop QE
If the Fed were to end its asset purchases, interest rates would rise and all debt-related financial products would plunge, the derivatives bubble (an astronomical $638.7 Trillion, or 10 times global GDP according to the BIS) would explode, the banks would again become insolvent, and the U.S. bond market would collapse. And let’s not forget the impact higher interest rates would have on real estate and consumption.
The G7, or the seven most industrialised countries, account for half of a world GDP that stands at $30Trillion. The debt of those seven countries amounts to $140Trillion. A simple 1% rise in interest rates would bring in an extra cost of $1.4Trillion.
In this context, Ben Bernanke cannot put an end to QE.
Ben Bernanke’s "Syrian Moment"
There’s a shocking parallel to be established with Barack Obama’s loss of credibility with regards to the recent events surrounding Syria. A majority of countries have stopped having blind faith in the American government and its arguments and justifications for military intervention.
World public opinion is starting to ask serious questions about the real motives behind these wars of the last few years. Many countries, such as China and Russia, know very well that an intervention to de-stabilise Syria (just like in Irak and Lybia) has much more to do with saving the petrodollar than with chemical weapons which, by the way, the United States has been the first to use (Vietnam, Iran, Irak etc).
Sun Tzu was saying that « every war is a lie ». We are seeing that the countries which question the dollar’s hegemony are being systematically declared « terrorist states », using fallacious arguments, these last years. But times are changing and the international leaders, those who have no interest in the dollar surviving, have blocked any intervention in Syria.
Both Ben Bernanke and Barack Obama have become totally defiant, these last weeks. This attitude brings and will bring radical consequences for the dollar and the international monetary system, which we know are built on... trust.
These two events are linked and should be understood as some attempts at imposing the US dollar as the world reserve currency and, thus, preserving this paper-money monetary system.
But the opposite is happening : the dollar is being rejected massively, there’s a loss of global confidence in the dollar, and the United States is more and more isolated.
The actual un-declared war is one for the control of natural resources (natural gas and oil) but, above all, one for determining what currency will be used to trade these vital products (paper money or tangible assets).
Largely speaking, we are witnessing a fight between two « camps » : one, more and more isolated, defending a monetary system based on non-convertible paper money, and the other, not in a position to issue world reserve currency, wanting a monetary system based on real money that everyone trusts and that doesn’t serve any country’s particular interests : gold, that is.
By analysing these economic and geopolitical events while focusing on the dollar, one may better understand how these recent economic and geopolitical events are unfolding and anticipate the consequences of a collapse of the world reserve currency.
A Little Monetary Reminder
Gold has been used as money for as long as 5,000 years. We are living, since the closing of the « gold window » in 1971, through a unique monetary experiment in the history of mankind, since it’s the first time that no currency is convertible into tangible assets anywhere in the world.
Let’s recap : since 1971, we are shunning 5,000 years of human history, 5,000 years during which humanity has systematically revolved around forms of money based on gold, 5,000 years in the course of which every paper money experiment has always ended in its total loss of value.
It is amazing, today, to see that the majority of individuals have totally forgotten the need to own some money that can be converted into tangible assets. Those same people don’t understand where this ravaging inflation that is destroying their purchasing power and leaves them poorer each year comes from.
The Petrodollar System
A paper-money system can only survive as long as its users have faith in and recognise the currency’s capacity of maintaining its real value (purchasing power).
The moment this trust is broken, the system collapses. This is why the issuers of fiat money create a permanent demand for it, thus sustaining its non-convertible value (the value of paper currency is determined by supply and demand).
This permanent demand (sustaining the dollar value) is made possible by the fact that oil is being traded in dollars : that’s the « petrodollar » system.
We understand the will of the United States and the proponents of the actual financial system of making mandatory that oil trade be made in dollars, but they will also go to great lengths in trying to ensure that no petroleum-producing country decides to sell its oil in a different currency... especially in gold, the real antithesis of all forms of paper money.
Irak wanted to sell its oil in euros, Libya in gold, and so did Iran (via Turkey). Russia wishes to sell its natural gas for some money that is not being created at a rate of $85Billion every month, which is destroying the purchasing power of its currency reserves. China will be paying its oil from Iran in Yuan, which I anticipate will eventually become convertible into gold.
The value of the world reserve currency and the exorbitant privilege of issuing it are being defended at all costs since 1971, whether by negotiated accords (notably with Saudi Arabia), by military intervention or by manipulation of the one asset reflecting the devaluation of the dollar : gold.
The Changing Monetary Paradigm
Three pillars of protection for the dollar are progressively crumbling right under our eyes :
1) The events in Syria are very certainly marking the end of the U.S.’s capacity to defend the petrodollar by force. China and, above all, Russia having opposed very strongly with success (to a military intervention), we realise that we’ve slipped into a world of multi-polar powers. The petrodollar system is ending and, with it, trust in the world reserve currency, the U.S. dollar.
2) Many commercial accords are being concluded within the BRICS countries without mentioning the dollar as a means of payment. China, Russia, Brazil and a host of other countries are rejecting the dollar for their energy trade bills or their commercial exchanges. Historically, trading is what has brought evolution to the financial sector. The bi-lateral trade agreements within the BRICS are to be analyzed in the context of a global rejection of the dollar.
3) The gold price manipulation, which must be understood as a defense mechanism for the dollar, will end, while physical gold will be re-introduced as a means of settling international exchanges, with China and Russia leading the way. This manipulation has lasted far longer than I had anticipated, certainly, but it will undoubtedly end, due to the depletion of the central banks’ gold reserves, gold that had to fill the markets. The steep plunge of the available COMEX physical gold (from 11,059 ounces in January to 665,000 today) is proof, and other proofs are accumulating that bank-issued paper-gold-type assets are not convertible into physical gold. Read "GLD ETF Tells Customers You Can’t Have The Gold"
A monetary paradigm change is happening right now. Ben Bernanke just experienced his "Syrian Moment", losing all credibility in the eyes of the remaining few.
Events are accelerating... at the speed at which the currencies’ purchasing power is being destroyed.
What this change will bring, as 5,000 years of history have shown us, makes no doubt : a return to a gold standard, with gold at $7,000 an ounce, to avoid any deflationary crisis; and a monetary change imposed by the new world powers (ex-emerging countries) that never ceased acquiring large quantities of gold in anticipation of the collapse of the international monetary system, based on the dollar.
China has imported 517.92 tonnes of physical gold via Hong Kong in the first six months of 2013, and 116.4 tonnes in July. China, first global gold producer, exports not a single ounce of gold...
In August, Turkey’s central bank acquired 23 tonnes of gold, Russia’s 12.7 tonnes, and the central banks of Ukraine, Azerbaijan and Kazakhstan bought two tonnes each.
www.goldbroker.com
http://www.silverbearcafe.com/private/10.13/syrian.html
Shutdown Jokes, Day 3: Colbert, Letterman, Stewart
Bloomberg
Oct. 3 (Bloomberg) -- Late night comics David Letterman, Jon Stewart and Stephen Colbert keep the shutdown jokes coming on day three of the U.S. government's partial shutdown.
Videolink:
http://www.bloomberg.com/video/shutdown-jokes-day-3-colbert-letterman-stewart-pP5wMDs0TPOfM6JXRhGJNA.html
Gold Double Bottom Signals Rally to $1,425: Technical Analysis
By Debarati Roy - Oct 2, 2013 7:00 PM ET
Bloomberg
Gold futures may rebound to $1,425 an ounce in the fourth quarter after forming a “double bottom,” according to technical analysis by Logic Advisors.
The price may climb 7.9 percent from the latest settlement, said Bill O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. Yesterday, the price touched $1,276.90, the cheapest in eight weeks, following the first trough of $1,271.80 on Aug. 7. A double bottom is a chart pattern showing a drop, a rebound and then another decline approaching the previous low, usually indicating price support.
Price of gold has dropped 21 percent this year, tumbling into a bear market in April, as U.S. equities rose to a record and inflation remained moderate, eroding the appeal of the metal as a store of value. Photographer: Haruyoshi Yamaguchi/Bloomberg
Audio Download: Economist Gartman Says He Is Still `Long’ Gold
Yesterday, gold had the biggest gain in almost two weeks on speculation that the Federal Reserve will delay reducing monetary stimulus amid the first U.S. government shutdown in 17 years. The price has dropped 21 percent this year, tumbling into a bear market in April, as U.S. equities rose to a record and inflation remained moderate, eroding the appeal of the metal as a store of value.
“We have seen prices bounce back from the $1,270 level, and it seems like we have found a bottom,” O’Neill said in a telephone interview. “The political uncertainty and physical demand should also provide support here.”
Holdings in exchange-traded products backed by gold dropped to 1,929.26 metric tons, the lowest since May 2010, cutting $60.1 billion from the value of the funds this year.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.
To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net
To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net
http://www.bloomberg.com/news/2013-10-02/gold-double-bottom-signals-rally-to-1-425-technical-analysis.html
Theaureport.com
Expert Comments: Pilot Gold
The Gold Report Interview with Bob Moriarty (10/2/13) "I went to see a project I first visited 12 years ago called Kinsley Mountain, owned by Pilot Gold Inc. It was first put into production in 1994 and went out of production in 1999. Kinsley Mountain is one of those projects that may be a Long Canyon–type project—which would be 2, 5, even 10 Moz—or not. Even if it's not a Long Canyon, it would still be 500 Koz, and could still sell. It won't cost Pilot Gold anything to drill, because it can recover the money. Pilot's management team is the best in the industry, with most members coming from Fronteer Gold. When Newmont Mining Corp. bought Fronteer out for $2.3B, it was an absolute homerun for shareholders. Pilot is doing the same thing. You're buying at a 60% discount to what it was nine months ago.
"A year ago, I visited Pilot Gold's projects in Turkey. One is a copper-gold porphyry; the other is a gold-silver epithermal system. Both were very attractive and had great technical success and great drill results. It's important for your readers to understand that the decline in shares since January has not been rational. Nor has it been manipulation or shorting. It's been hedge funds and gold mutual funds being forced to sell shares. Often, they sold the best projects just because they could. They needed cash and sold everything they could to raise it. . .the company's joint venture with Teck Resources on the big porphyry project in Turkey is in a holding pattern. It's not attractive at $3/pound copper, but it's very attractive at $4/lb copper. The company is drilling the heck out of the TV Tower project and Kinsley Mountain. It has plenty of cash and an incredible ability to raise money." More >
Bob Moriarty, 321 Gold (9/23/13) "When you are looking to invest, find a junior where they recognize success. Pilot Gold Inc. is such a company. . .my opinion, humble as it is, is that [chief geologist] Dr. Moira Smith is going to hit another home run. . .Pilot has two company-making projects and one potential company-making project. . .investors will wake up, they will see great value in stocks like Pilot and they are going to make gains they never dreamed of before."
Tyron Breytenbach, Cormark Securities (9/11/13) "Pilot Gold Inc. continues to expand the KCD target, its current flagship project on the TV Tower land position; recent results include a stepout hole grading 90.2 g/t Ag over 91.5m, well above the weighted average assay grade and the forecast 30 g/t resource grade of the Ag 'blanket' zone. We are moving our resource forecast up to 40 Moz Ag. . .we leave our $1.70 price target and Buy rating unchanged."
Morning Coffee (9/11/13) "Pilot Gold Inc. is advancing on multiple fronts; the company reported that drilling on the near-surface zone of silver-only mineralization at the KCD target at TV Tower continues to return strong silver results, including 90.2 g/t silver over 91.5m in stepout drilling. . .Pilot is advancing KCD towards resource definition while continuing to develop the district-scale potential across TV Tower, which is a joint venture with Teck Resources Ltd. Pilot is the operator at and can increase its interest in the project to 60% (from 40% currently) through sole funding of exploration over a three-year period."
Tara Hassan, Haywood Securities (9/10/13) "The latest results from Pilot Gold Inc.' TV Tower continue to deliver excellent intersections from the silver zone, extending the zone and confirming previous results with infill drilling. Additionally, the company discovered a new zone of oxide gold mineralization overlying the silver zone. . .considering the potential for Pilot's projects and its strong cash position ($30M in cash), which will fund exploration through 2014, we continue to expect the company to outperform its peer group."
http://www.theaureport.com/pub/co/3777
Final Capitulation in Gold?
POSTED ON OCTOBER 2, 2013
BY CEO TECHNICIAN
Yesterday’s $50 puke in gold futures to kick off the month of October may have laid the final foundation for a massive multi-month bottom in gold. The $1276 level in December gold futures is not only important support from the summer, but it also happens to be a key Fibonacci retracement level:
Click to enlarge
GC_Daily_10.2.2013
With the vast majority of gold market participants caught wrong footed once again by this morning’s bullish reversal, the stage is set for a much larger upside move back above $1375. Moreover, the macro backdrop is quite constructive with the US dollar accelerating to the downside and Treasury yields continuing to soften. Gold bulls will want to see the rally hold today with a daily close above $1320.
http://ceo.ca/final-capitulation-in-gold/
TheAuReport
Expert Comments: Probe Mines Ltd.
BNN Interview with John Kaiser (9/12/13) "There is a chance Probe Mines Limited could develop a 'new mining district' outcome where the company could end up controlling 10–20 Moz in the form of medium-grade gold deposits, which would make the stock far more valuable than the $4–5 target one could hope for, based on a positive preliminary economic assessment for the Borden deposit alone at gold prices below US$1,600/oz."
Haywood Securities (9/11/13) "Probe Mines Ltd. is advancing its Borden gold project, a 4.3 Moz gold discovery hosting near-surface mineralization amenable to open-pit mining in the low political-risk jurisdiction of northwestern Ontario. . .stepout drilling this year has extended high-grade mineralization by 700m to the southeast, and mineralization still remains open in both directions along strike. Recent high-grade results southeast of the current resource include 14.3m grading 11.1 g/t gold and 11.6m averaging 15.1 g/t gold. An updated resource is anticipated by the end of 2013 and a preliminary environmental assessment is targeted in H1/14."
The Gold Report Interview with Barry Allan (9/4/13) "We've been involved with Probe Mines Limited for some time. What started off as something that looked like a better-quality 1 g/t bulk mining, open-pit deposit has morphed into what is likely to become a high-grade underground mine that will grade somewhere between 6 and 15 g/t. As subsequent drill results have confirmed, there is a very high-quality component to the resource—better than 10 g/t—that allows Probe the flexibility of investigating a smaller-scale, higher-grade development scenario. It would have a smaller footprint and a more affordable up-front capital cost. And interestingly, mineralization remains open. It has been one of the better gold discoveries in years." More >
http://www.theaureport.com/pub/co/3961#quote
Gold Vs. Gold Miners: Which Is The Better Investment?
Oct 1 2013, 16:40
Steve Nicastro
Disclosure: I am long SAND, SLW. (More...)
Since 2000, there has been one question that I've heard time and time again from investors: "If you are interested in investing in gold (GLD), should you buy the physical metal or should you consider buying shares of mining companies (GDX)?" You've made up your mind that investing in gold is for you, but there are many different ways to get in this market. The question is this: who are you and what is your plan?
In my opinion, investors seeking the least amount of risk should only consider buying physical coins and bars that can be held in their hands. I strongly prefer this method over buying the GLD, which carries an expense ratio of .40 percent. I prefer the feeling of actually owning the physical metal in your hand, opposed to owning an ETF.
Investors who are willing to take more risk, for the potential of much greater returns, should consider investing in high-quality mining companies and royalty companies, which I will explain later on. Those looking to take on even more risk should consider the small-cap junior mining companies which have market caps under $500 million or so, or even some of the early-stage exploration companies, which have cash in the bank, solid management teams and great properties in safe jurisdictions.
These miners could provide explosive gains should the price of gold recover and reach the 2011 highs of $1,900 an ounce, as I expect they will over the next few years. Some of these miners provided 300+ percent returns during the period of 2009 - 2011, and I expect some of them to yield the same results on a gold recovery.
There are a few things everyone should understand before they start investing in the miners:
- Investing in miners introduces many risks, including management risk, political risk, lawsuits, etc. Just look at the horrendous performance of Barrick Gold (ABX) as an example. This is why I recommend diversifying in a number of miners instead of betting the farm of just a couple.
- Miners tend to outperform gold on the upside and underperform gold on the downside. The gains on an upswing can be great, but the losses on the downside can be brutal, as we have seen this past year.
- Shares of gold stocks can be very volatile and some are not very liquid. You have to be willing to stomach big swings in the share prices of these stocks.
Despite these risks and despite the fact that they have been among the worst performing stocks recently, I still like the miners. I don't expect this bear market in gold and gold miners to continue for much longer; I believe the June lows of $1,180 gold were most likely the bottom. My time horizon for investing in the gold miners is 3-5 years, so I have been buying shares of the miners every chance I can get.
Gold vs. Miners vs. Stocks: Which Has Performed the Best?
During this time of weakness in gold and the gold miners, it is important for investors to take a step back and look at the big picture. Even though it has been a bloodbath this past year or so, with many shares down 50 percent, here are some facts to put things in perspective:
- Gold started the year 2000 at around $300 an ounce. Despite the current weakness in the price, gold is still up over 400 percent since then.
(click to enlarge)Credit: Bullion Vault.com
- Gold stocks have still outperformed physical gold over the long run, and many of these companies continue to pay a dividend.
I will use the HUI Gold Bugs index to track gold mining stocks. The HUI contains a basket of unhedged gold stocks including most of the major miners. The HUI is up 443 percent since 2000, slightly edging out physical gold.
- Has the general stock market outperformed gold or the miners since 2000? Well, the S&P 500 is up just 19.34 percent since 2000. It's not even close!
(click to enlarge)
Royalty Companies - The Best Bet Going Forward?
In my opinion, the single greatest way to get exposure to the gold market is through the royalty companies.
The royalty companies have outperformed for a number of reasons, but mainly because their business model is superior to the mining companies. These companies are essentially financing companies for gold miners. For example, a company like Sandstorm Gold will give a mining company that is in the process of building a mine an upfront cash payment of $30 million. For that money, they get the right to purchase 10 percent of the gold produced at that mine for the life of the mine. A Net Smelter Royalty works in a similar way.
This allows these streaming companies to keep their costs very low and profit margins very high. They most often do not have to contribute any more capital after the initial upfront payment and they are not as exposed to inflation as the traditional mining company (example: an increase in the cost of fuel or wages for a mining company). However, they still get all the exploration upside to the mine.
While the HUI is down about 50 percent, the royalty companies have outperformed, as you'll see in the chart below. Sandstorm Gold (SAND) is the leader in this group, essentially breaking even since 2011.
(click to enlarge)
Since 2005, Silver Wheaton (SLW) has outperformed everyone with a gain of almost 500 percent. Royal Gold (RGLD) has doubled in price since then.
To be fair to Royal Gold, since the year 2000, the stock is up 1,500 percent. It started the decade around just $3 a share and now trades near $50 a share with a dividend yield of 1.7 percent.
My favorite play in this sector continues to be Sandstorm Gold because it is a small cap and it possess far more upside than its peers, in my opinion.
(Note: Sandstorm Gold was founded in 2008, Silver Wheaton was founded in 2004 and Royal Gold was founded in 1991).
The Bottom Line for Gold Investors
This is certainly not the time to be selling your gold shares. My best advice is to keep a longer-term perspective when investing in this asset class. Over the next 3-5 years I believe the royalty companies will outperform gold, gold miners and the general market, just like they have done since 2000.
Even though I still believe gold will breakout above $1,500 sometime this year, I could be wrong and it may take much longer for gold to get to that price again. Even so, I continue to add shares of the miners and royalty companies on any dips. Please follow me here on Seeking Alpha for future articles on my favorite plays in this sector.
http://seekingalpha.com/article/1723872-gold-vs-gold-miners-which-is-the-better-investment?source=email_authors_alerts&ifp=0
NSA tracking/graphing social-network connections of Americans
September 29, 2013
Since 2010, the National Security Agency has been exploiting its huge collections of data to create sophisticated graphs of some Americans’ social connections that can identify their associates, their locations at certain times, their traveling companions and other personal information, according to newly disclosed documents and interviews with officials, an investigation by The New York Times has revealed.
A top-secret document titled “Better Person Centric Analysis” describes how the agency looks for 94 “entity types,” including phone numbers, e-mail addresses and IP addresses. In addition, the N.S.A. correlates 164 “relationship types” to build social networks and what the agency calls “community of interest” profiles, using queries like “travelsWith, hasFather, sentForumMessage, employs.”
A 2009 PowerPoint presentation provided more examples of data sources available in the “enrichment” process, including location-based services like GPS and TomTom, online social networks, billing records and bank codes for transactions in the United States and overseas.
This slide from an NSA PowerPoint presentation shows one of the ways the agency uses e-mail and phone data to analyze the relationships of foreign intelligence targets (credit: New York Times/NSA)
http://www.kurzweilai.net/nsa-trackinggraphing-social-network-connections-of-americans
Would SAVE II Act Prohibit Bullion and Numismatic Coins?
September 30, 2013 By Michael Zielinski
CoinUpdate.com
An article published last week discussed the SAVE II Act (H.R. 3146) introduced in the House of Representatives on September 19, 2013 by Representatives Patrick E. Murphy (D-FL) and Mike Coffman (R-CO). The intention of the bill was to generate savings to the US Government by eliminating duplication and increasing efficiency. One of the provisions of the bill would prohibit the "non-cost effective" minting and printing of coins and currency.
Specifically, the bill would amend Section 5111 of title 31, United States Code by adding at the end the following:
(e) Prohibition on Certain Minting- Notwithstanding any other provision of this subchapter, the Secretary may not mint or issue any coin that costs more to produce than the denomination of the coin (including labor, materials, dies, use of machinery, overhead expenses, marketing, and shipping).
While this change would prohibit the production of the cent and nickel which cost more than their respective denominations to produce, a few commenters pointed out that this would also prohibit the US Mint from producing bullion coins, which cost far more than their denominations to produce. Similarly, various US Mint numismatic products which cost more than their denominations to produce would also be prohibited.
1 oz American Gold Eagle with "50 Dollars" denomination
The United States Mint currently produces two different series each of gold and silver bullion coins. The silver series include the America the Beautiful Five Ounce Silver Bullion Coins which carry a denomination of 25 cents and the American Silver Eagles which carry a denomination of One Dollar. The gold series include the 1 oz American Gold Buffalo with a $50 denomination and American Gold Eagles, which include 1 oz coins with a $50 denomination, 1/2 oz coins with a $25 denomination, 1/4 oz coins with a $10 denomination, and 1/10 oz coins with a $5 denomination.
The Mint generally produces these bullion coins in the quantities necessary to fulfill public demand, although in recent years American Silver Eagle production has been short of fulfilling demand and supplies have been rationed. The predominant cost in the production of these bullion coins is the gold and silver content. Recent prices for the metals are $1,330 per ounce of gold and $21.75 per ounce of silver, resulting in a production costs far above the nominal face values of the coins.
Unlike circulating coins, the denominations do not play a role in the issue price of the bullion coins. The US Mint sells its bullion coins to distributors based on the market value of the metal content plus a fixed or percentage mark up. The mark up covers the additional costs of production and distribution as well as provides for a small profit margin. In the most recent fiscal year, the US Mint generated net income of $28.4 million on bullion sales of more than $2.4 billion.
Commemorative Silver Dollar
In similar fashion, the US Mint's numismatic products containing precious metals carry denominations which are far below their production cost. There are various numismatic versions offered for each of the four bullion series. Additionally, the US Mint offers 1 oz Proof American Platinum Eagle coins with a denomination of $100, commemorative gold coins with a denomination of $5, and commemorative silver coins with a denomination of $1. As with bullion coins, the denominations of numismatic coins do not have any bearing on their selling prices.
The US Mint also offers an annual Silver Proof Set containing the dime, quarters, and half dollar struck in 90% silver. Due to the cost of the metal, each of the silver coins would cost more than their denominations to produce. Over the years, various other numismatic products have been offered which would have had production costs exceeding their denominations, however in all cases the sales prices to the public would have been established at levels high enough to recover costs and earn a profit.
On an overall basis, the Mint's numismatic program generated net income and seigniorage of $73.9 million on sales of $481.2 million in the most recent fiscal year.
The SAVE II Act was presumably crafted with the intention of prohibiting the minting of coins issued for circulation which cost more than their denominations to produce. However, the specific amendment provided would seem to have far reaching impacts across US Mint coin production costing the US Government well in excess of the purported savings and depriving the public of bullion investment and numismatic products.
http://news.coinupdate.com/would-save-ii-act-also-prohibit-bullion-and-numismatic-coins-2169/
Infographic: Are You Carrying a Silver Coin?
Tuesday September 17, 2013, 4:41pm PDT
Precious metals dealer Gainesville Coins Inc. published an infographic on how to identify US silver coins that may still be in circulation.
Here’s a look at the infographic:
http://silverinvestingnews.com/19182/infographic-are-you-carrying-a-silver-coin.html
Meaningless Partial Government Shutdown in Progress; What's Affected, What's Not
Oct. 1, 2013
Mike Shedlock
Mish's Global Economic Trend Analysis
A partial government shutdown is now underway. I am unimpressed, and so are the futures. U.S. futures are up slightly, and so are global futures in general. Gold and the dollar are flat.
Given this is the 18th partial government shutdown, there is nothing at all to be excited about this evening.
History of 18 Government Shutdowns
Year Start date End date Total days Explanation
1976 September 30 October 11 10
Citing out of control spending, President Gerald Ford vetoed a funding bill for the United States Department of Labor and the United States Department of Health, Education, and Welfare (HEW), leading to a partial government shutdown. On October 1, the Democratic-controlled Congress overrode Ford's veto but it took until October 11 for a continuing resolution ending funding gaps for other parts of government to become law.
1977 September 30 October 13 12
The Democratic-controlled House continued to uphold the ban on using Medicaid dollars to pay for abortions, except in cases where the life of the mother was at stake. Meanwhile, the Democratic-controlled Senate pressed to loosen the ban to allow abortion funding in the case of rape or incest. A funding gap was created when disagreement over the issue between the houses had become tied to funding for the Departments of Labor and HEW, leading to a partial government shutdown. A temporary agreement was made to restore funding through October 31, 1977, allowing more time for Congress to resolve its dispute.
1977 October 31 November 9 8
The earlier temporary funding agreement expired. President Jimmy Carter signed a second funding agreement to allow for more time for negotiation.
1977 November 30 December 9 8
The second temporary funding agreement expired. The House held firm against against the Senate in its effort to ban Medicaid paying for the abortions of victims of statutory rape. A deal was eventually struck which allowed Medicaid to pay for abortions in cases resulting from rape, incest, or in which the mother's health is at risk.
1978 September 30 October 18 18
Deeming them wasteful, President Carter vetoed a public works appropriations bill and a defense bill including funding for a nuclear-powered aircraft carrier. Spending for the Department of HEW was also delayed over additional disputes concerning Medicaid funding for abortion.
1979 September 30 October 12 11
Against the opposition of the Senate, the House pushed for a 5.5 percent pay increase for congress members and senior civil servants. The House also sought to restrict federal spending on abortion only to cases where the mother's life is in danger, while the Senate wanted to maintain funding for abortions in cases of rape and incest.
1981 November 20 November 23 2
President Ronald Reagan pledged that he would veto any spending bill that failed to include at least half of the $8.4 billion in domestic budget cuts that he proposed. Although the Republican controlled Senate passed a bill that met his specifications, the Democratic House insisted on larger cuts to defense than Reagan wanted and for congressional and civil servant pay raises. A compromise bill fell $2 billion short of the cuts Reagan wanted, so Reagan vetoed the bill and shut down the federal government. A temporary bill restored spending through 15 December and gave Congress the time to work out a more lasting deal.
1982 September 30 October 2 1
Congress passed the required spending bills a day late.
1982 December 17 December 21 3
The Democratic controlled House and the Republican controlled Senate wished to fund jobs, but President Reagan vowed to veto any such legislation. The House also opposed plans to fund the MX missile. The shutdown ended after Congress abandoned their jobs plan, but Reagan was forced to yield on funding for both the MX and Pershing II missiles. He also accepted funding for the Legal Services Corporation, which he wanted abolished, in exchange for higher foreign aid to Israel.
1983 November 10 November 14 3
The Democratic controlled House increased education funding, but cut defense and foreign aid spending, which led to a dispute with President Reagan. Eventually, the House reduced their proposed education funding, and also accepted funding for the MX missile. However, the foreign aid and defense cuts remained, and oil and gas leasing was banned in federal wildlife refuges. Abortion was also prohibited for being paid for with government employee health insurance.
1984 September 30 October 3 2
The House wished to link the budget to both a crime-fighting package President Reagan supported and a water projects package he did not. The Senate additionally tied the budget to a civil rights measure designed to overturn Grove City v. Bell. Reagan proposed a compromise where he abandoned his crime package in exchange for Congress dropping theirs. A deal was not struck, and a three-day spending extension was passed instead.
1984 October 3 October 5 1
The three-day spending extension expired, forcing a shutdown. Congress dropped their proposed water and civil rights packages, while President Reagan kept his crime package. Funding for aid to the Nicaraguan Contras was also passed.
1986 October 16 October 18 1
A dispute over multiple issues between the Democratic controlled House and President Reagan and the Republican Senate forced a shutdown. The Democratic controlled House dropped many of their demands in exchange for a vote on their welfare package, and a concession of the sale of then-government-owned Conrail.
1987 December 18 December 20 1
Democrats, who now controlled both the House and the Senate, opposed funding for the Contras, and wanted the Federal Communications Commission to begin reenforcing the "Fairness Doctrine". They yielded on the "Fairness Doctrine" in exchange for non-lethal aid to the Contras.
1990 October 5 October 9 4
President George H.W. Bush vowed to veto any continuing resolution that was not paired with a deficit reduction package, and did so when one reached his desk. The House failed to override his veto before a shutdown occurred. Congress then passed a continuing resolution with a deficit reduction package that Bush signed to end the shutdown.
1995 November 13 November 19 5
In the shutdown of 1995 and 1996 President Bill Clinton vetoed a continuing resolution passed by the Republican-controlled Congress. A deal was reached allowing for 75 percent funding for four weeks, and Clinton agreed to a seven-year timetable for a balanced budget.
1995 December 16 January 6, 1996 21
Subsequently the Republicans demanded President Clinton propose a budget with the seven-year timetable using Congressional Budget Office numbers, rather than Clinton's Office of Management and Budget numbers. However, Clinton refused. Eventually, Congress and Clinton agreed to pass a compromise budget.
2013 October 1 Ongoing Ongoing Due to disagreement regarding inclusion of language delaying the Affordable Care Act,[10] the Government has not passed a funding bill. Negotiations have come to a stop and government shutdown is in progress. See also United States federal government shutdown of 2013.
What's Affected, What's Not
In contrast to a ridiculously overhyped mainstream media summation of what might happen (Please see More Government Shutdown Hype), inquiring minds might wish to consider a more realistic assessment.
If so, please consider What's changing, what's not, in a shutdown.
Here's a brief recap:
Campers in national parks with entrance gates will have to leave, a zoo panda-cam will be turned off, the airline consumer complaint-line will be shut down (but not air traffic control), routine food inspections will be off (but not meat inspections or high-risk inspections), some SNAP services may be shut down (but not school lunch programs), there will be delays in handing disability claims, and Friday's jobs report may or may not be delayed. Servicemen will be paid, homeland security personnel will stay on duty, Fannie Mae will keep on issuing mortgages with a full staff, but the FHA which handles about 15% of mortgages will have a reduced staff.
The critical date when more serious cutbacks would happen is somewhere around October 17 or perhaps October 22 (I have seen both dates). I expect this mess to be resolved by then.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Read more at http://globaleconomicanalysis.blogspot.com/2013/10/meaningless-partial-government-shutdown.html#F7KL46Zy84kY4HdL.99
The Truth about the Government Shutdown
Sep 30th, 2013
By Shah Gilani
A lot of people are asking me about the threatened government shutdown – set for tomorrow.
That’s when the new fiscal year starts (October 1). And right now, there’s no spending approved for the new year. So unless both the Senate and the House pass a bill to fund the government by midnight, and Obama signs it, we’re in for some changes.
Here’s what’s going to happen and not happen…
You’ll get mail, as usual.
If you collect Social Security, don’t worry, those checks will keep on coming.
Air traffic controllers will be manning their screens, as usual.
As usual, the crack passenger-screening crews we all admire will be feeling you up in the airports.
Amtrak trains will take you to work, so you can’t use that excuse.
National weather forecasting service professionals will still be looking out their windows.
All our national security services are exempt from the shutdown.
Active duty military personnel will not be furloughed.
No more than the usual numbers of illegal immigrants will be breaching our borders.
The Coast Guard will still be keeping Iranian and North Korean subs off our beaches.
Don’t expect a crime spree, because regular law enforcement will be out in full force.
Counterterrorism agencies will be monitoring all our calls, as usual.
Prisoners around the country won’t be walking out of jails – at least not tomorrow.
The Justice Department said 97,000 of its 114,486 legal beagles will be in tomorrow. No one knows what the other people do there anyway, or the first 97,000, for that matter.
If, on the other hand, you have a toxic dump behind your house, get your own mop. The Environmental Protection Agency told the White House they plan on furloughing all but 1,069 of their 16,200 workers.
The National Labor Relations Board will have only 11 of its 1,611 laborers laboring. Which personally I think will result in a national tragedy.
The Commodity Futures Trading Commission says only 28 of its 680 peeps will be peeping in on market manipulators. The others, whose job it is to count the money JPMorgan has paid in fines, will come back when Jamie Dimon sends in his next check.
The Pentagon said it might have to furlough 400,000 employees, or half of their civilian workforce. Oh, the humanity.
National parks and museums and monuments will close.
The Census Bureau will have to stop collecting misleading data.
Applications for small business loans won’t get processed.
The IRS will have to cancel audit appointments, but won’t furlough any collection thugs.
By some estimates, 825,000 of more than two million federal workers will be furloughed.
So should you care about the threat of a government shutdown?
The markets don’t care. They’re down less than half a percent today.
I don’t care. Do you?
Shah
http://www.wallstreetinsightsandindictments.com/2013/09/the-truth-about-the-government-shutdown/
London bullion body could charge more or disband gold rates
ROME | Sun Sep 29, 2013 4:13pm EDT
(Reuters) - The London Bullion Market Association (LBMA) could charge its member banks more or even disband its Gold Forward Offered Rates (GOFO) after a string of new regulations in the financial market, the chairman of the industry body said on Sunday.
In July, the International Organisation of Securities Commissions (IOSCO) - a global umbrella group for market regulators - detailed a series of principles on financial benchmarks, after the Libor (London Interbank Offered Rate)manipulation scandal.
The scandal led Madrid-based IOSCO to study how Libor, which was rigged by British banks, including Barclays (BARC.L), and other money market benchmarks should be supervised and how they are set, to restore market confidence.
Libor is the estimated interest rate set daily by leading London banks at which they would be charged when borrowing from other banks.
The GOFO rate is the gold equivalent to Libor, at which dealers will lend gold on swap against U.S. dollars.
"Going forward, the GOFO service has to conform to some principles, therefore we have to look at how the data is collected, how it's recorded, who is administrating it," LBMA Chairman David Gornall told Reuters in an interview.
"And we could either charge member banks more money or if the market decides that they don't need to spend more money on regulatory affairs (because) as they already pay someone to do that... then the GOFO might not exist."
Gornall added that the alternative for the LBMA would be to carry on with the Good Delivery List, the Responsible Gold Guidance on ethical gold production, refining and assaying, the annual conference, publishing the dedicated quarterly journal the Alchemist but not the regulatory side.
The Good Delivery rules specify the physical characteristics of bars used in settlement in the wholesale London bullion market.
PRICE ENVIRONMENT
Gold prices have fallen by a fifth this year, hurt by speculation that the U.S. Federal Reserve is set to rein in its bullion-friendly quantitative easing (QE) policy, a major driver of the record-high prices seen in recent years.
QE put pressure on long-term interest rates, keeping the opportunity cost of holding non-yielding gold at rock bottom, while stoking fears of rampant inflation in the years to come.
Gold dropped $200 an ounce in two days in April in its sharpest slide in 30 years, and investors started to divest gold as a result, unwinding nearly 700 tonnes of ETF holdings so far, while central bank buying more than halved.
The halt in the gold price upward trajectory could have an impact on the decision that LBMA member banks have on the GOFO services, Gornall said.
"If you look at the commodities cycle, it's whether you believe there is going to be enough business to fund (higher charges to get GOFO data)...I think that's a relevant question and that's what I ask them as the LBMA chairman."
(Reporting by Clara Denina; Editing by Marguerita Choy)
http://www.reuters.com/article/2013/09/29/us-lbma-gornall-idUSBRE98S0G720130929
It's not the same without the daily Wall Street Breakfast, Federal Headlines and Money Morning basserdan.
Sandstorm Gold Announces US$10 Million Loan to Luna Gold
VANCOUVER, Sept. 27, 2013 /CNW/ - Sandstorm Gold Ltd. ("Sandstorm" or the "Company") (NYSE MKT:SAND, TSX:SSL) has remitted a US$10 million loan (the "Loan") to Luna Gold Corp. ("Luna") (TSX: LGC) in accordance with its previously announced commitment to issue a non-revolving loan facility to Luna (see press release dated September 10, 2012). The Loan is subject to interest at a rate of 12% per annum, subject to certain conditions, and will mature on June 30, 2017. The proceeds from the Loan will be used towards the Phase I expansion and exploration activities at Luna's Aurizona project in Brazil.
ABOUT SANDSTORM GOLD
Sandstorm Gold Ltd. is a gold streaming company. Sandstorm provides upfront financing for gold mining companies that are looking for capital and in return receives a gold streaming agreement. This agreement gives Sandstorm the right to purchase a percentage of the life of mine gold produced, at a fixed price. Sandstorm is a non-operating gold mining company with a portfolio of nine gold streams, six of which are producing gold, and six net smelter return royalties. Sandstorm plans to grow and diversify its low cost production profile through the acquisition of additional gold streams.
Sandstorm is focused on low cost operations with excellent exploration potential and strong management teams. Sandstorm has completed gold purchase or royalty agreements with Brigus Gold Corp., Canadian Zinc Corp., Colossus Minerals Inc., Columbus Gold Corp., Entrée Gold Inc., Glencore Xstrata plc, Luna Gold Corp., Magellan Minerals Ltd., Metanor Resources Inc., Mutiny Gold Ltd., Santa Fe Gold Corp., SilverCrest Mines Inc., Rambler Metals and Mining plc and Solitario Exploration & Royalty Corp.
For more information visit: www.sandstormgold.com.
http://online.wsj.com/article/PR-CO-20130927-909866.html
Luna Sets An Example For Other Gold Miners
Aug 15 2013, 15:22
Steve Nicastro
Disclosure: I am long LGCUF.PK. (More...)
Smart gold mining companies like Luna Gold (LGCUF.PK) have begun to initiate aggressive cost reduction programs in the face of lower gold prices. Instead of focusing on producing as many ounces as possible, companies are getting smarter and focusing on improving operating margins, which leads to more cash flow and a stronger balance sheet.
If you are not familiar with Luna, I previously wrote an article titled "2 Brazilian Gold Miners With Enormous Upside" which makes the case that Luna is a compelling risk vs. reward gold play.
Here is a brief description of the company: Luna Gold owns and operates the Aurizona gold mine in Brazil. Luna's goal is to maximize shareholder return to producing gold at a low cost and in a sustainable and safe manner. The company is currently undergoing an extensive expansion at Aurizona which should bring them from 90K ounces a year production to over 135K a year (and potentially much, much more). The Aurizona mine hosts 4,667,000 million ounces of Measured, Indicated and Inferred resources.
Luna has a market cap of $147 million with a share price of $1.41. Their P/E is currently just 7.8 and management owns roughly 14 percent of the company.
(click to enlarge)Credit: StockCharts.com
Luna has started to break out above the 50-day moving average and I believe they could head higher in the short term.
Q2 2013 Results - Low Costs, High Margins
Luna Gold's cost reduction efforts appear to have already paid off, as we've seen in the recently announced Q2 2013 results:
- Luna produced 18,853 ounces at an average unit cash cost of production of $681 per ounce and an average all-in operating cash cost of $938 per ounce. This is among the lowest costs in the industry.
- Revenues of $45.4 million at an average realized gold price of $1,525 per ounce for first half 2013
- Gross profit of $16.4 million for first half 2013
- Net income of $8.7 million ($0.08 per share) for the quarter.
-Operating Cash flow of $9.3 million in the quarter.
- Gold production guidance for the year was revised downwards, from 100K ounces to 80-90K ounces, as the company focuses on producing less gold at higher operating margins.
More Cost Reduction Plans Announced
With the Company's focus on positive cash flow and increasing margins, they have implemented further initiatives with the target to increase shareholder returns in the near term, while focusing on future growth at the Aurizona Gold Mine:
- "Salary reductions: The Board of Directors and Executive Management of the Company have initiated a 20% reduction in cash based remuneration for the following 12 month period.
- The Company has placed all Greenfield exploration programs on care and maintenance in order to preserve cash and to focus on completion of the Phase I Expansion program. As a result, a number of exploration employees have been released from the Company.
- All non-essential corporate expenditures and operating programs have been eliminated. All areas of the business have been reviewed and cost reduction programs are now in effect."
I applaud Luna Gold for making these cost reduction efforts and can only hope that other mining companies I own follow their lead.
As for Luna Gold's expansion, this is where the real opportunity lies for shareholders. If the company can successfully complete their expansion on time and budget, it could lead to enormous gains for shareholders:
- "The Aurizona process plant expansion ("Phase I Expansion") is progressing and remains on budget. The company's priority is to complete this expansion with the original budget of $50 million."
- The Company's priority remains to complete the Phase I Expansion within the original budget of $50 million.
- The expansion remains on track and on budget for completion by the end of Q4 2013.
- The Company intends to draw down the Sandstorm Subordinated Debt Facility in Q3 2013, to provide assistance in funding the completion of the Phase I Expansion.
As you'll see below the phase 1 expansion would take Luna to 135K ounces of production a year. However, the mine really has much more potential than that as the company is targeting annual production of at least 250K ounces:
"A Phase II PFS considers the Aurizona Gold Mine increasing annual gold production to between 200,000 and 300,000 ounces." (June 19 News Release).
Credit: Luna Gold
The future appears extremely bright for Luna Gold, especially now that gold prices have begun to recover. As for gold (GLD)?I personally believe gold has bottomed and will break out higher in September. I believe management is taking all the right steps to create value for shareholders and I will continue to add shares on any dips.
http://seekingalpha.com/article/1638942-luna-sets-an-example-for-other-gold-miners
2 Brazilian Gold Miners With Enormous Upside
Jul 15 2013
Steve Nicastro
Disclosure: I am long SAND, COLUF.PK, LGCUF.PK. (More...)
Previously, I had written an article titled "How Safe is Sandstorm Gold" (SAND) in which I made the case that the company is one of the less risky gold stocks on the market due to their solid business model, expert management and the strength of their partners. Here I'd like to make the case that two of Sandstorm's partners - Luna Gold and Colossus Minerals - perhaps present an even more compelling investment opportunity.
If you own Sandstorm or are looking to build a position, I want to stress again how important it is to follow not just the company, but their partners as well. Even though Sandstorm gets their gold (GLD) at $500 and lower creating healthy profit margins, if their partners are not financially healthy themselves, it doesn't matter as they could shut down operations for an extended period of time or altogether. This is why management has focused on doing business with what they consider excellent management teams and low-cost mines.
In the past 2-3 months, insiders at two of Sandstorm's main partners have been buying up their company's shares at depressed levels, which could mean that they believe their stocks are cheap and that we've reached a near-term bottom.
Both companies are also at a critical stage of development, as Luna works on an expansion plan to potentially double production and Colossus nears initial production.
Here I will further analyze these companies:
Luna Gold Corp. (LGCUF.PK)Credit: Luna Gold
This is by far Sandstorm's largest stream as it currently makes for about 35 percent of Sandstorm's production profile. Sandstorm has the right to purchase 17 percent of life of mine gold at the Aurizona project in Brazil at $400 per ounce, and the mine is expected to produce about 100,000 ounces in 2013 and 125,000 ounces in 2014 as Luna undergoes their expansion plans.
The current share price of Luna Gold is $1.09 with a market cap of $115 million. They have a P/E ratio of just 6.91 based on EPS of .16.
The company has cash of about $15 million with debt of $30 million. The all-in cash costs for Aurizona are low, at $1,250, but as I mentioned in my previous article, these costs are expected to drop to $1,100 an ounce this year, meaning that the mine is profitable even at current gold prices.
Aurizona hosts 4,667,000 ounces of Measured, Indicated and Inferred resources. With their $115 million market cap, this places a value of just $24.64 on each ounce of gold. This is fairly low for a producer. Yamana Gold (AUY) has a value of about $123/oz, Goldcorp (GG) $132/oz, and AuRico Gold (AUQ) $100/oz, according to GoldMinerPulse.com.
The insider ownership of Luna is high at 14.4 percent and this doesn't take into account the recent insider buying as highlighted below:
(click to enlarge)
Credit: Canadian Insider.com
- On July 10, Luis J. Baertl bought 30,000 shares (six different transactions) at $1.10 per share. Baertl is a director.
- On July 2, Keith Robert Hulley bought 5,500 shares at $1.06. Hulley is Chairman and Director.
- On July 2, Geoffrey Chater bought 10,000 shares at $1.08. Chater is a Director.
- On July 2, Mark Halpin bought 5,000 shares at $1.07. Halpin is VP of Corporate Development.
- On July 2, Titus Haggan, VP of Exploration, bought 8,100 shares at $1.09.
- On July 2, Baertl again bought 50,000 shares at $1.08 and $1.09.
Additional buying took place in June:
- On June 28, Baertl bought 40,000 shares at $1.20. He also bought another 40,000 shares on June 25/26 at $1.50.
For the full list of transactions, click here.
What is the Risk with Luna?
If the price of gold were to remain at the $1,250 level or drop lower for an extended period of time, this could definitely affect Luna's Aurizona expansion plans.
According to their most recent presentation, the company requires $43.2 million of capital for the expansion. $15.7 million of this has been spent through March 31, 2013, leaving $27.5 remaining. The company reported earnings of $5.6 million in the first quarter and as I mentioned earlier, they have $14.9 million cash (as of March 31).
Worst case, the company could take on more debt to finish the expansion or issue shares. They don't have too many shares outstanding so an equity raise wouldn't be the worst thing in the world. Their current debt poses no short-term issues, in my opinion. Here is info. on the current long-term debt they have:
"The Corporate Facility matures on June 30, 2016 and carries an interest rate of LIBOR plus 4.25%. The principal amount of the Corporate Facility will be reduced by $3.0 million every quarter beginning on September 30, 2014 until the Maturity Date, when the remaining outstanding amount will be due in full." (from the 1Q report).
Finally, here's a one-year chart of Luna Gold:
(click to enlarge)Credit: Yahoo!Finance
What will it take for Luna's share price to get back to $3 and higher? If gold prices have indeed bottomed and we see gold just get back to $1400 an ounce, Luna could reward shareholders with a 100 percent share price increase from current levels.
But that is just the tip of the iceberg. If the production expansion goes as planned, the company could be producing as much as 200,000+ ounces a year (at all-in cash costs under $1200):"A Phase II PFS considers the Aurizona Gold Mine increasing annual gold production to between 200,000 and 300,000 ounces." (June 19 News Release).
Here is a chart showing the company's production potential:
(click to enlarge)Credit: LunaGold.com
A 200,000 ounce producer at $1400 gold at $1200 all-in cash costs means the company could potentially bring in $40 million cash flow a year. With a higher gold price, adjust accordingly. With higher production, potentially as much as 400,000+ ounces... I think you get the idea.
*With a well-executed expansion and a recovery in the price of gold, I see at least 300+ percent upside in shares of Luna Gold over the next 1-3 years.
Colossus Minerals (COLUF.PK)
Credit: Colossus Minerals
As I stated in my previous article, I believe Colossus is by far the most important developmental asset that Sandstorm has a stream on. They own and are developing the super-high grade Serra Pelada project. Serra Pelada is a joint venture between Colossus (75 percent) and Cooperativa de Mineração dos Garimpeiros de Serra Pelada ("COOMIGASP") located in the State of Pará, Brazil.
Sandstorm has the right to buy 1.5 percent of the gold and 35 percent of the platinum produced from Serra Pelada at a per ounce cost of $400 for gold and $200 for platinum. Sandstorm paid $60 to acquire the stream in September of 2012.
Colossus's share price has jumped since I wrote that article, from $1.20 to $1.62 due mainly to the price of gold rising but also due to positive drilling results from the company's Cutia project.
Colossus has a market cap of about $170 million. They have $32 million cash (as of April) plus they recently completed a $28.75 bought deal financing, giving them enough capital to get to commercial production. The company has a gold-linked note for $86.25 million that matures on Dec. 2016.
Right now is crunch time for Colossus Minerals and they work on getting their Serra Pelada mine into production. Here are their upcoming milestones:
(click to enlarge)Credit: Colossus Minerals.com
As you can see above, the company will first produce gold until their PGM flotation plant is completed in the third quarter of 2014.
Here is a chart of recent insider buying:
(click to enlarge)Credit: Canadian Insider.com
The following chart below is courtesy SA author Markus Aarnio, in his article"2 Basic Material Stocks With Recent Intensive Insider Buying."
Month Insider buying / shares Insider selling / shares
June 2013 7,533,000 0
May 2013 0 0
April 2013 2,138,200 50,000
March 2013 347,900 0
February 2013 12,000 40,600
January 2013 0 0
- On June 14, J. Alberto Arias purchased 7,500,000 shares in the public market at a price of $1.60. Arias is a Director. "Arias has over 20 years of experience in international mining finance including being the Managing Director of Goldman Sachs - Metals & Mining Research from 1998 to 2006, covering the sector globally" (ColossusMinerals.com).
Arias now controls 16.6 percent of the company or just over 20 million shares in total.
- The CFO, another director and the VP of Investor Relations also bought a significant amount of shares in this time period.
For a full list of insider buys at Colossus, visit this link.
What are the Risks With Colossus? What is the Upside?
- The risks associated with Colossus are the risks that every single mining company faces - falling gold prices, failure to produce, for whatever reason. Mine delays, construction failures, etc.
- The other main risk is the fact that they are not yet in production and that they will be a single mine operator until their next developmental project has undergone extensive work.
- Again, Colossus's Serra Pelada project has no defined resource (yet).
However, despite these risks I see huge potential in Colossus for a number of reasons:
- First, the drilling results from Serra Pelada are absolutely tremendous and the deposit is world-class (The deposit is one of the highest grade gold and platinum group deposits in the world based on drilling). *This should result in the company being one of the lowest cost producers in the entire world.
"Serra Pelada hosted the largest ever gold rush in Latin America with up to 80,000 artisanal miners producing 2 million ounces of gold, plus platinum and palladium, from a hand dug open pit." Credit: SandstormGold.com
Take a look at these drill results, some of the highest grade on record:
Credit: ColossusMinerals.com
Here is a news release in 2011 with some of the most impressive drill results I've ever seen. The drilling intersected 74.40 metres at 31.17 g/t gold, 3.02 g/t platinum and 6.78 g/t palladium in the Central Mineralized Zone ("CMZ").
Another release in December highlighted the following results: 74.35 metres grading 15.45 g/t gold, 4.54 g/t platinum and 7.04 g/t palladium.
These are unbelievable drill results, to say the least.
Is Colossus's Management Trustworthy?
I believe the management is first class.
Here is a bio on their CEO and Director, Claudio Mancuso: "Mr. Mancuso has over 10 years experience in the mining industry and capital markets. Prior to joining Colossus, he served as Vice President, Treasurer of Agnico-Eagle Mines Limited (AEM), a position he held since January 2009.
Prior to that appointment, he served Agnico-Eagle in various financial management positions. Prior to joining Agnico-Eagle in 2002, he held positions at the Ontario Securities Commission and BDO Dunwoody LLP, a public accounting firm. Mr. Mancuso was appointed to the Colossus Minerals Board of Directors, effective as of October 15, 2012. Mr. Mancuso is a graduate of the University of Waterloo and is a Chartered Accountant."
Note that Mancuso has experience at a major gold mining company - Agnico-Eagle Mines.
Their Chief Operating Officer and President, David Anthony, has experience at Barrick Gold (ABX):
"Mr. Anthony is a mining engineer with more than 30 years experience in the mining industry and brings strong engineering and mineral processing expertise. In 2010 and 2011, Mr. Anthony was the Vice President & Senior Project Director, Cliffs Natural Resources Inc. and from 2001 to 2010 Mr. Anthony held senior positions at Barrick Gold in Tanzania responsible for the development of the Bulyanhulu, Buzwagi and Tulawaka mines which are three of the four world-class gold and copper operations which form African Barrick Gold ("ABG")."
- Luis Albano Tondo, VP of Operations and Country Manager in Brazil, worked in a variety of capacities for Kinross Gold (KGC), another major mining company.
- Jason Brooks, their VP of Finance: "most recently served as Assistant Controller of NewGold Inc., an intermediate gold producer. Previously, he spent six years with Barrick Gold Corporation in various financial management positions."
These are just a few examples and there are more. This is a first-rate management team that I'm sure Sandstorm is thrilled to do business with.
In conclusion, with initial production expected next quarter, a 1,000 TPD ramp-up the next quarter, and platinum and palladium production coming in 2014, Serra Pelada should be one of the lowest cost precious metals producers in the world and is certainly a company to keep an eye on.
Here is an idea of how much production is possible from Serra Pelada. The chart is courtesy SA author Hyperinflation, from his story "Colossus: The Small Cap Miner Will Soon Be a Cash Cow."
Here are some estimates:
Gold Production: 175,000 + (ounces)
Platinum Production: 37,000
Palladium Production: 60,000
This would result in the company potentially bringing in over $90 million in annual cash flow in 2015. (Please keep in mind these are just rough, educated estimates).
Colossus also has an option to buy back 50 percent of the stream by April 1, 2015, for $48.75 million. I see this as likely if metal prices are significantly higher than current levels at that time and the mine is bringing in substantial cash flow.
If the management can deliver, I see at least 300 percent upside from current levels. Just getting back to 2011 prices would indicate a potential return of over 700 percent!
(click to enlarge)Credit: Yahoo!Finance
What About Brazil? Is it a Mining Friendly Country?
- Brazil was ranked as the 13th best mining jurisdiction in the world in 2011 and in 2013 it was ranked number 9.
- Major producers in Brazil include Kinross Gold, Yamana Gold and AngloGold Ashanti (AU).
- In short, I strongly believe that Brazil poses little to no political risk. If this changes in time, I will certainly update this article and re-access my investment thesis in both companies mentioned.
Where Does Gold Go From Here?
All this talk of Colossus and Luna would be useless if we did not analyze where the price of gold will be in the coming years.
Personally, I believe in the argument that the bottom for gold is the all-in cost of producing an ounce.
In the article "Gold Is Approaching a Bottom" author Prudent Finances lists the calculated all-in production cost for the top 20 gold producers for Q4 2012 to be $1,306 per ounce.
As I pointed out in my previous article, high cost mines have already begun to shut down as they are unprofitable at current prices.
In the short term, I don't think this has a big impact on the price of gold, but in the long term, I absolutely believe that this provides a floor for the price of gold.
I am absolutely in the camp of those who believe that the Federal Reserve will not taper QE at the end of the year. If anything, I believe that they will actually have to increase the size!
One thing it seems nobody is talking about right now is the US National Debt, which is closing in on $17 trillion. If you count unfunded liabilities like Social Security and Medicare, the total is FAR greater.
The USA is also expected to hit the debt limit once again this fall. My point is that the growth in US debt is far outpacing the growth in GDP.
(click to enlarge)Credit: USDebtClock.org
Because of this reason, I believe that the Fed CAN'T let interest rates keep rising and will have to up the size of QE. The US already pays $223 billion just on interest of debt (Credit: USDebtClock.org). So any further increase in interest rates would have an effect on the cost of debt, which means an increase in the budget deficit.
I guess what I'm trying to say is that the primary case to own gold and the miners has not changed. If anything, the case has gotten much stronger. Don't let the Fed's phony talk of tapering scare you out of gold.
This is just a brief analysis of why I feel the Federal Reserve simply can't taper anytime soon. I hope to write another article soon, which goes into more detail.
To Buy Sandstorm or to Buy Their Partners? That is the Question
While I believe Sandstorm makes for a safer investment than their partners, I do feel that Luna and Colossus have a bit more upside in the long term.
Investors willing to take on more risk for more potential reward should keep an eye on these two companies going forward. If you are interested in investing in either company, my advice is to buy in blocks of shares, rather than try to pick a bottom.
If you want exposure to these companies but don't want to take on the added risk, then you can simply buy shares of Sandstorm Gold. Remember that Sandstorm has no more capital requirements to make on either project, meaning that they get all the upside exploration potential and are protected against a potential increase in production costs (making them the ultimate inflation hedge, in my opinion).
Best of luck!
http://seekingalpha.com/article/1549702-2-brazilian-gold-miners-with-enormous-upside
Matt Taibbi: Looting the Pension Funds
All across America, Wall Street is grabbing money meant for public workers
Illustration by Victor Juhasz
Rolling Stone
By Matt Taibbi
September 26, 2013
(special thanks to basserdan)
In the final months of 2011, almost two years before the city of Detroit would shock America by declaring bankruptcy in the face of what it claimed were insurmountable pension costs, the state of Rhode Island took bold action to avert what it called its own looming pension crisis. Led by its newly elected treasurer, Gina Raimondo – an ostentatiously ambitious 42-year-old Rhodes scholar and former venture capitalist – the state declared war on public pensions, ramming through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government.
Called the Rhode Island Retirement Security Act of 2011, her plan would later be hailed as the most comprehensive pension reform ever implemented. The rap was so convincing at first that the overwhelmed local burghers of her little petri-dish state didn't even know how to react. "She's Yale, Harvard, Oxford – she worked on Wall Street," says Paul Doughty, the current president of the Providence firefighters union. "Nobody wanted to be the first to raise his hand and admit he didn't know what the fuck she was talking about."
Soon she was being talked about as a probable candidate for Rhode Island's 2014 gubernatorial race. By 2013, Raimondo had raised more than $2 million, a staggering sum for a still-undeclared candidate in a thimble-size state. Donors from Wall Street firms like Goldman Sachs, Bain Capital and JPMorgan Chase showered her with money, with more than $247,000 coming from New York contributors alone. A shadowy organization called EngageRI, a public-advocacy group of the 501(c)4 type whose donors were shielded from public scrutiny by the infamous Citizens United decision, spent $740,000 promoting Raimondo's ideas. Within Rhode Island, there began to be whispers that Raimondo had her sights on the presidency. Even former Obama right hand and Chicago mayor Rahm Emanuel pointed to Rhode Island as an example to be followed in curing pension woes.
What few people knew at the time was that Raimondo's "tool kit" wasn't just meant for local consumption. The dynamic young Rhodes scholar was allowing her state to be used as a test case for the rest of the country, at the behest of powerful out-of-state financiers with dreams of pushing pension reform down the throats of taxpayers and public workers from coast to coast. One of her key supporters was billionaire former Enron executive John Arnold – a dickishly ubiquitous young right-wing kingmaker with clear designs on becoming the next generation's Koch brothers, and who for years had been funding a nationwide campaign to slash benefits for public workers.
Nor did anyone know that part of Raimondo's strategy for saving money involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb's Third Point Capital was given $66 million, Ken Garschina's Mason Capital got $64 million and $70 million went to Paul Singer's Elliott Management. The funds now stood collectively to be paid tens of millions in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke state. Felicitously, Loeb, Garschina and Singer serve on the board of the Manhattan Institute, a prominent conservative think tank with a history of supporting benefit-slashing reforms. The institute named Raimondo its 2011 "Urban Innovator" of the year.
The state's workers, in other words, were being forced to subsidize their own political disenfranchisement, coughing up at least $200 million to members of a group that had supported anti-labor laws. Later, when Edward Siedle, a former SEC lawyer, asked Raimondo in a column for Forbes.com how much the state was paying in fees to these hedge funds, she first claimed she didn't know. Raimondo later told the Providence Journal she was contractually obliged to defer to hedge funds on the release of "proprietary" information, which immediately prompted a letter in protest from a series of freaked-out interest groups. Under pressure, the state later released some fee information, but the information was originally kept hidden, even from the workers themselves. "When I asked, I was basically hammered," says Marcia Reback, a former sixth-grade schoolteacher and retired Providence Teachers Union president who serves as the lone union rep on Rhode Island's nine-member State Investment Commission. "I couldn't get any information about the actual costs."
This is the third act in an improbable triple-fucking of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios – remember, these public pension funds were some of the most frequently targeted suckers upon whom Wall Street dumped its fraud-riddled mortgage-backed securities in the pre-crash years.
Today, the same Wall Street crowd that caused the crash is not merely rolling in money again but aggressively counterattacking on the public-relations front. The battle increasingly centers around public funds like state and municipal pensions. This war isn't just about money. Crucially, in ways invisible to most Americans, it's also about blame. In state after state, politicians are following the Rhode Island playbook, using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops – not bankers – as the budget-devouring boogeymen responsible for the mounting fiscal problems of America's states and cities.
Not only did these middle-class workers already lose huge chunks of retirement money to huckster financiers in the crash, and not only are they now being asked to take the long-term hit for those years of greed and speculative excess, but in many cases they're also being forced to sit by and watch helplessly as Gordon Gekko wanna-be's like Loeb or scorched-earth takeover artists like Bain Capital are put in charge of their retirement savings.
It's a scam of almost unmatchable balls and cruelty, accomplished with the aid of some singularly spineless politicians. And it hasn't happened overnight. This has been in the works for decades, and the fighting has been dirty all the way.
There's $2.6 trillion in state pension money under management in America, and there are a lot of fingers in that pie. Any attempt to make a neat Aesop narrative about what's wrong with the system would inevitably be an oversimplification. But in this hugely contentious, often overheated national controversy – which at times has pitted private-sector workers who've mostly lost their benefits already against public-sector workers who are merely about to lose them – two key angles have gone largely unreported. Namely: who got us into this mess, and who's now being paid to get us out of it.
The siege of America's public-fund money really began nearly 40 years ago, in 1974, when Congress passed the Employee Retirement Income Security Act, or ERISA. In theory, this sweeping regulatory legislation was designed to protect the retirement money of workers with pension plans. ERISA forces employers to provide information about where pension money is being invested, gives employees the right to sue for breaches of fiduciary duty, and imposes a conservative "prudent man" rule on the managers of retiree funds, dictating that they must make sensible investments and seek to minimize loss. But this landmark worker-protection law left open a major loophole: It didn't cover public pensions. Some states were balking at federal oversight, and lawmakers, naively perhaps, simply never contemplated the possibility of local governments robbing their own workers.
Politicians quickly learned to take liberties. One common tactic involved illegally borrowing cash from public retirement funds to finance other budget needs. For many state pension funds, a significant percentage of the kitty is built up by the workers themselves, who pitch in as little as one and as much as 10 percent of their income every year. The rest of the fund is made up by contributions from the taxpayer. In many states, the amount that the state has to kick in every year, the Annual Required Contribution (ARC), is mandated by state law.
Chris Tobe, a former trustee of the Kentucky Retirement Systems who blew the whistle to the SEC on public-fund improprieties in his state and wrote a book called Kentucky Fried Pensions, did a careful study of states and their ARCs. While some states pay 100 percent (or even more) of their required bills, Tobe concluded that in just the past decade, at least 14 states have regularly failed to make their Annual Required Contributions. In 2011, an industry website called 24/7 Wall St. compiled a list of the 10 brokest, most busted public pensions in America. "Eight of those 10 were on my list," says Tobe.
Among the worst of these offenders are Massachusetts (made just 27 percent of its payments), New Jersey (33 percent, with the teachers' pension getting just 10 percent of required payments) and Illinois (68 percent). In Kentucky, the state pension fund, the Kentucky Employee Retirement System (KERS), has paid less than 50 percent of its ARCs over the past 10 years, and is now basically butt-broke – the fund is 27 percent funded, which makes bankrupt Detroit, whose city pension is 77 percent full, look like the sultanate of Brunei by comparison.
Here's what this game comes down to. Politicians run for office, promising to deliver law and order, safe and clean streets, and good schools. Then they get elected, and instead of paying for the cops, garbagemen, teachers and firefighters they only just 10 minutes ago promised voters, they intercept taxpayer money allocated for those workers and blow it on other stuff. It's the governmental equivalent of stealing from your kids' college fund to buy lap dances. In Rhode Island, some cities have underfunded pensions for decades. In certain years zero required dollars were contributed to the municipal pension fund. "We'd be fine if they had made all of their contributions," says Stephen T. Day, retired president of the Providence firefighters union. "Instead, after they took all that money, they're saying we're broke. Are you fucking kidding me?"
There's an arcane but highly disturbing twist to the practice of not paying required contributions into pension funds: The states that engage in this activity may also be committing securities fraud. Why? Because if a city or state hasn't been making its required contributions, and this hasn't been made plain to the ratings agencies, then that same city or state is actually concealing what in effect are massive secret loans and is actually far more broke than it is representing to investors when it goes out into the world and borrows money by issuing bonds.
Some states have been caught in the act of doing this, but the penalties have been so meager that the practice can be considered quasi-sanctioned. For example, in August 2010, the SEC reprimanded the state of New Jersey for serially lying about its failure to make pension contributions throughout the 2000s. "New Jersey failed to provide certain present and historical financial information regarding its pension funding in bond-disclosure documents," the SEC wrote, in seemingly grave language. "The state was aware of?.?.?.?the potential effects of the underfunding." Illinois was similarly reprimanded by the SEC for lying about its failure to make its required pension contributions. But in neither of these cases were the consequences really severe. So far, states get off with no monetary fines at all. "The SEC was mistaken if they think they sent a message to other states," Tobe says.
But for all of this, state pension funds were more or less in decent shape prior to the financial crisis of 2008. The country, after all, had been in a historic bull market for most of the 1990s and 2000s and politicians who underpaid the ARCs during that time often did so assuming that the good times would never end. In fact, prior to the crash, state pension funds nationwide were cumulatively running a surplus. But then the crash came, and suddenly states everywhere were in a real, no-joke fiscal crisis. Tax revenues went in the crapper, and someone had to take the hit. But who? Cuts to corporate welfare and a rolled-up-newspaper whack of new taxes on the guilty finance sector seemed a good place to start, but it didn't work out that way. Instead, it was then that the legend of pension unsustainability was born, with the help of a pair of unlikely allies.
Most people think of Pew Charitable Trusts as a centrist, nonpartisan organization committed to sanguine policy analysis and agnostic number crunching. It's an odd reputation for an organization that was the legacy of J. Howard Pew, president of Sun Oil (the future Sunoco) during its early 20th-century petro-powerhouse days and a kind of australopithecine precursor to a Tea Party leader. Pew had all the symptoms: an obsession with the New Deal as a threat to free society, a keen appreciation for unreadable Austrian economist F.A. Hayek and a hoggish overuse of the word "freedom." Pew and his family left nearly $1 billion to a series of trusts, one of which was naturally called the "Freedom Trust," whose mission was, in part, to combat "the false promises of socialism and a planned economy."
Still, for decades Pew trusts engaged in all sorts of worthy endeavors, including everything from polling to press criticism. In 2007, Pew began publishing an annual study called "The Widening Gap," which aimed to use states' own data to show the "gap" between present pension-fund levels and future obligations. The study quickly became a leading analysis of the "unfunded liability" question.
In 2011, Pew began to align itself with a figure who was decidedly neither centrist nor nonpartisan: 39-year-old John Arnold, whom CNN/Money described (erroneously) as the "second-youngest self-made billionaire in America," after Mark Zuckerberg. Though similar in wealth and youth, Arnold presented the stylistic opposite of Zuckerberg's signature nerd chic: He's a lipless, eager little jerk with the jug-eared face of a Division III women's basketball coach, exactly what you'd expect a former Enron commodities trader to look like. Anyone who has seen the Oscar-winning documentary The Smartest Guys in the Room and remembers those tapes of Enron traders cackling about rigging energy prices on "Grandma Millie" and jamming electricity rates "right up her ass for fucking $250 a megawatt hour" will have a sense of exactly what Arnold's work environment was like.
In fact, in the book that the movie was based on, the authors portray Arnold bragging about his minions manipulating energy prices, praising them for "learning how to use the Enron bat to push around the market." Those comments later earned Arnold visits from federal investigators, who let him get away with claiming he didn't mean what he said.
As Enron was imploding, Arnold played a footnote role, helping himself to an $8 million bonus while the company's pension fund was vaporizing. He and other executives were later rebuked by a bankruptcy judge for looting their own company along with other executives. Public pension funds nationwide, reportedly, lost more than $1.5 billion thanks to their investments in Enron.
In 2002, Arnold started a hedge fund and over the course of the next few years made roughly a $3 billion fortune as the world's most successful natural-gas trader. But after suffering losses in 2010, Arnold bowed out of hedge-funding to pursue "other interests." He had created the Arnold Foundation, an organization dedicated, among other things, to reforming the pension system, hiring a Republican lobbyist and former chief of staff to Dick Armey named Denis Calabrese, as well as Dan Liljenquist, a Utah state senator and future Tea Party challenger to Orrin Hatch.
Soon enough, the Arnold Foundation released a curious study on pensions. On the one hand, it admitted that many states had been undercontributing to their pension funds for years. But instead of proposing that states correct the practice, the report concluded that "the way to create a sound, sustainable and fair retirement-savings program is to stop promising a [defined] benefit."
In 2011, Arnold and Pew found each other. As detailed in a new study by progressive think tank Institute for America's Future, Arnold and Pew struck up a relationship – and both have since been proselytizing pension reform all over America, including California, Florida, Kansas, Arizona, Kentucky and Montana. Few knew that Pew had a relationship with a right-wing, anti-pension zealot like Arnold. "The centrist reputation of Pew was a key in selling a lot of these ideas," says Jordan Marks of the National Public Pension Coalition. Later, a Pew report claimed that the national "gap" between pension assets and future liabilities added up to some $757 billion and dryly insisted the shortfall was unbridgeable, minus some combination of "higher contributions from taxpayers and employees, deep benefit cuts and, in some cases, changes in how retirement plans are structured and benefits are distributed."
What the study didn't say was that this supposedly massive gap could all be chalked up to the financial crisis, which, of course, had been caused almost entirely by the greed and wide-scale fraud of the financial-services industry – particularly with regard to state pension funds.
A study by noted economist Dean Baker at the Center for Economic Policy and Research bore this out. In February 2011, Baker reported that, had public pension funds not been invested in the stock market and exposed to mortgage-backed securities, there would be no shortfall at all. He said state pension managers were of course somewhat to blame, but only "insofar as they exercised poor judgment in buying the [finance] industry's services."
In fact, Baker said, had public funds during the crash years simply earned modest returns equal to 30-year Treasury bonds, then public-pension assets would be $850 billion richer than they were two years after the crash. Baker reported that states were short an additional $80 billion over the same period thanks to the fact that post-crash, cash-strapped states had been paying out that much less of their mandatory ARC payments.
So even if Pew's numbers were right, the "unfunded liability" crisis had nothing to do with the systemic unsustainability of public pensions. Thanks to a deadly combination of unscrupulous states illegally borrowing from their pensioners, and unscrupulous banks whose mass sales of fraudulent toxic subprime products crashed the market, these funds were out some $930 billion. Yet the public was being told that the problem was state workers' benefits were simply too expensive.
In a way, this was a repeat of a shell game with retirement finance that had been going on at the federal level since the Reagan years. The supposed impending collapse of Social Security, which actually should be running a surplus of trillions of dollars, is now repeated as a simple truth. But Social Security wouldn't be "collapsing" at all had not three decades of presidents continually burgled the cash in the Social Security trust fund to pay for tax cuts, wars and God knows what else. Same with the alleged insolvencies of state pension programs. The money may not be there, but that's not because the program is unsustainable: It's because bankers and politicians stole the money.
Still, the public mostly bought the line being sold by Arnold, Pew and other anti-pension figures like the Koch brothers. To most, it didn't matter who was to blame: What mattered is that the money was gone, and there seemed to be only two possible paths forward. One led to bankruptcy, a real-enough threat that had already ravaged places like Vallejo, California; Jefferson County, Alabama; and, this summer, Detroit. In Rhode Island, the tiny town of Central Falls went bust in 2011, and even after a court-ordered plan lifted the town out of bankruptcy in 2012, the "rescue" left pensions slashed as much as 55 percent. "You had guys who were living off $24,000, and now they're getting $12,000," says Day. Though Day and his fellow retirees are still fighting reform, he says other union workers might rather settle than file bankruptcy. Holding up an infamous local-newspaper picture of a retired Central Falls policeman in a praying posture, as though begging not to have his whole pension taken away, Day sighs. "Guys take one look at this picture and that's it. They're terrified."
Such images chilled many public workers into accepting the second path – the kind of pension reform meagerly touted by one-percent-friendly politicians like Gina Raimondo. Anyone could see that "reform" meant giving up cash. But the other parts of these schemes were murkier. Most pension-reform proposals required that states must go after higher returns by seeking out "alternative investments," which sounds harmless enough. But we are now finding out what that term actually means – and it's a little north of harmless.
One of the most garish early experiments in "alternative investments" came in Ohio in the late 1990s, after the Republican-controlled state assembly passed a law loosening restrictions on what kinds of things state funds could invest in. Sometime later, an investigation by the Toledo Blade revealed that the Ohio Bureau of Workers' Compensation had bought into rare-coin funds run by a GOP fundraiser named Thomas Noe. Through Noe, Ohio put $50 million into coins and "other collectibles" – including Beanie Babies.
The scandal had repercussions all over the country, but not what you'd expect. James Drew, one of the reporters who broke the story, notes that a consequence of "Coingate" was that states stopped giving out information about where public money is invested. "If they learned anything, it's not to stop doing it, but to keep it secret," says Drew.
In fact, in recent years more than a dozen states have carved out exemptions for hedge funds to traditional Freedom of Information Act requests, making it impossible in some cases, if not illegal, for workers to find out where their own money has been invested.
The way this works, typically, is simple: A hedge fund will refuse to take a state's business unless it first provides legal guarantees that information about its investments won't be disclosed to the public. The ostensible justifications for these outrageous laws are usually that disclosing commercial information about hedge funds would place them at a "competitive disadvantage."
In 2010, the University of California reinvested its pension fund with a venture-capital group called Sequoia Capital, which in turn is a backer of a firm called Think Finance, whose business is payday lending – a form of short-term, extremely high-interest rate lending that's basically loan-sharking without the leg-breaking, and is banned in 15 states and D.C. According to American Banker, Think Finance partnered with a Native American tribe to get around state interest-rate caps; someone borrowing $250 in its "plain green loans" program would owe $440 after 16 weeks, for a tidy annual percentage rate of 379 percent. In a more recent case, the pension fund of L.A. County union workers invested in an Embassy Suites hotel that is trying to prevent janitors and other employees from organizing. California passed a law in 2005 making hedge-fund investments secret.
The American Federation of Teachers this spring released a list of financiers who had been connected with lobbying efforts against defined-benefit plans. Included on that list was hedge-funder Loeb of Third Point Capital, who sits on the board of StudentsFirstNY, a group that advocates for an end to these traditional plans for public workers – that is, pensions that promise a guaranteed payout based on one's salary and years of service. When Rhode Island union rep Reback complained about hiring funds whose managers had anti-labor histories, she was told the state couldn't make decisions based on political leanings of fund managers. That same month, Rhode Island moved to disinvest its workers' money from firearms distributors in the wake of the Sandy Hook shooting.
Hedge funds have good reason to want to keep their fees hidden: They're insanely expensive. The typical fee structure for private hedge-fund management is a formula called "two and twenty," meaning the hedge fund collects a two percent fee just for showing up, then gets 20 percent of any profits it earns with your money. Some hedge funds also charge a mysterious third fee, called "fund expenses," that can run as high as half a percent – Loeb's Third Point, for instance, charged Rhode Island just more than half a percent for "fund expenses" last year, or about $350,000. Hedge funds will also pass on their trading costs to their clients, a huge additional line item that can come to an extra percent or more and is seldom disclosed. There are even fees states pay for withdrawing from certain hedge funds.
In public finance, hedge funds will sometimes give slight discounts, but the numbers are still enormous. In Rhode Island, over the course of 20 years, Siedle projects that the state will pay $2.1 billion in fees to hedge funds, private-equity funds and venture-capital funds. Why is that number interesting? Because it very nearly matches the savings the state will be taking from workers by freezing their Cost of Living Adjustments – $2.3 billion over 20 years.
"That's some 'reform,'" says Siedle.
"They pretty much took the COLA and gave it to a bunch of billionaires," hisses Day, Providence's retired firefighter union chief.
When asked to respond to criticisms that the savings from COLA freezes could be seen as going directly into the pockets of billionaires, treasurer Raimondo replied that it was "very dangerous to look at fees in a vacuum" and that it's worth paying more for a safer and more diverse portfolio. She compared hedge funds – inherently high-risk investments whose prospectuses typically contain front-page disclaimers saying things like, WARNING: YOU MAY LOSE EVERYTHING – to snow tires. "Sure, you pay a little more," she says. "But you're really happy you have them when the roads are slick."
Raimondo recently criticized the high-fee structure of hedge funds in the Wall Street Journal and told Rolling Stone that "'two and twenty'?doesn't make sense anymore," although she hired several funds at precisely those fee levels back before she faced public criticism on the issue. She did add that she was monitoring the funds' performance. "If they underperform, they're out," she says.
And underperforming is likely. Even though hedge funds can and sometimes do post incredible numbers in the short-term – Loeb's Third Point notched a 41 percent gain for Rhode Island in 2010; the following year, it earned -0.54 percent. On Wall Street, people are beginning to clue in to the fact – spikes notwithstanding – that over time, hedge funds basically suck. In 2008, Warren Buffett famously placed a million-dollar bet with the heads of a New York hedge fund called Protégé Partners that the S&P 500 index fund – a neutral bet on the entire stock market, in other words – would outperform a portfolio of five hedge funds hand-picked by the geniuses at Protégé.
Five years later, Buffett's zero-effort, pin-the-tail-on-the-stock-market portfolio is up 8.69 percent total. Protégé's numbers are comical in comparison; all those superminds came up with a 0.13 percent increase over five long years, meaning Buffett is beating the hedgies by nearly nine points without lifting a finger.
Union leaders all over the country have started to figure out the perils of hiring a bunch of overpriced Wall Street wizards to manage the public's money. Among other things, investing with hedge funds is infinitely more expensive than investing with simple index funds. On Wall Street and in the investment world, the management price is measured in something called basis points, a basis point equaling one hundredth of one percent. So a state like Rhode Island, which is paying a two percent fee to hedge funds, is said to be paying an upfront fee of 200 basis points.
How much does it cost to invest public money in a simple index fund? "We've paid as little as .875 of a basis point," says William Atwood, executive director of the Illinois State Board of Investment. "At most, five basis points."
So at the low end, Atwood is paying 200 times less than the standard two percent hedge-fund fee. As an example, Atwood says, the state of Illinois paid a fee of just $57,000 last year on $550 million of public money they put into an S&P 500 index fund, which, again, is exactly the sort of plain-vanilla investment that Warren Buffett used to publicly kick the ass of Wall Street's cockiest hedge fund.
The fees aren't even the only costs of "alternative investments." Many states have engaged middlemen called "placement agents" to hire hedge funds, and those placement agents – typically people with ties to state investment boards – are themselves paid enormous sums, often in the millions, just to "introduce" hedge funds to politicians holding the checkbook.
In Kentucky, Tobe and Siedle found that KRS, the state pension funds, had paid a whopping $14 million to placement agents between 2004 and 2009. In Atlanta, a member of the city pension board complained to the SEC that the city had hired a consultant, Larry Gray, who convinced the city pension fund to invest $28 million in a hedge fund he himself owned. Raimondo says she never hired placement agents, but the state did pay a $450,000 consulting fee to a firm called Cliffwater LLC.
Doughty says the endless system of highly paid middlemen reminds him of old slapstick comedies. "It's like the Three Stooges," he says. "When you ask them what happened, they're all pointing in different directions, like, 'He did it!'"
Even worse, placement agents are also often paid by the alternative investors. In California, the Apollo private-equity firm paid a former CalPERS board member named Alfred Villalobos a staggering $48 million for help in securing investments from state pensions, and Villalobos delivered, helping Apollo receive $3 billion of CalPERS money. Villalobos got indicted in that affair, but only because he'd lied to Apollo about disclosing his fees to CalPERS. Otherwise, despite the fact that this is in every way basically a crude kickback scheme, there's no law at all against a placement agent taking money from a finance firm. The Government Accountability Office has condemned the practice, but it goes on.
"It's a huge conflict of interest," says Siedle.
So when you invest your pension money in hedge funds, you might be paying a hundred times the cost or more, you might be underperforming the market, you may be supporting political movements against you, and you often have to pay what effectively is a bribe just for the privilege of hiring your crappy overpaid money manager in the first place. What's not to like about that? Who could complain?
Once upon a time, local corruption was easy. "It was votes for jobs," Doughty says with a sigh. A ward would turn out for a councilman, the councilman would come back with jobs from city-budget contracts – that was the deal. What's going on with public pensions is a more confusing modern version of that local graft. With public budgets carefully scrutinized by everyone from the press to regulators, the black box of pension funds makes it the only public treasure left that's easy to steal. Politicians quietly borrow millions from these funds by not paying their ARCs, and it's that money, plus the savings from cuts made to worker benefits in the name of "emergency" pension reform, that pays for an apparently endless regime of corporate tax breaks and handouts.
A notorious example in Rhode Island is, of course, 38 Studios, the doomed video-game venture of blabbering, Christ-humping ex-Red Sox pitcher Curt Schilling, who received a $75 million loan guarantee from the state at a time when local politicians were pleading poverty. "This whole thing isn't just about cutting payments to retirees," says syndicated columnist David Sirota, who authored the Institute for America's Future study on Arnold and Pew. "It's about preserving money for corporate welfare." Their study estimates states spend up to $120 billion a year on offshore tax loopholes and gifts to dingbats like Schilling and other subsidies – more than two and a half times as much as the $46 billion a year Pew says states are short on pension payments.
The bottom line is that the "unfunded liability" crisis is, if not exactly fictional, certainly exaggerated to an outrageous degree. Yes, we live in a new economy and, yes, it may be time to have a discussion about whether certain kinds of public employees should be receiving sizable benefit checks until death. But the idea that these benefit packages are causing the fiscal crises in our states is almost entirely a fabrication crafted by the very people who actually caused the problem. It's like Voltaire's maxim about noses having evolved to fit spectacles, so therefore we wear spectacles. In this case, we have an unfunded-pension-liability problem because we've been ripping retirees off for decades – but the solution being offered is to rip them off even more.
Everybody following this story should remember what went on in the immediate aftermath of the crash of 2008, when the federal government was so worried about the sanctity of private contracts that it doled out $182 billion in public money to AIG. That bailout guaranteed that firms like Goldman Sachs and Deutsche Bank could be paid off on their bets against a subprime market they themselves helped overheat, and that AIG executives could be paid the huge bonuses they naturally deserved for having run one of the world's largest corporations into the ground. When asked why the state was paying those bonuses, Obama economic adviser Larry Summers said, "We are a country of law.?.?.?.?The government cannot just abrogate contracts."
Now, though, states all over the country are claiming they not only need to abrogate legally binding contracts with state workers but also should seize retirement money from widows to finance years of illegal loans, giant fees to billionaires like Dan Loeb and billions in tax breaks to the Curt Schillings of the world. It ain't right. If someone has to tighten a belt or two, let's start there. If we've still got a problem after squaring those assholes away, that's something that can be discussed. But asking cops, firefighters and teachers to take the first hit for a crisis caused by reckless pols and thieves on Wall Street is low, even by American standards.
This story is from the October 10th, 2013 issue of Rolling Stone.
http://www.rollingstone.com/politics/news/looting-the-pension-funds-20130926
Another excellent article by Matt Taibbi! Thanks for posting basserdan.
Rising Rates Seen Squeezing Swaps Income at Biggest Banks
By Dakin Campbell - Sep 26, 2013 12:00 AM ET
Bloomberg
The revenue engine that generated $42 billion for three of the biggest U.S. banks in less than five years is beginning to sputter as some borrowing costs rise.
The revenue comes from derivatives used by JPMorgan Chase & Co. (JPM), Bank of America Corp. and Wells Fargo (WFC) & Co. to protect against interest-rate swings. Most of the contracts are swaps that exchange payments tied to a floating rate for ones that are fixed. Banks that benefited from swaps guaranteeing a flat rate could see profit drop as the spread between the higher fixed and lower variable rates narrows or reverses.
The swaps “created some earnings at a time when they needed them,” said Charles Peabody, an analyst at Portales Partners LLC in New York. “The impact will start to recede.”
When the Federal Reserve begins reducing its $85 billion of monthly bond purchases, driving up long-term rates, lenders may struggle to replace income, Peabody wrote in a June 21 report warning about the possibility at Bank of America. Even talk of tapering by Fed Chairman Ben S. Bernanke in May led to a rise in rates and a 33 percent second-quarter decline in the value of swaps positions in which Bank of America received a fixed rate.
At JPMorgan, the largest U.S. bank by assets, interest-rate derivatives boosted income by $19.9 billion from the beginning of 2009 through June 30, according to data compiled by Bloomberg from company filings. No. 2 Bank of America, which has said interest-rate swings are its most significant market risk, added $7.3 billion in the same period. Wells Fargo, the fourth-biggest lender, reported $15.3 billion in income from the contracts.
‘Black Box’
Citigroup Inc. (C) was the only one of the four biggest U.S. banks to post a loss from interest-rate hedging, according to filings. The amount was $5.4 billion over the four and a half years. Mark Costiglio, a spokesman by the New York-based company, declined to comment on why the lender showed a loss while others reported a gain.
The banks don’t disclose the full impact of interest-rate derivatives on earnings or capital in their filings.
“The amount of interest-rate risk banks have remains locked inside a black box,” said Frank Partnoy, a professor of law and finance at the University of San Diego who structured derivatives at Morgan Stanley. “Even a sophisticated investor who reads all the footnotes to bank financial statements cannot determine how much money they are making on interest-rate bets or how much exposure they have.”
Receive Fixed
Rising rates threaten interest-rate swaps known as receive fixed, those in which a bank or another party agrees to receive a payment based on a fixed rate and pay an amount linked to one that fluctuates. The positions profit when the fixed rate, tied to a longer maturity, is above the floating rate in what’s known as an upward-sloping yield curve.
Banks also take the other side with contracts known as pay fixed, agreeing to make payments based on a constant rate and receive an amount tied to a floating rate. In addition to swaps, which are essentially bets that rates will rise or fall, lenders use options, futures and forwards to manage interest-rate risks.
As rates move higher, banks with large net holdings of receive-fixed swaps can get hit in two ways, Peabody said. An increase in long-term rates reduces the value of their positions, while a rise in short-term rates erodes the income they produce as the spread between what’s received and what’s paid shrinks. The position loses money if the floating rate rises above the fixed one.
Eroding Equity
Banks holding a receive-fixed swap “lose money on a mark-to-market basis when rates rise,” Siddhartha Jha, author of “Interest Rate Markets: A Practical Approach to Fixed Income,” said in an interview. “You are receiving a lower rate than what the market is offering.”
Losses on swaps caused by higher long-term rates can either directly hit a bank’s income statement or erode its equity before crimping future earnings, depending on how the contracts are characterized under accounting rules.
Because the contracts are used to hedge other positions, the income shouldn’t be viewed in isolation, according to people with knowledge of the banks’ strategies. Much as the derivatives helped some banks offset loan and bond income depressed by lower returns, rising rates will make those assets more profitable, said the people who asked not to be identified because they weren’t authorized to speak about the matter.
“Our goal is to manage interest-rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital,” Jerry Dubrowski, a Bank of America spokesman, said in an e-mailed statement. The bank uses many different instruments to manage that risk, he said.
Replacing Revenue
Higher long-term rates already have boosted the value of some assets. Mortgage-servicing rights, contracts assigning the right to collect mortgage payments, gained in the second quarter to offset declines in derivatives used to hedge them, Standard & Poor’s analysts wrote in a Sept. 23 report.
Bank of America, led by Chief Executive Officer Brian T. Moynihan, 53, had receive-fixed swaps with a notional value of $98.7 billion at the end of June compared with $19.4 billion of pay-fixed swaps. That means most of the Charlotte, North Carolina-based lender’s interest-rate swaps are vulnerable to rising rates.
To avoid an impact to earnings, Bank of America will need to find ways to maintain or replace an average of $408 million in quarterly net interest income it gets from interest-rate derivatives, according to data compiled by Bloomberg. JPMorgan will have to find $1.1 billion of income and San Francisco-based Wells Fargo $848 million. The calculations assume lenders don’t enter into offsetting trades or exit positions.
The derivatives income represents about 3.3 percent of the $1.29 trillion in net revenue the three lenders took in from 2009 through the end of June.
Lending Rates
The Fed cut the overnight lending rate to close to zero in December 2008, increasing the difference between the yield on the three-month Treasury bill and the 10-year Treasury note to more than 3.8 percentage points. That made the receive-fixed trade a profitable one for banks.
Banks that locked in a fixed rate for five years on an interest-rate swap trading at 3.52 percent on June 8, 2009, have fared well as floating rates have fallen. The three-month London interbank offered rate dropped to 0.25 percent yesterday, a 27-month low. The average estimated duration of Bank of America’s receive-fixed swaps was about 5 years at the end of June.
‘Losing Bets’
In the past four months, swaps users started bracing for higher rates. Bernanke’s May 22 comments that the Fed may slow its bond purchases used to keep long-term rates low drove the yield on the 10-year Treasury note as high as 3.005 percent on Sept. 6 from 1.61 percent on May 1.
“When, not if, interest rates rise, the banks will lose a major source of income from the carry trade they have been enjoying and the Fed has been subsidizing,” said the University of San Diego’s Partnoy. “Also the interest-rate bets that are hidden within the banks will suddenly become losing bets.”
A change in the long-term trend for interest rates, in this case heading higher after a 30-year period of declining borrowing costs, can catch lenders off guard.
In 1993, Columbus, Ohio-based Banc One Corp. said it used derivatives to boost annual net interest income by $446 million. By 1994, Banc One, then the nation’s eighth-largest lender, suffered losses tied to rising interest rates that ended a quarter-century run of annual earnings increases. The Fed increased the overnight lending rate seven times, taking the rate from a then record-low 3 percent in February 1994 to 6 percent a year later. The company was sold to JPMorgan in 2004.
‘Worry Now’
Bankers have warned of parallels to 1994. Goldman Sachs Group Inc. CEO Lloyd C. Blankfein said May 2 at a conference in Washington that investors at that time were used to low interest rates and shocked by losses when borrowing costs rose.
“I worry now -- I look out of the corner of my eye to the ’94 period,” Blankfein said.
Bank of America had $2.7 billion of unrealized losses on interest-rate cash-flow hedges at the end of June, according to its second-quarter filing. It said about $936 million of that amount, pretax, will hit income in the four quarters through June 2014. New York-based Citigroup may record $1 billion of losses over the same period, according to filing.
So far, short-term rates haven’t risen, and Fed officials are taking a measured approach, unexpectedly refraining from reducing bond buying after the central bank’s Sept. 18 meeting. Traders don’t expect the Fed to raise the overnight borrowing rate until July 2015, according to Fed funds futures.
‘Good Gamble’
“You can do a relatively low-risk carry trade as long as you are confident the Federal Reserve, other central banks and market participants will continue to keep short-term rates low,” Stephen Ryan, a professor of accounting at the Stern School of Business at New York University and author of “Financial Instruments & Institutions,” said in an interview. “Banks may view this as a good gamble.”
Banks say they’re poised to benefit from rising rates as profit margins climb on loans such as mortgages. Bank of America would get $1.03 billion more net interest income if the “long rate” rose by 1 percentage point without the short end moving at all, according to its second-quarter filing. JPMorgan would bring in $900 million in the same scenario, according to a company presentation, and Citigroup $88 million.
Even such disclosures don’t provide the full picture. Bank of America said its measure of sensitivity to interest rates doesn’t include ineffective hedges.
Accounting Rules
U.S. accounting rules, known as Generally Accepted Accounting Principles, allow banks to match the financial-statement reporting of derivatives and the underlying hedged items in certain cases. In others, swaps income appears in a disclosure that doesn’t always show the impact of offsetting.
Wells Fargo, the largest U.S. mortgage lender and servicer, said $7.2 billion of the income gathered over the past four and a half years from interest-rate derivatives isn’t reported under rules that account for hedges. The revenue is used to hedge businesses including the lender’s residential-mortgage pipeline and the value of rights to service home loans.
JPMorgan, led by CEO Jamie Dimon, 57, cited similar uses for $16 billion in income from interest-rate contracts.
“Although the extent of these economic hedges directly affects recorded earnings, gauging their full impact is difficult because of disclosure limitations,” S&P analysts wrote in their Sept. 23 report.
New York-based JPMorgan also said other derivatives were intended to protect it against corporate defaults before a wrong-way bet led to more than $6 billion of losses.
Severe Shock
For banks, which count interest-rate swaps and other instruments as their biggest derivatives holdings, the shock could be severe, according to Mike Mayo, an analyst at CLSA Ltd. in New York.
The notional amount of interest-rate contracts held by U.S. banks climbed to $179 trillion at the end of 2012 from $11 trillion in 1995, according to the Office of the Comptroller of the Currency. They comprised 80 percent of all derivatives held by lenders last year, the report shows. Worldwide, about $490 trillion of over-the-counter interest-rate derivatives were outstanding at the end of 2012, data from the Bank for International Settlements show.
“We’ve had a 100-year flood in credit risk,” Mayo said, referring to the 2008 financial crisis when banks lost billions of dollars on bad mortgage debt. “We haven’t had a 100-year flood in interest-rate risk.”
To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net
http://www.bloomberg.com/news/2013-09-26/rising-rates-seen-squeezing-swaps-income-at-biggest-banks.html
From Dollar Crisis To Golden Opportunity
By HiddenSecretsOfMoney.com
Posted September 24, 2013
Welcome to the third Episode of Michael Maloney's Hidden Secrets of Money. Mike was asked to speak at an event in Singapore and to give his opinion on the future for the U.S. Dollar. His presentation was titled 'Death Of The Dollar Standard' and showed very clearly that the Dollar Standard is developing serious cracks, and will likely split at the seams during this decade.
How will this affect you? It's not all doom and gloom, as you'll learn from watching the video above. If you have any questions or comments, please leave them below...and don't forget to check out Mike's update to this episode (in your Info Toolkit) once you are done.
Video Link;
http://hiddensecretsofmoney.com/videos/episode-3
From Dollar Crisis To Golden Opportunity
By HiddenSecretsOfMoney.com
Posted September 24, 2013
Welcome to the third Episode of Michael Maloney's Hidden Secrets of Money. Mike was asked to speak at an event in Singapore and to give his opinion on the future for the U.S. Dollar. His presentation was titled 'Death Of The Dollar Standard' and showed very clearly that the Dollar Standard is developing serious cracks, and will likely split at the seams during this decade.
How will this affect you? It's not all doom and gloom, as you'll learn from watching the video above. If you have any questions or comments, please leave them below...and don't forget to check out Mike's update to this episode (in your Info Toolkit) once you are done.
Video Link;
http://hiddensecretsofmoney.com/videos/episode-3
An Investing Opportunity of a Lifetime: Lessons from the Sprott Precious Metals Roundtable
Source: Moderated by John Budden of Sprott Resources (9/25/13)
What happens when you bring together four of the top minds in the precious metals investing space to share insights from the front lines of gold, silver platinum and palladium investing? These excerpts from a Sprott Resources Roundtable featuring Gloom, Boom and Doom Report Publisher Marc Faber, Sprott Asset Management Chief Investment Strategist John Embry, Sprott Global Resource Investments Founder Rick Rule and Sprott Asset Management Founder Eric Sprott prove that great minds think big.
Sprott Resources: Marc Faber, help us understand the Federal Reserve's recent announcement regarding tapering.
Marc Faber: When the Fed began Quantitative Easing 1 (QE1) in 2008, I said it would continue until QE99. So I'm not so surprised by the "no tapering decision." But this money printing has numerous unintended consequences and actually does not help the economy much. Asset purchases benefit maybe 1% of the population, the super-rich. I'm not complaining because I own stock, bonds and real estate, but from a social point of view, it's undesirable because it creates widening wealth inequality and dissatisfaction among the majority of voters. This could lead to more votes for a populist leader who will then tax the wealthy more heavily.
SR: You are based in Asia. China, India and Russia have been very big buyers of gold bullion. What is behind that trend?
MF: In the Far East, we have a tradition of owning physical gold, but what is new is the Chinese government encouraging citizens to own gold. I believe that in the face of political instability and a lack of faith in the U.S. dollar, Asians will continue to accumulate physical gold and silver.
SR: What is the component that you have in your own portfolio of precious metals? And to add onto that, would you comment on the fact that precious metals shares are vastly oversold and they are a complement to physical bullion holdings?
MF: I recommend an asset allocation of about 25% in equities; 25% in fixed income, securities and cash; 25% in real estate; and 25% in precious metals—gold, silver. I think I have around 25% in gold whereby I don't value my gold. I have it and it's my insurance policy. It is important that one day when the so-called shit hits the fan—and I think the Fed is well on its way to creating that situation—you have access to your gold, that it is not taken away.
Read Marc Faber's latest interview with The Gold Report here.
SR: John Embry, you went through the market correction in 1975–1976. Would you share some perspective from that time?
John Embry: That's a very good question because there's a remarkable correlation with what is happening today. For the first three years of the 1970s, the gold price rose almost sixfold, and there was great enthusiasm. Then from 1974 to 1976, it was virtually cut in half. At that point, you could cut the pessimism with a knife it was so thick. Then, gold rose another eightfold from there. The price correction of the last two years has been even more counterintuitive than it was in the 1970s. The sentiment arguably is even more negative, yet the fundamentals are better than they were in the 1970s, so I think we're setting up for a major reversal. The only thing we're debating here today is whether it's going to happen tomorrow, next week or several months from now. It's just a matter of short-term timing because everything is in place.
SR: We have seen an incredible correction. During the upward trend we have seen during the past 10 years, we have had a number of corrections along the way, including some "puke" days. It looked like we had a bottoming at around $1,200 an ounce ($1,200/oz). We've corrected back to $1,300/oz, and now we seem to be heading upward. Can you help us put some perspective on that?
JE: We have had, from top to bottom, over a $700/oz correction in the past two years. That attests to the power of the central banks, the Bank for International Settlements (BIS), the bullion banks and their ability to control the paper market aggressively. I think that is coming to an end because it has driven the price down to remarkably undervalued levels. Talk of gold going to $1,000/oz and below is ridiculous. It's not going to happen. I think this is a fabulous opportunity because it's hugely undervalued and the fundamentals are compelling. We're just on the verge.
SR: What happened to the gold shares in that period?
JE: Gold shares were similarly under pressure, but their subsequent gains were historic. After gold topped in 1980 and then started to re-rally, the gold shares exploded again. You're talking in many cases, ten- or twentybaggers. So I wouldn't get discouraged here for the simple reason that I think gold and silver shares are now as cheap as they've ever been in history relative to where they are going. So it's a great buying opportunity, but very few people seem to be willing to take advantage of it.
Read John Embry's latest interview with The Gold Report here.
SR: Rick Rule, what is happening in the platinum and palladium sector?
Rick Rule: Platinum and palladium benefit from all of the factors concerning precious metals. They have for many centuries fulfilled the same roles with regard to stores of value and mechanisms for transferring or storing wealth as gold and silver. Where they differ a bit is on the supply side. All of us know that a lot of the gold and silver that has been mined historically has been stored in vaults. So in the near term, supply considerations in gold and silver have to do with sellers' intentions. I, like the prior speakers, believe that the holders' intentions will turn very bullish, and it will be very good for gold and silver prices. But platinum and palladium supplies are different. They don't get stored. They get used.
Currently, worldwide stocks of finished platinum and palladium bullion are less than one year's platinum and palladium fabrication demand. The supply story gets more interesting because as a consequence of not having any stored bullion, the only supply is new mine supply and recycled supply. That new supply is very, very concentrated. South Africa constitutes 75% of world platinum supply and 39% of world palladium supplies. Russia supplies 13% of platinum supplies, 41% of palladium supplies. In many cases, current metal prices do not earn the cost of production. The consequence is that new mine supply, which is the most important source of supply, is declining. This isn't something that's going to occur in the future. It's something that is occurring right now. Further, costs are going up because workers' wages have to go up. Social take in the form of taxes, rents and royalties have to go up, but they can't because the industry doesn't earn its cost of capital. On the demand side, platinum and palladium provide incredible utility to users. We anticipate that the utilization of platinum and palladium will continue to grow even in the face of supply declines. There is only one way that dichotomy can be resolved, and that's in the form of price.
It is also worth knowing that just in the last year and a half, platinum and palladium have begun to enjoy elevated status from an investment point of view. The physical inventory held by exchange-traded products (ETPs) like our own Sprott Physical Platinum and Palladium Trust have increased dramatically. This could exacerbate an already-troubled supply-demand imbalance.
Read Rick Rule's latest interview with The Gold Report here.
SR: Eric Sprott, what is going on in the silver market?
Eric Sprott: Marc indicated that he was a 25% investor in precious metals; I am probably an 80% investor in precious metals. Silver COMEX inventories have held up even though the price has gone down. It's sort of an interesting contrast with gold where there were huge redemptions in the ETFs. Those redemptions, in my mind, were created to solve the physical shortage. We had 700 tons of ETF liquidation. That would represent close to 50% of all mine supply annually, in other words, an increase in supply. But it was needed because we definitely have a shortage.
I continue to believe that silver will be the investment of the decade because 1) of its industrial uses and 2) it will take very little investment demand to really move things along.
We have years where people are buying 50 times more silver than gold, and yet mine production is only 11:1 silver versus gold. By my calculation, we only have 3 oz of silver available for investment purposes for every ounce of gold. Every time I'm talking to metal dealers, my favorite question is: What part of your business is silver, and what part is gold? And almost everyone says, 50/50. I guarantee you, that cannot continue.
What I really want to talk about is what I think is the investment opportunity of my lifetime. I happen to very firmly believe that within the next year, gold will be through $2,000/oz. I've chosen $2,400/oz as a target of where it will be in a year. That has amazing implications for gold equities. Back in 2000, I was beginning to aggressively buy mining stocks. We would buy up to 15% of companies like Eldorado Gold Corp. (ELD:TSX; EGO:NYSE) and Goldcorp Inc. (G:TSX; GG:NYSE), Cambior Inc. and High River Gold Mines Ltd. (HRG:TSX). At the time, I thought if gold could ever get to $400/oz, maybe these companies whose costs then were $300/oz could earn $100/oz and we could make three or four times our money. With most producers averaging around $1,000/oz costs, if the gold price goes to $2,400/oz, you have $1,400/oz of margin. That is 14 times the opportunity in 2000.
That could be huge. Take two examples. I'm not recommending these particular stocks; I just want to use them as examples. If production at Veris Gold Corp. (VG:TSX; YNGFF:OTCBB), for instance, is 150,000 oz and the margin is $1,400/oz, that could be $147M in earnings, put a measly 10 multiple on it, and you have a stock that can go up 2,000%. Veris has a royalty agreement with Newmont Mining Corp. (NEM:NYSE), which will kick in another $30M. And I think production next year will be higher than this. So you can add onto that.
Another example is San Gold Corp. (SGR:TSX.V). It has a market cap of $64M. We recently bought a private placement here, where we paid 2.5% of the five-year high in this producer. That's how desperately underperforming that equity was and a lot of equities are in this market—2.5% of its previous five-year high. Same analysis, with a $64M market cap, production of 85,000 oz, and potential profit of $83M, the stock can go to $830M. You have a 1,200% gain, hopefully in a year. And it's the in-a-year part that to me represents the opportunity of a lifetime.
I totally subscribe to the manipulation of gold and silver and the shortages of gold and silver. I've written many articles asking whether the central banks have any gold left and what is going to happen to gold when they finally give up the ghost, which I believe is coming. That is why I think the opportunity in the equities is spectacular. Of course, also I'm a great believer in owning physical gold and silver with my particular emphasis on silver these days.
Read Eric Sprott's latest interview with The Gold Report here.
View the Sprott Precious Metals Roundtable webcast here.
Swiss-born Marc Faber, who at age 24 earned his Ph.D. in economics magna cum laude from the University of Zurich, has lived in Hong Kong nearly 40 years. He worked in New York, Zurich and Hong Kong for White Weld & Co., an investment bank historically managed by Boston Brahmins until its sale to Merrill Lynch in 1978. From 1978 to 1990, Faber served as managing director of Drexel Burnham Lambert (HK), setting up his own investment advisory and fund management firm, Marc Faber Ltd. in mid-1990. His widely read monthly investment newsletter Gloom Boom & Doom Report highlights unusual investment opportunities. Faber is also the author of several books, including "Tomorrow's Gold: Asia's Age of Discovery" (2002), which spent several weeks on Amazon's bestseller list and is being translated into Japanese, Chinese, Korean, Thai and German. He also contributes regularly to leading financial publications around the world. Much also has been written about Faber. Nury Vittachi, one of Asia's most popular writers and speakers, published "Riding the Millennial Storm: Marc Faber's Path to Profit in the Financial Markets" (1998). The Financial Times of London described him as "something of an icon" and Fortune called him a "congenital contrarian and shrewd Swiss investment advisor."
John Embry is chief investment strategist at Sprott Asset Management and Sprott Gold and Precious Minerals Fund. He also co-chairs the Central GoldTrust Board of Trustees. An industry expert in precious metals, his experience as a portfolio management specialist spans more than 45 years. He joined Sprott in 2003, after 15 years as vice president of equities at RBC Global Investment.
Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries.
Eric Sprott has over 40 years of experience in the investment industry. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canada's largest independently owned securities firms. After establishing Sprott Asset Management Inc. in December 2001 as a separate entity, Sprott divested his entire ownership of Sprott Securities to its employees. Sprott's predictions on the state of the North American financial markets have been captured throughout the last several years in an investment strategy article that he authors titled "Markets At A Glance." Sprott has been widely recognized for his strategic insights and his accurate market predictions over the years. His newest ventures are Sprott Money Ltd. and Sprott Physical Platinum and Palladium Trust.
http://www.theaureport.com/pub/na/an-investing-opportunity-of-a-lifetime-lessons-from-the-sprott-precious-metals-roundtable
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Opponents score a victory in Senate against ‘Monsanto Protection Act’
September 25, 2013
rt.com
In its short-term government-funding bill, the US Senate will propose an end to a budget provision that protects genetically-modified seeds from litigation despite possible health risks.
Called “The Monsanto Protection Act” by opponents, the budget rider shields biotech behemoths like Monsanto, Cargill and others from the threat of lawsuits and bars federal courts from intervening to force an end to the sale of a GMO (genetically-modified organism) even if the genetically-engineered product causes damaging health effects.
The US House of Representatives approved a three-month extension to the rider in their own short-term FY14 Continuing Resolution spending bill, which was approved last week by the lower chamber.
The Senate version of the legislation will make clear the provision expires on Sept. 30, the end of the current fiscal year.
“That provision will be gone,” Sen. Mark Pryor (D-Ark.) told Politico.
Pryor chairs the Senate subcommittee on agriculture appropriations.
The Center for Food Safety said the Senate’s eradication of the rider was “a major victory for the food movement” and a “sea change in a political climate that all too often allows corporate earmarks to slide through must-pass legislation.”
“Short-term appropriations bills are not an excuse for Congress to grandfather in bad policy,” said Colin O’Neil, the Center for Food Safety’s director of government affairs.
The biotech rider first made news in March when it was a last-minute addition to the successfully-passed House Agriculture Appropriations Bill for 2013, a short-term funding bill that was approved to avoid a federal government shutdown.
Following the original vote in March, President Barack Obama signed the provision into law as part of larger legislation to avoid a government shutdown. Rallies took place worldwide in May protesting the clandestine effort to protect the powerful companies from judicial scrutiny.
Largely as a result of prior lawsuits, the US Department of Agriculture (USDA) is required to complete environmental impact statements (EIS) to assess risk prior to both the planting and sale of GMO crops. The extent and effectiveness to which the USDA exercises this rule is in itself a source of serious dispute.
The reviews have been the focus of heated debate between food safety advocacy groups and the biotech industry in the past. In December of 2009, for example, Food Democracy Now collected signatures during the EIS commenting period in a bid to prevent the approval of Monsanto’s GMO alfalfa, which many feared would contaminate organic feed used by dairy farmers; it was approved regardless.
The biotech rider “could override any court-mandated caution and could instead allow continued planting. Further, it forces USDA to approve permits for such continued planting immediately, putting industry completely in charge by allowing for a ‘back door approval’ mechanism,” the Center for Food Safety said earlier this month upon news the House was reviving the measure.
http://rt.com/usa/monsanto-protection-senate-budget-303/