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Minefinders -- PR
Increased Silver Grade for Satellite Targets on Minefinders Dolores Property
VANCOUVER, B.C.--(BUSINESS WIRE)--Jan. 3, 2002--Minefinders Corporation Ltd. (OTCBB:MNEFF - news; TSE:MFL. - news; the ``Company'')
Mark H. Bailey, President and CEO reports that new results from the Dolores silver re-analysis program have significantly increased the potential of the satellite targets in the Dolores District.
http://biz.yahoo.com/bw/020103/30080_1.html
Ok gang!
My top three picks are:
Corner Bay Silver
National Gold
TVX
...in that order
anyone else?
Regards
Frank P.
Yeah ... I hope this thread takes off... I'm so-so when it comes to FA on mining stocks - but not so bad when it comes to the oilpatch.
Black Gold?
Yellow Crude?
Here's an article that was written a while back, and it reads out like a mission statement for a commodities investor like myself.
Best,
Frank P.
Crossroads: Will Deflation Destroy The Commodities Market?
Do darkening clouds of deflation mean tough times for commodities...or will a tidal wave of new money push real asset prices through the roof?
------------------------------------------------------------------------
John Myers
CALGARY - Make no mistake - the United States is in the midst of an economic rollover. But what kind of rollover? A recession. A massive recession, in fact. And where the United States goes, the world usually follows.
For over a year now the U.S. economy has been under siege. First came the tech-wreck. Then it was corporate earnings grinding to a halt. A typical recession, or so everyone thought. That was until Sept. 11. And now with U.S. soldiers in a far-off desert fighting a war against terrorism, it seems nothing could be worse.
But as we attempt to get back to our everyday lives, we now face the threat of another type of terrorism - this time bio-terrorism skulking inside the venerated U.S. mail service. Each time we've thought things couldn't possibly get worse, they have. So now we are on constant alert, wondering what will happen next. The uncertainty isn't doing anything to help the sluggish economy.
There are impressive opportunities arising from this growing morass. And make no mistake, there are fortunes waiting to be made. But there are also incredible risks. And as much as I might like to ignore them, it would be irresponsible for me to do that.
I won't pretend that I can predict the future. But what I would like to do is lay all the cards on the table for you: The evidence that points towards 1930s-style deflation and the counter-argument of inflation wrought by Uncle Sam's liquidity machine.
[Editor's Note: In the December Issue of Outstanding Investments you'll find an investment that will soar regardless of which side the inflation/deflation coin lands. If you're not yet a subscriber please review this free special report: Maniacs In The Desert .]
Facing Another Type of War
There is an economic war being fought in the markets week-by-week, day-by-day. At stake is nothing less than our economic future.
The outcome of this conflict and whether or not we play it correctly will determine our financial fortunes for years to come. Because not during the 30 years I've been investing have the stakes been so high.
Are we falling into a 1930s depression, replete with the massive destruction of wealth? Or are we on course towards a 1970s economy, where cascades of fresh money pushed commodity prices to record highs?
Forget the economic analysis, the Ivy League analysis and all the rest. We are in a crisis. The question is, does the government have the wherewithal to pump enough money into the system to arrest this economic slowdown, and in the process, reverse the commodity price meltdown? If so, the Fed's pump-priming could translate into a bonanza for real asset investors.
The Early Evidence Points to Deflation
Deflation is just a gentler word for depression. The last time America was afflicted with it was during the 1930s.
Of course we've had periods of rolling deflation since then - notably the early 1980s. Yet this period was unique in that deflation moved from one sector to another the way a cold might move from one person to another. First hit was agriculture. Hundreds of thousands of farm families were driven off their land, ruined by crushing debts and collapsing prices. The seeds for it were planted in the late 1970s when farmers bought into the idea that they would feed the world with escalating grain prices.
Then came the meltdown in mining, followed by the collapse of Third World debt. That in turn sickened many of America's big banks. It was a horrendous period of retreating wealth, but it didn't hit everywhere at once. In fact, during the 1980s the stock market was steadily rising, as was GDP.
But what we are facing now is a different breed of cat, an animal destroying wealth across the board.
According to Morgan Stanley economist Stephen Roach, "History tells us that recessions trigger deflationary forces. For the world as a whole, I would judge the risk of deflation to be higher than at any point in 70 years. Therein lies the risk: financial markets seem largely unprepared for such a possibility."
Certainly the commodity markets have been taking it on the chin. At this writing oil prices have broken below $20 a barrel with other commodities falling as well. And there are more telltale signs of deflation. Just consider:
* Office vacancies are at a five-year high. Meanwhile new construction and home sales are rife with weakness.
* Layoffs continue to mount in almost every sector as corporate America hunkers down.
* Consumer confidence continues to decline, pushing spending levels down.
* Copper prices - an excellent barometer of future economic activity - have fallen to new lows, bumping against 60 cents. That puts copper at its lowest level in 14 years. The Commodity Research Bureau's index of raw industrial prices peaked in 1995 and stands at a 15-year low, off 16% this year - down 40% from its high in the 1980s.
* The U.S. economy shrank in the third quarter of 2001. The government also reported a
decline of 0.4% (annual rate) in prices for personal consumption expenditures. That was the first quarterly decline in 47 years.
* Four trillion dollars in stock market wealth have been erased since the stock market peaked in early 2000.
Learning from History
The question is, where are we headed? The worst-case scenario is spreading deflation turning into a depression. A quick review from the historical record sheds light on why the government will do anything - and I mean anything - to prevent this.
America's national income plummeted from $99 billion in 1929 to just $40 billion in 1933. During the same period, output of American factories declined by 50%. By 1933 U.S. auto manufacturers were making just one-fifth the cars they were building in 1929. Also in 1933 American steel mills were operating at just 12% of capacity, and production of pig iron stood at its lowest point since 1896.
The carnage in the economy was also taking place in the stock market. The New York Stock Exchange hit rock bottom on July 8, 1932, when just 720,000 shares traded. At the end of the day, the Dow Industrials that had peaked at 452 in September 1929 slid all the way to 58. U.S. Steel fell from $262 to $22 a share. General Motors went from $73 to $8, while Montgomery Ward collapsed from $138 to just $4 a share.
Wall Street represented what was happening to the economy. Between 1929 and 1932 factory wages fell from $12 billion to $7 billion, and the average weekly wage dropped from $25 to less than $17. But this is the real kicker - unemployment reached a staggering 25% in the spring of 1933, with almost 13 million workers unemployed. Certain areas of the country were crushed by layoffs. One million people were out of work in New York, while 80% were unemployed in Toledo. Detroit, home of the new automobile industry, had 50% unemployment.
No More Depressions
Deflation spreads like wildfire upon old August timber. It is basic economics. As the economy slows, companies and consumers slash spending. This exacerbates consumer fears, resulting in further spending cuts.
During the Depression, the federal government didn't understand the way the economy was melting down and, in fact, actually cut spending. That was the last time Washington made that mistake.
More than any other event, the Great Depression was the defining experience of the 20th century. That is why every recession since then has been met with massive federal expenditures and slashes to interest rates.
True to form, the government and Fed are doing it again. In early November the Fed cut interest rates by one-half percentage point, the 10th reduction this year.
This put rates at their lowest level in more than 40 years and is the third dose of rate relief since the Sept. 11 terrorist strikes.
Recently Alan Greenspan and his Fed cohorts warned of "unusual forces." No kidding. Included in the massive cost of fighting terrorism is the gargantuan task of restoring confidence. Little wonder they are hinting of further rate cuts.
"Heightened uncertainty and concerns about a deterioration in business conditions both here and abroad are damping economic activity," said a Fed spokesman.
Most economists are more blunt. Their opinion - the United States and much of the world is sinking into an economic morass that could drag well into next year.
Then there is the Fed, throwing out the understatement of the year: "The risks are weighted mainly toward conditions that may generate economic weakness."
Translation: the Fed will cut rates further.
Several market watchers expect the Federal Reserve's key rate to bottom out at 1.5% in the current downturn, or another half a percentage point beneath its current level.
The last time the Fed cut rates 10 times in one year was in 1991, in the middle of the recession. And the last time the federal funds rate was at 2% was in 1961.
For the first time in years, the central bank's short-term interest rates have actually fallen below the rate of inflation. Consumer prices are rising at a rate of 2.6% compared with the 2% Fed rate.
"Negative real short rates mean that monetary policy is deep in easy territory," said Vincent Lépine, senior economist at National Bank Financial in Canada.
It is not just a case of cheaper money, but also more money. Across the board the money supply is rising at a faster pace than any time since the swinging '70s. And there is more. The idea of bigger government is gaining ground. Remember fat ties and Billy Beer? If you do, you probably remember a monolithic government intent on spending America into prosperity. Two decades after the Reagan Revolution, Americans are again embracing Big - and I mean Big - Brother.
According to Business Week, "September 11 suddenly shook America out of its complacency about terrorism - and also reversed two decades of bipartisan contempt for government. Now, with a gathering economic storm, government again has an enlarged economic role as well as a military one."
More government means more government spending, and that means - effective or not - more money in the system.
What we have then is a triad of new money - cheap money, soaring money supply and government spending. All of which means more money buying fewer goods and services. Bottom line: the onset of inflation.
Ahh, Yes... the Printing Press
The deflationists are quick to point to the decade-long deflation that has ripped Japan. But the United States is not Japan. Why? Because the U.S. dollar is the world's reserve currency. That means that the United States is free to inject as many dollars into the economic system as it wants. With the ever-vigilant bond market watching over it, this is not something Washington takes lightly.
But given the choice between watching bond yields climb or watching the economy slip into a coma, policymakers have a pretty simple choice.
In the words of Richard Russell, it is a case of "inflate or die." Certainly the United States will take a 1970s economy over a 1930s cataclysm hands down.
So you may ask, why isn't inflation showing up on the radar screen? The answer is easy: so far money is being destroyed faster than Washington and the Fed can create it. But at some point - and I suspect it will be sooner rather than later - the tide will turn. When it does, there will be an exodus moving out of U.S. dollars and into hard assets. Until that happens, we will have to buckle down and be patient with our holdings.
But our wait shouldn't be too long. There are several factors at work, most notably growing world uncertainty and a hair trigger in the Middle East. Together that is creating a massive upside for precious metals and crude oil.
Surprisingly Easy Profits From Wall Street's Forgotten Market
John Myers - son of the great goldbug C.V. Myers - has been helping readers earn suprisingly lucrative returns in stocks largely unkown to Wall Street's wunderkind since his early 20s. Our man on the scene in Calgary, John has his fingers on the pulse of oil and gas industry profits. To begin making money using John's profitable insights please subscribe to Outstanding Investments.
http://www.dailyreckoning.com/
Hey Peter, I'm looking forward to the charts. Anything "technical" I should know about? I mean 100% in one sector is pretty confident ... Is there one singular event that triggered this bullishness?
Best,
Frank P.
Hey marco -- will have to see if we can get Claude and Russ down here. It just wouldn't be the same without them.
Regards
Frank P.
Matt, you are correct when you say "Canadian ghost town." Over at SI when I do a search on a Canadian oil company I find only the posts that I've written... :)
BTW, I really should hang out here more, this interface is much nicer than the SI add free "classic" look. Anyway, -- I'll do what I can to get the guys over here.
New Year, New Board?
Have a good one fellas...
Best
Frank P.
Strictly Drilling
This Week With Donald Coxe
Don's Latest Call -- Real Media
http://207.61.47.20:8080/ramgen/archivestream/dcoxe.rm
------------------------------------------------------------
The inflation bogey -- DONALD COXE
For a quarter century, the premier battleground for the ongoing dispute about the outlook for inflation and interest rates has been a futures pit a block from my office -- the Chicago Board of Trade. Befitting the board's history as the world's leading futures market for grains and soybeans, a mammoth statue of Ceres, goddess of agriculture, graces the peak of this landmark. If Ceres' concerns were still the backbone of the board's business, the financial history of our time would have been very different.
In the 1970s, some of the board's leaders began to realize food wasn't the stuff of financial progress. Working with brilliant thinkers at the University of Chicago, they devised a new kind of futures instrument -- the U.S. treasury bond contract. It didn't cover a specific bond, because bonds mature, and no single issue would be big enough to back a major futures contract. What the T-bond futures contract covered was -- and is -- a synthetic bond representing all long-outstanding treasuries. When this contract began trading, investors finally had a convenient, highly liquid vehicle for making simultaneous bets on the outlook for inflation and interest rates. (Gold is an excellent inflation hedge, but it is subject to the vagaries of central bank selling and is expensive to store and insure.)
For more than two decades, the activity in the T-bond pit has been a good gauge of investors' outlook on inflation, and how the Federal Reserve will seek to control it. Most of the time, prices in the pit trade in a narrow range compared with the swings in the Standard & Poor's 500 futures pit 10 blocks away at the Chicago Mercantile Exchange. In recent weeks, those pits have swapped roles. The bond pit has been the scene of the biggest price swings since the Crash of 1987, while the S&P pit has experienced reduced volatility as investors try to digest the stock market's big runup from the September panic lows.
What is unfolding is the latest chapter in the central economic and financial debate of our lifetime: what will happen to inflation? After the double-digit agonies of the 1970s, Paul Volcker, Margaret Thatcher and Ronald Reagan vowed they would slay the beast. Just about nobody believed them. In part, this skepticism was rooted in Club of Rome thinking. Since 1970, that collection of modern Malthusians, including Pierre Trudeau, had been meeting (in Rome, naturalmente) to wine and dine sumptuously, then emerge to predict global food and commodity shortages. Oil, metals and grains would be scarce forever, creating perpetual inflation, crises and wars.
As if those gloomy prophecies weren't enough, economists cited the ways in which inflation was ingrained into democratic economies: governments had to keep raising expenditures to create jobs and pay the endlessly mounting cost of social and health benefits. Those expenditures would be financed by rising taxes or deficits -- each of which was ultimately inflationary. Unions -- particularly public-sector unions -- had the power to bring the economy to a halt to enforce their demands for large wage increases with full inflation protection. Central banks were thus forced to print too much money to offset the rising costs of wage settlements and handouts.
No wonder investors concluded they had to protect themselves by buying oil wells, silver and gold. Bonds were horrible investments, and even stocks weren't safe because governments could grab the inflation-generated gains. (Canada's National Energy Policy was only the most egregious example.)
We now know the experts were wrong. Since Reagan and Thatcher's early years in power, inflation has been in secular decline globally. In each five-year period since 1981, inflation shrank, and in each cycle it fell harder than economists, investors and the public anticipated. Three inflationary decades had "proved" to all who would think about it that inflation was part of the human condition. Unlike smallpox and polio, it was ineradicable.
Long-term fixed-rate bonds are the worst-performing asset class when inflation rises more than investors anticipate. Conversely, as Canada's history since 1981 has demonstrated, they are the best-performing asset class when inflation falls much more sharply than anticipated. (Think how happy you'd be today to be holding the Canada bonds trading that year with 18-per-cent yields. Such yields were available on long bonds because both Ottawa and investors assumed double-digit inflation would last forever.)
Over at the board of trade, the old skepticism is returning. Long-term rates have risen sharply even as recorded inflation touches new lows under the hammer blows of a new force -- deflation. Economists again say (as they have so regularly since 1984) that the good news on inflation is over and again dismiss talk of deflation as absurd.
The performance of the global economy and financial assets hinges on the outcome of this latest outbreak of the inflation debate. I'll give you my take on that story next week.
Donald Coxe is chairman of Harris Investment Management in Chicago and Toronto-based Jones Heward Investments.
http://www.macleans.ca/xta-asp/storyview.asp?viewtype=search&tpl=search_frame&edate=2001/12/...
Don Coxe -- This Week
Web Cast -- Real Media
http://207.61.47.20:8080/ramgen/archivestream/dcoxe.rm
Macleans -- Column
The long-bond shortage -- DONALD COXE
The notation "-30-" is, or was, the way copy editors at newspapers marked the end of a story. I recall when the Toronto Telegram ceased publication, the headline on its last edition was simply "30." It was the end of the Tely, but, as we would swiftly learn, the beginning of the Sun. This time, it is a suitable marker for the ending of one long-running story and the beginning of another.
Last month, the U.S. treasury department stunned Wall Street with the announcement it was "suspending" issuance of 30-year treasury bonds, the so-called long bond. It handled this momentous announcement sloppily, revealing it to a group of reporters an hour before issuing a press release, thereby letting some big traders reap huge profits by buying existing long bonds.
What ensued was the biggest rally in long-term bonds since the stock market crash in 1987. Existing long bonds leapt 5 8/32 points, as yields fell from 5.32 per cent to 4.87 per cent (because bond prices trade inversely to yields).
A casual reader would conclude the drop in long-term interest rates was not the real story: it was the latest blundering of Treasury Secretary Paul O'Neill. Mr. O'Neill suffers from three disabilities: first, he succeeded Larry Summers, a well-regarded secretary; second, he comes into office two years after the resignation of Robert Rubin, widely considered one of the greatest treasury secretaries since Alexander Hamilton; third, he is politically tone deaf. (After the World Series, when gentleman Yankee Paul O'Neill retired, pundits observed that the wrong Paul O'Neill was retiring.)
The casual reader misses the important story: the plunge in U.S. long-term interest rates does more to help the beleaguered U.S. economy than all the stimulus packages considered by Congress. The long and the short of it is that long-term interest rates are far more important than short-term interest rates to homeowners and to corporations considering capital spending. Together, those over-indebted sectors constitute approximately three-quarters of the economy. Substantial assistance to them is substantial assistance to the U.S. -- and the world -- economy.
U.S. homeowners have responded to the bond boom by refinancing their mortgages at record rates: the lowest interest rates for fixed 15- and 30-year mortgages in a generation and the greatest number of mortgages being refinanced. (An American homeowner with an acceptable record of meeting monthly payments can refinance his or her mortgage at any time without notice, simply by paying the servicing charges.)
What few observers have noted is that the treasury's decision comes at a time when the financial world is beginning to face a new kind of challenge: a long-term shortage of long-term bonds. When I entered the investing business three decades ago, one of the first rules I learned about bond management was "the bond crop never fails." This was the grim reality in an era of soaring deficits and soaring inflation. The longer the term of the bond, the more vulnerable it was to inflation and to governments' insatiable demands for funds.
Since the Reaganauts and Paul Volcker vanquished inflation, long-term government bonds have been wonderful investments, even when the bond crop was bountiful during the U.S. military buildup. In the 1990s, inflation kept falling, and so did deficits, but the volume of maturing debt meant new long-term issues kept coming, albeit in smaller size.
Now, the crop has failed. That is a double whammy for pension funds, insurance companies and (would you believe?) lotteries. The liabilities of these organizations, which must account for future payouts, go up when long-term interest rates go down, so they are scrambling to get long-term products to fund those liabilities. What happens is a leap in what bond managers and actuaries call duration -- the sensitivity of a particular investment or liability to a change in interest rates. (A bond's duration reflects both its maturity and its coupon: a low-coupon bond has a higher duration than a high-coupon bond, because it takes longer for an investor to get back his or her money. Cash, on the other hand, has zero duration.)
Across the world, financial institutions with long-duration liabilities are wondering where they're going to get product. Apart from the U.S. and Canada (and the provinces), few governments in the world issue meaningful quantities of bonds with maturities greater than 10 years (with durations approximating merely 5.5 years). Meanwhile, deflationary forces are accelerating globally, putting further downward pressure on long-term interest rates. The U.S. Producer Price Index (PPI) fell a record 1.6 per cent in October; Japan's Wholesale Price Index fell back to where it was in 1979; Britain's PPI is down 0.6 per cent for the past year, the biggest drop on record.
The best asset during increasing deflation is a long-duration bond. The treasury is making such bonds collectors' items. These are the best of times for long-duration bond investors -- and the worst of times for money-market investors.
Donald Coxe is chairman of Harris Investment Management in Chicago and Toronto-based Jones Heward Investments.
http://www.macleans.ca/xta-asp/storyview.asp?viewtype=search&tpl=search_frame&edate=2001/11/...
A gold bug then and now
John Ing unveils 'terrific 10' junior stocks
William Hanley -- Financial Post -- November 3/2001
It's a little over a year ago since we had lunch with John Ing at Reds bistro just along from Bay Street. The menu has changed somewhat, but we note that the price of gold basically has not, hovering around the US$280 mark of last fall despite geopolitical uncertainty that in other times might have made bullion an appetizer for many investors, if not a main course.
But Ing, officially president of Maison Placements Inc. and unofficially chief executive of Gold Bugs Inc. as the Street's most famous admirer of gold, quickly fires back that while the metal itself is dead-even from October, 2000, gold stocks have been the liveliest performers in the past 52 weeks with a 35% gain versus a 29% loss for the TSE 300. Moreover, the "fearsome threesome" gold stocks he advised people to buy a year ago have jumped an average 100%.
Ing introduced Lunch Money to Reds last October and it has become one of our favourite venues, an all-round restaurant that deserves its fine reputation for good value for food and even better value in its extensive wine cellar. We forgo a glass of wine today but Ing, who considers doing lunch an occupational hazard, treats himself to a full-bodied Beaujolais. We both head straight for the mains, he choosing the seafood capellini of tuna, sea bass, shrimp and salmon in a tomato basil sauce with lemon olive oil, while we like the look of the applewood smoked chicken penne with roasted sweet peppers, spinach and mushrooms in a light Chardonnay cream sauce.
Food ordered, the wine poured, the talk turns to Ing's main theme: The flood of liquidity unleashed by world central bankers in response to the economic slump and the war on terrorism must eventually reignite inflation because the financing of war has historically triggered inflation. "Remember," Ing says, "war is inefficient in that its financial needs crowd out the businesses that need money."
In such an environment, gold can be a safe haven and gold stocks a "cheap insurance policy" as more money is printed and the integrity of the currency is lost. "You can print money," he says, "but you can't print gold."
Not that Ing recommends putting all your investment eggs in the gold basket. He reckons putting, say, 10% of assets into gold stocks as a kind of "fire insurance."
Meantime, he has changed his strategy from the "fearsome threesome" to what might be known as the "terrific junior 10." The three mid-sized stocks he recommended last year -- Goldcorp Inc., Meridian Gold Inc. and Agnico-Eagle Mines Ltd. -- are still worth holding, but have already been afforded premium multiples and are beginning to look expensive. Now he's advising clients to buy some or all of these 10, which with one exception have made it to the production stage.
As we tuck into our pasta, Ing names the 10: Crystallex International Corp., Eldorado Gold Corp., Glamis Gold Ltd., High River Gold Mines Ltd., Iamgold Corp., Kinross Gold Corp., Miramar Mining Corp., Northgate Exploration Ltd., Philex Gold Inc. and St Andrew Goldfields Ltd., the only non-producer.
"I know it's almost heresy now," Ing says, "but the real dollars are to be made in the junior market."
If you can manage to wait, some of these 10 could gain tenfold. Of course, he's using a venture capital-type strategy in that a couple could really glitter, a couple could do well, some could just sit there and others could be complete losers. But on average, the gains could be far greater than those from the "fearsome threesome" or even Barrick Gold Corp., the one major that Ing believes belongs in any gold stock portfolio.
If Ing regards gold as an insurance policy for investors, he also strongly believes that energy and the need for security of supplies is another theme that deserves greater attention now that there's a world war on terrorism.
The spate of U.S. takeovers in the Canadian oilpatch underlines how companies are viewing security of supply in North America as essential. For Ing, this means that more money will be spent on the oilsands and East Coast fields as worries persist over the possibility of the Middle East oil tap being turned off.
"The security of energy is precarious," he says. "Sept. 11 increased the risks. One day, we'll all wake up."
The price of oil has been falling in response to the slump in the United States and world economies. But Ing says "don't sweat the recession -- think about security of supply" as a long-term goal.
In a similar vein, he says investors in these "amazing" but precarious times should make protection of their capital a paramount concern. Some funds not invested in gold and energy stocks might be diverted into the safety of T-bills and bonds, however low returns might be.
"This is not business as usual for investors," Ing says, adding he can't see U.S. consumers bailing out the economy as they did before.
Of course, a generally bearish view of the world is essential to the gold bug -- even one with the sunny disposition of John Ing, who makes this excellent lunch entertaining and informative, and leaves us wondering how the world will have changed by the time next fall rolls around.
http://www.nationalpost.com/search/story.html?f=/stories/20011103/768594.html&qs=ing
Research Capital Reports:
Rio Alto
http://www.researchcapital.com/document/Morning%20Comment/Energy/ENERGYSECTOR1109-1.pdf
Thunder Energy:
http://www.researchcapital.com/document/Morning%20Comment/Energy/THY1109-1.pdf
I've got the world's longest tongue
http://news.bbc.co.uk/cbbcnews/hi/world/newsid_1646000/1646912.stm
Fourth major oilsands project planned for Alberta's north next year
http://www.canoe.ca/MoneyResources/oct18_oilsands-cp.html
FORT MCMURRAY (CP) -- Construction on a fourth major oilsands plant in northern Alberta could begin next fall if it passes regulatory approval.
TrueNorth Energy is anticipating Alberta Energy and Utilities Board approval by next summer and already has 250 engineers, planners and environmental scientists working on the project, which would be worth $2 billion.
"It feels more real every day," company chief executive David Park said. "We're spending a lot of money and dedicating a lot of resources to make it happen."
The company expects to spend $150 million by the time the regulatory body makes its decision.
Production at the Fort Hills Oil Sands Project would hit 95,000 barrels of bitumen per day in 2005 and would grow to 190,000 barrels in 2008.
Fort McMurray is about 360 kilometres north of Edmonton.
Charts:
Alberta Energy
http://finance.yahoo.com/q?s=AOG&d=c&k=c3&p=m20,m100&t=1y&l=on&z=l&q=c
Suncor
http://finance.yahoo.com/q?s=su&d=c&k=c3&p=m20,m100&t=1y&l=on&z=l&q=c
PETRO-CANADA
http://finance.yahoo.com/q?s=pcz&d=c&k=c3&p=m20,m100&t=1y&l=on&z=l&q=c
HUSKY ENERGY
http://finance.yahoo.com/q?s=HSE.TO&d=c&k=c3&p=m20,m100&t=1y&l=on&z=l&q=....
SHELL CANADA
http://finance.yahoo.com/q?s=shc.TO&d=c&k=c3&p=m20,m100&t=1y&l=on&z=l&q=....
IMPERIAL OIL
http://finance.yahoo.com/q?s=imo.TO&d=c&k=c3&p=m20,m100&t=1y&l=on&z=l&q=....
Weekly Update from Jim Puplava
October 19, 2001
Hype, Hypocrisy, and Hypotheticals
Three Trends That Will Take Us Deeper into Recession
http://www.financialsense.com/stormwatch/update.htm
Weekly Update from Donald Coxe
Real Media:
http://207.61.47.20:8080/ramgen/archivestream/dcoxe.rm
Macleans Magazine:
Government is good?
DONALD COXE
The post-Cold War global geopolitical structure has been transformed -- at least temporarily -- by terrorism. Russia, China, many of the former Soviet republics and Pakistan are giving at least rhetorical support to the U.S. war effort. Israel and India are sulking, and Canada is belatedly trying to seem relevant. The economic and financial world may have undergone an even more dramatic transformation.
The end of the Cold War produced a replay of the Roaring '20s: soaring optimism, soaring stock prices, falling inflation, falling interest rates, and a growing consensus that government -- particularly the military -- was too big and should get out of the way of the private sector. (In the '20s, the president said: "The chief business of America is business"; in the '90s, the president said: "The era of big government is over.")
The post-First World War era ended with a crash. The post-Cold War era ended with four crashes.
The U.S. economy was already in weakened condition and stock prices were already down substantially when the first plane hit. But the rapid earlier actions of the Fed -- with seven rate cuts -- and President Bush and Congress, with a super-fast tax cut package, had ensured that things would start getting better soon.
Bin Laden Air hit the economy and stock market hard. The collapse in the travel industry and the threatened bankruptcy of the airlines took the patient from the recovery ward and into intensive care. There were other consequences. Suddenly, the American heroes were in government, not the private sector. Whether it was the firefighters, the police, the rescue workers, Mayor Giuliani, President Bush, Colin Powell, the members of the now united House and Senate, or the U.S. military, it was government that was crucial and admired.
Bush and the Congress didn't just agree on emergency help at Ground Zero: they also agreed on getting the guilty and defeating "every terrorist group of global reach." The nation is overwhelmingly behind the war effort. A year ago, we learned the U.S. was spending three per cent of its GDP on defence -- equal to the level at the time of Pearl Harbor, and down from a Cold War-winning 6.3 per cent in the second Reagan term. As several conservative commentators noted, it was reasonable to predict another Pearl Harbor within a year.
The less the federal government spends, the higher stock prices go. (The reason is that as the government reduces its share of total spending, the slack is taken up by the private sector.) What is clear from all the emergency spending packages heading for congressional votes is that the crisis has emboldened every special interest, from peanuts to steel, to demand assistance. Government is getting bigger -- fast.
That sudden reversion to pork barrelism at a time of record monetary expansion worries the bond market. Long-term bond yields are not following the Fed as it drives down interest rates (the Fed has lowered its basic rates from 6.5 per cent to 2.5 per cent, with the last percentage point coming since Sept. 11). Result: one of the steepest yield curves in history. (The yield curve is an imaginary line drawn between treasury bills and reaching out to 30-year bonds, showing the return for each when the coupon rate is measured against the latest market price. When the curve is steeply upward, investors are saying they are worried about inflation.)
Another reason for government's return to centre stage is a growing realization that the private sector overplayed its hand. Those bureaucrats and politicians don't look bad these days compared with many of business's biggest names. During the 1990s, government stepped back and let business create the wealth and dynamism needed to make the economy hum. That love affair with laissez-faire may be ending. It wasn't government that drove the Nasdaq index to 5,000 in the biggest financial foolishness of all time. It wasn't government that grotesquely overinvested in telecommunications, creating a glut that could take years to clear and savaging hundreds of thousands of jobs.
Free marketers told us government was the problem, not the solution. They said market disciplines rewarded those who created wealth and punished those who failed. Those indeed are basic principles of capitalism. Trouble is, numerous CEOs grew obscenely rich from sports-star-style pay packets overlain with gigantic long-term stock options. When the bubble burst, small investors and lower-level employees lost their savings and jobs, but the big guys who had become media heroes remained rich and, in too many cases, still employed. Why, some stockholders wonder, did insiders insist they deserved those riches because of high profits and high stock prices, but now say circumstances beyond their control have led to collapses in both? Isn't that the way politicians have always talked?
The interlinked postwar eras of peace, falling inflation, falling interest rates, soaring stock prices and shrinking government may have ended on Sept. 11. Who knows what will succeed them?
Donald Coxe is chairman of Harris Investment Management in Chicago and Toronto-based Jones Heward Investments
http://www.macleans.ca/xta-asp/storyview.asp?viewtype=search&tpl=search_frame&edate=2001/10/...
Peter, thanks for the complements, much appreciated -- SDII was started for my own selfish reasons. I wanted my own thread so I could post what I wanted, talk about the things I thought were important and to do it without the fear of being flamed. The coolest part is having both Slider and Isopatch posting there on a regular basis, I consider myself very fortunate. My only concern with SDII is that it's becoming a little too successful, the fear of being flamed is back (due my investing inexperience) and I also find I'm censoring myself in order to please a broader spectrum of folks.
Anyway, you don't need to post on the IHSD thread, I'll find you here -- I have enough friggin' success...
Good Luck -- I'll be your biggest fan and a regular here on "STC"
Best,
Frank P.
Peter, I noticed you have a new thread, no invite? Shame on you... :) I guess I'm your other reader.
Regards
Frank P.
Tesco has an interesting chart:
http://stockcharts.com/def/servlet/SC.web?c=TEO.TO,uu[w,a]dfolyymy[db][pb50!b200!b25!b9!d20,2!f][vc6...
very tempting...
Peter, I see SI is down again -- I suspect for maintenance this time.
Don Coxe for this week:
"Primary Bear Market"
Real Media
http://207.61.47.20:8080/ramgen/archivestream/dcoxe.rm
-----------------------------------------------------------------
Scenario A, or worse
DONALD COXE -- Macleans Magazine
Reaction to the World Trade Center attack ranges from horror (most people) to fear (many people, including many investors) to, in some quarters, an odd satisfaction that the big, bad, bullying U.S.A. got a black eye from a small group of little guys. Although it may be too much to expect that the Yankee-bashers can be talked out of their prejudices, they should face the reality that more than Uncle Sam's vanity is at stake: the world's economy and markets, which were in weakened condition on Sept. 10, took terrible beatings on Sept. 11.
Anti-Americanism is remarkably widespread among people who otherwise seem rational, but this schadenfreude is surely misplaced. This is the most successful terrorist operation since Serbian nationalists killed Archduke Franz Ferdinand and his wife, transforming the world's longest experience with sustained peace and prosperity into the First World War. The 1990s were the longest period of good times since that era.
Today's terrorists still have a way to go to catch up to those Serbs. The suicide hijackers accounted for only 6,400 or so deaths (to date), a mere pinprick compared with the millions killed in the First World War. Nevertheless, they killed more Americans than died in Pearl Harbor and D-Day combined.
A back-of-the-envelope calculation says that global equity prices are down by more than $2 trillion (U.S.) since the boys of Bin Laden Air struck. Losses on stock markets abroad are on roughly the same scale as in the U.S., a point the anti-Americans should ponder. I don't know how much global stock prices fell in 1914, but you can bet your bottom dollar, loonie, euro, peso or Swiss franc that the Arabs have outscored the Serbs. Big time.
As to which terrorists did more harm to the global economy, I think today's generation has a good claim. GDP numbers for North America rose during the First World War, but this time they're plunging off a cliff. We could have a deep global recession or maybe even a depression, and the terrorists -- not George W. Bush, not even the UN -- hold the key.
H. W. (Woody) Brock is the American economist who has had -- by far -- the best forecasting record for the U.S. economy in recent years. Last week, he issued a revised prediction, using two scenarios.
Scenario A: "The terrorists have had their jollies, as the British say; they have shot their wad."
Scenario B: "The terrorists have embarked upon a series of attacks and disruptions of which the World Trade Center and Pentagon attacks were only the first."
Under Scenario A, a V-shaped recovery looms; the collapse of consumer and business confidence and damage to airlines and tourism ends after two quarters. Thereafter, a surge of optimism puts the U.S. economy back to its normal two-per-cent to three-per-cent growth. Under Scenario B, "GDP growth could easily drop to minus four per cent as all the components of GDP except for government spending are simultaneously sandbagged." (That would be the worst hit to the U.S. economy since 1973-1974.)
He thinks Scenario A is more probable, but admits that economists have little expertise for such forecasts. That the U.S. consumer holds the key to the entire global economy's prospects is conceded by most global economists and strategists I follow. So if Scenario B lies ahead, those Europeans, Asians and Canadians deriving satisfaction from the American "comeuppance" may have to re-examine their prejudices.
In assessing the near-term outlook, investors should consider the pressures confronting Saudi Arabia and the United Arab Emirates. These two OPEC powerhouses were committed to cutting production quotas if oil prices fell below the bottom end of their target range (approximately $22 a barrel). That may have changed, at least for a while. They were two of just three nations (along with Pakistan) recognizing the Taliban as Afghanistan's government at the time of the attack; they have since broken off relations. Moreover, several of the identified members of Bin Laden Air appear to have links with those countries. It is likely that Bush told the Saudi foreign minister when they met on Sept. 20 that (1) he understands why they cannot commit troops to an attack on the Taliban, but (2) they can help by letting oil prices trade in a lower range, thereby working to prevent the global economy from going into free fall.
The Americans and British must attack the Taliban quickly and decisively. Ramadan begins in November, and Westerners will respect Islamic sentiments against waging war during that holy period. Thereafter, winter will turn the Afghan landscape from difficult to impossible.
I naturally hope the West throttles Bin Laden Air, making Scenario A a reality, and discomfiting anti-Americans. We'll soon know whether the U.S. once again leads the good guys to victory, as they did in both world wars, the Cold War and Desert Storm. If they do, they should be thanked by everyone except terrorists. Fat chance.
Donald Coxe is chairman of Harris Investment Management in Chicago and Toronto-based Jones Heward Investments
http://www.macleans.ca/xta-asp/storyview.asp?viewtype=search&tpl=search_frame&edate=2001/10/....
Fight Urge to Bottom Fish for Comm ICs
[BRIEFING.COM - Robert J. Reid] They were once the darlings of the Nasdaq boom, but have fallen to earth as capital spending has slowed, inventories have climbed and operating losses are mounting. Briefing.com believes there are better places to look for bargains.
What Are They?
Communications technology has evolved from simple analog voice signals transmitted over networks of copper telephone lines to complex analog and digital voice and data signals transmitted over hybrid networks of media, such as copper, coaxial and fiber optic cables, as well as by radio frequency. These stocks were the Nasdaq favorites 18 months ago as the emergence of new applications such as video conferencing and wireless web devices spurred demand for better chips that can handle the increased demand for wireless bandwidth. Well, demand for these products has not materialized.
The usual suspects are Applied Micro (AMCC 6.76), Broadcom (BRCM 18.77), Conexant (CNXT 7.51), Marvell (MRVL 13.00), Microtune (TUNE 10.21), PMC-Sierra (PMCS 9.87), TranSwitch (TXCC 2.96), Vitesse Semi (VTSS 7.42). Customers include leading communications equipment manufacturers such as Alcatel, Ciena, Cisco, Fujitsu, Hitachi, Huawei, JDS Uniphase, Juniper Networks, Lucent, Marconi Communications, NEC, Nortel, Sycamore Networks, ONI Systems, Tellabs and Tellium.
Telecom IC Stocks Most At Risk
Among the comm IC universe, the companies with the greater exposure to the telecom carrier market are the ones we would least like to own. Prior to the attacks, they already were mired in the worst conditions. Also, September was the most critical month not only for these companies but also their customers. We expect some brutal earnings announcements and conference calls over the coming weeks to drive share prices lower. September remains a critical month not only for determining this quarter's revenue levels but also analysts rely on it for building backlog forecasts for the December quarter. It does not look pretty. The telecom-related stocks include AMCC, TXCC.
What's the Problem?
Demand Should Remain Sluggish: First and foremost, a rebound in demand is not on the horizon. The customers for this sector are having tough times as reflected by the balance sheets. Cash is getting tight, debt levels are increasing and customers' credit facilities are getting strained. OEMs are issuing pre-announcements citing order push outs due to a sluggish macroeconomic environment. Overall, customers are going into a survival mode. Forget about adding capacity. Nobody wants it -- network utilization is below normal even with existing equipment. Customers are taking steps so that they will be viable in 2-3 years. Cash is being used to keep the engine running, not to buy a new CD player, so to speak.
Cap-ex Reductions: Even casual readers of Briefing.com are aware of the huge capital spending reductions, especially by the telecom carriers. To give you a sense of the carnage, Merrill Lynch forecasts that domestic wireline capital spending will decline 16% in 2001 and another 22% in 2002. This is after gains of +29% in 1999 and +41% in 2000.
Inventory Overhang: Most analysts are looking at Q2 for inventories to return to normal, with some even predicting it will happen by Q1. Based on the numerous conference calls and earnings reports, Briefing.com sees even Q2 as optimistic. Also, there is the possibility that OEMs and the EMS companies, fresh off getting burned with too high of inventories over the past 6-9 months, will be very selective and perhaps even end up with inventory shortages as a result of being too selective in ordering inventory.
Conclusion
So you still want to pick up shares on the cheap? Well, you get a sense for how big these companies thought they would be when you consider the following: Most comm IC companies sized their cost structure to break-even at revenue levels 50%-100% higher than current run rates. As a result, many analysts are forecasting operating losses throughout 2002.
Even if you want to argue that a bottom is in sight, there is little in the way of a catalyst to get the shares moving. Q3 results are expected to be terrible and additional downward guidance is expected. Also, if you're asking whether these shares can go any lower, consider that TXCC has fallen below $3. Throw in the possibility that a couple of names could go bankrupt or get bought at slight premiums, and it makes sense to stay on shore and find another lake to fish.
Please feel free to share your comments or ask questions of rreid@briefing.com.
"Only Commit Cash to a Rising Market"
S&P's Paul Cherney doesn't think the markets have much further to sink, but he isn't predicting a major return of the bulls, either
Investors are likely to see the stock market moving sideways for a while -- but Thanksgiving could bring investors something to be thankful for. So says Paul Cherney, market analyst (and online columnist) for Standard & Poor's. Cherney applies both fundamental and technical analysis to his interpretation of the market.
With the consumer and business both on the spending sidelines, he doesn't see any immediate upturn in stocks. But he thinks the market is close to a bottom, and that the last five or six weeks of the year could see better prices -- but nothing like the bull market of recent memory. It will take a return of the big money to a buying mode to produce a genuine upturn, Cherney believes.
He has studied the behavior of the market in the nine previous times since 1918 that it fell 10% or more in a week and finds that in only two of those nine did stocks climb in the following week, as they did after the recent 14% drop. That gives him hope for the future. And, in any case, he suggests a strategy of dollar-cost averaging even now -- putting a regular amount into the market at weekly or monthly intervals.
Cherney made these comments in a chat presented Sept. 27 by BusinessWeek Online on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff and Amey Stone. Edited excerpts from this chat follow, and a full transcript is available on AOL at keyword: BW Talk.
Q: Paul, the market has been trying to comfort us a bit, but the bottom-line question remains: Are we anywhere near a bottom?
A: I think that the S&P will be unable to close below 926 [the close for the S&P 500 on Sept. 28 was 1,040.94]. Yes, I think we're close to a bottom. However, I do not think that we will revisit the rocketlike upside that so many people became used to in the last bull market.
Q: [That figure of] 926 on the S&P still sounds like there's further to go. Do you think the market will hit that low?
A: No. But I cannot rule out a close which undercuts last Friday's close, which was 965.8.
Q: Do you think we're in a U curve as opposed to a V?
A: In terms of the economy or the stock market? In the economy, the consumer looks to be out of the equation in the short run. That would mean a flat economy, possibly a recession. For the stock market, [it would mean] a similar sideways move, without much to the upside, for the next two months, because we're still in the upper edge of the envelope in valuations.
Q: With consumer spending hit and no sign of an upturn in corporate earnings, what could trigger a revival in stocks?
A: Unfortunately, you've hit two nails on the head. Those two reasons are exactly why I do not think the markets can trend higher in a significant fashion. The possibility is real that we will move sideways in a trading range bounded by the lows we set over the next five trade days, and highs above that of 6% to 8% for the S&P 500 and 15% to 18% for the Nasdaq.
Q: Paul, when there's a horrible, unpredictable shock to the financial system as we had on Sept. 11, how do you adjust for it as a technical analyst? I would think charts might not have much to tell us in that situation.
A: Chart support and resistance are always evident on the charts. However, you're right. When an exogenous headline or event is injected into market-participant sentiment, it can force prices to move erratically. However, so far, the longer-term support evident from June through September of 1997 [I think] is still in place.
Q: Isn't it true that historically, disasters have proved to be a launching board for stock market rallies?
A: Yes, quite often they represent the final shock to a declining market, which first forces sellers off the fence.... And then...it's easy for stocks to trend higher, because the only buyers are believers that the long term will show gains. And they will be reluctant to sell out on a short-term dip because they truly have made the commitment for the longer haul.
Q: What do you think about the Nasdaq 100 (QQQ )? When would be a good time to buy?
A: I don't look at the chart action of it, but just today I ran a quarterly review to see which stocks had done the best and the worst. As of yesterday's close, I showed only one stock in the Nasdaq 100 that had a gain so far in the quarter: That was BGEN (Biogen). When things get this bad, you tend to think that they can't get worse. But I'm of the school that you only commit cash to a rising market because the odds are with you then. So far, this market has not shown the ability to trend higher yet.
Q: For my next buy I'm looking for a bargain with long-term growth -- what sector is best?
A: At this time, I think it's most important to wait for the market to reverse the bearish trend it's in first. Then, start to look for the sectors that are outperforming. The Street is littered with people who have bloody hands from trying to catch this falling knife. My attitude is, let it hit the ground, then wait to see who leads on the way up. Any other method or speculation is purely a guess.
Q: When the stock market recovers, what stock sectors do you foresee recovering first?
A: Only because they have suffered so tremendously, there should be a spell of rapid increase in prices for the former bellwether techs. However, I repeat, and I mean this sincerely, the time to choose those sectors and stocks which look to be the market leaders is after the trend has reversed.
Q: Isn't the market a bargain hunter's dream?
A: It depends on your time horizon. I think yes. However, as I've stated before, the reluctance of big money to commit to a market that does not fit many valuation models will probably prevent the markets from putting in a consistent uptrend for the next couple of months.
Q: Do you see any sign of the big money returning to a buying mode?
A: I would expect the bigger money to support an uptrend once it becomes more evident that the Fed's policy is reaping rewards -- i.e., that capital investment is increasing and that the general cycle of investment is expanding. That probably won't occur until after the market has been stumbling higher for three to six months. Big money defines the trend. Right now, the trend remains down because big money is on the sidelines, waiting for more conclusive evidence of an improvement in earnings and the economy.
Q: Paul, do you think we can learn anything about what might happen to the markets by looking at how they responded to past shocks to the financial markets?
A: Yes, I think so. I just did a study that looked at price performance in the week after a week that showed a closing loss of 10% or greater in the DJIA. Interestingly, of the nine previous times since 1918 that the DJIA has lost 10% or more in a week, there have only been two occasions when the market has risen on the first trade day following the 10% decline. We did that this week. Monday was a day of good gains. The only two times out of the nine that the Dow managed to put on good gains in the first day after a weekly loss of 10% occurred on 7/22/33 and 6/21/30. In both of those cases, the low from the previous week was not undercut (except for one day in 1930 -- no days in 1933 undercut the previous week's close), and stocks managed to stumble higher for at least 18 trade days. So that historical scenario has the potential to unfold right now.
Q: As the holidays near, should we write off the last quarter and shift focus to the first quarter [of 2002]?
A: I don't think so. There's a very strong seasonal pattern which comes in around mid- to late November. There's the potential that most people who want to sell will have done it, or will do it, between now and the middle of October. We have to look at the price action, and we have to stay aware of the international situation [that America is dealing with in combatting terrorism]. I think there's a good chance that the last five or six weeks of this year could see prices move higher.
Q: The last time you were with us, someone asked if you had looked at the Dow of 1929 compared with the Nasdaq of 2000. What have you found?
A: The patterns are very similar. However, if we were to continue on the track timewise that the Dow exhibited, it would be a little bit over a year before the Nasdaq would hit bottom. I don't think it will take that long, because the markets these days react more quickly than in the past. So, something at the latest like the springtime would probably mark a two-year bear market, and the end. That's probably a worst-case scenario. I still like the notion of the seasonal strength starting around Thanksgiving.
Q: Do we continue to buy in these times if our time frames are five years or more, or wait for some kind of bottom?
A: I think, right now, if you don't do it already, dollar-cost averaging makes the greatest sense in the world -- just consistently, monthly or weekly, putting money into the market.
http://www.businessweek.com/bwdaily/dnflash/oct2001/nf2001102_1533.htm
Global: America's New Norms
Stephen Roach (New York)
The debate has shifted from recession to recovery. In the aftermath of the terrorist attacks of 11 September, our once out-of-consensus recession call has now become conventional wisdom in the financial markets, as well as in business and policy circles. There is some disagreement over the depth and duration of this recession, but those issues have now been relegated to detail status. The character of the coming economic recovery -- especially the norms that lie beyond the cycle -- is what the debate is all about.
Prior to The Shock, I was firmly in the L-shaped camp. I had favored a scenario that I dubbed an "American-style ‘L,’" which envisioned the US economy holding to a 1.5% to 2.0% growth path over the 2001-03 interval (see my 7 May essay in Investment Perspectives, "An American-Style ‘L’"). As the likelihood of a deeper recession increased in the past few weeks, my timeworn instincts as a business cycle forecaster took over. Deep recessions typically trigger the cyclical manifestations of vigorous snapbacks -- inventory liquidation, pent-up demand, and reflationary policies. Inasmuch as I see no reason to believe that this time will be much different on those counts, my initial instincts were to give a higher probability to more of a V-shaped cyclical recovery than I was looking for before The Shock (see my 13 September essay, "The Macro of Tragedy and Healing"). Dick Berner’s revised forecast for the US economy is broadly consistent with that same conclusion -- a GDP growth rate of close to 5% in the second half of 2002. Needless to say, to the extent momentum-driven investors would extrapolate into the future on the basis of such an outcome, there would be great cause for celebration.
Like recessions, however, recoveries are largely transitory events. And this one could be more transitory than most. Once the cyclical forces run their course, the economy then reverts back to its underlying, or steady-state, norms -- what economists call potential GDP growth. The key is to figure out what that norm will be. This is the issue that I now believe will become central to the debate in financial markets, Washington, business circles, and Main Street. As I see it, most are still clinging to the notion that The Shock is a cyclical event that will be quickly be followed by a reversion back to the growth norms we had all gotten accustomed to in the latter half of the 1990s. Our client polling tells us that, as does the work of our quantitative analytical group, when they attempt to discern "what’s in the market." By contrast, I believe that the United States is at a key secular juncture, with the growth norms of the next five years likely to fall well short of those of recent years.
There are four building blocks to this conclusion -- the first being a likely erosion of the productivity underpinnings of the US economy. This, of course, was the cherished foundation of the once glorious New Economy. The consensus truly believed a powerful new productivity trend had emerged by the end of the 1990s, somewhere in the 3% vicinity. If correct, that would have represented a stunning improvement from the anemic trend of 1.25% that was evident from the early 1970s to the mid-1990s. The boom, itself, seemed to validate this optimistic scenario. Productivity growth averaged 3.5% from mid-1998 to mid-2000 -- providing what many believed was the "silver bullet" for America’s New Economy renaissance. (Note: Reflecting the government’s annual reworking of the national data, this two-year growth rate was recently revised down to 3.1%; however, consensus perceptions were formed largely on the basis of pre-revision statistics.)
My own view is that a significant downshift in trend productivity is now likely. I wouldn’t be surprised to see gains over the next five years average only around 1.25% to 1.75% -- possibly less than half those realized during the latter half of the 1990s. Three reasons support this conclusion: First, the cyclical impacts of "capital deepening" are now swinging the other way. To the extent that much of the productivity surge simply reflected an unsustainable IT buying binge, an elimination of that excess capacity will now depress productivity. Second, the cost of doing business -- both for Washington as well as for Corporate America -- has permanently changed. Shipping costs, building security, insurance premiums will all be higher. Moreover, as Dick Berner has argued, Washington will now begin to spend the peace dividend on a defense and homeland security effort. All this means an increasingly larger slice of national output will now have to be directed toward non-productive activities. Third, America’s IT network -- the glue of the new productivity paradigm -- is not the secure, low-cost platform of connectivity we thought it was. A new e-based terrorism, underscored by the lethal Nimda virus, is still wreaking havoc on many large networks. This not only tells us how fragile the IT infrastructure is, but it also hints at the need for a huge fix to network security. Such a time-intensive and costly endeavor is the functional equivalent of a tax on the corporate IT infrastructure -- yet another impediment to trend productivity growth.
A second building block to the case for subpar growth norms is the legacy of America’s structural excesses of the late 1990s. This was the essence of my original case for the American-style L, and I don’t believe The Shock changes the point much at all. Courtesy of the bubble, the US economy was left with a serious array of structural imbalances -- a massive current-account deficit, a huge capacity overhang, a record shortfall of personal saving, and a worrisome buildup of household debt. Slow growth is the antidote for these excesses, which were largely brought about by an American economy that has long been living well beyond its means. A deeper recession could accelerate a purging of the excesses but it would not alter the endgame -- especially if it is followed by more of a V-shaped snapback in the early stages of recovery. Reflecting the excesses that emerged in the late 1990s, the United States, in my view, will be facing powerful structural headwinds for years to come. That will also put a lid on the economy’s potential growth rate.
Third, is a likely retreat from globalization. I have detailed my thoughts on that elsewhere, but my basic point is that the world economy could well pay an important and lasting price for terrorist attacks of 11 September (see my dispatches of 21 September "Globalization at Risk" and 26 September, "Globalization’s Haunting Past"). The glue of globalization -- trade and financial capital flows, globalized supply chains, and rapid expansion of trans-national flows of multinational corporations -- suddenly seems less binding. There is new sand in the gears of what was thought to have been increasingly frictionless cross-border linkages. Increased expenses for border security, shipping, and insurance, are, in effect, a new tax on cross-border connectivity. Moreover, the lingering fear of the next event -- terrorist attack or retaliation -- will increase the risk premia placed on such linkages. At the margin, all this raises the price of the outward-looking flows that drive globalization. Nor would this be the first time that globalization sowed the seeds of its own demise. That’s exactly what happened in the early 1900s and again in the 1920s. I believe that the impacts of globalization may have boosted trend growth in the US by anywhere from 0.5% to 1.0% annually in the latter half of the 1990s. The positive impacts on corporate earnings and equity prices were unmistakable. With globalization at risk, these impacts are now likely to swing the other way.
Fourth is a softer point but one I believe could be equally important in shaping America’s new growth norms. In my opinion, the psyche of private sector decision-making has been dealt a lasting blow by the events of 11 September. Like grief, time will heal. But I suspect the healing will leave the mindset in a very different place. Matters of personal, corporate, and national security can no longer be taken for granted. That will cast a lasting pall on the values that shape risk-taking strategies -- for consumers and businesses alike. Increasingly risk-averse investors may be more satisfied to realize moderate, but safe, returns in a less secure world. In economic terms, this could well reduce the preference for leverage and tilt the balance away from the excesses of spending and back toward a long needed rebuilding of saving. The demographics of an aging population have long been pointing in that direction, and The Shock could represent a real wake-up call for saving-short Americans. A similar jolt might effect the risk-taking mindset of entrepreneurs and venture capitalists. Defining moments are all that -- and more.
There are many that want to frame the debate in black and white, asking if The Shock represents either a cyclical or a secular turning point. I worry this "either-or" framework oversimplifies the story. To me, it’s both -- a cyclical event with profound secular implications. Business cycles are always a temporary deviation from norms. In that respect, this one is no different. But there is an important twist to what now lies beyond the cycle. When the vigor of any recovery subsides, I believe that America will converge on a new set of norms that is very different from those, which we had become accustomed to. And I suspect those norms will constrain the US economy to a much slower growth potential than we had previously thought.
It’s not easy to quantify the new norms that lie ahead. It never is. But I think there are compelling reasons to believe they will be well below those of the roaring nineties. Over the mid-1996 to mid-2000 interval, trend GDP growth in the US economy was 4%. Looking ahead over the next five years, my guesstimate would be for a downshift back into the 2.5% range -- only a slight improvement from the pre-bubble norms of the early 1990s. Like the NASDAQ bubble, I suspect that history will judge the performance of the US economy in the latter half of the 1990s to have been an aberration, not the dawn of a New Era. The Shock is a wake-up call for those still clinging to now-antiquated perceptions of America’s growth dynamic. Call it the end of the New Economy. That suggests a significant re-rating of asset prices still lies ahead.
http://www.morganstanley.com/GEFdata/digests/20011001-mon.html
Peter, don't worry about the ST calls, be sure to let us know when you do discover something so we can all profit from it as a group.
BTW, thanks for posting, that article -- it certainly does tell us the U.S. needs to invade the entire Middle East to get this terrorist disaster under control. UHhhh...
Got Gold?
Got Silver?
Got Oil?
Strategically, in that order...
Regards
Frank P.
Peter, very quiet day in the precious metal zone. I figured we'd see a little more action on this fine Friday afternoon.
Regards
Frank P.
Kinross Gold
By MPL Staff Writer
Canaccord Capital analyst Brian Christie and associate Brad Humphrey continue to rate the shares of Kinross Gold Corp. (TSE-K, $1.50) a speculative buy. Their 12-month target price is $2.
Kinross has entered into a letter of intent to acquire Wheaton River Minerals Ltd.'s interest in the Nunavut-based George/Goose Lake gold project.
The analysts view the project favourably. "With this latest transaction," they say, "Kinross continues to take advantage of a rising gold market." They think the company "is one of the better leveraged plays on gold."
What's more, the company has recently improved its operational performance and cleaned up its balance sheet.
As a result, they reiterate their speculative buy recommendation "for risk adverse accounts."
Iso, has SI ever gone down like that?
.
Peter, I'm bullish on both Husky and Suncor, with Petro-Canada a close third. To be honest, I never imagined $20 oil in two friggin' days. Amazing how these markets move so fast despite the statistics.
Both supply and demand - year to date - have remained flat, I'm serious... FLAT!
I guess that's probably why I haven't tripped my stop-loss on my Husky holdings. I'd say give it a month or so to cool down, I smell a buying opportunity in oil before Christmas.
Regards
Frank P.
Roebear, please do give it some time... Investing against the wind is for gamblers only. <lol>
Regards
Frank P.
Roebear, SI started screwing up at about noon -- It actually gave me a chance to do some work for my employer for a change. <lol> I'm still holding long in everything, haven't cashed in a thing.
Regards
Frank P.
Peter, I dunno, like you were saying, it's been sporadic all day.
Briefing.com -- PM Upgraded to ****
Comment: After year's of underperforming the market, the precious metals sector is one of the market's few bright spots this year... Sector benefitting from a number of factors including: "safe haven" status in aftermath of terrorist attacks on the World Trade Center and the Pentagon; ongoing threat of war; inflation concerns stemming from aggressive monetary policy; slowing in pace of central bank sales; and weakening in the dollar relative to the yen... Confluence of these factors has underpinned a broad rally in the group, with most of the component issues trading at, or near, their 52-wk highs... While Briefing.com is concerned by valuation levels over the intermediate- to long-term, tough to bet against the group as long as the broader market remains on the defensive due to the economic/geopolitical uncertainties... Given that we expect the macro picture to remain clouded for at least the next couple of months, we are upping our rating on the group one notch... However, once the uncertainties are lifted and the broader market regains its footing, the extended valuations are apt to come back and haunt the sector.
Stocks: Agnico-Eagle Mines (AEM), AngloGold (AU), Barrick Gold (ABX), Gold Corp. (GG), Hecla Mining Co. (HL), Homestake Mining (HM), Newmont Mining (NEM), Pan-American silver (PAAS), Placer Dome (PDG).
Heads up on Miramar guys, up 20%
CONCRETE AND OIL
by Bill Bonner
Today I write to you with an irony-free letter. No out-
of-step ideas. No irritating reflections.
Instead, I offer you two ways to take advantage of the
coming bear market rally - if there is to be one. Or,
merely a chance to buy stocks that are good enough and
cheap enough that you could hold them throughout the
long, dark teatime of an economic slump...without
worrying about them too much.
When Jeff Bezos was enjoying fame as the world's
smartest entrepreneur and Amazon.com was still selling
for $88, in March '99, someone asked if there was
anything the Internet retailer would not sell.
"Cement," came the jesting reply.
This made us immediately sympathetic to things concrete.
Anything so un-hip, so anti-New Era, we reasoned, must
be as cheap as Amazon was dear.
Since then, Amazon has drifted downstream...selling
today for only $7.46 a share. The companies that make
cement, meanwhile, remained where they were. Relatively
cheap in 1999...they are still cheap. One of them seems
not only relatively cheap, but absolutely so.
Might it get cheaper in an extended bear market? Yes.
Earthquakes shake up everyone. But that is the benefit
of sleeping on a low bunk...you don't have as far to
fall.
Cemex is the world's No.3 cement maker. It is based in
Mexico and operates in 30 different countries. Forty
percent of revenues come from two markets - the U.S. and
Spain, with the balance coming from emerging markets.
Selling cement in the late 90's was hardly a glamorous
business. Surely, the people at Cemex must have had a
yearning to put a ".com" after their name or to start up
a B2B Internet business. They must have felt a little
d‚mod‚ in their dusty, industrial age trade. So, they
can be forgiven for trying to put at least one foot in
the New Era. "The construction industry is ripe for a
digital makeover," says the annual report, "and Cemex is
leading the way, transforming itself from a conventional
to a digital enterprise."
Fortunately, Cemex did not take this effort too
seriously. It remembered that customers wanted tangible
cement, not information, and it flourished. "Operating
margins of about 25% and returns on equity of more than
15% have been the norm since 1991," reports Grant's
Interest Rate Observer.
"On June 30, debt accounted for 42.3% of capital,"
continues Grant's, "...while EBITDA covered interest
expense by 4.88 to 1."
Here at the Daily Reckoning, we do not feel competent to
judge the business prospects of a multinational cement
company. But to the question, "Do you really want to own
a cement company on the eve of a war?", we answer:
"Well...yes."
And to the question, "Why Cemex and not another cement
company?", we reply: "Because Cemex is on the bottom
bunk."
At a P/E of 5.3 times 2001 estimated earnings, Cemex is
less than half as expensive as rivals Hanson, Holcim and
Lafarge. Its dividend yield, at 4.07%, is the highest of
the group, and its price to book value, less than 1, the
lowest.
Our second suggestion comes from Frederick Sheehan, of
John Hancock Asset Management.
"We...will face energy shortages and bottlenecks for a
long time," he wrote on September 6. "We are short of
refining capacity in the U.S. and not much is being done
about it. The U.S. needs more natural gas. The world
needs more power plants. The world will need more
gasoline. A lot of Asians who never rode in a car a
generation ago now own one."
Has anything happened since September 6 to change that
situation? Probably not.
Sheehan lists 10 companies that he regards as "Rich and
Neglected." I give them to you with their P/Es:
Amerada Hess 6.4
BP Prudhoe Bay Royal Tr. 4.7
Frontier Oil 7.9
Murphy Oil 9.8
Phillips Petroleum 7.1
Sunoco 6.8
Tosco 12.5
Ultramar Diamond Shamrock 7.8
Unocal 9.4
Valero Energy 5.1
Why are these companies so cheap?
"All it takes is an announcement that gasoline inventory
has risen over the past week, and these companies get
sold. The thinking seems to be: 'The energy problems are
solved, let's buy XO Communications.'"
"Maybe profits have peaked for some of these companies,"
writes Sheehan, "but they are filling a shortage that
won't evaporate overnight."
Energy and commodity prices have been falling, more or
less willy nilly, for the last 20 years. Prices reflect
the widespread view that the next 20 years will be like
the last 20.
Will they be?
And here, dear reader, I permit myself a moment of
reflection. We do not know what the future will bring.
But we share the feeling with other Americans that
something big has happened. Some realignment of the
stars...some volcanic rumbling and tectonic shift...we
don't know exactly what it means...but we wait to find
out.
In the meantime, we will sleep on the lower bunks.
Your correspondent...keeping close to the ground...and
trying to understand what is going on in the world
around him.
Bill Bonner
http://www.dailyreckoning.com/
Bowridge Resource backs $30M ESI takeover
CALGARY (CP) — Bowridge Resource Group, an acquisition-minded oil and gas service company, has agreed to a $30-million takeover by ESI Energy Services.
ESI is offering $1.15 a share (TSE: ESI) for Bowridge, which last trade at 80 cents a share before the bid was announced Tuesday.
Bowridge said its board of directors is unanimously recommending that shareholders accept the offer. Directors, officers and certain major shareholders with more than 40 per cent of the common shares have agreed to the deal.
The offer is conditional on acceptance by two-thirds of the stockholders.
“I believe that this cash offer provides excellent value for the Bowridge shareholders and is reflective of the tremendous commitment of our management and staff over the years to build shareholder value,” said Bowridge chief executive Jim Rathwell.
With its recent acquisition of Toran Power and Equipment Ltd., Bowridge added an oilfield technology and services division to its stable.
ESI is a private company in the energy services business. Its board of directors consists of Bryan Lawrence of New York and Yook Mah and Robert Dunstan, both of Calgary.
http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&a...
Bob, brief explanation -- upstream means exploration and production; it's the gauge for sustainable growth. Downstream means refining and marketing, including income from gas station and variety stores, this sector of the operation offers more revenue and better profit margins in bad times. Integrated companies like Husky, Petro Canada, Suncor, Imperial and Shell have both upstream and downstream operations. These companies tend to be measured more conservatively, and are not considered growth machines unless you look into the Canadian sector.
Alberta is second only to Arabia for its oil export to the U.S., if by any chance there is a disruption in the Persian Gulf (Strait of Hormuz) guess what province becomes strategically important to the U.S. war on terrorism.
By the way, there is very little conventional oil left in North America, which leaves us with the tarsands projects here in Alberta. The reason I like Canuck integrated oils is because they're heavily levered in the oilsands. Suncor, for instance, is doubling production this year, they will double production yet again, for 2008 – they guys are growth machines. All the above companies I’ve mentioned are expanding upstream and downstream operations at a nice clip.
So it’s really up to you and your view of how long and how dramatic this war is going to be. If it’s finished by the end of the month, a trip into the oils will be an expensive holiday because of world wide economic contraction. If you believe the war to be long, oil will perform as well as gold, if not better long-term.
Regards
Frank P.
Peter, this is the first time I've ever heard of anyone having an RRSP margin account. Are you sure it's not just a line of credit?
Regards
Frank P.
Bob, I don't follow the GPM thread, and I am surprised at TM for taking credit for that post. Other than that, the essence of the "War Plan" is what brought me around as a born-again oil bull.
Note, before you think I'm totally nuts, there's a slight safety hedge playing integrated companies. If the price of oil shoots through the roof the upstream component benefits, if the prices drop the downstream component benefits, in general these integrated players have the additional benefit of a dividend yield. -- I feel a certain amount of safety holding these things.
My portfolio allocation break down is 2% cash, 13% Oil and 85% Precious Metals.
Regards
Frank P.
duplicate
Bob, check this post out...
http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=16409454
Bob, yeah right, right, right… I forgot we had this conversation about Pan American Silver already. I bought the darn thing about a week before Gates loaded up for the second time, but I guess we knew this already. :) I’ve also been watching Corner Bay Silver; it finished up today by 2-1/2%, which is incredible considering the carnage in the PM sector today. The new shine on silver is, unfortunately, military.
You made the ol’ “US should have taken out Saddam” comment in one of your earlier postings. Well… (As Reagan use to say) I seen an interview (Charlie Rose program) about 7 or 8 years ago with Bush Sr. and he was saying he regretted not taking Saddam out. The problem being is that Hussein as well as Kadafi and Bin Laden are great at hiding out. Next to impossible to find unless you resort to gorilla tactics. Essentially going from door to door fighting what was left of the Red Brigade, endangering American solders without ever being able to find him in the first place.
End Game? Like every other private citizen I’m trying to speculate on the so-called endgame, right or wrong we’re all entitled to an opinion, right? The end game I’m seeing is two-fold. One, the fundamentalist want to destabilize the middle east, two, they hate Americans. For what purpose? It’s all a power play to remove the Saudi from the Saudi-Arabia, Bin-Laden is the next head of state for that country and eventually all of the Middle East.
-- Ultimately having control over the U.S. energy supply.
That's why I went head first, counter cyclically, back into heavy oil stocks. I'm real bullish on Canadian integrated like Husky, Petro-Canada and Suncor. Who knows I may get my clock cleaned, but this terrorist situation shouldn’t be underestimated.
Best,
Frank P.