Timing & trends

Peter Grandich told Michael Campbell he thinks that the consolidation of Gold around the $1,600 level is constructive within the Mother of All Bull Markets and in his opinion the Bull Market continues to be fully intact. After Gold has had a major move for a decade, the constructiveness is that almost a year from the top last September to the lows today of $1,500 and change was not that bad. “We have been making a series of slightly higher lows and it looks like the market is ready to challenge and surpass the resistance at $1,630 – $1,650″.

What Peter found really interesting this past week, “and I just think it was a damaging blow of many that continue for the perma bears in Gold, was the news on George Soros. A year ago the perma bears throughout the world highlighted the fact that Soros said that Gold was in the ultimate asset bubble and was about to collapse. What news comes out? George Soros doubles his position in Gold. I not only find that interesting, I find that most if not all of the bearish arguments get torn up”.

Peter also points out that wiithin the last year we heard about all of the selling that was going to come out, yet what was the net result? Central Banks were net buyers. Tp Peter the Gold market remains very very bullish. Further, it continues to suggest that all of the reasons that you want to own it remain. Central Banks aren’t sellers anymore, producers don’t sell it forward anymore and there is an ever increasing demand. Almost all of the physical buying is done outside America, he calculates that if he walked into any financial institution here in any of the 50 states in America and looked at 100 accounts,  99 of them would not have touched physical Gold. Simply put, that until we see the North American Community at large talking about and buying Gold we are not anywhere close to the highs it is going to strike.

Peter also highlights a very important change in Gold market,  and that change is the seasonality factor. “Almost 65% of Golds demand for Gold is related to Jewelry purchases. Jewelry fabricators basically take the months off July and August, but return in early September to do about 2/3’rds of all  their business in the next 6- 8 weeks. So that seasonal factor now is going to start to turn positive for Gold, and I fully suspect and am anticipating in my own heart that we are going to break about resistance and if you have me on in the next month or two we will have Gold in the $1,700 – $1,800 area”. 

Gold Stocks
 
The senior Golds are 30-40% lower than they were at their  highs when Gold itself is at shouting distance of its highs. There has been two changes:

1. “for whatever reasons, mining shares used to carry a much higher P.E.’s and one of those reasons was that there wasn’t many alternatives to invest in, like we have now with exchanged traded funds, a very common investment especially in the Precious Metals. Now we see some of the producers, take Barrick for example, that are below market multiples. So that’s the first thing that adjusted.”
 
2. The second thing that adjusted “is they incurred dramatically higher costs, despite the rise in Gold prices, their ability to operate has changed for a lot of reasons. We no longer have the high grade easy to get to deposits that were once available in the world. So the combination of the P.E. scenario and the more difficult deposits is one of the reasons they have lagged up until now”. 
 
Junior Miners
 
In the Junior Market we see losses 50-80% from their highs. Its a market that’s been heavily damaged, and he doesn’t expect the market to recover unless Gold should have a major rally in the 4th quarter. Peter likens these Junior Miners to burning matches, in that they are always raising and spending money. Now that their share prices are dramatically down, the financiers know that, so its going to be very difficult to raise capital for the remaining part of the year. Having said that, “we have seen the old classic throwing the baby out with the bathwater, we are seeing many companies whose projects net asset value is many times larger than their current market cap which is kind of ridiculous”. But other than a bounce, and a real drying up of the selling he thinks the worst is over. He just doesn’t see that market able to recover dramatically until we get into the next year. If Gold rallies we could get a 20- 30% bounce from where they are here, but to see them really sustain anything Peter doesn’t think it will happen until at least next year. 
 
Stocks to put on our radar screens. 
 
Peter points out that the big mistake we make, certainly he admits to making, is that sometimes we forget that failure is the norm for Junior Resource market. Despite all of the good efforts by the vast majority of companies trying to bring a deposit in, they are just not going to be able to find a big deposit, and sell it or develop it. He thinks 8 or 9 out of 10, despite all those efforts, will fail over time. In short “to buy and hold for the long term period usually ends up most of the time not working out”.

But in this particular case, and in about 6 or 7 times in the last 10 years, the Junior Market as measured by the TSX Venture Index really gets clobbered and this time is no different. During those times certain companies who are really past the point of failure, where its only a question of how big they are going to be, they get thrown out with the others. They get marked down almost as much, sometimes more percentage wise even though they are going to be one of the survivors. “Those are the situations that make for opportunity, and one thing I can say clearly here, rather than give any individual names, is to say that you are pretty well safe and secure now”,  Peter doesn’t think there is much more downside risk, that the index doesn’t have much more than 5-10% downside. He thinks when this index bounces and gets traction in the 1-2nd Quarter of next year we could look at a 50% or more rally in the index. “So its pretty much secure that if you haven’t sold by now other than for tax loss purposes, there is nothing to be gained because the loses are mostly washed out”. 
 
Peter does think that the safer play is higher up the food chain as many of the Majors have been beaten down. For example American Barrick is selling for a multiple that is less than the S&P 500. He feels much safer knowing that if 10 people were listening and bought Barrick he could look them in the face in the future and not have to explain why they lost money in the last 2-3 years. Simply a better situation than picking some Junior name right now. The right move according to Peter is to err on the Major side and be more cautious as you go down the food chain. “The Junior market is really going to be on its knees to the financiers through here, they don’t have much to bargain with. They have seen their share price come down, many were already at fairly high levels of shares outstanding and are going to be highly diluted, so two things are almost certain to happen:

1.  There is going to be rollbacks especially announced towards the end of the year,

2. There is going to be mergers, acquisitions and consolidations in this business”. 
 
Peter has heard numbers tossed around that maybe 30- 40-50 companies at least will go through that process in the next 6-12 months and Peter thinks that could be a low number.  Peter also thinks that is going to be one of the ways that the industry finds a way to survive another crash like environment and be prepared to prosper again and have a great rally again sometime in the future. 
 

Peter Grandich

Though he never finished high school, Peter Grandich entered Wall Street in the mid-1980s with no formal education or training and within three years was appointed Vice President of Investment Strategy for a leading New York Stock Exchange member firm. He would go on to hold positions as a Market Strategist, portfolio manager for four hedgefunds and a mutual fund that bared his name.

His abilities has resulted in hundreds of media interviews including GMA, Neil Cavuto’s Your World on Fox News, The Kudlow Report on CNBC, Wall Street Journal, Barron’s, Financial Post, Globe and Mail, US News & World Report, New York Times, Business Week, MarketWatch, Business News Network and dozens more. He’s spoken at investment conferences around the globe, edited numerous investment newsletters, and is one of the more sought after commentators.

Grandich is the founder of Grandich.com and Grandich Publications, LLC, and is editor of The Grandich Letter which was first published in 1984. On his internationally-followed blog, he comments daily about the world’s economies and financial markets and posts his views on social and political topics.  He also blogs about a variety of timely subjects of general interest and interweaves his unique brand of humor and every-man “Grandichism” expressions with his experience gained from more than 25 years in and around Wall Street. The result is an insightful and intuitive look at business, finances and the world, set in a vernacular that just about anyone can understand. In his first year, Grandich’s wildly-popular blog had more than one million views. Grandich also provides a variety of services to publicly-held corporations on a compensation basis.

Grandich’s autobiography, Confessions of a Wall Street Whiz Kid, was publiched in fall 2011.

Legendary investment adviser Dr Marc Faber thinks the S&P 500 is on the brink of a 10 per cent correction that would herald QE3 money printing from the Fed. He is always worth following and often accurate.

Dr Faber reckons the S&P is seeing its high for the year and that 2013 will be a very difficult year for stocks…

Gold & Silver Ready For Major Breakouts on The Back Of Platinum Surge

Posted by Sumit Roy - Hard Assets Investor

on Wednesday, 22 August 2012 13:35

We offer our latest analysis on the precious metals market.

Gold spiked today to the highest level since May, and is now challenging the top of a trading range that has contained prices for the past three months. The catalyst for the latest move came from an unexpected place—South Africa.

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Labor unrest in the world’s largest platinum- and palladium-producing country sparked a furious rally in the prices for those metals. Lonmin, the No. 3 platinum miner, shut down all of its operations amid a violent row with workers. At least 44 people have died so far.

Lost output has naturally pushed up platinum prices significantly. Prices for the autocatalyst were last trading above $1500, at the top end of its recent trading band. 

Labor disputes are not uncommon in South Africa. Earlier this year, the No. 2 platinum miner in South Africa, Impala, shut down its output for six weeks due to a strike. That led to a loss of 120,000 ounces of production.

Whether the rally in platinum continues depends on how long the current strike lasts and whether unrest spreads to other producers in South Africa.

PLATINUM

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PALLADIUM

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For now, the platinum market is in rally mode and that strength is spilling over into fellow autocatalyst palladium, as well as gold and silver. Platinum is used in catalytic converters for diesel engines, and palladium is used in catalytic converters in gasoline engines.

Indeed, we still see silver as having the most upside. An improving economic backdrop should boost demand for the industrial metal. Prices may test the $30 resistance in the coming week, with a break exposing the next layer of resistance at $33.

SILVER

silvertechnicalchart20120821

For gold, a break of $1640 will expose a clear path to $1700. 

…..READ PAGE 2 HERE

No Peak Oil & 9 Companies Priced to Buy

Posted by Stephen Tayler - The Energy Report

on Tuesday, 21 August 2012 22:54

Peak oil? “Baloney,” says Stephen Taylor. However, significant price differentials make for a complicated global market. On that front, Taylor’s message is simple: Watch the news to see where the wells are gushing, choose stocks with low operational costs and keep cash on hand for quick near-term profits. Learn which companies are priced to buy in Taylor’s exclusive interview with The Energy Report.

COMPANIES MENTIONED: BENGAL ENERGY LTD. – HUNTSMAN CORP. – IONA ENERGY INC. – ITHACA ENERGY INC. – MCMORAN EXPLORATION CO. – NEW ZEALAND ENERGY CORP. – ROYAL DUTCH SHELL PLC – SARATOGA RESOURCES INC.

he Energy Report: Let’s start with a macro rundown. What’s the Stephen Taylor take on oil and gas markets today?

Stephen Taylor: It’s like A Tale of Two Cities. The gas that sells for $3 per thousand cubic feet ($3/mcf) in the Marcellus region would sell for $12/mcf in Europe or Japan, but nobody’s found a quick and easy way to get it from one place to the other. A lot of new areas, like the Bakken in North Dakota, have surging production, but the infrastructure’s taking time to get updated and adjusted. Big, interregional price differentials are a theme we’ll keep seeing as long as we have these bottlenecks, but those will slowly abate over time. This means it’s really going to be a stock picker’s market, and a lot of the action will be location driven.

TER: So it’s location, location, location with asset valuations.

ST: Absolutely. However, one thing we touched on back in my March interview is that the U.S. may see a reemergence of the petrochemical industry. Huntsman Corp. (HUN:NYSE) had just announced a big project at that time. More recently, Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE)announced a major project north of Pittsburgh that will probably create 10,000 jobs and use a lot of that Marcellus gas. I think that’s a trend that’s going to continue, with industry jobs moving back to the U.S. to take advantage of some of this cheaper energy.

TER: What about developing natural gas vehicles? Are we any closer to T. Boone Pickens’ vision of widespread consumer adoption of natural gas vehicles?

ST: I think Boone was met with some skepticism, initially. A lot of people just naturally distrust oilmen. But, he’s a smart man and his plan makes a lot of sense. We’re now starting to see more product offerings, such as vehicles with a natural gas option, like the new Honda Civic. And there are a lot more natural gas fueling stations around than people may realize. It continues to grow as a transportation fuel, and I think we’ll find other uses for it. That emerging demand will keep the downside in natural gas prices not too far from where it is right now. Any surprises should be to the upside in the next two-to-three years.

TER: Will still more improved drilling technologies alter the natural gas fundamentals?

ST: New drilling technologies are beginning to lower the cost of some of these multi-frack wells. That will allow the drilling boom to continue here in the U.S. and in emerging plays around the world.

TER: At this rate, it doesn’t seem like projections about peak oil have much resonance.

ST: Frankly I think peak oil is baloney, and you can quote me on that. The potential reserves, especially on the natural gas side, are just tremendous. I was just reading a report that even in a place like Argentina, shale gas reserves could be north of 700 trillion cubic feet. That could be another huge gas-producing region. There’s plenty out there. I don’t buy peak oil or gas.

TER: Oil prices are hanging in between $85–95/barrel (bbl). Do you see any significant moves higher in the near-term?

ST: Turmoil in the Middle East or perhaps an environmental issue like the BP spill could be a price driver. Meanwhile, governments around the world keep printing money, which will flow into hard assets. But disaster aside, I think we’re stuck in a trading range between $75–95/bbl over the next 12–18 months. The easy money will support the price and the new supply in technology will cap the upside a little.

TER: Which companies are already seeing a change in their bottom lines through new drilling technologies?

ST: A name that I’ve mentioned in the past is New Zealand Energy Corp. (NZ:TSX.V; NZERF:OTCQX). We continue to be a big fan of that stock and the management team. The company just completed a financing in March at $3 a share. The company is now able to aggressively pursue its development plans. It recently announced a strategic acquisition of some gas gathering and production assets. John Proust, its chairman, is a really good strategic thinker and this acquisition makes a lot of sense. One of the technologies or process innovations that New Zealand is taking advantage of is the move to pad drilling, where you build one pad and keep the rig in place to drill two to four wells. It saves a lot of money. He and his team are sharp guys and management owns 30% of the stock. The stock has backed off into the $1.60 range. I think there’s little downside from here and a lot of upside over the next couple of years as John and his team implement their plan.

It has a tremendous drilling pipeline with a couple million acres in onshore New Zealand. This recent acquisition brought an additional library of 3-D seismic over the main production fairway. It can drill as many wells as its checkbook allows. I think ultimately, New Zealand is a target for a larger international oil company to take out. New Zealand has pulled back and had a rough ride. But, I think now is a great time to be a buyer. We have been long-time holders of this company and have participated before the public offering and continue to like it. I think the 50% pullback since March is a gift.

I would also point out that the S&P/TSX Venture 30 Index is being reformulated and New Zealand Energy has been added to that index. That will be a good short-term catalyst for the stock.

TER: Are companies seeing better drilling success rates with new technologies?

ST: Absolutely. If you look over the last 20 years, the success rates on wells have moved up nicely. There can still be problems, such as we saw recently with McMoRan Exploration Co.’s (MMR:NYSE)Davy Jones No. 1 well. It’s still a risky business—make no mistake about that. But the technology is helping us get oil from places that we couldn’t have before. There continues to be a lot of excitement over the ultra-deep gas prospects in the Gulf, despite the hiccup McMoRan had with Davy Jones. Eventually, McMoRan will get its problems sorted out, and we continue to be very excited about that.

TER: What other stocks catch your eye?

ST: We also like a company that I’ve mentioned in the past, Saratoga Resources Inc. (SARA:NYSE.A). It recently completed a financing, which put a little pressure on the stock, but cashed up its treasury to continue doing some drilling. Its second quarter earnings release indicated that it is in the process of hedging a portion of its production, which I think is a very smart move and will be well-received by the market.

Another name that we like that is also being added to that index is Iona Energy Inc. (INA:TSX.V). It’s a producer focused on the North Sea off the coast of Britain and has a very experienced management team that came out of Ithaca Energy Inc. (IAE:TSX). We like that name as well. We participated in Iona’s last financing at $0.50 and believe that it’s a good entry point here.

TER: Anyone else worth mentioning at this point?

ST: I would probably mention Bengal Energy Ltd. (BNG:TSX). It’s focused on Australia and India. It has huge land holdings in the Cooper Basin in Australia. It’s had some good success recently at drilling wells to prove up that resource. We expect that it will eventually become a target for a larger energy company.

TER: What have you done in your Taylor Fund to weather these market swings in the last couple of years?

ST: We are a multi-strategy fund with a broad investment mandate. While we have probably 35–40% of our fund in energy related investments and a similar amount in other resource investments, we’ve recently begun focusing on the financial sector with small and midsize community banks in the U.S. It’s about as far away from energy as you can get, just to provide a little balance. This is probably a good entry point into that industry as well.

TER: What are you expecting for the energy markets over the balance of the year?

ST: This continues to be a stock picker’s market with the location of the play and the application of technology being the big driver, along with mergers and acquisitions. I expect to continue seeing big oil and gas companies buy out smaller oil and gas companies. And if you can take the volatility, small is where you want to be.

TER: How would you suggest investors play the markets at this point?

ST: I think it’s probably a good time to have a little bit more cash in reserve. There will be periods of volatility and company-specific events that could create some short-term buying opportunities and you want to make sure that you have a little dry powder to take advantage of those, as they may come along.

TER: Any other thoughts you might want to leave with us?

ST: One thing I haven’t mentioned, and I think you’ll continue to see is overseas buyers of energy-related assets. I just came back from a trip to China and had a meeting with some representatives from CITIC Group, the big Chinese investment fund. They continue to be very hungry for energy and resource-related investments around the world. They may bring some dry powder to the table too.

TER: Thank you, Stephen.

ST: Thanks for having me.

Stephen Taylor is chairman and CEO of Taylor Asset Management, a Chicago-based investment management firm focusing on small-cap domestic equities and emerging markets. He also serves as a portfolio manager for the Taylor International Fund, Ltd., a small-cap equity fund. In addition to emerging markets, Steve’s area of expertise includes private equity, restructuring and turnaround situations and both small- and mid-cap companies. He has considerable experience in the natural resources and finance industries in Canada and China.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

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DISCLOSURE: 
1) Zig Lambo of The Energy Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Royal Dutch Shell Plc, Saratoga Resources Inc. and New Zealand Energy Corp. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Stephen Taylor: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family is paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story.


The Chart That Keeps Us Up At Night

Posted by The Big Picture

on Tuesday, 21 August 2012 15:28

The only major global equity index which we monitor — and it is a big one – that is down for the year is the Shanghai Composite.   The chart looks ugly and ready to break to new lows after its post crash peak of 3,477, way back in August 2009.

The Shanghai is down 39.2 percent from its post crash high while the S&P500 is up 42.3 percent over the same period.   After falling 72.8 percent in a little over a year from its October 2007 peak, the Shanghai is now up a lowly 27 percent from it crash low.  This compares to the S&P500, which fell 57.7 percent from the October 2007 high to the March 2009 low,  and has now recovered 112.7% and continues to move higher.

A stunning divergence of the world’s two largest economies’ stock markets.

What makes us a little nervous is the Chinese stock market was the first to really collapse after peaking in the fall of 2007  and the first to bottom just a year later.    We can relax a little as such a large and sustained divergence since August 2009 largely dismisses the notion that the Shanghai leads U.S. and global equity markets,  however.   The chart below illustrates even the Hang Seng, one of our favorite indicator species for global risk appetite, has decoupled from the Shanghai.

What does the continued poor performance of the Shanghai signal?   Not sure, but either Chinese stocks are holding a massive fire sale and the Shanghai is setting up for a huge bounce or Air China is crash landing.  And the latter, folks,  ain’t good.

Another 2o percent drop in the Shanghai from current levels and it will be testing the lows of the 2008 crash.  Keep this one one your radar.

aug19 shanghai

aug19 shanghaisp500

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(click here if charts are not observable)