PGM Capital – Blog
20Aug/160

Gurus are bearish on the S&P-500

By Eric Panneflek

Dear PGM Capital Blog readers,

On Monday, August 15, regulatory filings with the U.S. Securities and Exchange Commission showed that in the second quarter of 2016, billionaire investor George Soros and Carl Ichan have increased their bearish bet against the USA Stock Market.

GEORGE SOROS:
Billionaire investor George Soros, who rose to fame and fortune by betting against sterling in 1992, on Monday showed his latest hand: nearly doubling down on his bearish bet against the S&P-500.

The 86-year-old’s fund, Soros Fund Management LLC, disclosed in a regulatory filing it had increased its bet against the S&P 500, by adding 1.9 million shares of the SPDR S&P 500 ETF (NYSE: SPY), which is almost double of his 2.1 million puts shares as of March 31 of this year.

So he owns now just puts of over 4 million shares of the exchange-traded fund which is also his fund’s biggest holding in the filing too.

Puts are used for a downside bet. Buying these S&P 500 puts, essentially gives Soros the right, but not the obligation, to sell them in the future.  In other words, if the S&P 500 or the ETF that tracks falls, Soros should make a nice profit.

CARL ICHAN:
Legendary Investor Carl Ichan, recently said in an interview:

“I have hedges on, I’m more hedged than I ever was. The market is way overvalued at 20 times the S&P and I’ll tell you why: a lot of it is a result of zero interest rates.

That’s going to be hurt.  There’s going to be a day of reckoning here.  I’ve seen it many times in my life.  When things look good, they look great.  You go into the sky.  But that’s when you have to really pull down and really stop buying.”

Billionaire Carl Icahn, hedge fund, Icahn Enterprises (NYSE: IEP) had kept on its record short bias, manifesting in a net -149% market exposure as can be seen from below chart.

PAUL TUDOR JONES:
Tudor Investment Corp, the hedge fund belonging to Paul Tudor Jones, the "legendary macro trader" as defined by Bloomberg, which reported Tuesday August 16, that it had fired 15% of its employees, and which is now said to be implementing minimum risk levels and urging its traders to take on much more risk to stem the losses.

It was interesting, because it revealed that Paul Tudor Jones is even more bearish than George Soros (and perhaps even of Carl Icahn), based on the surge in the fund's S&P puts, which rose from US$490 million notional to US$1.7 billion notional, a nearly four-fold increase, and making it the biggest such position in the fund's history, dwarfing the $301 million in notional calls the fund had on at the same time.  This was the biggest delta between Tudor's puts and calls on record.

PGM CAPITAL ANALYSIS AND COMMENTS:

Billionaire Carl Icahn, for example, recently threw up a red flag on broadcast in the USA, when he declared,

“The public is walking into a trap again as they did in 2007.”

Unfortunately, Icahn’s warning is tame compared to his peers.

Andrew Smithers, the chairman of Smithers & Co recently said:

U.S. stocks are now about 80% overvalued,

He backs up his prediction using a ratio which proves that the only time in history stocks were this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89% and 50%, respectively.

But the most warning of them all is an article by ZeroHedge in which they stated that the Rothchilds currently are buying gold.

In the article is stated that:

The Rothschilds are buying gold through their investment house RIT Capital Partners and Lord Jacob Rothchild is warning about the results of “the greatest experiment in monetary policy in the history of the world”.

British investment banker Lord Jacob Rothschild pictured with Joanna Lumley. (Source: Getty)

Rothschild also said:

"To date quantitative easing has successfully driven stock markets higher, but he rightfully fears this will not go on forever. He adds that a number of headwinds could also derail markets - including the very uncertain geopolitical risk."

The Rothchild's investment house has increased its allocation to gold by 8% and aggressively sold quoted equities and sterling to navigate choppy “uncharted waters” post-Brexit. Sale of shares have been used to buy gold and other non-disclosed precious metals, which, at the end of June accounted for 8 per cent of the £2.8 billion portfolio according to the trust's half-year results, released on Tuesday August 16.

We believe that chances of the biggest market crash and a global reset is bigger than most people can imagine and that history has proven that Gold, Silver and other precious metals are the only insurance for ones wealth in times of uncertainties.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that markets can remain longer irrational than that you can remain solvent and that prices of precious metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

14Aug/160

Why Investing in Potassium & Lithium can be Lucrative

By Eric Panneflek

Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to elaborate on the increasing usage of Potassium and Lithium in our modern society and the best way to invest in them.

POTASIUM:
Potassium is a chemical element with symbol K, with atom number 19, and is an alkali metal used mainly in the fertiliser industry.

The principal use of potash is as an agricultural fertilizer (plant nutrient) because it is a source of soluble potassium, which is one of the three primary plant nutrients required for plant growth and maturation; the others are fixed nitrogen and soluble phosphorus.

In addition to its use as a fertiliser, potassium chloride is important in industrialised economies, where it is used in aluminum recycling, by the chloralkali industry to produce potassium hydroxide, in metal electroplating, oil-well drilling mud, snow and ice melting, steel heat-treating, and water softening.

Potassium hydroxide is used for industrial water treatment and is the precursor of potassium carbonate, several forms of potassium phosphate, many other potassic chemicals, and soap manufacturing.

Potassium carbonate is used to produce animal feed supplements, cement, fire extinguishers, food products, photographic chemicals, and textiles.

It is also used in brewing beer, pharmaceutical preparations, and as a catalyst for synthetic rubber manufacturing.

Generally, these nonfertiliser uses have accounted for about 15% of annual potash consumption in the United States.

Top 3 Producing Countries:
The top 3 potash-producing countries are:

  • Canada:
    Total mine production of 11 million Metric Tons in 2014-2015, for which the country is home to the world’s largest fertiliser company by capacity, Potash Corporation of Saskatchewan, (POT.TO) or PotashCorp.
    However, the company has recently been forced to shutter two of its potash mines in Canada due to low prices.
  • Russia:
    Russian potash production also stayed fairly flat from 2014 to 2015, rising an estimated 20,000 MT to 7.4 million MT. The country is home to some of the world’s largest-known potash reserves.
    Last year, Industrial Minerals reported that Industrial and Commercial Bank of China (1398.HK) and China Construction Bank (0939.HK) engaged in a loan deal worth over $500 million with Russian potash company Uralkali (OTCMKTS:URAYY).
    The move gave China greater control over global potash production, as Uralkali is responsible for 20 percent of the world’s potash output.
  • Belarus:
    Belarus boosted its 2015 potash production to overtake China as the world’s third-largest potash producer in 2015. It put out a total of 6.5 million Metric Tons of potash for the period.
    The country has historically been a major player in the global potash market. In 2014, marketing agreements between Belarusian and Russian producers dissolved, according to the USGS. This shift lessened potash producers’ collective bargaining power, and contributed to the recent decline in the potash price.

LITHIUM:
Lithium is a chemical element with the symbol Li and atomic number 3. belonging to the alkali metal group of chemical elements.

Lithium production has greatly increased since the end of World War II. The metal is separated from other elements in igneous minerals. Lithium salts are extracted from water in mineral springs, brine pools, and brine deposits.

Worldwide identified reserves in 2008 were estimated by the US Geological Survey (USGS) to be 13 million tonnes, though an accurate estimate of world lithium reserves is difficult.

Deposits are found in South America throughout the Andes mountain chain. Chile is the leading producer, followed by Argentina, for which the company "Sociedad Quimica y Minera de Chile S.A." (NYSE: SQM) is world biggest producer of Lithium.

Late in the 20th century, lithium became an important component of battery electrolytes and electrodes, because of its high electrode potential. Because of its low atomic mass, it has a high charge- and power-to-weight ratio.

Below table shows the world's top eight producers in 2015 and reserves in metric tons by country:

PGM CAPITAL ANALYSIS AND COMMENTS:

Potassium:
The potash price has been on the decline since 2013′s cartel breakup between Russia and Belarus, but the amount of potash on the world market is still expected to increase over the next few years.

Specifically, the US Geological Survey (USGS) sees global potash production capacity reaching 61 million MT by 2019, up from 52 million MT in 2015.

The demand for the fertilizer is expected to increase over the long term. In 2015, the world consumed 35.5 million MT of potash, and that number should grow to 39.5 million MT over the next four years.

Potassium is associated with movement of water, nutrients, and carbohydrates in plant tissue. If potassium is deficient or not supplied in adequate amounts, growth is stunted and yields are reduced. Various research efforts have shown that potassium:

  • Stimulates early growth
  • Increases protein production
  • Improves the efficiency of water use
  • Is vital for stand persistence, longevity, and winter hardiness of alfalfa, and
  • Improves resistance to diseases and insects.

These roles or functions are general but all are important to profitable crop production as can be seen from below table.

Interpretation
Crop Part
Sampled
Time of
Sampling
Deficient Low Sufficient High Excessive
- - - - - - - - - - - - - - - - - - % K - - - - - - - - - - - - - - - - -
alfalfa top 6 inches bud <1.8 1.8-2.4 2.5-3.8 3.9-4.5 >4.5
barley whole plant head
emergence
<1.25 1.25-1.49 1.50-3.00 >3.00 -
corn ear leaf silking <1.30 1.30-1.70 1.80-2.30 2.40-2.90 >2.90
soybean most recently
matured trifoliate
early
flower
<1.30 1.30-1.70 1.80-2.50 2.60-4.50 >4.50
wheat whole plant head
emergence
<1.25 1.25-1.49 1.50-3.00 >3.00 -

Lithium:
A typical lithium-ion battery can generate approximately 3 volts per cell, compared with 2.1 volts for lead-acid or 1.5 volts for zinc-carbon cells. Lithium-ion batteries, which are rechargeable and have a high energy density, should not be confused with lithium batteries, which are disposable (primary) batteries with lithium or its compounds as the anode.

Other rechargeable batteries that use lithium include the lithium-ion polymer battery, lithium iron phosphate battery, and the nanowire battery.

A recent study looked in great detail at how Lithium is used to produce batteries, and the entire life cycle of the batteries.

The findings were compared to the environmental impact of conventional internal combustion cars. The study measured environmental impact in a number of ways, including global warming potential, cumulative energy demand, an Ecoindicator 99 and an Abiotic Depletion Potential that measures resource depletion.

Interestingly, the study found that the environmental impact of Lithium was relatively small, but that other elements of these batteries have a higher impact.

For example, lithium batteries take a tremendous amount of copper and aluminum to work properly. These metals are needed for the production of the anode & the cathode, cables and battery management systems. Copper and aluminum have to be mined, processes and manufacturing which takes lots of energy, chemicals and water which add to their environmental burden.

Based on their fundamentals we have a BUY rating on the producers of Potassium and Lithium mentioned in this article.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that prices of metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

 

31Jul/160

Highlights of the week of July 25, 2016.

By Eric Panneflek

Dear PGM Capital Blog readers,

In this weekend's blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of July 25, 2016:

  • Diageo reported full-year financial results on Thursday, July 28, 2016.
  • USA Q2-2016 GDP growth declines to 1.2 percent.

DIAGEO FULL-YEAR FINANCIAL RESULTS:
Diageo plc is a British multinational alcoholic beverages company headquartered in London, England. It is the world's largest producer of spirits and a major producer of beer.

Diageo's brands include Smirnoff (the world's best-selling vodka), Johnnie Walker (the world's best-selling blended Scotch whisky), Baileys (the world's best-selling liqueur), and Guinness (the world's best-selling stout).

It also owns 34% of Moët Hennessy, which owns brands including Moët & Chandon, Veuve Clicquot and Hennessy.

Diageo has a primary listing on the London Stock Exchange under the symbol DGE.L, and is a constituent of the FTSE 100 Index. It has a secondary listing on the New York Stock Exchange, as an ADR, under the symbol DEO.

On Thursday, July 28, the company reported its full-year financial results, for its fiscal year ending on June 30, 2016.

Highlights:

  • Organic volume grew 1.3% worldwide, driven by 9% growth in Africa. North American volume increased just 1%, but sales were up 3%, and operating profit grew 4%.
  • Every major market experienced improved organic growth versus 2015 with 70% of overall growth coming from North America, Europe, Russia, and Turkey.
  • Diageo's global-giant brands, which include Johnnie Walker, Smirnoff, Captain Morgan, Guinness, Bailey's, and Tanqueray, all grew organic net sales during 2016. That's a sharp improvement from a year earlier when only Tanqueray displayed any growth.
  • Margins also expanded on an organic basis from 28.35% in 2015 to 28.69% in 2016.
  • The board recommended a final dividend increase of 5% bringing the full year dividend to 59.2 pence per share, payable on October 12, 2016, for shareholders on record on August 12, 2016.
  • As can be seen from below chart the stock of the company is up YTD with 16.43 percent.

USA Q2-2016 GDP GROWTH DISAPPOINTS:
On Friday July 29, USA Commerce Department, reported that in the second quarter, the country's Gross domestic product increased at a 1.2 percent annual rate after rising by a downwardly revised 0.8 percent pace in the first quarter. The economy was previously reported to have grown at a 1.1 percent pace in the first quarter of this year.

The government also published revisions to data going back to 2013 through the first quarter of 2016.

PGM CAPITAL ANALYSIS AND COMMENTS:

Diageo:
Diageo's full year financial report, presented last Thursday, showed that, international markets are taking to company's products, particularly in Africa, and U.S. consumers are trending toward more expensive brands, which will continue to be tailwind for both top-line growth, as well as bottom-line profitability for the company.

The uncertainty in Britain, due to the result of the  BREXIT referendum is certainly throwing Diageo for a loop, but management said it's working with the government to make sure it has access to the markets it serves.

As can be seen from below 5-year chart, the shares of the company has appreciated with approx. 81.5 percent in the last 5 years.

Based on the company's fundamentals, strong balance sheet and ability in, increasing its dividend payout YOY, we have a BUY rating on the shares of the company.

Disappointed USA Q2-2016 GDP:
The fact that the US second quarter growth, that came in well below analyst expectations, had fuelled a reassessment of rate rise expectations and hitting the US-Dollar.

In the wake of the dodgy GDP data, market expectations that the FED will raise rates before the end of the year have dropped from 45 percent to 37 percent as can be seen from below chart.

As a consequence of this, the US-Dollar index declined on Friday with US$ 1.209 or 1.25% to close the week at US$ 95.53 as can be seen from below chart.

Precious metals:
On the other-hand, Gold, Silver, Platinum and Palladium soared on Friday, for which Palladium and Platinum had an excellent date by appreciating with respectively US$ 13.00 or 1.41% and US$ 16.00 or 1.87% an ounce.

As can be seen from below chart, Palladium and Platinum are up YTD respectively with; 30.6% and 30,2%.

The PGM Component 50 Index:
The PGM Component 50 Index, which is heavily weighted with precious metals and other wealth preservation's securities, is up 37.47 percent YTD, and has closed on Friday, July 29th at fresh new all-time high of 1,234.94 points.

We believe that a very serious global economic crisis, is on the horizon, for which reason during the last four years, via several interviews and blog articles we have been warning investors, for turbulent times ahead and that Gold and other precious metals are the only insurance against it.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that prices of precious metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek