PGM Capital – Blog
27Aug/140

Midweek Market Update

By Michael Panneflek

Market updateDear PGM Capital Blog readers,

In this midweek’s blog edition, we want to highlight some of the most important events for the week of August 25 and August 29, 2014.

  • 100 years of Panama Canal
  • Must see internet links
  • Technical market outlook

100 years of Panama Canal

The Panama Canal opened to traffic 100 years ago on Aug. 15, 1914 and immediately became one of the important backbones of international trade, logistics and globalization.

The Panama Canal has a well known and rich history and its benefits are well documented.

We will take a look at the future of the Panama Canal and the challenges that come with it and the possible benefits that it will bring to our region.

The Panama Canal is undergoing a major expansion project to allow for more and larger ships to transit then the current Panamax sized ships and with that a third set of locks is being constructed and its planned opening is set for 2015.

While we believe that expansion of the Panama Canal will be a great a success and secure the future for the canal for another 100 years, the Panama Canal will face increasing competition in the decades to come.

The Panama Canal's biggest rival the Suez Canal just announced the first major expansion in its 145-year history. Egypt’s ambitious multi-billion-dollar plan, which could nearly double the waterway’s capacity to 97 passing ships a day by 2023, has been largely welcomed by shipping industry executives and economists.

The Suez Canal, which connects the Mediterranean with the Red Sea, can mostly only facilitate one-way traffic–either ships heading north or south–as it is too narrow at some points for vessels to cross both ways. The new canal is expected to solve this problem, cutting the waiting time for ships to three hours from 11 hours.The waterway, however, won’t be deepened to allow fully-laden supertankers, which usually lighten their load–mostly crude oil–before passing through the canal, or do a much longer journey around Cape Agulhas in South Africa.

While we believe, that the expansion for the Suez Canal will be a success and shows the continues growth for maritime logistics and increasing global economy it will not necessary pose a threat for the Panama Canal or our region.

On the other hand another proposed project that has been recently made public will be a direct competition for the Panama Canal. This is the very ambitious Nicaragua Canal, led by the Hong Kong based company called HKND Group, which is ready to finance a Nicaragua Canal with USD 50 billion in exchange for the exclusive rights to develop and manage the Nicaragua Grand Canal for 50-100 years.

While there is a lot of skepticism surrounding this project, when build, this would be the largest engineering project in human history and clearly shows the Chinese ambitions to put a firm foot in the very important global trade market and increase its influence.

This very ambitious project is still in its early stages and if everything goes according to plans, the Chinese want to start construction at the end of 2014/beginning of 2015. This project might be in its early stages, but this project could create huge opportunities for the region and especially countries like Curacao and therefor it will be important to thoroughly follow this project.

Next to above mentioned mega projects, the Panama Canal will face competition in the long term by the opening of the Russian Northern Sea Route and the Canadian Northwest Passage to commercial traffic.

These developments show that the next 100 years in global maritime logistics will be very interesting and the developments will mostly create enormous opportunities for our region.

Must see internet links

Please take your time to read/watch the following links that we have posted below.

Technical market outlook

This is a short follow up from our recent recent technical outlook about the Precious Metals market.

While the gold bull market is slightly delayed, we still continue to support the notion that an upcoming gold bull-market is in the works and we urge patience.

At the moment there is a lot of conflicting short-term technical action happening which puts out mixed signs, but as long as the Gold price stays above the extremely important support level of 1240 we believe that this bull-market is still in the works.

The Gold price needs to take out the resistance zone of 1290-1310 fairly quickly and the miners and Silver need to follow up with positive price action to support the bull-market.

If we see prices go lower and possibly see the support level of 1180 being broken, then all bullish bets are off the table and we will see a continuation of the bear market, but we see the chances of this happening quite low and believe that there is a great opportunity to still acquire precious metals fairly cheap before the bull takes off in the fall of 2014.

For the short-term we remain bullish as long as the gold price stays above 1275-1280 then we can see prices head to 1300. If prices break these levels we are looking at the next support of 1260.

We will keep following this development and post a more detailed analysis at our next midweek market update.

Last but not least, before following any investing advice, be aware that above outlook is of pure technical nature and does not respect any global macro events that will disturb this outlook. Please always consider your investment horizon and risk tolerance and financial situation.

Yours sincerely,

Michael Panneflek

23Aug/140

25% of US families are living in poverty

By Eric Panneflek

InflationPoverty

Dear PGM Capital Blog readers,

In this weekend blog edition we want to discuss with you the decrease of wealth and the increasing number of Americans living in poverty.

A new study published by the Russell Sage foundation helps explain why many American families feel like they’re falling behind: they actually are! The study, which measures the average wealth of U.S. households by income level, reveals a startling decline in wealth in the USA.

The median household in the USA in 2013 had a net worth of just US$ 56,335.00, which is 43 percent lower than the median wealth level right before the beginning of the Great Recession in 2007, and 36% lower than a decade ago.

Wealth generally comes from two types of assets: financial holdings and real estate. Financial assets have more than recovered ground lost during the recession, thanks largely to a stock-market rally now in its sixth year.

Since the Great Recession, the FED policy of pushing long-term interest rates to unusually low levels, has provided tail wind which increased the demand for housing too. But a housing recovery is taking much longer to play out than the reflation of financial assets.

Since wealthier households tend to hold more financial assets, they’ve benefited the most form the stock-market recovery, as a consequence of which households with a lower income, have lost a larger portion of their wealth than those with higher incomes as can be seen from below chart.

Change in wealth for USA

Source: Russell Sage Foundation

SAVINGS RATE:
As can be seen from below chart, the bottom 90% of earners — most Americans — currently save only about 3% of their income.

2d88c3c0-f004-11e3-8047-3da8c231da47_Wealth1

This chart also shows that for a decade prior to the Great Recession of 2007, the savings rate for this group was negative, meaning most Americans borrowed on an ongoing basis to supplement their income.

That debt binge created a financial hole that many families are still digging themselves out of — one reason many people feel like they’re falling behind.

Above chart shows also that currently by, contrast, wealthy Americans save about 12% of their income, while the richest 1% save 38% of their income. The huge and growing gap in the ability to save among different income groups explains why the rich get richer and the rest don’t.

INFLATION:
Analyses and research done by Walter J. "John" Williams and published on his site "Shadow Government Statistics", exposes flaws in current U.S. government economic data and reporting.

Below chart from this web site shows respectively the current rate of inflation (CPI) in the USA,  using the methodologies as if it were calculated in respectively 1990 and 1980.

alt-cpi-home2
sgs-cpi

In general terms, methodological shifts in USA government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.

PGM CAPITAL COMMENTS:
The first ever U.S. Census Bureau report on the near-poor, released on May 1st of this year, shows that 14.7 million people, or 4.3 percent, of USA family incomes live between 100 percent and 125 percent of the poverty level, down from 6.3 percent in 1966, as can be seen from below chart.

poverty rate usa (1)

This decrease of people living near poverty in the USA is actually a consequence of the surge in the number of people who have slipped below poverty levels since the Great Recession of 2007-2009.

As a consequence of this, the poverty rate in the USA shot up from about 12 percent before the recession to 15 percent, extending lines at food banks.

For those living in or near poverty, educational attainment matters. Those with a high school diploma or less had higher poverty rates than those with some college education.

About 10 percent of those with less than a high school diploma live just above poverty level, compared with 1.6 percent of college graduates.

But in a tough economic climate, and as more people go to college, even degrees may not help.

As can be seen from below chart, those 12 percent of people living near poverty have at least a college degree.

poverty and education

Racial divides are clear with the near-poor.

  • About 76 percent of people living barely above the poverty level are white, slightly below their national representation (79 percent of U.S. residents are white).
  • But even though blacks represent 13.2 percent of the overall population, they make up almost 18 percent of the near-poor.
Ethnicity

Ethnicity

If wages are corrected according to official core CPI from the USA government on the one hand and on the other hand real cost of living is rising according to the data provided by this website, this can be seen as a major cause of the increase of the decreasing rate of the savings decrease and poverty in the USA.

The homeownership rate in the USA has been declining since 2004 and now stands at 65%; some economists expect it to keep falling. The percentage of Americans who own stocks has been falling too, and is close to a record low.

So fewer people have been taking advantage of a housing recovery and a long bull market in stocks, which is how a growing amount of wealth is being concentrated among fewer people.

By technical measures, the USA economy has been expanding since the middle of 2009, which is why economists label the past six years as a recovery.

Yet it’s the weakest recovery since the 1930s, with incomes stagnant, consumers reluctant to spend and employers skittish about hiring. Lost wealth has a lot of do with that, since people can’t spend money they don’t have, and they don’t feel like spending when they’re in the hole, anyway.

Why

Last but not least, most people would be asking themselves why governments and central banks are fighting deflation but not poverty and why they are changing the CPI criteria, in order for the inflation figures to look lower than they really are.

Answer:

  • Inflation is a hidden tax on the population.
  • Poverty and inflation keep the wage slave in line.
  • Inflation reduces the real value of government debt.

James Rickards, an American Lawyer, Economist and Investment banker and writer of the books "Currency Wars" and "Dead of Money" once said;

"Since Inflation favors the government and Deflation favors the worker, governments always favor inflation"

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

 

17Aug/140

Moves in Soros Portfolio, You should Note

By Eric Panneflek

All-constituents-not-responsible-for-index-fluctuations_IAAM1-300x225

Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to discuss with you some big moves in the portfolio of Billionaire George Soros, and why it is important for you to take a note.

ABOUT GEORGE SOROS:
George Soros born August 12, 1930, as György Schwartz, is a Hungarian-born American and the chairman of Soros Fund Management.

Black Wednesday, September 16 1992:

blackwednesday

  • Soros had been building a huge position in pounds sterling for months leading up to September 1992. Soros recognized the unfavorable position at which the United Kingdom joined the Exchange Rate Mechanism. For Soros, the rate at which the United Kingdom was brought into the Exchange Rate Mechanism was too high, their inflation was also much too high (triple the German rate), and British interest rates were hurting their asset prices.
  • On September 16, 1992, Black Wednesday, Soros' fund sold short more than US$10 billion in pounds (GBP), profiting from the UK government's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency.
  • Finally, the UK withdrew from the European Exchange Rate Mechanism, devaluing the pound. Soros's profit on the bet was estimated at over US$1 billion. He was dubbed "the man who broke the Bank of England".
  • In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion.

SOROS SELLING SHARES OF MAJOR USA BANKS IN Q1-2014:
According to a filing with the Securities and Exchange Commission, it became public that in the first quarter of 2014,  that Soros Fund Management LLC, reduced its positions in US-Financial companies with 80 percent.

sold out

Soros sold all his holdings in the following US financial Institutions:

  • Morgan Stanley (NYSE: MS)
  • Capital One (NYSE: COF)
  • SUN TRUST (NYSE: STI)
  • J.P. Morgan-Chase (NYSE: JPM)
  • American Express (NYSE: AXP)
  • Goldman Sachs (NYSE: GS)
  • Financial Services Group (NYSE: PNC)
  • Bank of America (NYSE:BAC)

Besides this, he reduced his position in CITI Bank (NYSE: C) by 93.3 percent  and  sold two third of his stake in AIG (NYSE: AIG).

Between the three banks, Goldman Sachs, JP Morgan and CitiGroup, Soros sold more than a million shares.

SOROS BUYING GOLD MINERS:
Soros has been silently building positions in mining companies rather than the underlying commodity itself. Presumably, this is because mining firms stand to benefit even more if metal prices rally because of the inherent leverage in the business.

gold and silver

His latest SEC fillings shows that his Soros Fund Management has purchased the following Gold and Silver mining companies:

  • Barrick Gold :
    At the end of Q1-2014, he held 6,770,100 shares of Barrick Gold (TSX: ABX) valued at US$120,711,000.
  • Yamana Gold:
    In Q1-2014, he purchased 2.2 million shares of Yamana Gold (TSX: YRI) valued at more than US$19 million, in the Canadian mining giant.
  • Silver Wheaton:
    He initiated a new position in Silver Wheaton (TSX: SLW) by buying 400,000 shares of the company  valued at US$9.1 million.
  • GoldCorp:
    In Q1-2014, he added 42,000 shares of GoldCorp (TSX: G), bringing the total value of holding in this company at US$10.8 million.
  • Aurico Gold:
    At the end of Q1-2014, he held 1,587,650 shares of Aurico Gold (YSX: AUQ) valued at US$6,906,000.
  • New Gold:
    At the end of Q1-2014, he held 1,156,205 shares of New Gold (TSX: NGD) worth US$5,642,000.
  • Pan American Silver Corporation:
    At the end of Q1-2014, he held 804,900 shares of Pan American Silver Corporation
    (TSX: PAA) valued at US$10,824,000.

SOROS BOOTS BET ON USA MARKET COLLAPSE TO US$2 BILLION:
The legendary hedge fund manager has been raising his negative bet on the Standard & Poor's 500 Index since late last year.

He lifted his position to 11.3 million put options on the S&P 500 ETF (SPY), boosting the short position from 2.96 percent to 16.65 percent. Soros SPY PutsAs can be seen from above chart, the dollar value of the short position against the S&P-500 has soared to U$2.2 billion at the end of Q2-2014, from around US$299 million at the end of Q1-2014.

Currently this short position on the S&P-500 represents in dollar value 16.65 percent of Soros total portfolio, which is also the biggest slice of his portfolio.

PGM CAPITAL COMMENTS:
Besides Soros a handful of billionaires are quietly dumping their American stocks and fast.

Warren Buffett,

warren_buffet

who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), and Kraft Foods (NASDAQ: KRFT) and sold its entire stake in chipmaker Intel (NYSE: INTC).

Fellow billionaire John Paulson,

081612JohnPaulson

who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase according to a recent filing.

The fund also dumped its entire position in discount retailer Family Dollar stores
(NYSE: FDO) and consumer-goods maker Sara Lee (NYSE: HSH)
.

Beside this a filing with the U.S. Securities and Exchange Commission showed that at the end of Q1-2014, Paulson & Co, led by longtime gold bull John Paulson, owned 10.2 million shares of the Spyder Gold Shares (NYSE: GLD) worth US$1.27 billion, unchanged from its holdings on Dec. 31, 2013. 

Regarding Soros it is also worth mentioning that although he has trimmed some of it holdings in Teva Pharmaceuticals, the value of his holding in the Israel drug maker was at US$381 million at the end Q2-2014. which is also the largest long holding in his portfolio.

The big question is:

Why are these high profile billionaires, with Soros on top of the list with a track record of being able to predict market movements and subsequently profiting from it are all running as fast they as the can, out of the US Stockmarket and are doing their utmost in putting their hands on as much Gold and Gold mining stocks as they can get?Why In our opinion the answer is simple, the USA Stock markets are currently in a Huge Bubble a bubble even bigger than the ICT bubble at the end of the last millennium and that Gold and other precious metals are currently under-appreciated, similar like they were at the end of the last millennium.

The above mentioned billionaires, are all insiders and professional investors, who are aware of specific research that points toward a massive market correction in the US-Stockmarket with a probability of as much as 90%.

They also know that Gold which has proven itself as the only real money and ultimate safe haven, is currently extremely undervalued.

One such person publishing this research is Robert Wiedemer,

an esteemed economist and author of the New York Times best-selling book Aftershock. Before you dismiss the possibility of a 90% drop in the stock market as unrealistic, consider Wiedemer’s credentials. In 2006, Wiedemer and a team of economists accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States.

They published their research in the book America’s Bubble Economy. The book quickly grabbed headlines for its accuracy in predicting what many thought would never happen, and quickly established Wiedemer as a trusted voice. In the interview for his latest blockbuster Aftershock, Wiedemer says the 90% drop in the stock market is “a worst-case scenario,” and the host quickly challenged this claim.

Wiedemer calmly laid out a clear explanation of why a large drop of some sort is a virtual certainty. It starts with the reckless strategy of the Federal Reserve to print a massive amount of money out of thin air in an attempt to stimulate the economy. Robert Wiedemer once said;

These funds haven’t made it into the markets and the economy yet. But it is a mathematical certainty that once the dam breaks, and this money hits the markets, that inflation will surge,

“Once you hit 10% inflation, 10-year Treasury bonds lose about half their value. And by 20%, any value is all but gone. Interest rates will increase dramatically at this point, and that will cause real estate values to collapse. And the stock market will collapse as a consequence of these other problems.”

In case of a major market correction, over leveraged banks and financial institutions will be the most hurt, while Gold, Silver and other precious metals on the other hand will profit the most. However it is worth mentioning, that like Keynes said;

Markets can remain irrational longer, than you can remain solvent

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don't move in a straight line and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

 

14Aug/140

Midweek Market Update

By Michael Panneflek

Market updateDear PGM Capital Blog readers,

In this midweek’s blog edition, we want to highlight some of the most important events for the week of August 11 and August 15, 2014.

  • PGM Publication
  • Must see internet links
  • Technical market outlook

PGM Publication

On Tuesday, August 5th a bundle containing the first 75 articles our chairman, wrote for “Times of Suriname”, in the period March 2013 up to July 22nd 2014 was presented to the public in Paramaribo, Suriname.

Times PGM Capital Bundle

Times of Suriname - PGM Capital Bundle

Download Link Times PGM Capital Bundle

Must see internet links

Please take your time to read/watch the following links that we have posted below.

Technical market outlook

In this weeks technical outlook we want to take a more short-term outlook on Gold for which we still support our mid to long-term technical outlook that we have presented in our midweek market update two weeks ago.

In the past couple of days we are witnessing a nice technical pattern in the precious metals complex which we want to share with you.

In our long-term outlook we showed the possibility of a strong bull-market to start in the near future (next 2-3 weeks). For this to happen we need to see some technical action to support this move and for gold to lift off. At the moment we see gold trading in a narrow sideways channel in a range of 1300 - 1322, which also represents support and resistance and either one of these levels needs to be broken to see which direction we are heading, but a trend is already emerging if we take a look at the short-term 1-hour Gold chart.

Gold Hourly Chart

Gold Hourly Chart (Click to zoom)

Here we can clearly see that narrow sideways channel, that we have seen for a couple of days and it nicely respected the support trend line and there is high chance that we might see Gold price challenge the support trend line in the short-term before we see higher prices.

The notion for high prices is supported due to the fact the we have a rising neck-line and is seen in the chart represented by higher lows. This normally is a positive sign for higher prices to come (=more buyers then sellers in the market). For that we expect to see prices try to reach 1302-1308 on the downside and challenge the support level, which represents a great low-risk buying zone for short-term traders. If gold-prices fall below 1300 then we might see lower prices first and because of that a short-term trader will place a stop at 1300 to limit further losses.

Right now any further price increase for Gold is on hold due to a lack of price action for Silver and the Gold Miners. Since these assets are heavily connected, it is important that either one of them (Silver or Gold Miners) needs to take a lead and break some important resistance levels to clear a path for Gold itself.

First we take a look at Silver on the 4 hour chart.

Silver 4 Hour

Silver 4 Hour Chart (Click to zoom)

It is clearly visible that Silver (opposite to Gold) is trading in a bearish channel and it needs to break-out of this channel for us to see any higher prices in both Silver and Gold. This is the first reason we didn't see higher prices for Gold yet.

The second reason can be found with the Gold Miners which is represented by the ETF with symbol GDX. Lets take a closer look at the longer term Daily GDX chart.

GDX Daily

GDX Daily Chart (Click to zoom)

While the Gold Miners are showing strength since June 2014, GDX upper momentum has been capped by the longer term upper resistance trend line and we need to see this trend to be broken and GDX move higher, to support higher Gold prices.

These correlations show, while Gold wants to move higher it cannot do it alone and needs to do it in tandem with the Gold Miners and Silver. We conclude that, if Gold wants to move higher, we need to then see a break out of the Gold Miners and/or Silver to clear a technical path for higher prices.

The next short-term resistance for Gold will be at 1323 followed by 1345.

We will keep you up-to-date on the future technical developments.

Last but not least, before following any investing advice, be aware that above outlook is of pure technical nature and does not respect any global macro events that will disturb this outlook. Please always consider your investment horizon and risk tolerance and financial situation.

Yours sincerely,

Michael Panneflek

10Aug/140

Highlights of the week of August 4, 2014

By Eric Panneflek

earnings-report-300x263[1]WeekInReview

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 August 4, 2014.

  • Q2-2014 earnings report of Archer Daniel Midland Company.
  • Nestle announced CHF 8 billion share buy-back program.
  • Rio Tinto reports H1-2014 earnings report.

ARCHER DANIELS MIDLAND Q2-2014 UP 67.4 PERCENT:
Archer Daniels Midland Company (NYSE: ADM) is an American global food-processing and commodities-trading corporation, headquartered in Decatur, Illinois, USA. 

archer-daniels-midland-company-logo

The company operates more than 270 plants and 420 crop procurement facilities worldwide, where cereal grains and oilseeds are processed into products used in foodbeveragenutraceuticalindustrial, and animal feed markets worldwide.

On Wednesday, August 6th, the company reported - adjusted for certain items - a profit of 77 cents per share, up 67.4%, from 46 cents posted in the year-ago comparable quarter.

Based on these blockbuster results the shares of this agri-business giant surged with 4.74% in the week to close at an all time high of US$49.04 a share on Friday, August 8, 2014 as can be seen from below chart.

ADM 5-day chart

Q2-2014 Highlights:

  • Adjusted EPS of US$0.77 excludes approximately US$73 million in pretax LIFO income.
  • Oilseeds Processing increased US$18 million.
  • Corn Processing increased US$69 million on strong ethanol demand and steady sweetener volumes.
  • Agricultural Services increased US$122 million, driven by strong U.S. exports and significantly improved results from international merchandising.
  • The net debt position of the company declined to US$3.6 billion, compared to US$5.5 billion in the same period last year.
  • The company repurchased 7.2 million shares during the quarter, bringing year-to-date buybacks to 11.5 million shares for about US$500 million.
  • Board of Directors today declared a cash dividend of 24.0 cents per share on the company’s common stock payable September 11, 2014, to Stockholders of record August 21, 2014.

NESTLE CHF 8 BILLION SHARE-BUY BACK PROGRAM:
Nestlé S.A. (SIX: NESN) is a Swiss multinational headquartered in Vevey, Switzerland, is measured by revenues, the world's largest food company.

Nestle-Logo

The company's products include baby food, bottled water, breakfast cereals, coffee and tea, confectionery, dairy products, ice cream,frozen food, pet foods, and snacks. Twenty-nine of Nestlé’s brands have annual sales of over 1 billion CHF (approx. 1.1 billion US-Dollars).

nestleproducts

In the first half of 2014, the Group delivered organic growth of 4.7%, composed of 2.9% real internal growth and 1.8% in pricing. Total sales were CHF 43 billion. The strong Swiss Franc continued to have a substantial negative impact (-8.8%) and after divestitures, net of acquisitions(-0.7%), reported total sales were down by 4.8%.

H1-2014 Highlights:

  • The Group’s trading operating profit was CHF 6.4 billion. The reported trading operating profit margin was 15.0% (-10 basis points), +30 basis points in constant currencies.
  • The cost of goods sold increased by 20 basis points, reflecting input cost pressures, especially in dairy.
  • Total marketing and administrative costs decreased by 30 basis points, reflecting efficiencies. At the same time they continued to strengthen the support for their brands, increasing consumer facing marketing spend in constant currencies.
  • Net profit was down to CHF 4.6 billion, reported earnings per share were CHF 1.45, both impacted by the strong Swiss Franc. Underlying earnings per share in constant currencies were up 3.6%.
  • Operating cash flow was CHF 4.3 billion. Working capital remains an area of focus and they have continued to lower it as a percentage of sales.
  • They plan to launch a new share buy-back programme of CHF 8 billion that will start this year and continue into 2015. The buy-back is subject to market conditions and strategic opportunities. 

RIO TINTO H1-2014, EARNINGS UP 21 PERCENT:
The Rio Tinto Group is a British-Australian multinational metals and mining corporation with headquarters in London, United Kingdom, and a management office in Melbourne, Australia.

The company, which is the world’s second biggest mining company, has operations on six continents but is mainly concentrated in Australia and Canada.

rio_tinto_logo_excavator

On Thursday, August 7th, the company reported its H1-2014 earnings report with the following highlights:

H1-2014 Highlights:

  • Increased underlying earnings by 21 percent to US$5.1 billion. Underlying earnings per share rose to 276.8 US$ cents.
  • Achieved US$3.2 billion of sustainable operating cash cost improvements since 2012, exceeding the US$3 billion reduction target six months ahead of schedule.
  • Shipped record iron ore volumes, set production records for iron ore and thermal coal and delivered a strong operational performance in copper.
  • Increased cash flows from operations by eight percent to US$8.7 billion.
  • Reduced capital expenditure to US$3.6 billion in the first half. 
  • Decreased net debt by US$1.9 billion in the first half to US$16.1 billion on 30 June 2014. 
  • Achieved EBITDA of US$1.1 billion in Aluminum, up 26 percent on 2013 first half, despite London Metal Exchange (LME) aluminum prices averaging nine per cent lower.
  • Increased interim dividend by 15 percent to 96 US cents per share, payable on September 11, to shareholders on record on August 15, 2014

PGM CAPITAL COMMENTS:
The above mentioned earnings report of the world's major food producers and second biggest miners, proves the fact that the world is approaching a (food) commodity based (hyper) inflation cycle.

food-inflation2

The announced hike of their respective dividends combined with massive share-buy back programs gives un indication, that the management of those companies believe that the current price of their stocks is too low.

Based on their fundamentals and financial conditions we have a BUY rating on the stocks of all the above mentioned companies and are expecting "Archer Daniels Midland" to announce a stock split in the coming 6- 12 months.

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don't move in a straight line and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

 

6Aug/140

Midweek Market Update

By Michael Panneflek

Market updateDear PGM Capital Blog readers,

In this midweek’s blog edition, we want to highlight some of the most important events for the week of August 4 and August 8, 2014.

  • Stock-market Correction
  • Must see internet links
  • Technical market outlook

Stock-market Correction

We are witnessing a stock-market correction that started around July 24, 2014, which typically coincides with the cyclical historic moves in the markets. We also warned of a coming correction and possibly a crash at a later stage before. Below you can find the seasonal cycles chart for the Dow Jones and S&P 500.

Dow Jones Industrial AverageS&P 500 Index

In above charts we can see that from more then 30 years historic data the US equity markets top out in the summer (July - August) and then is followed by a correction in the late summer and autumn months.

To get some global perspective on this we added the seasonal DAX chart below.

DAX

In the seasonal DAX chart we can see the summer correction in an even more dramatic way starting at the end of July and finding its bottom in the beginning of October.

Below we can see the performance of some important global equity markets since  July 23, 2014:

  • Dow Jones -3.85%
  • S&P 500 -3.36%
  • DAX -5.78%
  • FTSE 100 -1.70%
  • Nikkei 225 -0.05%
  • Hang Seng +2.82%
  • Bovespa -2.12%

Due to the fact that the valuations of the equity markets of emerging economies are very low, it is logical that the current correction is much stronger in "western" markets then in emerging markets. On a year to date basis most equity markets are slightly negative.

Certainly global macro events will always have an effect on traditional market outlooks, but on the background of these overvalued equity markets and the outlook of quantitative easing to end in October with a possible interest rate hike by the end of the end year or the beginning of 2015, smart investors are getting increasingly cautious, but there will always be investors that look at this as a buying opportunity and there is a high chance that we might see a retest of previous equity market highs before the equity markets will go in a longer term bear market.

Must see internet links

Please take your time to read/watch the following links that we have posted below.

Technical market outlook

This week we will take a look at the equity market and we will use the Dow Jones to represent the "western" equity markets. We already mentioned that we are in a equity market correction and there is a high probability that this correction will take 2-3 months (see above seasonal charts). Now we will try to answer the more important question what might be the target for the bottom and what might be the technical trigger for a more severe correction or even the start of a stock-market crash.

For this analysis we will take a look at three technical timelines, the monthly, weekly and daily chart and will use moving averages, trends and important support levels.

First we start with the most long term chart, the Monthly Dow Jones chart. Click to zoom.

Click to Zoom

The monthly chart is usually used to predict multi-year trends. In the monthly chart we can see that due to a very aggressive bull market in recent years there is quite a lot of room to correct to the downside without any important bearish technical signs to be triggered, but this also shows technical signs that the Dow Jones is becoming overbought in the long-term.
If we look at the chart we can see the grey trend lines (channel), which represent the trend quite nicely so the upper trend line will be resistance and the lower trend line will be strong support. The first moving average that is important for us is the blue 20 SMA (Simple Moving Average), this is the first potential support that the Dow can hit in this correction. Right now the 20 SMA stands at around 15620, but it will move higher every month and it will be around 16000 in October 2014. This dynamic support level will catch up with the actual prices quite soon and the last time that the Dow Jones went below the 20 SMA was 2 years ago and the possibility that the Dow get below the 20 SMA levels can be considered high.

What will be more crucial is to see if the Dow Jones will close the month below the 20 SMA or if we see a sharp rebound and a close above the 20 SMA again.
Next up are the very important previous lows and these are called static support levels. The first static support is at 15340 and then another one at 14720. A very important key support level is at 14200, which marks the high before the dramatic financial crisis in 2007/08.
Then we have two more important Moving Averages the 50 SMA (green) and the 200 SMA (red), these are the long term moving averages and are rarely broken. Usually when these two levels (50 SMA & 200 SMA) are broken we can assume that the Dow Jones is in a bear market or a crash event is underway or has happened.
Here the short summary for support levels for the Dow Jones on the monthly chart:

  • 20 SMA @ 15620 (Dynamic)
  • Previous low (Feb 2014) @ 15340
  • Previous low (Oct 2013) @ 14720
  • Support trend line @ 14600 (Dynamic)
  • High before financial crisis (Oct 2007) @ 14200

Now lets take a look at the Weekly Dow Jones chart to determine mid-term support levels. Click to zoom.

Click to zoom

The weekly chart is usually the most important chart to predict multi-month trends, which most investors and traders use for their long-term horizon.
Looking at the weekly chart, the picture for the Dow Jones changes a little and shows that support levels are getting closer and the technical conclusion can also be slightly different. In the weekly chart the Dow Jones already closed below the 20 SMA and is looking towards the 50 SMA which was last broken in December 2012, but a strong rally has followed that event and therefor the 50 SMA is already an important support level to look at.
The current channel (grey trend lines) on the weekly chart is in tact since August 2011 and will be a strong support level to look at.
Here the short summary for the support levels for the Dow Jones on the weekly chart:

  • 50 SMA @ 16160 (Dynamic)
  • Previous low followed by an OKR (Outside Key Reversal) @ 16015
  • Support trend line @ 15660 (Dynamic)
  • Previous low followed by a bullish hammer @ 15340

Now we look at the Daily Dow Jones chart to determine the support levels in the weeks ahead. Click to zoom.

Click to zoom

The daily chart is used to predict multi-week trends and is also the most important technical chart for technical analysis. Looking at the daily chart, we immediately see that the overall picture looks more critical. The Dow Jones has already broken the 20 SMA and 50 SMA and is very close to the important 200 SMA. The Dow Jones is also getting close to the support trend line that was set by previous lows.
There is important support around 16300 from the support trend line and the 200 SMA and if these levels will not hold and the Dow Jones closes below these levels, we might see further downside to 16000 and potentially to 15400.
Below the summary for the support levels for the Dow Jones on the daily chart:

  • 200 SMA @ 16330 (Dynamic)
  • Support trend line @ 16290 (Dynamic)
  • Previous low @ 16005
  • Previous low @ 15340
  • Previous low @ 14720

It will be very interesting to watch the daily chart in the coming days/weeks and we can expect more corrective downside movement until the end of September 2014. We are expecting a correction in the 15500 (±200) region. If the correction will be stronger or the Dow Jones is not able to get in any higher highs (above 17130) in the next 6 months, best case scenario we can assume the bull-market is running out of steam or worst case scenario that we are entering a bear-market (with a possible stock-market crash).

If the Dow Jones will respect the support levels around and below 15500 and we see a strong rally coming out of this correction towards the end of the year with possible new highs, its safe to assume that the equity bull-market will continue a little longer and this correction was only a cyclical event.

We advice to be cautious to enter the US and European equity markets at the moment and wait for clear signs and confirmation that this might only be a mid-term correction. At the moment there is better value in other asset classes. For more information on investment opportunities in these critical times, please don't hesitate to contact us and feel free to make an appointment.

We will have a close eye on these developments and keep you informed at important developments or changes of this outlook.

Last but not least, before following any investing advice, be aware that above outlook is of pure technical nature and does not respect any global macro events that will disturb this outlook. Please always consider your investment horizon and risk tolerance and financial situation.

Yours sincerely,

Michael Panneflek

3Aug/140

Highlights of the Week of July 28 2014

By Eric Panneflek

ArgentinaDefault 1

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 28, 2014.

  • Argentina's Credit rating downgraded to SD on July 30.
  • The USA Economic reports of last week.
  • Rhodium at 16-month high.

ARGENTINA CREDIT RATING DOWNGRADED TO SD:
A federal judge in New York has ruled that Argentina must pay a small group of creditors in full — about US$1.5 billion — even though it got 93 percent of its other bondholders to accept partial payment in a debt restructuring after its 2001 default.

Axel Kicillof,  Argentina's economy minister addresses the media at the Consulate General of Argentina

Axel Kicillof, Argentina's economy minister, addresses the media at the Consulate General of Argentina

With no deal by late Wednesday, July 30, ratings agency Standard & Poor's announced that it had downgraded the country's foreign currency credit rating to SD "selective default" because of the missed interest payments.

Below video gives more details on Argentina's current "Selective Default" status.

After defaulting in 2002, Argentina restructured its debt in 2005 and 2010. More than 90 percent of the bondholders agreed to accept new bonds with reduced payments. The holdouts refused the terms, and were awarded US$1.33 billion, plus interest, by a U.S. judge.

THE USA ECONOMIC REPORT:

The USA Q2-GDP report of July 30, 2014:
Wednesday, July 30, US GDP came in with a nice surprise with a growth of 4% in the second quarter of this year, while the previous quarter has been revised to a decline of -2.1% instead of -2.9%. Q2 figures came in far better than the analysts' 3% forecast. However, looking deeper into the numbers, we can find what drove the sharp expansion and deduce why it might be a temporary growth.

Workers work on installing the motherboard to a 32-inch TV at Element Electronics in Winnsboro

  • Business Inventories Represents 1.66% of the 4% GDP Growth:
    Rising inventories does not mean that they are selling more goods because products can end up on store shelves or in warehouses.Therefore, this reading cannot be seen as a sign of recovery, but looking at final sales will be the key.
  • Cars & Light Trucks:
    Looking further into the numbers, it’s clear that car and light truck purchases played a major role in the GDP release. Motor vehicle and parts spending grew an annual percentage of 17.5%. The purchase of motor vehicles and light trucks can be considered as an investment with an economic life-cycle of 5 years. Due to this we believe that a great portion of new cars purchased in June, can be seen as delayed purchases by owners off written-off vehicles, using their vacation bonus.
  • Exports Added 1.23% to GDP:
    However, this increase is also based on estimated trade data. Therefore, the second estimate for the second quarter, which is based on complete data, will be released at the end of August. That number will be more accurate and representative.

The USA jobs report of August 1, 2014:
The US Economy added 209K  versus an estimated. 230K and the Unemployment Rate ticked higher to 6.2%.

The USA Core PCE: 
The US personal consumption expenditures price index excluding food and energy – the so-called core PCE – increased 0.1% in June,  to 1.5%, while it was anticipated
to remain stable at 1.4%.

RHODIUM AT 16-MONTH HIGH:
Rhodium advanced to the highest price in 16 months and is set for the biggest monthly gain since 2009 as demand from car makers increased amid restricted supply.

Rhodium climbed to US$1,250 an ounce on July 25, the highest since March 26, 2013.

As can be seen from below chart, the metal, used in catalytic converters to curb harmful emissions, has rallied 40% since reaching a nine-year low of US$890 an oz in December of 2013.

Rhodium 1-year chart

Rhodium 1-year chart

Rhodium has gained 28% this year. It’s set for the first annual increase since 2009, when prices doubled.

PGM CAPITAL COMMENTS:

Argentine Selective Default:
Argentina is not the only country that has struggled, or even failed, to pay its debt in recent years. It is hardly the only country with a severely impaired credit rating either. Alongside Argentina, Moody's currently lists 10 other countries with a rating of Caa1 or worse.

Based on ratings from Moody's Investors Service, these are the 10 other countries at risk of default:

  • Equador Ecuador:
    • Moody's credit rating: Caa1
    • Gov't debt (pct. of GDP): 24.8%
  • venezuela Venezuela:
    • Moody's credit rating: Caa1
    • Gov't debt (pct. of GDP): 51.6%
  • Belize Belize:
    • Moody's credit rating: Caa2
    • Gov't debt (pct. of GDP): 80.4%
  • 800px-Flag_of_Cuba.svg Cuba:
    • Moody's credit rating: Caa2
    • 2014 Gov't debt (pct. of GDP): N/A
  • 600px-Flag_of_Jamaica.svg Jamaica:
    • Moody's credit rating: Caa3
    • 2014 Gov't debt (pct. of GDP): 133.7%
  • Egypt Egypt:
    • Moody's credit rating: Caa1
    • Gov't debt (pct. of GDP): 91.3%
  • Ukraine Ukraine:
    • Moody's credit rating: Caa3
    • 2014 Gov't debt (pct. of GDP): N/A
  • Greece Greece:
    • Moody's credit rating: Caa3
    • 2014 Gov't debt (pct. of GDP): 174.7%
  • Cyprus Cyprus:
    • Moody's credit rating: Caa3
    • 2014 Gov't debt (pct. of GDP): 121.5%
  • Pakistan Pakistan:
    • Moody's credit rating: Caa1
    • Gov't debt (pct. of GDP): 63.7%

Source:

USA Economic data:
Based on the Country's economic data and geopolitical tensions, U.S. stocks tumbled during the last days of July 2014.

As can be seen from below chart, the DOW Industrial tumbled 467 points or 2.75%.

DOW 5-day chart

DOW Jones Industrial 5-day chart

Former Federal Reserve Chairman Alan Greenspan said that USA-equity markets will see a decline at some point after surging for the past several years.

greenspan

While Greenspan said he didn’t think equities were “grossly overpriced,” his comments come amid growing concern that interest rates near record lows are creating asset-price bubbles. Fed Chair Janet Yellen said in a July 16 congressional testimony that while she saw signs of high valuations in some markets, prices overall -- including for U.S. stocks -- weren’t out of line with historical norms.

Rhodium:
Rhodium is the second scarcest element in the earth's crust.

rhodium-bullion-bars

Demand for the metal will beat supply by 60,000oz this year while on the other hand output will drop 3.8% and car companies, accounting for about 80% of demand, will boost usage 4.1%.

European car sales rose in June for the longest stretch of gains in four years, Brussels-based European Automobile Manufacturers’ Association said on July 17. 

Rhodium’s surge to a record $10,100 in 2008 forced manufacturers to use more platinum and palladium, which have similar properties needed to clean car emissions.

We are very bullish on Rhodium and the other Platinum Group of Metals (PGM) Palladium and Platinum and have BUY rating on them.

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don't move in a straight line and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

29Jul/140

Midweek Market Update

By Michael Panneflek

Market updateDear PGM Capital Blog readers,

In this midweek’s blog edition, we want to highlight some of the most important events for the week of July 28 and August 1, 2014.

  • Heavy Data Week
  • Must see internet links
  • Technical market outlook

 

Heavy Data Week

After the much anticipated earnings data from the past weeks that weren’t in any way special or exciting, all eyes are this week on the data that will be released and investors will adjust their decisions based on what will be reported. These are some of the most important numbers investors will be looking at:

  • US GDP Data for Q2 2014 (release July 30 @ 8:30 am)
  • Fed’s Monetary Policy Statement (release July 30 @ 2:00 pm)
  • Euro Countries CPI numbers (release July 31 @ 5:00 am)
  • US Nonfarm Payrolls (release August 1 @ 8:30 am)
  • US Unemployment Rate (release August 1 @ 8:30 am)

The general consensus for the US GDP is at a very optimistic 3.0% after the disappointing -2.9% number that was released for the first quarter of 2014 and most of this was blamed on the bad weather. Most analysts expect a rebound from the -2.9% Q1 GDP and everything under 3% is seen as disappointing.

Our opinion is more reserved and we would not be surprised if the very optimistic 3% GDP consensus will not be met. Expect some heavy volume action on the markets after the release of this number.

From the FED we don’t expect anything special, the interest rate should remain unchanged and the MBS and Treasury Purchase Program should be cut each by US$ 5 billion, which will be in range with the general consensus. It should be interesting to read between the lines of the FED’s statement and see if we can get an outlook on future FED decisions.

The NFP numbers are harder to predict since they have been a hit and miss from the general consensus in the last few months and we expect that anything is possible, the general consensus expects 235K (K stands for thousands) jobs to be added.

The US unemployment rate should stay relatively stable around 6.1% which is in line with general consensus.

This weeks data should give some certainty and direction for the equity markets and we will know more by the end of the week.

Must see internet links

Please take your time to read/watch the following links that we have posted below.

Technical Market Outlook

This week we will take a look at Gold. We are expecting for Gold to end its short-term correction within the next 2 weeks from its recent high at around US$ 1345 on July 10. Gold has traded sideways in a range between of 1240 and 1350 in the recent weeks/months and there was no danger of breaking the double bottom at 1180, which to us is a clear sign that the worst might be behind us and we are right now in a neutral sentiment heading for the next long-term bullish sentiment.

There are a couple long-term technical indicators that support that there is a high probability of an upcoming bull-run that will take the price of gold higher till the end of the year.

One of the important long-term technical indicator is the MACD (moving average convergence/divergence) on the monthly chart!

Below is the monthly chart (this is the long-term chart) for Gold measured in US Dollar together with the MACD indicator. Click to zoom into chart

Click to zoom

This is a chart that goes all the way back to the year 2000. We marked the important MACD crossover events in the chart corresponding with the long-term (multi month/year) direction. What can be seen, is that every time there was an crossover event in the MACD we saw definitive direction for the gold price.

The previous crossover event that was posted in January 2012 confirmed that the intermediate top for the gold price was set in September 2011 and that a correction and a consequent bear market was to be expected. The bear market that followed the cross-over in January 2012 lasted 18 months and posted a double bottom in June and December 2013 until a new bullish crossover was very recently posted in July 2014.

There are a lot of other technical indicators to support the notion of an end of the precious metals bear market, that is why its important to take a closer look at leading indicators to confirm this outlook. The most accurate leading indicator are the gold miners. The gold miners very accurately anticipate what will and can happen in the future markets and the gold miners also did lead the way in the last bear-market by starting to heavily under-perform before the first big sell-off in April 2013. The gold miners are best represented by the ETF with symbol GDX (NYSE), which is the biggest gold miners ETF and is frequently used in technical analysis.

In the below daily chart we overlay the gold price (in blue) against the GDX price (in orange). Click to zoom.

Click to zoom

What we can clearly see is that the gold miners started to separate itself from the gold price since June 2014 and is steadily outperforming the gold-price on a daily basis. This can be seen as a mid-term bullish sign and we can expect the gold price to follow the miners soon (within the next 2-3 weeks).

With the bullish MACD crossover in the monthly gold chart and the gold miners starting to outperform, we expect a bullish second half of 2014 for the gold market.

Caution: For these bullish signals not to be killed, the gold price needs to stay above the critical support of USD 1240 and more importantly the double bottom at 1180. If these levels cannot hold, more downside can be expected.

For investors who want to make the most out of a possible starting gold bull-market, we advise to have exposure in the gold miners since miners will outperform the price of gold in the early stages of a bull-market by a factor 2. In later stages of the bull-market it is advised to hold gold-bullion and silver.

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation.

Yours sincerely,

Michael Panneflek

27Jul/140

Will we have a Crash or Correction this Autumn?

By Eric Panneflek

market-crash

Dear PGM Capital Blog readers.

In this weekend blog article we'll elaborate on the approaching inevitable reversal of the capital markets in the West.

The stock markets in the West, specially those of the USA are dangerously stretched in terms of valuation and sentiment, and they do not accurately reflect the country's economic situation and fundamentals such as earnings and sales growth.

It is important to care if a stock market is overvalued or that it doesn't correlate with the Economic reality of a country, because those who sell near the top before the market drops preserve not just their initial capital, but their winnings from the over five-year bull market. Those who fail to sell, risk losing not just their gains, but quite possibly a material chunk of their initial capital.

Another reason to care is that those who correctly bet on a market's reversal will profit handsomely, just as those who bought at the bottom of a decline profit.

That few manage the apparently simple task of making three accurate predictions in a row (and being confident enough in the technique to leave all the chips on the table), is powerful evidence that no such technique works consistently enough to last even three trades.

The following three basic tools can be useful in prognosing of a trend reversal in the capital markets:

  • FUNDAMENTAL ANALYSIS:
    Fundamental analysis involves analyzing the characteristics of a company, such as; earnings, sales, lifecycle of product mix, valuations, financial conditions, in order to estimate the value of its shares.
  • TECHNICAL ANALYSIS:
    Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity or trend reversals.
  • CYCLES:
    Cycles do not presume to predict the causes of trend reversals; they only reflect that such reversals often follow patterns over time. There are many cycles of varying durations such as:

    • DOW to GOLD cycle:
      The DOW to Gold ratio tells you how many ounces of gold it would take to buy the Dow on any given month. Previous cycle lows have been 1.94 ounces in February of 1933 and 1.29 ounces in January of 1980 as can be seen from below chart.DOW to Gold ratio
    • Housing Market cycle:
      As can be seen from below chart, housing prices seem to move in 18-year cycle.
      UKHOUSE
    • The Exter pyramide,
      developed by John Exter says, that in times of crisis, depending upon the level of crisis, money moves down the triangle. Small business (In today's world probably derivatives) and real estate are the first to get hit.
      Money flows to commodities then from it to bonds and T-bills. And when bonds and T-bills start to become risky, it finally ends up in Gold.

      Exeter

    • The Kondratieff cycles:
      More than eighty years ago, a prominent Russian economist, Prof. Nikolai D. Kondratiev described and theoretically substantiated the existence of grand
      (45-60 years) cycles of economic development.
      The internal dynamic of the cycles (named K-cycles after him) and the principle of fluctuations is based on the mechanism of accumulation, concentration, dispersion, and devaluation of capital as a key factor of the development of the market (capitalist) economy.

      Kondratieff_Wave

CENTRAL BANKS INTERVENTION:
In the past six years of unprecedented central banks intervention, the belief that we’re in a “New Normal” that’s immune to downturns has taken hold—mostly because every downturn has been reversed by some additional central bank monetary intervention.

Central banks intervention seems to have generated a new cycle: five years of a roaring bull market that reaches bubble heights and then crashes over the following two years.

If the New Normal is truly permanent, then cycles and technical/fundamental analyses have been mooted: they no longer work because the central banks can push stocks higher essentially forever.

PGM CAPITAL COMMENTS:
Below Economic data published last week shows that the USA Economy isn't in a good shape, as the country's policy maker wants us to believe:

  • Manufacturing PMI Posts the Biggest Miss on Record:
    Flash Manufacturing PMI posted the biggest estimate miss on record. The index unexpectedly declined to 56.3 in July, down from 57.3 in June (revised down from 57.5), while it had anticipated to rising further to 57.5.The most concerning part of all of this is the fact that new exports have weakened while manufacturing production has fallen as input costs have surged and the employment component has tumbled to a 10-month low.

    See below chart below chart for details.

    PMI USA

  • New Home Sales Collapse by 20% from May to December 2012 Levels:
    New Home Sales plunged by -8.1% to 406K in June while it had anticipated to decline around -5%. What is more interesting here is that May's figures have been revised down by more than 10%, from 18.6% to 8.3%.
    See below chart for details.
    Home Sales

Two important questions most investors will ask themselves are:

  1. Are these misses in the USA Economic figures due to the tapering of the FED Bond purchasing?
  2. Is there some reason to believe that the stock markets can loft ever higher, other than central bank intervention?

The one fundamental metric that matters is profits. Let’s look at corporate profits and the S&P 500 (SPX):

CP:GDP

It appears the stock market is responding to central bank intervention to the degree that the interventions have enabled corporate profits to soar. How has intervention boosted profits? One easy way is that by lowering the cost of credit to near zero, corporations have booked the savings in interest payments as profits.

The question of the New Normal boils down to: Can corporate profits continue soaring? Or perhaps more to the point: Can central bank intervention keep pushing profits higher? Since interest rates are already near 0%, the answer seems to be that the fruits of Quantitative Easing and Zero Interest Rate Policy have already been picked, and there is little more profit to be gained from these policies.

Below chart shows that corporate profits have rolled over in the first quarter of 2014:

corporate Tax

And there is a number of other reasons to suspect the New Normal market is stretched. As can be seen from below chart, bearish sentiment is low, and bullish sentiment is at multiyear highs, which are both good contrarian indicators.

NVI Bullis

Other conventional metrics of market activity such as corporate buybacks, mergers and acquisitions, issuance of junk bonds, margin debt, etc. are also at extremes.

A continuance of the New Normal requires these extremes to become even more extreme, with no blowback (unintended consequences) or snapback.

Some analysts also see the emerge of inflation as a precursor to a market correction.

Two basic drivers of inflation are the fact that wages are rising and that bank credit since mid 2012, has started to grow again as can be seen from below chart.

wages and salary versus credit

It will be interested to hear the comments of USA policy makers on the above mentioned fundamental Economic data of the country.

Will they try to blame these soft data to the June weather as well?

and

Will the FED Chairlady Mrs. Yellen, label them as noise as well?

The last extreme to consider is volatility, which has slipped to multiyear lows on complacency born of a belief that central banks can enforce the New Normal of ever-rising markets at will.

VIX

The Big Questions are:

  • Is the New Normal enforceable even as markets reach extremes?
    Or
  • Is the faith in the central banks’ power to bend markets to their will just the latest manifestation of hubris?

No one knows at the moment. But there are numerous persuasive reasons to be skeptical of the New Normal and the utmost faith it places in the notion that markets are in a permanent state of low volatility and rising profits and therefore can only loft higher.

Last but not least is the question whether the "New Normal" isn't enforceable and the rule of physics - that everything that rises artificially will come plunging down - is applicable to the USA Stock Market

History shows us that all market crashes have happened in the months of September and October. Due to this can we expect this great reversal or even massive crash of the markets to happen this fall?

Keep in mind that regarding capital markets past history is no guarantee for future performance and that the market can remain longer irrational than you can remain solvent!

Yours sincerely,

Suriname Times foto

Eric Panneflek

19Jul/140

Is the Precious Metal Bear Market Over?

By Eric Panneflek

Precious MetalsAll Lights are on Green

Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to discuss with you the signs based on which we may conclude, that the precious metal bear market that started in April of 2013, may be coming to an end.

After the massive decline of the gold and silver price in 2013, which led prices to as low as respectively US$1,180.00 an ounce for Gold and US$ 18.68 an ounce for silver, a number of indicators might suggest that the bear market for precious metals might be ending.

In this article we'll analyse the following key points and their effect on the price of Gold and other precious metals.

HISTORY:
As can be seen from below chart, the price of Gold dropped to US$1,180.00 an ounce for a few minutes on 28 June 2013 but has been trending up ever since, reaching as high as US$1,433.00 an oz, in August of 2013. Gold Chart

Another selling wave followed and gold dipped to US$1,182.00 an oz, on 31 December 2013, but again, bears failed to break through and gold took off toward US$1,392.00 on 17 March 2014. Since then, gold has been easing some of its gains by dropping to as low as US$1,240.00 in June of this year and to as high as US$1,332.00 on July 1st of this year. On Monday July 14, someone dumped US$ 1.37 billion in Gold futures, causing it to have its biggest drop for the year, but on Thursday July 17, geopolitical tension regarding Malaysian flight MH17, that crashed when flying over Ukraine, pushed the price as high as US$ 1,324.46 an ounce as can be seen from below chart

Gold 3-day chart

GEOPOLITICAL TENSIONS:
Global tensions (Ukraine, Iraq, Russia, Libya, Syria) showed how gold remains a safe haven asset. Recently, there was a massive number of stops that were triggered on panic buying on June 19, and July 17 2014, when respectively Iraq asked the USA for air support against insurgents and when Malaysia Airline flight MH17, was shot down over Ukraine with 295 people on board.

For centuries Gold has been considered as the safe haven in time of political tensions.

INFLATION EXPECTATIONS ON THE RISE:
Inflation expectations in the USA are on the rise and the tensions in the oil rich Middle East, will put an upside pressure on Oil prices which will function as tail wind for inflation in the World.

Due to weather conditions, climate changes, life-stock & crops deceases and increase of the world population, food prices have risen the most this year, since 1990.

Although, both food and energy are excluded from the core inflation, indirectly they both have put an upwards pressure on the core CPI.

As can be seen from below chart the USA core CPI has risen in June, to its highest level in two years and above the 2 percent target of the FED.

USA Core-CPI Chart

PGM CAPITAL COMMENTS:
As can be read from the above analysis, the fundamentals for Gold are very strong.

From a technical point of view, as can be seen from below chart, Gold has failed to break down significantly from the tight coil pattern it created over a 2-month period. 

Gold 1-year technical chart

A price US$1,280.00 an ounce will be an important level going forward for gold since it represents resistance from the coil, and is also where the 50-day moving average sits currently. If gold can surprise the bears to the upside and complete the failed breakdown things could get interesting.

What's even more interesting than gold though is what has happened in the mining stocks. The Market Vector Gold Miners ETF (NYSE: GDX) and Market Vector Junior Gold Miners (NYSE: GDXJ) experienced only two-day breakdowns from their coils. 

These breakdowns occurred on high volume, but the buyers overwhelmed the sellers after merely two days as can be seen from the technical chart of the Market Vector Junior Gold Miners (GDXJ).

Market Vector Junior Gold Miners (GDXJ) 1-year technical Chart

In a healthy gold market you want to see gold stocks outperforming the metal, and this failed breakdown in gold at the end of May is starting to look like it is forming a launchpad for a continued move higher in gold and gold stocks.

Regarding silver, when looking at the Silver data of "The Commitments of Traders "(COT) of the US Commodity Futures Trading Commission (CFTC), we see that Non-Commercial Longs increased by 24% in the first week of July; however, shorts tumbled by almost 60% in two weeks only while the Net Long/Short ratio, increased by 4000% from a near-zero figure to a 40,299 contract.

See below chart for details.

Silver COT

Looking back at its history, it seems silver might be preparing for another bull move, like the one of 2010-2011.

In 2010, Silver Longs reached a record high in October 2010 when the price of silver was at US$21.40 an ounce. Silver advanced significantly in the following months, reaching a record high at 47.90 (weekly close) on the week of April 29 – 2011.

Please keep in mind, that past performance of a security or commodity is no guarantee for its future performance and like John Maynard Keynes said:

'The market can stay irrational longer than you can stay solvent."

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that prices of commodities, precious metals and the stock of their miners can be very volatile.

Keep also in mind that prices don't move in a straight line and that sharp corrections may happen in the short term.

Yours sincerely,

Suriname Times foto

Eric Panneflek