PGM Capital – Blog

Will we have a Crash or Correction this Autumn?

By Eric Panneflek


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 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 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 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.
    • 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.


    • 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.


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.

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.


  • 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):


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?


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.


The Big Questions are:

  • Is the New Normal enforceable even as markets reach extremes?
  • 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


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.

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

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 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

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


Why Investing in Canadian Oil Sands

By Eric Panneflek


Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to discuss with you, why Investing in Canadian Oil Sands Ltd (TSX:COS) can be so lucrative.

Company Profile:
Canadian Oil Sands Limited, was founded in 1995, by PanCanadian Petroleum - now Encana Corporation (TSX:ECA) - and is headquartered in Calgary, Canada and generates its income from its oil sands investment in the Syncrude Joint Venture.

Syncrude operates an oil sands facility and produces crude oil through the mining of oil sands deposits in the Athabasca region of northern AlbertaCanada.

The Athabasca deposit is the largest known reservoir of crude bitumen in the world and the largest of three major oil sands deposits in Alberta.

As of January 2, 2007, the company holds a 36.74% interest in Syncrude, which is the largest stake of any of the joint owner as can be seen from below chart.


Syncrude produces about 100 million barrels of oil each year from its proven and probable reserves of 4.5 billion barrels with contingent and prospective resources of at least that amount again.

As can  be seen from below chart, the shares of the company have earned high returns on equity for many years, averaging 24% since 2001.


Based on its high returns, the shares of the company have also outperformed the Toronto Stock Exchange for the past decade by a wide margin as can be seen from below chart.

8857901_14001470878688_rId8The company also holds some arctic natural gas interests through a wholly owned subsidiary, Canadian Arctic Gas Limited.

As can be seen from below chart, Canadian Oil Sands can be seen as a life annuity since it is likely to be an oil producer for the next 100 years.


We believe shares of Canadian Oil Sands will continue to outperform for many years to come.

At its closing price of CAD 22.93 a share of last Friday, July 11 and annual dividend of CAD1.40 a share the shares of a company offer a sustainable yield of over 6%.

As a producer of solely light sweet crude oil, Canadian Oil Sands is a pure play on long term trends in oil prices.

Since its costs are in Canadian dollars, Canadian Oil Sands benefits from a lower Canadian dollar in relation to USD and Euro.

Canadian Oil Sands is highly leveraged to oil prices and estimates that every US$1 per barrel increase in the WTI prices adds US$25 million to cash flows of the company.

The company's April 30, 2014 guidance for the current year projected cash flows of US$1,194 million or US$2.46 per share based on an average WTI of US$92.00 a barrel for the year.

Based on the above mentioned fundamentals and the company's strong balance sheet a quick ratio of more than one (1)  a P/E ratio of 14.20 (based on the closing price of last Friday, July 11) we have a BUY rating on the shares of the company.

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.

Yours sincerely,

Suriname Times foto

Eric Panneflek


Highlight of the week of June 30, 2014

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 June 30, 2014.

  • The Truth about the USA Job report of June 2014.
  • Palladium at all time high.

On Thursday, July 3rd, the USA Labor Department reported that the country's economy added 288,000 jobs in June and that  the unemployment rate has dropped to 6.1 percent.

Analysts had expected a job growth of about 215,000.

Investors pushed USA shares higher after a better-than-expected jobs report.

The DOW-Jones Industrial, which is made up of some of the biggest global firms, rose 92.02 points or 0.54 percent to finish at 17,068.26 its highest level ever.

Major headlines in the media are positive because US labour markets moved from good to better as June's figures delivered broad job creation levels.

Despite those positive headlines, we have the following questions:

Looking deeper into the numbers, there are several signs which show that the labour market is not exactly recovering.

  • Full Time Jobs, in June, tumbled with 523K to 118.2 million, which is the biggest decline since September of 2013.
  • Part-Time Jobs have been growing significantly since the financial crisis and surged with 799K in June, which leaves part-time jobs at 28 million.
    • Below chart shows the decline in full time jobs versus the increase in part time jobs in June.
      Full Part Time June_0
  • Labor participation rate is declining and is the lowest since 1977 as can be seen in below chart.
  • The wage growth dropped from US$10.33 in February to US$10.28 in June as can be seen from below chart.
    Real earnings LT
  • More than 70% of the jobs that were created since the financial crisis of 2008-2009, are part time jobs and the actual labour force is contracting.

On Friday, July 4th, the palladium price rose with US$ 5.00 an oz, to US$ 862.00 an oz, its highest closing price ever, as can be seen from below chart.



USA June Jobs report:

Below chart shows the real picture of the USA labor market of June for Americans 16 years and older.

In short, the positive headlines are great to have; however, after looking into the details, one will realize that things are not as good as they seem.

Of course, what newsletter sellers always fail to mention is that nominal wages are meaningless in a world in which food and energy prices are soaring, and where, as even the BLS admitted earlier, food prices have surged the most since 2011.

In other words, what matters are real, not nominal wages.

Below 7-year chart from the Bureau of Labor Statistics of the USA, shows that real average hourly earnings posted their third sequential decline in a row, dropping from 

US$10.33 in February, to US$10.32 in March, to US$10.30 in April, to US$10.28 in May.

Real Hourly Wages May

As for the Fed, Janet Yellen is not focusing on the labour market as much, especially after taking out the unemployment rate target from the forward guidance. This could suggest that the Fed recognizes the lack of improvement.

However, the next few months will provide more answers, and we need the Fed to explain its understanding of the current situation in terms of lower growth, higher inflation and the lack of improvement in the labour market.

Based on the above we believe that it will take a few more months before experts start tossing the word stagflation a little more casually.

DOW at 17000:
Regarding DOW 17000, it is worth mentioning that measured in Gold, the DOW valued only 12.93 ounces of Gold, last Thursday July 3rd,  compared with its peak of  44.70 ounces of Gold of July 1999.

Below 80-year DOW-to-GOLD ratio chart clearly shows that although the DOW - measured in US-Dollar, which can be printed by Central Banks - has risen to an all time high of 17,068 points, but when measured in hard asset, like Gold, the DOW has been declining since its peak of July 1999.

While investors are very familiar with gold, silver, and platinum, palladium is often overlooked when considering it as a precious metal for investment purposes.

Platinum is 15 times more rare than gold. All the platinum man has ever mined, for example, would fit into a 25-cubic-foot room. Palladium is more rare than platinum.

Beside being a precious metal and subsequent a storage of value, Palladium has an industrial usage as can be seen from below chart.


Palladium, also has an ISO currency code XPD, for which its price similar with other precious metals is priced in dollars, which means that it can be used as a hedge against a falling US-Dollar.

Based on the above we have a STRONG BUY on Palladium.

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.

Yours sincerely,

Suriname Times foto

Eric Panneflek



Are we Heading for Stagflation in H2-2014?

By Eric Panneflek

China US Fedstagflation

Dear PGM Capital Blog readers,

Today, June 30, 2014, marks the end of H1-2014. Markets in the USA are near all-time high, although, the fundamental economic figures aren't that rosy.

Due to this most investors are asking themselves, "What can we expect for the world Economy and the markets in H2-2014"

  • Will the markets correct in order to be in-line with the bad economic figures of H1-2014?
  • Are the Economic figures of H1-2014 just "Noise" in a rosy global economy picture?

In this article we'll try to find an answer for what is next for the world economy in general and the USA economy in particular.


Q1-GDP adjusted to -2.9%
On Wednesday, June 25, 2014, the USA Economic Department reported, that the country has turned in its worst quarter in five years during the first three months of 2014, shrinking more sharply than previously estimated.

The nation's gross domestic product in the first quarter fell at a 2.9% annual rate, vs. the 1% contraction previously believed as can be seen from below chart.

USA Inflation rise to 2.1%:

On Tuesday, June 17, the USA Labor Department reported that annual inflation in the country rose above 2 percent for the first time since late 2012 as a surge in energy prices added to broad-based inflation in other categories of consumer goods and services.

Overall prices jumped 0.4 percent in May, the biggest gain in almost two years, and are now 2.1 percent higher than a year ago as can be seen from below chart.



The above figures may be the first signs that the USA and the world appear to be heading into a stagflation period. We were therefore amazed to hear, that the USA FED Chairlady, Ms. Janet Yellen, is telling us that recent inflation data is "noise" and that they expect economic growth to rebound from the first quarter’s miserable performance.

However, what if  Ms. Yellen and her colleagues at the FED are wrong and these figures are indeed the first signs that the USA and the world may be heading for stagflation?

Stagflation is defined as a condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

Could we be looking at such a scenario today and, if so, what are the early warning signs?

  • Slowing Global Economic Growth:
    • The revised GDP number indicates that the U.S. economy contracted by -2.9% in Q1-2014.
    • The World Bank recently dropped global-growth projections to 2.8%.
    • The ECB set negative interest rates to fight deflation in Europe.
    • Economic growth in China seems to be slowing.
  • Rising Commodity Prices and Inflation:
    • Oil increased with 3.07% during the last 6 months as can be seen from below chart.
      Crude Oil Monthly Price =Nov 2013 - May 2014: 3.150 (3.07 %)=
    • Food and especially Coffee prices are rising,  for which the latter one rose approx. 75 percent during the last six months, as can be seen from below chart.
      Coffee, Monthly Price =Nov 2013 - May 2014: 92.490 (75.37%)=
    • Gold and Silver as the inflation hedge rose respectively with 10.37% and 8% during the first half of this year.

Rising commodity prices are bad news for consumers who make up 70% of the U.S. economy.

  • Persistently high unemployment and decreasing labor force participation rate
    • The USA labor force participation rate declined in May to 62.8 percent, its lowest level since 1977 as can be seen from below chart.
      Screen Shot 2014-06-30 at 3.19.08 PM
    • The unemployment rate in the European Union lies currently at 10.6 percent.

As the old saying goes

"it's a recession when your neighbour is out of work but it's a depression when you're out of work."

Stagflation puts the Central Banks like the FED and the ECB between a rock and a hard place because interest rates need to climb to control inflation, which, in turn, slows economic growth.

Keep in mind that Central Banks have been attempting to stimulate their respective economies with low interest rates and money printing, but in a period of rising inflation, interest rates will climb, and those Central Banks will be forced to turn away from its easy-money policies.

Money that comes “out of thin air” may someday go back from whence it came, with the consequence that fiat currencies will fall against the goods and services it is called up to buy.

On the other hand, the stagflation period of the late 70's has proven, that the price of Gold, Silver and other precious metals as a hedge against inflation have gone through the roof.

During the first half of 2014, precious metals out performed all major indexes.

Can this be a sign that investors that are looking ahead already are fleeing to precious metals as the ultimate safe haven?

Until Next time

Yours sincerely,

Suriname Times foto

Eric Panneflek


The Seasonal Gold and Silver Rally

By Eric Panneflek

silver-bull 2

Dear PGM Capital Blog readers,

In this weekend's blog edition we will elaborate on the seasonal gold and silver rally, that normally starts by the end of June and lasts until the end of November as can be seen from below 30-year chart, with courtesy


So, once the doldrums of June and July are out of the way, price usually rises until January-February, which means that the challenge is to catch the June lows.

With beginning of the precious metal seasonal rally, investors are asking themselves, the following question?

Will this seasonal rally, trigger the end of the cyclical bear market, of the last 2-years, within a secular bull market, or is the precious metal bull market over?

A way to measure if a bull market is over is to compare it to historical bull market movements.

For this purpose we compare in below chart, with the courtesy of, the 1980’s gold bull market top to the top in gold of September of 2011.

At first glance the 161 percent appreciation from the 1980 to the 2011 high looks quite impressive, but how does it compare to other bull market “Top to Top” measurements?

The below chart compares one bull market to another by measuring the price appreciation - not adjusted for inflation - from a bull market top to that same markets next bull market top.

When we look at the “Top to Top” maximum appreciation in the current precious metals bull market, compared to the other past bull markets we can see that a significant upside potential may still exist.

However, when we adjust above chart for inflation using the official USA government Consumer Price Index, we can see  in below chart, that the price of silver and gold in the current bull market has yet to hit new highs.


Bank of England 2014 Annual Report:
In its just released 2014 Annual Report, the Bank of England discloses that at the end of 2013 it was holding 5,485 tonnes of gold as a custodian, down 755 tonnes to around the level it was in 2011 and 2012.

Below chart shows the amount of Allocated Gold held by the Bank of England against the average gold price, which shows that the amount of gold has basically followed the gold price, very much like the behaviour of the gold ETFs.


In this June 2014 Quarterly Bulletin, the Bank reports on page 134 that 72 central banks hold gold with them.

It also noted that the "Bank also acts as a bank to certain other financial institutions. One example is central counterparties".

Included in that the latter group are the six London bullion market clearing banks. As it is unlikely that the Bank runs allocated gold accounts for banks that are not central to the gold market, it would be fair to conclude that the majority of the allocated gold it holds is for central banks.

Given there was nowhere near 755 tonnes of central bank selling in the year ending February 2014 it would therefore be fair to conclude that this gold outflow was from the allocated accounts that bullion banks had with the Bank of England.

This is not surprising considering that the major gold ETFs lost in excess of 600 tonnes over that same period.

June 19, 2014, precious metals biggest rally in nine months:
On last Thursday, June 19th, in response to the FED, cutting its USA growth forecast for this year to 2.1-2.3 percent from 2.9 percent, combined with the elevated core inflation figure of 0.4 percent Gold and Silver have experienced their biggest one day rally in nine months as can be seen from below chart.



This means that inflation is starting to bust out on investors' worry list, and it is only going to get hotter for the remainder of the year, which means that a financial vehicle will be required to fill this inflation hedging purpose.

Below a famous quote of ex-US Federal Reserve Chairman, done on August 23, 2011.

"Gold, unlike all other commodities, is a currency and the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money that seems to be deteriorating."

All the above indicates, that we may get a very strong seasonal precious metal rally this year, which may be the trigger of the next leg of this secular bull market .

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.

Yours sincerely,

Suriname Times foto

Eric Panneflek


What are the NYSE Margin Debt & VIX telling you

By Eric Panneflek


Dear PGM Capital blog readers.

In this weekend's blog edition, we want to discuss with you whether or not the following data are signalling a coming crash of the USA stock-markets:

  • Margin Debt at all Time High
  • VIX at a 7-year low
  • The CNN Fear & Greed index, currently at Extreme Greed

USA stocks have advanced significantly over the last nine months associated with increases in Margin  Debt. However borrowing to buy equities or USA stocks could have reached a turning point, raising concerns that equity prices may have plateaued or could even decline.

The margin debt at the New York Stock Exchange rose to an all-time high of about US$ 465.72 billion in February of this year. The highest margin debt, prior to this one, was US$ 381 billion which was recorded in July of 2007, right before the financial crises.

The increase in NYSE margin debt came as the SPDR S&P 500 ETF's (SPY) adjusted monthly closing value also hit an all-time high of US$185.47 during the same period.

NYSE margin debt is the aggregated dollar value of issues bought on margin (i.e. borrowed money) across the exchange. Many equity-market participants consider it a gauge of speculation in the stock market. The U.S. Federal Reserve currently has the initial margin requirement set at 50 percent.

As can be seen from below chart, there is a strong positive correlation between NYSE margin debt and SPY.

The CBOE volatility index, or VIX (VIX), measures investors' expectations for market volatility in the near term.

The VIX is often called the fear index. When it is high investor sentiment is toward increased volatility and corresponding higher risk.

A lower number indicates investors are less concerned (fearful) about the market and anticipate low volatility.

As can be seen from below chart, on Friday June 8th, it dipped below 11 for the first time since February 2007. 

We all remember 2007. The S&P 500 was hovering around the 1,400 level in February and then rallied up to 1,576 in October, for its value to be cut in half in the next 17 months.

The VIX jumped to 37.50 in August 2007 to peak at 89.53 in October 2008.

This is an index developed and used by CNNMoney to measure the primary emotions that drive investors: fear and greed. The Fear and Greed Index is based on seven indicators:

  1. Stock Price Momentum - as measured by the S&P 500 versus its 125-day moving average
  2. Stock Price Strength - based on the number of stocks hitting 52-week highs versus those hitting 52-week lows on the NYSE
  3. Stock Price Breadth - as measured by trading volumes in rising stocks against declining stocks.
  4. Put and Call Options - based on the Put/Call ratio
  5. Junk Bond Demand - as measured by the spread between yields on investment grade bonds and junk bonds
  6. Market Volatility - as measured by the CBOE Volatility Index or VIX
  7. Safe Haven Demand - based on the difference in returns for stocks versus Treasuries

As can be seen from below chart, on Friday, June 13, this indicator shows extreme greed in the markets:

Fear & Greed Index

There is a rare complacency in the markets. At this very moment, volatility is near all-time lows, optimism is at record highs, and mainstream forecasters are once-again calling for ever-climbing prices -- just like they were in 1999 and 2007.

Margin Debt indicates that investors are leveraging their stock market bets, which is what happened in 2007. Leverage can be used as a sentiment indicator because it is correlated to investor confidence. A decline in Margin Debt may therefore signal bearish sentiment in the equity market, regardless of the fact that equities are at a record high.

Looking at the NYSE's Margin Debt chart with the S&P500 index, Margin Debt posted its second monthly decline in more than nine months. The figures are a few weeks old, but last time the NYSE's Margin Debt ended a bull period there was a significant correction in the equity markets.

  • Back in 1987, when the Margin Debt hit a record high, S&P500 corrected by a 30% decline.
  • In 1998, S&P500 slipped by 15.5%.
  • Between 2000 and 2002 S&P500 lost more than 46%.
  • In the bear market and great recession of 2007 and 2009 the S&P500 crashed more than 52%.
  • ronco-margin-2

Due to this most investors are asking themselves;

Is the VIX at its lowest level since 2007, combined with the NYSE margin debt at all times signalling a coming Crash of the US Markets?

Last but not least maybe this quote of Warren Buffett is applicable:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

Until next week,

Suriname Times foto

Eric Panneflek


The ECB sets Negative Interest Rates

By Eric Panneflek



Dear PGM Capital blog readers.

At its monetary policy meeting, on Thursday, June 5th, the European Central Bank (ECB) announced that it has cut two key interest rates:

  • It reduced its main interest rate, the refinancing rate, from a record low of 0.25 percent to 0.15 percent. 
  • More drastically, it also cut the rate it pays on money deposited by banks from zero to minus 0.1 percent.

Furthermore, Draghi said the ECB would cease sterilizing the liquidity injected from its Securities Markets Program, which involved the purchase of bonds from troubled "peripheral" euro zone countries.

Let's look at each measure in turn:

The ECB's "refi rate", as it is known, is the price that banks pay to borrow funds from the European Central Bank.

By raising or lowering interest rates the ECB can exercise indirect influence over the interest levels that the banks apply to interbank transactions, business loans, consumer loans, mortgages and savings accounts, amongst other things.

During last Thursday meeting, the ECB dropped its rate by 10 basis points to 0.15 percent.

Below table shows the change of interest rates by the ECB during the last 5 years.

 Change date Percentage
 June 05 2014 0.150 %
 November 07 2013 0.250 %
 May 02 2013 0.500 %
 July 05 2012 0.750 %
 December 08 2011 1.000 %
 November 03 2011 1.250 %
 July 07 2011 1.500 %
 April 07 2011 1.250 %
 May 07 2009 1.000 %
 April 02 2009 1.250 %

Below charts shows respectively the ECB refi rates during the last 12 months and 15 years.

ECB - interest rates April 2013 - May 2014

ECB Interest rate 1999 - May 2014

Below table shows the comparison of current interest rates of a large number of central banks including the ECB.

 Central bank interest rate Region Percentage Date
 FED interest rate United States 0.250 % 12-16-2008
 RBA interest rate Australia 2.500 % 08-06-2013
 BACEN interest rate Brazil 11.000 % 04-02-2014
 BoE interest rate Great Britain 0.500 % 03-05-2009
 BOC interest rate Canada 1.000 % 09-08-2010
 PBC interest rate China 6.000 % 07-06-2012
 ECB interest rate Europe 0.150 % 06-05-2014
 BoJ interest rate Japan 0.100 % 10-05-2010
 CBR interest rate Russia 7.500 % 04-25-2014
 SARB interest rate South Africa 5.500 % 01-29-2014

Negative interest rates are exactly what they sound like – depositing money actually attracts a charge rather than earning interest.

In this case, the negative rate is applied when Europe's commercial banks deposit with the ECB.

The idea of this is that the banks will not deposit any more than necessary with ECB and instead will lend the money, or invest in more profitable activities with a higher return.

The reasons why the ECB has chosen to apply negative interest rates is mainly due to the fact that inflation in the Eurozone has fallen far below their 2 percent target.

Secondly unemployment remains high in much of the continent, and growth sluggish. Central banker’s usual answer to that set of problems is simple:

Cut interest rates.

But with the ECB already paying zero percent on deposits that banks park with it, the only way to cut rates further is to go into negative territory.

negative rates

These are low interest, long term refinancing loans (TLTROs) to boost lending in the "real economy". They are only available to the non-financial sector and exclude household mortgages.

They are also substantial: from March 2015, all banks will be able to lend up to three times their quarterly net lending to the non-financial sector in the eurozone.

In essence, the TLTRO((Long Term Refinancing Operation) is a cheap loan to banks that they have to lend to specific sectors of the real economy - a lot of small and medium businesses, and not in the financial sector or household mortgages. The loan matures in 2018, but banks who do not lend sufficient cash to the correct sectors will be required to pay it back in 2016, two years early.

Below chart shows the €400 billion per Eurozone country:

This is the most complicated policy change. Since 2010 the ECB has conducted a 'sterilisation' program. Instead of simply pumping liquidity into the market like the US, UK  and Japanese central banks, the ECB chose to offset its purchases to keep the overall money supply stable.

It did this by offering banks interest bearing deposits equal to the amount of bonds it held each week, thus stabilising the money supply. For every government bond the ECB bought from one the the 'PIGIS' countries (Portugal, Ireland, Greece, Italy and Spain), it tried to withdraw an equal amount from banks through these interest bearing deposits

The policy also  meant that the ECB could claim it wasn't quantitative easing because the money supply remained stable.

First there was ZIRP (“Zero Interest-Rate Policy”), now get ready for NIRP ( “Negative Interest-Rate Policy”).

The ECB will charge an interest rate of -0.1 percent to banks wishing to store euros within central bank vaults. Domestically, the intention is to prod banks into lending money to businesses as opposed to buying government bonds.

Internationally, the intention is to cause depreciation of the Euro relative to other currencies to increase the competitiveness of European exporters.

Only the "Danmarks Nationalbank" had previously instituted negative interest rates back in 2012. It is important to note that Denmark’s economy didn’t move drastically in either direction as a result.

Even the Keynesians fear the reality of near zero interest rates, something that is referred to as a liquidity trap. Whether you believe in the power of liquidity preference or time preference, the ECB’s move tells us something about the current state of the world economy.

As has been previously stated, depreciation of the Euro versus other stores of value was to be expected and can be seen as a second leg of the currency war, which went into high gear, since the Japanese government has devalued the JPY in the last two years with approx. 29 percent against the Euro as can be seen from below chart.

In the immediate aftermath of the ECB’ announcement the price of gold jumped 1 percent.

There’s no doubt in our mind that more and more individuals within the Eurozone and around the world are realising that Gold and other precious metals represent freedom from the ECB and other Central Banks.

Until next week,

Suriname Times foto

Eric Panneflek


Manipulation or is the World Upside Down

By Eric Panneflek

market-manipulation world-upside-down-300x176

Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to discuss, the following economic data and the subsequent market reactions for you to judge if the world and capital markets currently are being turned upside down.

  • The USA GDP shrank in Q1-2014, but the USA markets are at all time high.
  • China Economy grew with 7.4% in Q1-2014, but Chinese CSI-300 Index is at 5-year low.
  • Demand for physical Gold at record high, but prices are falling on the commodity exchanges.
  • Too Cold winter weather is being blamed for negative growth in Q1-2014, in the USA, while too Hot winter weather is being blamed for negative economic growth in the Netherlands in the same period.

The commerce department in the USA reported on Thursday, May 29, 2014, that the country's economy for the first time in three years, contracted over the course of a quarter. In the interim report on GDP, the BEA estimates that the US economy shrunk by a full point in 2014 Q1, a downward revision of the advance estimate of 0.1% growth.

As can be seen from below chart this is the worst performance of the USA GDP, since the -1.3 percent drop, in the first quarter of 2011.

Quarterly GDP

Some Highlights:

  • Businesses accumulated US$ 49.0 billion worth of inventories in the first three months of the year, far less than the US$87.4 billion estimated last month.
  • Business spending on nonresidential structures, such as gas drilling, contracted at a 7.5 percent rate. It previously had been estimated to have increased at a 0.2 percentage pace.
  • Net trade, or the combination of exports and imports, declined from -0.83 percent to -0.95 percent, far below the positive boost of 0.99 percent in Q4.
  • Government subtracted another -0.15 percent from Q1 growth, more than the -0.09 percent initially expected.

See below chart for the details:

Q1 GDP revised per sector

Economist in the country blamed the severe winter weather for negative growth of the USA Q1-2014 GDP.

The Chinese economy grew with 7.4 percent in the January-March quarter from a year earlier, the National Bureau of Statistics said on Wednesday. That was slightly stronger than the median forecast of 7.3 percent.

According to the world’s leading statistical agencies, China is poised to pass the USA as world leading economic power this year.

The figures shown in above video are compiled by the International Comparison Program hosted by the World Bank.

China became the world's largest trading nation in 2013, overtaking the US in what Beijing described as "a landmark milestone" for the country.

China's annual trade in goods passed the 4 trillion US-Dollar mark for the first time last year according to official data, after exports from the world's second largest economy rose 7.9% to 2.21 trillion and imports rose 7.3% to $1.95 trillion.

China is also already the world's largest consumer of energy, and has more foreign currencies in its official reserves than any other nation.

Lifted by a continued surge in Asian gold sales, consumer demand for gold reached an all-time high in 2013 at 3,893 tonnes.

Amazingly, 54% of this demand came from two places: India and China. However, it is only recently that the East has dominated global demand for the yellow metal.

Below table shows that the total Chinese gold import during the first 4 months of this year increased with 53 tonnes or 18 percent, compared with the same period last year.


Net imports 2013 (tonnes)

Net imports 2014 (tonnes)





































Comparison 2013 - 2014 ytd



Full year



Reports from World Gold Council also shows, that Gold Purchases by Central Banks, specially in Asia were also very strong during the first 4 months of this year.

According to the International Monetary Fund (IMF), in the month of March, Iraq’s central bank added 36 tonnes of gold bullion to its reserves—worth about US$ 1.5 billion. This is the first purchase by the central bank since August of 2012, when it bought 23.9 tonnes of gold. (Source: Reuters, March 25, 2014.)

The Netherlands' economy unexpectedly shrunk in the first quarter of the year, marking the first contraction since early 2013, preliminary figures from the Central Bureau of Statistics showed Thursday.

Gross domestic product declined 1.4 percent from the fourth quarter 2013, when the economy grew 1 percent, which was revised from 0.9 percent. Economists were looking for a flat reading.

Some Highlights:

  • Household consumption fell 2 percent annually, while government consumption grew 0.1 percent.
  • Fixed asset investment rose 6.3 percent, following 6.7 percent growth in the previous quarter.
  • Exports grew 1.4 percent and imports rose 1.8 percent.
  • Employment declined by 32,000 from the previous quarter.

Economist in the Country, blamed the first quarter contraction partly on weaker demand for gas due to the very mild winter.


USA / The Netherlands / China:
Although the Economic figures of both the USA as well as the ones of the Netherlands are showed contracting economic activities in both countries, both U.S. as well as Dutch stocks were trading higher as investors focused on the brighter second-quarter growth prospects, for which the DOW reached an all time high last Friday, May 30th, as can be seen from below chart.

DOW Jones All time chart

On top of this, the United States has been running consistent trade deficits since 1980 due to high imports of oil and consumer products. In recent years, the biggest trade deficits were recorded with China, Japan, Germany, Mexico and Saudi Arabia. Below chart shows the trade deficit of the USA during the last 12 months.


On the other side although strong performance by the Chinese Economy, the Chinese CSI-300 Index, currently is at 5 year low as can be seen from below chart. CSI-300 all time chart It really amazed  us, how the media and some economist in the West, can misuse weather conditions, to explain who severe winter weather in one country (the USA) while mild weather in the other country (the Netherlands) is to be blamed for negative GDP growth in both countries.

It also amazed us how these same media and economist, are talking down China, for which the CSI-300 index, has an P/E ratio of 9.6, compared with an P/E of 17 of the USA Indexes and 21. for the Dutch AEX-25. At present, the amount of negativity towards gold bullion is immense.

The gold markets fell during the bulk of the session last Friday, but as we can see from below technical analysis video, it found enough support just below the US$1250 level to cause the market to turn back around and form a hammer.

But the fundamentals on the other side paint a different picture. Central banks around the world (especially China) continue to be major buyers of gold bullion, as do private individuals.

This year, world gold production will decline as gold companies have slashed their exploration budgets and shut down low-grade, cost-ineffective mines. After reading this blog article, you should agree with us, that currently the markets are behaving completely irrational.

The following quotes of John Maynard Keynes are currently applicable:

“The market can stay irrational longer than you can stay solvent.”

Yours sincerely,

Suriname Times foto

Eric Panneflek


Palladium rises to highest price since August 2011

By Eric Panneflek

Raw PalladiumFine Palladium

Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to discuss, the resent price development and Outlook for Palladium.

Palladium is a rare and lustrous silvery-white metal, that, together with platinum, rhodium, ruthenium, iridium and osmium, form the group of elements known as the platinum group metals.

Palladium is one of four metals to be assigned and ISO currency code (XPD and 964). The other three metals are of course gold, silver and platinum. Investing in palladium is done via purchasing palladium bullion coins and bars.

On thursday, may 22nd, Palladium climbed to US$ 836.00 an once to close at US$ 832 an ounce its highest closing price since August 2011.

Below chart shows the palladium price development on May, 21st, 22nd and 23rd , 2014.

Palladium May 21-22-23 2014 chart

Palladium found support from both the ongoing strikes in South Africa against platinum producers and tensions between Russia and Ukraine. Together, South Africa and Russia produce nearly 80% of the world’s palladium output. Additionally, auto sales are rising in the U.S. and China, where palladium is used in autocatalysts for pollution control.

Members of the Association of Mineworkers and Construction Union, the biggest labor organization at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin, have been on strike in South Africa since Jan. 23.

Workers were prevented from reporting for duty at Lonmin as the producer reopened mines, a union not participating in the strike said.

Palladium advanced 15 percent this year on concern that the strike in South Africa may add to a supply shortage and as western nations threated top producer Russia with additional sanctions over Ukraine. 

Palladium for June delivery rose 0.8 percent to $824 an ounce by 7:43 a.m. on the New York Mercantile Exchange. It touched US$ 825, the highest since Aug. 3, 2011. Futures trading volume was 66 percent higher than the average for the past 100 days for this time of day, data compiled by Bloomberg showed. The metal for immediate delivery gained 0.8 percent to $824.16 in London, according to Bloomberg generic pricing.

Platinum for July delivery climbed 1.2 percent on Thursday, May 22nd, to US$1,473.60 an ounce in New York. it reached $1,474.50, the highest since March 17, earlier today, as can be seen from below 3-day chart.

platinum 3 days chart

South Africa is the biggest platinum producer.

Rhodium a silver-white metallic element, also a member of the Platinum Group, is highly resistant to corrosion, and is extremely reflective. 

Its being used in:

  • Electric connections and is alloyed with platinum for aircraft turbine engines.
  • Jewelry.
  • Manufacturing of nitric acid and used in hydrogenation of organic compounds.
  • Automotive catalyst applications where it is used together with platinum and palladium to control exhaust emissions.

Rhodium, prices increased last week with US$ 105.00 an ounce or 10.29 percent to close the week at US$ 1125.00 an ounce as can be seen from below chart.


South Africa is the major source, accounting for almost 60% of the world's rhodium supply Russia is the second largest producer.

As  can be seen from below 5 year-chart, Palladium is the best performing precious metal which is the only Precious Metal, that hasn't gone through a correction last year.

Palladium 5-year chart

Rhodium, Palladium and Platinum, based on their behaviour and geological systems are also subdivided, as the Palladium Platinum Group of elements.

As can be seen from below map, 80 percent of the supply of these elements comes from high risk jurisdictions, Russia and South Africa.


Secondary supply is derived from recycling (which is estimated to have contributed approximately 2.2 million ounces in 2012), and from a Russian government stockpile. There has been considerable speculation about the current holdings of the Russian government’s palladium stockpile, which historically has been an overhang on the market.

Demand for Palladium Platinum Group continues to grow, driven primarily by the automotive sector which consumes approximately 67% of world palladium supply for the manufacture of catalytic converters (also referred to as mufflers) in cars which help reduce toxic emissions into the environment. 

See below chart for a breakdown of the industrial demand for these elements:


The demand in the automotive industry has more than doubled in the last ten years due to an increase in global automotive production and the tightening of emissions standards worldwide, resulting in steady growth in the use of catalytic converters.

Besides their above mentioned industrial usage, almost 40 percent of all, Palladium Platinum Group of Metals, is being used as an asset protection vehicle, in the form of fine Palladium, Platinum and Rhodium, coins and bars stored in vaults, mainly in Switzerland.

Due to this, holdings in exchange-traded products backed by platinum and palladium climbed to records this week, data compiled by Bloomberg show.

Based on the above, since January 2009, we have a STRONG BUY rating on the Palladium Platinum Group of elements.

Last but not least, before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours sincerely,

Suriname Times foto

Eric Panneflek