PGM Capital – Blog
23Nov/140

Highlights of the week of November 17, 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 November 17, 2014:

  • Japan Back into Recession:
  • China Lowers Interest rate:
  • Russia continues to expand its Gold reserves:

JAPAN BACK INTO RECESSION:
On Monday, November 17, Japan reported that the country's real gross domestic product fell 1.6% on an annualized basis between July and September, which followed a revised 7.3% contraction in the second quarter.

Based on the fact that a recession is defined as two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP), Japan as the world's third largest economy, is now technically in a recession.

As can be seen from below chart the Japanese economy has now contracted in three of the last four quarters and due to this has now entered its fourth recession since 2008.

As  a consequence of this the yen fell to US$ 0.0085 per Yen, its weakest level since August 2007 as can be seen from below chart.

 

CHINA LOWERS INTEREST RATE:
In a surprise move on late on Friday, November 21, the People’s Bank of China (PBOC) cut interest rates for the first time in more than two years .

As can be seen from below chart, last Friday, China's central bank cut its benchmark,  one-year loan rate by 0.4 percentage point to 5.6%, which is its first interest-rate cut since July 2012.

By lowering the 1-year lending rate, the PBOC is making it cheaper for business to borrow in order to hire or expand their business.

Above chart shows also shows that the PBOC has reduced the benchmark one-year deposit rate to 2.75% from 3% but gave banks greater flexibility to raise deposit rates above that benchmark.

RUSSIA CONTINUES TO EXPAND ITS GOLD RESERVES:
On Tuesday, November 18, the Central Bank of the Russian Federation published its October official reserve assets and other foreign currency assets report indicating that it had added 600,000 ounces of gold to its reserves.

Russia’s gold reserves now stand at 37.6 million ounces equivalent to 1,169 metric tons as can be seen from below chart.

Russia's current reserves of 1,169 metric tons, bring the country on the sixth position in the top 10 of countries with the biggest gold reserves.

The Governor of Russia's central bank Elvira Nabiullina told the lower house of parliament on Tuesday November 18, that the country's Central Bank bought around 150 tonnes so far this year, with the consequence that Gold currently constitutes around 10 percent of the bank's gold and forex reserves.

Head of Russian Central Bank Elvira Nabiullina

The Russian government is a firm believer in gold and the position it may give Russia in any future re-alignment of the global reserve currency in the year ahead.

PGM CAPITAL COMMENTS:

JAPAN's QUADRUPLE DIP RECESSION:
Japan's Prime Minister Shinzo Abe, came into office in December of 2012 with a popular mandate to end Japan's two-decade long malaise.

So "Abenomics" was born: fiscal and monetary stimulus, together with "structural reforms," like getting more women in the workforce, to make up for at least some of Japan's lost growth the last 20 years.

As a consequence of this, the Bank of Japan has expanded its balance sheet from 40 percent to around 50 percent of GDP over about 18 months. Then, at the end of October, Abe rolled the dice again, announcing a boost to a quite incredible 70 percent of GDP over the next three years. By that time, Japan’s monetary base will be close to the same size as that of America, even though the US economy is three times bigger and home to two and a half times more people.

If it worked, prices would stop falling like they have for 15 years now, and there would be a virtuous cycle of inflation leading to more consumer spending leading to more business investment, and finally more inflation at their 2 percent target.

Premier Shinzo Abe is trying to head off a Japanese debt crisis

But then, six months ago, the government became more worried about its debt of 230 percent of GDP than it was about the recovery. It raised the sales tax from 5 to 8 percent, and the economy promptly tanked. The BOJ has responded by buying even more bonds with even more newly-printed money, but not before domestic prices, as measured by the GDP deflator, began falling again, this time at a -0.3 percent pace.

Abenomics, in other words, has gone from being fiscal and monetary stimulus to fiscal austerity and even more monetary stimulus—and that, at least for now, has brought back deflation.

We believe that Japan and Abenomics have all the potential of bringing the world into a cruel currency war and money printing spree, which in the end will lead to hyperinflation and a depression in the west.

CHINA LOWERS INTEREST RATE:
The cut in the benchmark rates follows liquidity injections and targeted cuts to reserve requirements. Although the PBOC scrapped controls on most borrowing costs in July 2013, banks still use benchmark rates as a guide for loans including mortgages.

The People's Bank of China's rate move comes after the Bank of Japan sprang a surprise on Oct. 31 by dramatically increasing the pace of its money creation, while European Central Bank President Mario Draghi shifted gear on Friday and threw the door wide open to quantitative easing in the Euro zone.

In cutting rates, China joins the parade of global policy makers who are stepping up their stimulus efforts to support growth.

RUSSIA EXPENDING ITS GOLD RESERVES:
Of all the central banks that make their reserve actions public, Russia has been the "largest, most active" gold accumulator. The "elephant in the room, however, is " how much gold China is buying, as Beijing does not publish these figures".


A recent report from the World Gold Council showed that many central banks, including Russia's, have beefed up their gold reserves. This investment, the report suggested, was "driven by a number of factors including a continued diversification away from the U.S. dollar and the backdrop of ongoing geopolitical tensions."

The dip in gold prices has spurred purchases from Asia. Trading volumes on the Shanghai Gold Exchange’s (SGE) benchmark bullion spot contract jumped this week and India’s imports surged in October.

Gold and silver futures rose to three-week highs after China cut benchmark interest rates to support economic growth, boosting demand for precious metals as a store of value. Palladium jumped the most in 14 months.

Now that China also has joined the group of countries, lowering its interest rate in order to stimulate growth we believe that the demand for gold will increase as a hedge against diluting fiat currencies.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind, that we are currently living in the age of turbulence and widow dressing  and due to this markets can behave irrationally longer that you can remain solvent.

Until next week.

Yours sincerely,

Suriname Times foto

16Nov/140

Peak Silver: -US Mint Sells Out Of Silver-

By Eric Panneflek

Dear PGM Capital Blog readers,
In this weekend's blog edition, we want to discuss with you the Peak of Silver production and the fact that US-Mint ran out of the American Silver Eagle coins. 

Freshly Minted bullion American Silver-Eagles

Of all the elements on the periodic table, Silver has been dubbed the first to go extinct, which will make it the resource investment opportunity. According to the United States Geological Society, Peak Silver will arrive by 2020. That is just 5-6 years away, and the question is what will happen when the last bit of silver has been mined?

Silver is really unique. It is harder than gold and has a much higher melting temperature. That is why it is being used in the following applications:

  • Medical and food industries because of its antibacterial properties.
  • Water purification systems.
  • Catalytic converters for automobiles.
  • It is an integral part of the cell phone, tablet and computer industry.
  • The construction of solar panels, creation of circuits, RFID chips and in batteries.
  • Windows in high rise buildings.

With silver approaching extinction, industry will need to find a way to replace or recycle it, which means that the price of silver will have to rise significantly in order to entice consumers to recycle it. There is a lot of silver available for recycling, and we suspect that certain industries will be required to pay the higher prices as silver becomes harder to find.

The question about replacing silver with platinum does not work well as a solution. Platinum is nearing extinction too and would be more expensive as a substitute. As the reserves of silver diminish the only logical action is recycling.

SILVER INVESTMENT DEMAND OUTLOOK:
CPM Group Managing Partner Jeffrey Christian wrote a report on silver investment demand. He is a true believer in the value of silver as an investment.

In their free 50-page report, “Silver Investment Demand: A comprehensive study report of the global silver investment market for the Silver Institute” the CPM Group outlined the results of their study regarding the global silver investment market.

CPM Group -Silver Investment Demand-

It never fails: any time there is a dump in precious metals through their paper representation (GLD, SLV, or futures) typically as a hedge to a rally in the dollar, the demand for physical Precious Metals soars confirming yet again that any connection between paper prices and physical demand no longer exists.

Whether it is China buying every ounce of gold it can find or US consumer rushing into retail outlets, the surge in physical metal buying is there like clockwork. Such as US Mint silver orders. As reported on Friday November 14, 2014, sales of American Eagle silver coins by the U.S. Mint jumped 40 percent in October to the highest in 21 months as can be seen from below chart.

Mint Silver Sales

Sales surged in October to 5.79 million ounces, the most since January 2013, the month that set an all-time high at 7.5 million ounces.

Christian, of the CPM Group, estimated that investors may accumulate as much as 1 billion additional ounces of silver in various investment instruments over the next decade. This on top of the more than 860 million ounces of silver purchased for investment purchases since 2006.

US MINT OUT OF SILVER:
On Wednesday, November 5th 2014, the U.S. Mint said it has temporarily sold out of its American Eagle silver bullion coins, due to "tremendous" demand in the past several weeks and that they are in the process of producing more and will advise when additional inventory is available.

On Monday November 10, 2014, the United States Mint said that it expects to have over one million 2014 American Silver Eagle bullion coins for sale by November 17, 2014.

Since the U.S. Mint cannot produce enough Silver Eagles, the Mint sold out of them after weeks of explosive demand, sales of the 99.9% pure silver coins will resume on a rationed basis.

WHO BUYS SILVER:
Despite popular belief, silver is not “poor man’s gold,” the myth that a large number of investors buy silver because it has a lower unit price, the report observed.

A study shows that in most countries, including the USA, the largest volume of silver bars, coins and medallions appear to be purchased by upper income, college educated professionals between the ages of 40 and 65.

PGM CAPITAL COMMENTS:
We believe that silver supplies will tighten and demand to remain high for the next ten to twenty years.

It will take industry that long to redesign products, and find substitutions for silver. That means that silver will remain a resource investment opportunity.

On top of this the demand for silver as a storage of value is soaring.

As can be seen from below table the total amount of Silver Eagle sold up to November 5th 2014, when the mint ran out of Silver, reached 39.301 million ounces, which is very close to the all time record of 39,868,500 American Eagle Silver Bullion coins sold in 2011.

January 4,775,000
February 3,750,000
March 5,354,000
April 3,569,000
May 3,988,500
June 2,692,000
July 1,975,000
August 2,007,500
September 4,140,000
October 5,790,000
November 1,260,000
December 0
Total 39,301,000

In its above mentioned report, CPM advised that currency markets are expected to remain volatile due to uncertainties related to economic and political conditions in various economies. “Investors are expected to continue using silver as a currency hedge, and this factor is expected to remain a strong influence on investor demand for silver.”

As can be seen from below chart, it appears that the US$15.50 level per troy ounce of silver, was the line that broke the camel’s back regarding physical inventories, as physical demand has simply EXPLODED on Friday, November 14 in the morning, after futures dipped below US$15.20. per troy ounce.

Due to this at approximately 1pm EST on Friday November 14, one of the largest Primary Dealers in the US issued a notice to all purchasers that premiums for

ANY PREVIOUSLY PLACED PURCHASES FOR SILVER EAGLES
ARE NO LONGER VALID!

This is simply unprecedented!

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.

Until next week.

Yours sincerely,

Suriname Times foto

9Nov/140

Why Investing in Graphene can be lucrative

By Eric Panneflek

Graphene

Dear PGM Capital Blog readers,
In this weekend's blog edition, we want to elaborate on the increasing usage of graphene in modern high technology equipment and the best way to invest in it.

WHAT IS GRAPHENE?
On October 5, 2010The Royal Swedish Academy of Sciences decided to award the Nobel Prize in Physics for 2010 to Andre  Geim and Konstantin Novoselov, both researchers at the University of Manchester, UK, for their groundbreaking experiments regarding the two-dimensional material "graphene".

Graphene is pure carbon in the form of a very thin, nearly transparent sheet, one atom thick.

Graphene Molecular Structure

 

Some important characteristics of Graphene:

  • It is remarkably strong VERY strong, considering its very low weight it is 200 times stronger than steel as stiff as diamond, and also flexible and even stretchable.
  • It conducts heat and electricity with great efficiency (faster at room temperature than any other known material)
  • It charges and discharges 100x to 1000x faster than traditional batteries.

Researchers started to study Graphene in 2004, and since then they have found dozens of potential applications and exciting properties of this wonder material. Graphene is set to revolutionize a lot of industries, including sensors, batteries, conductors, displays, electronics, energy generation, medicine and more.

See below video for more details:

THE GRAPHENE TECHNOLOGICAL REVOLUTION:
The commercialization of graphene is just in its infancy, but already dozens of new companies have been established to develop graphene based material, graphene production processes and other related activities.

Graphene's unique properties are valuable in many different industries and applications such as:

  1. Energy Storage:
    Graphene may hold the key to an energy storage revolution. Researchers have developed highly porous graphene-based super capacitors that they, "can fully charge in just 16 seconds and have repeated this some 10,000 times without a significant reduction in capacitance." Imagine charging your smartphone or tablet in just 30 seconds, or your electric car in a few minutes.
  2. Flexible Screens:
    Graphene is transparent (it transmits up to 97.7% of light), and it also has low electrical resistance and is flexible. Therefore, it's a good candidate for flexible electronics and screens.
    graphene-chip
  3. Desalinization/Filtration:
    Graphene behaves strangely around water. Water can pass through it, but almost nothing else can. Graphene is also much stronger and less brittle than aluminum-oxide (currently used in sub-100nm filtration applications). This makes it a good candidate for water filtration systems, desalination systems, and efficient and economically more viable biofuel creation.
  4. Medical Applications/Sensors:
    Offering a large surface area, high electrical conductivity, thinness and strength, graphene would make a good candidate for the development of fast and efficient bio-electric sensory devices, with the ability to monitor such things as glucose levels, hemoglobin levels, cholesterol and even DNA sequencing.
  5. Photovoltaics/Solar cells:
    Graphene offering very low levels of light absorption (at around 2.7% of white light) whilst also offering high electron mobility means that graphene can be used as an alternative to silicon in the manufacture of photovoltaic cells.
  6. Material Composites:
    Graphene is strong, stiff and very light. It could eventually replace steel and carbon composites in everything from aircraft to cars to body armor for the military. It is actually already being used in tennis rackets today.
  7. Computing/Electronics:
    Graphene's unique structure and "extremely mobile electrons could allow graphene transistors to process data at very high rates, with some devices already clocking in at more than 400 gigahertz — many times faster than comparable silicon devices." Alternatively, graphene photodetectors could also "allow computer chips to communicate with light rather than comparatively sluggish, energy-wasting electrons — an advance that would cut power consumption and allow computers to handle data more efficiently.

application-131004

INVESTING IN GRAPHENE:
Investing in a pure-play graphene company is not easy, as almost all of these companies are currently privately held.

Making graphene, gram for gram, is one of the most expensive materials on Earth: one micrometer-sized flake made, can cost more than US$1,000.00

However, as mass production increases, there is potential for a 70% to 80%  price drop, making graphene production much more economical. Chemical vapor deposition (CVD), for example, has brought the cost down to about US$100,000 per square meter.

Estimates suggest that the graphene market will be $149.1 million by 2020.

The European Union has created a flagship program for graphene, allocating about U$1.3 billion to spend on the development of graphene over the next 10 years.

WHO IS USING GRAPHENE:
Every tech company with an eye on the future and other industries ranging from medical to defense as well are currently in the race for being the first one being able to produce cost efficient equipments, gadgets or instrumentation, in which graphene is being used. In tech the biggest players are Samsung, which owns 38 graphene patents (and this figure is expanding), and Apple and Google. You thought the smartphone patent wars were annoying? Just wait until the graphene patent wars begin.

Professor Hong Byung Hee at Seoul National University, created a technique--and owns the patent for--mass-producing graphene-based displays, the primary area of interest for tech companies. The fact that Hee has figured out how to turn graphene into displays and owns the patent on it makes him the most popular guy in the world as far as the tech giants are concerned.

The reason you don’t have a graphene smartphone right now is because the material still has some challenges to be worked out. Namely it’s difficult to manufacture on a large scale. So right now they can make a lot of small batches of perfect graphene displays or large batches of, well, crappy ones.

 

But Samsung has recently said it has had a breakthrough in producing graphene in larger batches and other researchers are working on different approaches around the world.

PGM CAPITAL COMMENTS:
Graphene, although it might be the next wonder material, faces hurdles. It is still far too expensive for mass markets, it doesn’t lend itself to be used in some computer-chip circuitry and scientists are still trying to find better ways to turn it into usable forms. 

One factor holding graphene back is cost. Some vendors are selling a layer of graphene on copper foil for about US$60 a square inch.

Its price has to drop to around one dollar per square inch for high-end electronic applications such as fast transistors, and for less than 10 cents per square inch for touch-screen displays.

Graphene is undeniably exciting, and has the potential to transform a number to clean-tech industries. The timeline for that transformation, however, is likely to be slower than investors bidding up graphene-related stocks today.

For those of you who want to invest in graphene, we advise you to carefully research and select a basket of  the best graphene producers and an even more careful selection of companies that are making early efforts at application of the material.

Based on the above, we believe that best way to play graphene right now, is by investing in conglomerates that will profit most, when they integrate graphene in their current products or launch new products using graphene.

Disclosure:
We currently have No position in any graphene producing company or stocks of any company mentioned in this article.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek