PGM Capital – Blog
13Apr/140

The Great Stock Rout of 2014

By Eric Panneflek

stock-market downstocks-down

Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to discuss with you the stockmarket rout that started on Friday, April 4th 2014,  which brought down most markets in the West down with approx. 5 percent during the last 6 trading days.

It all started Friday, April 4th, with the Nasdaq narrowly avoiding its worst one-day as it slumped 110.01 points or 2.60 percent, to finish at 4,127.73.

During the week the sell-off continued and became broader by hitting most of the markets in the West, bringing most of them in the red for the year as can be seen from below charts.

JAPAN NIKKEI INDEX:
As can be seen from below chart, the Japan Nikkei index declined YTD 2,187.49 points or 14.32 percent as can be seen from below chart, making it up to now the worst performing market in the West.

Nikkei YTD Chart

Nikkei 225 Year to Date Chart

USA NASDAQ & DOW INDEX:
The Nasdaq Composite Index (^IXIC) is down 4.7 percent for the month of April so far, while the Dow Jones industrial average (^DJI) is down 2.6 percent.

Stocks closed sharply lower for a second straight day on Friday, April 11, as the  once high-flying biotech and Internet shares tumbled again, sending the Nasdaq composite index back below 4000 for the first time since Feb. 3.

The Nasdaq plunged 54.37 points, or 1.3% to 3999.73. The Dow Jones industrial average dropped 143.47 points, or 0.9% to 16,026.75 and the Standard & Poor's 500 index fell 17.39 points, or 1% to 1815.69.

Investors remain jittery following Thursday's big sell-off that saw the Nasdaq drop 3.1%, its worst plunge since November 2011 The Nasdaq is now down 8.2% from its 2014 high of 4,357.97 set on March 5 and is 4.2% lower for the year as can be seen from below chart.

Nasdaq YTD Chart

NASDAQ Year to Date Chart

The S&P 500 has fallen 4% from its record high close of April 2 and is 1.8% lower for the year.

As can be seen from below chart the Dow has retreated 3.3 percent from its Dec. 31 record close of 16,576.66.

DOW YTD Chart

Dow Jones YTD Chart

LINKEDIN AND TWITTER IN BEAR MARKET:
Volatility seems to be the name of the game in social media investing right now.

As can be seen from below charts Twitter (NYSE: TWTR) is down 40.67 percent  this year, while LinkedIn Corp. (NYSE: LNKD) has corrected 20.16 percent, bringing both into bear market territory.

Twitter on year chart

Twitter YTD Chart

Linkedin one year chart

Linkedin YTD year chart

 

PGM CAPITAL COMMENTS:
In our New Year article and several other articles this year we have informed our readers that in accordance with fundamental analysis, the Japan and USA markets are overvalued for which social stocks are in a huge bubble and that it isn't IF but WHEN, these markets and social media stock would go through a cruel correction.

On the other hand, markets in Asia, specially the Hong Kong Hang Seng Index and the China CSI-300 index with a P/E ratio of around 10, are very cheap.

With Central Banks all over the world printing money out of thin air, Gold and other precious metals are a screaming buy for investors who want to protect their savings from being diluted.

Below chart shows the Gold price performance against that of the Dow Jones YTD, for which the blue and the red graph represents respectively the performance of the DOW and the Gold price year to date.

Gold price versus Dow Jones Year to date

DOW versus Gold Price YTD chart

If we compare the performance of the DOW with the price movement of Palladium, - the best performing precious metal of this and last year - we can clearly see how Palladium has outperformed the Dow Jones YTD with almost 16 percent.

See below chart for details for which the blue and the red graphs represent respectively the performance of the DOW and the Palladium price year to date.

DOW versus Palladium prices YTD

DOW versus Palladium Price YTD chart

The charlatans will try to convince you that the sell-off in the USA markets and social media shares are a normal correction in a secular bull market, and that the price appreciation of Gold and other precious metals are just a dead cat bounce.

Based on fundamental analysis we believe that the sell-off in the USA capital markets still has a long way to go and that a further 10-15 percent correction can be expected, for which the correction in of the NASDAQ can reach 30 percent. Regarding the social media stocks, we believe that these are in a huge bubble and must correct at least 70 - 90 percent before they can reach a reasonable valuation.

When comparing the DOW with the Market Vector GOLD Miners ETF (NYSE : GDX) we see that the later one has outperformed the with 20 percent YTD as can be seen from below chart.

Market Vector Gold Miners ETF versus Dow Jones Industrial YTD

Market Vector Gold Miners ETF versus Dow Jones Industrial YTD

The Gold miners have a leverage on the price of gold, in both directions and are a leading indicator for the direction of the price of the yellow metal.

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,

Eric Panneflek

5Apr/140

Offshore Drillers: Potential Yield Gusher for your Portfolio

By Eric Panneflek

Offshore Drillerscash+flow

Dear PGM Capital Blog readers,

In this weekend's blog edition, we want to discuss with you, why investing in Offshore Drillers at current valuation has the potential of adding yield to your portfolio.

With the global capital markets approaching all-time highs again, it's difficult to identify stocks that are undervalued with growth potential.

So as the markets are peaking, we are looking for areas to enter that have downside protection, pay a healthy dividend and have solid growth potential. Offshore drillers meet all these criteria.

Based on speculation of possible decreasing day-rates for rigs and a weakening market as oil-companies limit capital expenditure, offshore drilling stocks have taken a beating over the past few months.

However, this weakness has created a buying opportunity as fundamentals and long-term business remain strong.

Based on the fact that their stock prices are near 52-week lows, with strong dividend, low Price to Earnings ratios we particularly like Noble Corp. (NYSE: NE), Ensco (NYSE: ESV), Transocean (NYSE:RIG) and Seadrill (NYSE: SDRL) at current prices.

Company Market Cap [USD] P/E Ratio P/B Ratio Dividend Yield
SeaDril 16.53B 6.44 2.18 11.20%
TransOcean 15.02B 10.74 0.89 5.40%
Ensco 11.9B 8.42 0.93 5.70%
Noble Corporation 7.96B 10.27 0.96 4.60%

SEADRILL:
At the closing price of Friday April 4th 2014, of US$ 35.30. the company offers an incredible 11.2% dividend, which is hard to ignore and investors looking to add yield to their portfolio may want to consider Seadrill.

As can be seen from below chart the company which has P/E ratio of just 6.3 is trading near its 52-week low, which is a good entry point for investors wanting to limit downside exposure.

Seadrill 2 year chart

In the current market where finding value is extremely difficult, Seadrill offers too many positives to not be considered undervalued here. While the company is highly leveraged and only 3 of its 20 rigs under construction have long-term contracts, its US$20.2 billion backlog is more than enough to sustain its quarterly dividend of US$0.98 per quarter per share in the short-term.

On top of this it is worth mentioning, that SeaDrill Ltd, is registered in the island-nation of Bermuda, for which the company as well as its share holders are tax exempt in Bermuda.

TRANSOCEAN:
Transocean had a horrible start in 2014, as can be seen from below chart. Year to date, the stock lost around 15.52% and although its stock price is showing signs of recovering, it is currently trading at its 2-year low.

Transocean 2-year chart

Above 2-year chart shows that the stock of the company has a strong support level of US$ 40.00 a share, which should continue to provide resistance to any further declines.

With a Price to earning and price to book ratio of respectively 10.74 and 0.89, we can consider the stock cheap.

Another floor for the stock-price of the company, is its large dividend yield of 5.4%, which is twice the yield of the 10-year Treasury bond. The payout is less than half of this year's expected earnings so the company should be in no danger of cutting the dividend anytime soon.

NOBLE CORPORATION:
With a current P/E of 10.27 the company looks historically cheap considering its strong growth. This creates a great opportunity for dividend investors as short-term weakness has created an impressive 4.6% dividend yield with very little downside from current levels as can be seen from below 2-year chart.

 Nobel Drilling 2-year chart

In 2013, Noble Corp. announced they would spin-off part of its standard jack-up fleet by the end of 2014. Paragon Offshore will be the new company created and will take on 34 jack-ups, 8 floaters, and 4 other rigs to be announced. This spin-off will leave Noble Corp. with a young and specialized fleet of ultra-deepwater rigs and high-spec jack-ups.

ENSCO:
Ensco, which is the second largest offshore driller with 71 active rigs and 6 more under construction, offers an impressive 5.7% yield and has seen strong support at a price level of US$48 as can be seen from below chart.

Ensco 2 year chart

At current prices around US$51-US$52 a share, there is very little downside to this investment which offers both strong upside potential and pays a healthy dividend.

As can be seen from below 5-year chart, the company doubled its dividend in 2013 to US$3.00 a share and has shown its commitment to returning value to shareholders through strong dividends.

What's even more impressive is that the company has the lowest payout ratio of any major offshore driller with a dividend yield over 3% as can be seen from below chart.

PGM CAPITAL COMMENTS:

Offshore oil drillers such as Transocean, Seadrill, Noble and Ensco look like ideal picks for income investors. After all, they each sport huge dividend yields of at least 5%, with Seadrill's 10% yield leading the pack. This towers above the dividend yield of the overall stock market.

And yet, none of these oil drillers have received much love from investors over the past year. In fact, their share prices barely budged while the S&P 500 Index rallied. This has to do with the questionable outlooks facing oil drillers, primarily the potential of a tighter supply and demand balance for oil rigs. As oil majors see less compelling returns on new projects, they're cutting capital expenditures that are likely to lead to lower day rates and utilization for oil drillers.

On the other hand, for investors with a long term horizon, these drillers at current price and dividend yield offer a great buy and hold opportunity.

Since the end of March of this year we have a STRONG BUY rating on the stock of SeaDrill, a BUY rating on the stock of Ensco and a MODERATE BUY on the shares of TransOcean and have start adding these stocks in several clients' portfolio.

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,

Eric Panneflek

29Mar/140

Highlights of the week of March 24, 2014

By Eric Panneflek

bitcoinsIRS

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 March 24, 2014.

  • Bitcoin price plunges on report PBOC and IRS
  • Citigroup among 5 banks failing FED's stress test.
  • Gold Reserves of the Central Bank of the Russian Federation at record high.

BITCOIN PRICE PLUNGE ON REPORT PBOC AND IRS:
The Internal Revenue Service announced on Tuesday, March 25th, that bitcoin should be viewed and taxed as property, giving a little clarity to the shifting regulatory landscape of virtual currency.

Despite the fact that many users treat bitcoin like a regulated currency, “it does not have legal tender status in any jurisdiction,” the agency said.

That means that employers who choose to pay wages in bitcoins will have to report those wages just like any other payment made with property, and bitcoin income will be subject to the normal federal income withholding and payroll taxes.

Bitcoin prices plunged almost 10 percent Thursday March 27th,  after a report that China’s central bank ordered banks and payment companies to close the trading accounts of more than 10 exchanges.

Accounts must be closed by April 15, preventing investors in the commodity that advocates promote as a digital currency from doing fund transfers to the exchanges, according to a Caixin news report citing a notice sent to banks and third-party payment companies this month.

Below chart shows how bitcoin prices has plunged more than 60 percent since the beginning of this year.

CITIGROUP AMONG 5 BANKS FAILING FED'S STRESS TEST:
On Wednesday, March 26th, after market close the FED announced the results of the banks stress test.

As can be seen from below chart, CItigroup shares dropped 5.4% Thursday to close at US$47.45 a share after the Federal Reserve rejected the plans of Citigroup and four other banks to raise dividend payments and increase stock buybacks.

citi group 1 week chart

Beside Citigroup (NYSE: C), also HSBC North America Holdings (NYSE: HSBC), RBS Citizens Financial Group (NYSE: RBS) and Santander Holdings USA  (NYSE: SOV-PC) and Zions (NASDAQ: ZION) failed to meet the Federal Reserve’s capital requirements under its big annual stress test.

The capital plans of Citigroup, HSBC North America Holdings, RBS Citizens Financial Group and Santander Holdings USA all were all rebuffed because of flaws in their oversight practices or what the Fed calls "qualitative concerns."

Zions Bancorporation's plan was turned down because it fell short of the minimum capital buffer required in the event of a severe recession.

Twenty-five other banks that took part in the Fed's annual "stress test" received a green light for their planned dividend payouts and share repurchases. Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS) initially fell short of minimum capital requirements but met the standards after reducing their planned dividend payments and share buybacks over the past week.

GOLD RESERVES RUSSIAN CENTRAL BANK AT RECORD HIGH:
On Wednesday, March 26, 2014,  The Central Bank of the Russian Federation updated their website with the data for February.  As can be seen from below chart, they added 200,000 troy ounces to their official gold reserves during the month for a total reserves of approx. 34 million Troy Ounces.

140321Russian_Reserves

It will be interesting to see what Russian demand is in March and indeed in the coming months. Sanctions could lead to materially higher demand from the Russian Central Bank.

This would cause a material strain on the already fragile supply demand dynamics of the physical gold market. The possibility of a default on the COMEX gold exchange would become more likely, with a consequent surge in the cost of gold coins and bars and a difficulty of securing physical gold either in allocated gold accounts or for delivery. 

PGM CAPITAL COMMENTS:

Bitcoin:

Bitcoin has been hard hit since Tokyo-based exchange Mt. Gox, once the world’s largest, halted withdrawals on February 7th, sending prices tumbling more than 8 percent. The exchange filed for bankruptcy weeks later after about US$470 million in bitcoins belonging to its customers and the firm disappeared from its registries.

bitcoin-bubble

Prices dived by about 36 percent from its intraday high immediately after the PBOC notice on December 5th of last year. BTC’s Lee said at the time he was in favor of government regulation of the bitcoin exchanges as it would benefit consumers. BTC China announced two weeks later that it had stopped accepting deposits, triggering another price drop.

Sheng Songcheng, head of the PBOC’s statistics department, said at a briefing on January, 15th of this year, that people needed to be reminded of the risks of dealing in the “virtual commodity” that wasn’t “fundamentally a currency.”

In several previously posted blog articles we have warned our readers that in accordance with our fundamental analysis, bitcoin is a huge bubble that will implode very soon, causing huge loses for bitcoin holders and investors.

CitiGroup:

Citigroup was the biggest recipient of federal bailout money during the 2008 financial crisis, getting US$45 billion in cash infusions and many billions more in guarantees. The Fed said its rejection of Citigroup's plans "reflects significantly heightened supervisory expectations for the largest and most complex" bank holding companies.

The Fed said Citigroup "has made considerable progress improving" its risk management and control practices the past several years, but its capital plan contained "a number of deficiencies." For example, the Fed questioned Citigroup's ability to project revenue and losses "for material parts of the firm's global operations" in a sharp economic downturn.

The central bank also cited gaps in Citigroup's own stress testing that reflect "its full range of business activities and exposures."

citi all time chart

Above chart shows the all time chart of the company shares. It is also worth mentioning that the company has reduced its quarterly dividend from US$ 5.40 a share in 2006 to only US$ 0.01 a share currently.

Based on the above we have a STRONG SELL rating on the share of the company.

Russian Central Bank Gold Holdings:

In line with the proposed Economic sanctions of the USA and EU against Russia for their annexation of Crimea, it is worth mentioning that Russia has some US$400 billion in foreign exchange reserves - mostly in U.S. dollars. If they were to diversify just 5%, worth some US$20 billion, of those reserves into gold - it would be equal to nearly 500 tonnes of gold or nearly 25% of global annual production.

CBRF

Currently the EU imports over 30 percent of their natural gas consumption from Russia. If it gets really hot between Russia and the West on the Crimea issue and Russia decides as a contra measure to accept Gold instead of US-Dollars or Euros for their natural gas deliveries, it will lead to the plunging of the EURO as well as the US-Dollar and the sky will be the limit for Gold.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, 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,

Eric Panneflek

22Mar/140

Highlights of the week of March 17, 2014

By Eric Panneflek

2010-palladium-bars

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 March 17, 2014.

  • What is FedEx Mediocre Earnings report telling us on the state of the USA Economy?
  • Silver Wheaton Corporation, reported record production and reserves.
  • Palladium prices at highest level since August 2011.

MEDIOCRE FEDEX EARNINGS A SIGN OF WHAT TO COME?:
On Wednesday, March 19, 2014, the world's second biggest courier by volume, FedEx (NYSE: FDX) reported earnings of US$1.23 per diluted share for the third quarter ended February 28, compared to US$1.13 per share last year.

FedEx

Q3-2014 Highlights:

  • Revenue of US$11.3 billion, up 3% from US$11.0 billion the previous year
  • Operating income of US$641 million, up 9% from US$589 million last year
  • Operating margin of 5.7%, up from 5.4% the previous year
  • Net income of US$378 million, up 5% from last year's $361 million
  • The company projects earnings to be US$2.25 to US$2.50 per diluted share in the fourth quarter and US$6.55 to US$6.80 per diluted share for fiscal 2014.

Breaking down the company's figure for the Express and Ground segments gives us the following data:

Highlights of the FedEx Express segment Unit:

  • Revenue of $6.67 billion, down slightly from last year's $6.70 billion
  • Operating income of $135 million, up 14% from $118 million a year ago
  • Operating margin of 2.0%, up from 1.8% the previous year

Highlights of the FedEx Ground segment Unit:

  • Revenue of $3.03 billion, up 10% from last year's $2.75 billion
  • Operating income of $477 million, up 2% from $467 million a year ago
  • Operating margin of 15.7%, down from 17.0% the previous year.

Source:

SILVER WHEATON CORPORATION:

About the Company:
Silver Wheaton Corporation (TSX: SLW.TO), together with its subsidiaries, is the largest silver streaming company in the world. The Company has long term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece, Portugal, Canada and the United States. The company was founded in 2004 and is headquartered in Vancouver, Canada.

Below chart shows the mines locations of Silver Wheaton Corporation.

silver-wheaton-map-silver-deposit

On Friday, March 21st, 2014, the company reported its FY-2013, earnings report.

Highlights:

  • Fifth consecutive year of record production and sales volume, with silver equivalent output of 35.8 million ounces (26.8 million ounces of silver and 151,000 gold ounces), up 22% from 29.4 million SEQ in 2012.
  • Attributable silver equivalent sales volume for the three months and year ended December 31, 2013 of 8.0 million ounces (6.1 million ounces of silver and 31,200 ounces of gold) and 30.0 million ounces (22.8 million ounces of silver and 117,300 ounces of gold), respectively, representing a decrease of 13% during the three-month period and an increase of 10% during the twelve-month period as compared to the comparable periods in 2012.
  • Revenue for the three months and year ended December 31, 2013 of $167.4 million and $706.5 million, respectively, compared with $287.2 million and $849.6 million for the comparable periods in 2012, representing a decrease of 42% and 17%, respectively.
  • Net earnings for the three months and year ended December 31, 2013 of $93.9 million ($0.26 per share) and $375.5 million ($1.06 per share), respectively, compared with $177.7 million ($0.50 per share) and $586.0 million ($1.66 per share) for the comparable periods in 2012, representing a decrease of 47% and 36%, respectively.

Source:

As can be seen from below all-time chart of the company, its stock price has appreciated with approx. 700 percent since it went IPO in December 2004.

PALLADIUM PRICES AT HIGHEST LEVEL SINCE AUGUST 2011:
The price of precious metal palladium hit its highest level since August 2011 on Friday as a miners' strike in South Africa ground on and concerns grew that the standoff between major producer Russia and the West over Ukraine could escalate.

Palladium beside being used in Jewellery and asset protection vehicle, is a key metal in autocatalyst and several scientific instruments.

Russia and South Africa produce nearly 80 percent of the world's palladium.

Spot palladium increased on Friday with US$ 25.00 an ounce or 3.26 percent, to close at a 2.5 year high of US$791.00 an ounce as can be seen from below chart.

palladium 2 year chart

PGM CAPITAL COMMENTS:

FedEx:
The reported earnings of FedEx Wednesday, March 19, 2014, can only be described as mediocre. The company missed on the top and bottom line, and like so many other companies, blamed its weakness on the weather.  The company trimmed its profit forecast for the full year to a range of US$6.55 to US$6.80 a share, from US$6.73 to US$7.10.

Furthermore, as the biggest USA courier corporation, the company earnings report also gives an indication on the health of the USA Economy.

Based on its closing price of Friday, March 21st, the stock of the company has a P/E ratio of 26 and a very poor dividend yield of only 0.4 percent. As a consequence of this we have a HOLD-SELL rating on the stock of the company.

Silver Wheaton:
The company invested in 2013 over US$2 billion for four precious metals streams without issuing any new shares.

The company expects 2014 silver equivalent production of 36 million ounces, roughly unchanged from 2013. By 2018, the company sees 48 million ounces of production, up 35% from last year.

Based on company fundamentals, P/E ratio of 19, dividend yield of 1.4 percent, a quick ratio of three, we have a STRONG BUY rating on the stock of the company and own the stock in our own portfolio, directly or via Silver-miners ETF in several clients' portfolios.

Below 2-year chart shows that the stock of Silver Wheaton Corporation has outperformed both the Silver Price as well as the Silver miners ETF.

Blue Chart = Silver Wheaton, Red Chart = Silver price, Green Chart = Silver Miner ETF

Palladium:
Based on the shortage of palladium, its usage in Jewellery, Asset protection vehicle as well as its industrial usage, mainly in the automotive industry, we are very bullish on the price of palladium and hold it in our personal as well as in several clients' portfolios.

Below chart shows the industrial usage of Palladium versus the other precious metals, Platinum, Gold and Silver.

It is also worth mentioning that Palladium is the only precious metal that hasn't gone through a correction last year.

Palladium ETFs currently hold some 1.634 million ounces of the metal, worth around US$1.29 billion at today's prices.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, 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,

Eric Panneflek

15Mar/140

Happy Birthday to 5 Years Bull Market

By Eric Panneflek

Bull MarketStandardAndPoors500

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 March 10, 2014.

  • On March 9, 2014, we celebrated the anniversary of 5 years Bull Market.
  • The Gold prices closed on the highest level in six months on Friday, March 14, 2014.

MARCH 9 2014, HAPPY BIRTHDAY TO 5 YEARS BULL MARKET:
Sunday, March 9 was the fifth anniversary of the March 2009 low for the S&P 500 Index and the subsequent birth of a new bull market, which has racked up gains of 205.6 percent so far, including reinvested dividends.

Cheers S&P

A bull market, as it's typically defined is an advance of 20 percent or more without a 20 percent correction along the way. By this methodology, according to data from Merrill Lynch and Bloomberg, there have been 25 bull markets since 1929, for which the average bull market lasted about 31 months and appreciated 105.5 percent.

In terms of price appreciation alone, the current bull market has advanced 177.6 percent since that fateful day on March 9, 2009 when it looked as if the financial world was falling apart with the S&P 500 closing at a low of 676.53. Since then, the blue-chip bench-mark index has appreciated more than 1,200 points, to close at an all-time high of 1,878 on Friday, March 8 2014.

This auspicious anniversary for the stock market has many investors questioning whether or not the bull has the legs to stampede even higher from here.

GOLD PRICES AT SIX MONTH HIGH:
As can been seen from below chart, Gold prices rose last Friday, March 14, with US$ 10.90 an oz or 0.79 percent to close at US$ 1,382.00 a troy ounce, the highest level in 6 months.

gold_6_month_o_usd

Intra day spot gold rose as much as 1.4 percent to its highest level since Sept. 9 at US$1,387.90 an ounce.

The metal has gained 3 percent this week, also helped by China's first corporate bond default and fears of slowdown in the world's second-largest economy.

Gold was also supported by Friday's data showing U.S. consumer sentiment weakened in early March.

PGM CAPITAL COMMENTS:

5 Years Bull of Markets for USA Stocks:
Value-Investors are worried about market valuations and are concerned that this could cut short the longevity of this bull market.

The cyclically-adjusted Shiller P/E ratio, which takes a bigger-picture view by averaging the past 10 years of earnings to smooth out the often volatile swings in corporate profits from one year to the next, is currently at 25.56 as can be seen from below chart.

Screen Shot 2014-03-14 at 12.16.35 PM

By this measure stocks look overvalued compared with the average cyclical Shiller P/E of 16.4 over the past century.

Stocks don't look particularly cheap by other valuation yardsticks either. For instance, the total market cap of all U.S. stocks at the end of 2013 stood at 125 percent of U.S. GDP, above the previous peak in 2007 just before the last bear market began.

And from a sentiment perspective, there is more to worry about; namely complacency is setting in among investors, which is to be expected after a five-year long bull market.

A recent sentiment survey by Investors Intelligence reported the lowest number of "bears" among investment newsletter advisors since 1987, and we all know what happened in October of that year.

In other words, investor confidence is running high, especially after last year's 30 percent plus gains for the S&P. Of course this is one of the most reliable contrary indicators I follow, which means that when investor sentiment turns this bullish, perhaps there's nobody left to buy.

But the best warning sign of a coming correction or bear market for USA Stocks is the fact that George Soros is currently holding a 1.3 Billion USD bet against the S&P-500. Read further on this in our article of February 23.

Last but not least, it is also worth mentioning, that despite the amazing run of the last 5 years "only" US$ 132 billion went into equity funds which is much less than the US$ 1.2 trillion that went into bonds and bond funds. This imbalance may cause problems in the coming years, if the FED isn't able to foresee future economic soft-spots or recession.

Gold prices at a 6-month high:
With tension rising in the Crimea  between Russia and Ukraine and the first default by Chinese onshore corporate bond by Shanghai "Chaori Solar Energy" to meet interest payments on its debt , Gold has proven itself as the ultimate safe haven.

Holdings in SPDR Gold Trust - the world`s largest gold-backed exchange-traded fund - rose 2.10 tonnes to 813.30 tonnes on Thursday, March 13, 2014.

Below 10-year chart shows that Gold has outperformed the S&P-500 with more than 350 percent during the last 10 years, making it the best performing asset of the last 10 years.

It's also worth mentioning that Gold has closed the week above its resistance level of
US$ 1,361.00 an ounce. The next target now for Gold is US$ 1,433.00 an increase of 20 percent from the lows of US$ 1,180.00 for this bear correction phase to be called over.

With ongoing global currency wars and central banks all over the world printing money out of thin air to stimulate their respective economies, we believe that the sky will be the limit for Gold.

As can be seen from below chart, withdrawals from the Shanghai Gold Exchange vaults YTD was 320 tons for which January 2014 accounted for 247 tons, which is an increase of 43 % compared to January 2013. It’s also greater than the monthly global mining production and an all-time record.

In Gold we Trust-2

In our year-end blog article and almost in all the articles we have published this year, we have been urging investors to sell their USA stocks, which, according to all fundamental analyses, are overvalued and to invest the profit in gold.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, 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,

Eric Panneflek

8Mar/140

Highlights of the week of March 3rd 2014

By Eric Panneflek

BullLogo BRFS

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 March 3rd, 2014.

  • Brasil foods income grew with 38 percent in 2013.
  • Warren Buffett cuts on bond allocation.
  • Nestlé bulls pay record prices for call options, after L'Oreal stake sale.
  • India's BSE Sensex at all time High.

BRF SA INCOME GROWS 38% IN 2013:
Brasil Food S.A., (NYSE: BRFS) world's largest poultry and a processed-food exporter, reported on Friday, February 28th, 2014, that it closed 2013 with net profit of R$ 1.1 billion, 38% higher than in 2012. Adjusted EBITDA totalled R$ 3.6 billion, an increase of 35.3%, with improvement in EBITDA margin, which reached 11.9%, compared to 9.4%  in 2012.

Brasil Foods Brands

Highlights:

  • Net revenue for the year reached R$ 30.5 billion, 7% higher than in 2012
  • Net revenues on 2013 4th quarter (4Q2013) grew by 0.8% compared to last year´s same period and reached R$8.2 billions.
  • Net income reached R$208 millions and Adjusted EBITDA reached R$954 millions, resulting in an adjusted EBITDA margin of 11.6%.
  • In total the company exported in 2013, 2.5 million tons of processed food, an increase of 1.5% in relation to the previous year

Source:

WARREN BUFFETT CUTS ON BOND ALLOCATION:
Warren Buffett cut the allocation to bonds at Berkshire Hathaway Inc.'s (NYSE: BRK-A)’s insurance units to the lowest in more than a decade as the company warns that low yields will hurt results.

Warren Buffett

Fixed-income assets made up 14 percent of investments at the insurers as of Dec. 31, 2013, according to the company’s annual report. The year-end figure has typically been 20 to 25 percent since 2002, according to Berkshire documents. The US$186.8 billion portfolio included US$114.8 billion of stocks.

Buffett has said low yields mean that insurers and other bond investors are holding “wasting assets.” To counter that he struck private deals for higher-paying securities and added equities. Omaha, Nebraska-based Berkshire also made acquisitions and invested in its railroad and energy utilities.

Buffett has also been favouring shorter-duration bonds. As of Dec. 31, Berkshire had about US$8.5 billion of bonds that were due in a year or less. That compares with US$6 billion at the end of 2012. The holdings typically offer lower yields than longer-duration securities while providing more flexibility.

NESTLÉ BULLS PAYS RECORD PRICES FOR CALL-OPTIONS AFTER L'OREAL STAKE SALE:
In February of this year, Swiss food group Nestle (NESN.VX), the biggest food producing company on earth sold an 8 percent stake in L'Oreal S.A (OR.PA) to the French cosmetics firm for 6.5 billion euros (US$9 billion), loosening their 40-year partnership and allowing both firms to boost earnings per share.

Nestle L oreal

L'Oreal will pay for the deal with 3.4 billion euros in cash and by selling to Nestle its 50 percent stake in their Galderma dermatology venture for 3.1 billion euros, including about 500 million of debt, which Nestle will pay for in L'Oreal shares.

One of the highlights of the deal for Nestle was the Swiss group's commitment to grow its dermatology business as part of its drive to focus on health, wellness and nutrition.

As a consequence of this the company's bulls Nestlé bulls, bid up the prices for the company's call-options, convinced the food company will buy back shares and boost dividends after it sold a portion of its stake in L’Oréal.

Call prices linked to the company's stock has risen 13% since June and have reached a record versus puts on February 26.

INDIA'S SENSEX INDEX AT ALL TIME HIGH:
On Friday March 7, 2014, India's benchmark S&P BSE Sensex soared to new record high of 21,710.43 in opening trade on heavy foreign capital inflows, tracking positive domestic and global cues.

As can be seen from below chart, the 30-share index, which had gained over 567 points in the previous three sessions, zoomed to 21,710.43 by surging 196.56 points, or 0.91 percent.

The Sensex's record high of 21,525.14 surpassed its previous historic milestone of 21,483.74 hit on December 9 last year. India's CNX NIFTY ended only 0.2 percent off its record of 6,415.25 hit on the same date.

SensexAll Time Chart

The strong rally has defied expectations that foreign investors would grow more cautious as the Federal Reserve continues to withdraw its monetary stimulus and ahead of the general elections set to kick off on April 7.

Instead, overseas investors have bought heavily into India as a sharply narrowing current account deficit and a more stable rupee have increased confidence in a country that only last year was in the midst of its biggest market turmoil since the balance of payments crisis of 1991.

PGM CAPITAL COMMENTS:

Brasil Foods
Based on its fundamentals, strong cash flow and ability to increase its dividend Year Over Year we have a STRONG BUY rating on the stock of Brasil foods.

As can be seen from below chart the shares of the company have appreciated with over 1,650 percent since it went IPO in October of 2003.

Brasil foods

It is also worth mentioning that in accordance with the company's policy it pays a minimum of 25 percent of its net income as dividend to share holders.

During the last 10 years the company's dividend has increased from US$ 0.046 a share in 2004 to US$ 0.179 a share in January of 2014, an increase of approx. 290 percent during the last 10 years.

Below chart shows the dividend payout as a percentage of net income of the company during the last 10 years.

brf_pagamento-acionistas_EN

Buffett cuts on Bonds:

In several of our previous articles we have warned our readers, that with rising interest rates, bonds may become the cyanide pil for investors in 2014.

Due to this we have a SELL rating on all bonds and don't hold any bond in our own personal portfolio or in those of our clients.

Nestlé and L'Oreal:
L’Oréal’s agreement to buy 8% of Nestlé’s stake in February for €6 bilion, for which about €3.4 bilion was paid in cash won the support of Nestlé’s biggest owners in part because it freed money to return to shareholders.

Due to this we believe that Nestlé’s investors, who are currently bidding the company's call options, are betting on shares buy-backs and an improved dividend.

The deal will cut Nestlé's holding in L'Oreal to 23.29 percent from 29.4 percent, while the Bettencourt Meyers family's stake in L'Oreal will rise from 30.6 percent to 33.31 percent. The deal is expected to close in the first half of this year.

Explaining the deal, L'Oreal's, chairman an CEO Jean-Paul Agon said:

"Nestlé's stake reduction had to allow it to remain a strategic shareholder ... while making sure that the Bettencourt family stayed below the 33.33 percent level."

Beyond that level, the family will have to make an offer for the rest of L'Oreal's share capital.

Based on their fundamentals, strong balance sheet and ability to increase their dividend Year Over Year, we have a BUY rating on the stock of Neslé as well as on the stock of L'Oreal.

India's BSE SENSEX at all time High:
In India, the current account deficit has narrowed sharply, to 0.9 percent of gross domestic product in the October-December quarter, according to data on Wednesday, March 5th, improving sharply from the record high of 4.8 percent of GDP in the year ended in March 2013.

The improving current account deficit, and the strong foreign inflows, have also boosted the rupee, which is up 12.2 percent since hitting a record low in late August.

India's blue chips have been the main drivers of the rally. On Thursday, March 6th, ICICI Bank (ICBK.NS) gained 3.1 percent and Reliance Industries (RELI.NS) rose 1.9 percent.

The gains were widespread with the BSE mid-cap index rising 1.21 percent, including a 3.6 percent gain in Crompton Greaves (CROM.NS) (CROM.BO).

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that emerging market shares, the price of (food) Commodities, as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek

1Mar/140

Highlight of the week of February 24, 2014

By Eric Panneflek

Australiadividends

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 February 24 and the month of February 2014.

  • Global dividend surpasses 1 trillion US-Dollars for the fist time in 2013.
  • How much Bad News can the USA FED live with?

GLOBAL DIVIDEND SURPASSES 1 TRILLION US-DOLLARS IN 2013:
Shareholders received more than $1 trillion in global dividends for the first time in 2013, buoyed by growth in payouts from emerging market firms, a study showed.

As can be seen from below chart, from Henderson Global Investors, dividend payments grew  43 percent since 2009, hitting US$1.03 trillion in 2013.

Below chart shows that in 2013 one of every US$7  dividend paid came from Emerging Markets firms.

It is also worth mentioning that dividends from Emerging markets company have risen with 107 percent over the past five years. Regarding the Asia-Pacific region, Australia is the dominant source of dividends ahead of Hong Kong,  and dividend payment by Australian companies grew 79 percent from 2009 to 2013.

See below chart for details:

However, 2013 also represents the slowest growth for dividends in the post-crisis era. Last year, dividends rose 2.8 percent as US companies began dropping payouts in the fourth quarter. That’s when the US Federal Reserve confirmed it would taper the pace of its bond-buying program in the first step to unwind more than US$ 3 trillion of quantitative easing.

Financial stocks paid the most in dividends globally with US$217.6 billion in 2013, a 14.2% increase from 2012. Technology stocks, however, showed the highest dividend growth with a 15.5% year-on-year rise to US$62.2 billion in 2013.

HOW MUCH BAD NEWS CAN THE USA FED LIVE WITH:
The US Federal Reserve cannot be a very happy place at the moment. There will be a lot of people who are starting to question whether tapering should (or can) be continued. But the signs are that the new Chairman of the Fed, Janet Yellen, will have to stay with the policy and reduce quantitative easing by a further US$10 billion in March and by another US$10 billion each month until the end of the year.

Were the bad figures in January down to the weather?
Many pro-tapering economists had hoped that poor economic figures for January were down due to the bad weather, but analysis has shown that the weather only had a limited effect.

As can be seen from below chart, further evidence that bad weather had nothing to do with the recent weakness in the economic data of the housing sector comes from the west coast.

Looking at the housing data by region, the number of building permits in the North East dropped by 10.3% which could be attributed to the bad weather, but the number of West Coast building permits also dropped, by 26%, in a region with a milder climate.

January Building permits

The figures become even more confused when we take a close look at below housing starts chart. In the North East, which was meant to be affected by the weather, these were up by 61.9%, while the West Coast declined by -17.4%.

 January housing starts

After viewing the above charts, a child would conclude that the severe weather which hit the Northeast of the US has nothing to do with the current economic weakness, as the major negative data came in from the sunny West Coast.

PGM CAPITAL COMMENTS:
Global Dividend Surpassed 1 Trillion USD in 2013:

We believe that the low rates environment has created a culture of “dividend Vikings”.

Dividends from Europe, excluding the UK, rose by 8 percent since 2009, reaching US$199.8 billion in 2013. This increase made the region "comfortably the second most important region in the world for income, after North America.

For the rest of the developed world,  Australia was the leading country regarding dividend payment, its companies paid out US$40.3 billion in dividends last year, a 10.2 percent gain on the previous year, and placing the country ahead of Canada (US$38.5 billion), Germany (US$36.4 billion) and gaining ground on Japan (US$46.4 billion).

Dividend payments

The USA Economic data and the FED:

If the Fed wanted good figures to show that tapering is having a limited impact on the economy this is not what they got. The numbers below paint a very negative picture:

  • Challenger Jobs Cut rises 11.6%
  • Industrial Production falls -0.3%
  • Capacity Utilization Rate ease to 78.5%
  • ISM Manufacturing Index declines to 51.3
  • Richmond FED Manufacturing Index slips to 12.0
  • Chicago PMI falls to 59.6 and Milwaukee to 52.8
  • NAHB Housing Market Index retreated to 56.0 in January and 46 in February
  • Retail Sales decline by -0.4% and Core Retail Sales showed no growth
  • Empire State Manufacturing Index falls to 4.5
  • Building Permits decline by 5.4%
  • Housing Starts sinks by 16%
  • Philadelphia FED Manufacturing Index crashes to -6.3 from 9.4
  • Existing Home Sales falls by 5.1%

After reading the above data the question has to be asked as to whether the US economy can expand without the support of the government especially if productivity levels remain weak?

So, we are now all waiting for the Federal Reserve's March meeting. If further tapering by US$10 billion goes ahead in March what could this mean and what are the FED's options:

  1. Economy shows growth:
    If the US economy improves and the recent figures are reversed then the Fed will continue to taper.
  2. Economy weakens further:
    • Tapering is paused:
      If the economic data does not improve or slides further it would be prudent for the FED to stop or significantly slow the tapering.
    • Tapering is continued:
      If the economic data does not improve the Fed may decide to risk further slowing the economy and continue tapering for a while longer, awaiting further evidence of economic slow down

If the Federal Reserve has to increase QE to US$85 billion or higher in order to restore the pace of growth, this will increase pressure on the US dollar.

A cheaper USD will make gold much more attractive

To value investors and particularly to the Chinese, who are now the world’s largest buyers of Gold. If another burst of QE were to finally ignite price inflation, again gold will benefit.

Below chart shows the correlation between the Gold price and the several QE programs since 2008.

Gold and QE

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities,  as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Until Next Time,

Eric Panneflek

23Feb/140

Highlights of the week of February 17, 2014

By Eric Panneflek

Tuscon Coppermine areaNestle food logos

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 February 17, 2014.

  • BHP Billiton and Nestlé reported better than expected earnings.
  • USA Economic data keep on disappointing  Investors in 2014.
  • TEVA completes tender offer for NuPathe Inc. Shares.

BHP BILLITON AND NESTLÉ REPORTED BETTER THAN EXPECTED EARNINGS:
BHP BILLITON:
On Tuesday February 18, 2014, the world's biggest mining company BHP Billiton (ASX: BHP.AX) posted a 31% jump in profits due to improvements in its iron ore, coal and petroleum businesses.

Highlights BHP Billiton FY-2013 report:

  • Underlying EBIT increased by 15% to US$12.4 billion and Underlying attributable profit increased by 31% to US$7.8 billion.
  • This sustainable increase in productivity supported a 9% increase in the Group’s Underlying EBIT margin to 38% and a strong improvement in the Group’s Underlying return on capital to 22%.
  •  A 65% increase in net operating cash flow and a 25% reduction in cash outflows from investing activities led to a US$7.8 billion increase in free cash flow.
  • Proceeds of US$2.2 billion from portfolio simplification further strengthened the Group’s solid A balance sheet.
  • With strong free cash flow projected, net debt of US$27.1 billion is expected to approach US$25 billion by the end of the 2014 financial year.
  • Increased dividend, with 3.5 procent to USD 0.59 per share of BHP.AX share, payable on March 26, to share holders on record on March 7, 2014.

Source:

As can be seen from below chart the shares of BHP Billiton increased with approx. 500 percent since the beginning of this 21st century, and it has increased its dividend in the same period from US$ 0.1259 a share in 2000 to US$ 1.20 a share today, an increase of its dividend with approx. 850 percent in the last 13 years.

BHP All Time Chart

NESTLÉ
On Thursday, February 13th, Nestlé (SIX: NESN.VX or OTC: NSRGY), the world's largest food company measured by revenues, reported its full year 2013 results.

Nestlé Brands

Highlights Nestlé FY 2013 report:

  • Sales of CHF 92.2 billion, an increase of 2.7%, compared with full year 2012.
  • Organic growth was 4.6%, composed of 3.1% real internal growth and 1.5% pricing.
  • The Group’s trading operating profit was CHF 14.0 billion, representing a margin of 15.2%, up 20 basis points versus last year, and up 40 basis points in constant currencies.
  • Underlying earnings per share were CHF 3.14, up 11.0% in constant currencies.
  • Strong operating cash flow at CHF 15.0 billion.
  • Proposed dividend increased to CHF 2.15 per share, payable as from April 17, to share holders on record on April 3th, 2014.

Source:

As can be seen from below chart the shares of Nestlé increased with approx. 250 percent since the beginning of this 21st century.

Nestle chart 2000 - February 2014

USA ECONOMIC DATA KEEP ON DISAPPOINTING INVESTORS IN 2014:
In the week of February 17th most investors  were surprised again by a bunch of bad Economic news from the USA as follows:

Empire States Manufacturing index plunges:
The Tuesday February 18, February 2014 Empire State Manufacturing Survey indicates that business conditions improved marginally for New York manufacturers. The general business conditions index fell eight points, but remained positive at 4.5. The new orders index fell to about zero, indicating that orders were flat, and the shipments index declined thirteen points to 2.1. The unfilled orders index remained negative at -6.3.

Source:

Below chart shows the Empire State Manufacturing Index over the last 10 years, for which the shaded area indicates a period of USA recessions.

10-year Empire State Manufacturing Index

Homebuilders sentiment logged sharpest drop ever:
The Tuesday, February 18, monthly home builders sentiment index, plunged from 56 to 46 points, which is the largest drop in the history of the survey, which started in 1985.

Of the three index components, current sales conditions fell 11 points to 51, buyer traffic fell 9 points to 31 and future sales expectations fell 6 points to 54.

USA Existing Home sales plunged in January 2014:
On Friday, February 21st, the "National Association of Realtors" reported that, sales of previously owned U.S. homes dropped in January to the lowest level in more than a year.

Purchases decreased 5.1 percent to a 4.62 million annual rate last month, the fewest since July 2012.

The figures reflect closings on contracts signed months earlier and highlight how higher borrowing costs and property prices have slowed momentum in residential real estate.

While it has been popular to blame much of the slowdown in the winter housing market on colder-than-average temperatures and higher-than-average precipitation, some argue that weather can only account for about a 1-2 percent drop in housing starts and home sales.

TEVA COMPLETES TENDER OFFER FOR NUPATHE INC:
On Friday, February 21st, Teva Pharmaceutical Industries Ltd. (NYSE:TEVA)  announced the successful completion of the tender offer by Train Merger Sub, Inc., a wholly-owned subsidiary of Teva, for all of the outstanding shares of common stock of NuPathe Inc. (Nasdaq:PATH) at a price of US$3.65 per share in cash and the right to receive contingent cash consideration payments of up to US$3.15 per share, net to the seller in cash without interest.

As can be seen from below chart, investors cheered the news by bidding-up TEVA's share with approx. 10 percent last week.

Teva 5 days chart

PGM CAPITAL COMMENTS:

Nestlé and BHP Billiton:
With approaching food crisis and depleting of all commodities, BHP Billiton and Nestlé, respectively world biggest miner and food producer are poised to outperform the broader market in the near future.

Based on this and their strong balance sheet and ability to increase their dividend year over year, we have a BUY rating on the shares of both companies and own them both personally and have them either directly or as a part of an ETF in several clients' portfolios.

The USA Economic data:
As discussed in various of our latest blog articles we have serious doubts on the state of the USA recovery and economic status and strongly believe that economic data produced in the last two quarters of 2013, had a "Window Dressing" smell and due to this we informed our readers, that if we are right on this, the year 2014 may become the year of the truth.

Apparently we aren't the only ones who are foreseeing a crash of the USA, stock markets, because it became public last Friday, February 21st, 2014, that billionaire Investor George Soros, has doubled a bet that the S&P 500 is headed for a fall.

Soros

It was revealed that Soros Fund Management, the firm, founded by legendary investor George Soros, increased a put position on the S&P 500 ETF (NYSE:SPY) by a whopping 154% in the fourth quarter, compared with the third.

The value of that holding, the biggest position in the fund, has risen to U$1.3 billion from around U$470 million.

Below chart shows that the legacy hedge position that the 83-year-old George Soros has been rolling over every quarter since 2010 reached US$ 1.3 billion in December 2013.

Soros SPY Puts

According to Forbes' latest billionaire list, Soros is the world's 19th richest person with a net worth of 20 Billion US-Dollars, as of September 2013.

George Soros has also been a fairly savvy investor over the decades, most famously making US$1 billion on a successful bet against the British pound in 1992, an event still known as "Black Wednesday" in the U.K..

He also made almost US$1 billion profit by shorting the Japanese Yen in the period of November 2012 - February 2013,  from bets that the yen would tumble, due Japan's determination to weaken its currency and boost its economy.

Depreciation of Japanese Yen against US-Dollar from November 2012 - February 2013

Soros was also one of President Barack Obama's supporters, first in his Senate campaign in Illinois and later when he ran for President.

It is also worth mentioning that Soros fund Management LLC, in 2010 was reported to be one of the most profitable firms in the hedge fund industry, averaging a 20% annual rate of return over four decades.

It should be clear to our readers after reading the above, that George Soros due to his reputation as a successful investor, trader and Hedgefund manager, gets a lot of attention for his actions on the capital markets. Due to this we believe that the news of Soros' 1.3 Billion US-Dollar bet against the USA Stockmarket will not go unnoticed in the investment world and it may become the last nail in the coffin of the USA Economy, US-Dollar and subsequent USA-Markets.

Our research team has discovered a short and double short ETF, which will go up in value if the S&P-500 falls.

Source:

Note:
A put or short position basically gives the owner the right to sell a security at a set price for a limited time, and in making such a bet, an investor generally believes the security is going to decline.

On the other hand it is worth mentioning that last year when the price of Gold declined, Soros, bought  over U$25 million dollars worth of call options on the GDXJ Junior Gold Miners index.

Source:

Note:
A Call-option agreement basically gives the owner the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

TEVA Pharmaceutical:
As can be seen from below chart, TEVA Pharmaceutical shares have increased YTD with approx. 20 percent. The company has also increased its quarterly dividend from US$ 0.326 a share to US$ 0.34 a share.

TEVA YTD 2014 share price appreciation

Based on its closing price of last Friday, February 21st, TEVA's shares have a dividend yield of 2.4%.

From January 1st 2000 up to Friday, February 21st, TEVA's shares have appreciated from US$ 7.52 a share on December 31st 1999 to US$ 48.45 a share on Friday February 21st, 2014, an appreciation of approx. 540 percent. In the same period the company's dividend has appreciated from US$ 0.0135 in May of 2000 to US$ 0.34 in February this year, which is an increase of its dividend payout per share of approx. 2,400 percent.

Since 2009, we have a BUY rating on the shares of the Company and own it personally and have it either directly or as a part of an ETF in several clients' portfolios.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities,  as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Until Next Time,

Eric Panneflek

15Feb/140

Highlights of the week of February 10, 2014

By Eric Panneflek

rio-tinto-iron-oreRioTinto-logo

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 February 10, 2014.

  • Rio Tinto, reported blockbuster Q4-2013 earnings and increased dividend by 15 percent.
  • USA Economic data keep on disappointing  Investors.
  • Congress reached an agreement on USA debt ceiling.
  • Gold surges above 200-Day Average.

RIO TINTO EARNINGS REPORT:
After Australia's stock market had closed on Thursday, February 2014, the world's second biggest mining company Rio Tinto (RIO.AX) revealed it had swung from a US$3 billion loss in 2012 to a US$ 3.67 billion dollar net profit last year.

Highlight of Rio Tinto Q3-2013 Earnings Report:

  • Underlying earnings of US$10.2 billion were up ten per cent on 2012.
  • Operating cash cost improvements of $2.3 billion exceeded the 2013 target of US$2.0 billion.
  • Exploration and evaluation savings delivered $1 billion, against the 2013 target of US$750 million.
  • Production records set for iron ore, bauxite and thermal coal and a strong recovery in copper volumes. Iron ore volumes were bolstered by the completion in August of the Pilbara phase one infrastructure expansion to 290 Mt/a, with ramp-up on track to reach nameplate capacity before the end of the first half of 2014.
  • Net earnings of US$3.7 billion reflect non-cash exchange losses of US$2.9 billion and impairments of US$3.4 billion, notably the impairment of a previous non-cash accounting uplift on first consolidation of Oyu Tolgoi, a project overrun at Kitimat and the previously announced curtailment of the Gove alumina refinery.
  • Cash flows from operations of $20.1 billion were up 22 per cent and capital expenditure was down 26 per cent to US$12.9 billion.
  • Net debt reduced to $18.1 billion at 31 December 2013, US$4.0 billion down on the half year and US$1.1 billion down on the previous year end.
  • 15 per cent increase in full year dividend to 192 cents per share reflects the sustainable growth of the business.

Source:

Based on the block buster earnings report, the stock of Rio Tinto, appreciated with approx. 5.9 percent during the week to close at a 52 week high of US$ 58.90 per share as can be seen from below chart.

 Rio Tinto 5-day Chart

USA ECONOMIC DATA KEEP ON DISAPPOINTING:
In the week of February 10th, we have seen an avalanche of bad Economic News from the USA as follows:

Increasing Jobless Claim:
Labor Department reported on Thursday, February 13th, that more Americans than forecast filed applications for unemployment benefits last week and that jobless claims increased by 8,000 to 339,000 in the week ended Feb. 8 from 331,000 in the prior period.

Retail Sales fell in January:
The commerce department reported on Thursday, February 13th, that Sales at U.S. retailers declined by 0.4 percent in January, which is the worst retail figure since June 2012. Accordance to the department of commerce, this was mainly due to bad weather and uneven progress in the labor market, signalling the economy was off to a slow start in 2014.

On top of this, the commerce department revised the retail figures for December to 0.1 percent drop instead which previously reported as an increase.

US manufacturing output in January dropped to the worst level since 2009:
US Manufacturing Production declined 0.8% in January, which was the worst in four years. The drop in factory output disappointed expectations for a 0.1% rise in manufacturing and declined from the revised 0.3% rise in production in December. US Industrial Production declined 0.3% in January, which was the biggest decline in more than a year and disappointed expectations for a 0.2% rise in industrial output. Also, capacity utilization fell from 78.9% in December to 78.5% in January.

CONGRESS REACH AGREEMENT ON USA DEBT CEILING:
After a dramatic Senate vote on Wednesday, February 12, The USA, the US Congress approved on Thursday, February 13th, an increase in the country's debt limit through March 2015, bowing to President Barack Obama's demands to extend federal borrowing authority without conditions.

 U.S. Capitol Building stands in Washington

Without an increase in the statutory debt limit, the U.S. government would soon default on some of its obligations and would have to shut down some programs, a historic event that would have likely caused severe market turmoil.

GOLD SURGES ABOVE 200-DAY AVERAGE:
Gold rose sharply on short covering Friday, February 14, as the dollar remained soft, with spot metal and the most-active U.S. futures contract both moving above their 200-day moving averages.

This rise in the price of the yellow metal is mainly due to a weaker US-Dollar and  short covering, (This is buying by traders to cover, or exit, positions which they had previously sold.)

As can be seen from below chart the yellow precious metal rose US$ 17.90 an ounce to close the week at US$ 1,318.90 a Troy ounce,  its most muscular level since November 7, 2013, and above its 200-day average of US$1,311.80 an ounce.

60-day Gold Chart

PGM CAPITAL COMMENTS:

Rio Tinto:
Based on its fundamentals, financial condition and a dividend yield of 3 percent, based on the closing price of last Friday, we have a BUY RATING on the stock of RIO TINTO.

Below chart shows the 5-year chart of the the stock of RIO Tinto

Rio Tinto 5-year chart

 

USA bad Economic News:
Last year USA officials did their utmost to convince the public that the USA Economy is strong and has recovered from the effect of the 'Great Depression"

We have our doubts on this because we have never seen a recovery, except for this one, that hasn’t included a rally in the base metals like copper, zinc, and tin.

We have warned our readers about this phony USA recovery in several of our articles in December of last year and January of this year.

Please find below some facts about the current state of the USA Economy:

  • A study by professor, Carmen Reinhart of Harvard who studied the performance of rich economies following a financial crisis. showed that, six years after a crisis, per capita GDP was typically 1.5 percentage points lower than in the years before the crisis. But in the US, per capita GDP growth is running 2.1% lower than its pre-crisis level.
    -Significantly worse than average.-
  • What kind of economy is it that reduces a man's wages over a 43-year period?
    We don't know. But it's not likely to win any prizes. But why, with so many strikes against it, does the US economy still have the bat in its hands? It's partly because the Fed has pumped up stock, bond and house prices – not to mention net corporate profit margins (by reducing the interest expenses on corporate debt) and consumer spending (through entitlement programs funded through the Treasury with ultra-low interest rates). So, the averages look pretty good… and they mask the ugliness beneath them. The rich got richer on the Fed's easy money. But the average "capita" is actually poorer.
  • The bottom 90% of the population – people in 9 houses out of 10 – have 10% less income than they had 10 years ago.

-This is not a success story. It's a disaster.-

 USA Debt ceiling:
Reaction in most financial markets to the drama on the Senate floor, regarding the debate on the debt ceiling issue was muted, with U.S. stocks holding near the unchanged mark on the day and most US Treasury debt prices remaining modestly lower for the session.

As a reaction to this the 10-year USA treasury bond sold off during the week, to close the week at a yield of 2.746 percent as can be seen from below chart.

5-days chart yield of the 10-year

Gold above 200-day average:

It’s pretty significant from a technical perspective that gold is back over its 200 day moving average and it has closed the week above this technically very important mark.

As can be seen from below chart. gold hasn’t traded above this average for more than a year.

Gold crossed above 200-day ma

It now means that gold has rallied around 11.5% from the new-year lows just six weeks ago – making gold the best performing currency on the planet (and asset for that matter).

The next target for the bulls will be the high from the end of October 2013 which is around the US$1361 an ounce level. Once this level is breached it should be enough to take gold onto US$1433 an ounce – the final real level of resistance before this bear correction phase can be called over – a 20% move from the US$1180 lows is around the US$1416 level.

gold-14-feb-2014 next resistance

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, 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,

Eric Panneflek

 

9Feb/140

Highlights of the Week of February 3, 2014

By Eric Panneflek

 

Puerto RicoBB+

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 February 3, 2014.

  • On Tuesday, February 4th 2014, Standard & Poor's cut Puerto Rico to Junk.
  • Jobs, SMI and other figures in the USA keep on disappointing Investors in 2014.
  • TEVA Pharmaceutical reported better than expected earnings on, Thursday, February 6 2014.

S&P CUT PUERTO RICO TO JUNK:
Weak economic growth and elevated unemployment have put pressure on the Puerto Rican government's finances. So have long-term pension obligations. As a result, Standard & Poor's cut the island's rating to BB+ from BBB- on last Tuesday, February 4th,  putting it in junk territory.

That could reportedly exacerbate Puerto Rico's cash crunch by forcing it to front an additional US$1 billion in collateral and swaps payments.

If unable to borrow, the island will have to cut spending aimed at juicing growth. And that could turn into a vicious cycle, especially since Puerto Rico’s economy has been contracting for seven years running (a total contraction of roughly 15% since 2006), as can be seen from below chart.

Puerto Rico, a U.S. commonwealth, faces US$70 billion in debt and has been teetering on the edge of default in recent months. The government currently has limited access to new financing, S&P said.

The interest rates on Puerto Rico's bonds, which trade in the municipal debt market, spiked to 10% last year amid a slump in the bond market sparked by concerns that the Federal Reserve would cut back on its stimulus program.

DISAPPOINTING USA JOBS AND SMI DATA FOR JANUARY 2014:
DISAPPOINTED JANUARY SMI NUMBER:

About the SMI Index:
The ISM index is compiled from a survey of executives who order raw materials and other supplies for their companies. The gauge tends to rise or fall in tandem with the health of the economy.
The closely followed ISM index on Monday showed that U.S. manufacturers expanded in January at the slowest rate in eight months as the pace of new orders sharply decelerated. The Institute for Supply Management index sank to 51.3% from 56.5% in December. That’s the lowest level since last May of last year.

The decline was much bigger than Wall Street expected, analysts and economists expected the index to slip to 56%. January decline was also the biggest one-month reversal in the new-orders index since December 1980. The new-orders index plunged 13.2 points to 51.2%, also the lowest reading since May. Production also fell sharply.

The ISM’s inventories index dropped 3 points to 44%, the lowest rate in a year.

The January 2014 ISM report.

DISAPPOINTED ADP JOBS REPORT FOR JANUARY:
After a big miss in December of last year, the January 2014, ADP Private sector employment increased by 175,000 jobs from December 2013 to January 2014, the lowest rate in six months, which down 50,000 from previous month and the lowest since August last year.

Below chart shows the ADP employment figures during the last 12 months.

Change-in-Nonfarm-Private-Employment-January-2014

 

Change-in-Total-Nonfarm-Private-Employment-by-Selected-Industry-January-2014

 

Source:

WEAK JOB GROWTH:
As can be seen from below chart, the U.S. economy, according to the government added 113,000 jobs in January 2014  That's an improvement from December 2013, but was far weaker than hoped. Economists had been expecting an addition of 178,000 jobs.

Many economists had also been hoping that December's weak job gains would be revised much higher, as many experts were quick to write off the December report as a fluke. The number was revised higher, but only by 1,000 jobs to 75,000.

TEVA PHARMACEUTICAL Q4-2013 EARNINGS REPORT:
About TEVA:
Teva Pharmaceuticals (NYSE: TEVA), based in Israel and is the leading company in the world of generic drugs.

Teva

It manufactured more than 73 billion tablets and capsules in 2012 in 73 facilities around the world. One of out every six generic prescriptions in the U.S. is filled with Teva products, more than 1.5 million. In the European Union, more than 2.7 million prescriptions are written each day. It had 1,103 general approvals in Europe at the end of 2012.

The company has over 46,000 employees in 60 countries.

Highlights of Q4-2013 financial report:

  • Net income attributable to Teva increased to US$380 million from $320 million. Earnings per share rose to US$ 0.45 from US$ 0.37.
  • Net revenues increased to US$ 5.430 billion from US$ 5.249 billion in the prior year.
  • The Board of Directors, at its meeting on February 4, declared a cash dividend for the fourth quarter of 2013 of NIS 1.21 per share, a 5 percent increase from the third quarter 2013 dividend of NIS 1.15.
  • The company reaffirmed its financial outlook for 2014.

PGM CAPITAL COMMENTS:
Puerto Rico debt cut to Junk:

While working on this article on Friday, February 7th, the news hit the wire that, Moody's Investors Service downgraded Puerto Rico's general obligation debt rating to junk status on Friday, days after S&P made the same move on the island commonwealth's debt.

In a statement Moody's said:

The problems that confront the commonwealth are many years in the making, and include years of deficit financing, pension underfunding, and budgetary imbalance, along with seven years of economic recession," Moody's said, adding that the island's challenges meant it no longer merited an investment-grade rating.

Moody's justified the downgrade by citing concerns about the fiscally challenged Puerto Rico's weak growth and ability to access capital markets.

Without wanting to mingle into internal politics of Puerto Rico, the downgrade of its bond to junk really touched us.

As can be seen from below chart, Puerto Rican bond prices have been plunging since late 2012 .The latest streak of injuries will only send them further into the abyss.

As a born Caribbean citizen, we were taught in the sixties, that Puerto Rico was the wealthiest Caribbean Nation followed by the (former) Netherlands Antilles as the second wealthiest.

Today, 40 years later, both Aruba and Curacao have a A- credit rating with stable outlook and good economic growth, while Puerto Rico has been downgrade to Junk status with a negative outlook.

Puerto Rico can't go bankrupt, but it can default, which means missing timely interest or principal payments. Those payments would ultimately have to be made up.

Debt of States and nations aren't directly comparable, since a nation has enormous advantages over states in terms of borrowing power and raising revenue. The U.S., for example, issues its own currency and borrows in dollars. The country also has enormous leeway to raise revenue as well as cut expenses.

Currently, the U.S. has US$17.3 trillion in public and intergovernmental debt, but also has US$16.2 trillion in gross domestic product, or national income. S&P downgraded the U.S. for the first time, to AA-, primarily because of the USA's inability to agree on budgetary matters.

Based on the above again we want to warn investors of the risk of holding bonds in this current time of low interest rates, combined with high public debt. It is not IF, but WHEN, bond investors, will start demanding higher rates on the bonds they hold and when that happens, it could trigger a chain reaction sending bond-yields through the stratosphere.

USA January 2014, data disappointments:
It really amazed us how quickly the economic data of the USA has changed direction for Q4-2013, to January 2014. The big question most people, who -based on the official data of most of 2013- have bid up USA stocks, will ask themself is "How Come?"

Our answert to this is "Time will Tell"

Teva Pharmaceutical:
Based on TEVA's fundamentals we have a BUY rating for the stock and own it personally and have it either directly or as a part of an ETF in several clients' portfolios.

As can be seen from below chart, TEVA's shares have appreciated with approx. 15 percent during the last 52 weeks.

Until Next Time,

Eric Panneflek