PGM Capital – Blog
29Aug/150

Commodity Prices at Lowest level Since 1999.

By Eric Panneflek

Dear PGM Capital Blog readers,
In this weekend blog edition, we want to elaborate on the current commodities bear market that brought the Bloomberg Commodity Index (BCOM.IND) on Monday August 24th, to its lowest level since August 1999, as can be seen from below chart.

On Monday August 24, the Bloomberg Commodity Index of 22 raw materials from oil to metals lost 2.2 percent to end the day at US$ 86.3704, as can be seen from below chart.

Shares of miners and explorers including Glencore Plc (GLEN.L), BHP Billiton Ltd. (BHP.AX) and Exxon Mobil Corporation (NYSE: XOM). tumbled while Brent crude fell below US$45 a barrel for the first time since 2009.

THE BLOOMBERG COMMODITY INDEX:
The Bloomberg Commodity Index is a measure of returns that takes into account the loss or gain from holding futures contracts as well as the performance of the underlying commodities.

The index was originally launched in 1998 as the Dow Jones-AIG Commodity Index (DJ-AIGCI) and renamed to Dow Jones-UBS Commodity Index (DJ-UBSCI) in 2009, when UBS (NYSE: UBS) acquired the index from AIG (NYSE: AIG). On July 1, 2014, the index was rebranded under its current name.

GURUS BUYING FREEPORT-MCMORAN INC:
Stanley Druckenmiller:

Stanley-Druckenmiller
Legendary hedge fund manager Stanley Druckenmiller, who runs Duquesne Capital, reported to the Security and Exchange commission that in Q2-2015, he bought 3,547,000 shares of Freeport-McMoRan (NYSE: FCX), making FCX, the sixth biggest holding in his portfolio on June 30, 2015.

Carl Icahn:

Carl Icahn
Activist investor Carl Icahn reported, after the closing bell on Thursday, August 27, that he now has a stake of 88 million shares or 8.46% stake in the copper and gold miner Freeport-McMoRan, making him its largest shareholder.

The company's stock spiked 28 percent during the regular session on Thursday, before Icahn's 8.5 percent stake became public, to close the week at US$ 10.53, up 32.07 percent from its 12-year low of US$ 7.92. of Wednesday, August 26, as can be seen from below chart.

FY-2015, Earnings Report BHP Billiton:
Australian oil and mining giant BHP Billiton Ltd.(ASX: BHP) reported earnings on Tuesday, August 25,  for the full year ending in June 2015. The company posted its weakest annual earnings since 2003 in the face of a painful commodity price rout.

Highlights:

  • Revenues for full-year fiscal 2015 totaled $44.6 billion, down 21.4% from $56.8 billion in the year-ago period
  • Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) were recorded at $21.9 billion for fiscal 2015, down 27.9% year over year.
  • Cash and cash equivalents as on Jun 30, 2015 were recorded at $6.8 billion, down from $8.8 billion on Jun 30, 2014. Interest-bearing liabilities totaled $3.2 billion, down from $4.3 billion as on Jun 30, 2014.
  • The board of directors maintained the dividend at US$ 1.24 per share, payable on September 29, to share holders on record on September 11. Based on the closing price of AUD 25.49 a share of last Friday, August 28, shares of the company now have a dividend yield of 7.28 percent.

Based on the the fact that the company kept its policy to steadily increase or at least maintain the dividend per share in US dollar terms, the shares of the company soared on the news as can be seen from below 5-day chart.

CNOOC Ltd, H1-2015 financial results:
On Wednesday, August 26, China's 3rd biggest Oil Company CNOOC Ltd.. (HKE: 0388) reported its H1-2015 financial results.

Highlights:

  • For the first half of the year, the Company's total net oil and gas production reached 240.1 million BOE, up 13.5% YOY.
  • The Company's oil and gas sales revenue were RMB77.03 billion, representing a decline of 34.2% YOY, and net profit fell 56.1% YOY to RMB14.73 billion.
  • In the first half of the year, the Company's basic earnings per share reached RMB0.33.
  • The Board has declared an interim dividend of HK$0.25 per share, payable on October 13, to shareholders on record on September 10, 2015. Based on the closing price of HKD 9.24 a share of last Friday, August 28, shares of the company now have a dividend yield of 6.17 percent.

Based on the fact that CNOOC Ltd. maintained its H1-2015, dividend at the same level as its H1-2014 dividend, in this low oil price environment, proved the company's policy to steadily increase or at least maintain the dividend per share in HKD.

The company's share price rose 11 percent on the news, to close the week at HKD 9.24 a share an increase of
14.5 percent from its opening price of its closing price of HDK 8.05 of Tuesday, August 25, as can be seen from below 5-day chart chart.

PGM CAPITAL COMMENTS:
Commodities have been badly beaten down, with many individual commodities trading at multi-year lows, for which reason the Bloomberg Commodity Index measures, now trades at its lowest level in more than a decade.

Yet the index values apparently overstate the decline. For one, the index tracks prices set on exchanges, subject to traders’ whims and speculation. Additionally, the indexes (for good reason) tend to give a lot of weight to oil, - as can be seen from below chart - which means oil’s collapse over the past year has magnified commodities’ woes.

In contrast, measuring prices paid by manufacturers - reflecting demand in the real world - commodity prices sit closer to 2011 highs than 2009 lows. In other words, the prices reflected in the exchanges seem to exaggerate the weakness.

Currently, 2.2 billion people approx. 30 percent of the total world population lives on less than two US$ a day, which means, that future world economic growth will come from the developing world, for them to create their own version of the American- or EU dream.

For these emerging economies to build-out their infrastructure in order to become a modern country they'll need immense volumes of commodities to meet their construction requirements.

Economic development and demand for energy, - mainly oil - goes hand in hand, due to this the world’s growing energy hunger is driven to a large extent by population growth in Asia and ongoing industrialisation in the emerging economies. China, India and West Asian nations account for around 60 per cent of the world’s growth in energy demand.

Below chart, which gives a breakdown of the global use of oil per sector, the transportation sector consumes more oil than any other sector. Oil is also an important industrial input, e.g. in the chemical sector.

Based on above chart we believe that oil will be the key commodity to watch. Oil plays such an important role in the production, transportation, and processing of other commodities that when its price rises, so, too, will the prices of other commodities.

In our blog article of last week, we informed our readers to keep a good eye on what, Billionaire Gurus are doing currently with their money. The fact that Carl Icahn, as well as Stanley Drukenmiller have loaded up their portfolios with shares of Freeport McMoRan, can be seen as a sign that they believe that we are near the bottom of the current commodity rout and bear market in Gold.

We based our conclusion on the fact that FCX, owns over 90% Indonesian Grasberg Mine, which is the largest gold mine and the third largest copper mine in the world.

Another sign that we are near the bottom of commodities and Crude Oil bear market is the fact that BHP Billiton, as well as China's National Oversea Oil Company (CNOOC Ltd), although they have experienced an substantial drop in their earnings, due to the current drop in commodities and Oil prices have maintained their policy steadily increase or at least maintain the dividend per share in US dollar terms.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

23Aug/150

DOW Jones Index lost more than 1000 points in 4 Days

By Eric Panneflek

Dear PGM Capital Blog readers,
In this weekend blog edition, we want to elaborate on the biggest sell-off on Wall Street since November 2011.

DOW-JONES INDEX:
The USA blue chip Index, the DOW-Jones Industrial, declined from 17,545.18 points on the close of Monday August 17, to close at 16,459.75 points on Friday, August 21st, a decline of 1,085.43 points or 6.19% in four days, as can be seen from below chart.

With a drop of 530 points on Friday August 21, the blue chip index was more than 10 percent below its 52-week high (also an all-time intraday high) of 18,351.36 of May 19 this year, and in correction territory for the first time since 2011 as all blue chips declined. The last time the index closed more than 500 points lower was on Aug. 10, 2011. In the last five years, the index has only had four instances with closing losses of more than 400 points.

NASDAQ INDEX:
The technology weighted NASDAQ index dropped form 5091.70 points on the close of Monday August 17, to 4,706.04 points at the close on Friday, August 21st, a decline of 385.66 points or 7.57% in four days, as can be seen from below chart.

THE S&P-500 INDEX:
The broader Index, the S&P 500, declined form 2,102.44 points on the close of Monday August 17, to 1,970.89 points at the close on Friday, August 21st, a decline of 131.55 points or 6.26% in four days, as can be seen from below chart.

The Index fell through its support level of 1,980 to end at 1,970, off 7.6 percent from its 52-week high. The index is off about 4.3 percent for the year so far. Information technology and energy led all 10 sectors lower on the day. Energy was the worst decliner for the week, with no sectors posting weekly gains.

About 70 percent of the S&P 500 is in correction or worse, with 31 percent in a bear market and 39 percent in correction territory.

GOLD:
Gold futures settled at a more than six-week high on Friday to score their biggest weekly gain since January as a slump in equities and a drop in the U.S. dollar buoyed the metal’s investment appeal.

Gold futures increase with 3,7% during the week to settled at a more than six-week high on Friday, August 21 as can be seen from below chart, to score their biggest weekly gain since January of this year.

PGM CAPITAL COMMENTS:
The US stock market and the FED are trapped.  The market can’t go up because it was only going up because it had QE.  That ended.  The vapors from QE were so strong that they held the market up for almost a year.  Now it (the stock market) is tanking and the FED can’t initiate more QE because they’ve been talking about a rate hike because they don’t understand the economy either.

We have been predicting this crash of the USA markets for months and have warned our readers, that the USA markets as well as the US-Dollar are in a bubble and the country's economy isn't as good as the US-media and policy makers want you to believe and that the next crash and recession will be much worst than the one of 2008-2009.

We also advise you to follow, legendary investors like George Soros and Stanley Druckenmiller who are shorting US stocks and are seeking safe haven in Gold.

Billionaire investor George Soros increased his bet against the US stock market by more than 600pc in the second quarter, regulatory filings show.

George Soros:
George Soros "the man who broke the Bank of England" for his US$10 billion bet against the Pound Sterling in the 1990s, has now taken out a US$2.2 billion bet that the S&P 500 will fall, according to his Q2-2015 filing with the Securities and Exchange Commission.

This takes Soros Fund Management's short position on the index from 3 percent of his portfolio to 17 percent.

Stanley Druckenmiller:
Over the past several years, one of the biggest critics of the FED's monetary policy has been billionaire investor Stanley Druckenmiller, who in 2010 announced he would be shutting down his legendary Duquesne Capital Management, and convert it to a family office.

According to his family office’s most recent SEC filing, Stanley Druckenmiller that at the end of Q2-2015, the largest position for Stanley Druckenmiller was none other than gold, following the purchase of 2.9 million shares of the SPDR Gold Share shares (NYSE:GLD). The new position was worth approximately US$323.6 million at the end of June, and made up more than 20% of Druckenmiller’s total holdings.

Below table shows the top 29 holdings of of Stanley Druckenmiller on June 30, 2015, as filed with the SEC.

If you are not familiar with Stanley Druckenmiller, know this: he used to be the chief strategist for George Soros and it was his idea to short the British pound in 1992, which famously “broke the Bank of England.” The legendary shorting made Soros’s Quantum fund US$1.0 billion.

Moreover, Druckenmiller has a tremendous track record when it comes to investing. His own hedge fund, Duquesne Capital Management, averaged an annual return of 30% from 1986 to 2010.

USA-EUROPE-CHINA Markets:
The USA media in echo are blaming Europa and China, for the crash of the USA markets, how ever below 1-year charts of the USA-DOW versus the German-DAX-30 and USA-DOW versus the Chinese-CSI-300, shows the complete opposite.

1-year Chart of USA_DOW Jones versus German_DAX

1-year chart of USA_DOW Jones versus China's_CSI-300

Or like Peter Schiff said in its latest video blog said:

"U. S. Stock Market Correction are Not Made In China"

Most of readers will be asking themselves after reading this article, what will be next for the US-Markets;

  • Is the current correction in the US-Markets almost over, or will the US-Markets continue to thank and enter a bear market soon?

Our reply on this is simple, keep an eye on the holdings of legendary investors like George Soros and Stanley Druckenmiller, if they are shoring USA stocks and buying Gold, you know what direction these Gurus believe the USA-Market will go in the short and mid term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

17Aug/150

Highlights in the week of August 10, 2015

By Eric Panneflek

Dear PGM Capital Blog readers,

In this weekend blog edition, we want to elaborate on the following financial news out of China, that has impacted the Global Financial Markets last week:

  • China has devalued its Yuan with approx. 3 percent against the US-Dollar.
  • China has slashed approx. 180 billion US-Dollars in US-Treasuries securities.

CHINA HAS DEVALUED ITS YUAN WITH APPROX. 3 PERCENT AGAINST THE US-DOLLAR:
On Tuesday, August 11th, the People's Bank of China surprised markets by devaluating their currency, the Yuan, against the US-Dollar.

As can be seen from below chart, China's currency has fallen 2.9% against the dollar in the week of August 10, setting the currency up for its largest decline in 28 months.

Analysts seem divided on whether this is the start of a more flexible currency regime for China or an old-style devaluation. It appears to be a bit of both.

CHINA SOLD 180 BILLION IN US TREASURIES:
According to US Treasury data show that China beginning in March 2014 on the continued reduction of US debt, after it has been predicted that if China suddenly sells its huge foreign exchange reserves, it will be a serious impact on the US bond market, such fears are now opening up it's superfluous.

China’s holdings have fallen in two ways. First, active trades show US$19.4 billion of net note and bond sales this year through May. Second, holdings data indicate China has opted not to reinvest the full proceeds of maturing securities back into Treasuries. Those measures combined to lower the country’s stake in the debt by about US$180 billion from its apex.

PGM CAPITAL COMMENTS:
China was the great saviour of the world economy in 2008. The launching of an unprecedented stimulus package sparked an infrastructure investment boom. The voracious demand for commodities to fuel its construction boom dragged along oil- and resource-rich emerging markets.

As can be seen from below chart, according to official data, the Chinese economic growth has dipped below 7 percent, for the first time in a quarter of a century.

The People’s Bank of China has pursued several measures to boost the flagging economy. The rate of borrowing has been slashed during the past 12 months from 6pc to 4.85pc. Opting to devalue the currency was a last resort and signalled the great era of Chinese growth is rapidly approaching its endgame.

Data for exports showed an 8.9pc slump in July from the same period a year before.

The China slowdown has sent shock waves through commodity markets.

As can be seen from below chart, the Bloomberg Global Commodity index, which tracks the prices of 22 commodity prices, fell to levels last seen at the beginning of this century.

Based on this, China’s authorities have taken a shock decision to let the yuan - also known as the renminbi - devalue by approx. 2.9 percent against the US dollar as they try to fend off slowing growth and to promote export.

Another reason for the PBoC's surprise move on the yuan is that China's authorities have long wanted the renminbi to gain a coveted status as a global reserve currency.

The devaluation could help the yuan gain inclusion in the International Monetary Fund’s Special Drawing Rights (SDR) basket of currencies  -an elite group of currencies including the US-Dollar, Euro, Japanese Yen and British Pound-  that the IMF uses for its loans.

Based on this the Chinese CSI-300, rallied in the week of August 10, with approx. 3.5 percent as can be seen from below chart.

On the other side the USA DOW-Jones industrial went into the red for the year.

Below chart shows that the Chinese CSI-300 index, Year-To-Date, has appreciated with 15.8% while the USA Dow-Jones Industrial is down 1.94% YTD.

Gold the ultimate safe haven rallied, 2 percent last week as can be seen from below chart.

The Dominoes are beginning to fall:
The great props to the world economy are now beginning to fall:

  • China's, economic growth - the world economic engine of the last decade - is slowing to near 7 percent.
  • Emerging markets that consumed so many of products, the West produce are crippled by currency devaluation and commodity price slumps.
  • Professor Robert Shiller’s cyclically adjusted price earnings ratio – or Shiller CAPE – for the S&P 500 currently stands at 27.2, some 64pc above its historic average of 16.6 as can be seen from below chart.

    On only three occasions since 1882 has it been higher – in 1929, 2000 and 2007 and that in all three occasions the world Economy went into recession and the markets crashed.

Based on this we believe that the world is balancing on the brink of a recession, for which we can expect volatility in global capital markets to increase in the coming months.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek