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We wish all our traders,investors,readers a safe and happy Easter.
As always we wish you profitable trading.
April 17, 2014 Comments Off
Recently I visited the breathtaking city of Hong Kong to speak at the seventh-annual Mines and Money conference, Asia-Pacific’s premier event for mining investment deal-making and capital-raising. During my time in Asia I had the additional privilege of addressing the audience of the Asia Mining Club, alongside my good friend Robert Friedland, Executive Chairman and Founder of Ivanhoe Mines.
The mission of the Asia Mining Club is to promote education among its members, and one way to achieve this is by hearing from experts in the financial markets, notably those focused on resources and commodities. During the club’s sell-out event, I too, confirmed a great deal about the commodity “buzz” on that side of the world, especially on gold…
The demand for the precious metal in Asia is truly phenomenal! In smaller countries like Indonesia, Thailand and Vietnam, consumption of gold totalled 300 tonnes in 2013, and according to Bloomberg, in 2014 mainland Chinese buyers purchased a total of 125 tonnes in February (including scrap). This number tops the 102.6 tonnes purchased in January and 97.1 tonnes purchased a year ago.
As I wrote about in February, Switzerland plays a role in the movement of physical gold into Asia as well. Home to many of the big gold refiners, Switzerland released monthly gold trade data this year for the first time in over 30 years, with the report showing that 80 percent of shipments went straight into Asia. If we continue to see these large movements of the physical metal, especially from the West to the East, it’s only a matter of time until these supply-and-demand factors lift the gold price.
I often say there are two sides to the gold equation: the Love Trade and the Fear Trade. While Asia’s cultural affinity for gold continues to feed the Love Trade, concern over government policies which increase inflation and devalue currencies, fuel the Fear Trade. The Fear Trade demanded attention again on the back of Janet Yellen’s talk of the Federal Reserve raising interest rates in the next six months. [Read more →]
April 17, 2014 Comments Off
If you ever want to make sense of what happens in the general economy, you’ll need to learn an iron law of economics: and that’s 19th Century economist David Ricardo’s Theory of Rent, or, as I like to call it, the ‘economic rent’. It fools everyone — including modern economists. Don’t allow yourself to be misled.
Victorian Premier Dennis Napthine just gave us a great example of how this law is completely misunderstood. To prove that the ignorance is across both sides of politics, his opposition just agreed with the idea.
I’m going to tell you why they’re misguided shortly. But first here’s the news in case you missed it.
According to the Herald Sun,
‘Labor has backed the Napthine Government’s move to cap maximum daily fares at the Zone 1 rate across Melbourne’s entire tram, rail and bus network from January 1.
‘Commuters in Melbourne’s outer suburbs would see the cost of travelling to work by train slashed by up to $1200 a year under sweeping changes proposed by the State Government in the lead-up to the election.
‘A couple who commute from the suburbs to the CBD each weekday using daily myki passes would save about $50 a week.’
Now, I would never begrudge workers and labourers being allowed to keep more of their earnings.
The only problem is it’ll never work. [Read more →]
April 17, 2014 Comments Off
Since the NASDAQ fell 7.4% in three weeks, many headlines are suggesting this is the sign that tech stocks are in a bubble.
Time magazine declared ‘Every reason you should be worried about a destructive tech bubble.’
An expert talking to Bloomberg is convinced the technology sector is frothy, ‘Shiller: Looks and feels like a bubble in Tech.’
And Bloomberg Businessweek warns that it’s not time to party like its 1999, ‘Silicon Valley Hears Echoes of 1999.’
The thing is, the NASDAQ overall is down only 3.7% since the start of the year. However, compared to this time last year, it’s still up a massive 21.39%…
As Kris noted in his World War D speech two weeks ago, many contrarian investors are too busy looking for a bubble or market crash. Rather than focusing on good investing opportunities, they focus on trying to avoid a bubble.
This reluctance means they miss on investment ideas.
Kris called it paralysis by analysis.
Like it or not, a share’s price at any given time is what the market thinks its worth.
There’s no denying tech stocks are very hot right now. Even some of the two most recently cloud based stocks have seen their prices soften a little.
Take Amber Road [NYSE:AMBR] for example. Amber Road made its market debut at US$16.95, which was well above the IPO price of US$13. Yet, in three weeks, it dipped 15% to US$14.41.
Another recent had-to-have cloud company was Rubicon Project [NYSE:RUBI]. It’s initial price was quoted from US$15-$17. It commenced trading at US$21.02, only to fall 2% since then. [Read more →]
April 16, 2014 Comments Off
Over the past 80 years or so governments have been expected to provide more and more social services. That means bigger and bigger bills for the taxpayers of this generation and generations unborn. Since governments almost constantly run in the red, they often resemble cocaine addicts desperately looking for the next fix. The fix, in the case of governments, is the perpetual need for more money, no matter how much wealth the engine of a strong economy may be generating.
One of the delusions of any democratic government is the “other guy will pay” syndrome. Usually, in mature welfare state democracies lawmakers look toward election cycles and understand that there is never enough money to back their promises. So they pass the bill problems to the future by money printing and issuing bonds that won’t come due until after their elections have been won.
However, in most democracies, to quote former pro football coach George Allen, “the future is now.” Tens of millions of people in the United States, Europe, and Japan are retiring now after a lifetime of paying taxes into flawed government retirement funds. Democracies are facing problems keeping all the promises of former pols, most of whom now enjoy fat government pensions while the taxpayers struggle to pay the bills they left behind. So paying the bills is a perpetual problem for pols facing the next election.
For example, in the United States Social Security and Medicare “trust” funds surpluses have been arrogated over the years by both right- and left-wing governments. They used them to pay off political debts and make deficits seem smaller. However, President Bill Clinton implicitly conceded the scam. At the end of his presidency he was urging lawmakers “to save” Social Security. Why did it have to be saved? Where had years of high payroll taxes gone? [Read more →]
April 16, 2014 Comments Off
Not everything is as it seems.
On the one hand it’s the centre of healthy living.
On the other hand it’s the centre of gluttony.
We’re talking about California.
To be precise, we’re talking about the important parallel between Californians’ eating habits and a key resource 7,889 kilometres to the south east of your editor’s current location…
We’ll try to avoid sounding too high-falutin.
As your editor enters the second week of our three-week stay in southern California, it’s hard to get away from the fact that California is a state of contradictions.
Every time we come here we forget that one main course meal at a restaurant is usually enough to feed two people.
We forget that a small drink at an American fast-food outlet is the equivalent of a large at an Aussie fast-food outlet. What appears to be two litres of Diet Coke in a big cup with a straw really is more than enough for one person.
But California is also the home of the ‘beautiful people’. You don’t have to stroll around for long in southern California to see that.
That got us thinking. Is it possible to have one without the other – gluttons without the glamorous? And in a similar vein, is it possible to have clean energy without the adverse consequences of pollution?
It seems like a crazy question. But it’s something many in the green lobby fail to realise. [Read more →]
April 15, 2014 Comments Off
I normally don’t agree with much of the information that comes from the mainstream. But this week, the Age took the words right out of my mouth.
`‘You’ve been told it was the internet, that it was the economy, it was the high wages, the government, the customer, that is was the strong Australian dollar or maybe the weak Australian dollar.
‘It was anything but second-rate management and dull boards that were responsible for Australian retail’s poor performance – yet it turns out it was poor management all along.’
This came about after the South African company Woolworths Holdings [JSE: WHL] proposed a $4 per share premium to buy David Jones [ASX:DJS]. This is equal to 20 times next year’s earnings. This is very high for company with limited growth prospects.
Don’t be fooled, this international buyer is good news for the Australian retail sector.
Because Aussies are about to see how it’s done.
The whispers of a Myer [ASX:MYR] takeover of David Jones sent shivers down my spine. It was one ordinary business making a play for another ordinary business. Myer’s main goals were to save a few bucks in back end operations from a merger, and capitalise on David Jones’ property portfolio. Not transform department store retailing. [Read more →]
April 15, 2014 Comments Off
Dear reader, you already know this: Money Morning holds no love for the central bankers of the world. But we’ll grudgingly credit the Bank of England for releasing a paper on how the modern financial system creates money. It removes the fantasy most people have about how the system works. Read it if you can. But it boils down to this: banks create credit. They do not lend the money deposited by savers.
The fantasy is that we all diligently work hard, save our pennies and then the banking system lends this on at interest to productive enterprise. The reality is that banks create bank deposits when they make loans. The loan brings new money into existence. Money from nothing. Or as the paper puts it, ‘For this reason, some economists have referred to bank deposits as “fountain pen money”, created at the stroke of bankers’ pens when they approve loans.’
One role of the central bank in our current system is to keep a rein on this credit creation. That’s why you might have seen the recent story about the Reserve Bank of Australiaconsidering additional measures to limit risky lending in the Australian housing market. Here’s a clip from The Age recently:
‘The Reserve Bank’s preferred way of reining in a harmful housing credit boom would be to force banks to impose higher “buffers” when testing how borrowers coped with higher interest rates, new documents show.
‘But unlike its counterpart in New Zealand, Australia’s central bank appears unconvinced about restricting loans with high loan-to-valuation ratios.
‘With banks competing fiercely to sign up new borrowers, documents released under Freedom of Information laws on Monday show the Reserve Bank has examined various options for limiting riskier lending.’ [Read more →]
April 14, 2014 Comments Off
US Defense Secretary Chuck Hagel came under some heavy fire Tuesday morning in Beijing…
‘China’s development can’t be contained by anyone,’ defiantly proclaimed China’s defense minister, Chang Wanquan.
‘The China-US relationship is neither comparable to US-Russia ties in theCold War, nor a relationship between container and contained,’ he concluded. Wanquan’s statement was made not long after he stood shoulder to shoulder with his American counterpart at the People’s Liberation Army National Defense University.
‘Hagel was sharply questioned by Chinese officers,’ relays a Reuters report from the scene. ‘One of them told Hagel he was concerned that the United States was stirring up trouble in the East and South China Sea because it feared someday “China will be too big a challenge for the United States to cope with.’’’
Maybe…just maybe, the bold Chinese officer was referencing the US encirclement of the Middle Kingdom. Yet Hagel assured them that in ‘the American rebalance to Asia-Pacific…our strategic interest is not to contain China… It never has been.’
Just moments earlier, he formally re-announced the latest addition to the US presence in the Pacific — two more Navy missile defense ships deployed by 2017 — to protect from an attack from North Korea, of course. [Read more →]
April 14, 2014 Comments Off
As far as gold goes, I would describe myself as cautiously optimistic.
Let’s not beat about the bush. I now have a target of US$1,425 an ounce and I’m hoping to see it by May. My stop is just below $1,275. If I’m wrong, I stand to lose about 30 bucks.
Several factors have led me to this target.
First, gold seems to be having one of those years where it follows the seasonal patterns. That is, a strong January with a small sell-off towards the end of the month. Then a strong February with a peak towards the end of the month, followed by a nasty March.
If this is the case, then we should see a strong April and May, before another sell-off at the end of May and into June.
If we’re about to have a strong April and May (and the signs so far are good), then last week’s March low of $1,277 should hold. That means we will have put in a higher low than the $1,180 that began the year.
Interpreting this as a small uptrend forming, I’d pitch for a higher high than the February peak of $1,392.
Which leads me to the next big level of resistance at $1,425.
However, if $1,275 doesn’t hold, then my interpretation that we’re seeing a small uptrend forming is wrong.
You’ll notice I’m taking a much shorter-term view of gold at the moment. There is a reason for this. If you asked me where gold is going to be in a couple of years, I’d find it hard to give you a strong opinion. [Read more →]
April 11, 2014 Comments Off