InvestMacro Forex News

By Profit Confidential

You have to like the water heater business. Until I came across A. O. Smith Corporation (AOS), I never knew the mature business of hot water could be so lucrative. It’s just another esoteric, old economy–type industry with stability and consistency.

The company reported solid top-line growth of $549.1 million for a gain of 13% over the second quarter of 2012. This is way better than more nimble, seemingly faster-growing businesses, even in technology.

The company’s second-quarter earnings were $42.1 million, or $0.45 per share, compared to $35.0 million, or $0.38 per share year-over-year.

Like many corporations, part of the earnings gain was due to cost control and consolidation of production. Unlike many corporations, double-digit top-line growth in such a mature industry is a reality.

Company management cited improving economic conditions in the North American market and, more specifically, the recovery in new housing as reasons for the solid revenue gain.

Second-quarter sales in North America grew six percent to $389 million, versus $366 million comparatively.

A. O. Smith’s company-branded sales in China grew 35%. Sales for China, India, and Europe increased 33% to $169.5 million. Total sales in China grew $37.0 million to $143.6 million. Growth in that market was due to increased demand for premium water heating and water treatment, according to the company.

A. O. Smith’s cash position improved by $100 million to $366 million. Long-term debt fell, and shareholders’ equity rose.

All in all, for such a mature company and industry, the enterprise reported an excellent quarter once again.

Management expects its Chinese business to grow by 18% this fiscal year. The company increased its 2013 full-year guidance for generally accepted accounting principles (GAAP) earnings to between $1.62 and $1.68 per share. Adjusted earnings are expected to be between $1.84 and $1.90 per share.

For the next several years, the company is targeting organic top-line growth of approximately seven percent per year.

On the stock market A. O. Smith has been a huge winner the last while, and the market is paying for its consistency. (See “Super Stocks—Great Companies for Any Stock Market Portfolio.”) Every equity market portfolio needs to have an old economy business similar to this. It’s not exciting, it’s not fancy, but it’s a good business that earns.

And what I also like about a business like this is the way it’s expanding internationally. It hasn’t gone wild in emerging markets. So many companies have run into problems with new operations in China. Management has slowly and deliberately expanded in faster-growing markets, employing baby steps. This minimizes risk and costs.

Wall Street upped its earnings estimates on the company across the board this year and next. The stock currently boasts a dividend yield of approximately 1.2% and the company’s forward price-to-earnings ratio is around 19.

Being a substantial stock market winner, it’s odd to think of a water heater business as being a momentum play. But that’s what it is in this market—a market that pays for consistency.

In any case, A. O. Smith is worth putting on your radar screen. New home building and emerging markets underpin solid fundamentals for this old economy industrial goods company.

Article by profitconfidential.com

By Profit Confidential

America was built and linked by the railroad that spans the nation, connecting the Pacific and Atlantic oceans. The railroad has great importance, as people use it for travelling and companies for transporting their goods. Without the railroad, commerce wouldn’t have been able to grow as much as it did heading into the 20th century.

An ocean away in China, we have also been seeing an economic revolution that may be stalling but, in my view, continues to be one of the top growth markets in the world longer-term.

While there are many that would argue this, I’m not in that camp. (Read “How to Buy Blue Chip Chinese Stocks on the Cheap.”) Yes, the near term could pose issues in China as far as its stalling GDP growth, but I simply cannot ignore the massive potential there, given the country’s population and increasing trading partners and global markets.

One area of major growth has been China’s expansion of its transportation network, whether it’s roadways, air space, or rail. Just like America, China needs to expand its transportation network to allow its companies to flourish and to connect its 1.3 billion citizens.

China’s Premier, Li Keqiang, said that he wants to increase the rate of development of China’s railway network via a specific development fund, according to Bloomberg.

A mid-cap Chinese railroad stock that I have been following for a while is Guangshen Railway Company Limited. (NYSE/GSH). The company trades in the U.S. via its American depositary shares (ADS).

The company’s key focus at this time is its passenger services. This network includes the Guangzhou–Shenzhen inter-city train service, long-distance passenger, and the Hong Kong Through Train passenger service that is operated with MTR Corporation in Hong Kong. (I have personally ridden the popular Guangzhou-Shenzhen and Hong Kong lines.)

                                                Chart courtesy of www.StockCharts.com

The freight business moves full-load cargo, single-load cargo, containers, bulky and overweight cargo, dangerous cargo, fresh and live cargo, and oversized cargo.

The heart of its rail network is its 299-mile Shenzhen–Guangzhou–Pingshi railway that transports both people and freight. In fact, the route is found in China’s key economic development zones.

Growth has been stellar with revenues increasing in each year from $409.95 million in 2002 to $2.42 billion in 2012.

While the stock is well up from its 52-week low of $13.97, I still see above-average growth opportunities for the aggressive investor with a longer-term view. But be careful, as the chart shows a near-term decline and possible upcoming weakness that could be a buying opportunity.

Article by profitconfidential.com

By Profit Confidential

The amount Americans are “saving” is dropping like a rock…

Personal savings as a percentage of disposable income continue to drop in the U.S. economy. In the first quarter of 2013, Americans only saved 2.5% of their disposable income. This was a whopping 30.5% lower when compared to the same period a year ago! (Source: Federal Reserve Bank of St. Louis web site, last accessed July 26, 2013.)

The reason Americans are saving less has to do with a reduction in their earnings from the U.S. economy…

The median weekly earnings of full-time wage and salary workers (on a constant 1982-1984 dollar basis) decreased from $337.00 in the second quarter of 2012 to $334.00 in the second quarter of this year. (Source: Bureau of Labor Statistics, July 18, 2013.)

Meanwhile, inflation is rising in the U.S. economy…

What Americans could have bought for $1.00 in 2007 now costs them $1.13. That’s a decline in buying power of 13% in just a matter of a few years. (Source: Bureau of Labor Statistics web site, last accessed July 25, 2013.) Unfortunately, our “buying power” will continue to erode as the Federal Reserve continues to print $85.0 billion a month in new paper money in the U.S. economy.

And with all this, Americans are pulling back on spending once again…

Last month, manufacturers of durable goods in the U.S. economy reported an increase of 0.2% in their inventories (from a month earlier) to $378 billion. This was the highest level ever recorded. (Source: U.S. Census Bureau, July 25, 2013.) Durable goods manufacturers in the U.S. economy are adding to their inventories as consumers are struggling; this tells me demand is low, as consumers are buying less.

Dear reader, during periods of economic growth, we should not be seeing declines in the savings rate, weekly earnings, and buying power of our currency.

The sad reality is that the U.S. economy is still in a dire state, despite what the politicians and mainstream media tell us.

Michael’s Personal Notes:

Here’s how a gradual slowdown in the global economy, something very few American or Canadian politicians are talking about, looks:

South Korea reported that in the first half of this year, exports of ships fell 25.3%, steel exports fell 12% percent, auto exports are down 1.7%, petroleum products are down 2.1%, and computer exports fell 3%. (Source: South Korea Ministry of Trade, Industry & Energy, July 2, 2013.)

The central bank of Thailand has lowered the growth forecast for its country, citing weakness in the global economy. The Bank of Thailand expects growth of 4.2% this year compared to its previous prediction of 5.1%. (Source: Bank of Thailand, July 19, 2013.)

Singapore, one of the most active container ports in the world, is facing similar issues. The country’s non-oil exports to the global economy fell 8.8% in June from a year ago. Shipments to the U.S. from Singapore declined 15.9%, and to the European Union, they plummeted 33.6%. (Source: International Enterprise Singapore, July 17, 2013.)

The situation on the other side of the global economy hints at an economic slowdown as well.

The United Nation’s Economic Commission for Latin America and the Caribbean (ECLAC) predicts Latin American countries will only grow at three percent this year—a slower rate of growth than its previous estimates of 3.5% in April. The ECLAC cited two main reasons for slower growth: Europe and China. The region is overly dependent on exports to these two economies. (Source: Economic Commission for Latin America and the Caribbean, July 24, 2013.)

On the surface, this may not sound like a big deal to many, but the reality is that an economic slowdown in the global economy will have an impact on U.S.-based businesses that are operating globally.

McDonalds Corporation (NYSE/MCD) is a great example of an American company witnessing the slowdown in the global economy firsthand. For the second quarter of this year, the company reported its global sales rose only one percent from a year ago—and it expects global sales to remain challenging throughout the year. (Source: McDonalds Corporation, July 22, 2013.)

It’s only a matter of time before we start to hear more about the economic slowdown in the global economy. Currently, the reality is hidden by extreme optimism. I am watching all of this very carefully, and I caution investors—beware: the global economic slowdown will eventually hit the earnings and stock prices of the 40% of S&P 500 companies that export abroad.

Article by profitconfidential.com

By Profit Confidential

Here’s how a gradual slowdown in the global economy, something very few American or Canadian politicians are talking about, looks:

South Korea reported that in the first half of this year, exports of ships fell 25.3%, steel exports fell 12% percent, auto exports are down 1.7%, petroleum products are down 2.1%, and computer exports fell 3%. (Source: South Korea Ministry of Trade, Industry & Energy, July 2, 2013.)

The central bank of Thailand has lowered the growth forecast for its country, citing weakness in the global economy. The Bank of Thailand expects growth of 4.2% this year compared to its previous prediction of 5.1%. (Source: Bank of Thailand, July 19, 2013.)

Singapore, one of the most active container ports in the world, is facing similar issues. The country’s non-oil exports to the global economy fell 8.8% in June from a year ago. Shipments to the U.S. from Singapore declined 15.9%, and to the European Union, they plummeted 33.6%. (Source: International Enterprise Singapore, July 17, 2013.)

The situation on the other side of the global economy hints at an economic slowdown as well.

The United Nation’s Economic Commission for Latin America and the Caribbean (ECLAC) predicts Latin American countries will only grow at three percent this year—a slower rate of growth than its previous estimates of 3.5% in April. The ECLAC cited two main reasons for slower growth: Europe and China. The region is overly dependent on exports to these two economies. (Source: Economic Commission for Latin America and the Caribbean, July 24, 2013.)

On the surface, this may not sound like a big deal to many, but the reality is that an economic slowdown in the global economy will have an impact on U.S.-based businesses that are operating globally.

McDonalds Corporation (NYSE/MCD) is a great example of an American company witnessing the slowdown in the global economy firsthand. For the second quarter of this year, the company reported its global sales rose only one percent from a year ago—and it expects global sales to remain challenging throughout the year. (Source: McDonalds Corporation, July 22, 2013.)

It’s only a matter of time before we start to hear more about the economic slowdown in the global economy. Currently, the reality is hidden by extreme optimism. I am watching all of this very carefully, and I caution investors—beware: the global economic slowdown will eventually hit the earnings and stock prices of the 40% of S&P 500 companies that export abroad.

Article by profitconfidential.com

By Profit Confidential

It is earnings season and corporate numbers are plentiful. Blue chips are mostly reporting decent financial metrics, but I want to address the other side of the equation.

Investment risk in many capital market assets is still very high. And the reason why it’s very high is the fiscal and monetary experiments taking place around the world.

PepsiCo, Inc. (PEP) announced another good quarter that beat expectations, and while the outlook for the beverage and snack market is decent, this is only part of the picture facing equity market investors.

It is still important for investors to be extremely cautious (and conservative) in this environment. The sovereign debt crisis has not abated in the eurozone. U.S. monetary stimulus through artificially low interest rates and quantitative easing is not re-inflating assets to the degree wished for by the Federal Reserve. The U.S. fiscal situation remains a mess at all levels of government.

I’m the biggest believer in enterprise and taking a constructive view of equity market trading action. But there is this whole other universe out there of unquantifiable risk precipitated by undercapitalized banks, no fiscal flexibility, and exponential money supply stimulus that, so far, hasn’t created real, unassisted economic growth.

I’m not a “doom-and-gloomer,” but investment risk is equally, if not more important than potential returns with paper assets. And the world (including regulators) still can’t quantify the risk exposure within the global derivatives market.

This is still very much a perilous environment, as private economic deleveraging butts heads with public economic re-leveraging. Risk hasn’t gone away; it’s only being masked by the equity market. (See “The Only Way to Protect Your Investments from the Turmoil in China.”)

I absolutely believe that all equity market participants need to re-evaluate their portfolios for risk exposure. A long-term or retirement portfolio should include only the most solid companies, with dividends being paramount. I also see nothing wrong with holding cash, as there is no rush to buy in an equity market that’s already had a great run and is due for a serious correction.

Memories in the investment business are short, and the daily news (earnings season reports) in this equity market easily masks the previous reality that hasn’t changed.

Some financial metrics on the U.S. economy are showing improvement. But this is only with the certainty of the stimulus provided by monetary policies. The Federal Reserve does what it does best, and that’s printing money. But this equity market is still very fragile and investor sentiment, while glimpsing the end of quantitative easing, realistically can’t handle it yet.

There is no rush to take on or add to new positions in stocks. And it’s not that the best companies and trades aren’t out there; rather, it’s because of the other side of the return equation—investment risk. The equity market almost came apart just recently as bond yields spiked on a misinterpretation of Federal Reserve chairman Ben Bernanke’s words.

Near-term, things will probably tick along the current status quo in the equity market. September is the next big catalyst, with a huge Federal Reserve policy meeting for Ben Bernanke—the last time that he will have the chance to decide to either keep or taper quantitative easing before being replaced by his successor.

Article by profitconfidential.com

By Profit Confidential

The S&P 500 may be nearing a new record high, but trust me when I say there’s some nervousness growing in the market. I really don’t blame you if you want to take some profits.

In fact, I insist.

When I look for sectors that I feel are less sensitive to what the global economy does, I always come back to the food sector as a buying opportunity.

Simply put, people have to eat. They really don’t care about how the economies are faring, whether there is jobs growth, or if the world central banks are pumping trillions into the global economic system. People have to eat, and that’s where I see a buying opportunity.

With this thought in mind, I continue to like the agriculture sector as a longer-term buying opportunity; farm fields will need to be plowed to produce the massive crop yields that will be needed to feed a growing world population.

A company that I feel could lend itself to some good above-average longer-term gains and is a possible buying opportunity is West Fargo, North Dakota-based Titan Machinery Inc. (NASDAQ/TITN). With a market-cap of $433 million and well down from its 52-week high of $32.00, there’s good potential here. North Dakota, of course, is known for its burgeoning shale oil production, which could offer another buying opportunity. (Read “Why This Cold Prairie State Is an Investment Hotspot.”)

Titan not only distributes and sells new and used agricultural equipment to markets and farmers in America and Europe, but the company also sells construction equipment, which given the major infrastructure buildup worldwide, could really drive the company’s revenues.

The company has been steady in expanding its revenues in each fiscal year from $97.46 million in fiscal 2004 to an impressive $2.2 billion in fiscal 2013, for a strong compound annual growth rate of 41.38% during these years. The revenue growth rate is expected to fall to eight percent in fiscal 2014 and 3.2% in fiscal 2015, according to Thomson Financial. The slower rate of growth, while a slight concern, is expected as the company’s revenue base gets bigger.

The valuation versus that of the much bigger Caterpillar Inc. (NYSE/CAT) is more attractive, based on estimates from Thomson Financial. Titan trades at 9.59-times (x) its forward earnings and a low 0.2x sales versus 10.58x forward earnings and a more expensive 0.87x sales for Caterpillar.

At the current price, there’s a potential buying opportunity as Titan is languishing at the bottom of its current sideways channel as shown on the chart below. If Titan can hold, we could see a rally back to the resistance level around $32.00, and a buying opportunity could surface.

Chart courtesy of www.StockCharts.com

For Titan to move higher, the company will ultimately need to deliver; given my positive view on agriculture and infrastructure, there may be good potential for a buying opportunity here.

Article by profitconfidential.com

By The Sizemore Letter

Is this past weekend’s Financial Times, Gillian Tett commented that falling fertility rates in Europe threaten government tax revenues.

Well, yes, they do.  But not necessarily for the reasons Ms. Tett expects.

European fertility rates have been below the replacement rate of 2.1 children born per woman for decades.  The UK and France have hovered near the replacement rate for most of this period, but birth rates in Germany, Spain and Italy have been limping along at crisis levels since the 1980s.

Think of it this way: Here in the United States we hear about the next great generation—the Millennials (also called Gen Y and the Echo Boomers)—and how they will shape the country in the decades ahead.  Numerically and culturally, they are the most important generation since the post-war Baby Boomers.

Well…let’s just say that no such sentiment exists in Germany, Italy or Spain.  None of these countries had a secondary baby boom in the 1980s and 1990s.  The young personalities dominating the discussion here were simply never born in Europe.

Of course, young workers that were never born will not be able to pay taxes or man the factories of tomorrow.  This is the point that Gillian Tett makes, and it is a valid one.

But it also happens to miss the very large elephant in the room: Workers can be replaced by automation and outsourcing; consumers cannot.  To carry this a step further, General Motors or Ford can program a robot to build a car.  But that robot has no interest in buying a car.  And as roughly 70% of the modern economy is consumer spending, that’s a big problem.  Without a steadily growing population, the modern consumer economy breaks down.

I’m not picking on Ms. Tett; she has a much better grasp of the importance of demographics than most journalists, and she has clearly done her homework.  But virtually everyone in the economics and investment professions that follows demographics (yes, there are a surprising number of us) focus their energies in the wrong places. They focus almost solely on supply.  Demand—when it is considered at all—is viewed as a byproduct; something that just happens on its own (For the geeks in the room, this concept has a name: Say’s Law).

This is not an academic argument about how many angels can balance on the head of a pin.  It matters because the focus on production and boosting GDP growth is actually counterproductive in a world of aging and shrinking populations.  Boosting supply during a period of slack demand simply causes deflation…which in turn discourages future investment and creates a debtor’s nightmare.  Just ask Japan.

Japan’s is further along the path of demographic decline than Europe.  It has the oldest population in the world, and adult diapers are now a more promising growth business than infant diapers.    Japan also happens to have the largest debts in the world, fast approaching 240% of GDP.

Japan’s leaders have effectively spent their country into insolvency with Keynesian deficit spending and have nothing to show for it.  Sure, Japan has great roads and infrastructure.  But it’s all for naught if there are no Japanese citizens left to use them.

Given all of this, you might be surprised to hear that I am actually bullish on Europe, at least in the short term.  European companies are, on average, quite a bit cheaper than their American or Japanese counterparts, and I expect investors to warm up to Europe as the threat of meltdown continues to recede.  Furthermore, Europe is finally starting to see those first green shoots of growth; in the past week, the Spanish unemployment rate fell for the first time in two years, and European oil demand is on the rise—again, for the first time in two years.  As better economic news continues to drip in, I expect investors to reevaluate Old World stocks.

But at the same time, I recommend you choose your European investment carefully.    Focus on companies that are domiciled in Europe but that get the bulk of their revenues overseas.  In my last article, I mentioned Dutch brewer Heineken (HEINY) for its outsized exposure to developing Africa.   Unilever (UL) and Nestle (NSRGY) are also fine additions.  Both have relatively modest exposure to the European markets and both are well positioned to benefit from rising living standards in emerging markets.

Unilever and Nestle also happen to be holdings in my “Drip and Forget” dividend investing strategy, and Heineken is a current recommendation of the Sizemore Investment Letter.

SUBSCRIBE to Sizemore Insights via e-mail today.  This article first appeared on InvestorPlace.

Source: Brian Sylvester of The Gold Report (7/29/13)

http://www.theaureport.com/pub/na/15478

It is like a carrot on a stick for small-cap mining investors: the promise that we have finally hit bottom and can expect gold prices and stocks to begin to emerge again. That time is almost here, according to Ron Struthers, the publisher and editor of Struthers’ Resource Stock Report. In this interview with The Gold Report, Struthers discusses how a run on bullion banks has played with the gold price and which indictor is telling him things are about to move. If Struthers’ forecast is right, the market could be on the cusp of one of its best corrections yet.

The Gold Report: Ron, the Federal Reserve has decided to continue quantitative easing (QE) for the foreseeable future. Gold has risen steadily since that news. Is that what you predicted the Fed would do?

Ron Struthers: It is not that hard to predict the Fed’s behavior when you understand what it’s trying to do and how it’s trying to do it. I do not take what they say literally, except within the context of its goals. The Fed is trying to instill confidence in the economy because of massive U.S. debt and its future debt appetite. The economy needs to improve for there to be higher tax receipts. We need foreign investment to finance the debt. If the Fed can convince Americans and those abroad that its bonds are the safest/most attractive, its stock market will have the best returns and that debt machine keeps running.

But the truth is that the economy is very weak. Employment is weak. Foreign investment has been fleeing. The Fed has to purchase $85 billion of debt a month because nobody else will. The Fed can’t do this forever, and it knows it. It has to talk as if the economy is improving so the Fed debt purchases can end in the near future.

If you dig into what’s really going on in the economy and markets, you’ll find the underlying weakness that guarantees that QE will be here for a long time, as least as long as the markets themselves will allow it or are tricked into allowing it.

TGR: Why are Americans so complicit in this?

RS: Too many take for gospel what they read and see in the mainstream media. There’s a pretty good media propaganda machine out there for the government.

TGR: Do you think the Fed should exist?

RS: I’ve never gotten into whether it should exist or not. Let’s just deal with what we have. I do think that its hand has gotten way too heavy in the markets.

TGR: Now that QE is going to continue for a while, what is the trade in gold and where are the catalysts for an even higher gold price?

RS: We’ve been waiting for a bottom. We’ve seen that now, and it’s time to buy. There are still a lot of the same catalysts, such as many central banks are switching out of the dollar, yen, euros and diversifying to gold. Continued QE just means a continuation of that diversification.

Asia still has record demand for physical gold. Since the Bank of Japan announced the most aggressive QE program thus far, Japanese funds and the pension funds have started to buy gold-related investments; this is a first and has only just begun.

Since the price drop, we’ve seen a lot of mine closures and curtailment, which will only result in less supply in an already tight physical market.

However, the main catalyst is the reason gold was driven down in the first place. It has run its course and that was fulfilling the goal of the bullion banks.

TGR: Which is?

RS: The bullion banks run a fractional reserve gold system just like the bank system, meaning they only have one ounce of gold for every 50, maybe even 100 or more, sold. We don’t know the exact numbers, but it’s something along that line. That system came under stress with the lack of confidence and was driven, in part, by major countries like Germany repatriating gold. The fact that it is going to take seven years for Germany to get its gold tells you something about this fractional reserve system.

The bullion banks were, and are still, seeing a run on their physical reserves as inventories are falling, and so are the COMEX inventories. But at the same time, the bullion banks had this huge short position in gold and silver. We’ve seen a behind-the-scenes rescue of these bullion banks, at least for now.

TGR: In a recent edition of Struthers’ Resource Stock Report, you said that many of these bullion banks are actually long gold now.

RS: We don’t know exactly what any one bullion bank does, but we get some very good clues from the weekly COMEX Position of Traders report. The section of the report called “The Commercial,” which includes the bullion banks, shows the reported short and long positions. We have seen a large net short position there for many years. But with this big drop in gold prices, that short position has been taken down to near nothing. At the same time, we’ve seen the category where we find the speculators and hedge funds at record net short levels. The short position has been moved from the strong hands to weaker ones. I see this as another bullish signal.

TGR: You also see some weakness in the recent jobs data. Tell us more about that.

RS: We hear the U.S. headline job number, talk about all these jobs we’re creating and how good it is. The devil is in the details, they say. The last report actually saw 220,000 full-time jobs disappear. All the gains were part-time jobs. Right now, the second largest employer in the U.S. is a temp agency, and some 10% of the workforce is temporary because companies can’t afford full-time workers or have little confidence for that commitment. That’s a big sign we never have seen a real recovery.

Only 47% of Americans have full-time jobs. Some people have two part-time jobs now. The same person working in two places counts as two jobs, but it’s just one person. The previous month’s report sounded good, too. It reported more new jobs, but the hours of work dropped. I just see these employment numbers as part of the virtual economy, not the real one.

TGR: Do you believe that gold has already bounced off of its 2013 bottom?

RS: I think so. The $1,100–1,200/ounce ($1,100–1,200/oz) barrier was a good support level for gold, and we bounced out of that. I think we’ve seen the bottom. I thought we could possibly see a retest of that support, but because gold has done so strongly already, I think a retest of that becomes less likely now.

TGR: A group of Canadian financial companies led by the Royal Bank are attempting to launch a stock exchange to rival the Toronto Stock Exchange (TSX). The carrot at the end of the stick seems to be the elimination of predatory trading by computer-based programs. Does this idea have any traction?

RS: It has traction given that a large bank is behind it. I talk to investors and traders almost daily, and they’ve been fed up with computer trading for quite a while. Very simply, it’s just totally unfair. Orders are not real and come and go quicker than humans can act.

Maybe you see a bid for 1,000 shares on some stock. You try to sell, but the computer sees your order coming, maybe fills 200 and then reduces the bid and you remain unfilled. You can take lower and lower prices if you want.

The same with buying. More shares can show up less than a second after you buy, so you don’t know how many shares there are on offer, who is selling, how much or whether something is wrong because there’s so much selling. Sometimes you don’t even see your trades. You’ll see, say, a bid at $0.35 and an offer at $0.40 on some particular stock. Maybe you put an order in to buy at $0.40, and you see no trade go through, but your brokerage account shows filled. The next day you find it settled at $0.38 because there was an offer there from a different trading platform.

For the most part, these different platforms are computer-driven participants. It has induced a huge lack of confidence and unfairness in the markets. It created two playing fields: the rich, big players and the small investor on the bad end of the stick.

What is also unfair is that these computer trades are given a rebate or less fees on their commission, so they’re even given an advantage on commissions over regular investors. They say it’s in the name of supply and liquidity, but it’s just another unfair practice.

TGR: Wouldn’t the Toronto Exchange argue that it’s not a profitable enterprise without computer trading?

RS: I’m sure it is going to put up any kind of blocks that it can.

TGR: This sounds like an almost ideal bourse for junior mining stocks. What incentive would the new exchange offer for companies to come over?

RS: I don’t think they will have to actually come over; TSX-listed companies could trade there. It would operate like another trading platform. The TSX has already lost about 40% of the volume to other trading platforms out there now like Alpha. This bourse is still in a discovery period right now. It’s still exploring all the options for how to work this. It has an outline, but the goal is to go with a formal application around year-end. If it makes an official application by year-end, we could see this in 2014.

One thing I found quite interesting is it would take private company shares. A brokerage could take in the shares and create a market, creating some liquidity for private companies.

TGR: Why would private companies list? They have no desire to make their financials public.

RS: They actually don’t list but it creates some liquidity for their current shareholders. At the same time, they don’t have the regulatory burden as a public startup company. They can put more money into their companies and bring them to a stronger level before going public.

TGR: Without the transparency, investors could lose a lot of money.

RS: On the private sector side, it would only be qualified/accredited investors under the current TSX guidelines that could own and trade in these shares.

TGR: Is there any word from the federal government on whether it would back a new exchange such as this?

RS: I haven’t heard much yet. This just came out at the end of June. We’re going to hear lots about it between now and year-end, but it’s just in its infancy now.

TGR: You follow a number of small-cap, mid-cap and large-cap gold and silver equities. Please outline your thesis for the small-cap silver and gold equities.

RS: We use stop losses, and we got stopped out of almost all of our gold stock positions quite a while ago. I’ve never seen anything like it, but the market is what it is. Seeing a bottom, we first started going in and buying back the larger and midtier producers and some of the junior producers. Then later on, we’ll start adding more of the exploration plays as long as the market keeps advancing.

TGR: What are some junior companies you’re writing about in Resource Stock Report?

RS: Claude Resources Inc. (CRJ:TSX; CGR:NYSE.MKT) is one I recently bought back. I couldn’t believe how far that got beat down—to about $0.20/share. The main reason was that its costs are high at around $1,245/oz. However, it just completed a shaft extension at its Seabee mine that will reduce costs. It already has higher costs at the first of year because it has to restock its mine utilizing winter ice roads. The restocking program went well this year, with lower costs than last year and lower costs in many consumables. Given that and the recovery in the gold price, we could see quite a turnaround in that stock.

TGR: Claude posted a loss of $0.01/share in Q1/13. Is it on track to turn that around?

RS: The extra leverage you get is another advantage when you buy companies with costs very close to the current price. A $100/oz increase in gold would turn it from losses to profits. Just that $100/oz can make quite a difference, and you can see that leverage reflected in the improvement in the stock price.

TGR: Where is the growth going to come from, Ron?

RS: It is going to get some growth from the Seabee mine, but the big growth is going to come from its Madsen project in Red Lake, Ontario. It actually has more gold resources there than its mine. It has been advancing that project. Bringing that into production down the road is going to provide quite substantial growth.

TGR: What is another junior story?

RS: Richmont Mines Inc. (RIC:TSX; RIC:NYSE.MKT) has 2 million ounces (2 Moz) in reserves and resources and is producing about 65,000 ounces (65 Koz) a year. Its cash cost was high last quarter, at $1,300/oz, but that should improve. It had lower grades mined the previous quarter, which is going to improve in H2/13. It is also putting a new W Zone at the mine into production. It did a successful bulk sample test, at grades of 5.3 grams per tonne with 97.4% recovery.

The company has always been managed very prudently. It only has 40 million (40M) shares out, a strong cash position of $43M and less than $1M in debt. It has a $50M loan facility available as well, so it is in a strong position. The market is valuing its mines and ounces at just $20M right now. If you look at 2 Moz reserves and resources, they’re valued at $10/oz—and that’s at a producing mine. I just find that ridiculously cheap, but the market is ridiculous now.

TGR: Do you think Richmont would use its cash position to take advantage of some other players that are not as cash rich?

RS: I don’t think so. The management’s track record is to more or less invest internally. It is more apt to improve the current mines and to acquire and advance some other properties. It could take advantage of acquiring properties off some of these other companies instead of taking out a whole company.

TGR: You mentioned its cost of production was a touch high. What is it doing to remedy that?

RS: The high costs are a short-term issue. It will get by this as the year progresses and fall more in line with normal grades that are a bit higher. This additional zone is a higher grade zone that will help with that. It’s also paring costs wherever it can, cutting corners here and there like all the gold miners now.

TGR: What other stories are you following?

RS: On the senior side, I added Newmont Mining Corp. (NEM:NYSE) recently.

TGR: Because of the yield?

RS: Newmont gives good leverage as a dividend play because its dividend is based on the gold price. The dividend was $1.40/year, which is yielding about 5%, but that’s probably going to drop to about $0.80/year because of the current gold price.

The dividend goes by the average of the previous quarter. The dividend increase is for every $100/oz increase in gold, $0.20/year. Once gold hits $1,700/oz, then it increases $0.30/year for every $100/oz increase. At $2,000/oz gold, it jumps $0.40/year for every $100/oz increase. That’s some pretty good leverage there. If we get to $2,000/oz gold, the dividend would be $2.70 each year per share.

For now, I’m just betting gold recovers and Newmont is at least paying $1.40/share. That would give us a 5% yield at the current stock price.

TGR: Is yield the only reason why Newmont hasn’t been beaten up like Barrick Gold Corp. (ABX:TSX; ABX:NYSE)?

RS: They’ve all been beaten up pretty good. Maybe Newmont was spared a little because of the yield. Most of the majors are paying some kind of dividend now, but Newmont is among the highest.

TGR: Are there some distressed names that offer compelling value in this market?

RS: They’re all distressed at this point!

I’ve been looking at another good company that is quite interesting in South Africa. I haven’t picked much up there for a long time. Gold Fields Ltd. (GFI:NYSE) spun a company out of its holdings this year to createSibanye Gold Ltd. (SBGL:NYSE). It came out trading around $7/share in February, just in time for the market to get hammered, and it dropped all the way down to a few bucks.

It is actually going to be the third largest producer in Africa behind Gold Fields and AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE). The trailing price-earnings ratio is just 2x earnings. It had a very positive Q1/13 with $170M profit and $66M free cash flow. Falling gold prices would naturally have an effect, but its impact has been overdone on the share price. Sibanye has two producing mines and offers good value down at these prices.

TGR: Why did Gold Fields decide to spin it out?

RS: It wanted to split its mining into two types. It spun out narrow-grade, underground mining that’s labor intensive. Its other projects are more open-pittable, bulk scenarios with more machinery-type mines. It felt it was trying to manage two different types of mines. Now there is better concentration with a split along synergies.

TGR: Could you give us another small-cap name?

RS: Argonaut Gold Inc. (AR:TSX) has not been beaten down nearly as much because its costs are quite low at around $600/oz. The company has two producing mines and produced 93 Koz last year. It is projected to increase to 120–140 Koz this year. Argonaut has two advanced projects under economic assessment, two more mines that could come onstream down the road. It should be able to fund all this internally because it is sitting on $168M in cash and has no debt. Argonaut could be a stock that could continue to outperform in the market going ahead. It’s quite a good growth story.

TGR: How are you staying positive throughout what’s happening in the junior mining sector?

RS: I keep a long-term outlook. We have these ups and downs. This has been the worst, but this could be the fourth good correction. Each time, these corrections get a little bigger and a little longer, but they’re from bigger and higher prices. The next move will be a bigger and longer upmove. That’s the carrot for belief in what’s yet to come. Being that these stocks are so depressed, it’s the best buying opportunity that I’ve ever seen, even better than in 2000 at the bottom.

TGR: Are you buying?

RS: Yes. I like the long-term call options on some of these majors, too. Because the market is so beaten up, the call premiums have gone to nothing. You can buy these call options that are out a year-and-a-half for $1 or $2 and control a $5–10 stock. There’s a lot of leverage there.

TGR: Thank you for your insights.

Ron Struthers founded Struthers’ Resource Stock Report almost 20 years ago. The report covers senior and junior companies with ample trading liquidity. Since 2000, $1,000 invested in Struthers’ Model Portfolio ended 2012 at $9,251. Struthers’ Newsletter Stocks went from $1,000 to $20,934. Struthers’ Millennium Index, which started in 2003, began at $1,000 and was worth $4,133 at the end of 2012.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Richmont Mines Inc. and Argonaut Gold Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Ron Struthers: I or my family own shares of the following companies mentioned in this interview: Claude Resources Inc. and Richmont Mines Inc. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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The EURUSD Drops to Support at 1.3239

The EURUSD failed to overcome the resistance at 1.3295 and the pair forced to retrace to the support at 1.3264. After another unsuccessful attempt to break the upper limit of the range, the support has been broken through while the euro dropped to 1.3239. Thus, the limits of the range that occurred as a result of entering a consolidation phase of the EURUSD, expanded. The pair has been neither overbought nor oversold. The Parabolic SAR is lower than the price chart yet.Some important events planned for the current week can influence currencies momentum. That is why it could be senseless to make conclusions based on the current situation of the pair and build up trading strategies. Since the major market participants are waiting, it is better to follow them and refrain from taking action.

The GBPUSD Corrects to 1.5315

The similar situation with the EURUSD pair has been observed in the GBPUSD, as well. The highs reached by the pound last week has not been overcome. Such market situation forced the bulls to retrace to the support in the area of 1.5376 and it was come across soon. So, the pound decreased to 1.5315. It is not the point to speak about trend switching due to decreasing is happening within the frame of consolidation after increase. Later during the week, the Bank of England will announce its decision on interest rates and the terms of the asset purchase program that may affect the dynamics of the pound and make significant adjustments to the current situation of the pair.

The USDCHF Trying to Recover

The bulls on the USDCHF were unable to break through below the lows of the last week. The bulls have used such situation in their favor and tried to recover control under the situation. They managed to overcome the resistance at 0.9307, but when they tested the 0.9323 mark they lost their enthusiasm and the pair occurred under pressure. Thus, consolidation has been observed while a downward trend continues. The U.S. dollar should increase and consolidate its positions above the 94th figure to be in force of the upward momentum again.

The USDJPY May Increase to the 99th Figure

Yesterday the Japanese yen tried to continue the downward correction started last week. The U.S. Dollar did intend to decrease below the support level of 97.63, but it was trying to increase higher at this stage. Till now the dollar has experienced the 98.46 marking. Despite the negative close for the dollar it could recover its positions to the 99th figure broken by the bears, where theoretically selling positions should be opened. Increase above 99.70—100.00 will mean recovery of the uptrend movement.

provided by IAFT

London Gold Market Report
from Adrian Ash
BullionVault
Tuesday, 30 July 08:30 EST

PRECIOUS METALS held in a tight range in London on Tuesday morning, moving sideways as world stock markets rose and commodities slipped ahead of the US Federal Reserve meeting, which begins today.

 “No outstanding features, volumes fairly light and very little to report,” says broker Marex Spectron.

 After telegraphing its intention to start reducing the $85 billion in monthly quantitative easing as soon as September, the Fed will announce its latest policy on Wednesday, soon after the release of official US data for second-quarter GDP.

 Gold moved on Tuesday morning barely $4 per ounce above $1322 – the “crash” low of mid-April.

 Silver moved just 0.7% around $19.70 per ounce.

 “We could see some downside open up,” says Standard Bank’s commodities team, “if the Fed announces tomorrow that it will stay the tapering course.”

 Looking at recent bullion price action, “Gold is pushing hard” says technical analysis from Commerzbank “into the 2-month downtrend and the 55-day moving average at $1333/40.”

 Gold bullion and futures prices “reacted violently in June” Federal Reserve comments on policy, says a note from Bank of America-Merrill Lynch. But now “near-dated gold volatility has been falling in recent weeks.

 “After the initial Fed fears lifted 10-year US Treasury rates from 1.6% to 2.7% in just a few weeks, rates seem to have stabilized in a 2.5% to 2.6% range, contributing to a drop in gold vols.

 This “normalization” says BAML is now being reflected in gold futures prices. August futures settled Monday below further-dated contracts, confirming what the bank calls gold’s “typically contango structure” – whereby prices are higher for delivery further into the future.

 But “we are moving closer and closer to tapering,” reckons Tom Tucci, head of Treasury trading at CIBC World Markets, currently with $12bn in assets under management, speaking to Bloomberg.

 “With no new news, the risk right now is for higher rates, not lower,” says Tucci, saying 10-year Treasuries should yield around 2.75% “given the state of the economy and the Fed’s stance.”

 The quantity of gold bullion held to back investors’ shares in exchange-traded trusts funds was unchanged Monday, remaining 25% lower from the start of 2013 at four-year lows.

 Emerging-market central banks “disappointed gold bulls” with their bullion purchases in June, says a note from Swiss investment bank and London market-maker Credit Suisse.

 “Reserve asset managers are as unwilling to ‘catch a falling knife’ as any other fund manager we think,” says the note, “and in general are wary of spikes in volatility.”

 But in China – now the world’s second-largest economy, and likely to overtake India as world No.1 gold consumer in 2013 – private household demand for gold bullion “does hold the promise of a sturdy price floor” says a note from fellow Swiss investment bank and London market-maker UBS.

 Moreover, “In China banks are setting up and/or growing gold accumulation plans offered to the public. Better and easier access to gold via banks’ growing networks combined with strong appetite from retail customers have driven the tremendous appetite from China this year.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.