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By www.CentralBankNews.info     Norway’s central bank left its policy rate steady at 1.5 percent but signaled that it is likely to cut rates slightly in the coming year as inflation will take longer to rise and economic activity is lower than expected.
    Norges Bank (NB), which last cut its rate in March 2012, said it was concerned that inflation expectations could become entrenched at too low a level and if the economy develops as expected, “the key policy rate should be kept lower than projected earlier,” Governor Oeystein Olsen said.
    “There are prospects that they key policy rate will remain at the current level, or somewhat lower, in the year ahead,” he added.
    At its last meeting in March, the Norwegian central bank had said it expected to keep its rate at 1.5 percent until the spring of 2014 and then start increasing the rate.
    However, the central bank has now completely dropped its tightening bias and omitted any mention of raising interest rates.
    “At the meeting, the Executive Board decided that the key policy rate should be in the interval 1%-2% in the period to the publication of the next Report on September 19, unless the Norwegian economy is exposed to new major shocks,” the NB said.

     Dropping its upward rate bias completes a gradual shift in the central bank’s policy stance in the last nine months. Norges Bank first started easing its upward rate bias in October 2012 when it delayed a planned rate rise by the end of 2012 to sometime in 2013. In January the bank maintained this stance but in March it pushed a planned rate rise to the spring of 2014.   
    Norway’s inflation rate rose to 2.0 percent in May from 1.9 percent but the central bank said it now expects it will take longer than expected for inflation to rise.
    The NB forecast that underlying inflation of between 1.25 and 1.75 percent, below the central bank’s target of 2.5 percent.
    Norway’s economy is slowing down and growth prospects for both Norway and the global economy have weakened slightly, the bank said. Wage growth is slowing, unemployment is slightly higher than expected, capacity utilization is now close to a normal level and the krone currency has depreciated.
    “Growth among trading partners is somewhat lower than expected. In Europe, the downturn is likely to persist longer than previously projected,” the bank said.
    “An extensive restructuring must be carried out in the euro area countries in order to boost their long-term growth potential. It will most likely take several years for production to return to levels prevailing to the financial crises,” it added.

    Norway’s Gross Domestic Product contracted by 0.2 percent in the first quarter from the fourth for an annual decline of 2.7 percent, a sharp fall from the fourth quarter’s 1.9 percent expansion.

Source: Brian Sylvester of The Gold Report (6/19/13)

http://www.theaureport.com/pub/na/15383

It’s a jungle out in the silver markets. Investors are holding on for their lives as the price of metals swings to higher highs and lower lows and junior equities bounce along the bottom. In this interview with The Gold Report, David H. Smith, senior analyst at silver-investor.com’s The Morgan Report, navigates the jungle by advising which explorers, midtiers, stalwarts and royalties to consider buying in tranches on the way down and selling on the inevitable way up.

The Gold Report: David, Silver Investor analyzes the long-term macro trends and specific stock catalysts in the silver market. What do you see as the risk/reward profile over the next 12 to 36 months in the space?

David Smith: A lot of people, including myself, are looking for a bottom. It may be in—or it may not be in. The secret is to focus on the upside, which could be 10 or 15 times higher, rather than asking if it could be two or three dollars lower. That makes it easier to buy at these prices.

TGR: How long could this slump last?

DS: Mining stocks have been disconnected from the metals prices for almost two years. We had major tops in gold and silver, but the mining stocks, almost across the board, regardless of quality, have gone down, down, down. The disconnect is greater than two standard deviations away from the norm. That sort of thing can last a while, but it doesn’t happen very often. In fact, there’s a 97% probability that it wouldn’t happen or that it wouldn’t stay there if it did. I think that we are nearing the end. We could see this weakness go into the late summer/early fall, but I think we are building an important base even if we go lower. The stronger that base gets and the broader it becomes, the more likely it will move violently on the upside. If you have no position waiting for this, you will be left behind.

TGR: How do investors survive the horrendous swings going on in the meantime?

DS: Volatility can be a good thing if you are prepared for it. The secret is to not wait for those swings to occur and try to predict them because you’ll be jumping on what Jsmineset’s Jim Sinclair calls a rhino horn and you’ll get speared. If you’re able to do the opposite of what most people do, to buy weakness and then sell a little bit into strength, you can smooth out the big swings. I believe that we’ll see swings of $100–200/ounce ($100–200/oz) a day in gold when this thing finally moves into the public mania phase. It would not surprise me to see $5–10/oz swings in the price of silver in one day. We saw this during the bull market that ended in 1980 and I think the price increases are going to be much greater this time around. If you have layered your positions, your mining stocks, your exchange-traded funds (ETFs), your physical purchases into weakness, when the swings happen you won’t be affected as much as most of the public.

TGR: Would you like to make any predictions about the silver prices over the next 10 years?

DS: This is always very difficult. Economic conditions are a major variable because, as you know, about 70% of the supply of silver comes from byproduct production of copper, lead and zinc. The global economy will affect how much of that is dug out of the ground. Relatively few silver miners receive most of their income from silver as opposed to base metal credits.

Additionally, some of the really large projects now in planning may be delayed or may not come on at all. This includes the Navidad project, which I visited in Argentina before it was purchased by Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ). It was estimated as a 700 million ounce (700 Moz) to 1 billion ounce (1 Boz) deposit, but due to regulatory problems, that project has been shelved. It may be quite a while before it gets going or it may not go at all.

The Pascua Lama deposit that Barrick Gold Corp. (ABX:TSX; ABX:NYSE) is working on, on the Chile/Argentina border, has also encountered serious legal issues. It could be delayed for a year or two or shelved for good. We don’t know. Barrick has already put a reported $6 billion ($6B) into this deposit. That could mean 20–30 Moz of silver annually that doesn’t go into the stream in the next 10 years. That is a significant impact on supply/demand calculations.

Also let me add that we have an exclusive interview that David Morgan conducted regarding the ownership of Pascua Lama. Right now we are reserving this for our members only.

TGR: We often hear how silver is like gold’s little brother. Other than silver having an industrial demand profile, how are these metals different as investments?

DS: Almost all of the gold that has ever been produced is still out there in some form: in central banks, in private holdings, or in jewelry. A certain amount is used in medical or industrial applications, but not on the scale of silver. When silver is used in radio frequency identification (RFID) chips or electronics, it is gone and must be replaced.

Another increasingly important factor is the emerging popularity of ETFs. Like gold, silver has been real money for people going back thousands of years. It has outlasted every paper system ever developed by humankind. It’s going to outlast the current ones as well, because it preserves purchasing power as paper money loses it.

TGR: Does owning silver equities, particularly small-cap equities, still make sense in this market?

DS: Equities make sense more than ever before because of the disconnect between the price of metals and what the companies can dig out of the ground. The entire mining sector, whether it’s a large producer or an explorer, is high risk. But after buying the physical metal, it makes sense to pick up the equities at all stages. Buy a few of the majors, then go into the midtier section and finally the explorers, which are the highest risk because they may or may not ever go into production. Put a small amount of capital in and allocate it roughly proportionately so that if one choice blows up, the others will make enough that you will still make a profit. Owning equities is very important, but be selective. Scale down any purchases into this historic decline.

TGR: Before we started our interview, you talked about the concept of keeping some money back for what you called stupid cheap prices. Tell us more about that strategy.

DS: I think Doug Casey used this term first, but it was certainly correct. Prices are now lower than what most people thought they would ever sink. I learned something very important in the 2008–2009 meltdown. I started out with about 30% cash at the top. Prices kept dropping as part of what nearly became global financial destruction. I bought quality mining companies down, down, down. Then I ran out of money before the end. I had good quality companies I had bought at pretty low prices, but I didn’t keep back a little bit for what Doug Casey calls stupid cheap prices.

That was when I learned to buy larger price differences. In other words, instead of buying every dollar on a company like Goldcorp Inc. (G:TSX; GG:NYSE), I might buy every $4 down on Goldcorp and keep a little bit back just in case the price went even lower. It was likely to be temporary because it was similar to a rubber band being stretched almost to the breaking point. If you had the courage, the money and the foresight to buy at that point, when that rubber band snapped back, you could make a great deal of money with very little commitment.

Those concepts are as important today as they were in 2008. We may or may not be at the bottom now. There are indications that the mining stocks are bottoming. Some of them may have already, but if we get one more washout, which is possible this summer, and if you have a little bit of money left, you may be able to pick up a company that today is selling for $2/share, for $0.75 or $0.50/share. You will already have your core position, but you will be buying down into that lower level.

Dollar cost averaging is one of the most powerful tools an investor can use. If you’re buying in tranches on the way down, you’re almost rooting for lower prices because you’re going to lower your cost of having that position. There is a saying that when the price goes up you never have enough shares and when it goes down you never have few enough shares. The reality is that you get your initial position in and then you can be calm and watch for lower prices.

TGR: Some of David Morgan’s recent presentations have included royalty equities. What are some royalty equities you’re telling your subscribers about?

DS: David likes stocks that pay dividends. We’re seeing more and I think this is a trend that will continue.Newmont Mining Corp. (NEM:NYSE) has a history of paying good dividends. Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) and Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) are established, well-managed companies with good cash hoards. They could make the bedrock holding of a portfolio because they can keep giving you some extra profit vitamins while you’re waiting for the share prices to turn around. A lot of times the dividend can be more reflective of the company’s viability than the current share price.

TG: As of March 31, 2013, Franco-Nevada had $867 million ($867M) in working capital, another $60M in marketable securities and about $500M in a credit facility that they haven’t used. That’s $1.4B at the company’s disposal. Any idea how that cash might be used?

DS: I’m sure Franco-Nevada is looking for undervalued acquisitions, extra streaming possibilities. People like Franco-Nevada’s President Pierre Lassonde tend to make decisions that really make sense under the circumstances. The fact that the company is holding on to its money and focusing on getting costs down is what investors want to see. Companies like Franco-Nevada, Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) and Goldcorp know how to solve problems.

TGR: You mentioned Agnico-Eagle. That company has recently begun taking bite-sized pieces of a number of smaller companies in an effort to get an inside view perhaps of what’s going on in these companies. What do you make of that strategy?

DS: That’s a very viable strategy. A number of companies are doing this right now. Taking a 19% position of an exploration company with an exciting project could give exposure to some big upsides. For example,Hecla Mining Co. (HL:NYSE), which David Morgan followed some 12 years ago, was the highest gaining company percentage-wise on the New York Stock Exchange. It went up 500%. David recommended this when it was around $0.50/share and it went to $5/share. Like Agnico-Eagle, Hecla has taken a position in several of these exploration projects. If they hit well that will be nice for Hecla. If they don’t, they’re not going to be out a lot of money. It also gives a lifeline to these exploration companies that might otherwise not make it because of the tremendously difficult financing environment.

Large companies like Agnico-Eagle, Goldcorp and others are realizing that they have a responsibility to help good exploration companies keep the doors open. If all these companies blow away, the feeder stream that nourishes the large mining companies is going to dry up. It’s like the food chain. If all the baitfish in the Atlantic were gone, the big fish would die because they are dependent on that food chain. Eventually it would be a disaster.

TGR: Are there any other royalty plays you want to talk about?

DS: We were early on the scene with Sandstorm Gold Ltd. (SSL:TSX) before it did a reverse split and then formed, in addition, Sandstorm Metals & Energy Ltd. (SND:TSX.V). The spin-off is struggling a bit now, but has a lot of potential down the line. It’s going to take longer to develop. The royalty companies really have a lot less risk than an outright mining company.

We followed Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) for a number of years. Everybody knows that one now. It is the premier silver streaming company with about 1 Boz under stream. It is a pretty incredible success story.

TGR: Are there some smaller silver names with near-term catalysts that could see a bump on news, whether it’s a study or drill results?

DS: A lot of companies are really undervalued right now. For example, we have followed Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) for a number of years. Management constantly follows through and solves problems when they arise. First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE) is also best of breed and deserves a place in my portfolio because of its high-quality properties and relatively low country risk.

TGR: Endeavour recently bought the El Cubo project from AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE) and seems to have turned that asset around. What could El Cubo add to Endeavour’s balance sheet?

DS: El Cubo is an interesting situation because Endeavour Silver has done this before. It has taken a relatively high cost property that others spent a lot of money trying to run and introduced efficiencies of scale and production to bring the cost down. I have not visited El Cubo, but I have been to Endeavour Silver’s properties in Mexico twice over the last few years. I have no doubt prices will fall even further. Endeavour is always ahead of the curve in seeing where efficiencies can be made while treating the workforce fairly. This is a company that really knows what it is doing.

TGR: Any other companies you like?

DS: A company we followed a number of years ago and now we are keeping an eye on is Silvercorp Metals Inc. (SVM:TSX; SVM:NYSE) in China. The price is around $3/share right now. It was a $22/share stock at one time. It has a less favorable tax status than it did a few years ago. Some people don’t want to buy a Chinese company, but all the silver production is sold in-country. It has base metal credits that are so significant that it takes the cost of production to a minus level when figuring the dollar price for silver. The company is ramping up production. Some it is expensive right now and there have been social issues, but that will be one to watch. It has a lot of money in the bank and it has been successful in the past.

TGR: How about one more company you like?

DS: Everyone in the industry respects Rob McEwen. I had the honor of being on a tour with him in Argentina seven years ago and have followed him ever since. He’s really someone who does both good and well in the market. He received Canada’s highest civilian honor for service to the society a few years ago. His McEwen Mining Inc. (MUX:NYSE; MUX:TSX) is looking for an elephant in Nevada. We’re not directly following McEwen Mining right now as a formal recommendation, but you should never cancel out someone like that.

TGR: One of McEwen Mining’s key projects is El Gallo in Mexico. What do you think about that project?

DS: McEwen is building a pretty good asset down there. I have a small position in McEwen Mining and given the state of the market now, if things keep declining, I would personally buy more. He also has a 49% share in the San Jose silver-gold project in Argentina and if things improve in-country, it could be a real exciting place to be an investor again.

TGR: You have written about ETFs lately. Do you think that they’ve killed mutual funds or trusts?

DS: I think ETFs can be an important part of a portfolio depending on the investor. They can be used as a management tool. Obviously you can’t redeem them for the metal and some people don’t like it because of that, but the iShares Silver Trust Fund (SLV:NYSE), which is the one best known for silver, tends to mimic the price of the metal. David Morgan has suggested the use of ETFs as a way to hedge at times in his videos to members, as a way to trade. The ETFs based on baskets of mining stocks can also lower equity risk by diversifying the portfolio.

Not all ETFs are well run. Some of them don’t perform as advertised. But they give investors more flexibility than mutual funds. You can only buy and sell mutual funds at the end of the market day but you can buy or sell an ETF just like a regular stock at any time. Some ETFs don’t have a lot of volume, but most of them do. It wouldn’t surprise me if the time comes when the mutual fund industry is just a shell of what it is today because the ETFs are providing a tremendous alternative for large and small investors.

TGR: The tag line on silver-investor.com is “Buy Real. Get Real. Be Real.” How are you staying real?

DS: I love that quote. You buy real by buying the physical metal. You start with that. You get real by looking at yourself in the mirror and understanding that the market doesn’t know you, it doesn’t have anything against you, but you need to know the rules if you’re going to persevere and survive. You stay real by keeping things in perspective. It isn’t just about making money. It’s about doing the right thing, treating people properly, being straightforward and being a lifetime learner.

TGR: Thanks for your insights, David.

David H. Smith is senior analyst for The Morgan Report, as well as a professional writer and communications consultant through his business, The Write Doctor Inc. He is a regular on HoweStreet.com. Smith has visited and written about properties in Argentina, Chile, Mexico, China, Canada and the U.S. He is an investment conference/workshop presenter at gatherings in Canada and the U.S. His work for subscribers can be found on Silver-Investor and for the general public at Silver Guru.

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

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: Franco-Nevada Corp., Royal Gold Inc. and Goldcorp Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) David Smith: I or my family own shares of the following companies mentioned in this interview: Endeavour Silver Corp., First Majestic Silver Corp., McEwen Mining Inc., Sandstorm Gold Ltd., Sandstorm Metals & Energy Ltd. and Silvercorp Metals 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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London Gold Market Report
from Ben Traynor
BullionVault
Thursday 20 June 2013, 06:15 EDT

SPOT MARKET gold and silver prices fell to their lowest levels since September 2010 Thursday, with gold dropping through $1300 an ounce during London trading and silver falling below $20 an ounce.

 Stocks and commodities also fell and the US Dollar strengthened after US Federal Reserve chair Ben Bernanke told a press conference that  “the underlying factors are improving” in the US economy, adding that the Federal Open Market Committee could begin to scale back its $85 billion-a-month asset purchases later this year, a process that has become known as ‘tapering’.

 “Although the Committee left the pace of purchases unchanged,” Bernanke told a press conference after the FOMC’s latest policy meeting Wednesday, “it has stated that it may vary the pace of purchases as economic conditions evolve… the economic outcomes that the Committee sees as most likely involve continuing gains in labor markets, supported by moderate growth that picks up over the next several quarters.”

 Bernanke went on to say that the FOMC expects inflation to move back up towards the Fed’s 2% target “over time”.

 “If the incoming data are broadly consistent with this forecast,” Bernanke said, “the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year… if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear.”

 Bernanke also reiterated that the FOMC views an unemployment rate of 6.5% as a pre-requisite before the Fed’s policy interest rate should be raised, but added that it is “a threshold, not a trigger” and that the Fed may continue to target near-zero rates for some time after that level is reached.

 The economic projections of individual FOMC members published yesterday show most expect 2015 to be the year when the Fed makes its first interest rate hike.

 Bond market interest rates have risen in recent weeks, with investor selling pushing down bond prices and thus raising yields.

 The US Dollar meantime rallied against other major currencies following Wednesday’s Fed decision and press conference. The Euro, which started yesterday trading near four-month highs against the Dollar, fell 1.5% to $1.32.

 “The combination of Fed tapering, a spike in nominal yields and a stronger Dollar has put gold under some considerable pressure,” says Ole Hansen, head of commodity strategy at Saxo Bank.

 “The markets are definitely not prepared to wait until the tapering actually begins.”

 By late morning in London, gold was down 7% on where it started the week, with silver down 10%.

 Gold prices in Euros meantime fell below €1000 an ounce for the first time since April 2011 Thursday, as gold in Sterling fell to £833 an ounce, its lowest level since February 2011.

 Bullion holdings backing the world’s biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) dropped below 1000 tonnes for the first time since February 2009 yesterday. The GLD has seen outflows equivalent to 26% of the gold it held at the start of the year.

 “The lower we go, the more it will encourage ETF liquidation,” says David Govett, head of precious metals at broker Marex Spectron.

 “The only hope for the market at the moment is for the sort of physical demand we saw a few months ago to surface again. This usually takes a day or two to come forward as the market digests the moves, so I doubt we will see much today.”

 Back in April, a sharp drop in the gold price was followed by a surge in physical gold buying around the world.

 “With the negative sentiment that we have in gold currently,” adds Societe Generale cross-commodity strategist Mark Keenan, we really do need to see a significant amount of physical buying in order to stabilize the market – which we are not seeing.”

 “I wouldn’t be in a rush to say it’s the end of gold,” says Sydney-based Nomura analyst Amber MacKinnon.

 “This is definitely a big turning point. But though we have seen some reasonable amount of stability in the US economy, there is still a long way to run…early next year will be pretty telling in terms of economic data. We’ll have to see how [US] unemployment reacts to any scale-back in [Fed] bond purchases.”

Across the Atlantic, UK retail sales growth for May exceeded analysts’ expectations, with retail sales up 1.9% compared to a year earlier.

Ben Traynor

BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

(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.

By Profit Confidential

The spot price of natural gas remains subdued, but oil prices keep nudging toward the $100.00 level for West Texas Intermediate (WTI).

But in spite of the lack of conviction in spot energy prices, there continues to be good money in oil and gas stocks.

Countless oil companies have been doing very well on the stock market, and there is excitement within the industry that the oil and gas build-out, including the shipment of liquefied natural gas (or LNG, which is about 1/600 the volume of natural gas), is in a sustained period of economic growth.

Under the umbrella of the oil and gas industry, there are a myriad of growth stories in energy transportation and storage.

One recently listed company experiencing solid success is EQT Midstream Partners, LP (EQM), a limited partnership generating solid quarterly income and 59.4% owned by EQT Corporation (EQT) out of Pittsburg, Pennsylvania. EQT Midstream Services, LLC is the company’s general partner.

EQT Midstream Partners closed its initial public offering (IPO) on July 2, 2012 selling 14.4 million common units to acquire and develop midstream assets in the Appalachian Basin, across 22 counties in Pennsylvania and West Virginia.

EQT Midstream Partners is in the natural gas transmission and storage business, with approximately 2,000 miles of regulated, low-pressure gathering lines. Virtually all of the company’s revenues are generated under interruptible gathering service contracts.

For an old economy energy company, EQT Midstream Partners is generating significant growth. First-quarter revenues for 2013 were $44.4 million, up from $31.0 million generated in the first quarter of 2012. Earnings were $22.2 million, doubling earnings of $11.1 million in the comparable quarter.

The company’s stock market performance has been no less impressive than a burgeoning technology stock. At the beginning of the year, the position was approximately $30.00; now, EQT Midstream Partners is trading at $50.00 and yielding three percent.

The company’s one-year stock chart is featured below:

Chart courtesy of www.StockCharts.com

As mentioned, oil prices are edging higher, but the price of natural gas remains subdued. Yet countless oil and gas stocks are doing great on the stock market.

A company like EQT Midstream Partners or other limited partnership companies whose purpose is to generate income for shareholders are welcome additions to long-term equity market portfolios. If EQT Midstream Partners is doing well with natural gas prices being where they are today, imagine how well the business will develop when prices rise.

One of the big risks with this type of infrastructure investment is management. If a company’s management decides to get bold and borrow a lot of money to expand, your risk as a unit-holder goes up significantly.

Exposure to the oil and gas industry has been, and should continue to be, a profitable sector for investors. I really like the transmission and storage business, particularly for natural gas. (See “This Is an Investment Theme Worth Paying Attention To.”)

The energy industry is ramping up its marketing efforts for LNG and its bulk transportation. The chemical industry is balking, as it doesn’t want higher prices.

In any case, oil and gas transmission and storage should continue to be a very good business with all the new production coming on stream. A company like EQT Midstream Partners illustrates that old economy businesses can pay through both dividends and capital gains.

Article by profitconfidential.com

By Profit Confidential

As many of you know, I’m not keen on the near-term prospects for gold at this juncture. The metal, while still viewed as a safe haven for some, is no longer on my buy list.

Yes, central banks are buying gold, but so what? The supply of the yellow ore continues to be ample, and demand really doesn’t appear to be doing anything.

In mid-April, I was bearish on gold when it traded at around $1,480–$1,500 an ounce. (Read “Is Gold’s Near-Death Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be.”) And here we are two months later and the spot price is down 6.5%, while the S&P 500 has gone up about 3.7% during the same time.

Now I’m not saying that I would never be a buyer; I just wouldn’t be buying at this time, due to tough resistance and selling on upside moves, based on my technical analysis.

Take a look at the chart below. The first thing you’ll notice is the presence of a firm bearish “death cross” since late February, when the 50-day moving average (as shown by the blue line) crossed below the 200-day moving average (as reflected by the red line). Since the initial move, the gap between the two moving averages has widened and gold prices are trending lower.

Chart courtesy of www.StockCharts.com

The next developments you will notice on the chart above are the two successive descending triangles characterized by lower subsequent highs.

The first descending triangle materialized between early February and early April, prior to gold tanking on the chart, falling below $1,350. We are now in the second descending triangle with support around $1,350. Failure to rally and hold could result in another sell-off.

Again, take a look at the Gold Bugs Index, comprising a basket of unhedged gold stocks; this is why this index is such a good indicator of the movement of prices due to the lack of hedging.

Chart courtesy of www.StockCharts.com

The picture for the yellow metal doesn’t look favorable. In April, Goldman Sachs advised shorting the metal and mentioned the $1,200 level. (Source: Cosgrave, J., “The Scary Number for Gold Investors: $1200,” CNBC, April 15, 2013, last accessed June 19, 2013.)

Gold at $1,200 is realistic but, of course, if inflation begins to creep higher, we could see a rally. At this stage, inflation is benign and a non-issue.

There is clearly more downside risk. Gold could rally back above $1,400, but I doubt it would hold. I would look at a rally as an opportunity to sell.

Article by profitconfidential.com

By Profit Confidential

In just a few years following the Lehman crisis, credit in the Chinese economy has gone from $9.0 trillion to $23.0 trillion. Comparing it to the gross domestic product (GDP) of the country, credit has ballooned to 200% of GDP—it was only 40% before the U.S. subprime bubble burst.

Fitch Ratings’ senior director in Beijing, Charlene Sue, said this week, “…this is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial.” (Source: Evans-Pritchard, A., “Fitch says China credit bubble unprecedented in modern world history,” The Telegraph, June 16, 2013.)

Adding to the credit worries in China, just like the U.S. economy, consumers in the Chinese economy are shying away from spending. According to the China Association of Automobile Manufacturers, car sales in the Chinese economy in May grew at a slower pace than the previous month’s. The car sales growth rate registered at nine percent in May, compared to 13% in April. (Source: Financial Times, June 9, 2013.)

Furthermore, manufacturing in the Chinese economy has been witnessing a slowdown. Exports from the country have fallen victim to anemic demand in the global economy. Sadly, this year, as per government estimates, the Chinese economy is expected to grow at the pace of only 7.75%—much slower than China’s past double-digit growth rates.

The troubles in the Chinese economy continue to mount, but with the optimism seen in the key stock indices, investors are ignoring their implications. I can’t stress this enough: growing problems in the Chinese economy will not only hurt the global economy, but the U.S. economy and the rising key stock indices as well.

And I believe the estimates of China’s growth this year may be overly optimistic. The underlying issues in the Chinese economy can take the country down very fast. Think of it this way: the credit in the country has ballooned to a very dangerous level. If only five percent of the loans issued default, there will be significant repercussions.

At the end of the day, the slowing Chinese economy means trouble for the U.S. economy. What many may not realize is that some of the biggest companies based here in the U.S. economy do business in China—companies like Wal-Mart Stores, Inc. (NYSE/WMT), Caterpillar Inc (NYSE/CAT), and the biggest car makers in the U.S. economy, like General Motors Company (NYSE/GM) and Ford Motor Company (NYSE/F), all do a significant amount of business there.

The combination of China’s credit reaching 200% of GDP, manufacturing slowing, consumers reducing spending, and GDP growth declining rapidly could be a huge risk for American multinational companies and our stock market.

Where the Market Stands; Where It’s Headed:

It’s become a joke.

The stock market no longer trades on the fundamentals of an improving economy or rising corporate profits. We have a stock market obsessed with the actions of the Federal Reserve—will it continue to print money or will it pull back on quantitative easing?

When you have a stock market so focused on artificial factors, such as money printing, as opposed to fundamentals, like economic growth and corporate profits, the end for the market cannot be far off.

What He Said:

“Investors have been put into an unfair corner. Those who invested in stocks because they got caught in the tech boom (1999) have seen their investments gone. Now, those who have leveraged heavily to play the real estate game, because it is the place to be (2005), could see the same fate as the stock market investors. Thanks again, Mr. Greenspan.” Michael Lombardi in Profit Confidential, May 27, 2005. Michael started warning about the coming crisis in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

Article by profitconfidential.com

By Profit Confidential

While government data continue to show a lack of inflation in the U.S. economy, the bond market screams the opposite.

The Consumer Price Index (CPI), the most commonly quoted measure of inflation, increased only 0.1% in May after declining 0.4% in April. Since the beginning of the year, from January to May, inflation in the U.S. has edged higher by only 0.2%. (Source: Bureau of Labor Statistics, June 18, 2013.)

But the bond market says this isn’t true.

Since May, we have seen yields on U.S. bonds skyrocket. Take a look at the chart below; it shows the change in yields on 30-year U.S. bonds (indicated by the red line) and 10-year U.S. notes (marked by the blue line). Note the circled area.

Chart courtesy of www.StockCharts.com

In a matter of a few weeks, yields on 30-year U.S. bonds have jumped about 19% and 10-year note yields have skyrocketed almost 35%.

This is dangerous for bond investors. As the yields on bonds climb higher, their prices slide lower, bond investors face losses…and they’re fleeing the bond market.

For the week ended June 5, long-term bond mutual funds witnessed an outflow of $10.9 billion. Looking at it on a monthly basis, the long-term bond mutual funds haven’t seen an outflow since December of 2008. This month may just be the first since then. (Source: Investment Company Institute, June 12, 2013.)

Even the foreigners, who have been providing credit to the U.S. economy, seem to be running toward the exit. According to Treasury International Capital Data, in April, foreign residents were net sellers of long-term U.S. bonds. Private foreign investors accounted for net sales of $17.8 billion in U.S. bonds, and foreign official institutions’ net sales of U.S. bonds were $6.9 billion. (Source: U.S. Department of the Treasury, June 14, 2013.)

Dear reader, inflation is the biggest enemy of the bond market. When inflation increases, bond prices decline and yields soar.

Over the past four years, the yields on U.S. bonds have declined and bond prices have risen due to the Fed’s rigorous easy monetary policy. With massive amounts of money printing and interest rates being kept artificially low, inflationary pressures are now building up. Food and energy prices, which the government inflation figures ignore, are increasing. The rise in bond yields and the collapsing bond market mean inflation lies ahead.

Michael’s Personal Notes:

In just a few years following the Lehman crisis, credit in the Chinese economy has gone from $9.0 trillion to $23.0 trillion. Comparing it to the gross domestic product (GDP) of the country, credit has ballooned to 200% of GDP—it was only 40% before the U.S. subprime bubble burst.

Fitch Ratings’ senior director in Beijing, Charlene Sue, said this week, “…this is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial.” (Source: Evans-Pritchard, A., “Fitch says China credit bubble unprecedented in modern world history,” The Telegraph, June 16, 2013.)

Adding to the credit worries in China, just like the U.S. economy, consumers in the Chinese economy are shying away from spending. According to the China Association of Automobile Manufacturers, car sales in the Chinese economy in May grew at a slower pace than the previous month’s. The car sales growth rate registered at nine percent in May, compared to 13% in April. (Source: Financial Times, June 9, 2013.)

Furthermore, manufacturing in the Chinese economy has been witnessing a slowdown. Exports from the country have fallen victim to anemic demand in the global economy. Sadly, this year, as per government estimates, the Chinese economy is expected to grow at the pace of only 7.75%—much slower than China’s past double-digit growth rates.

The troubles in the Chinese economy continue to mount, but with the optimism seen in the key stock indices, investors are ignoring their implications. I can’t stress this enough: growing problems in the Chinese economy will not only hurt the global economy, but the U.S. economy and the rising key stock indices as well.

And I believe the estimates of China’s growth this year may be overly optimistic. The underlying issues in the Chinese economy can take the country down very fast. Think of it this way: the credit in the country has ballooned to a very dangerous level. If only five percent of the loans issued default, there will be significant repercussions.

At the end of the day, the slowing Chinese economy means trouble for the U.S. economy. What many may not realize is that some of the biggest companies based here in the U.S. economy do business in China—companies like Wal-Mart Stores, Inc. (NYSE/WMT), Caterpillar Inc (NYSE/CAT), and the biggest car makers in the U.S. economy, like General Motors Company (NYSE/GM) and Ford Motor Company (NYSE/F), all do a significant amount of business there.

The combination of China’s credit reaching 200% of GDP, manufacturing slowing, consumers reducing spending, and GDP growth declining rapidly could be a huge risk for American multinational companies and our stock market.

Where the Market Stands; Where It’s Headed:

It’s become a joke.

The stock market no longer trades on the fundamentals of an improving economy or rising corporate profits. We have a stock market obsessed with the actions of the Federal Reserve—will it continue to print money or will it pull back on quantitative easing?

When you have a stock market so focused on artificial factors, such as money printing, as opposed to fundamentals, like economic growth and corporate profits, the end for the market cannot be far off.

What He Said:

“Investors have been put into an unfair corner. Those who invested in stocks because they got caught in the tech boom (1999) have seen their investments gone. Now, those who have leveraged heavily to play the real estate game, because it is the place to be (2005), could see the same fate as the stock market investors. Thanks again, Mr. Greenspan.” Michael Lombardi in Profit Confidential, May 27, 2005. Michael started warning about the coming crisis in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

Article by profitconfidential.com

By Profit Confidential

When the stock market is going up, there are always initial public offerings (IPOs). Timing, as they say, is everything.

But with a meaningful trend (like the stock market breakout experienced this year), you can make good money speculating in IPOs, even if you can’t get an allocation on the hottest deals.

One small, but fast-growing company that’s been a hot performer is SolarCity Corporation (SCTY) out of San Mateo, California. It’s been one of the best-performing IPOs since listing. The company’s timing could not have been more perfect.

This business is more than just a solar panel company. It is a full service installer and repair service company that guarantees electricity production to customers.

With net proceeds of approximately $95.0 million from the sale of approximately 13.2 million shares at $8.00 per share, this growing company is in full expansion mode.

It has also had fantastic stock market success so far, and it’s worth keeping an eye on (especially since Elon Musk from Tesla Motors, Inc. [TSLA] is the company’s chairman).

Before listing, the company raised over $100 million in private equity to fund its growth. The company has a burgeoning customer base among large corporations and the U.S. Armed Forces.

By May, $8.00 a share quickly became $50.00 a share, which isn’t bad for six months’ work. Extreme overvaluation is part of the game with IPOs, especially the ones that become immediately successful right after listing. (See “How Peter Lynch Got It Right 20 Years Ago.”)

Extreme price momentum with IPOs is very much a stock market reality when the key stock indices are ticking higher. The market bids the shares to astronomical levels in anticipation of the company delivering on growth. In a rising market, it definitely pays to research new IPOs.

SolarCity’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

In terms of its business model, SolarCity generates a considerable portion of its revenues through the leasing of its solar energy systems with power purchase agreements. What’s great about leasing is that it requires long-term contracts (typically 20 years according to the company’s form 10-Q) and provides a recurring revenue stream.

Before listing on the stock market, the company used to just sell its solar energy systems on an outright purchase basis. The company began offering leasing and power purchase agreements in mid-2008; this boosted the company’s business considerably.

The majority of residential energy customers enter into leasing arrangements, while commercial and government customers enter into power purchase agreements. The company’s total customer base grew 14% to 57,416 as of March 31, 2013, up from 50,532 on December 31, 2012.

In the three months ended March 31, 2013, SolarCity’s total revenues were about $30.0 million, of which $15.1 million was due to operating leases. This compares to total revenues of $24.8 million, of which $8.14 million was operating leases, on December 31, 2012.

Without question, SolarCity’s stock market valuation is off the charts and the company isn’t even profitable. IPOs like this are as much about the concept as they are the business.

SolarCity is just the kind of company that can help revitalize the U.S. economy. The company is hiring, it’s expanding across the U.S. market, and Wall Street loves the idea of it.

Stock market IPOs are typically overpriced, but that doesn’t mean they can’t make money. And SolarCity just might be the perfect example of this.

Article by profitconfidential.com

By Profit Confidential

There are only two methods to drive revenues: a company can increase its price to the consumer (but this doesn’t always come across as being prudent, especially given the current low interest rate and inflation period), and then there’s the more viable way, which is to expand into foreign markets.

Companies can expand nationwide or internationally like many of the world’s multinational companies. Just take a look around and see how many American companies are found outside of our borders and spread across Europe, Asia, and Latin America.

Whole Foods Market, Inc. (NASDAQ/WFM) has the majority of its stores in the United States, but also has a small presence in Canada and the United Kingdom. The company just made its first foray into Detroit, Michigan. Now at first glance it doesn’t seem odd but, as my stock analysis suggests, given that the “Motor City” has a massive unemployment rate of 17.5% (source: U.S. Bureau of Labor Statistics, last accessed June 18, 2013) and Michigan has more people looking for work than the national average, you have to wonder why the company has decided to expand there. While there may be more economically viable places for expansion, the reality is that the company is searching far and wide for places to expand, as it doesn’t want to face growth issues down the road, as my stock analysis indicates.

The need to expand internationally has made many American companies into global brands and has rewarded shareholders along the way, as my stock analysis suggests.

Expansion is what companies need to do in order to grow and become much bigger companies. Maintaining a market within America’s borders alone means limiting your market to 300 million people and ignoring the other 500 million people in the eurozone and 2.4 billion people spread across China and India, based on my stock analysis.

My stock analysis indicates that U.S. companies tend to expand internationally into our neighbor to the north, Canada, as a first move.

McDonalds Corporation (NYSE/MCD) is now a global powerhouse and one of the most recognizable brands in the world, according to my stock analysis. The company first moved into Canada in 1967. (Read “The Secret to Success in the Fast Food Sector.”)

In the home supplies sector, The Home Depot, Inc. (NYSE/HD) expanded into Canada in 1994, which was followed by Lowes Companies, Inc. (NYSE/LOW) in 2007.

Retail giant Wal-Mart Stores, Inc. (NYSE/WMT) expanded into Canada in 1994 via its acquisition of Woolco Canada. The company has become a retail icon in Canada and is expanding aggressively into China and Brazil to drive revenues, based on my stock analysis. And it’s odd that it took nearly two decades before Wal-Mart’s rival Target Corporation (NYSE/TGT) launched its first stores in Canada this past April. Target still doesn’t have any exposure outside of North America, which makes the company an inferior stock to Wal-Mart and its aggressive foreign exposure, based on my stock analysis.

I favor companies that look outside of their base country’s borders for growth. As my stock analysis suggests, other stocks that fit this profile include The Gap, Inc. (NYSE/GPS), Starbucks Corporation (NASDAQ/SBUX), Chipotle Mexican Grill, Inc. (YSE/CMG), and YUM! Brands, Inc. (NYSE/YUM).

Article by profitconfidential.com

By Profit Confidential

Municipal bond investors beware!

On June 14, it was announced that Detroit will not make a $39.7-million payment on unsecured municipal bonds worth $2.0 billion. This makes Detroit the most populated city to default on its debt, after Cleveland, since 1978.

The Emergency Manager, Kevyn Orr, who was sent by Michigan state to look over Detroit’s budget deficit told reporters in a news conference on June 14, “We have to strike a balance between the legacy obligation to our creditors, our employees and our retirees, and the duty we have as a city to 700,000 residents to give them lights, police, fire, emergency management, clean streets.” (Source: “‘We’re Tapped Out’: Detroit Emergency Manager Proposes Plan to Creditors,” CBS Detroit web site, June 14, 2013.)

As horrific as this news may be to the mainstream media and the politicians who say the U.S. economy is getting better, it shouldn’t be a surprise to Profit Confidential readers in any way. I have been harping on about the growing problem of cities and municipalities in financial trouble in the U.S. economy, and their effects on the municipal bond market, for some time now.

The “Motor City” defaulting on its debt obligation is certainly a big issue, but it isn’t the only place where municipal bond holders are facing losses. Cities like Stockton, California have already filed for bankruptcy due to their inability to control their budget deficits.

Jefferson County, Alabama, which previously filed for bankruptcy, recently came to a decision with its municipal bond holders. It has decided that the largest creditors will only receive 60% of what the city owed.

Gone are the days when municipal bonds were considered a great investment with significant tax advantages. The $3.7-trillion U.S. municipal bond market is facing threats. Detroit defaulting on its debt obligations is just adding fuel to the fire.

Dear reader, as it stands, cities across the U.S. economy are posting higher budget deficits. Remember: the main source of a city’s income is usually property taxes. With the housing market still depressed, I doubt many troubled cities will be able to get out of their rut anytime soon. The impacts of this on municipal bonds will be harsh.

I am looking at this situation from a different level.

Moody’s Investors Services has downgraded the general obligation debt issued by Illinois to A3 from A2—a lower investment grade—and maintained a negative outlook. (Source: Moody’s Investors Services, June 6, 2013.) The reason for the downgrade: staggering pension liabilities.

Now, consider what happens if some major city in Illinois runs into troubles. Will the already struggling state come to help? My take is that as more and more cities run deeper budget deficits and states continue their struggle, the federal government will eventually be asked to step in to save them. If the federal government helps them, the budget deficit of the U.S. government will obviously increase and any hopes of getting its annual deficit under a trillion dollars will be crushed.

An official national debt in excess of $20.0 trillion could happen a lot sooner than the end of this decade, as was originally forecast.

Article by profitconfidential.com