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By HY Markets Forex Blog

The European market is expected to start in a negative territory on Tuesday, while investors are still focused on the outcome from the Federal Reserve’s two-day meeting, which is expected to start later today. Investors are waiting for more information on whether the central bank would proceed with reducing its bond-buying program, which should be addressed in the Fed meeting.

Futures of the French CAC 40 slid 0.30% to 3,850.80 at 6:09am GMT, while the Germany’s DAX futures lowered by 0.26% to 8,199.30, UK FTSE 100 futures closed at 0.01 to 6,317.30 as of the same time. Futures of the pan-European Euro Stoxx 50 dropped by 0.50% to 2,689.50 as of 6.09am GMT as well.

The main focus on the Federal Reserve two-day meeting will be possible hints and clues as to when the central bank will slow down the $85 billion monthly bond purchases.

“We expect this nervousness to continue to dominate until the Federal Open Market Committee [FOMC] rate decision and Chairman Bernanke’s press conference on Wednesday, with asset prices remaining vulnerable to news headlines, keeping the volatility elevated,” analysts at Barclays wrote in a note.

The government of Spain will try and sell Treasury bills between 6 and 12 months, with a maximum target of five billion Euros.

German’s ZEW economic data for the month of June is expected to indicate a slight improvement of 37 points after the recording of 36.4 in May. While the euro zone as a whole, the ZEW index is expected to pick up to 29.4 in June from 27.6 in the previous month.

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By HY Markets Forex Blog

West Texas Intermediate crude traded flat on Tuesday after reaching the highest price in more than four months.

WTI crude futures slid by 0.04% closing at $98.00 per barrel, while Brent crude increased by 0.12% trading at $105.58 per barrel, both as of 6:30am GMT.

According to a survey taken by Bloomberg, U.S crude supplies probably fell by 500,000 barrels last week.

The empire state manufacturing index and NAHB Housing market Index have had some influence on the market sentiment. Reports show that the Empire State Manufacturing index increased from 1.43 in May to 7.84 in June.

According to reports, the central bank in New York said manufacturing conditions in the second district improved modestly in June.

While the National Association of Home Builder’s (NAHB) Housing Market Index rose from 44 in May to 52 in June, exceeding predictions of a rise of 45.

The Energy Information Administration is expected to release its reports on US oil inventories for last week, later today.

Investors main focus this week, is the Federal Reserve’s two-day meeting which will commence later today. Investors are looking out for any possible hints or clues as to what the central bank intentions for its stimulus efforts, which is expected to boost the global growth in the coming years.

Investors have raised concerns over the possibility of the conflict in Syria spreading into larger oil producing regions such as Iraq and KSA. These concerns have been added to the security risk for supplies of the black gold.

The post WTI crude trades close to four-month high appeared first on | HY Markets Official blog.

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By Profit Confidential

This week marks the unofficial beginning of second-quarter earnings season as Oracle Corporation (ORCL) reports. Next week, it’s NIKE, Inc. (NKE).

These two benchmark companies offer the first glimpse of business conditions for multinational corporations. What they report is material.

Last quarter, NIKE surprised Wall Street with excellent relative growth in revenues and earnings, particularly in the North American market. Oracle came in just under consensus. The stock’s been treading water for the last several months.

Corporations have been coy with their earnings guidance, both out of the collective uncertainty regarding the economy and to make it easier to beat the Street. It’s always a delicate dance that corporations play with investors. Earnings are definitely managed, which is why it’s important to look at cash flow and other financial metrics to get a better understanding of a company’s performance.

If there’s one trend apparent in the financial results of large corporations, it’s that balance sheets have been getting stronger. And this bodes extremely well for dividend-seeking investors. I have a strong inclination this earnings season that we’re going to see continued increases in dividends and expanded share buyback programs to pay for them.

Generally speaking, I wouldn’t be buying this market, but I wouldn’t sell blue chip positions either. Market timing is always extremely difficult, but it’s pretty tough to make the case that stocks aren’t due for a break.

While there’s been some peculiar trading action over the last week in global capital markets, there is still an appetite on the part of big investors to buy stocks if earnings meet or beat consensus.

First-quarter earnings season saw corporations report revenues that were mostly underwhelming. Some of the best blue chips like Johnson & Johnson (JNJ) and PepsiCo, Inc. (PEP) really hit the mark with their earnings, and they did produce genuine sales growth that the stock market rewarded.

All the market wants to see is continued stability in earnings, along with genuine constant currency growth in revenues. It doesn’t have to be double-digits, but it does have to be real.

We have seen some good numbers from select corporations like Cabela’s Incorporated (CAB) and Costco Wholesale Corporation (COST), which are representative of improved consumer confidence. For a number of quarters now, corporations reported that price increases were not materially affecting demand. (See “Big Investors Still Buying Big-Caps; Will They Be Right?”)

One thing I’m not loosing sight of is the fact that this market has been due for a meaningful pullback for a number of months. A stock market correction is overdue and would be a very natural development after such strong capital appreciation.

This market won’t fight monetary policy, but I think it is looking for a catalyst to sell.

This week, it’s time for two corporations to produce: FedEx Corporation (FDX) and Oracle.

Article by profitconfidential.com

By Profit Confidential

China’s economy is slowing, but the rich in that country continue to get richer and are growing in number. I was reading the other day that Chinese investors are now some of the biggest purchasers of high-end real estate in the United States—Manhattan, in particular. It would not be a surprise to see a buyer from China lay down $10.0 million cash for a Manhattan loft after their first visit. Trust me: the money out of China is staggering and will only grow bigger.

Yet the super-rich may surprise you. Out of the approximately 200 billionaires in China, about 83 are politicians, so you know who really runs the country and is getting rich. (Source: Anderlini, J., “Chinese parliament holds 83 billionaires,” Financial Times, March 7, 2013, last accessed June 17, 2013.) That’s unbelievable, and you know that these wealthy politicians probably can do whatever they desire, worrying very little about any conflict of interest.

China also has about 1.3 million millionaires—which trails the United States at 5.9 million and Japan at 1.5 million, according to the Boston Consulting Group. (Source: Barris, M. and Jing, S., “China to Top Japan in millionaire stakes,” China Daily, June 1, 2013.)

For Father’s Day, you can satisfy your appetite with a three-course dinner at Morton’s at The Regent Hotel in Beijing for US$135.00, or how about champagne, wine, and beer for $80.00 each at the Senses Signature restaurant at The Westin Beijing.

But while the country is seeing a renaissance in wealth creation at a pace never seen in the history of the world, the fact is that 70% of the country can still only dream of a dinner at Morton’s. It would take months for the worker in the fields to earn enough for a meal at Morton’s.

Make no mistake about it; the wealth creation out of China is unbelievable. And trust me: it’s going to continue to grow as the gap between the rich and poor broadens further.

So while the country is seeing some stalling in its gross domestic product (GDP) growth, the rich will continue to have money to spend and spoil themselves with, buying lavish goods and services, including jet-setting to Paris and Italy to buy high-end goods on weekend trips.

What this means is that there is a vast opportunity for those companies dealing in the high-end goods and services, whether they are fashion, automobile, watches, or travel companies.

The country has become a target for companies looking for big spenders who are willing to plunk down big dollars for goods, which is why we are seeing a major push of luxury goods providers into China, including Tiffany & Co. (NYSE/TIF), Coach, Inc. (NYSE/COH), Michael Kors Holdings Limited (NYSE/KORS), BMW, Rolls-Royce Holdings plc, and Rolex, to name just a few. (Read “It’s Good Times for the Rich: Luxury Spending Surging Worldwide.”)

And in China, the money does grow on trees; it’s just a matter of owning the tree.

Article by profitconfidential.com

By Profit Confidential

There has been increased volatility in gold bullion prices as investors run from precious metals. According to data compiled by Bloomberg, gold bullion’s 60-day historical volatility reached 28.9% on June 13. This was the highest level since December of 2011. Average volatility over the past five years for gold bullion prices has been around 20%. (Source: Bloomberg, June 14, 2013.)

As the volatility continues in gold bullion prices, the fundamentals remain strong. Actually, demand for gold coins is unprecedented right now.

Aside from individual investors buying gold bullion, central banks continue to diversify their reserves into gold bullion as fiat currencies fail to protect their wealth. In spite of the decline in gold bullion prices, as has been well documented in these pages, central banks form Russia, Turkey, and Kazakhstan continue to add precious metals to their reserves.

Bullish stock advisors are forgetting that we are standing on the cusp of a global economic slowdown—an event that bodes well for gold bullion. It may be difficult for my readers to envision right now, but with the recent exodus by investors out of U.S. bonds, once the stock market starts declining, there will be few other “stores of wealth” for investors to seek aside from gold.

Major economic hubs have been slowing down for some time and now, they are taking with them smaller nations that rely on their demand. China, Japan, India, Australia, Germany, and France—they are all begging for economic growth.

But instead of getting growth, world economies are slowing. The World Bank lowered its forecast for global growth last week. It now expects the global economy to grow by only 2.2% in 2013, down from its previous estimate of 2.4%—and by the end of this year, I wouldn’t be surprised to see that forecast fall again

Meanwhile, while the politicians say there is no inflation, even the government’s own out-of-whack official figures show inflation is a problem.

The Producer Price Index (PPI), an early indicator of inflation, increased 0.5% last month (source: Bureau of Labor Statics, June 14, 2013)—annualized, that’s six percent a year in wholesale inflation that will eventually make its way to consumers!

The Federal Reserve continues to print $85.0 billion a month to purchase government bonds and mortgage-backed securities, even after seeing that aggressive money printing did not work for the Japanese economy.

Dear reader, the historical fundamental reasons that drive gold prices are still present. Gold bullion prices have come under pressure, because there’s a notion that the U.S. economy is improving and conditions are getting better. Imagine that: the U.S. economy has turned the corner because the Federal Reserve has printed trillions of dollars in new money! That doesn’t sound right to me; it actually sounds artificial.

Gold bullion prices still have a bright future. And I don’t expect the scrutiny in the precious metal to last much longer. When all the pieces of the puzzle come together, the gold bears will realize they were wrong.

What He Said:

“We will wish Greenspan never brought rates down so low as to entice so many consumers to have such big mortgages.” Michael Lombardi in Profit Confidential, April 27, 2004. Michael first started warning about the negative repercussions of Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.

Article by profitconfidential.com

By Profit Confidential

This shouldn’t be a surprise to the readers of Profit Confidential.

According to an analysis done last week by the Wall Street Journal, in the first quarter of 2013, corporate earnings growth of companies in the key stock indices like the S&P 500 wasn’t really due to companies doing better. Rather, “research tax breaks” are what pushed 1Q13 earnings up for many S&P 500 companies. (Source: Wall Street Journal, June 14, 2013.)

Consider Intel Corporation (NASDAQ/INTC). The company spent $10.1 billion on research and development, which essentially lowered its effective tax rate from 28.2% in the first quarter of 2012 to 16.3% in the first quarter of 2013! This bolstered Intel’s corporate earnings.

Other big names in the S&P 500 like Google Inc. (NASDAQ/GOOG), Abbott Laboratories (NYSE/ABT), The Boeing Company (NYSE/BA), Yahoo! Inc. (NASDAQ/YHOO), and Xerox Corporation (NYSE/XRX) were able to use “research tax breaks” to also boost their corporate earnings.

While this technique helped companies boost 1Q13 earnings, profit expectations aren’t so rosy going forward.

Expectations for corporate earnings for the S&P 500 companies continue to drop. At the end of the first quarter (March 31), second-quarter corporate earnings were forecasted to grow at 4.5%. Now, corporate earnings growth for the second quarter is estimated to be only 1.3%. (Source: FactSet, June 7, 2013.)

Only four out of 10 industry sectors in the S&P 500 are expected to show corporate earnings growth in 2Q13. The information technology sector of the S&P 500 is expected to report a decline of 6.3% in corporate earnings this quarter and the health care sector could see its profits slide four percent!

Estimates for 2Q13 corporate earnings, in my opinion, are still too high. Underlying economic conditions haven’t improved and companies face severe revenue pressures. After all, the U.S. economy isn’t an island isolated from events in the global economy.

A significant portion of U.S.-based S&P 500 companies (about 40%) operate in regions like the eurozone and China—regions that are experiencing economic slowdowns. This means corporate earnings of companies based here at home are fragile.

Optimism surrounding rising key stock indices are not supported by corporate earnings. Investors beware!

Michael’s Personal Notes:

There has been increased volatility in gold bullion prices as investors run from precious metals. According to data compiled by Bloomberg, gold bullion’s 60-day historical volatility reached 28.9% on June 13. This was the highest level since December of 2011. Average volatility over the past five years for gold bullion prices has been around 20%. (Source: Bloomberg, June 14, 2013.)

As the volatility continues in gold bullion prices, the fundamentals remain strong. Actually, demand for gold coins is unprecedented right now.

Aside from individual investors buying gold bullion, central banks continue to diversify their reserves into gold bullion as fiat currencies fail to protect their wealth. In spite of the decline in gold bullion prices, as has been well documented in these pages, central banks form Russia, Turkey, and Kazakhstan continue to add precious metals to their reserves.

Bullish stock advisors are forgetting that we are standing on the cusp of a global economic slowdown—an event that bodes well for gold bullion. It may be difficult for my readers to envision right now, but with the recent exodus by investors out of U.S. bonds, once the stock market starts declining, there will be few other “stores of wealth” for investors to seek aside from gold.

Major economic hubs have been slowing down for some time and now, they are taking with them smaller nations that rely on their demand. China, Japan, India, Australia, Germany, and France—they are all begging for economic growth.

But instead of getting growth, world economies are slowing. The World Bank lowered its forecast for global growth last week. It now expects the global economy to grow by only 2.2% in 2013, down from its previous estimate of 2.4%—and by the end of this year, I wouldn’t be surprised to see that forecast fall again

Meanwhile, while the politicians say there is no inflation, even the government’s own out-of-whack official figures show inflation is a problem.

The Producer Price Index (PPI), an early indicator of inflation, increased 0.5% last month (source: Bureau of Labor Statics, June 14, 2013)—annualized, that’s six percent a year in wholesale inflation that will eventually make its way to consumers!

The Federal Reserve continues to print $85.0 billion a month to purchase government bonds and mortgage-backed securities, even after seeing that aggressive money printing did not work for the Japanese economy.

Dear reader, the historical fundamental reasons that drive gold prices are still present. Gold bullion prices have come under pressure, because there’s a notion that the U.S. economy is improving and conditions are getting better. Imagine that: the U.S. economy has turned the corner because the Federal Reserve has printed trillions of dollars in new money! That doesn’t sound right to me; it actually sounds artificial.

Gold bullion prices still have a bright future. And I don’t expect the scrutiny in the precious metal to last much longer. When all the pieces of the puzzle come together, the gold bears will realize they were wrong.

What He Said:

“We will wish Greenspan never brought rates down so low as to entice so many consumers to have such big mortgages.” Michael Lombardi in Profit Confidential, April 27, 2004. Michael first started warning about the negative repercussions of Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.

Article by profitconfidential.com

By Profit Confidential

If there is going to be genuine economic growth in mature economies, the leadership will have to come from the U.S. economy.

The convulsions taking place in the Japanese capital markets are emblematic of the monetary exuberance that both captivates investor sentiment and distorts its reality.

It’s a trader’s paradise with such volatility, based not on Main Street fundamentals, but on the ability and willingness of policymakers to puppeteer capital markets.

While liquidity and certainty are hugely important to investor sentiment, all the financial engineering should soon produce its own blowback. Investment risk in capital markets remains high.

Investor sentiment among institutional investors in U.S. equities still has strength to carry this market higher if corporations perform.

Corporate earnings are managed, but that’s how the system works. There’s been a paring down of earnings estimates for the second quarter.

E. I. du Pont de Nemours and Company (NYSE/DD), or simply DuPont, reduced its expectations for its first half of operating profits due to the weather (the wettest spring in almost 120 years in the farmbelt states). The company said full-year earnings per share will be at the low end of its forecast, between $3.85 and $4.05. Agriculture is the company’s most important operating division. (See “Why DuPont’s Earnings Results Are So Typical for This Stock Market.”)

Capital markets, especially the equity market, are looking for catalysts. From what I read, there are still great expectations for the Japanese equity market. Unscientific investor sentiment among fund managers maintains an outlook of perpetual volatility in that market.

Getting back to the U.S. market, economic news is not robust, but there is a positive disposition to the data. Last week’s retail sales growth number was good and lower-than-expected initial claims for jobless benefits also surprised, turning investor sentiment around.

Economic data are helping investor sentiment at a time when it needs it—the lull between earnings seasons. Capital markets will still convulse in this overly monetized world, but volatility in bonds and currencies should diminish as we get into corporate earnings.

Along with many equity market participants, I have low expectations for the second quarter. I think the earnings results will mimic the economic news demonstrated throughout the quarter. There was a real mixed basket of performance with no one statistic galvanizing investor sentiment.

The great monetary experiment that’s unfolded has definitely left a profound hesitation in capital markets. While outlooks always change, there is a lack of conviction on the part of Wall Street analysts and economists as to how things are going to unfold.

Predictions about the equity market were way off. Predictions about oil prices and the U.S. dollar were off the mark, too.

The profound intervention in capital markets by central banks around the world has left a vacuum of indecisiveness and fragility. Investor sentiment has no conviction.

The only certainty is the collective bewilderment of what happens when all this monetary stimulus is withdrawn.

The Federal Reserve is going to surprise capital markets sometime soon with a reduction in quantitative easing. While I recognize what central banks have done in terms of providing liquidity and stabilizing investor sentiment since the stock market crash, it’s time to get central banks out of their turbocharged monetary easing modes.

Capital markets have been cavitating recently, butting heads against monetary forces that are clearly untenable. While it will be a rocky road (and lucrative for traders and hedge funds), it’s time to let capital markets chart their own paths.

Article by profitconfidential.com

By Profit Confidential

I was recently out to dinner with a friend who manages tens of millions of dollars in private equity. While the Dow and the S&P 500 are still within two to three percent of their recent highs, my friend is not happy. In fact, he is kind of disappointed with the current trading action in the stock market.

As we move along into our discussion and dinner, I was really not surprised to hear that he was disappointed by the lack of a pullback in the stock market.

The S&P 500 was down five percent a few weeks back. At that point, I was hoping for a more sustained pullback; just like my friend, I had cash around and was ready to pounce on a buying opportunity in the stock market that subsequently really never materialized.

I could have accumulated on the five-percent adjustment, but my feeling was that there was more to come and there would be a bigger sale on Wall Street. (Read “Bull Market Not Over, but a Correction May Be on the Horizon.”)

The current 23% correction in the Nikkei 225 would be ideal here, but I doubt that will happen, as the Japanese stock market was way overextended and due for a setback.

When I asked my friend what kind of adjustment he was looking for, to my surprise, he responded that he was not really sure and would need to evaluate the situation at that time.

Yet by the time our second bottle of wine arrived, he was more open to questions; he suggested he would need to see a correction of at least 10% before making the jump.

Of course, my friend also added that a market correction of seven percent would suffice if the Federal Reserve decided to hold tight for the third quarter, beginning to ease off on its bond buying in the fourth quarter instead.

Like the rest of the investment world, while my friend was somewhat pleased with the economic renewal in the U.S., he was also less than enthused about the jobs market and was fearful that Federal Reserve Chairman Ben Bernanke would cut stimulus sooner—or at least before his third term is over at year-end.

By the time dessert had arrived, we were both on the same page and agreed that the global stock markets were clearly driven in large part by the monetary stimulus.

He also was beginning to add some hedging to his portfolio in the way of put options and was writing covered calls to generate premium income in case the stock market stalled.

It was a great dinner. And what I learned about the stock market was not a surprise; in fact, it is likely shared by many in the investment community who are running professional money.

Article by profitconfidential.com

Source: Kevin Michael Grace of The Gold Report (6/17/13) – http://www.theaureport.com/pub/na/15376

The price of gold remains in the doldrums, but Jay Taylor, host of the radio show “Turning Hard Times into Good Times,” expects the bull market to come roaring back. In this interview with The Gold Report, Taylor cautions that not all miners are equal and advises investors to look for companies with cash flow and the potential for organic growth.

The Gold Report: Many believe that the price of gold represents a market referendum on the value of paper money and the health of the world economy. Do you agree?

Jay Taylor: Yes, I do. Gold rose from the mid-$200s/ounce (mid-$200/oz) in 2002 to as high as $1,900/oz. That clearly suggests that things are not all right in the global economy. Politicians like to create the illusion that they can create something out of nothing and give it to people in exchange for votes. Gold gets in the way of that falsehood politicians wish to use to deceive voters for their own gain and the gain of those who fund their election campaigns.

TGR: Gold has fallen from $1,900/oz to below $1,400/oz. Some people say this proves the bubble has burst.

JT: I wish that were the case because that would mean that the policymakers—the people in charge of the Federal Reserve, the Treasury and of other countries and banks around the world—had fixed everything, but I don’t believe that for a minute. If anything, their policies are making things worse.

I wish there was a reason to be optimistic about the global economy. Keynesian economic policies didn’t work in the 1930s, and they’re not working now. Franklin Roosevelt’s Treasury secretary and a personal friend of the president said after the second term, “We have just as much unemployment as we had at the start of the downturn, and we have a huge amount of debt to boot.” And the same thing can be said now if we use the same measure of unemployment as we did in the 1930s.

As David Stockman said recently, Fed Chairman Ben Bernanke is in the process of destroying capitalism. Pushing interest rates to zero destroys savings and creates malinvestment. That works very well for the people who control the supply of money and credit, but it doesn’t work very well for the people who are actually contributing to the economy: miners, manufacturers, farmers. The middle class is being destroyed. That’s why, if you are not on Wall Street or in government, you have to own gold and silver because the currency is being used to reallocate wealth from most of us to those who rule us from Washington and Wall Street.

TGR: But we keep hearing that the recovery is just around the corner.

JT: Well, that’s what they said in the 1930s, too.

TGR: You’ve talked about gold “being increasingly a bipolar market.” Do you think we’re going to see a divorce between the paper and physical gold markets?

JT: I think that, ultimately, physical will win, especially as those in the futures markets demand delivery, only to find the gold doesn’t exist. ABN Amro has already defaulted on its delivery obligations and required settlement in paper. As long as people think they can take paper money and still go out and buy the gold or whatever else they want, this fraudulent system can hold together. But ultimately, as trillions upon trillions of new money is created, it will fail. I don’t know how long that will take. The paper markets are controlled and dominated by Wall Street, which joins Washington in this con game. But the real markets for gold are not only the Chinese but also average Americans and average citizens everywhere who have their eyes open and their ears shut to mainstream propaganda. They know the ruling elite are the parasites eating away at their wealth.

TGR: If there were a divorce between the physical and paper gold markets, wouldn’t this be a severe blow to financial instruments generally?

JT: Yes, ultimately it should be. But we have had all manner of immoral behavior on Wall Street with the housing bubble, yet nobody has gone to jail. The fox is in charge of the chicken coop. If the markets force some sort of honesty on these evildoers, it would be a good thing. But it wouldn’t necessarily be pleasant for anyone. A fair amount of circumstantial evidence from the Gold Anit-Trust Action Committee (GATA) and other sources supports the contention that the big bullion banks are manipulating the precious metals markets. That’s supposed to be against the law. But as Dr. Karen Hudes, former chief counsel at the World Bank, pointed out on my radio show on June 11, there is a powerful group of corporations that rule America and that are above the law. That would include the bullion banks, the mainstream media and the governments of the Western world.

TGR: Why do you think the big run-up in the equities markets has not buoyed the prices of precious metals stocks?

JT: Mining stocks have not performed well relative to the price of gold even before the price of gold fell. Part of the reason is that the cost of production has gone up faster than metals prices. Mining profits started to erode as Quantitative Easing 2 (QE2), QE3 and QE infinity started pumping up the prices of other commodities such as energy and materials. In addition, the gold mining companies were scaling up and became fairly reckless. I watch very closely the “real” price of gold, which I define in terms of the Rogers Raw Materials Index. After Lehman Brothers, the “real” price of gold rose dramatically and with that so did the earnings of major gold producers.

Earnings Per Share of Major Gold Producers

Note from the charts above that the upward trend in the “real” price of gold has been broken and with that major gold mining company profits have also declined and are projected to decline further this year.

TGR: New Gold Inc.’s (NGD:TSX; NGD:NYSE.MKT) takeover of Rainy River Resources Ltd. (RR:TSX.V) and its Rainy River project in Ontario is not a big takeout. It’s $310 million, but it’s the first of any size that we’ve seen for some time. Do you think this is a one-off, or do you think that we can expect bigger companies taking advantage of the depressed share prices of the smaller ones?

JT: No, I think it’s not a one-off. It’s likely to become a trend. Something like 50% or more of the junior resource companies are on death’s door; they don’t have enough money to stay in business for another year. Many of those companies can now be had for a song. Shareholders will say, gee, at least I’m getting something out of it. They won’t have a choice.

TGR: Which of the bigger companies are actively looking for acquisitions?

JT: Certainly Sandstorm Gold Ltd. (SSL:TSX), which employs a streaming model, is a company that’s looking to pick up some assets. I suppose some of the really big miners that I don’t follow as much, the household names like Newmont Mining Corp. (NEM:NYSE) and Goldcorp Inc. (G:TSX; GG:NYSE), will be in a position to pick up some of the smaller juniors.

But it’s not so much mergers and acquisitions that I’m interested in. My target is mostly smaller juniors that are cash-flow positive, don’t have to issue tremendous numbers of shares, have great exploration potential and can grow organically. For example, Dynacor Gold Mines Inc. (DNG:TSX) is one of my favorites. The company will produce about $0.30/share in cash flow this year. It is selling at around $1.15/share and will probably double its production to over 100,000 oz by 2014. Dynacor also has some wonderful exploration targets. The company has about 28 million shares outstanding, and it never issues more. It funds its needs internally from cash flow.

One of the biggest risks that shareholders have to be cognizant of in this industry, especially among the exploration companies, is dilution. Dynacor has been patient and has grown slowly but steadily over the past several years. It provides milling facilities in Peru to high-grade mom-and-pop operators. Peru has something like 75,000 small, licensed operators, so Dynacor has really carved out a niche business and its growth prospects are very substantial.

Timmins Gold Corp. (TMM:TSX; TGD:NYSE.MKT) is another company with good cash flow and is certainly in a position to grow organically from its San Francisco mine in Mexico.

TGR: There has been a fair amount of protests against foreign mining companies in Peru. Do you think that Peru is solid from a mining viewpoint?

JT: I do, though you have to look at companies in Peru on a case-by-case basis. Dynacor has been there for a long time, and it has done an extremely good job of working with the government and the people. Dynacor has not been arrogant, like many of the majors. I’m not saying Peru is risk free. I don’t think any place on earth is risk free, including the United States. But Jean Martineau, the president and CEO of Dynacor, has worked from the bottom up, and the company is viewed as almost a Peruvian company. The capital has come from outside, but it’s really the Peruvian people that are the company and they are benefitting from Dynacor’s business model. Rather than a Canadian company going into Peru and grabbing major tracts of land and putting smaller producers out of business, Dynacor enables small mining operations to continue producing gold and building the wealth of middle- to upper-class family wealth.

TGR: Could you comment on some other companies that you follow?

JT: I met with Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK) management a couple of weeks ago. The company is really on to something very significant with its Chinchillas silver project in Argentina. The project already has outlined some 110 million ounces (110 Moz) silver equivalent, and it has barely scratched the surface of its exploration targets. Joe Grosso, the chairman, has really done a remarkable job of forming relationships with the local people in Argentina.

San Gold Corp. (SGR:TSX.V) is a completely different story. The company’s operating performance over the last number of years has been a big disappointment. But I believe we’re going to see a turnaround. San’s revised management team has a much better grasp of costs and is employing capital to make its mining operations in Manitoba much more efficient by linking high-grade zones together. San should be able to pull more high-grade ore out of the ground. That’s why I placed a fairly heavy bet on it personally and in my newsletter. San’s infrastructure is in place. I could be wrong, but if I’m right, we could be looking at a $1.80/share price instead of a $0.14/share stock.

TGR: You met with Prophecy Platinum Corp. (NKL:TSX.V; PNIKF:OTCPK; P94P:FSE) CEO and President Greg Johnson at the World Resource Investment Conference in Vancouver. Afterward, you said that this company’s story “stood out head and shoulders above the rest.” What is it about Prophecy’s Wellgreen platinum group metals and nickel-copper project in the Yukon that so impresses you?

JT: A whole lot of factors. I visited the project a couple of years ago before Prophecy brought on Greg Johnson, and I’ve always believed that it was perhaps one of the greatest PGM projects in the world. I didn’t feel at that time that the company had the management in place to really pull it off. A project of this scale is going to require a massive amount of technical talent. Greg was a co-founder of NOVAGOLD (NG:TSX; NG:NYSE.MKT) and also worked with South American Silver Corp. (SAC:TSX; SOHAF:OTCBB).

After Johnson came on, John Sagman was added to the team. He was with Xstrata Plc (XTA:LSE) and also with Vale S.A. (VALE:NYSE), handling the nickel and platinum group metals operations. I think Sagman and Johnson form a management team core that can actually get it done. Wellgreen’s scale, size and dimensions of mineralization and the grades of the platinum group metals are remarkable. We’re looking at widths and thicknesses that exceed anything that Ivanplats Ltd. (IVP:TSX) and the other companies in South Africa have. The big question here has to do with metallurgy. This is a deposit of 7 Moz platinum group metals plus gold, 2 billion pounds (2 Blb) nickel, 2 Blb copper and the exploration potential is absolutely enormous. But can Prophecy get enough of the metals out? Can it be optimized to the point where the deposit is economic? I think with Prophecy’s new management team the answer to those questions is most likely yes.

TGR: Wellgreen’s preliminary economic assessment shows a capital expenditure (capex) of $863 million. Is that going to be a problem considering the current economic conditions for raising money?

JT: Absolutely. That is certainly the other major concern here. Close to a $1 billion in capex is not very easy for a company selling at $0.65/share. But management is looking at the potential to develop high-grade starter pits, which would enable it to start out at a smaller scale with a much smaller capex.

TGR: Do you like the prospect-generator model?

JT: Yes, mainly because prospect generators use other people’s money to derisk projects and avoid dilution. Prospect generators, at least the companies that I follow and respect, have very strong technical talents in exploration. They’ve identified projects that have a reasonable potential to host meaningful ore deposits. Most companies have a couple of projects and blow through huge amounts of money to drill them out. Prospect generators do some low-cost preliminary work to establish a geological thesis for exploration. Then they get other companies to come in and spend their money.

TGR: What companies do you like in this area?

JT: Eurasian Minerals Inc. (EMX:TSX.V) is my favorite. There are other companies that I would call hybrid prospect generators, companies like Aurvista Gold Corp. (AVA:TSX.V), Bravada Gold Corp. (BVA:TSX.V)and Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX). But among pure project generators, Eurasian has the biggest projects and the most money, and it is allied with the biggest mining companies. I think it’s just a matter of time before Eurasian comes up with at least one major economic deposit that sends the stock to much higher levels.

There are others I like, such as Riverside Resources Inc. (RRI:TSX). John-Mark Staude, the president and CEO, is doing a remarkable job. Riverside has projects in Mexico and in the United States and also now some base metals deposits that are being explored by major companies in British Columbia. The company just announced some excellent high-grade silver results from trench assays and drill core on its Jesus Maria mine on its Penoles project in Durango, Mexico. This could be the first discovery that catapults the company from a $0.35/share stock into the mining big leagues.

Millrock Resources Inc. (MRO:TSX.V) has copper and gold projects that major companies are spending some serious dough to explore. Miranda Gold Corp. (MAD:TSX.V) just hooked up with Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) as a strategic partner in Colombia. Miranda has an ample amount of cash but is looking hard at picking up good projects from companies unable to stay alive in this difficult market.

Paramount is definitely a takeover target. This is a company with a little less than 10 Moz gold equivalent in Mexico. Lots of exploration upside remains on both of its projects. Paramount has deep pockets. I like this one a lot.

And I like Aurvista quite a bit as well. I think that if we get a rise in the equity markets, the company is going to be fine. Aurvista’s grades are around 1 gram/tonne, with lots of exploration potential. It could be a multimillion-ounce deposit. Aurvista could be a takeover target somewhere down the road.

Bravada is skating on thin ice right now. The company just lost its partner in the Wind Mountain gold-silver project in Nevada, Argonaut Gold Inc. (AR:TSX), but that project is very strong. Argonaut walked away not because it didn’t like the project, but it just picked up Prodigy Gold Inc.’s projects, so it had to preserve its capital. The geologists loved the project. I think Bravada will get another partner in there and will do extremely well, if it survives.

TGR: John Kaiser expects a wholesale cull of mining juniors: 500 companies or more. What do you think?

JT: I think John’s right. Some will disappear in acquisitions, and some will just stop doing what they’re doing. As much as I love gold and silver, the mining sector is not immune to malinvestment. Some stocks rise in the good times but can’t be sustained because there’s no organic growth, no cash flow to sustain them. And thanks to the creation of money out of thin air, they were born as public companies but no doubt should never have been on the scene in the first place, thanks to dishonest fiat money, which funds the yachts for Vancouver stockbrokers, but ends up sending average people to the poor house.

TGR: A great many investors in mining stocks have moved from gloom to despair. Do you have any words that would cheer them up?

JT: We are still in the bull market of a lifetime in gold. I follow the work of Charles Nenner, who is a cycles analyst. Charles is calling for a mid-June turnaround in gold and silver. I’m 66 years old. I was around for the last gold bull market in the 1970s. This is going to make that one look like child’s play. I think we can expect something comparable to what we saw in the 1970s, when gold went from $35 to $200 to $100 and then from $100 to $850/oz. It’s not necessarily something to be happy about because it portends a lot of trouble geopolitically and in the global economy, and that’s not something I want to see. I don’t invest in gold because I’m cheering for the world to fall apart. I invest in gold and silver because I believe the policymakers are guaranteeing the world will fall apart.

TGR: If this big run-up starts this summer, how long before the benefits start accruing to mining companies?

JT: That’s a very good question. I’m not absolutely sure they will. I hope so, but this will happen only if we see deflation rather than hyperinflation. If we have a hyperinflationary event, I think the only real thing to do is to own the metals itself. If we head into a deflationary depression, I think gold mining will do extremely well as it did in the 1930s. But mining is like any other business. Revenues need to be higher than expenses. In a hyperinflationary environment, costs tend to rise faster than the price of gold.

TGR: Gold producers did well during the Great Depression.

JT: Extremely well. Homestake rose by six or sevenfold, while the Dow went down 89%; gold producers did well because the real price of gold rose. While the price of gold was fixed at $35/oz, deflation caused wages and materials costs to decline and profits to surge.

TGR: Thanks, Jay.

JT: My pleasure.

As he followed the demolition of the U.S. gold standard and the rapid rise in the national debt, Jay Taylor’s interest in U.S. monetary and fiscal policy grew, particularly as it related to gold. He began publishing North American Gold Mining Stocks in 1981. In 1997, he decided to pursue his avocation as a new full-time career—including publication of his weekly Gold, Energy & Technology Stocks newsletter. He also has a radio program, “Turning Hard Times into Good Times.”

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) Kevin Michael Grace 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: Goldcorp Inc., Timmins Gold Corp., Golden Arrow Resources Corp., Prophecy Platinum Corp., NOVAGOLD, Aurvista Gold Corp., Paramount Gold and Silver Corp. and Argonaut Gold Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Jay Taylor: I or my family own shares of the following companies mentioned in this interview: Aurvista Gold Corp., Bravada Gold Corp., Dynacor Gold Mines Inc., Eurasian Minerals Inc., Golden Arrow Resources Corp., Millrock Resources Inc., Miranda Gold Corp., Riverside Resources Inc., Paramount Gold and Silver Corp., Prophecy Platinum Corp., San Gold Corp., Sandstorm Gold Ltd. and Timmins Gold Corp. I have never been paid by any of the companies mentioned in this interview in exchange for their coverage in my newsletter. However, with the exception of Sandstorm Gold, the companies my family or I own as noted in 3), all of the other companies have at one time or another in the past been sponsors on my radio show, “Turning Hard Times into Good Times.” 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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By MoneyMorning.com.au

What’s the difference between a root canal and owning silver?

Answer: A root canal is more fun.

As a silver owner myself, I can vouch for this!

Silver has been falling for the last two years.

But the thing about silver is that when it moves, it can really move. As we saw in 2008, a 50% loss can very quickly turn into a 150% gain.

And if I’m reading the market right, it looks as though a major ‘whipsaw rally’ in silver could be just weeks away…

Three different signals warning of a whipsaw rally have gone off in the last few weeks.

Before I get to them though, ask yourself how much you’ve heard about silver recently. Silver’s really fallen off the radar, and ‘market buzz’ is as low as I can recall.

Alexa.com is a free website that lets you measure website traffic. And you can see here that silver website silverprice.org has fallen 90% over the last two years. I’m not singling out this website, which is in fact pretty good; it’s a similar story for all silver websites.

No One is Looking at Silver Websites Any More – a Signal to Buy?

Source: Alexa

The point is this: silver is simply not on punters’ radars any more. However, this is perfect, as that is usually the best time to buy something: before the speculative frenzy begins.

That’s assuming a speculative frenzy happens of course, so let me explain why I think one is on its way.

A Bullish Outlook

First of all, the positioning in the futures market has shifted.

You see, futures traders have to declare what they are up to, and this is then reported in the Commitment of Traders (COT) report. And this COT report has been a great way of picking major turning points in the past.

The thing that stands out right now is that commercial traders are net short just 5,000 contracts, the smallest net short position I can recall. Just six months ago it was a massive 60,000, but it has shrunk rapidly.

These commercial traders include the big banks and the big producers. No one has a better view of the market than them, and it’s hard to say why they’d be positioned like this – that is unless they are expecting higher prices.

Secondly, the technical charts are peppered with bullish signals as well.

First off, the silver price has now carved out a 55% fall since peaking in April 2011. This is comparable to silver’s fall during the 2008 crash. And as painful as that move was, it set silver up for a 2.5 year rally that saw the silver price increase five-fold. The chance of something similar happening again is increasing.

Silver – Technicals Looking Good for a Turnaround

Source: StockCharts

The recent fall in silver also brings it to the same moving average line (350 week, in blue) as during the 2008 crash. The other supporting technicals look good too.

The RSI (above the main chart) is extremely low, and you can see that in the past this has been a good signal for the next rally. The same thing goes for the MACD (below the main chart). Let’s just say the silver charts have got my full attention.

The third big reason to expect a new bull-market in silver is the ratio of the gold price to the silver price.

Another way to think of this ‘gold-silver ratio’ is that it is the number of ounces of silver it would take to buy an ounce of gold. So, when the ratio is high, it means silver is relatively cheap.

Right now, silver is so cheap that the ratio is at a three-year high.

It doesn’t tend to stay this cheap for long. For example, the last time the ratio was this high was in August 2010. And this was RIGHT before silver broke out and rallied 170%, from $18/ounce to peak at $49/ounce in just nine months.

With the mega-bullish futures positioning, the soaring gold silver ratio, and the red-hot technicals, as well as the sheer lack of interest in silver, in all, it’s a pretty compelling set up.

The last time I saw the stars line up like this I went out and bought my first silver. Funny thing is, over a beer I was telling a hedge fund buddy about my bet.

A year later I found out he had thought there was something in it, and after further research had taken a position. But whereas I bought a few grands worth of the metal, he took a multi-million dollar position for his fund. He made out like a bandit on that trade, and got a pretty tidy bonus!

Silver is a cruel mistress though, and likes to make a mockery of investment theories. Many people far smarter than me have been calling silver up for the last few years, only to see it continue to tumble.

Watch This Key Announcement

My message here is that if you buy silver today and expect it to be up next month, you’re more likely to be disappointed that not. But if you are still holding in 2-3 years time, then I think you will be sitting on a 100-200% gain from this level. This is why I’m still sitting on our ‘family silver’.

As for when exactly it could turn, it’s impossible to say. Market timing is a dark art, but in a market gruesomely distorted by major central bank policy, it is nigh on impossible.

It’s a big week for the central bankers too. The Fed meets tomorrow (Thursday morning for Australians). The prospect of the Fed tapering the QE program has got the markets super- twitchy.

So much so, that last night the markets swung wildly simply on the back of a Financial Times story about the Fed tapering. And last week, it was a story in the Wall Street Journal that did it.

If the Fed backs off from tapering talk, expect to see a jump in gold and silver. I think they have to back off. US data is still too weak to take the stabilisers off, and the Fed has witnessed the abject chaos they have caused globally by testing the water with Bernanke’s trial suggestion of tapering QE.

US bond yields have risen, emerging markets have crashed, and major currencies have moved more in a night than a typical month. Not happy Ben.

So keep an eye on markets on Thursday morning. It should be a decisive turning point one way or the other. And it should mark a decisive turning point for silver too.

Dr Alex Cowie
Editor, Diggers & Drillers
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