By Hussein Sayed, Chief Market Strategist (Gulf & MENA), ForexTime
Currency and fixed income traders will have a busy day with the European Central Bank (ECB) monetary policy decision under the spotlight. Today’s meeting may be the year’s most important for ECB President Mario Draghi, who is due to step down in October. The latest economic figures from the Eurozone were not encouraging as the closely-watched Manufacturing Purchasing Managers’ Index (PMI) hit a six-and-a-half-year low in July. Inflation remains well below the central bank’s target, and business sentiment is deteriorating. For Mr. Draghi, who pledged to do whatever it takes to save the Euro, action needs to be taken, and now the timing seems to be the most critical factor.
The ECB meeting comes six days ahead of a similarly crucial policy decision by the US Federal Reserve. While no one may admit it, we are likely living in a cold currency war. If the ECB acts now by lowering deposit rates by 10 basis points and introduces a new stimulus program, the effect on the Euro may be short-lived if the Federal Reserve takes a more aggressive stance later. Mario Draghi and his team need the Euro to remain low in order to revive the deteriorating manufacturing sector and help exporters. Given that the ECB has fewer tools in their toolkit compared to the Federal Reserve, they may want to wait and see the Fed’s action first and act accordingly. That’s why the ECB may need to wait until September to introduce fresh economic stimulus but use the meeting later today to provide guidance. If the ECB doesn’t appear as overly dovish, this may lead to a sharp upward correction in the Euro to trade back within the range of 1.12 – 1.13.
However, we cannot rule out any surprises especially as there are more than 30% of market participants who believe that the ECB will reduce the deposit rate by 10 basis points today, taking it to -50 basis points. Out of the 67 economists surveyed by Reuters, five expect the ECB to lower the rate today, and Commerzbank is even anticipating a rate cut by 20 basis points. If the Commerzbank forecast plays out today, we may see the Euro easily dropping below its two-year low of 1.11.
Interest rates are not the only factor moving the Euro. Whether a new asset purchasing program is introduced is also of great importance, especially if it allows purchasing bonds yielding below -0.4%. This will put additional pressure on the Eurozone bond yields and hence the Euro.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
In this interview with Maurice Jackson of Proven and Probable, Jayant Bhandari presents his world view and discusses how it meshes with investment in the precious metals markets.
Maurice Jackson: Joining us for a conversation is Jayant Bhandari, the founder of the world-renowned Capitalism and Morality seminar, and a highly sought-out advisor to institutional investors. Mr. Bhandari, welcome to the show, sir.
Jayant Bhandari: Thank you very much for having me, Maurice.
Maurice Jackson: Always glad to have you on our program, sir. We have a number of topics to address that are important for members of our audience to be aware of that may have an impact on their investment decisions. I would like to begin our discussion by addressing geopolitics in areas of the world that many investors and those in the media identify as emerging economies. But in previous interviews you’ve pointed out that these are not emerging economies but they’re Third World economies, and they will remain Third World economies. Let’s began in Latin America and go to Venezuela. What has your attention there and why?
Jayant Bhandari: What is happening in Venezuela is that that country is imploding, as are many countries in the Third World. In fact, all Third World countries that I can think of are imploding, Maurice. The only exception is China.
What happened with Venezuela is something very similar to what happened in the Middle East. These people became very rich as a consequence of finding oil. And what people might want to look at is GDP [gross domestic product] per capita of countries like Venezuela, Saudi Arabia, United Arab Emirates. The GDP per capita was, in general, about twice as much as it is today, which means that not only they have half as much wealth-generating capacity 50 years later, they have completely failed to benefit from technological revolution that has happened in the last 50 years. And this is a consequence of only one thing, Maurice, and that thing is because Western societies, Europeans no longer rule countries like Venezuela, leadership has got completely depleted in these countries, and these countries, as a consequence, are imploding.
What you see happening in Venezuela or Brazil or Central AmericaGuatemala, Honduras and many of these countries, El Salvadorthey’re all imploding and in my view, they will all fall apart into tribal pieces, which means that there is a huge, huge humanitarian crisis that we are looking forward to, not in the very far future.
Maurice Jackson: How do you see the events unfolding in Venezuela? Do you see regime change? And if so, will that mean that socialism leaves?
Jayant Bhandari: No, that won’t happen. People erroneously project their good views on protests that happen in the streets. So a lot of libertarians and even the international media will claim that these people on the street, Venezuelans, are sick and tired of their regimes, but the reality is that these people, if you look closer, are, of course, asking for Maduro to go. But what they are not asking for is for the free stuff to go away. What they are on the street for is because the free stuff has stopped coming to them. They want free stuff and that is the only reason they are on the street.
So the problem, Maurice, is that socialism doesn’t add up. There’s nothing like free stuff. Someone has to produce wealth to give it to you and a time must come when all this excess wealth will have got used up. That is what happened in Venezuela and these people have now no option but to continue to become poor. Maduro can go and the new regime can come in, but don’t expect anything to really change in a very material way in Venezuela. This country will implode because that is where their thinking takes them.
Maurice Jackson: You know, we’re going to discuss the value proposition of precious metals later in the interview, but it was brought to my attention that the situation is so dire in Venezuela that graves are being robbed for jewelry of the deceasedin particular those that died prior to 1940. And the reason I bring that up is when times get desperate, that’s when people begin to realize the difference between currency and money, which is gold and silver.
Jayant Bhandari: Absolutely, Maurice. When you want to protect your wealth going forward, one of the best ways to protect it is by using precious metals. Precious metals and gems do not die, deteriorate, or fall apart with time, and they become good ways to be used as currencies when time comes for you. And they have been, historically, very good ways to protect your wealth. In a situation in which the society is going into a chaos, property prices fall apart. They don’t add to their value with time. You can’t really invest in the economy, in factories or in infrastructure, and expect to make money from them. And that is exactly the reason why people historically have owned things that preserve their value with time, and gold and silver are among the most important commodities that way.
Maurice Jackson: Let’s move to the Persian Gulf and go to Iran. The situation is becoming more and more tense. What is going on there and why?
Jayant Bhandari: Maurice, what those people among us who dislike American involvement in Iran fail to understand really is that Iran has been trying to build nuclear capabilities. And America has this real responsibility to make sure that Iran does not build nuclear weapons. Now, what people forget is that at one point of time, Iraq, Libya, Brazil, [and] many of countries tried to make nuclear weapons, and America ensured that these people failed to make nuclear weapons.
Now imagine what would have happened had Iran built nuclear weapons. It would start to dominate everything around itself. And if it got capabilities to send missiles to America, this would be game over for America because America can’t afford to have even one city get blown away, and Iran can afford to lose half of its population and not worry about it.
So what America is doing is fully legitimate in my view, America has the responsibility, for its own protection, to make sure that Iran does not build nuclear weapons and missile technology.
Maurice Jackson: Now what are your thoughts on Iran taking the oil tankers of Great Britain here recently?
Jayant Bhandari: Well then, that is the problem. These are completely superstitious, tribal, irrational people and they will create chaos just to look brave to their own people. And the reason is that Iranians themselves are like that. And their government is merely a reflection of its people. I’m reasonably sure people in Iran are feeling very euphoric despite that they are hungry. They’re feeling euphoric about what Iranian government has done. And this is a way to control the crowds, control the masses, and this is what Iranian government is doing, and this needs to be controlled. This needs to be checked as far as Iranian kind of countries are concerned.
Maurice Jackson: There’s a lot of turmoil in Iran as well. The women there are fighting to give up their hijabs, and there seems to be a growing faction that want the mullahs out. What are your thoughts there?
Jayant Bhandari: I think that’s a very erroneous conclusion that a lot of people make [from] watching anecdotal videos of women burning away their hijabs or people fighting against the mullahs. Or they might even show photographs of Iranians from the 1960s or ’70s, in which women are wearing miniskirts or sitting on beaches. These are very inappropriate shows of the truth of what Iran is like.
Now, the reality is that 83% of Iranians are in favor of sharia law. A large, vast majority of people in Iran would want you to be stoned to death for not believing in Islam, or particularly if you are a Muslim and if you want to give up Islam. So it’s a very hard core, fanatic society. And the few women who are protesting are just those rare one or two women who are protesting, or probably they are out of their mind at this stage[that is] the reason they have the so-called courage to protest in public.
In general, Iranians are protesting against inflation, not against religious fanaticism. Inflation has been increasing and the problem with irrational people, Maurice, is that they think that believing more in Islam or believing more in tribalism, or investing more in military hardware, would somehow make up for this inflation, would somehow make them richer despite inflation. They don’t understand that fanaticism and too much focus on the military actually leads to even more inflation. These Third World countries are in a vicious cycle because they are headless, they are leaderless, and democracy has got them where they are today.
Maurice Jackson: It seems that the citizens of Iran could also benefit from owning physical precious metals. Let’s move further east into India.
Jayant Bhandari: Maurice, the truth is that Iranians are among the biggest buyers of precious metals because individually they know that their society’s extremely chaotic.
Maurice Jackson: And thank you for that input. Let’s move further east to India, which recently had elections. What do you make of the elections?
Jayant Bhandari: Well, this is all noise for me. The path of India is well defined, the future path is well defined. India is imploding. India is in a terrible situation and the international media, the World Bank, the IMF [International Monetary Fund] show all erroneous information about India. India has been going downhill since the time the British left India. Its institutions are falling apart, its economy is getting worse by the day, and all we have today is a very fanatic person ruling that country. And he is going to continue to do more things to correct the problems and he will do those things that led us to those problems in the first place.
Which means that the situation will just get worse, and worse because again, Maurice, he is an irrational person and his actions will take India to a worse situation. Now, if I were a voter in India, who would I have voted for? I would have actually voted for the current prime minister. And the reason is that other people would have been even worse. And that is how bad, headless and brain-dead the leadership of that country is today.
Maurice Jackson: That’s truly unfortunate to hear. So, just for the record, because my next question was going to be, should investors expect to see new opportunities with Prime Minister Modi remaining in power? And that answer is no. Is that correct, sir?
Jayant Bhandari: Absolutely. There is no opportunity in India. Now, of course, there can be isolated opportunities in any society. I mean you can make money probably in Venezuela or North Korea or some really dysfunctional parts of Africa. But in general, as a country, as a society, India is imploding and I have no interest to keep any of my money there except in isolated cases.
Maurice Jackson: Before we move to speculations in the natural resource space, what are your thoughts on the situation between the U.S. and China?
Jayant Bhandari: Yeah, I mean this trade war continues and I like both these countries. I think America is really the best country on the planet even today, and China is the only emerging market. China has shown the capability to continue to improve, and I go to China quite often. I love how Chinese culture and Chinese society is changing, but this trade war is something that will actually harm China. And I think what Trump is doing is quite correct because China has been getting a free ride, and what Trump wants to do is for China to control, to make sure that the playing field is level.
Now the current president of China, Xi Jinping, is certainly egocentric, and my fear is that he might lead to reduction in growth rate of China for the next few years. But China’s future, I think, is reasonably very good in the future. And I hope this trade war blows over eventually. But for now China is suffering.
Maurice Jackson: We’ve discussed some of the challenges in the Third World economies. What is the solution for people who want to see changes?
Jayant Bhandari: It’s too late for changes to happen in the Third World countries, Maurice. Five billion out of seven and a half billion people in the world live in Third World countries. And remember when the populations of the Third World countries was one fifth of what it is today? When it was 1940s and 1950s, and Europeans were ruling these Third World countries, they were starting to find it very difficult to control the chaos of the Third World countries.
Now, what has happened in the intervening 70 years, is that the best people of these Third World countries have moved to the First World. And democracy has meant that the really worst part of the Third World country masses are now in leadership positions in the Third World countries. So there’s really no solution, given the inertia that we are in right now. For individuals, my only suggestion would be to find a refuge somewhere in the West. Now, of course, the West should try to minimize immigration into their countries, because this multiculturalism is destroying the West very rapidly.
So it’s a very strange situation. I think the Third World will certainly implode. It is the biggest humanitarian crisis that world has ever faced in my view. Hundreds of millionsbillionsof people will perish when this comes to its conclusion.
Maurice Jackson: Now you referenced that multiculturalism is destroying the West. In what regard?
Jayant Bhandari: Western civilization is a sane civilization for a reason, and the reason is the concept of reason, the concept of causality, the concept of individuality, the concept of property rights, which are all interconnected concepts in a way, and that is really the only culture that exists. That is my definition of civilization.
Now, people from the Third World don’t have civilization. They operate through their animal base instincts. If when these people come to the West and they don’t accept the primary aspects of Western civilization, they participate in destroying the Western society.
My guess is that 9095% of immigrants do not add cultural value to the West and they should have never been accepted into the Western countries. But again, my guess is that this has led the Western society into a huge problem, particularly America. Where America has been a place where a lot of people have moved to, and they increasingly vote for the left, and the nanny government, exactly the way they voted in the places that they left behind. And they are now destroying America very rapidly.
And that is why, Maurice, my view is that after Trump, America is going to be a very sad and bad placedespite that it is the best country on the planet. The problem is polarization is huge in America today, and once the Republican Party loses its control, it will become ultra-leftist in America.
Maurice Jackson: Well I’m just shaking my head here in despair here. This a not a bright future for American citizens. Let’s switch gears here. In the natural resource space, many speculators are euphoric, with gold seeming to find some price stability above $1,400/ounce. Is this a head fake or are we in for higher gold prices?
Jayant Bhandari: Well, I don’t speculate much in any commodity or precious metals, but really Maurice, if you think into the future, what options do you have? As I said, the Third World is imploding, and these five billion out of seven and half billion people on the planet have really no other choice except to preserve their wealth either by buying Western properties, Western investments, or by buying gold and silver.
Most of these people don’t really understand what is happening outside their boundaries, so they have no option but to buy gold, silver, and currencies of Western countries. And that is why I think support for precious metals will continue to increase going forward. I don’t know what influence it will have in pricing, but really, if I had to suggest to someone on how to preserve his wealth, my suggestion would primarily be focused on gold and silver.
Maurice Jackson: I hear from a lot of speculators in the space. They’re very euphoric regarding the gold price, but I want to delve a little bit into your mindset here and your investment thesis. How does the gold price factor into your investment decisions?
Jayant Bhandari: When I look at mining companies, Maurice, I don’t build into my model prices of commodities and gold higher than what they are today. I always build either spot prices, or actually lower than the spot prices, in my discounted cash flow model. For me, these mining companies are for profit and they should make sense to me at the spot price.
Maurice Jackson: Are you actively buying gold, or are you more focused on the junior mining companies?
Jayant Bhandari: I am certainly interested in buying gold. I own gold and any dips that happen in gold would lead me to buying, accumulating more gold. Now I understand, or I like to think I understand, the junior mining business very well. And I also like to think that I understand other investment vehicles as well. So I, of course, invest in these other companies as well, because they are investment vehicles for me. That is where I expect to make money irrespective of what happens to the metal prices.
Maurice Jackson: Speaking of junior mining companies, which ones have you attention at the moment?
Jayant Bhandari: A couple of companies, Maurice, that I have talked with you [about] many, many times in the pastboth of those companies have gone up about 10 to 20 times. And those two companies are Novo Resources Corp. (NVO:TSX.V; NSRPF:OTCQX) and the other one is Irving Resources Inc. (IRV:CSE; IRVRF:OTCBB). I own; these are two of my largest positions and I continue to hold them. I’m, of course, not buying them. I buy things when prices are cheap. But I continue to hold them, and I continue to believe that they offer me a very good upside, speculative upside. Things can go wrong, but they offer me very good speculative upside.
Maurice Jackson: You know, there’s another company within that family per se and that is Miramont Resources Corp. (MONT:CSE). What are your thoughts on them?
Jayant Bhandari: Well, Miramont is a company that I am accumulating at $0.10. It is currently trading at $0.10, and the good thing with a $0.10 pricing of Miramont is it has priced in all the risks that exist in the company. It is trading not much more than its cash value. The enterprise value of Miramont today is only about $2 million for two very prospective and large projects. And I’m very happy to accumulate Miramont at $0.10. When it was trading at $0.15 or $0.20, I suggested that people sold that company, and I did sell my Miramont position at that time, and I am a buyer of this at the current price.
Maurice Jackson: I noticed a central theme in all those names that we just referenced there, and they’re all sponsors of Proven and Probable, and we’re proud to say that. But Dr. Quinton Hennighwhat does that mean to you when you see a name like that affiliated with those companies?
Jayant Bhandari: Most of the people, Maurice, that I have known in the business space are a mixture of psychopaths, idiots, financial illiterates, or simple conmen. The arena is filled with those kinds of people. My guess is that no more than 10% of leadership in junior mining business is smart people who are good in engineering, good in geology and good in business. And Quinton Hennigh, Dr. Quinton Hennigh, fits all those things. He is among the most honest people I have known in the business. He’s very smart in financial and geological matters, and I’m very happy to trust him, and that is the reason why the biggest part of my portfolio belongs to Nova Resources.
Maurice Jackson: Yeah. With Dr. Quinton Hennigh behind the scenes, when I talk to people I interview [and] ask them who their top three geologists, his name is always in their top three. Follow the names and you’ll follow success, and we’ve had a number of successes with Dr. Quinton Hennigh.
Jayant Bhandari: If you listen to speeches made by Dr. Quinton Hennigh, even if you don’t understand geology, you will find yourself understanding geological concepts very easily. When someone can explain to you difficult concepts in layman terms, it also means that they are actually very smart at their understanding of those concepts, because that is the only way you can translate difficult concepts into layman’s language.
Maurice Jackson: Mr. Bhandari, you’re known for brilliant calls on arbitrage opportunities. Do you have any to share with us?
Jayant Bhandari: I can mention three names to you, Maurice, and all these three names are very close to a final major decision, so people have to be very careful not to chase these shares.
And these companies, one is Alexandria Minerals Corp. (AZX:TSX.V), a company that I did mention to you a couple of months back when it was trading at $0.025/share. Currently it is $0.05, so it has gone up quite a bit, but at $0.05 there is still a nice arbitrage upside. It is being acquired by O3 Mining, which will eventually own projects that I would have owned anyway because I think the acquiring company also offers me a value. So Alexandria Minerals at $0.05; just sit on it. If it doesn’t get bought, don’t bother. But it’s a good value at $0.05.
There’s another company called Terraco Gold Corp. (TEN:TSX.V; TCEGF:OTCPK) and it’s a royalty company which is being acquired, and it is trading at $0.12/share. I have no interest to buy more of it at $0.12. I bought it at $0.095 and I’m keen to buy more at $0.11. And I think it offers me a good downside risk and a nice upside at $0.11.
And there’s a third company called Toachi Mining (TIM:TSX; TIMGF:OTCQB), which is being acquired. It is trading at $0.065. I have no interest in buying it at $0.065. I think it will eventually fall to $0.055. So, if you cue yourself up right now, your order will likely get filled before the module is closed. So these are the three arbitrage opportunities. All three of them will make you about 20%.
Maurice Jackson: As always, thank you for sharing with us, sir. Moving on to philosophy. Mr. Bhandari, you’re the founder of a philosophical forum focused on reason, argumentation and liberty. For someone new to your work, please introduce us to Capitalism and Morality.
Jayant Bhandari: I have been running Capitalism and Morality for the last 10 years Maurice. And Rick Rule has been very kind enough to let me run this seminar immediately after his Sprott Natural Resource Symposium, who’s link is, of course, on your website. People can register using that link. So I piggyback on his conference, of course with his approval, and he is one of the key speakers at my seminar, along with people like Adrian Day, Jeff Deist, Rakesh Wadhwa and my mentor Doug Casey. We have a total of 13 speakers and it will be on Aug. 3 at the downtown campus of Simon Fraser University in Vancouver, Canada.
Maurice Jackson: This is a world-class event and I look forward to being there, Jayant. You referenced some of the feature speakers. Can you share what they will be discussing?
Jayant Bhandari: Well, the key aspect of this seminar, Maurice, is to talk about the greatness of Western civilization. And really I should not be using Western civilization, because this is the only civilization I have known, but people who have grown up in the civilization fail to understand the great qualities of Western society, and it is the only civilization I have known. Other societies outside the West and outside those people who have failed to adopt Western civilization are just tribal people who live their lives using animal instincts.
And I want to talk about issues that make the West great, and I want to talk about issues that are not allowed to be spoken on in the West today because of political correctness. So we talk about agenda issues. We talk about race, we talk about ethnicity, and it does not mean that those people who speak and listen are necessarily correct in their opinions. But we want to have an open discussion, which is really what Western civilization is about. Without free speech, there is no future of Western civilization.
Maurice Jackson: Mr. Bhandari, are there tickets still available and if so, what is the price of admission?
Jayant Bhandari: The tickets are still available, Maurice, only about 20 seats are left. They are actually going away and I have limited capacity in that room because of fire regulations. The price of the ticket is $175, but as is always the case, your audience have an opportunity to get 10% discount. And I can send you the coupon for that 10% discount again so that you can link it for your audience.
Maurice Jackson: Well thank you for that generous offer. And is that in Canadian or U.S. currency?
Jayant Bhandari: That is in Canadian dollars; CA$175, which translates into about US$135, and you also get 10% discount on that.
Maurice Jackson: Well, you can’t beat that. And not with the name of speakers that you have there. T I want to remind everyone this is a world-class event and the intellectual capital that’s there, you can’t beat it. And refreshments are there, food is there. You don’t have to leave the facility, it’s an all-day event, it’s worth every single minute. For audience members that are familiar with our website, we have a direct link on our homepage that will take you directly to the registration tab for Capitalism and Morality. Mr. Bhandari, before we close, what did I forget to ask?
Jayant Bhandari: Well, we have talked a lot, Maurice. I have just returned from a fabulous five-day trip to Yukon, a trip that was organized by Yukon Mining Alliance and the Yukon government. They did an absolutely fabulous job showing us around what is the natural endowment in terms of natural resources in Yukon. We got to understand about the capabilities and the kind of mood that pervades the Yukon government, and the kind of mood that pervades in the society there, and the capabilities that exist in Yukon.
And now, whether I invest in Yukon or not is a different matter, but these people have done a fabulous job of explaining to me what Yukon is about, and they offer this trip every year in summer and I think anyone who can afford to go should take that opportunity to visit Yukon with Yukon Mining Alliance and Yukon government.
Maurice Jackson: Mr. Bhandari, for someone listening that wants to get more information about your work, please share the website address.
Jayant Bhandari: Everything I do, Maurice, is on my website, jayantbhandari.com.
Maurice Jackson: As a reminder, before you make your next precious metals purchase, please call me directly at (855) 505-1900 or you may email at [email protected].
I’m a licensed representative for Miles Franklin Precious Metals Investments, where we provide a number of options to expand your precious metals portfolio, from physical delivery, offshore depositories, precious metal IRAs, and private blockchain distributed ledger technology.
Jayant Bhandari, the founder of Capitalism and Morality, thank you for joining us today on Proven and Probable.
Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.
Disclosure: 1) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Irving Resources and Novo Resources. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: Irving Resources and Miramont Resources are sponsors of Proven and Probable. I am a licensed representative of Miles Franklin Precious Metals Investments. Proven and Probable disclosures are listed below. 2) Jayant Bhandari: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Irving Resources, Novo Resources, Miramont Resources, Alexandria Minerals, Terraco Gold and Toachi Mining. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. 3) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Terraco Gold. Click here for important disclosures about sponsor fees. 4) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. 5) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Irving Resources, Miramont Resources and Terraco Gold, companies mentioned in this article.
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The company’s most advanced assets are discussed in a Dawson James Securities report.
In a July 18 research note, Dawson James Securities analyst Jason Kolbert reported he assumed coverage on Daré Bioscience Inc. (DARE:NASDAQ), and in doing so, rated it Buy and assigned it a $4 per share price target. Daré’s stock is currently trading at around $0.75 per share.
Kolbert noted that Daré has three lead product candidates, one each for these common female health issues: bacterial vaginosis, contraception and female sexual arousal disorder (FSAD). He reviewed each asset.
Regarding bacterial vaginosis, the company’s DARE-BV1, shown to have cure rates as high as 86%, is in development, Kolbert relayed. “The product appears superior to the standard of care treatments with average cure rates of 50%,” he wrote. The product formulation is a gel, allowing for local delivery and a single application. This bodes well for DARE-BV1, Kolbert pointed out, given the treatment landscape for bacterial vaginosis could use a more effective, one-time solution.
As for contraception, Kolbert indicated that Daré’s Ovaprene is helping fill the need for additional modalities, a gap that encompasses about 40 million women in the U.S. alone. Ovaprene, a device self-administered monthly, differentiates itself from leading products Bayer’s Mirena IUS and Merck’s NuvaRing in that it is hormone free. It also is effective and easy to use and has a favorable side effect profile.
“Daré’s Ovaprene fulfills all four features, creating a brand new product category for contraception,” Kolbert commented. “Daré hopes to not only attract consumers who already use nonhormonal methods but also convert those who currently use hormonal products.”
Given that Ovaprene checks all the boxes and considering sales of contraception products overall in the U.S. in 2016 were $6 billion, the opportunity for Daré’s contraception product is “large,” highlighted Kolbert.
With respect to FSAD, Daré is pursuing the use of sildenafil cream, noted Kolbert. The company believes the chance of getting U.S. Food and Drug Administration approval of it is good. “Oral sildenafil has already proved statistically significant results in increasing genital blood flow in women, further bolstering the probability of success for the product,” he added.
Disclosure: 1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures for Dawson James Securities, Dare Bioscience, July 18, 2019,
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Specifically, Fortuna’s year-to-date silver production is 4,600,000 ounces (4.6 Moz), and 2019 guidance is 8.29 Moz. Similarly, gold production so far this year is 26,000 ounces (26 Koz), and 2019 guidance is 4954 Koz.
Looking at Q2/19 numbers, Chiu relayed that Fortuna produced 2.4 Moz of silver, more than CIBC’s predicted 2.1 Moz, along with 1.35 Koz of gold, as CIBC expected.
The San Jose mine, with higher throughputs and grades, drove Fortuna’s strong Q2/19 production. Production there was reported at 2.2 Moz and compares to CIBC’s projected 1.90 Moz.
Silver production at Caylloma was 230 Koz and as CIBC estimated. The highlights there were lead and zinc production, which were 7,000,000 pounds (7 Mlb) and 11.2 Mlb, respectively. Both exceeded CIBC expectations, of 6.8 Mlb of lead and 10.2 Mlb of zinc.
“The results demonstrate the consistent performance of Fortuna’s two operating assets,” Chiu commented. “Incorporating Q2 actual commodity prices, the two operations should generate about $20 million in free cash flow in the quarter.”
As for cash costs in Q2/19, they were in line with CIBC’s forecasts and Fortuna’s guidance for each project. Cash costs at San Jose were $68.60 per ton, within guidance of $63.5070.10 per ton. At Caylloma, cash costs were $86.70 per ton, also within guidance of $8088.40 per ton.
The question mark in the Fortuna story is its Lindero project, Chiu noted, whose “construction progress (no update provided) will remain an overhang on the company in the near term.”
He added that “until there is improved line of sight on Lindero’s completion and ramp-up,” CIBC will keep its Neutral rating and CA$5.25 per share target price on Fortuna. The current share price is around CA$5.05.
Disclosure: 1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from CIBC, Fortuna Silver Mines Inc., Earnings Update, July 15, 2019
Analyst Certification: Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst’s personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
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Important Disclosure Footnotes for Fortuna Silver Mines Inc. (FVI)
CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Fortuna Silver Mines Inc. in the next 3 months.
A Raymond James report looks at 2019, 2020 spending and production expectations for and by this company.
In a July 18 research note, John Freeman reported that Raymond James decreased its target price but maintained its Outperform rating on SM Energy Co. (SM:NYSE) in response to a recent operational update.
The new target price, which better reflects “weakness in commodity pricing relative to our prior bullish forecast,” Freeman wrote, is $15 per share, down from $20. It compares to SM’s current share price of about $10.14.
Freeman indicated that two factors are expected to decrease SM’s Q3/19 production numbers. One is SM’s intention to reject ethane for most of H2/19 due to its price. The other is shut-ins by offset operators in the Midland Basin, which are estimated to reduce volumes by about 1,500,000 barrels of oil equivalent (boe) in Q3/19. The net result will likely be an approximate 4% decline in SM’s sequential production in Q3/19 to 131,500 boe per day (131.5 Mboe/day).
On a positive front, highlighted Freeman, SM met its capital discipline goals so far in 2019. Q2/19 spending came in at $261 million versus the Street’s estimate of $314 million and Raymond James’ forecast of $302 million.
Also, SM just increased its 2019 volume model by about 1% at the midpoint, 130 Mboe/day. Freeman noted, “Our model remains at the high end of the expected range for the year, given SM’s propensity to outperform expected production ranges in its Permian operations.”
Looking to 2020, SM Energy’s capital program of $9601,080 million is like this year’s, Freeman pointed out. As for production, single high-digit growth is expected.
Investors should expect the company to keep working on improving its balance sheet, Freeman wrote. “SM has hedges in place on about 50% of its anticipated 2020 oil volumes at $55-plus per barrel of West Texas Intermediate, and likely takes any incremental cash flow resulting from commodity price uplift to the balance sheet as it continues to prioritize de-levering in the near term,” he added.
Disclosure: 1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from Raymond James, SM Energy Company, July 18, 2019
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst’s success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst John Freeman, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
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Gold prices have been rising rapidly over the last few weeks and silver has begun to follow. Brien Lundin, editor of Gold Newsletter, in this interview with Streetwise Reports, profiles four junior miners that either have leverage to the metals prices or are sitting on large discoveries.
Streetwise Reports: It’s been a busy month or two for the precious metals, especially gold. Would you talk about a couple of the trends you see in the market right now?
Brien Lundin: The big trend, of course, is the Federal Reserve and its remarkable transformation over a span of just a few months from being hawkish on rates and actually striving to continue raising rates to being dovish, to the point where it’s expected to actually begin cutting rates at its upcoming meeting. That’s a remarkable transformation that I think just over the past month and a half or so has gotten the gold market, and investors in general, to take that to heart and realize the impact on gold and other precious metals, and even commodities in general. What it portends is an era of ultralow to negative real rates, and that’s extremely bullish for metals.
SR: Silver has stayed fairly low vis-à-vis gold for the last few months but now seems to be waking up. What do you think is going on there?
BL: Yes, silver has been the one missing ingredient in this gold rally that began in late May. Gold has gone a tremendous way. It has cleared a number of technical resistance levels around the mid-$1,300s, around $1,370 or so, and then most recently, the very key level of $1,400. The mining stocks have generally offered leverage to this move and outperformed gold. So we had an almost perfect confirmation of the story from a technical standpoint for gold. However, silver lagged behind and for some reason hadn’t really jumped on board with gold’s rally.
But in recent sessions, that has completely shifted, and silver has begun to rise on its own. Impressively, even on days when gold has fallen, we’ve seen silver rise. This was the last important technical confirmation we needed of a major new upward trend in gold. It ironically has brought more buying into gold because of this confirmation by silver. The end result is that silver seems to actually be pulling gold ahead right now instead of lagging behind, and this bodes very well for the continuation of gold’s rally to significantly higher levels.
SR: With that as a backdrop, let’s shift to mining companies. What companies do you think are poised to take advantage of this rise in precious metals prices?
BL: We follow a lot of well-positioned companies in Gold Newsletter, but two companies that I think are extremely leveraged to this move in gold, because they have significant resources already in place, are Pure Gold Mining Inc. (PGM:TSX.V) and Revival Gold Inc. (RVG:TSX.V).
Pure Gold has the very high-grade Madsen mine project in the fabled Red Lake District of Ontario, and it is rapidly advancing that toward production. It doesn’t have a large capital expenseonly about CA$90 millionneeded to get into production. And as I said, it has very high grades that, in combination with the low capex, contributes to good economics on the project. I like the company because it’s immediately leveraged to higher gold prices.
Pure Gold is in the process of securing financing to build the project, and just closed on a financing that will cover about half the cost. Considering its advanced position, and the fact that it’s also engaged in an aggressive drilling program to expand its resources, I think Pure Gold is particularly undervalued right now.
SR: Do you expect Pure Gold to build the project itself?
BL: Yes, I do. It is, of course, a takeover candidate, as just about every junior company is. But it is fully capable of bringing the project into production because much of the infrastructure, especially underground development, that already exists. And as I say, there is a relatively small capex requirement to get into production.
Another company that’s a combination exploration play and one with resources is Revival Gold. Its Beartrack project in Idaho boasts a couple million ounces in broadly categorized gold resource at economic grades, and it looks very likely to increase that through drilling, as we speak, toward a target of around 3 million ounces (3 Moz) or so.
SR: Where does it stand in its exploration cycle?
BL: Revival Gold does have a resource of 1.2 Moz Indicated and 0.8 Inferred at good grades, but it doesn’t have a preliminary economic assessment (PEA) yet. And again, it is targeting 3 Moz in resource, so drilling news will also help advance the stock.
SR: What’s the mining situation in Idaho for precious metals?
BL: Idaho has a long history of mining. Unfortunately, much of it came before the modern era of environmental remediation and reclamation. So what’s happened is that Idaho, although it’s not known as a mining-friendly region like Nevada, is actually very pro mining because the most effective avenue toward cleaning up some of these historical mining sites is through new development of old projects. Projects controlled by companies like Revival, Midas Gold Corp. (MAX:TSX) and others are, therefore, often hybrids of greenfields and brownfields.
So the political environment in Idaho is, contrary to popular belief, very supportive of mining. However, companies operating in Idaho tend to trade at a bit of a discount, a risk discount, because the market doesn’t quite yet believe that it will be as easy to permit operations in Idaho as in, say, Nevada or other areas. So that creates bargains and inefficiencies that I think investors can take advantage of.
SR: Are there other companies that you want to talk about?
BL: Yes, there are a couple of exploration plays we’re following right now that are building large resources and have very exciting discoveries. They aren’t as leveraged to or as dependent upon the metals prices but are, rather, much more driven by their success via the drill.
One of these is Great Bear Resources Ltd. (GBR:TSX.V; GTBDF:OTC). Gold Newsletter was one of the very early letters to recommend Great Bear at far lower prices. Thus, after the run that it has had, multiplying about 15 times over since our original recommendation, we have it in our portfolio as a Strong Hold. But its Dixie project in Red Lake has the potential to be a generational-level discovery. And resource investors who don’t yet have exposure to this play may, therefore, want to consider it at this point.
SR: It has been quite active with putting out drill results over the past few months, hasn’t it?
BL: Yes. It was recently conducting a financing, so it had to go into a news drought of about four to six weeks while it was completing that. But that dam was busted recently with some more new results. Ironically, or interestingly, its latest news release was of assays of a drill hole that it didn’t even drill. It was relogging and resampling a historical drill hole by another operator years ago, and that company failed to recognize the geology that hole had entered and didn’t even assay the bottom of the hole. However, Great Bear suspected that it was continuation of the geology at a discovery hole that it had 1.4 kilometers (1.4 km) away.
It assayed that historical hole and it came back with a narrow intersection of very high-grade gold that confirmed this new discovery and opened up the possibility that this Bear-Rimini discovery could have a strike length of 1.4 km or more. Of course it can’t confirm that yet, but it does open up that potential that the fault structure this new discovery lies on could contain gold discoveries all along itand that it, therefore, has the potential of rivaling even the most legendary of the Red Lake discoveries in terms of ultimate size potential.
SR: Is Great Bear continuing with an aggressive drilling campaign through the summer?
BL: Yes. In fact, it may be the most aggressive drilling campaign by any junior around today. The company has $20 million in the bank and three drills running right now. It has 60,000 meters (60,000m) left of a planned 90,000m drill program. But for all intents and purposes, it could probably drill for the next two years at this rate without having to finance again. So it is really in an enviable position for a junior exploration company. It should be able to release news on a regular basis and, hopefully, significantly expand the scope and potential of the Dixie project.
SR: Any other companies you’d like to talk about?
BL: Yes. Another company that has a very large-scale discovery on its hands is New Pacific Metals Corp. (NUAG:TSX.V; NUPMF:OTCQX), which is drilling the Silver Sand project in Bolivia. I think this is a very underappreciated discovery that is very likely to prove up a resource measuring in the hundreds of millions of ounces of relatively high-grade silver.
SR: What’s the jurisdictional risk in Bolivia at this point? Is the government supportive?
BL: It is, but it is fair to say that Bolivia is the risk factor that the market is placing on New Pacific’s discovery. But what’s interesting to me is that one of the very early investors in New Pacific to help it develop the Silver Sand project was Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ). In fact, before anything was done other than test drilling before the acquisition of the project, Pan American came in and wrote a $22.7 million check to obtain a significant interest in New Pacific.
Pan American has been successfully operating in Bolivia for many years and obviously was very comfortable with the political situation there. So I don’t think you could have a better validation of the political situation in Bolivia than the size of Pan American’s check to invest in New Pacific.
SR: Where is New Pacific in the exploration cycle at this point?
BL: It is drilling to hopefully have a maiden resource estimate by the end of the year. It drilled over 50,000m over the preceding 12 months before it even released any drill results. The reason was to keep things quiet, so that it could work with the government to dramatically expand its property position. It was successful in doing that and then released 55,000m of drill results in two quick tranches of news, which quickly showed the market the considerable scope of the project.
Beyond its original land position, there is evidence through artisanal pits and other mining that the mineralization could extend much farther, to where it could be 5 or 6 km in strike length. The company now controls that surrounding property position and is in the process of drilling not only its original property position and target but, also, exploring outside on its new ground to get an idea of how far the mineralization might extend. But even at the current delineation, there’s no doubt that Silver Sand is a world-class project that, as I said, should eventually comprise hundreds of millions of ounces of silver resource.
SR: Any final thoughts for our readers?
BL: We’re at an interesting and exciting point for resource investors right now, in that the rally in gold has been confirmed both on technical and fundamental bases. And yet, many of the midtier to junior mining stocks have yet to significantly respond to that rally. So there is still time now for investors to get positioned, and they should do so.
SR: Brien, thanks for your insights.
With a career spanning four decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971. He also hosts the New Orleans Investment Conference, which is being held Nov. 14 in 2019.
Disclosure: 1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None. 2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Great Bear Resources. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 3) Brien Lundin: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Great Bear Resources and New Pacific Metals. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this interview: None. I determined which companies would be included in this article based on my research and understanding of the sector. 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. 4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of New Pacific Metals, a company mentioned in this article.
Nearly a decade ago, the globe experienced the biggest banking system failures we had seen in nearly a century. The exposure to risk that was inherent throughout the global banking system was so completely ignored that when the crisis unfolded, hardly anyone completely understood the depth of the risks at play. Could it happen again? Now?
Have foreign banking institutions extended credit and debt risks beyond safe levels again? Are Deutsche Bank risk factors going to complicate an already fractured Asia, China, and Europe? What are the signs we should be looking for in terms of extended weakness or a breaking point?
In the first part of this research article, we highlighted the risk factors detailed by two separate public articles we found interesting. Deutsche Bank derivatives risk is listed at $49 trillion and extends across the globe into the global banking sector. We believe the economic slowdown being experienced throughout must of the globe could quickly expose a great chance for some type of contagion event to unfold.
Our research suggests the US banking sector and economy may be somewhat immune from this event this time having already learned its lesson from 2008-09. Still, we believe this potential event should be on every trader’s mind going forward – especially in relation to our August 19 stock market prediction.
This second part of the article will attempt to investigate how the US Fed and US interest rates may complicate the speed of this potential contagion event and how it may have compounded the credit crisis of 2008-09. Additionally, we’ll consider how multiple QE processes over the past 8+ years may have created the perfect setup for a new foreign banking/credit contagion event in the near future.
First, we’ll explore exactly when QE actions took place and ended. Secondly, we’ll compare these with the derivatives and risk exposure activities to attempt to determine a correlative comparison.
This chart of the S&P 500 highlights exactly when QE activities started and ended. It also highlights US fed debt investment activities (taper).
Have the global markets been fading the US Fed and decreasing leverage when the QE functions are at risk of ending or when the US Fed pushes rates higher? What are the risk factors for the global markets if the foundation of the global economy is based on “fading the Fed” and this easy US Dollar carry-trade/economic boom cycle expectation?
If our analysis is correct, then we can state that foreign nations and governments are hooked on the easy US Dollar/US Fed QE functions even more so than the US is dependent on a strong US economy and a strong US Dollar. It would appear that foreign banks, governments, and financial institutions became addicted to the idea that easy US Dollars would allow them to run a massive debt expansion scheme where they could borrow US Dollars for near 0% interest and deploy this capital as credit into their economies. This credit quickly entered their shadow banking and gray banking processes where it ran through various forms with limited restrictions and oversight. Could the easy-money policies of the past 8 years actually have created one of the biggest global credit risks in our future?
CONCLUDING THOUGHTS:
In short, it certainly seems as though the global banking institutions could get caught with their pants down if certain economic processes continue. First, if commodities continue to collapse (oil, copper, steel and other infrastructure/transport essentials), then commodity-backed loans will continue to default – sending shock-waves through the shadow and traditional banking systems.
If the US Fed continues to keep rates near current levels and when borrowers need to extend terms at current rates, this creates a scenario where borrowers may need to pay rates far greater than they can offset as profits – creating a negative return and extended defaults.
If foreign banks have extended loans into the shadow/gray banking system under the expectation that the US Federal Reserve would never attempt to move rates above 1% to 1.5% while foreign trade and economic activities continue to decline, the potential for decreased income/revenues pushing debt default levels higher becomes a real risk going forward.
A contagion event could become a much more real possibility of two or more of these events continue to extend out into 2020 or longer.
We believe we are already nearing a minor contagion event within the EU and Asia/China. We believe the debt/banking sectors are about to experience a wave of continued defaults and shake-outs as the US Fed navigates future expectations. Deutsche Bank is the one to watch in Europe because the extended debt risks associated with DB could become the black hole that sucks the rest of the foreign financial sector into an abyss.
Pay attention to the news and risk factors at play over the next few weeks and months. Plan and prepare for increased volatility as this event continues to unfold. Follow our research to learn how to protect your assets and find ways to profit from these events.
You should be starting to get a feel of where stocks are headed along with precious metals for the next 8-24 months. The next step is knowing when and what to buy and sell as these turning points take place, and this is the hard part. If you want someone to guide you through the next 12-24 months complete with detailed market analysis and trade alerts (entry, targets and exit price levels) join my ETF Trading Newsletter.
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With the Federal Reserve all but certain to cut interest rates multiple times in the months ahead, central bankers are engaged in a race to the bottom.
As negative interest rates expand in Japan and across Europe, as long-term bond yields in the U.S. plummet, and as President Donald Trump continues to talk tough on trade, the Fed has little choice but to cut.
President Trump has effectively declared a currency war – and enlisted a reluctant Fed to help him fight it. He is convinced that lower interest rates will boost the economy and that a lower dollar will boost U.S. producers in international trade.
Over the past year, Trump has inserted himself into monetary policy matters almost to the point of obsession.
He has berated Fed chairman Jerome Powell, his own appointee, on a regular basis and conferred with White House counsel about removing or demoting him from the Board of Governors. In June, one of his Twitter rants likened the Fed to “a stubborn child” for refusing to undo its 2018 rate hikes.
Trump even went after European central banker Mario Draghi, calling his pro-stimulus (weak euro) policies “unfair” to the United States.
Central bankers insist they aren’t moved by political pressure. Regardless of how true that may or may not be, they ultimately are moved by pressures in the economy and financial markets – which, in turn, are moved by politics.
Fed’s “Symmetric” Inflation Targeting Is Code for Accelerating the Dollar’s Debasement
The question for investors is: Which asset classes will come out on top as the U.S. shifts toward monetary easing?
Heading into the summer, we saw an “everything” rally. Stocks, bonds, precious metals, and even cryptocurrencies all rallied simultaneously.
In late June, gold prices broke out to a 6-year high above $1,400/oz. The S&P 500 traded back up to a new all-time high.
It’s unusual for the Federal Reserve to begin a stimulus campaign with the stock market already juiced. The Fed’s historical habit is to wait until markets break down and recession indicators flash before coming to the rescue.
This time is different.
What appears to be driving central bankers’ preemptive dovishness is their belief that inflation is not only tame, but too low.
They want to push inflation rates higher, above even their stated 2% target for a prolonged period.
Jerome Powell and his fellow Fed Governors have a term to describe their push for above-2% inflation: “symmetric” inflation targeting. By “symmetric” they mean that periods of low inflation should be countered with periods of higher inflation (accelerated currency debasement).
According the Fed’s preferred “core” inflation indicator (which understates some aspects of realworld cost increases), we’ve spent a lot of time running below target in recent years.
Investors are buying long-term bonds with yields that imply inflation will be contained by the Fed at or below target for years to come.
But if inflation starts rising above 2% and the Fed fails to keep it within its symmetrical objective, real losses on bonds and other interest-rate-sensitive assets could be asymmetrical in nature.
On the flip side, inflation risk has been so heavily underpriced by markets that even a slight return of inflation fears has the potential to drive hard assets dramatically higher.
The Spark That Could Ignite the Silver Market
Silver, for example, is perhaps the single most deeply depressed investment asset on the planet.
The white metal’s lagging price performance has resulted in it trading at its biggest discount to gold in three decades. Hardy silver bugs are excited at this rare opportunity to buy more ounces on the cheap.
The recent breakout in gold suggests the precious metals bull market is back. Most of the public just doesn’t know it (or believe it) yet.
We are still in the stealth phase of a precious metals bull run. When we enter the public participation phase – and demand for physical bullion increases – we have no doubt that silver will shine.
It only takes a tiny spark of investor interest in silver to light a fire under prices. That spark could be provided by the Fed’s upcoming round of inflationary stimulus.
The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.
Investors who were expecting fireworks and action from Boris Johnson’s first speech as Prime Minister were disappointed after Sterling offered a fairly muted reaction.
Johnson provided an optimistic view of his plans as Prime Minister while vowing to deliver Brexit before the October 31st deadline “no ifs or buts”.
The Pound’s static reaction to Johnon’s speech suggests that markets are not fully convinced whether the new prime minister will be able to “walk the walk” after “talking the talk”. Although Johnson promised that he would secure “a new deal, a better deal” from the E.U on Brexit, this could be incredibly difficult given how Brussels has repeatedly said that the withdrawal agreement is not open for re-negotiation.
With 99 days left before the Brexit deadline, the path ahead for the British Pound is bound to be filled with many obstacles and more pain. Fears over the Unitied Kingdom crashing out of the European Union with Brexit no deal in place should ensure Pound weakness remains a major theme in the months ahead. Although Sterling seems to be enjoying the sunshine today, investors should remain alert as there are many storm clouds ahead.
In regards to the technical picture, the GBPUSD remains under pressure on the daily charts. Sustained weakness below 1.2500 should encourage a move back towards 1.2420 and 1.2350, respectively.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
It’s never a good sign for the Euro when the words “technical recession” are brought up in analysts’ talks. Of course last year Germany narrowly avoided one, but the economic news since then hasn’t improved much. This has depressed the business climate, and the projections seem to be for further bad news.
A little after Ifo data tomorrow, we’ll get the ECB’s monetary policy decision which is likely to overshadow most of the data for the day. But, this German data could not just move markets right away, but give us insight into how the Euro might perform in the medium term.
What We are Looking For
The Ifo surveys major businesses in Germany to ask how they perceive the current business conditions, and how they think things will be in six months. Numerical values are given to the two assessments. Over 100 is seen as growth whereas anything below that contraction. To generate the result, the two numbers are averaged. But typically the market is more interested in what’s coming up, so focuses more on the relative values of Expectations and the Situation number.
Since the major businesses are representatives of the drivers of economic growth and employment, having an Expectations number higher than a Current Situation number would be an indication that in six months the German economy will have substantially improved. Likewise, lower expectations are generally a bad sign for the Euro.
The Numbers
The Business Climate in Germany is expected to have worsened slightly to 96.7 from 97.4 in the prior month. The climate has been below 100 since January and keeping a slowly deteriorating trend. The market is likely to have priced in a negative result. So, a surprise beat on expectations could give the Euro a lift. Conversely, a move below 96.0 would show a steepening of the negative trend and provide some substantial weakness in the shared currency.
Current Assessment is expected to deteriorate further to 98.7 from 100.8. Since the last recession, this would be the first time it crossed into the negative. Naturally, a negative read in all three of these indicators is giving a bad sign for Germany’s GDP.
Expectations are the only bright spot in this dataset. These are projected to improve slightly to 95.2from 94.2. This would bring them off multi-year lows and might give some hope that the situation in Germany might turn around soon. Part of that might be pricing in action from the ECB over the coming months. We might see this revert if the central bank disappoints.
What’s Going On
Earnings season is getting off the ground in Europe with a few major German companies already reporting. Their results have been broadly disappointing. Usually, the first companies to report set the high mark of the results. Market uncertainty regarding Brexit is taking its toll, but so are concerns over regulations and particularly trade. German companies with high exposure to foreign markets are among the worst performers. This is a worrying sign for the 40% of the economy that is trade.
The German auto industry, in particular, is suffering under a dual blow of new emissions standards and trade concerns. Vehicle sales in Germany have notoriously suffered and dragged down the Euro in response. Many analysts are pointing to the structural problems that are plaguing Germany as an argument that further ECB easing won’t be sufficient to pull the Euro Zone away from the brink of recession. Unless there is a substantial improvement in corporate earnings over the next couple of weeks, we will likely see further deterioration in the Ifo numbers over the next couple of months.
