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Jack Crooks: Weekend Reading of Interest PDF Print E-mail
Written by Jack Crooks - Black Swan Capital   
Sunday, 09 March 2014 11:53

BlackSwan2End of globalization- Will emerging markets come back?  – (Michal Pettis)

I pointed out that in the past 200 years we had experienced a number of globalization cycles, driven largely by deep changes in monetary conditions, that followed a pattern regular enough to allow us to make some fairly confident predictions. 
To put it schematically:

  1. Before the crisis the world had already over-invested in real estate and manufacturing capacity based on unrealistic expectations of consumption growth.
  2. The global crisis forced consumption growth to drop. This should have meant that if investment levels were too high before the crisis, they were even more so after the crisis.
  3. Instead of cutting back on investment, however, the developing world reacted to the drop in rich-country demand by significantly increasing investment, driven at least in part by worries that the consumption adjustment in Europe and the US would cause a collapse in export growth which would itself force unemployment up to dangerous levels.

Clearly this wasn’t sustainable, and not surprisingly soaring debt is now forcing this investment surge to end.

Global Debt Soaring Still (Bloomberg) The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates, according to the Bank for International Settlements.

The Debt/GDP debate (Economist) Can countries imperil their growth prospects by having too much debt?  A new IMF paper now poses a more substantial challenge to Ms Reinhart and Mr Rogoff’s thesis.

George Soros is criticizing Germany’s economic policy again (The Telegraph) Mr Soros also says he believes the single currency has transformed the European Union from a voluntary association of equal states to one which is now no longer voluntary and has Germany as its leader.

Natural Gas – (Financial Times) Poland, Hungary, the Czech Republic and Slovakia have urged the US Congress to help them buy American natural gas and reduce their dependence on Russia by loosening US export limits.
In an unusually bold step, the four countries’ ambassadors to Washington sent joint letters to top lawmakers in the Senate and the House of Representatives urging them to assist in expediting exports of liquefied natural gas (LNG) to Europe.

The Ukraine crisis has revived concerns over Russia using its natural gas as a geopolitical weapon, and the ambassadors noted that their countries bought between 70 per cent and 100 per cent of their gas from the country.
Japan and Abenomics (Financial Times) Japan Inc doubled profits last year – the best performance since 2007 – but rather than selling more goods more profitably, much of these gains were simply a reflection of dollars and euros translating into more yen.
…Thus for manufacturers, still the backbone of the economy, the lower yen accounted for up to 80 per cent of their rise in net profits.

…The trouble with such foreign exchange-fuelled rises is that they are not sustainable. Indeed, with expectations of far more muted depreciation this year, the advantage could be wiped out, analysts say.
Jack Crooks
Black Swan Capital

More articles written by Jack Crooks this week:

Grandich - A Biblical Perspective on Matters of Finance PDF Print E-mail
Written by Peter Grandich   
Sunday, 09 March 2014 06:10


“Putin is Playing Chess, Obama is Playing Marbles” PDF Print E-mail
Written by Robert Levy - Border Gold Corp.   
Saturday, 08 March 2014 14:31

Screen Shot 2014-03-08 at 1.13.11 PMFinancial markets are at the whim of how events will unfold in Ukraine. Equity markets looked poised to breakout off of Friday’s job numbers, but pared back their early gains. Given gold’s failed attempts to breakout past key resistance levels, it previously looked under pressure; however, the metal ended up maintaining a positive finish to the week as its geopolitical safe haven bid ensued. As well, Friday’s sell off in US treasuries sent yields on the 10 year bond to its highest level since January, despite the dollar seeing regained strength as it is geopolitical tensions that are keeping the markets at bay.

The uncertainty with the situation in Ukraine is clearly what is restraining markets this week and potentially in days ahead. US jobs data ultimately guaranteed the US Federal Reserve’s tapering path of 10 billion a month in purchases of treasuries and mortgage backed securities by their next meeting (March 18-19). Implications of this lead to both a strong US dollar and strong equity markets. But the threat of economic sanctions on Russia is what has market participants questioning the potential impact on Western economies.

Questioning the impact on Western Economies is about all we can do, because trying to determine whether or not economic sanctions are imposed on Russia or Russian oligarchs doesn’t address the severity of how long a situation like this can play out and what will actually amount. Some well documented statistics have highlighted the European Union’s reliance on Russian energy, and also Russia’s mutual benefit of having the EU as a trading partner. By some estimates, Europe imported 30 percent of their gas from Russia in 2013, and the reason Ukraine is so important is because approximately half of the EU imports came through pipelines via Ukraine. It’s the conundrum that Western Europe and Ukraine face should Russia do what they did in 2009 cutting off supplies to Ukraine, which affected gas en route to Europe. There is breathing room given European inventories are 11 percent higher than average this time of year. 

Over the last week, a number of American politicians and commentators over the last week have made calls on Washington to export American Natural Gas to the European Union. Although that sounds like a solution, it takes an overly simplistic view of the US energy sector and how they export the commodity. To be brief, just because the US has come into a glut of the natural resource doesn’t mean that it’s on a tanker ship headed across the Atlantic. The simplicity of the argument is highlighted by the fact that the US and EU do not have a free trade agreement in place. Only one export terminal has been approved on the Eastern seaboard and is not scheduled to complete until late 2015. Any further projects require regulatory, safety, and environmental approval from a multitude of government agencies. Let’s not the forget the fact that North American natural gas is more interested in an Asian market where it can attract a higher premium. And the very reason the US government limits free trade of their natural resources is to supress domestic prices from the global market price.

Energy prices are the concern of the global economy. A shock to global prices at this point is not expected. However, a sustained increase in oil prices always leads to a recession, and that is the reason financial markets are wavering. Given a response from the Obama administration to this crisis that led one Congressman to suggest, “Putin is playing chess while Obama is playing marbles,” the global economy can still be thankful for one thing. Europe is facing a mild winter.   

About Border Gold

Border Gold Corp. (BGC) is one of Canada's leading silver and gold dealers. Over the years BGC has become one of the largest Royal Canadian Mint direct distributor in Canada. Under the leadership and ownership of Michael Levy, BGC continues to provide clients with the best customer experience in the industry.

BGC is able to offer its clients a variety of investment bullion products. Our relationship with the Mint and other large-scale distributors allows us to consistently offer clients among the best pricing in the industry. If you're looking to buy gold and silver, or sell it, we can help. Learn more about our services here.



Gold And Gold Equities: Is The Sector Turning? PDF Print E-mail
Written by Martin Murenbeeld - Chief Economist, Dundee Capital Markets   
Saturday, 08 March 2014 10:55


  • The outlook for the gold price has improved in recent weeks; the stage is set for a recovery in the gold sector this year and next.
  • The investment and speculative move against gold in 2013 will not likely be repeated in 2014 or 2015.
  • If there is not net ETF selling this year and Asian demand persists then the gold price will rise.
  • The gold sector is currently undervalued; this coupled with the outlook for a rising gold price makes the sector very attractive.

The gold price, the S&P/TSX Gold sub-sector, and the Philly XAU index of 30 gold/silver equities (Charts 1-3 below) suggest that the gold sector is turning a corner: gold bullion has broken upwards through its 200-day moving average, and both the S&P/TSX Gold sub-sector and the XAU have broken up through their 52-week moving averages. Technical analysts tell us these are good signs!





In our econometric work on the monthly valuation of equity sub-sectors we have determined that the S&P/TSX Gold sub-sector is seriously undervalued. The ratio of the Gold sub-sector to the S&P/TSX Index is near a new low and the ratio of the Gold sub-sector to the S&P/TSX Index less the Materials sector (the Gold sub-sector is an important component of the Materials sector) is at a new low, see Chart 4.

An econometric model of the latter ratio, which includes variables such as the gold price, interest rates and energy prices (as energy prices rise the Energy sector will rise and affect the relative value of the Gold sub-sector), indicates furthermore that the Gold sub-sector is now seriously undervalued in terms of the S&P/TSX Index less the Materials sector - see Chart 5. (The econometric analysis is a relative analysis, meant to encourage/discourage an overweight/underweight position in a specific sector.) In short, the econometric analysis currently recommends, all else equal, an overweight position in the Gold sub-sector.




A similar recommendation emerges when the S&P/TSX Gold sub-sector and the XAU index are compared with only the gold price. This less sophisticated analysis of the gold equity to gold bullion ratio - see Charts 6-9 - indicates that the gold equity to gold bullion ratios are currently well below long-term and short-term trends, and in one case more than two standard deviations below trend.

Neither the econometric analysis nor the equity/bullion ratio analysis include firm-specific variables; the investor must therefore establish whether there is indeed any value at all in the gold equity sector. This will require consultation with financial advisors and gold equity analysts - the latter concentrate on firm-specific variables.

My objective here however is to point out that the stage may be set for a recovery in the gold sector this year and next. The gold sector has been savaged in recent years on account of tumbling gold prices and unattractive firm-specific variables. But the outlook for gold prices has improved in recent weeks; many heretofore bearish observers have revised their near-term forecasts upwards and the "speculators" on COMEX have begun to build their net-long positions once again.

With respect to gold prices specifically, our view is that demand and supply will be the important issues in 2014 and 2015. Normally we'd be suggesting that international liquidity, inflation (or the lack thereof), Fed tapering, real interest rates, the trend of the US dollar, etc. are the key factors on which to focus. And indeed these will still be very important factors in 2014 and 2015. But last year, 2013, saw a dramatic decline in ETF gold holdings - 881 tonnes according to the latest data from the World Gold Council. (And "speculators" on COMEX reduced their net-long positions by over 195 thousand contracts between October 2012 and August 2013, which is the equivalent of 607 tonnes of gold.) In short, 2013 saw a phenomenal, never before recorded, investment and speculative move against gold.

One can think of the 881 tonnes of ETF gold sales as a reduction in investment demand (see Chart 10 overleaf where ETF sales are commingled with bar and coin demand), or as outright ETF supply (see Chart 11). Either way, the 881 tonnes of ETF sales had to be absorbed in the market - by way of more jewelry demand, more bar and coin demand, more official demand, more unrecorded offtake in India (i.e., smuggling), or by way of other forms of identifiable/unidentifiable demand.

(The collapse of speculative long positions in 2013 on COMEX does not have an easily identifiable equivalent tonnage of outright physical sales, but it wouldn't surprise me if there were 50-100 tonnes of physical supply generated in one form or another as a result of the closing out of net long positions in 2013.)

The key question for 2014 is: will there be a repeat of ETF selling amounting to 881 tonnes in 2014? If the answer is no, and we think that is the right answer, then all other things constant the price of gold will have to rise in order to choke back demand to the available supply.

Not all else will be constant, of course. But 881 tonnes (and an unknown COMEX-related tonnage) add up to a lot of tonnes of gold. If central banks do not buy gold in 2014 for example, that would only remove an estimated 369 tonnes of demand from the market - less than half the ETF sales in 2013. I think there may be no net selling at all from the ETF sector in 2014; if I am right then 881 tonnes of ETF supply need to be made up from elsewhere or, assuming Asian demand parameters do not change dramatically, the price of gold must rise.

In short, developments in the gold sector are starting to look very interesting again; equities are "depressed" by our measures and the gold price is likely - though nothing is certain - to bottom out this year. Given that our long-term outlook for gold bullion has not changed appreciably we think the reader might wish to have a closer look at the gold sector once again.







 About Dr. Murenbeeld

For Dundee Capital Markets Website go HERE

Dr. Murenbeeld graduated from the University of California, Berkeley, in 1972 with a PhD in international finance. He then joined the Faculty of Management Studies at the University of Toronto to develop the international business curriculum in the MBA program, where he was a Faculty until 1978. Dr. Murenbeeld started M. Murenbeeld & Associates Inc., an economic consultancy in the area of international finance. The company was bought by DundeeWealth Inc. in 2004 and he was Chief Economist of that firm until his departure in 2013 to join Dundee Capital Markets as its Chief Economist. Frequently quoted in the financial press and a regular speaker at international precious metals and foreign exchange market conferences, Dr. Murenbeeld has over 30 years of independent consulting experience in the gold, currency and credit markets and is currently also an adjunct professor (international finance) in the Faculty of Business at the University of Victoria.




Feb/2014 Canadian Housing Price Changes PDF Print E-mail
Written by Brian Ripley - Canadian Housing Price Charts   
Saturday, 08 March 2014 09:19

Are inflation fears (the fear of being priced out of the market) moving markets higher. In Toronto it probably is, but in Calgary it's Black Gold and Texas Tea.

Also, here's a Poll forecasting: WHERE CDN HOUSING PRICES WILL BE IN 1 YEAR

Screen Shot 2014-03-08 at 8.01.58 AM

Is this the start of a "Seven Year Itch"? 

Notice the circled highlight of 2006-07: The Real 10yr Yield was volatile and setting off on a major plunge into the 2009 Pit of Gloom (check); Gold was basing for another attempt at a new high before succumbing to an all market sell off (check); Energy was was at all time highs and about to spike (check) and Real Estate was at peak resistance on the verge of a prolonged 2 year correction (???).

Screen Shot 2014-03-08 at 8.07.08 AM

For more:

Brian Ripley's Canadian Housing Price Charts for Vancouver, Calgary, Edmonton, Toronto, Ottawa & Montreal
Real Estate Prices, Sales & Inventory with Plunge-O-Nomic Post Peak Price Action featuring the PLUNGE-O-METER

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10 April 2014 ~ Michael Campbell's Commentary Service


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