Monday, July 30, 2012

Rio (RIO) Keeps 51 Percent Ivanhoe (IVN) Stake

Rio Tinto (RIO) said it retained its 51 percent stake in Ivanhoe Mines (IVN) by paying 935 million to maintain the position.

The acquisition of the shares came about from a shareholder rights offering by Ivanhoe.

Rio acquired 133.6 million additional shares of Ivanhoe as a result of the offering, paying $7 a share. The company now owns over 510 million shares of Ivanhoe.

Ivanhoe is developing the gigantic Mongolian mine Oyu Tolgoi, which holds huge deposits of gold and copper.

The offering was part of the strategy on the part Of Ivanhoe to finance the development of the mine.

Construction on the mine continues, with production scheduled to begin in the latter part of 2012, and commercial production to launch in 2013.

Ivanhoe closed Monday at $8.56, down $0.14, or 1.61 percent. Rio Tinto closed at $46.29, gaining $0.12, or 0.26 percent.

Southern Copper (SCCO) Earnings Drop Even Though Production Jumps

Even though production of metals silver, copper, molybdenum and zinc were all up for the first half for Southern Copper (SCCO), it wasn't able to translate into earnings, as the company reported a drop in earnings from $658 million million or 77 cents a share for the second quarter of 2011 to $564 million or 66 cents a share for the second quarter of 2012.

For the first half, net income jumped to $1.19 billion, or 1.39 a share, a 4.3 percent increase over the $1.32 a share during the first six months of 2011.

The company received approval from the Board of Directors for $1.5 billion in capital expenditures for 2012. That will be used primarily for projects in Peru and Mexico, and some for replacement capital and maintenance.

For the first half and second quarter, copper production rose significantly based on better recoveries and ore grades.

"This increase was the result of higher production at the Cuajone, La Caridad and Buenavista mines, which increased production by 31 percent, 18 percent and 4 percent, respectively due to higher ore grades and recoveries," said Southern Copper.

In the second quarter copper production rose to 160,595 tons, a 10 percent increase. For the first half copper production was up 16 percent, reaching 270,435 tons.

Silver in the first half rose 14 percent, climbing from from 6,110,000 ounces in the first half of 2011 to 6,934,000 ounces.

Silver mine production rose 10 percent in the second quarter from 3,197,000 ounces in the second-quarter 2011 to 3,514,000 ounces. The company said it was "principally as a result of higher production at our Cuajone (+31 percent), Buenavista (+28 percent) and La Caridad (+12 percent) mines," said the company.

Zinc production was up 8 percent in the first half, rising from 41,361 tons in the first six months of last year to 44,910 tons. In the second quarter it rose from 21,366 tons in the second quarter of 2011 to 22,227 tons, a four percent gain.

Molybdenum production was up 6 percent in the first half, jumping from 8,775 tons during the first half of last year to 9,310 tons. In the second quarter Molybdenum rose from 4,502 tons in the second quarter of 2011 to 4,687 tons.

Talking about the performance of Southern Copper Corporation in the first half, German Larrea said, "Looking beyond the current volatile markets, the medium to long-term outlook remains positive for metals, as strong demand growth from China and the emerging economies is poised to continue."

On July 26, the board of Southern Copper authorized a cash dividend of 24 cents a share, payable on August 28, 2012.

Southern Copper closed Monday at $32.09, gaining $0.42, or 1.33 percent.

Friday, July 27, 2012

Newmont (NEM) (MPC) (EXC) (OKE) (WPZ) Boost Dividends

Newmont Mining Corporation (NEM), Marathon Petroleum Corporation (MPC), Exelon Corporation (EXC), ONEOK, Inc. (OKE) and Williams Partners L.P. (WPZ) all recently increased dividends.

Marathon Petroleum Corporation (MPC) raised its quarterly dividend 40 percent to $0.35 a share. The dividend is payable September 10, 2012 to shareholders of record as of the close of business August 16, 2012.

Exelon Corporation (EXC) boosted its quarterly dividend 38.5 percent to $0.525 a share. The dividend is payable September 10, 2012, to shareholders of record of Exelon at 5:00 p.m. EST on August 15, 2012.

ONEOK, Inc. (OKE) raised its quarterly dividend 8.2 percent to $0.33 a share. The dividend is payable August 15, 2012, to shareholders of record at the close of business August 6, 2012.

Newmont Mining Corporation (NEM) increased its quarterly dividend 17 percent to $0.35 a share. The dividend is payable on September 28, 2012, to holders of record at the close of business on September 6, 2012.

Williams Partners L.P. (WPZ) raised its quarterly dividend 2 percent to $0.7925 a unit. The dividend is payable on August 10, 2012, to unitholders of record at the close of business on August 3.

Barrick (ABX) (XOM) (CNX) (CWEI) (LINE) (WLT) (WY) (PAAS) (CLF) Analyst Coverage

Here's an update on analysts covering commodity companies Barrick Gold (ABX), Exxon Mobil (XOM), CONSOL Energy Inc. (CNX), Clayton Williams Energy (CWEI), Linn Energy, LLC (LINE), Cliffs Natural Resources (CLF), Walter Energy (WLT), Weyerhaeuser (WY)and Pan American Silver Corp. (PAAS).

Macquarie downgraded Barrick Gold (ABX) from an "Outperform" rating to a "Neutral" rating.

BB&T (BBT) downgraded CONSOL Energy Inc. (CNX) from a "Buy" rating to a "Hold" rating.

Global Hunter Securities downgraded Clayton Williams Energy Inc (CWEI) from an "Accumulate" rating to a "Neutral" rating. They lowered their price target from $93.00 to $50.00 on the company.

Credit Suisse downgraded Linn Energy, LLC (LINE) from an "Outperform" rating to a "Neutral" rating.

Johnson Rice downgraded Walter Energy (WLT) from an "Overweight" rating to an "Equal Weight" rating.

Buckingham Research downgraded Weyerhaeuser (WY) from a "Buy" rating to a "Neutral" rating.

UBS AG (UBS) downgraded Exxon Mobil (XOM) from a "Buy" rating to a "Neutral" rating.

Credit Suisse (CS) upgraded Cliffs Natural Resources (CLF) from an "Underperform" rating to a "Neutral" rating.

RBC Capital initiated coverage on Pan American Silver Corp. (PAAS). They placed a "Sector Perform" rating on the company.

Marathon (MPC) Margins Could be Pressured

Over the short term it appears Marathon Petroleum should do well, and the company apparently believes that also, recently boosting its quarterly dividend 40 percent to $0.35 a share.

But for the next five years Marathon may come under strong pressure from what could be a big drop in margins. Wood Mackenzie Senior Energy Research Analyst Jonathan Leitch said the margins of the company could fall as much as 40 percent during that period.

This is because of the lighter crude oil being extracted from shale plays around the United States, which is the primary market served by the oil refiner.

Marathon Petroleum has refinery exposure of approximately 50 percent in the heavy crude market, which is the source behind the probably pressure on its margins going forward.

At this time there is an oversupply of refining capacity in that segment of the market.

This shouldn't affect the performance of the stock in the very short term, but over time it is something that must be carefully watched.

Marathon Petroleum closed Friday at $47.04, climbing $1.22, or 2.66 percent.

Thursday, July 26, 2012

Potash (POT) Profits Plummet 38 Percent in Q2

Potash (POT) reported a disastrous second quarter, as the fertilizer company's profits plunged 38 percent. To add fuel to the fire, the company also projected earnings for the second half would fall below previous expectations.

Earnings for 2012 were downwardly revised from $3.20 to $3.60 to $2.80 to $3.20 a share. Analysts were looking for earnings estimates of $3.47 a share on the year.

For the next quarter Potash projected earnings to come in at a range of 70 cents a share to 90 cents a share. The Street was looking for 95 cents a share.

Even so, Potash noted that the drought, which has resulted in higher crop prices, should result in farmers increasing their use of fertilizer for 2013.

Income in the 2nd quarter dropped 60 cents a share to finish at $522 million, way down from the 96 cents a share or $840 million generated last year.

Part of the poor results were attributed to a $341 million impairment charge from an investment by Potash in Chinese fertilizer maker Sinofert Holdings Ltd.

The phosphate segment also dragged on the company, as margins were lower than expected because of weaker demand and prices.

On the other hand, the nitrogen business of the company was helped by low natural gas prices.

Potash raised its forecast for combined phosphate and nitrogen gross margin in 2012 to a range of $1.4 billion to $1.6 billion, an increase over the $1.3 billion to $1.5 billion originally projected.

Because of the announcement that the ECB would do everything to prop up the euro, shares of Potash closed up at $44.99, gaining $0.50, or 1.12 percent. In after hours trading over half of that was already given back.

Mario Draghi Catches Shorts by Surprise

The assertion by ECB President Mario Draghi that he will do whatever is needed to save the euro had shorts scrambling to cover their positions.

After his comment, he ended the assertion concerning supporting the euro and what will be done by saying, "... believe me, it will be enough."

Many pros said his comments put a floor on the market.

It seems this is what traders and investors were looking for: more than just Ben Bernanke and the Federal Reserve pointing to intervening in the market with more stimulus.

The market's response shows it was looking for more support than the Federal Reserve, and now they've got it. If China visibly stimulates, it'll send the market soaring, the U.S. dollar plunging, and gold, silver, and other commodities much higher.

Of course this floor is one that can only last so long if measures aren't taken, as the market will then know it was either a general bluff, or something that won't be done until the situation reaches certain levels.

But with Greece surely going to exit the euro and Spain being bailed out, stimulus will surely come sooner than later.

That's the real story emerging over the last couple of days: what looked like a questionable possibility of QE3 in America and stimulus in Europe, now has ramped up to a very short-term window. That's what's moving the markets, not just the usual token statements that central banks stand ready to simulate if need be.

It appears the political pressure and weakening global economy has put the central banks on notice, and they are surely going to do something very soon.

And now with the comments of Draghi, it seems that it's not only immanent, but the size of the stimulus, at least in the case of Europe, appears to be gargantuan.

At least that's the corner Draghi has painted himself into. And anything less than something stupendous would now have a detrimental effect on the markets.

Whether or not all of this is political theater or not remains to be seen. But for now, it appears the plummeting stock market has been halted as traders await where central banks will go next.

If Bernanke and the Federal Reserve stimulate in the next several days at the next meeting, and Europe quickly follows, it would cause some huge upward moves in the market, and even hammer the shorts more than they are getting hammered now.

For gold and silver, they are going to soar as the U.S. dollar falls in value against the euro and other currencies, as will other commodities which are traded in U.S. dollars.

Commodity Surge doesn't support stimulus in any way, but it's going to happen, and we do need to be careful of how long the false supports will remain in place.

Most of us know throwing money at the problem hasn't and won't work, but we do like the predictability of the market immediately afterwards when unwarranted optimism gets investors all worked up and investing irrationally.

That will happen tentatively in the very short term, and when stimulus is announced, stocks and commodities will soar.

Now there is even more pressure on Bernanke and the Federal Reserve to stimulate quickly. If they don't, the effects of the Draghi announcement will quickly dissipate and his words forgotten.

That would in turn reverse the pressure and put it back on the ECB. Now that would make things interesting wouldn't it.

Either way, someone is going to stimulate soon, and whether it's the ECB or Federal Reserve first, it won't take long afterwards for the other to follow.

This is going to be a very interesting ride going forward, with conflicting data and results causing a lot of uncertainty and caution in the markets, while at the same time pushing investors to enter in.

Wednesday, July 25, 2012

Federal Reserve Audit Bill Overwhelmingly Passes in House

The U.S. House of Representatives easily passed a bill that the monetary policy of the Federal Reserve should be audited.

Republican representative Ron Paul was the author of the legislation, which passed the House by a vote of 327-98. A total of 238 Republicans approved of the measures while 89 Democrats approved.

Paul said this during the debate before the vote: "I don't know how anybody could be against transparency."

Ben Bernanke, Chairman of the Federal Reserve, has been fighting desperately to keep an audit of the Fed from happening. He has attempted to paint it as a disaster if the Fed were to have its independence compromised.

Paul is especially concerned about how Americans may be on the debt hook for the Fed's support of foreign central banks, as well as the details of the rescue of giant banks.

"They're sick and tired of what happened in the bailout and where the wealthy got bailed out and the poor lost their jobs and they lost their homes," said Paul.

Dennis Kucinich, a Democrat who has visibly supported auditing the Fed added, "It's time that we stood up to the Federal Reserve that right now acts like some kind of high, exalted priesthood, unaccountable to democracy."

What would happen if the bill were to pass the Senate would be for the Government Accountability Office to perform a complete review of the Fed. This office is a nonpartisan congressional agency.

The bill is expected to die in the Senate because of the unexplainable opposition of it by the Democrats. If the Senate is won back by the Republicans in the elections, it's a surety the bill will be brought back in some form for vote at that time.

Asset purchases held by the Fed have soared from $800 billion to $2.8 trillion since the economic crisis began.

Gas Fracking Study from University of Texas Under Review

Saying "We believe that the research meets our standards, but it is important to let an outside group of experts take an independent look," University of Texas at Austin provost and executive vice president, Steven Leslie, said a group of independent experts will review a study which concluded there is no evidence hydraulic fracturing causes groundwater contamination.

The study was released, appropriately enough, under this title: "New Study Shows No Evidence of Groundwater Contamination from Hydraulic Fracturing."

Why the review is being conducted is because Dr.Charles Groat, who is associate director of the Energy Institute - which released the report - didn't disclose he sat on the board of Plains Exploration & Production Co. (PXP) since 2007.

According to university spokesman Gary Rasp, none of the $270,000 cost of the report came from sources in the energy industry.

Fracking is a process where treated water and sand is pushed underground to break up the rock holding gas in order to release the gas within them.

The report from University of Texas at Austin said there is no evidence that the fluids used in the procedure are contaminating the underground water.

Tuesday, July 24, 2012

Fed, Bernanke Ready to Stimulate

Even though Ben Bernanke is understating the eventuality of more stimulus for the economy, it's becoming apparent from his recent statements about the weakness of the U.S. economy that it is inevitable that the Federal Reserve will again pour money into the economy.

It's only a matter of when and by what means.

Some believe Bernanke may wait until the September meeting to see if there are any positive economic effects from the continuation of Operation Twist.

But with anemic jobs creation and continuing devastating unemployment, the question is whether the Fed has the nerves to wait another couple of months before taking action.

Action could be taken at the upcoming meeting from July 31 to August 1. If they don't and the economy falters, even more extraordinary pressure will be applied as the elections approach, especially for the hapless Obama and his administration, which has been totally ineffective in helping the economy along, and rather are making it worse by wanting to increase taxes rather than cut government spending.

It idea is if the Fed waits until September they'll have a better view of whether or not Operation Twist has done any good. I would be surprised if they do wait that long.

To me, the terrible American and global economy has called Bernanke's bluff, as growth numbers from key nations like China continue to move downward, confirming the precarious state of the global economy, which has such a detrimental impact on the U.S.

So Bernanke and the other Fed heads face growing pressure. If they fail to stimulate, the fallout will be enormous for them, even though over the long term it's a disaster.

But what makes me think stimulation is around the corner is former Fed officials who have been opposing more stimulus are starting to change their viewpoint, suggesting growing political pressure from the Democrats, who are afraid of getting slaughtered in the upcoming election, whether Obama gets reelected or not.

Also significant is the fact there is no real, sustainable economic growth in America which has signaled to the Fed that it is growing fast enough on its own.

In their view that's a disaster, and pushes them towards another round of easing, whatever the mechanism for doing it will be.

I think the Fed is growing closer to stimulating, and it would be surprising if it isn't done within a week. If not, the markets will remain in turmoil because of the uncertainty surrounding whether or not there will be a stimulus.

With everything pointing towards it, I can't see what reason the Fed could give for waiting, in light of the risk of not doing it now.

Next week will be enormous heading into August.

Commodity Prices and QE3

Debate is raging over whether another round of quantitative easing will in fact help boost the price of commodities.

Bears look at it from the point of view of demand alone, while bulls look at it from a more holistic view.

While demand is obviously a major factor in commodity prices, the U.S. dollar is just as important, and also can determine the demand because commodities are bought with U.S. dollars being used as the medium of exchange.

So if the U.S. dollar is strong, the demand for commodities can go down because of the high cost of acquiring them. That is what has been happening as it has strengthened against a number of currencies as the sovereign debt crisis in Europe continues to push down the price of competitive currencies.

If the Federal Reserve eases, that is sure to put downward pressure on the dollar and commodity prices in general will start to rise again.

There are other factors involved, but the strength of the U.S. dollar is among the top elements that impact most commodities.

Gold and silver will especially respond strongly if there is more easing, as they are also considered alternative currencies or safety against inflation, along with many industrial uses in regard to silver.

Over the short term it's any one's guess as to the price movement of commodities, but over the long haul there is no doubt commodities will, for the most part, continue on their upward price run.

Some commodities, for example grains, are already outside the impact of whether or not more easing will come, as other factors like the ongoing drought in America, and now parts of Europe and Australia, are aiding in pushing grain prices like corn and soybeans to record highs.

Jim Rogers Strikes Back at China Bears

Responding to China bears Hugh Hendry of Eclectica and SocGen’s Albert Edwards, both of whom consider China not to be that relevant to the global economy.

Concerning Edwards, he has been predicting a hard economic landing for China for the last three years, while Hendry refuses to believe China will be the main driver of the global economy.

Rogers pointed out in an interview with Investment Week that all that's happening in China concerning the economic slowdown is proof the very public announcements by China over the last couple of years, that it is going to work on slowing down its too-hot economy ... is working.

In that regard Rogers is correct, as China leaders have indeed asserted for some time that they're going to slow down economic growth.

He said, “For three years China has announced publicly, loudly and clearly it is trying to slow its economy down. They wanted to pop their real estate bubble and do something about inflation so they have slowed things down. What is the surprise here? What is the news?”

Rogers said this about Hendry and his take on China: “Hugh has been dead wrong about China for three years now and China has not collapsed as he predicted, loudly, verbally and widely.”

As for Edwards, Rogers said that “Albert has been bearish on everything for a long time. So if you are telling me he is bearish on China and bullish on everything else that would be different. But no, he is bearish on everything, including you, me and Mother Teresa.”

Rogers looks at the drop in Chinese shares as an opportunity to get back in the market.

Last week the Shanghai Composite index closed at 2,147, the lowest level it has been at since March of 2009.

For the next couple of years Rogers sees global economic challenges and turmoil, but believes China is positioned strongly for that because of its significant amount of foreign exchange reserves.

Monday, July 23, 2012

Acorn (ACFN) (ALJ) (CHKM) (EQM) (HES) (HFC) (MPC) (TSRO) (VLO) (WNR) (X) Get New Coverage

Acorn Energy Inc (ACFN), Alon USA Energy, Inc. (ALJ), Chesapeake Midstream Partners LP (CHKM), EQT Midstream Partners LP (EQM), Hess (HES), HollyFrontier (HFC), Marathon Petroleum (MPC), ESARO Inc (TSRO), Valero Energy Co. (VLO), Western Refining, Inc. (WNR) and U.S. Steel (X) get new analyst coverage.

Barrington Research initiated coverage on Acorn Energy (ACFN). They placed an "Outperform" rating and price target of $11.30 on the company.

Tudor Pickering initiated coverage on Alon USA Energy, Inc. (ALJ). They placed an "Accumulate" rating on the company.

Barclays Capital initiated coverage on Chesapeake Midstream Partners LP (CHKM). They placed an "Overweight" rating and a price target of $33.00 on the company.

Bank of America initiated coverage on EQT Midstream Partners LP (EQM). They placed a "Buy" rating on the company

Standpoint Research initiated coverage on Hess (HES). They placed a "Buy" rating and a price target of $60.00 on the company.

Tudor Pickering initiated coverage on HollyFrontier (HFC). They placed an "Accumulate" rating on the company.

Tudor Pickering initiated coverage on Marathon Petroleum (MPC). They placed a "Buy" rating on the company

Citigroup initiated coverage on TESARO (TSRO). They placed a "Buy" rating on the company

Tudor Pickering initiated coverage on Valero Energy Co. (VLO). They placed a "Buy" rating on the company

Tudor Pickering initiated coverage on Western Refining, Inc. (WNR). They placed an "Accumulate" rating on the company.

Imperial Capital initiated coverage on U.S. Steel (X) . They placed a "Outperform" rating and a price target of $26.50 on the company.

AK Steel (AKS) (BRY) (CMRE) (COG) (CRZO) (DTE) (DVN) (KGC) (NXY) (NXY) (SLW) (SRE) (SYT) Downgraded by Analysts

Shares of commodity companies AK Steel Holding Co. (AKS), Berry Petroleum Comp (BRY), Comstock Resources (CMRE), Cabot Oil & Gas (COG), Carrizo Oil & Gas (CRZO), DTE Energy (DTE), Devon Energy Co. (DVN), Kinross Gold (KGC), Silver Wheaton Corp. (SLW), Sempra Energy (SRE) and Syngenta AG (SYT) were downgraded by analysts.

UBS AG (NYSE: UBS) downgraded AK Steel Holding Co. (AKS) from a "Buy" rating to a "Neutral" rating.

Tudor Pickering downgraded Berry Petroleum Comp (BRY) from an "Accumulate" rating to a "Hold" rating.

Wells Fargo & Co. (NYSE: WFC) downgraded Comstock Resources (CMRE) from an "Outperform" rating to a "Market Perform" rating.

Tudor Pickering downgraded Cabot Oil & Gas (COG) from an "Accumulate" rating to a "Hold" rating.

Tudor Pickering downgraded Carrizo Oil & Gas (CRZO) from a "Buy" rating to an "Accumulate" rating.

Argus downgraded DTE Energy (DTE) from a "Buy" rating to a "Hold" rating.

Tudor Pickering downgraded Devon Energy Co. (DVN) from a "Buy" rating to an "Accumulate" rating.

Macquarie downgraded Kinross Gold (KGC) from an "Outperform" rating to a "Neutral" rating.

Macquarie downgraded Silver Wheaton Corp. (SLW) from an "Outperform" rating to a "Neutral" rating.

Argus downgraded Sempra Energy (SRE) from a "Buy" rating to a "Hold" rating.

Sanford C. Bernstein downgraded Syngenta AG (SYT) from a "Market Perform" rating to an "Underperform" rating.

RRI (GEN) (MOS) (NRG) (ROSE) (SLB) (VLO) (WLL) Upgraded by Analysts

Several commodity companies were upgraded by analysts Monday, including RRI Energy, Inc. (GEN), The Mosaic Company (MOS), NRG Energy, Inc. (NRG), Rosetta Resources Inc. (ROSE), Schlumberger (SLB), Valero Energy Co. (VLO) and Whiting Petroleum Co. (WLL).

Macquarie upgraded RRI Energy, Inc. (GEN) from a "Neutral" rating to an "Outperform" rating.

UBS AG (NYSE: UBS) upgraded RRI Energy, Inc. (GEN) from a "Neutral" rating to a "Buy" rating.

Barclays Capital upgraded RRI Energy, Inc. (GEN) from an "Equalweight" rating to an "Overweight" rating.

Citigroup (NYSE: C) upgraded The Mosaic Company (MOS) from a "Neutral" rating to a "Buy" rating. They raised their price from $62.00 $66.00 on the company.

Barclays Capital upgraded NRG Energy, Inc. (NRG) from an "Equalweight" rating to an "Overweight" rating.

Tudor Pickering upgraded Rosetta Resources Inc. (ROSE) from a "Hold" rating to a "Buy" rating.

Argus upgraded Schlumberger (SLB) from a "Hold" rating to a "Buy" rating. They placed a price target of $85.00 on the company.

UBS upgraded AG Valero Energy Co. (VLO) from a "Neutral" rating to a "Buy" rating.

Susquehanna upgraded Whiting Petroleum Co. (WLL) "Neutral" rating to a "Positive" rating.

Russia, India, Australia Grains, Crops Under Pressure

Droughts in the United States and Europe are generating concerns over the supply of grains around the world, and now in Russia and India reports are parts of those countries are also experiencing drought conditions, adding to the concerns of what the yields will end up being for 2012.

On July 20, Russia’s Federal Hydrometeorological Center said the overall grain expected to be produced for the year will come in at only about 80 million tons, plunging from the estimated 94 million tons.

India has also been hindered in its important rice, lentils and oilseeds markets, where sowing of those crops have been delayed because of much less rain than normal.

Parts of Western Australia have experienced dryer weather than normal from April to June, with dry weather surging in July. All of that points to the probability of higher prices going forward.

Countries that are on target for corn production to rise this year are China, Canada, Mexico and Argentina, according to the USDA.

Even with the horrible conditions in the U.S. corn production could still rise to one of the best years in history, based on the enormous number of acres planted. At this time estimates are for 329.5 tons for 2012.

That could easily change if certain parts of the country don't get rain soon. Those are the areas where pollination has yet to set. Once that happens, it won't matter how much rain comes.

Friday, July 20, 2012

Spain on Verge of Being Bailed Out

Spain moved one step closer to being bailed out after the German Parliament voted to allow the plan to go forward on Thursday, and then the finance ministers of the 17 member countries using the euro gave their approval to the terms offered in the bailout, which stands at an offer of just under $123 billion.

As usual in the news cycle, Europe's horrendous economic problems flow out of the eye of the public for a week or two before again appearing in the news, reminding everyone listening of the dire circumstances continuing to unfold there.

Reminders of the economic turmoil in the region hit the stock market, led by the banking stocks getting hammered, as they are the most vulnerable initially to such news.

The KBW bank index (.BKX) dropped 1.9 percent, ending the week down 2.3 percent. All the major American banks closed down on Friday.

Gold and silver on the other hand were able to finish slightly up on the day, as growing anticipation of another round of quantitative easing is slowly pushing the price of the two precious metals up even as bears attempt to pull them down.

There isn't enough conviction on either side of the trade to allow for major moves lately, and so both metals have been trading in a narrower range lately until more clarity emerges. The failing global economy will pressure the Federal Reserve, Ben Bernanke, and other central bank officials in certain parts of the world to take steps. It's only a matter of when, with each passing day of bad news gradually turning the sentiment in that regard.

Gold and silver should gradually move up until we're hit with the first big announcement. This one helps, but it'll take one more big push to send gold and silver prices soaring again. Most think it's likely to happen in the latter part of August, but it could easily happen earlier as negative economic news continues to mount.

One of the major obstacles for gold and silver is when announcements like this come out of Europe the euro takes a big hit against the U.S. dollar, keeping the prices temporarily in check. That happened again Friday when the euro dropped to about a two-year low against the U.S. dollar, falling as low as $1.2143.

For Spain, the 10-year bond soared to new highs as measured by the introduction of the euro, now bringing yields of 7.3 percent; a number experts see as unsustainable.

The Spanish government also slashed its economic growth projection, revealing the certainty Spain will continue to be in a recession at least through 2013, and quite probably beyond.

For the Spanish banks and the bailout money, there will be assessments of the needs of the banks in the country, and from their stress tests applied to guide the allocation of the funds. That should be completed sometime in September.

How much of the available funds that will be used by the Spanish won't be known until that time.

While the IMF has no administrative or official relationship to the funding proposal, it did say they are available to give "independent advice" concerning the bailouts of the Spanish banks, and if there are no objections, will publish reports concerning the progress the financial firms make toward recapitalization.

The reports won't point out any specific banks, but will focus on the overall progress of the banking industry in Spain.

Who Says Warren Buffett Doesn't Like Commodities

Recently Warren Buffett made another shrewd move by investing heavily in a little followed metal - tungsten.

How it came about is IMC International Metalworking, which is 80 percent owned by Buffett's holding company Berkshire Hathaway (NYSE: BRK-A), invested $80 million in a South Korean mining project, which effectively gives Berkshire a 25 percent stake in the mine.

The Sangdong Mine, which was the object of the investment, is among the top tungsten producing mines in the world, and used to be the top tungsten producer.

Sangdong is operated by Woulfe Mining Corp. (TXSV: WOF), which was also guaranteed by IMC International Metalworking to buy up 90 percent to 100 percent of all the tungsten produced there.

With China being the top producer in the world and not in any way interested in exporting tungsten, that makes the Sangdong a major tungsten producer outside of China, accounting for about 50 percent of all tungsten produced beyond the Chinese borders.

The mine, which will resume production in 2013, is expected to produce about 7 percent to 10 percent of tungsten globally.

According to Nick Smith, manager of investor relations at Woulfe, he said in an interview with Tungsten Investing News that "Without tungsten, Western manufacturing comes to an end. You are not working with steel without tungsten. There's no global mining unless you have tungsten-tipped drills."

He's referring to the super hard characteristic of tungsten, which is used in multiple mining and manufacturing applications such as mining drill tips and circular electric saws.

One of its more practical and ubiquitous applications has been in the filament of incandescent light bulbs. It makes one wonder with the industrial and military applications if that's the major reason behind eventually eliminating the use of incandescent light bulbs in the United States.

Tungsten is also in high demand in the energy and high tech sectors, making a vital component of many industries.

China now accounts for about 80 percent of all known tungsten resources in the world, and as mentioned, isn't about to export them to aid its competitors. It has quotas on exports to ensure they maintain the supply in that country for its manufacturers.

Demand for tungsten has grown at a steady pace of close to 6 percent for a number of years, and if it continues at that pace, production will have to grow from 68,000 metric tons in 2011 to 96,000 metric tons by 2016.

In just three years the price of tungsten has skyrocketed from $180 a metric ton to about $430 a metric ton as of this writing.

Now you can see why Buffett has entered into the tungsten fray, which will undoubtedly rise in price continually into the future.

Unfortunately, at this time there isn't much in the way for investors to invest in tungsten other than in rare earths companies searching for it or an ETF that offers exposure to the metal. The problem there is it's only a one piece of a pie with many pieces.

Rains Too Late for Corn

For corn that has already pollinate, the effects of the drought and high temperatures make it too late for that corn no matter how much rain comes in the near future.

The problem is rains won't affect the corn once it's pollinated, meaning the existing kernels could gain weight, but there will be no more kernels forming on the ears.

As of last Sunday (July 15) the USDA said 71 percent of U.S. corn was pollinating. That means when that's complete the corn yields are basically locked in no matter what the weather brings. Pollinated corn cannot be reversed once the process has happened.

Corn which is rated very poor in Iowa, which amounts to approximately 1.1 million acres, is now considered to be a probable total loss. Much of that is in fields sandy soils and hilly areas that don't hold water like lower and flatter regions.

Having said that, some areas of Iowa, which is the top corn-producing state in the nation, would be helped if rains do come. That means pollination has yet to set there.

Other states that could still have a lot of the corn salvaged if rains come are South Dakota and Minnesota. At this time Minnesota has the best corn crop in the nation.

The two worst corn producing states among the leading corn states are Indiana and Missouri. An unbelievably low 7 to 8 percent of the corn in those states is rated as in good to excellent condition.

Recently the entire state of Missouri was designated as a disaster area because of the effects of the drought.

At this time all of this is assuming rains will come. But it appears that may not even be the case, and the states that are still holding out hope could have them dashed as the drought seems to be pushing into those areas now.

Even the best case scenario at this time is rather bleak, but those corn farmers able to salvage corn will enjoy some major profits going forward.

September Corn Soars to Record High

As scorching temperatures and little rain continue to plague the Midwest, the price of corn continues to soar to record levels, closing Friday at $8.245 a bushel, gaining 16.75 cents from the record close on Thursday.

Soybeans also continue their record price climb, with August soybeans jumping 23.75 cents to settle at $17.575 a bushel.

The growing reality that it's too late for much of the corn crop is starting to hit the markets, as even if corn fields in many areas were deluged with rain, it wouldn't do anything to boost the yields, as the time has past for that to happen, with the pollination period being the critical factor for corn yields.

According to the Department of Agriculture, dry conditions with triple-digit heat will continue to linger into next week, weakening the propositions for corn, and further threatening the soybean crop, which while pollinating later than corn, is facing a crucial test.

Saturday, July 14, 2012

Jim Rogers Begins Farm Acquisitions in Australia

Jim Rogers has been saying for at least a couple of years that the future wealthy will be farmers, or at least those that invest in farms in certain strategic places around the world.

Rogers, as usual, is putting his money where his mouth is, recently launching a new rural land fund with approximately $350 million available to acquired farming land.

According to Rogers, because Australia is located so close to the Asian markets, that is the place where farming will grow the quickest and fastest, and so is targeting the northern NSW in the country.

He sees this as the season of time to get into the sector before the price of farmland skyrockets. Rogers says food shortages will get worse, and the price of farmland will jump as a result. General inflation is another factor in the agricultural mix.

How the fund will work, which is a closed, unlisted fund called the Laguna Bay Pastoral Company, is to first attract investors from the Australian domestic market before opening it up to those outside the country.

The fund is different in that it will partner with high quality farmers in the region who are among the top 10 percent in farming earnings in the region.

Those farmers will continue to run the acquired properties and also give suggestions as to other properties that would be worth taking a look at for acquisition purposes.

Overall, the fund is about getting the best farms and farmers. Rogers sees a rise in price of soft commodities in Australia because of the reliance of Asia on the products.

Rogers says it's nowhere near to late to get into the farming sector, as there is a lot of time left before inflation makes it cost prohibitive to invest in the sector.

It's a good example of those interested in investing in farmland in any quality area of the world.

You want to buy up great farms run by great managers. Do that and you've solved most of the efficiencies and profit challenges.

For those wanting a piece of the action without acquiring farms and their managers, most farm-related public companies and/or ETFs should do well, as will a number of futures.

One recent example is the fertilizer industry. When the cost of corn soared in response to the drought in the Midwest of America, the price of fertilizer shot up as well, with fertilizer companies jumping from 10 to 15 percent within a few short months.

That's because farmers whose crops are thriving are going to have much more capital to spend on inputs and farm equipment; or any other vital part of the farming process.

Multiply that with rising inflation and you see the potential in a wide variety of agricultural related segments.

Thursday, July 12, 2012

Warren Buffett Finally Admits US Economy Weak

After months of data showing the U.S. economy is stagnant, Warren Buffett finally has admitted the economy of the country is "more or less flat," during an interview on CNBC.

Buffett has been a cheerleader for Obama and his failed economic policies, not willing to say it was in major trouble in an apparent nod towards not wanting to make Obama look bad in a reelection year.

Trying to salvage something positive out of the acknowledgement for Obama and the American economy, Buffett added there has been a boost in the residential housing sector, although saying it "doesn't amount to a whole lot yet, but it's getting better." That's basically a meaningless and irrelevant comment and observation.

Buffett has been trying to spin the idea that economic growth in the U.S. would pick up once the residential housing market began to recover. That hasn't happened at all.

Talking on the euro zone, Buffett noted it is falling apart economically very quickly, citing the last six weeks in particular. Taking the longer outlook, he said he believes the region will work out its issues, but it could take up to a decade before it happens.

Buffett also said he doesn't believe the euro zone will be what its creators had originally envisioned in the next ten years, and isn't certain the euro will survive as a currency.

Going back to his cheerleader role, Buffett asserted that in spite of the weaker American economy, it's doing better than the other major economies around the world. I guess he doesn't follow the growth rate of China, even when it's slightly slowing down in growth. It's still growing at a far more rapid pace than the American economy.

Finally, Buffet implied he has no idea which direction the economy is going, and said "to some extent" is awaiting until things become clearer.

Wednesday, July 11, 2012

Endeavour Silver (EXK) Production Soars in Q2

Silver production in the second quarter for miner Endeavour Silver Corp. (NYSE: EXK) soared by 22 percent, climbing to approximately 1 million ounces for the quarter.

The company said it on target to reach it production estimates for the entire year.

Gold production for the company in the quarter jumped to 7,695 ounces, an increase of 59 percent over the same quarter last year.

Revenue for the quarter increased to $40.4 million, a boost of 11 percent. Higher production overcame the drop in silver prices during the period. Silver prices were down almost 25 percent from last year during the same period.

For the year, Endeavour said it should reach its goal of 4.3 million ounces of silver and 26,000 ounces of gold.

Flush with cash, Endeavour says it's still on the look out for more properties after acquiring AuRico Gold Inc's El Cubo silver-gold mine in Mexico for $250 million. It has over $130 million net cash on its balance sheet, which surpasses 15 percent of market capitalization.

Endeavour, which owns and operates the Guanacevi and the Guanajuato mines in Mexico, closed Wednesday at $7.88, down by $0.01, or 0.13 percent.

Tuesday, July 10, 2012

China's Drop in Imports Not a Sign of Significant Slowdown

At first glance it appeared after the numbers came out in China concerning that the decline in imports pointed to a disaster in China. But that wasn't and isn't the case, but is rather a reflection of a commodity management strategy by the country.

When China announced its growth in imports had been slashed by almost half of analysts projected in June, traders and investors pushed down the price of commodities and equities, as coupled with weak financial reports from American companies, seemed to point to a catastrophic quarter.

Imports in China fell to 6.6 percent year-over-year in June, dropping from the projected 12.7 percent analysts were looking for.

Exports by the Middle Kingdom, on the other hand, jumped to 11.3 percent, easily surpassing the estimated 9.9 percent analysts estimated.

Most of the decline in imports to the company are a result of Chinese buyers building up commodity inventory over the last several months, which resulted in the need to use up those inventories before buying large in the market again.

For June crude oil and copper imports appeared to be hammered, with copper imports falling by 17.5 percent and crude by 15 percent from the prior month. Most should have known that there was something unusual about those numbers, even with the strained global economic situation we're in.

Expectations are China imports will probably be weak for several months while it works down its inventory.

It was noted by analysts covering China that the low imports have nothing to do with consumer spending in China, as it does in the United States, because Chinese imports are mostly commodities used in for infrastructure projects and manufacturing.

For the annual goal of a growth of 10 percent for China in 2012, China will likely reach it, although economically devastated Europe, along with the weak American economy, make it unlikely China's goal of export growth of 10 percent will be met. Exports are probably going to be more in the 8 or 9 percent range for the country.

Chinese imports should climb in the second half as commodity inventory is used up.