Thursday, January 31, 2013

Kee Sees 60 Percent Dow Correction

Tom Kee, president & CEO of Stock Traders Daily, said in an interview on Breakout that after another high in the market, he sees the Dow crashing anywhere from 50 to 60 percent, which would bring it under 6,000.

Although not quite as bearish with the S&P 500, he believes the current multiple of 15 to 16 times earnings is unwarranted.

The first response to his prediction may seem to not believe it, but in fact the last couple of times the Dow soared, in 2000 and 2007, it came crashing down by similar percentages.

Kee believes it's not going to be too long before the inevitable trend starts to materialize.

Miners Seeking Silver Wheaton (SLW) Financing

With much of the financing drying up for mining companies, Silver Wheaton (SLW) has increasingly become the go to company for capital, with the difference now being that larger companies are seeking financing from the silver streaming company, whereby in the past smaller miners had primarily been those chiefly interested in Silver Wheaton as a way to raise capital.

That has come about largely because of the weak banking system in Europe, where banks there had been the major source of loans for the mining industry. Most of that has dried up, so now larger mining companies are scrambling to raise capital in a tough lending environment.

How the streaming company works is Silver Wheaton offers capital to fund projects in exchange for a discount price on the gold and silver production from the specific project being capitalized.

The majority of streams are of silver, which is produced as a byproduct of larger deposits of base metals, which the miners are more interested in.

Recently Silver Wheaton CEO Randy Smallwood said larger companies have been approaching the company for funding needs over the last quarter and longer.

For Silver Wheaton shareholders this is good news for those looking at the company as a long-term investment, because it offers less volatility and lower risk than smaller mining companies. Most of the risk is in relationship to production levels coming short or being disrupted, although most of that is over the short term.

According to Smallwood, Silver Wheaton is positioned to invest over $1 billion in possible deals going forward. The company has $555.1 million in cash on hand, along with a revolving credit facility of $400 million, among other capital resources.

In 2012 Silver Wheaton made one deal, that one with HudBay Minerals Inc. (HBM), where it sought funds for its Constancia copper mine in Peru.  Per that deal Silver Wheaton received the right to acquire all the silver and gold produced through 2016 or until the mine is completed. After that, it will be able to acquire all the silver and 50 percent of the gold in the future.

The weak lending markets make this a terrific time for Silver Wheaton to be flush with cash in the midst of rising capital demand.

If done right, Silver Wheaton could easily position itself for a very profitable and predictable future.

Wednesday, January 30, 2013

Is Spain About to Pull Europe Down with it?

To listen to the mainstream media, you would think Europe is about to enter some type of economic golden age, even though the situation in Spain is worsening, as the country reported its latest quarter saw the economy contracting more than it was estimated to.

As goes Spain so will go the EU, and so the idea that Spain's economic health getting worse doesn't count much to the clueless reporters, only shows how much of the koolaide they're drinking in an attempt to cover up the disaster of keynesianism, stimulus, debt, fascism and socialism.

All of these have converged and blended to create the economic disaster we're seeing around the world, one that is not even close to being solved, let alone recovering, as most in the media are asserting and reporting.

It's important to note that the irrelevant idea of market sentiment and the reality of how an economy is actually performing are two completely different things, with sentiment having no importance at all, other than to write headlines that are done to make people and politicians good about the disaster that is the global economy.

Spain's GDP dropped 0.7 percent from the third to the fourth quarter, plummeting the most in a year.

The only thing saving Spain and Prime Minister Mariano Rajoy from requesting another international bailout is a robust bond market to start the year. Investors have poured money into Spain to get the high yields offered by the country.

Unfortunately, that will do nothing to change the economy of Spain, which continues to contract, and is expected to for at least two more years, and probably more.

According to the Bank of Spain, the bond money isn't doing anything for what it identifies as "the real economy."

That's the correct assessment, as regardless of how strongly the bonds are selling, Spain's debt load continues to grow, making it the domino that could topple the region.

One bright spot in the entire mess is there are steps to cut back on taxes on entrepreneurs, which is one of the few smart moves coming out of the disaster. It should have been done long ago. But better late than never.

Other than that, there is little if any good economic news coming out of Spain, and there will be a time when it will request even more international loans, and when that happens the future of the country and the Euro zone will again put to the forefront where it belongs, as there is absolutely nothing going forward that suggests this will turn around any time soon.

It's amazing in light of this that the media continue to report Europe has turned the corner economically, when the key country of concern is getting contracting rather than growing. Only the investment in bonds keep the truth of this from going more public. That will probably end soon, and Spain will come back into the public eye where it belongs, so we can see a more accurate picture of what's really going on.

Any outlook or decision not including Spain as a major variable is one that is flawed and faulty.

Greece Tells Taxman to take Citizens' Money

Greece is apparently getting even more desperate than before, as now the government is trying to pass into law a draconian rule which allows them to steal money from the bank accounts of people they accuse of tax evasion, even if they haven't been proven guilty or convicted of the crime.

What if they are found to be innocent? Supposedly the tax authorities will return it to the falsely accused. Yeah. That'll work great.

How it'll work is tax authorities will be given access to the accounts of the accused and draw the money out of them that is alleged to be owed.

The question is of course where is that money going to be while they await the results of the trial? We all know it'll be long gone. Then the question must be asked of where the Greek government and its tax authorities going to get the money to pay back the people that are acquitted? Since they have no money, it's going to be pretty hard to return what is already spent.

You can easily see where this is all going to go. There will be an endless number of lawsuits filed against the people of Greece as a tool to extract even more money from them. Just enough of them will be legitimate enough to make it look like the actions are justified. But there can be no doubt, if this is put into effect, it will further enrage the population and there will be further unrest and violence.

That's not to say I'm in the corner of the people of Greece, as they allowed themselves to live in a way for a long time that was unsustainable, extracting ridiculous concessions and perks which the small percentage of the productive in the country, Europe, and other parts of the world, got tired of underwriting.

So while the theft of money from people that are not convicted of a crime by the government of Greece is despicable, so is the socialist practices of a country that has been hit right in the face by the fact that socialism hasn't and will never work.

They're also learning the hard way that Keynesianism is dead, and no matter how much money is thrown at a problem, if it isn't able to be paid back by a productive and vibrant free market, it's going to pile up to the point there is no hope of paying it back, no matter how much they whine and cry about the cruelty of austerity. All that's happening is they are learning they actually have to work for their money and compete against others in a global marketplace.

Opposition leader Alexis Tsipras has even called for the equivalent of a Marshall Plan to bail out the country.

The unions continue to implement strike after strike as if that is going to change the circumstances. What is it about there being no money they don't understand? What is it about no one wants to pay for their plush lifestyle any longer? Those days are over and will never come back. One way or the other they will have to deal with it. So will the rest of the world, including America.

IAMGOLD (IAG) (AKS) (CHK) (CPNO) (HES) (MT) (XOM) Ratings Changes

IAMGOLD Corp (IAG), AK Steel Holding Co. (AKS), Chesapeake Energy (CHK), Copano Energy, L.L.C. (CPNO), Hess Corp (HES), ArcelorMittal (MT) and Exxon Mobil (XOM) had ratings on them adjusted by analysts.

Macquarie upgraded AK Steel Holding Co. (AKS) from an Underperform rating to a Neutral rating.

Stifel Nicolaus upgraded Chesapeake Energy (CHK) from a Hold rating to a Buy rating.

Societe Generale upgraded IAMGOLD Corp. (IAG) from a Sell rating to a Hold rating.

RBC Capital downgraded Copano Energy, L.L.C. (CPNO) from an Outperform rating to a Sector Perform rating.

Capital One downgraded Hess Corp. (HES) from an Add rating to a Neutral rating.

HSBC downgraded ArcelorMittal (MT) from a Neutral rating to an Underweight rating.

Macquarie downgraded Exxon Mobil (XOM) from an Outperform rating to a Neutral rating.

Tuesday, January 29, 2013

Chesapeake's (CHK) McClendon Stepping Down

As of the time of this writing, a review into the behavior of Chesapeake Energy Corp. (CHK) founder and CEO Aubrey McClendon by the board said that "to date found no improper conduct," but nonetheless the embattled executive will be stepping down from his position on April 1.

Almost immediately after the announcement shares of the company jumped 9 percent. He had already been forced out as Chairman of the company he founded.

There have been a lot of investigations of McClendon by different entities concerning a number of his ways of doing business, although none to this day have unveiled anything illegal.

Most of the controversy surrounding McClendon is in regard to deals he entered into which appeared to too closely blend the personal and professional business interests he held.

Even though some of his questionable activities and decisions opened him up to intense media scrutiny, in the end what probably really did him in was overextending his acquisitions, which caught up with the company once the price of natural gas plunged because of the huge supply available to the market.

Carl Icahn, who holds a significant stake in Chesapeake said he believes McClendon will ultimately be proven right on his estimate of the value of the natural gas assets of the company.

Reasons for the departure weren't released or commented on by the company, and McClendon said in an email to employees that it was based on "philosophical differences" with the board.

Assuming the benefit package and terms of departure are the same as presented to shareholders in 2012, McClendon could walk away with a package worth up to $53 million over a five-year period.

Monday, January 28, 2013

Cameco (CCJ), Denison (MKT), Uranium One (UUU) Could Soar on Uranium Demand

Contrary to official announcements from some nations, demand for nuclear energy, and by extension uranium remains high, and companies such as Cameco Corp. (NYSE: CCJ), Denison Mines Corp. (NYSE:DNN) and Uranium One Inc. (TXS: UUU) could to very well as the fly under the radar created by the official illusion that countries are moving away from nuclear energy.

Germany and Japan are the major countries in question, where they have made it appear they are using other energy sources, when in fact they're mostly importing electricity that is generated by nuclear energy.

The Energy Report asked expert Matt Badiali about the nuclear-free announcements by the two countries.

He responded saying this:

In both cases, the governments are playing politics. In Germany, the government was reacting to negative press and in Japan, which had just experienced a serious natural disaster. The Japanese government told people for decades that nothing of that sort could ever happen, that the nuclear reactors were completely impervious to natural disasters. That put them in a position where if they tried to make any improvements, they would lose face. They backed themselves into a corner and the only solution seemed to be to turn off the reactors. But the reality is that Japan needs nuclear energy. Without it, liquefied natural gas (LNG) imports have soared and the country doesn't have the infrastructure to move it around. The result was a horrendous summer of spiking electricity prices and rolling brownouts; it was bad news.
Germany used the Fukushima disaster and the negative sentiment that followed to push through a carbon-free agenda. What is really ironic is that Germany is not in a place that gets earthquakes or tsunamis. It is not at any risk for that. It also isn't a place where solar power works really well. Turning off the nuclear plants leaves the country without adequate energy generation infrastructure, so they increased imports of electricity from France. However, over 75% of France's electricity is generated by nuclear power plants. So really all they did was outsource their nuclear reactors. At the same time, they brought on an enormous amount of coal power, which is the single-worst contributor of carbon dioxide. It was politics at its finest.

Badiali sees uranium climbing as high as $100 a pound and higher based upon the reality that miners producing uranium do so at the cost of about $106 a pound. They are getting paid about $40 a pound as of this writing, so the idea they'll continue to charge costumers at a loss of around $66 a pound is ludicrous. The price of uranium will rise over time, and those positioned to take advantage of that should reap solid rewards.

Besides the share price of some of these companies going up because of an increase in the price of uranium, another play is to look for companies ripe for a takeover in the current low uranium price environment. It's the optimal time for a buyout, as the prices will start to go up, making it a surety that mergers and acquisitions in the sector are going to happen.

Currency Wars the New Normal

Even though some people such as International Monetary Fund chief economist Olivier Blanchard have attempted to downplay the stimulus released into economies by central banks around the world, which has resulting in currency wars, the reality is that more countries will respond to the aggressive actions of the Federal Reserve, which has been the institution that fired the first, gigantic salvo, which has instigated the wars.

Bizarrely, Douglas McWilliams, who is over the Centre for Economics and Business Research, based in London, blames the Bank of Japan as the entity that launched the currency wars, even though the United States has aggressively debased the U.S. dollar for several years.

Most other developed nations are looking closely at the value of their currencies versus the U.S. dollar, especially China, Germany, and the European Union, as they will respond in kind if it looks like exports, and thus growth, will be seriously hampered by the easy-money policies of America and the Federal Reserve.

It's unlikely these practices will end any time soon, as the Federal Reserve is committed to creating money out of thin air in order to attempt to grow the U.S. economy, even though the practice continues to fail to reach that goal, even while the debt continues to pile up.

Saturday, January 26, 2013

Giant Oil Field Found in Australia

A giant oil field has been found in south Australia that could hold as much as 233 billion barrels of oil, valued at today's prices at over $20 trillion. The oil is located in the Arckaringa Basin, an area surrounding Coober Pedy.

Estimates at this time are anywhere from 3.5 billion to 233 billion barrels of oil.

While the range has a huge disparity, Linc Energy is moving towards securing financing so it can drill six horizontal wells to confirm and identify the amount of oil estimated to be available for extraction.

Barclays Bank has been hired by Linc to secure financing for the project, which for the next stage is estimated to cost from $150 to $300 million.

Assuming the probable upper target of the estimates, the range is expected to come in at from 103 billion barrels of oil to 233 billion barrels.

Thursday, January 17, 2013

Rio Tinto's (RIO) CEO Albanese Pushed Out

Rio Tinto Group (RIO) Chief Executive Officer Tom Albanese has been removed from the company after disastrous deals led to a write down of approximately $14 billion. The two major deals that led to his departure were the $38 billion acquisition of Alcan Inc. and the $4.1 billion purchase of coal producer Riversdale Mining Ltd. of Mozambique.

Since 2009, Rio has had to write down its aluminum division by over $29 billion, and over the last couple of years wrote down the Riversdale acquisition by 70 percent.

At particular fault was the failure of analysis when deciding to buy the companies, as well as the lack of discipline in using capital. After the Alcan acquisition the debt of the company soared to as high as 19 times what it had been.

Replacing Albanese will be the head of Rio's iron ore unit - Sam Walsh. The decision to choose the 63-year-old Walsh suggests the company is grooming a replacement while he attempts to right the ship in order to have it relatively healthy for an incoming CEO.

Chairman Jan du Plessis said this, “The Rio Tinto board fully acknowledges that a writedown of this scale in relation to the relatively recent Mozambique acquisition is unacceptable. We are also deeply disappointed to have to take a further substantial writedown in our aluminum businesses, albeit in an industry that continues to experience significant adverse changes globally.”

RIO was trading at $54.51, down $0.52, or 0.94%, as of 1:24 PM EST.

Tuesday, January 15, 2013

Currency Wars Heating Up

With domestic economic health at stake of a number of countries at stake because of the Federal Reserve's continual debasing of the U.S. dollar by printing an almost endless stream of money, a currency war has quietly broken out as nations attempt to devalue their own currencies in order to keep exports competitive on the world market.

Of course the currency war has been going on since the Federal Reserve implemented QE2 in August 2010, but it's ramping up because of the continual plunge in value of the U.S. dollar against a number of currencies, which in turn makes exports from other countries more expensive.

Japan is the latest player in the stimulus fiasco to boost their part in the money wars, with new Prime Minister Shinzo Abe committing to printing billions in yen to lower the value of the currency.

This will put pressure on other Asian players, who will be sure to respond in kind.

Other central banks printing money recently, along with the Federal Reserve and the Bank of Japan, have been the Swiss National Bank, the Bank of England, and the ECB.

To give an idea of how the Federal Reserve has attacked the U.S. dollar, it has plummeted by approximately 11 percent in value since the first round of quantitative easing in 2009.

Expectations are many other countries will debase their currencies through central bank stimulus in order to protect their exports.

This should be very positive for commodities, and investors need to take a close look at this, especially in regard to how Asian nations outside of Japan respond to the unfolding circumstances.

Over the long term this will be a disaster as the central banks attempt to unwind their positions.

Friday, January 11, 2013

Drought Doesn't Stop Record Corn Year

Even though the worst drought in decades devastated expectations for an enormous corn harvest, it wasn't enough to result in a record year for the grain, which was valued at approximately $85 billion. That came about from the high price of corn, which lingered above $7 a bushel during the majority of the summer and fall seasons.

While that may suggest to some that corn could have surpassed a value of $100 billion if there hadn't been a drought, that wouldn't have been the case because the price of corn would never had soared to the levels it did with what would have been enormous supply.

According to the final report of the U.S. Department of Agriculture for 2012, there were 10.78 billion bushels of corn harvested for the year, down by over 25 percent from projections in the spring of the year.

Hit particularly hard was Illinois, which normally is the second-largest producer of corn in the United States. It fell to fourth place for 2012, dropping behind perennial leader Iowa, along with Nebraska and Minnesota.

Iowa finished 2012 with 1.87 billion bushels, down 20 percent from 2011. Minnesota was next with 1.37 billion bushels, with Nebraska finishing third with 1.29 billion. Illinois ended with 1.28 billion.

Corn production in Illinois was down 34 percent from 2011, and Nebraska ended the year down 16 percent. Minnesota finished the year with production up 14 percent because it was among the least affected of the states residing in the corn belt.

Average yield across the United States for 2012 was 123.4 bushels an acre.

With weather patterns of the past many times showing droughts coming in twos, the ongoing drought, which has been hidden by the winter, hasn't shown any signs of slowing down, with about 60 percent of the United States still experiencing drought conditions to some degree.

While it's unlikely to be as bad as last year, 2013 could be another tough year as far as production goes, but wildly lucrative for those that bring in a good corn harvest.

Thursday, January 10, 2013

Japan Approves 20 Trillion Yen Stimulus

Following the faltering and failing Keynesian practices of America and Europe, Japan announced it has approved yet another stimulus package, this one valued at over 20 trillion yen ($224 billion).

New Japanese Prime Minister Shinzo Abe said the goal of the stimulus is to boost annual economic growth in Japan by two percent. He also wants to add 600,000 new jobs in the process.

The usual but tired idea of government infrastructure projects as the method to grow the Japanese economy our of its ongoing recession.

Most of the money will allegedly be used in relationship to the recent tsunami and earthquake of 2011, where reconstructing the areas hit the hardest by it will be the priority.

In reality this has a lot to do with the battle of central banks, where the decision by the Federal Reserve to have open-ended stimulus has caused other competing nations to respond in kind so their currencies don't rise too high against the U.S. dollar.

That means they don't want exports to plunge, which would hurt the domestic markets of Japan and other nations.

The new prime minister, who also served in that capacity in 2006-2007, told the central bank of Japan to take whatever steps are necessary to raise the inflation rate to two percent.

Peter Schiff on CPI Illusion

Peter Schiff blasted the idea that inflation is under control during the unprecedented money expansion we're going through. Government court economist Paul Krugman has used the meaningless Consumer Price Index (CPI) and its alleged sub 2.5% increases as proof inflation hasn't been a factor during this period of time.

Most people following the CPI know it's a joke, but most in the financial media continue to use the statistics proffered by the Index as based on reality.

Schiff points out two sectors to confirm this is so.

"However, there is plenty of evidence to suggest that the CPI is essentially meaningless as it woefully under reports rising prices.

"Magazines and newspapers provide a good case in point. The truth has not been exposed through the economic reporting that these outlets provide, but in the prices that are permanently fixed to their covers. For instance, from 1999 to 2002 the Bureau of Labor Statistic's (BLS) "Newspaper and Magazine Index" (a component of the CPI) increased by 37.1%. But a perusal of the cover prices of the 10 most popular newspapers and magazines (WSJ, Washington Post, Time, Sports Illustrated, U.S. News & World Report, Newsweek, People, NY Times, USA Today, and the LA Times) over the same time frame showed an average cover price increase of 131.5% (3.5 times faster than the BLS' stats). This is not even in the same ballpark.

"Another stunning example is found in health insurance costs, which is a major line item for most families. According to the BLS we can all breathe easy on that front because their "Health Insurance Index" increased a mere 4.3% (total) in the four years between 2008 and 2012. Interestingly, over the same time, the Kaiser Survey of Employer Sponsored Health Insurance showed that the cost of family health insurance rose 24.2% (5.5 times faster). But even if the BLS had reported higher costs, it wouldn't have made much of a difference in the CPI itself. Believe it or not, health insurance costs are assigned a weighting of less than one percent of the overall CPI. In contrast, the Kaiser Survey revealed that in 2012 the average total cost for family health insurance coverage was $15,745, or almost one third of the median family income.

"If the inaccuracy of these two components were consistent with the rest of the CPI's components, inflation could now be reported in double-digits!

Not only is this true, but the CPI, over the years, has changed its methodology in order to ensure the majority of prices that would more accurately reflect higher prices are taken out of the equation.

"The newer CPI methodologies are designed to report not just on price movements, but on spending patterns, consumer choices, substitution bias, and product changes. In other words, the metrics have been altered to track not so much the cost of things, but the cost of living (or more accurately, the cost of surviving). But if you simply focus on price, especially on those staple commodity goods and services that haven't radically changed in quality over the years, the under reporting of inflation becomes more apparent."

To highlight how this impacts the reporting of inflation, Schiff did some research on 20 common financial transactions over two different ten-year periods. The focus was on the decades when the monetary policy of the Federal Reserve was loose.

"As reported in our Global Investor Newsletter, we selected BLS price changes for twenty everyday goods and services over two separate ten-year periods, and then compared those changes to the reported changes in the Consumer Price Index (CPI) over the same period. (The twenty items we selected are: eggs, new cars, milk, gasoline, bread, rent of primary residence, coffee, dental services, potatoes, electricity, sugar, airline tickets, butter, store bought beer, apples, public transportation, cereal, tires, beef, and prescription drugs.)

"We know that people do not spend equal amounts on the above items, and we know their share of income devoted to them has changed over the decades. But as we are only interested in how these prices have changed relative to the CPI, those issues don't really matter. We chose to look at the period between 1970 and 1980 and then again between 2002 and 2012, because these time frames both had big deficits and loose monetary policy, and they straddle the time in which the most significant changes to the CPI methodology took effect. And while the CPI rose much faster in the 1970's, the degree to which the prices of our 20 items outpaced the CPI was much higher more recently.

"Between 1970 and 1980 the officially reported CPI rose a whopping 112%, and prices of our basket of goods and services rose by 117%, just 5% faster. In contrast between 2002 and 2012 the CPI rose just 27.5%, but our basket increased by 44.3%, a rate that was 61% faster. And remember, this is using the BLS' own price data, which we have already shown can grossly under-estimate the true rate of increase. The difference can be explained by how CPI is weighted and mixed. The formula used in the 1970's effectively captured the price movements of our twenty everyday products. But in the last ten years it has been quite a different story."

The conclusion is the CPI can no longer be trusted or considered a valid measure of real inflation. Many people I talk to on the street know we're in a high inflationary period, as they point to the much higher costs of engaging in transactions and buying needed products and services. They don't know how to describe it in the terms readers here would know and use, but they are very much aware we're living in a significant inflationary economy.

Skewing data using smoke and mirrors can't hide what we pay in real prices.


Wednesday, January 9, 2013

Alcoa (AA) Leads Wall Street Higher

Expectations have been lowered so much heading into the earnings season, that any results that meet or beat them will give a boost to the market, as the quarterly earnings of Alcoa (NYSE: AA) did on Tuesday. The Dow closed at 13,390.51, up 61.66, or 0.46 percent. The S&P 500 and Nasdaq also closed in positive territory on Wednesday.

Investors are looking to revenue as one of the key indicators of the economic health for the fourth quarter, and Alcoa outperformed in that regard, which the market responded to in a soothing manner. If there is more good news from important companies, the market could jump to significant levels because the bar has been set so low.

There is no doubt the next weeks will experience a lot of ups and downs as investors appear to be trading on news at this time, rather than the overall health of the economy and individual company performance.

So when some companies report better-than-expected results, the overall market is benefiting from it. That's nothing new in and of itself, but it seems to be more intertwined than usual.

Also important is the outlook the companies of give heading into 2013. For Alcoa, the assertion that they see global demand for aluminum rising in 2013 helped to create the positive atmosphere that pushed the markets up overall.

Since expectations are so low, even some average performances could have a positive effect on markets, which could move them up to levels not reflecting the reality of the situation.

The bottom line is markets will probably perform better than the gloomy fog recently surrounding it has signaled, although it could set things up for a plunge after the earnings season is over and investors digest the news.