Oct 30

Like, Doh! Gold Miners Aren’t Gold

Gold Price Comments Off on Like, Doh! Gold Miners Aren’t Gold
But it bears repeating for investors wondering if the mining-stock rout is a “buy”…
 

WEDNESDAY was a serious gut check for investors in the mining sector, writes David Nadig at Hard Assets Investor, in a story first published at ETF.com.
 
Is there a knife to catch?
 
There are charts and there are charts. But there’s no way to parse this one as anything but ugly:
 
 
I’m not a big believer in technical analysis, but I know an awful lot of traders are, which means a lot of folks are looking at the line for Market Vectors Gold Miners ETF (NYSEArca:GDX) and seeing it plow through its resistance, with nothing to support it but “air” here.
 
So what are the lessons to learn here?
 
Gold miner stocks are volatile
It doesn’t take math to look at the difference between the lines on this chart and pick out the craziest one. I picked GDX as one of my ETFs to rally in 2014, and while that was still a solid call until a few days ago, it’s now looking pretty darn terrible. On a year-to-date basis, GDX is down just over 7%. Just this August, GDX was up more than 30% on the year.
 
Gold miners are still companies
Yes, there’s a significant correlation between the price of gold and the performance of gold miners. Consider this graph of the monthly correlations between GDX and the SPDR Gold Trust (NYSEArca:GLD)…
 
 
Certainly, more often than not, GDX and GLD will move in the same direction, but that relationship breaks down all the time, and it breaks down very, very quickly when it does. And because GDX is made up of companies run by human beings, there are far more things at work than just the price of gold.
 
Which brings me to…
 
Equities are ultimately about earnings
If you look at the holdings of GDX, you find, as you might expect, significant winners and losers. Detour Gold Corp., a relatively small Canadian miner, is about to turn profitable for the first time, and is up almost 100 percent on the year. That’s helping offset once-profitable Coeur Mining, which is down more than 61% on the year on rapidly declining revenues.
 
See the picture there? Gold miners, perhaps more than any small niche I can think of, are a collection of wild fortune-telling cards. That’s part of the allure of gold miners – that one might “hit it big” and all of a sudden have vastly more gold, or higher production than you might expect. Unfortunately, it cuts both ways.
 
Gold is about currency
The last point, which I think many folks forget, is that gold is a weak-Dollar play. Any time you trade in your Dollars to hold something, you’re effectively saying, “I’m shorting the Dollar to buy X.” Gold in particular lives in an odd crux between currency and commodity. But since it’s priced in Dollars, you should expect that, all else being equal, a strong Dollar means you can buy more gold per Dollar; that is, the price of gold should go down as the Dollar gets stronger.
 
This chart tracks the price of gold (XAU) relative to the U.S. Dollar Index (DXY):
 
 
It’s hardly a perfect relationship, but it’s safe to say that it’s very hard for gold to rally at the same time the Dollar is rallying. It’s the same pressure we have on oil prices, and frankly all commodities at the moment.
 
Fishing for value?
I am quite sure that there will be plenty of ETF investors who see a few terrible days in a solid ETF like GDX and are tempted to pull the trigger.
 
My only concern would simply be this: If you head to the Van Eck website and look at GDX, you see a reported price-earnings ratio for the stocks in the portfolio of 18.54. That makes it look like plain-vanilla large-cap equities – after all, the S&P 500 has a P/E right now of about 18.6.
 
But that belies the fact that a huge portion of GDX holdings are actually losing money. From companies like Newcrest Mining (5 percent of the portfolio) to Royal Gold (4 percent) to little Silver Standard Resources (0.35 percent), all those losses add up, making the true P/E – not magically forgiving the losses – negative 12. Far from value, gold miners are looking like a wildly speculative bet at the moment.
 
So just be careful when you’re reading those fact sheets on your value hunt.
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Oct 29

QE, War & Other Autopilot US Action

Gold Price Comments Off on QE, War & Other Autopilot US Action
Ready for a clean break with Fed money creation…?
 

AMONG the many things still to be discovered is the effect of QE and ZIRP on the markets and the economy, writes Bill Bonner in his Diary of a Rogue Economist.
 
We can’t wait to find out.
 
The Fed has bought nearly $4 trillion of bonds over the last five years. You’re bound to get some kind of reaction to that kind of money.
 
But what?
 
Higher stocks? More GDP growth? Higher incomes? More inflation?
 
Washington was hoping for a little more of everything. But all we see are higher stock and bond prices. And if QE helped prices to go up, they should go back down when QE ends this week.
 
Unless the Fed changes its mind…
 
If the Fed makes a clean break with QE, it risks getting blamed for a big crack-up in the stock market. On the other hand, if it announces more QE, it risks creating an even bigger bubble…and getting blamed for that.
 
Our guess is we’ll get a mealymouthed announcement that leaves investors reassured…but uncertain. The Fed won’t allow a bear market in stocks, but investors won’t know how and when it will intervene next.
 
Last week, we were thinking about the reaction to the murder in Ottawa of a Canadian soldier who was guarding a war memorial.
 
There were 598 murders in Canada in 2011 (the most recent year we could find). As far as we know, not one registered the slightest interest in the US. But come a killer with Islam on his mind, and hardly a newspaper or talk show host in the 50 states can avoid comment.
 
“War in the streets of the West,” was how the Wall Street Journal put it; the newspaper wants a more muscular approach to the Middle East.
 
Why?
 
After a quarter of a century…and trillions of Dollars spent…and hundreds of thousands of Dollars lost…America appears to have more enemies in the Muslim world than ever before. Why would anyone want to continue on this barren path? To find out, we follow the money.
 
Professor Michael Glennon of Tufts University asks the same question: Why such eagerness for war?
 
People think that our government policies are determined by elected officials who carry out the nation’s will, as expressed at the ballot box. That is not the way it works.
 
Instead, it doesn’t really matter much what voters want. They get some traction on the emotional and symbolic issues – gay marriage, minimum wage and so forth.
 
But these issues don’t really matter much to the elites. What policies do matter are those that they can use to shift wealth from the people who earned it to themselves.
 
Glennon, a former legal counsel to the Senate Foreign Relations Committee, has come to the same conclusion. He says he was curious as to why President Obama would end up with almost precisely the same foreign policies as President George W. Bush.
“It hasn’t been a conscious decision. […] Members of Congress are generalists and need to defer to experts within the national security realm, as elsewhere.
 
“They are particularly concerned about being caught out on a limb having made a wrong judgment about national security and tend, therefore, to defer to experts, who tend to exaggerate threats. The courts similarly tend to defer to the expertise of the network that defines national security policy.
 
“The presidency is not a top-down institution, as many people in the public believe, headed by a president who gives orders and causes the bureaucracy to click its heels and salute. National security policy actually bubbles up from within the bureaucracy.
 
“Many of the more controversial policies, from the mining of Nicaragua’s harbors to the NSA surveillance program, originated within the bureaucracy. John Kerry was not exaggerating when he said that some of those programs are ‘on autopilot’.
 
“These particular bureaucracies don’t set truck widths or determine railroad freight rates. They make nerve-center security decisions that in a democracy can be irreversible, that can close down the marketplace of ideas, and can result in some very dire consequences.
 
“I think the American people are deluded…They believe that when they vote for a president or member of Congress or succeed in bringing a case before the courts, that policy is going to change. Now, there are many counter-examples in which these branches do affect policy, as Bagehot predicted there would be. But the larger picture is still true – policy by and large in the national security realm is made by the concealed institutions.”
Calling the Ottawa killing “war” not only belittles the real thing; it misses the point. There is no war on the streets of North America. But there is plenty of fraud and cupidity.
 
Here is how it works: The US security industry – the Pentagon, its hangers-on, its financiers and its suppliers – stomps around the Middle East, causing death and havoc in the Muslim world.
 
“Terrorists” naturally want to strike back at what they believe is the source of their sufferings: the US. Sooner or later, one of them is bound to make a go of it.
 
The typical voter hasn’t got time to analyze and understand the complex motives and confusing storyline behind the event. He sees only the evil deed.
 
His blood runs hot for protection and retaliation. When the call goes up for more intervention and more security spending, he is behind it all the way.
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Oct 28

"Peak Gold" Here to Stay

Gold Price Comments Off on "Peak Gold" Here to Stay
But that won’t deflect a possible dip to $1000 per ounce first, says this leading German newsletter analyst…
 

OLIVER GROSS is a passionate resource expert, prudent investor and adviser with more than 10 years of experience in the mining and junior sector.
 
Chief editor and analyst of the newsletter Der Rohstoff-Anleger – which is published by Germany’s online GeVestor Financial groupm, and specializes in the global junior resource sector – Gross here tells The Gold Report why gold prices could get washed down to $1000 per ounce before the fundamental fact of “peak gold” drives a new bull market…
 
The Gold Report: Earlier this month, the broader equities markets suffered huge losses as gold made significant gains. Then, after the broader markets recovered, gold fell. Is there now an inverse relationship between the health of the broader markets and the price of gold?
 
Oliver Gross: This kind of inverse relationship between gold and the broader equity markets isn’t really new. It has been observed since fall 2011, when the price of gold peaked. Since then, gold has fallen more than 35%, while the S&P 500 has risen 70%.
 
The current situation resembles the early 2000s, when the broader equity markets were in the final phase of the dot-com bubble, while gold traded as low as $340 per ounce ($340 per ounce). Then, of course, the broader equities markets collapsed, while gold rose above $1900 per ounce.
 
TGR: Some analysts believe that the broader equities market is dangerously overvalued. To give one example, Netflix was recently trading at 144 times earnings. What do you think?
 
Oliver Gross: After a 5-year bull run leading to new all-time highs in the broader equity markets, there are many signs of bubble formations in the Internet, high-tech and biotechnology sectors. Again, this feels like the early 2000s. The extremely high price-to-earnings ratios in stocks such as Netflix indicate investor euphoria and huge amounts of speculative capital provided by the central banks.
 
It is shocking to compare valuations in the broader sectors of the equity markets to valuations in the precious metals space. 
 
TGR: How should investors react to this bubble?
 
Oliver Gross: Speaking for myself, as one who follows an anticyclical strategy, I like to invest when there is blood in the streets, and that is certainly what is happening with precious metal equities. Today, investors can buy gold and silver stocks at decade-low valuations and historically low bullion-to-equity valuations.
 
Nobody cares about precious metals equities today, but when the bubble in the broader markets bursts, we will see a massive shift in market sentiment and in the behavior of investors. That said, investors must stick to best-in-class stories and must demonstrate constancy and patience.
 
TGR: Could the collapse of the bubble lead to a crisis similar to that which occurred in 2007-2008?
 
Oliver Gross: Yes, the possibility of another Lehman Brothers event is there. When the largest and most influential players in the financial industry want to exit this market, we could see a 2008-like selloff very, very fast. I also think that it is only a matter of time before a further big player in our financial industry will go the same way as Lehman.
 
TGR: Geopolitical turmoil today is greater now than it has been for quite some time: Gaza, ISIS, Ukraine and now Ebola. Traditionally, this would have resulted in a significantly higher gold price, which has not happened. Is what we have seen this year an anomaly, or is the price of gold no longer affected by external events?
 
Oliver Gross: That is a question not easily answered. Traditionally, gold has been regarded as the ultimate crisis protection, so geopolitical turmoil usually resulted in a higher gold price. What has changed is the incredible power of the central banks. They have changed the rules of the game. This is a major financial experiment with no historical precedent. The combination of unlimited liquidity, historically low interest rates and historically high debt levels has, for the moment, mitigated geopolitical risk factors and guaranteed faith in the US Dollar as the world’s reserve currency.
 
Gold has fought incredible odds since fall 2011. It is the most hated asset class, the official enemy of the US Dollar reserve and our global monetary system. And so the biggest financial institutions have no interest in higher gold prices. They still control the gold futures and the paper-gold market, so it is easy for them to attack the gold price. But this can’t continue forever, and it’s just a matter of time before all the money created since 2008 will no longer simply inflate asset bubbles. Inflation will return, and gold will again respond positively to external crises.
 
TGR: Where do you see gold and silver prices going in the short term?
 
Oliver Gross: I see a 50% chance of a final panic selloff across the gold and silver space. In this scenario, gold could fall to $1000 per ounce, and silver could fall as low as $12 per ounce.
 
TGR: Wouldn’t such prices lead to widespread curtailment of bullion production?
 
Oliver Gross: The current all-in costs of gold producers are now above $1150 per ounce, even after massive cost reductions and a focus on higher-grade mining. Such expedients can have only a temporary effect. At a gold price of $1000 per ounce, there will be many shutdowns.
 
We need a gold price of at least $1400 per ounce to support sustainable production, and that number will rise, as early as 2015 or 2016. We have reached Peak Gold, and it’s here to stay. The highest-grade and most-profitable deposits are gone. The bear market in the gold mining space has been so long and painful that the major producers have their backs to the wall. 
Most discoveries of the last five years need a far higher gold price to be mined. In addition, many recent discoveries are located in jurisdictions with high country or environmental risks and lack infrastructure, resulting in multibillion-Dollar capital expenditures (capexes).
 
TGR: As a result of the factors you’ve mentioned, can we now expect a big increase in mergers and acquisitions (M&As)?
 
Oliver Gross: Not so much among the majors. Most of them have weak balance sheets and too many in-house projects to risk expensive and dilutive takeovers. 
 
TGR: What are the attributes possessed by those companies likely to be taken out?
 
Oliver Gross: When the influential players in the gold mining space think that the gold price bottom is in, and a new bull market is likely, M&A interest will grow big time. Such a consolidation could create a perfect storm for the strongest junior gold producers and quality gold developers with robust, competitive projects.
 
Specifically, takeover targets will have financeable mine capexes with a good relation to the discounted net present value (NPV) of their projects. They will be profitable with gold at $1100 per ounce, and at least break even at $1000 per ounce. Their projects will be in pro-mining jurisdictions with stable laws, the sustainable support of regional and local communities, and solid infrastructure.
 
TGR: What about management?
 
Oliver Gross: Takeover targets must have managements with strong track records, or, failing that, existing investment from the larger precious metals companies or previously successful strategic investors. And, of course, healthy financials. There are many evaluations to be made, and there aren’t any “no brainers” here. Due diligence and continuous research are critical. When you think you haven’t spotted any weaknesses, you’ve likely missed something.
 
TGR: You are now more bullish on uranium companies, correct?
 
Oliver Gross: Uranium prices have just enjoyed their first recovery in years. We may have seen the bottom here, so I think investors should put uranium stocks back on their watchlists. 
 
TGR: Finally, given that so many current investors in gold companies want out, does the M&A flurry you’ve suggested offer a special opportunity for contrarians?
 
Oliver Gross: Absolutely. Both specific and general valuations are among the lowest for the last 30 years, so this could be the most attractive environment for contrarian investors in a couple of generations.
 
TGR: Oliver, thank you for your time and your insights.
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Oct 20

Inflation, Like Hurricanes, Has Been Abolished

Gold Price Comments Off on Inflation, Like Hurricanes, Has Been Abolished
Not had one in nearly 10 years. So hurricanes will never return, right…?
 

IT’S BEEN over 3,280 days since a hurricane hit Florida, writes Dennis Miller of Miller’s Money at Doug Casey’s eponymous research group.
 
As hurricane season comes to a close next month, only Mother Nature knows how long the streak will last. Like many Floridians, my wife and I stayed home and rode out a hurricane – once! We’d built a home on Perdido Key, a barrier island west of Pensacola. It was engineered to withstand 150-plus mph winds, and it was a beautiful home with a master bedroom spanning the entire third floor, looking out across the Gulf of Mexico.
 
Hurricane Danny hit the Gulf shortly after we moved in. It was a fast-moving Category I with winds gusting in the 75-80 mph range. Full of confidence and a bit curious, we decided to hunker down and ride it out. At the speed it was traveling, it should have been over in a matter of hours. Then, Danny caught everyone by surprise and stalled in Mobile Bay, pounding us for three days.
 
The waves on the Gulf were terrifying. We watched the rising tide bang boats against the rocks and sink others. Our front door had a double deadbolt with a keyhole on each side. Water shot through three feet into the room for 24 hours straight. Newly planted palm trees strained against support wires and toppled onto their sides.
 
We tried to get some sleep in our bedroom, but we could feel the house move with each gust of wind. We watched bits and pieces of our neighbor’s tile roof fly off and smash a few feet from our house. We were trapped and terrified for three days.
 
The no-hurricane record has been all over the Florida news, highlighting concern that people are becoming complacent. They don’t understand what adequate preparation entails. The storm itself can be horrific, but the aftermath can be equally disastrous, leaving people without food, water, power, and access to basic services for several days. Homes that survive a storm often have to be gutted because of mold and mildew. Without power, sewage immediately becomes a problem.
 
Plus, if your flood, wind, and homeowners insurance is not up to date, say hello to serious financial hardship. Many Floridians discovered too late that their policy limits had not increased with inflation and wouldn’t cover the cost of rebuilding.
 
Just for fun, I told a friend that I was thinking about selling my generator and dumping our emergency supplies. He looked at me in disbelief and finally uttered, “Are you crazy? When the next one hits, don’t try to mooch off of us. It’s every man for himself.”
 
Exasperated, he explained that hurricane-causing conditions had not gone away. Until the sun no longer heats the water, we no longer have large and fast temperature changes, and there are no trade winds, a hurricane is a constant threat.
 
He was red in the face when he finished. I told him I was kidding and wanted to discuss something else: economic hurricanes.
 
Many financial pundits are shining the all-clear signal, saying that our economy is fine. People are bailing on gold and mining stocks because they’ve dropped so low. To paraphrase my colleague, Casey Research chief economist Bud Conrad, gold sentiment has dropped to zero.
 
Take a look at the price of gold over the last decade:
 
 
High inflation (Hurricane Danny) and hyperinflation (Hurricane Katrina) are two potential threats to all of our lives. While we hope neither hits, we should still prepare.
 
At Miller’s Money, we put metals into two categories. The first is core holdings. This is pure insurance against a catastrophe – much the same as our hurricane survival package. Not all storms are category V. Even if we don’t have hyperinflation, during the Jimmy Carter era we experienced double-digit inflation that devastated a lot of retirement nest eggs. Investors holding long-term 6% certificates of deposit would have lost 25% of their buying power during a five-year period, even after they collected the 6% interest.
 
What if the storm intensifies into hyperinflation and its inevitable aftermath? Many of the items we keep for hurricane emergencies may come in handy if the food supply is interrupted, electricity is cut off, or the currency collapses. Metals will protect us from the rising tide of inflation and protect our purchasing power.
 
The second category for metals and metal stocks is investment. These holdings are bought with the express intent of selling down the road for a nice profit. There is quite a debate going on in this arena. Some experts are touting the terrific buying opportunity. Others say gold is an ancient relic and there are a lot of better investment opportunities available. Should you take advantage of the buying opportunity or unload?
 
We set strict position limits in the Money Forever portfolio. When you’re investing money earmarked for retirement, which is our focus, the speculation portion is limited because preserving capital is the overriding consideration.
 
Gold stocks fall into two general categories. The first is established mining companies and the second is exploration and development companies. Stock in the first group is more directly related to the current price of gold. Every Dollar fluctuation in the price of gold adds or subtracts from their net profit as their costs are primarily fixed.
 
For exploration and development companies, it’s a combination of the price of gold, their ability to raise capital, and a heavy emphasis on the economic viability of their discovery. In a large number of cases a major mining company buys them out and takes them into the production phase.
 
In both cases, there are certain events that can produce spectacular results; however, the risk is also high. The real question is do you have room to invest any more capital in the speculative portion of your portfolio? That’s up to the individual investor to answer. If you do have room, there are some incredible bargains in the market today. Our metals team travels the globe and has identified many candidates selling at true bargain-basement prices.
 
What about your core holdings? Should you buy or lighten your portion of metals? The first question to answer is: do you have ample core holdings at the moment? We recommend holding 10%-20% of your net worth in core holdings, depending on your comfort level. (Mining stocks are generally not core holdings; they are speculative.) A lot of investors are slowly building to that target. If you think you should add more, then the current prices present a terrific opportunity.
 
Once you add to these core holdings, then the daily price fluctuations are no more relevant than the price of the case of beef stew we have stored in our closet. It’s insurance for a catastrophe we hope never happens. When the big one hits, we could probably sell our stew for an astronomical sum, but we won’t because it will help us survive. We would use some of our metal holdings, priced at current value, to buy things we need.
 
The same friend who was flabbergasted by my pretend plan to dump our hurricane supplies asked if I planned to sell any of our gold. I looked at him and asked, “Are you crazy?” Then I explained that the conditions that spawn inflation have not gone away either.
 
The reasons to own gold have compounded over the last decade. The US government has printed trillions of Dollars, our country’s debts are out of sight, and the Chinese and Russians are doing everything they can to oust the US Dollar as the world’s reserve currency. When the world no longer needs or wants to hold Dollars, they will fly out the door faster than any hurricane wind mankind has ever seen. The value of the Dollar will drop like a two-ton anchor and the price of gold will soar.
 
Precious metals are insurance against the ultimate financial hurricane. Fiat currencies eventually collapsed; the US Dollar will not get a free pass. Just as sure as the sun heats the water, we have large and fast temperature changes, and there are trade winds, an overly indebted government will experience a currency collapse.
 
We have all had ample warning and should be prepared. Don’t be fooled by the short-term thinking.
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Oct 14

Goldbug Apocalypse

Gold Price Comments Off on Goldbug Apocalypse
US growth doesn’t play well for the “apocalyptic goldbug” narrative. But for Asian demand…?
 

JOHN KAISER joined Continental Carlisle Douglas as a research assistant in 1982. Six years later, he moved to Pacific International Securities as research director, and also became a registered investment adviser.
 
Kaiser moved to the US with his family in 1994, and now produces The Kaiser Report of mining-stock analysis. Here he tells The Gold Report‘s sister title The Mining Report why “goldbugs” still expecting a US economic apocalypse might get their own disaster…
 
The Mining Report: At the Cambridge House Canadian Investment Conference in Toronto, you talked about escaping the resource sector swamp. Why do you call the current market a swamp?
 
John Kaiser: There are four key narratives that dominate the resource sector, in particular the junior resource sector.
 
One is the supercycle narrative where a growing global economy catches the mining industry off guard with the result that higher-than-expected demand results in higher real metal prices. That then unleashes a scramble to find deposits that work at these higher, new prices and put them into production. The juniors played an extraordinary role during that cycle in the last decade; however, global economic growth has slowed. Therefore, we are looking at a period of sideways, possibly weaker, metal prices for a number of years, which puts the supercycle narrative on hold. That is one factor keeping the sector in a swamp.
 
Another important narrative is the goldbug narrative, where a soaring gold price is going to make deposits much more valuable. We did see that play out. Gold reached $1950 per ounce briefly, but has since retreated 40%. Even though that’s still 400% off the low from just over a decade ago, it has turned out to be a wash in real prices. Now, growth projections in the US are having negative implications for the prevailing apocalyptic goldbug narrative. That does not bode well for an escape from the quagmire.
 
A third key narrative is security of supply, which we saw manifested in the rare earth [RE] boom in the past five years. However, the RE prices have come back to earth as substitution and thrifting has kicked in. The anxiety that China is going to eclipse the US anytime soon has diminished, and the concern that there will be supply squeezes around the world has diminished.
 
The fourth narrative, which has dominated the junior sector for two of the past three decades, is that of discovery exploration. Unfortunately, there have not been many very good discoveries in the past decade that have inspired confidence in the retail sector. Add to that the structural changes in the financial services sector that make it increasingly difficult for junior public companies to source retail investor capital.
 
These are the forces that are keeping gold – and junior mining equity – prices bogged down.
 
TMR: Let’s look at each of those narratives a little bit closer to determine what they mean for junior mining companies. If China’s growth is slowing and the US recovery remains hesitant, what does that mean for base metals – copper, nickel, iron and zinc?
 
John Kaiser: In the last decade, juniors have made a career of picking up deposits found in past exploration cycles and discarded as marginal because the grade wasn’t high enough. The juniors did a tremendous job of reevaluating their potential based on new prices and technology. That led to $140 billion worth of takeover bids, compared to the $5bn per decade in the 1980s and 1990s. These deposits now sit as inventory in the big mining companies.
 
That means when we get another price boom, the big mining companies will develop these projects to supply the demand surge, not acquire juniors that claw a new batch of discarded deposits out of the closet. Investors interested in juniors with advanced deposits will have to focus their attention on an existing pool of juniors that will shrink as they disappear through buyouts or mergers with very modest premiums off cyclical market lows.
 
TMR: Would you apply that scenario to all of the base metals?
 
John Kaiser: Copper and iron are the ones that are faced with oversupply in the next couple of years. Nickel is a special situation because it was being oversupplied until Indonesia imposed an export ban on raw laterite ore. The Philippines is contemplating doing something similar. Should this come to pass, then we will have temporary shortages of nickel, and we could see nickel prices going higher. But if Chinese capital builds the capacity to smelt the nickel laterite ore in Indonesia and the Philippines, then we will see weak nickel prices.
 
The one metal I think will realize higher prices in the next few years is zinc. That is because major mines have started to shut down, and what is coming onstream is considerably less capacity than what is shutting down. Normally, that doesn’t really matter because China has been the elephant in the room, the largest zinc producer. China has nearly doubled its production in the past decade. The prevailing view is that if we get a higher zinc price, China will move quickly to put more mines into production. However, I believe, due to a new environmental focus, the country could actually shut down some of its capacity, worsening the supply situation.
 
TMR: Let’s go back to your themes. The second one was the goldbug theme. The Federal Reserve is betting that the US economy is good enough to handle rising interest rates as part of a push to jumpstart the global economy. What could this mean for the supercycle we talked about and the apocalyptic goldbug narrative and the companies in the metals space?
 
John Kaiser: If the Fed successfully finesses the transition from quantitative easing and low interest rates to an economy based on positive real short-term interest rates, then we will see the consumer start to feel more comfortable with the future and spend money. Businesses would then start spending the trillions of Dollars they are now hoarding or spending on share buybacks to prop up stock prices.
 
If they shift to building stuff again for the long run, which employs people with quality jobs and signals optimism about America’s economic future, then the banks become happy and will start lending money to consumers. It creates a virtuous circle where the economy grows organically rather than artificially. This is also good for the rest of the global economy because it will enable emerging markets to hitch their wagon back to the US as a primary export destination and, ultimately, as a flow of capital back to their own economies to fund self-sustaining economic growth.
 
A smooth transition to real growth is bad news for the goldbug narrative because if we have higher interest rates and, thus, better yields, that makes gold – which yields nothing – not very competitive. A strong Dollar also clashes with the idea that everything is falling apart and, therefore, gold is going to go up due to resulting hyperinflation and fiat currency debasement.
 
But if the Fed is wrong and it merely succeeds in popping a stock bubble and the Dow Jones drops more than the 10-15% that would qualify as a healthy correction, unleashing another asset deflation spiral similar to 2008, then we end up in a very negative scenario for the global supercycle narrative and for the goldbug narrative because gold goes down in a liquidity crunch. Either outcome creates an argument for gold dropping through that $1180 per ounce resistance level and touching $1000 per ounce on the downside.
 
TMR: Are you predicting $1000 per ounce gold?
 
John Kaiser: I see $1000 per ounce as a temporary aberration except in the worst case scenario of a global depression. Today 1980’s $400 per ounce gold adjusted for inflation is $1120 per ounce, so $1200 per ounce is just a 9% real gain. That is sobering when you consider the mining industry extracted 2.3 billion ounces over the last 30 years on the back of gold’s big move during the 1970s. As this low hanging fruit got harvested, mining costs rose, even more so than general inflation during the past five years.
 
All-in cost estimates average $1350 per ounce for new gold, partly due to higher mining costs, but also due to lower grades, more difficult metallurgy and social license costs. A gold price in the $1000-1200 per ounce range implies that the world going forward will be content with the existing 5.4 billion ounce aboveground gold stock plus the billion extra ounces existing mines will produce as they deplete over the next decade.
 
As an optimist about global economic growth, I find that hard to believe. If the end of quantitative easing and the arrival of higher real interest rates gives the American economy organic growth legs, rather than sending it into a tailspin that requires the Fed to put it back on life support, it will pull the global economy back into an uptrend with resource-hungry emerging economies with large population bases as the long-term growth engines.
 
While your typical North American goldbug owns gold to hedge against catastrophe and a possible capital gain trade, new wealth in emerging nations seeks gold ownership as a form of saving and wealth insurance. This gold is not generally for sale. In my view, global economic growth is a plausible driver for higher real gold prices. The question is how long can gold hang around at price levels where it does not make economic sense to mobilize new gold mine supply?
 
What would jumpstart an uptrend in gold is China announcing its actual reserve holdings, which were last reported in 2009 as 1,054 tonnes. Since then China has produced about 2,000 tonnes and because the central bank is the official buyer of domestic gold production, China’s official gold holdings are likely over 3,000 tonnes, just behind Germany at 3,384 tonnes. China has also been a heavy importer of gold since its breakdown in 2013, possibly over 1,000 tonnes. That would put China in second place, halfway to America’s official holdings of 8,134 tonnes. China sees as the long game the eventual end of the US Dollar as the world’s single reserve currency.
 
For now China is more than happy to see weak gold prices and is unlikely to harm its gold accumulation agenda by updating its official reserve holdings. But if it did, that would make investors think twice about selling the gold they already own and increase demand for more, which would lead to a higher gold price. A shortage could push gold to $1500 per ounce without excessive inflation or fiat currency debasement. It would also underpin a new bull market in the juniors, especially if the American economy is back on track and the dominant gold narrative is no longer one that just promises higher gold prices without enhanced mining profitably.
 
TMR: We’ve talked before about the fact that during this downturn, a lot of companies were going to either disappear or be reduced to walking dead on the Toronto Stock Exchange and the TSX Venture Exchange. Is one of the bright spots of the market today that it’s easier to tell the good companies from the bad?
 
John Kaiser: Yes and no. Just under 600 companies out of 1,700 have more than $500,000 working capital and aren’t in the big mining company league. Some 300 have between $0 and $500,000 working capital, and about 700 have negative working capital of about $2B. The negative working capital ones are pretty much dead in the water because no one wants to give them real money to replace money that’s already been spent. You may find a few companies among them with interesting stories that are worth salvaging. But most of the indebted companies are going to wither away and disappear.
 
That leaves about 900 companies with potential to survive. Among those, I gravitate toward the ones that have real management teams – technical personnel who know something about exploration – and projects with a story indicating that the brains of management are actually at work and that they are not just going through the motions of pretending to explore. Some companies are sitting on piles of money where management is collecting big salaries but because they have large shareholders who are treating the company simply as a keg of dry power for extremely bad times, they do not have the go-ahead to do anything along the lines of serious exploration that would risk the capital but also put the company in a position to deliver a substantial reward. One also has to be careful about those companies because they represent opportunity cost.
 
But, in general, it is now easier to see companies that are doing something and distinguish those from the rest because the inability to finance and the poor financial condition of most of the resource juniors make it very clear that they have nothing and are doing nothing. There is no reason to invest even a penny in such zombie companies.
 
TMR: Thank you for your time.
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Oct 07

Gold Mining Costs "Led by Prices", Not the Reverse

Gold Price Comments Off on Gold Mining Costs "Led by Prices", Not the Reverse
Gold mining doesn’t put floor under prices, says study. Vice versa in fact…
 

GOLD MINING costs respond to changes in market price, according to a new study, rather than acting to support or push prices higher as commonly assumed.
 
“The gold price should and does cause changes in the cost of extraction,” says a summary published today in the London Bullion Market Association’s quarterly magazine, The Alchemist.
 
Writing jointly with Fergal O’Connor – senior lecturer at York’s St.John Business School in England – and data consultancy Thomson Reuters GFMS’s director of precious metals mining research William Tankard, “The theoretical and empirical evidence points to the fact that gold prices are a determinant of producers’ cash costs,” says Professor Brian Lucey of Trinity College Dublin.
 
Firstly any rise in market prices will encourage output from otherwise loss-making projects, note the authors, which will raise the industry’s average output cost per ounce. Secondly, annual mine supply (around 3,100 tonnes in 2014) is only a fraction of the amount already above ground (estimated at 180,000 tonnes). So the mining industry lacks the pricing power needed to impose higher costs to buyers, as scrap supplies from existing holders can easily reach market.
 
This claim challenges the widely-held view that gold mining costs should act as a floor for the gold price in the medium to long term – a view argued by fellow academics Eric Levin and Robert Wright, then respectively at the universities of Glasgow and Strathclyde in Scotland, in a 2006 paper for market-development organization the World Gold Council.
 
“The long-run price of gold is related to the marginal cost of extraction,” wrote Levin and Wright, whose broader claim – that gold has a close relationship with the rate of inflation in the wider economy – was based in part on the idea that inflation is transmitted to gold prices through rising production costs.
 
More recently, commodities analysts at investment bank Goldman Sachs said this summer that a likely drop to $1050 in world gold prices by end-2014 will prove “generally short-lived”. Because 90% of the world’s current mine output would be unprofitable on an all-in costs basis at that price, Goldman’s team peg $1200 per ounce as “a good estimate of the floor for gold”.
 
But looking at direct mining costs – known as “cash costs” in the mining industry – the new claim from Lucey, O’Connor and Tankard is that global averages track market prices, rather than the other way round. The same finding was “confirmed in the vast majority” of national-level gold mining data too, and “also using total production costs.” 
 
The accounting methodology behind “all in sustaining costs” – agreed and applied by the World Gold Council’s gold-mining members in mid-2013 – includes new exploration, capital expenditure and corporate running costs, as well as the direct production cost of each ounce.
 
Debate over the variability and comparability of such figures continues, but it’s the cost of developing economically sustainable mines, analysts argue, which explain why the last decade’s surging gold price failed to deliver stronger profits for the major gold miners.
 
All due to report third-quarter earnings at the end of October, the world’s top three gold miners – Barrick (NYSE:ABX), Newmont (NYSE:NEM) and Goldcorp (NYSE:GG) – last reported all-in sustaining costs of $865 per ounce (down 5% from mid-2013), $1063 (down 17%) and $1060 (down 19%) respectively.
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Oct 07

Gold & Silver: The Final Breakdown?

Gold Price Comments Off on Gold & Silver: The Final Breakdown?
Gold and silver prices have hit mining-stock investors with historic bear markets…
 

GOLD broke below $1200 in what should begin the final breakdown, writes Jordan Roy-Byrne at TheDailyGold.
 
In weekly and monthly terms $1200 was the remaining support. Sure gold prices could bounce from $1180, but this breakdown [Friday 3 October] is more significant. Both metals are now in breakdown mode while the mining stocks continue to slide.
 
There is more downside ahead and bulls should continue to stand aside before a favorable buying opportunity emerges.
 
The monthly chart of gold and silver is below. We know that silver has already broken down. It peaked before gold and could bottom first. Silver’s next major monthly support is $15. Gold’s next monthly support is below $1100. The 50% retracement is at $1080 and more support lies at $1040.
 
 
Those downside targets fit well with the bear analog charts. In this gold specific chart we removed the two extreme bears. We can see how the current bear compares to three other bears.
 
 
The bear analog chart for silver suggests its current bear market will end first and is very close to ending. In price terms this is now the second worst bear market ever for Silver. In terms of time it is close to being the third worst bear ever.
 
 
Turning to the miners, the HUI Gold Bugs Index is trading at 190 as we pen this [Fri 3 Oct]. The weekly line chart shows 168 as very strong multi-year support. That is about 12% downside from current prices.
 
 
GDXJ (not shown) has been the strongest of the mining indices. It was the last to break its May low. It has 9% downside to its December low. GDXJ was down 82% at that low. Any breakdown to a new low is very likely to be a false breakdown given the current age and severity of the bear market.
 
We were bullish most of 2014 but quickly changed our tune as the evidence shifted. In our most recent editorial we noted the downside risk but the eventual shift from risk to an amazing opportunity. These charts are a few of the tools we can use to potentially identify the start of that amazing opportunity.
 
For now, gold and silver continue to have more downside until very strong support targets. The same goes for the mining stocks. I see a potential lifetime buying opportunity in the weeks and months ahead.
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Sep 28

Cash Starved Mining Stocks Go Bang

Gold Price Comments Off on Cash Starved Mining Stocks Go Bang
Tough times for Australian miners are not letting up…
 

RICHARD KARN is managing editor of the Emerging Trends Report.
 
Speaking here to The Gold Report, he notes how nearly 150 mining companies listed on the Australian Stock Exchange went into bankruptcy during the fiscal year that ended June 30, and another 23 have gone under since then. Now Karn believes a fresh wave of Aussie mining stock failures will hit when the current financial quarter ends September 30. A major shakeout at some point appears likely…
 
The Gold Report: When we interviewed you in April, you said the pending demise of zombie companies on the Australian Stock Exchange (ASX) was a good thing because there were too many deadbeats in the specialty metal sector. Has that process worked its way through the system or are there still some “walking dead” making it difficult for investors to pick out the promising companies?
 
Richard Karn: Unfortunately, the latter is still the case. According to the Australian Securities & Investment Commission (ASIC), 146 companies in the mining sector went into administration (bankruptcy) during the fiscal year ending June 30, 2014. As Luke Smith pointed out last month in your publication, yet another 226 resource companies did not have sufficient cash to meet their anticipated expenditures for this quarter.
 
Since then another 23 resource companies have failed, and as of Aug. 25, 2014, 17 more had not paid their listing fees and were suspended from trading on the ASX.
 
So no, we do not think the process is over.
 
TGR: How are companies accessing capital today?
 
Richard Karn: By and large, they’re not. We’ve been picking up on some positive activity in the base and precious metal sectors, but that mostly has yet to trickle through to the specialty metal sector.
 
In the case of specialty metal companies, most are unable to raise money either from the capital markets or from their shareholders. Failed or abysmal uptake of rights issues and the like continue to be common. Many companies are literally being starved of cash.
 
TGR: Can companies sell some of their assets to cover costs on other projects?
 
Richard Karn: Asset sales are difficult in the current environment because so many companies are now so desperate to sell that it has become a buyers’ market. That being said, the Chinese have been stepping in to snap up the occasional bargain.
 
TGR: If companies have no more options, how long can they keep the lights on?
 
Richard Karn: Not long. The end of the quarter is September 30, and companies will have to disclose their financial situations. We expect a fresh wave of failures within the next six to eight weeks as more resource companies become insolvent.
 
We don’t know what the catalyst will be, but for some time we’ve been expecting a final selling frenzy that will mark at least an intermediate-term bottom in the specialty metal sector.
 
Some assets are so mispriced that the market appears to be pricing in failure well before the fact. In fact, so sure is the market that a number of these companies will fail that they are trading for less than the cash they have on hand, literally placing no value whatsoever on their resource projects.
 
Final washouts often occur when markets are oversold, and the specialty metal sector remains oversold. The spark for the selloff could be another failed rights issue or poor uptake on an option scheme, either of which would reflect a fundamental lack of confidence in management.
 
It could be some unknown – perhaps an otherwise meaningless threshold event – that “spooks the herd,” and shareholders just start selling everything indiscriminately to ensure they recover some of the money they’ve invested.
 
It could be that it finally dawns on investors that a number of these junior resource companies hold a lot of each other’s stock, which they are carrying on their balance sheets at par as a liquid asset when in actuality those shares are so illiquid they could not be sold except at a steep discount – and could well crash the share price in any case.
 
As I said, we do not know what will spark the selloff – just that it is coming.
 
And when the selling has been exhausted, it will constitute at least an intermediate bottom in the specialty metal sector.
 
In the final shakeout, we are anticipating a number of mismanaged companies will deservedly go under – as, unfortunately, will some quite good companies – and some very good projects will be picked up very inexpensively.
 
And being able to pick up outstanding assets for very little money always marks the bottom of the cycle, because it increases the odds of success as the cycle turns up again.
 
TGR: What characteristics should investors look for to avoid these doomed ventures?
 
Richard Karn: At the moment I would avoid small-cap specialty metal companies that are carrying any debt, especially if they are not cash-flow positive. If or when their ability to service that debt is called into question, it will likely be too late to get out.
 
In addition to reading financial statements to get a grasp of their financial situations and those circumstances just mentioned, I would look at what managements are actively doing to help their long-suffering shareholders.
 
For example, have they reduced staff, cut expenditures and taken a cut in salary themselves or are they still maintaining a “resource boom” lifestyle at their shareholders’ expense?
 
Most important, I would look for either positive cash flow from operations or sufficient cash on hand to sustain operations through to some pivotal event the market has been waiting for, such as commencing production, receiving project funding, permits or approvals, or receiving the results of a bankable feasibility study, etc. – something that will demonstrate management is delivering on its promises.
 
TGR: Could the recent repeal of the mining tax in Australia help all of these companies, or will it only impact large operators?
 
Richard Karn: The Minerals Resource Rent Tax (MRRT) did not apply to the specialty metal end of the resource sector in Australia, so its repeal will have little direct impact on these companies.
 
Indirectly, however, repealing the tax serves returns Australia to the ranks of the safest, most mining-friendly jurisdictions in the world, and at some point that will indeed lead to increased investment flows into the specialty metal sector.
 
What markets fail to fully appreciate is that many, and arguably most, of the technological advances we enjoy today, whether found in consumer electronics or transportation or renewable energy sources or military hardware, rely on secure, uninterrupted supply of a range of specialty metals.
 
With military conflict raging across the Middle East and North Africa; a full-fledged arms race between the countries with claims to the South China Sea, notably China and Japan; and the numerous potential conflicts brewing throughout the world, now more than ever secure supply of these specialty metals should be a very high priority. Should a war erupt, common sense, as well as history, dictates the first victims will be the very notion of globalization, free market economics and “just in time” delivery.
 
If it were in China’s strategic interests to stop exporting rare earth elements or tungsten or antimony or graphite, to name just a few of the specialty metal markets China controls, all of which are crucial to a range of military applications, there is absolutely nothing anyone could do about it.
 
Of the 50 specialty metals we track, more than 40 could be mined economically in Australia alone, thanks to its unique geology.
 
We’ve been writing about this trend for more than six years now, but except for a relatively brief period from mid-2010 through late 2011, in the panicked response to China cutting off supply of REEs to Japan, the aftermath of the global financial crisis has squelched the market’s appetite for mining projects in general and specialty metal projects in particular. They require the long-term commitment of capital and a sustained effort to put into profitable production.
 
The flood of liquidity sloshing around the planet since 2008 in search of a return appears to have such a short investment horizon that mining projects are largely off the radar.
 
So nothing has been done. There’s been a lot of talk, a lot of bureaucratic posturing and comic sputtering as World Trade Organization complaints are ignored or unfair business practices perpetuated, but nothing has been done. And the longer this continues, the more vulnerable the West becomes.
 
The specialty metal price spike the West suffered in 2010-2011 in panicked response to the Chinese curtailing exports of REEs will be nothing compared to what a “shooting war” would provoke.
 
Thinking otherwise is the height of naiveté.
 
TGR: Thank you for your insights.
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Sep 24

And the Rain It Raineth…

Gold Price Comments Off on And the Rain It Raineth…
Climate change is a divisive topic. But nothing like how it will divide investors from their money…
 

The RAIN poured at a rate of one inch an hour, writes Addison Wiggin in The Daily Reckoning.
 
By the time dawn broke, five inches had fallen. Much of the water had nowhere to go. Basements were flooded for miles around.
 
What happened in the Chicago area on April 18, 2013, was no ordinary downpour: It was the leading edge of a financial storm front that will alter the flow of billions of Dollars in the years to come. Your assets need to seek shelter…and today we’ll show you exactly where that shelter is.
 
Beware, dear reader: We are tiptoeing around the edges of “global warming”.
 
We’re not taking a stand about whether global warming is occurring, or whether human activity is causing it. Rather, we’re approaching the topic with a quote attributed to Trotsky in the back of our mind: “You might not be interested in war, but war is interested in you.”
 
To be sure, global warming is interested in you – or, more precisely, the widespread belief in global warming by movers and shakers.
 
For starters, imagine a “climate change surcharge” tacked onto your sewer bill.
 
Wealthy elites are already shifting money flows based on a belief in global warming.
 
One year after the metro Chicago floods, Farmers Insurance Group filed an unprecedented lawsuit against 200 local governments. The lawsuit’s premise? Farmers incurred losses because the cities failed to expand their sewers and stormwater drains…and the cities should have known better because climate change had been making Chicago-area rainstorms more frequent, more intense and longer lasting since the 1970s.
 
For real.
 
In the end, Farmers backed off the suit. Legal experts said it didn’t have a prayer: Governments are usually immune from this sort of litigation, dontcha know.
 
“We hoped that by filing this lawsuit,” said a Farmers spokesman, “we would encourage cities and counties to take preventative steps to reduce the risk of harm in the future.” Farmers says it is satisfied this has now taken place.
 
Still, the suit is “the first loud shot in what I think will be a long-term set of litigation battles over failure to prepare for climate change,” says Michael Gerrard, director of the Center for Climate Change Law at Columbia University. Governments may be immune…but private companies are not. “One could easily imagine architects and engineers being accused of professional malpractice for designing structures that don’t withstand foreseeable climate-related events,” Gerrard tells NBC News.
 
The world’s wealthy will become interested in global warming when it starts costing them money, says the celebrity astrophysicist Neil deGrasse Tyson.
 
“The evidence will show up when they need more evidence,” Tyson told MSNBC in June. “More storms, more coastlines getting lost. People beginning to lose their wealth. People, if they begin to lose their wealth, they change their mind real fast, I’ve found – particularly in a capitalist culture.”
 
Tyson is behind the curve. Wealthy elites are already shifting money flows based on a belief in global warming.
 
“Global warming will be the most important investment issue for the foreseeable future,” wrote celebrity asset manager Jeremy Grantham in 2010.
 
In early 2014, The New York Times reported Coca-Cola “has embraced the idea of climate change as an economically disruptive force” that’s limiting access to the water it needs for its beverages. What’s more, “Coke reflects a growing view among American business leaders and mainstream economists who see global warming as a force that contributes to lower gross domestic products, higher food and commodity costs, broken supply chains and increased financial risk.”
 
But it’s not all grim: “I met hundreds of people who thought climate change would make them rich,” writes journalist McKenzie Funk in his 2014 book Windfall: The Booming Business of Global Warming. Funk traveled to 24 countries over six years.
 
Along the way, he met people who expected to profit from drought – like Avraham Ophir, a Holocaust survivor who founded the firm Israel Desalination Enterprises. Its reverse-osmosis techniques can produce snow in warm climates. Thanks to Ophir’s firm, the slopes at the Winter Olympics in Russia this year had a steady supply of fresh powder despite temperatures approaching 50 degrees Fahrenheit.
 
Funk also met people who expect to profit from rising sea levels – like Koen Olthuis, a Dutch architect who’s used his country’s extensive experience with seawalls to develop solutions for island nations that might be threatened with inundation, like the Maldives in the Indian Ocean. Still other entrepreneurs are cooking up solutions to prevent another Hurricane Sandy from doing a number on New York City.
 
And he met people who expect to profit from melting polar ice – like Mininnguaq Kleist, who runs Greenland’s department of foreign affairs. With the ice cap melting, he’s looking for ways Greenland’s population of 57,000 can prosper from fossil fuels and minerals that were previously inaccessible.
 
“Hot places will get hotter. Wet places will get wetter. Ice will simply melt,” writes Funk.
 
Even the aforementioned Farmers Insurance makes an appearance in his book, based on the first of those three assumptions. Farmers has contracted with a private firm called Firebreak Spray Systems. Its co-founder Jim Aamodt made a name for himself developing the automatic sprayers in the produce section of the grocery store. His next big thing was a way to coat houses with a chemical retardant offering eight months of fire protection.
 
Firebreak swings into action in Southern California hot spots, spraying down Farmers-insured homes even as wildfires bear down on the neighborhood. It’s a throwback of sorts to 17th-century London, when insurance companies were the ones offering fire protection, not governments.
 
So there’s no shortage of money flowing because people believe in global warming. Alas, for you, the retail investor, catching some of those flows for your own portfolio can be a dicey proposition.
 
Funk opens his book with “The Investment Climate Is Changing” – a lavish dog and pony show put on by Deutsche Bank replicating Amazon jungle on Wall Street when it was 39 degrees outside. It was the launch event for the DWS Climate Change Fund, trading under the symbol WRMAX.
 
Missing from Funk’s book is the follow-up: The fund had the ill fortune of debuting in September 2007. The broad stock market topped a month later, and then came the Panic of 2008.
 
Unlike the broad market, WRMAX never came back. A new manager arrived in 2011 and the fund was spiffed up with a new name – DWS Clean Technology Fund. No matter: In October 2012, Deutsche Bank pulled the plug.
 
Hmmm…Surely, there’s something you could do to take advantage of this trend, no?
 
After all, “the impact is across many industries,” writes our friend Barry Ritholtz, money manager, blogger extraordinaire and author of Bailout Nation. (It was Barry who planted the seed in our head for this essay. Understand he is an unabashed believer in global warming caused by human activity. Again, we’re taking a strictly apolitical follow-the-money approach, but if you’re still offended, write him a nasty email. He’ll be sure to delete it before going out to engage in his carbon-spewing hobbies of high-end sports cars and boats. Heh…)
 
The investing implications, he says, “go far beyond energy, to include agriculture, insurance, transportation, construction, recreation, real estate, energy exploration, food production, health care, minerals and even finance.” Among the possibilities he urges us to consider…
  • “Insurers stand to make larger payouts because of more severe weather and more frequent natural disasters. However, this will inevitably lead to appreciably higher insurance premiums and potentially rising profits
  • “The travel and hotel industry is facing specific challenges. Ski resorts that were in prime snow-making areas may find themselves no longer ideally located; warm weather destinations boasting access to reefs for snorkeling and scuba diving have troubles as reefs die out
  • “Energy exploration and mining is about to get a huge boost as formerly inaccessible Arctic regions are soon to have huge untapped resources exposed. Shipping across formerly unnavigable seas could alter transportation costs and ship designs
  • “Agriculture is turning to genetically modified crops to create drought-resistant and heat-tolerant varieties. Disease-carrying insects are now traveling farther north, creating a potential health care problem.
“Farmland, oil and mineral exploration rights, timber and water are the commodities of the future,” declares Mr. Ritholtz.
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