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Wednesday, July 7, 2010
Frazier: Ignore the 'Experts,' Stocks Poised to Plunge
By: Dan Weil
The weak economy will push U.S. stocks lower — perhaps substantially lower — in the weeks ahead, says David Frazier, editor of Newsmax newsletter The ETF Strategist.Aggressive investors can take advantage of this move by purchasing inverse equity ETFs (exchange-traded funds), he told Newsmax.TV Money. These are funds whose share prices rise as stocks fall.
Conservative investors, meanwhile, should shift their holdings to cash, Frazier says. (more)
Gold May Weaken to $1,160, Then $1,309: Charts
By: Daryl Guppy
CNBC Contributor
CNBC Contributor
The debate over where gold prices are headed has been a active one, with the bulls maintaining that fears of a slowing global economy will keep demand for the safe-haven investment strong; while the bears argue that the current price of gold, which has limited industrial use, is unsustainable in the long term.
From a chartist perspective, we're looking expecting a bullish scenario in the long term, but not without some selling pressure in the short term.
The daily comex gold chart shows three significant patterns. The first pattern is the parabolic trend seen from October to December in 2009. The rapid rises were unsustainable, and the move to the right of the parabolic trend line led to a sudden and severe collapse, causing the price to lose 13% very quickly. (more)
Exeter: "Upside potential measured in a several fold return or better"
In a jittery stock market, the only gold stocks that investors should own are companies that really do have the goods.This is the consensus view among various gold investment industry commentators and analysts.
In particular, ‘advanced stage’ gold development stocks offer the best bets for speculative investors, argues Al Korelin. He is the publisher of the Korelin Economics Report, a longstanding radio show that covers politics and business news, with a particular focus on the mining investment sector. By definition, advanced stage gold companies have sufficiently defined deposits to clearly demonstrate the size and potential viability of their deposits.
“Just like gold producer stocks, development stocks are also a pretty safe bet in this market,” Korelin says. “Right now I’m most comfortable with companies that are exploring to enlarge an existing asset, as opposed to the ones that are exploring to find an asset.”
Better still are companies that have sizeable enough gold assets to be takeover targets for mid to large sized gold producers, he adds. Especially as the world’s biggest, deep-pocketed gold miners are scrambling to replenish dwindling inventories. And the easiest way to do that is to gobble up much smaller would-be producers that own sizeable gold projects.
“A particularly good example that’s a pretty safe bet is a company that has a significant discovery like Exeter Resource” Korelin says.
Exeter Resource Corp. (TSX: T.XRC) (NYSE-A: XRA) is advancing the Caspiche gold-copper discovery in northern Chile’s prolific Maricunga gold belt (where over 100 million gold ounces are defined). This veritable monster, which is still growing in size through new drilling, already weighs-in at 24.3million ounces gold, making it the second largest of its kind in Latin America.
Only the nearby Cerro Casale gold mine in-the-making edges Caspiche in size. Jointly owned by global gold mining powerhouses, Barrick Gold (TSX: T.ABX) (NYSE: ABX) and Kinross Gold Corp. (TSX: T.K) (NYSE: KGC), it hosts 26.4 million ounces of gold.
‘The bigger the better’ is a sentiment that is also echoed by Marshall Berol and Malcolm Gissen, who manage the San Francisco-based Encompass Fund. This small mutual fund, which has a heavy weighting in mining equities, was ranked as the top performer in 2009 among 722 global equity funds that are tracked by Morningstar, a financial sector ratings agency.
“Every year, just to stay even from a revenue and cash flow standpoint, major mining companies need to acquire large undeveloped gold deposits with a lot of ounces in the ground to replace their mined-out reserves” Berol says. “And it’s increasingly difficult to find large gold discoveries. There really aren’t that many left anywhere in the world.”
“So the few junior mining companies that have made those larger discoveries are the ones that are going to be extremely attractive takeover targets for the large miners,” he adds. “One of those companies for example is Exeter Resource.”
“The company’s Caspiche project is an exceptional resource that sits right between one currently producing gold mine and another deposit that’s moving towards production, both of which are owned by major gold companies,” Berol adds. “So it seems to us that a logical progression is that some major gold producer is going to buy out either Exeter or the project.”
Banks Too Big to Fail, Too Big to Bail Out: Roubini
European governments face the quandary of being unable to afford to bail out banks that are still considered too big to fail, while the global economy is heading for a slowdown in the second half of the year, economist Nouriel Roubini of Roubini Global Economics told CNBC Tuesday.
Governments are running out of ways to counter a "massive slowdown" or the risk of a double-dip recession, Roubini said.
"A year ago we had all these policy bullets," he said. "We could push down rates to zero, we had (quantitative easing), we could do a budget deficit of 10 percent of GDP (or) backstop the financial system." (more)
Treasury run-up won't last forever
Financial markets can make you look really foolish, even if you thought your analysis was right, and still do. Today's humbling example: the best investment by far for the first half of this year has been the one that people like me have been warning against: long-term U.S. Treasury bonds.
I've also said (and said) that you have to protect yourself against a decline in the value of the dollar because our need to borrow huge amounts to cover trade and budget deficits is eroding the greenback's standing as the world's reserve currency.
But guess what? Even though it's been a crummy year for U.S. stocks, foreign stocks have performed considerably crummier. (more)Top 5 Graphs of the Week
In this edition we look at the PMI numbers for China, and the U.S., and review the results of the quarterly Tankan in Japan. We then look more closely at some of the other data points out of the U.S. last week; the Case-Shiller house price index, consumer confidence, and of course nonfarm payrolls.1. China PMI
China showed further signs of slowing down following the moves by the authorities to prevent asset bubbles. The official CFLP index registered at 52.1, down both against consensus estimates (Reuters) 53.1, and the May figure of 53.9. The HSBC index (which surveys 400 businesses, and is more weighted to smaller/privately owned businesses than the CFLP index) confirmed the direction; down to 50.4 vs 52.7 in May. So these figures potentially point to a slowdown in the manufacturing sector, but will the other sectors of the Chinese economy offset the slowdown? Will rising wages help lift consumption? The next big regular data release is due on the 15th of July, and will provide a timely update. (more)
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