Wednesday, January 5, 2011

Is the World’s Richest Man Getting Into Silver?

A source in mergers and acquisitions out of Europe has alerted King World News that Carlos Slim may be looking to enter the silver market in a big way. Gold and silver are in big bull markets and this is attracting the attention of some of the smartest money around the globe. James Turk commented, “If this deal does happen Eric, this is going to make the silver shorts choke.” Fresnillo has a current market cap of roughly $19 billion.

The European source commented, “This deal has been floating around for a while, but I think this time it is going to happen. It’s in his backyard. This is the world’s richest man wanting to get into silver.”

I view this as the only way for the richest man in the world to enter the silver market at this point in terms of any scale, is that your take as well?

“Yes, I agree with that. Let me just add that when he buys into it (Fresnillo) he will have the leverage to silver he is looking for. There are very few ways to get into silver with the amount of money he has, this is the most likely option at this point. He has to pay a hefty price or otherwise the deal will not happen. It is beginning to look like the longer he waits, the more he will have to pay. It is a bull market and things to tend to get more expensive, not less.” (more)

2 Standout Companies Among Junior Rare Earth Miners (MCP, LYNAS)

After Molycorp (MCP) and Lynas (LYSCF.PK) go into production in the next two years as the only major rare earth miners outside of China, there remains a slew of junior rare earth mining stocks with projects in the pipeline. Many of these junior miners have seen price appreciation far greater than that seen by Molycorp and Lynas in the second half of 2010.

When we look at junior mining companies, a major milestone is the 43-101 filing in Canada or the equivalent filing in Australia. The 43-101 filing is a Canadian filing where the firms present the data on the deposit in question and other data establishing whether a resource qualifies as indicated, inferred, and also comment on the economics of the deposit. Mining projects need this filing in order to move forward in the development process to scoping studies, pre-feasibility, feasibility, permitting, etc. We are not geologists so we will not pretend to be experts, but we have figured out that any deposit that is anywhere but at the beginning of the mine development process (a process that takes 10 years usually) has a 43-101 filing.

The following junior rare earth mining companies have a 43-101 compliant deposit (not including Molycorp and Lynas as they are already on path to production in next two years so they are not considered junior miners by us): (more)

National Debt Reaches $14 Trillion

If it weren’t so difficult for humans to grasp how big a number a trillion dollars is, the reaction to the national debt reaching 14 times that amount the other day might be a bit more vocal. But it is, so it’s not. Along with a host of other large and disturbing numbers, here’s the new look of the national debt total from

We’ve now added $4 trillion in a little over two years, the last trillion taking about seven months to accumulate. The move from $10 trillion to $11 trillion during the peak of the financial crisis in late-2008 and early-2009 took only about four months, so, by that measure, things are improving.

How the Fed Could Become Insolvent

By Terry Coxon, Editor, The Casey Report

You’ve seen the proof in real time. Once-dominant industrial companies, e.g., General Motors, can run out of money. The biggest banks, e.g., Bank of America, can run out of money. Even sovereign governments, e.g., Greece, can run out of money. Yes, all those organizations are still limping along, but only after being rescued by other giant institutions, such as the U.S. government, the less unhealthy European governments, the European Central Bank, and the International Monetary Fund.

So far, it’s been easy to get rescued. The people who run giant institutions seem to shudder at the thought of other giant institutions being shown up as anything less than indestructible. Of course, the rescues weaken the rescuers and push them toward the day when they, too, may join the ranks of the desperate.

By now it’s clear that neither big, Bigger, nor BIGGEST implies unlimited resources. But how about central banks? In a world of fiat money, a central bank can always print more of its own currency. So unless it takes on debt or other obligations denominated in something other than its own currency, it’s impossible for a central bank to become formally insolvent. Nonetheless, it can become functionally insolvent, void of any ability to command resources or influence markets. That’s what happened in Zimbabwe, with a hyperinflation.

As of today, we’re nowhere near such a catastrophe. But there is another way, long before hyperinflation destroys its currency, for a central bank to become functionally insolvent. It’s a trap into which our own Federal Reserve System has already stuck its foot and now seems to be getting ready to stick its neck. (more)

IEA World Oil Supply Report from December 2010

Global oil product demand is revised up by 130 kb/d to 87.4 mb/d in 2010, and by 260 kb/d to 88.8 mb/d in 2011, on stronger data from OECD North America and non‐OECD Asia. Growth in 2010 (+2.5 mb/d y‐o‐y) is largely driven by buoyant gasoil demand, notably in 3Q10, but expansion should slow to +1.3 mb/d in 2011 as temporarily supportive factors fade.

Global oil supply rose by 0.4 mb/d to 88.1 mb/d in November, largely due to increased non‐OPEC production, notably from Canada, Kazakhstan and Brazil. Non‐OPEC supply now averages 52.8 mb/d in 2010 and 53.4 mb/d in 2011, representing growth of 1.1 mb/d and 0.6 mb/d, respectively. OPEC NGLs output is seen averaging 5.3 mb/d this year and 5.8 mb/d in 2011. (more)

10 Stocks That Could Double in 2011

Given the substantial move of equities over the past two years, traders will likely become more selective in 2011 and focus on those companies that can grow significantly faster than the rest of the market. While there are a multitude of names poised to show strong growth in 2011, many have already seen their stocks move 300-400% over the past 18 months. APKT, FFIV, NFLX and RVBD are some examples, to name a few. As such, we have chosen to focus on ten companies poised for outsized growth, all of which could potentially double over the next year. Admittedly, the stocks of these companies have all recently doubled in the past few months. But it is important to keep in mind that a stock must first rise 100% before it is able to extend its move to 300-400%. As trend-traders, our goal is to be positioned for the next 100% move higher in some of these names. While the reality is they will not all go on to become big winners, if we are right about just two or three of these names, we will be off to a very good start in 2011. Here is our list:

Axcelis Technologies Inc. (ACLS): To understand our bullishness on semi-equipment maker, Axcelis, look no further than the company’s business model. As gross margins scale to the 41% level next year, new investors should warm further to the company’s shares as they realize the tremendous earnings leverage that will be achieved with these margins. Currently, estimates for 2011 call for ACLS to earn $0.24 a share on $368M in revenues. 2012 estimates have recently been increased to $0.50 on $407 Million in revenues. Based on the company’s 1.5 book-to-bill ratio last quarter and a spate of recently announced orders the past few months, we feel ACLS could report 2012’s estimates by next year alone. If all goes right, peak cycle estimates for 2012 could eventually trend toward $475M in revenues and $0.65 in earnings. Add in the $0.50 in cash on its balance sheet to the peak earnings potential of $0.65, and place a 10 P/E multiple on these numbers, you get a double by the end of next year. We remain buyers of ACLS on pullbacks to $3.30-$3.40. (more)

Flooding in Australia will cause coal prices to spike at least 20 percent

Rising coal prices are set to spike at least 20 per cent higher because of supply shortages due to severe flooding in Australia, adding cost pressures to the steel industry that could ripple widely through the economy.

Some industry watchers believe the effects of the supply squeeze will be felt through this year and into 2012, though analysts and officials in the coal and steel-making business say the toll cannot be precisely quantified yet, with mines in Australia still under water.

Australia supplies about half of the metallurgical coal used in steel making. The severe supply disruption has been a boon for Canadian producers. Shares of three major Canadian coal companies hit all-time highs on Tuesday on the Toronto Stock Exchange, led by Teck (TCK.B-T62.841.051.70%) which rose 1.7 per cent and has more than doubled in the past half year. Western Coal (WTN-T12.570.272.20%) rose 2.2 per cent and Grande Cache (GCE-T10.990.524.97%) climbed 5 per cent.

Spot prices for metallurgical coal – also known as coking coal – have risen to about $250 (U.S.) a tonne, up from current negotiated contract prices of about $225. Several analysts on Tuesday said the price could reach or surpass $300, the level to which the price spiked in 2008 during the commodity frenzy of that year and similar flooding in Australia. (more)

Jay Taylor: Turning Hard Times Into Good times

click here for audio

Mining Top 25 for 2011

The Caesars Report Mining Top 25 for 2011 is composed entirely out of mining shares we believe will be the best performing stocks in their sector this year. Our aim is to outperform the markets, through picking undervalued shares with an acceptable risk/reward ratio.

Part 1 Part 2 Part 3

Ian Gordon: Bundle Up for Bitter Kondratieff Winter

The Gold Report: In the 11 years that you've been investing in gold juniors, you've recorded an annual rate of return of approximately 70%. Going back to 2000, most brokers and money managers likely would've categorized your investment strategy as very risky. However, you've stated that you always felt it's been very safe because you understand the Kondratieff Cycle. What about the Cycle gave you the confidence to go long on gold and gold juniors?

Ian Gordon: I knew that the big bull markets in stocks always occur in the autumn of the cycle; and in 1999, I was confident that the autumn bull market that started in 1982 was coming to an end due to the massive ongoing speculation, particularly in the stocks. A new issue was coming to the market every day and once it did, the price rose two to three times on the first day of issue. That kind of speculation, and the fact that some things should never have even been allowed to come to the market, indicated to me that we were coming to the end of the big autumn bull market—sort of like the frenzied days in the summer of 1929.

When such big bull markets end—as it did in January 2000 for the Dow and March 2000 for the NASDAQ—it's a signal that you're going into the Kondratieff Winter period. This is the time when debt is wrung out of the economy, essentially. Knowing that, and knowing what happened following the '29 autumn stock market peak that signaled the onset of winter, I knew the end of the big bull market would be extremely bullish for gold just as it was following the 1929 stock market peak. (more)

A Chinese state newspaper just guaranteed gold will go higher

China should buy more gold to diversify its foreign exchange reserves, International Business Daily, a newspaper affiliated with the Ministry of Commerce, reported.

China should increase its gold holdings if the country aspires to "internationalize" its currency, the paper said on its website, citing Meng Qingfa, a researcher at the China Chamber of International Commerce. The 1,054 metric tons of gold reserves are inadequate, compared with the 8,133 tons held by the U.S. and 3,408 tons by Germany, he was cited as saying.

China has $2.6 trillion of foreign-exchange reserves, mostly in dollar assets, Meng said. Such holdings will put China at a disadvantage when the U.S. dollar depreciates, as is inevitable amid a worsening U.S. debt problem, he said.

China and India will continue to drive demand for gold jewelry going into the fourth quarter, Bank of China International Holdings Ltd. said in a report on Sept. 27.

India enters a peak season for weddings and the Diwali festival in October-November and Chinese people typically increase their purchases of gold before the Lunar New Year.

Gold demand in China, the world's largest producer, already gained in the first half of this year as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7.

Gold climbed to a record $1,387.35 an ounce on Oct. 14 as investors sought to protect their wealth amid concerns about the global economic recovery, and is headed for a 10th consecutive annual increase.

Sales of gold products such as bars and coins by China National Gold Group Corp., owner of the country's largest deposit of the metal, jumped as much as 40 percent in the first half, Song Quanli, deputy party secretary at the company, said July 7.

Gold Output

China's gold output may rise to 340 tons this year, from 314 tons last year, solidifying the nation's position as the world's largest producer, Zhang Fengkui, section chief of the raw materials department at the Ministry of Industry and Information Technology, said on Oct. 16.

To increase physical gold supply, the central bank also said on Aug. 4 that it will "increase the number of commercial banks who are qualified to import and export gold, based on the market demand situation." The central bank also said it will support overseas investment plans by "large-scale" bullion companies by backing them financially.

Still, the State Administration of Foreign Exchange, which manages the nation's reserves, said in July that U.S. government debt has the benefits of "relatively good" safety, liquidity, low trading costs and market capacity.

Gold is unlikely to become a major holding in China's foreign reserves because of the metal's big price swings and lack of interest payments, SAFE said then.

Crude, Copper Plunge After Big Holiday Rally

Commodities crumbled Tuesday, falling by their most in eight weeks as energy, metals and agricultural investors unwound much of the heady gains made on thin holiday volume over the past two weeks.

The Reuters-Jefferies CRB index dropped 2 percent in its sharpest one-day fall since mid-November after investors and traders worldwide returned to work from holidays to find many markets had run up to their highest in two years or more.

Crude oil fell more than 2 percent on Tuesday while soybeans dipped almost 1 percent, both having hit their highest since mid-2008 in recent days. Soft commodities fell harder, with cocoa down more than 3 percent.

Copper fell 2 percent in New York, its sharpest drop since Dec. 15, after having hit a succession of record highs as traders figured the constrained supply and a lack of substitutes made it one of the top picks for 2011.

Activity across all markets picked up dramatically as traders returned from holiday, with volume at mid-session already in excess of any day over the past two weeks. (more)