Friday, August 31, 2012

Fed to Crash Markets Before Launching QE3 / By Dominique de Kevelioc de Bailleul / August 29, 2012

Desperate to print Wiemar-style to fight off the most viscous Kondratiev Winter on record, Federal Reserve Chairman Ben Bernanke may not satisfy ‘inflation trade’ onlookers at the close of his Jackson Hole speech scheduled Friday. He may, instead, merely allow months of anticipatory front-running of stocks do the work of propping up asset prices for him.

And if investors don’t get the ‘all-systems go’ at Jackson Hole, there’s always the FOMC meeting of Sept. 12 & 13 to get the good news. That’s when market volatility could move off the charts, maybe extreme volatility to the downside, according some Wall Street analysts.

“With the equity market pricing in a significant chance of QE3, stock prices are no longer as useful a signal to Fed officials. Should the Fed disappoint at its September policy meeting, the risk of a stock sell-off is high,” Bank of America Merrill Lynch analysts wrote in a note to clients, Aug. 21.

“Some in the markets think that the Fed effectively targets equity prices, meaning that to predict Fed policy, one merely needs to track the U.S. stock market,” the analysts add. “There is a curious circularity to this view, however: the Fed will not launch QE3 so long as stock prices are high, yet the stock market is high because it anticipates QE3.”

The old adage on the Street, ‘buy the rumor, sell the fact’, may be at play here. But if Bernanke plays too-hard-to-get with investors in the coming weeks, a nasty fall could be in store for the Fed chief—a fall that could outright overwhelm the NY Fed’s PPT and result in a stock market plunge akin to the Crash of 1987. Maybe.


Real Estate Turnaround?

by Greg Hunter
USA Watchdog

There was some good news released yesterday by the Standard & Poor’s/Case-Shiller home price index. Residential housing prices rose .5% year-over-year for the first time since June of 2010. In a press release, David M. Blitzer, Chairman of the Index Committee, said, “All 20 of the cities saw average home prices rise in June over May and all were by at least 1.0%. . . . We are aware that we are in the middle of a seasonal buying period, but the combined positive news coming from both monthly and annual rates of change in home prices bode well for the housing market.” (Click here for the complete Case-Shiller press report and release.)

Does a .5% increase (year-over-year) really “bode well for the housing market”? It has been widely reported the Federal Reserve has spent trillions of dollars suppressing interest rates. There’s been quantitative easing (money printing), “Operation Twist” and near 0% interest on a key Fed lending rate. A 30-year mortgage is hovering at or near historic lows–around 3.5%. This is all we got after all that? According to the latest Case-Shiller report, “As of June 2012, average home prices across the United States for the 10-City and 20-City Composites are back to their summer 2003 levels.” Home prices are back to where they were 10 years ago and this is good news?

Continue Reading at…

Agnico CEO Warns Gold To Hit $3,000 On Supply Concerns

from King World News

Today one of the top CEO’s in the world told King World News that going forward, “… we will see increasing central bank demand for gold.” He also warned, “We will (also) see reduced supply.” Sean Boyd, who is CEO of $8 billion Agnico Eagle, also discussed why the gold price is set up to frustrate the bears by nearly doubling from current levels.

Here is what Boyd had to say: “We are just looking at further stimulus, this time coming out of China, where they are looking to spend over one trillion dollars on stimulus projects to try to boost the economy. This takes us back to late 2008, when the powers that be were trying to sort out the financial crisis.”

Continue Reading at…

Is the End Near Mayan Discovery of Time: Martin Armstrong

Is the End Near

Mayan Discovery of Time

click here to read

Chart Of The Day: From Pervasive Cheap Credit To Hyperinflation

from Zero Hedge

The topic of the student loan bubble is not new: having crossed $1 trillion recently, student debt is now the biggest consumer debt category, greater even than US credit card debt. We have extensively discussed the implications of the parabolic curve representing outstanding student debt before, and it is no surprise that the issue of student loans has become of one of the key topics of debate in the ongoing presidential mudslinging campaign. As is also known, an increasing portion of student debt is funded by the government at an ever lower rate of interest: after all it is critical to allow the bubble to keep growing with as little interest expense diverting the stream of cash from the end borrower – wide eyed students who increasingly realize they are stuck with tens of thousands in loans and no jobs available to allow them to repay this debt, in effect making an entire generation debt slaves. Finally, as should be known, student debt is non-dischargeable, meaning once a person becomes indentured, they are so for life, and filing bankruptcy will do nothing to resolve debt claims against the individual. After all there is no other collateral by definition that can be confiscated by the creditor – the only thing the debtor “acquires” in exchange for this debt is a skillset, which sadly in the New Normal is increasingly redundant. But there has always been one question outstanding: just what does all this easily accessible and now pervasive student debt fund? The chart below, courtesy of Bloomberg, provides the answer: in the past 3 decades there has been no other cost that comes even remotely close to matching the near hyperinflationary surge in college tuition and costs.

Continue Reading at…

China’s Looming Inflation Problem

The economic climate in China is unsteady. Inflation, high last year, has settled, but another rise could spell trouble for the national economy.

And an unlikely market could be an indicator for a looming rise in inflation: hog sales.

Pork is the nation’s staple meat. It’s a huge part of the food market, and pork prices can have a large impact on food prices in general.

And right now, pork prices are set to jump.

A large amount of Chinese corn and soybean come from imports, and the U.S. produces a fair amount of these products. But this summer, a drought which has covered more than half of the United States has pushed up the price of these crops. Benchmark Chicago futures for corn and soybeans are at all-time highs.

And corn and soybeans are key ingredients in hog feed – putting pressure on hog farmers.

So some of these farmers are cutting down on their herd sizes, selling off their hogs in a move that will likely lead to a reduction in supplies and a jump in prices.


Commodities Index Building Strong Foundation

CRX is taking it’s time forming a bottom and it’s starting to really look like it’s laying a strong foundation of support. That should allow it to bounce off that $790-800 level and springboard higher in the fall. Watch the RSI trendline as it shouldn’t break that support and I would really want to see it pierce that 70 level and beyond to display superior relative strength.

VIX has completely worked off it’s oversold state and it is in a position where the markets could rally. Note has the SPX has basically moved sideways as VIX rose.

Thursday, August 30, 2012

Invest in What China Needs to Buy: Don Coxe

The Energy Report: You are famous for taking the long view of the political economy, Don. What does the machinery of history tell us about the likely future of the Western world as measured against the newly industrializing economies, including China, India and Brazil?

Don Coxe: For the first 17 centuries of the so-called Christian Era, China and India together generated about 40–50% of global gross domestic product (GDP), due to the sheer size of their populations. But when they did not participate in the Industrial Revolution, the relatively small number of people living in Europe and North America were able to take over 70% of global GDP. The East stagnated.

Then, in 1978, a momentous event changed the world—Deng Xiaoping was invited by the British Labor Party to visit Great Britain. Labor was facing an election against Margaret Thatcher, whom they regarded as the devil incarnate. The party wanted to show Deng how awful things were for the British working class. However, he was astounded at how well the working class lived. When he returned to China, Deng changed the slogan on the Mao posters from "to work is glorious" to "to be rich is glorious." It was the most important editorial alteration in the history of the world. Then, he put politics to work liberating the entrepreneurial spirit of the Chinese people. (more)

Goldcorp Inc. (NYSE: GG)

Goldcorp Inc. engages in the acquisition, development, exploration, and operation of precious metal properties. It primarily explores gold, silver, copper, lead, and zinc. The company's principal mining properties include Red Lake, Porcupine, and Musselwhite gold mines in Canada; Peñasquito gold/silver/lead/zinc mine, and Los Filos and El Sauzal gold mines in Mexico; Marlin gold/silver mine in Guatemala; Alumbrera gold/copper mine in Argentina; and Marigold and Wharf gold mines in the United States. Goldcorp Inc. was founded in 1954 and is headquartered in Vancouver, Canada.

Please take a look at the 1-year chart of GG (Goldcorp, Inc.) below with my added notations:

1-year chart of GG (Goldcorp, Inc.)

After trending lower for most of the year, GG has formed what appears to be a Double Bottom (red) price pattern. The pattern is as simple as it sounds: Bottoming, rallying up to a point, selling back off to a similar bottom, and then rallying back up again. As with any price pattern, a confirmation of the pattern is needed. GG would confirm the pattern by breaking up through the $41 resistance (navy) that has been created by the Double Bottom pattern.

Keep in mind that simple is usually better. Had I never pointed out the Double Bottom pattern, one would still think this stock is moving higher if it simply broke through the $41 resistance level. In short, whether you noticed the pattern or not, the trade would still be the same: On the break above the key $41 level.

The Tale of the Tape: GG seems to have formed a Double Bottom price pattern. A long trade could be entered on a break above the $41 resistance with a stop placed under that level.

Will Expert David Morgan Call the Bottom on the Metals Market Again? / By Chris Marchese / August 29, 2012

David Morgan, editor of The Morgan Report, expects gold to top $1,800/oz and silver to top $40/oz by the end of the year and both to take off from there. In this exclusive interview with The Gold Report, Morgan shares the logic behind his predictions and identifies several companies set to benefit from the end of the precious metal doldrums.

he Gold Report: What’s your current outlook on metals, the economy and the general market indexes?

David Morgan: My outlook is bullish on the metals both short and long term. I think that the bottom is in for the mining equities as well as for the metals themselves. More and more people will realize that there’s really no way out of this debt-based monetary system, whether it is about the U.S. reserve currency, the Eurozone or anywhere else on the planet that uses a fiat currency. There’s a problem here and it can’t be resolved. We’re going to see more pressures to the commodity sector in general, particularly the precious metals.

TGR: In mid-May you called the bottom in the mining shares and the bullion. What leads you to make such bold calls and maintain a high degree of accuracy?

DM: I use my own indicators that come from a lot of experience. A couple of other things also keyed me. One was that the sentiment was so bad that it was screaming we are “at the bottom.” Another was that there were a few days where the volume was very, very high and there was no real buying pressure. It was short covering. Short covering at a bottom is a good indicator that the smart money or the professional money is moving out of the market. In other words, they shorted for a very long time. They made their money, they’re getting out and are covering their positions.

All these factors led me to decide to stick my neck out, which is part of the job I do, and say that this looked like a bottom to me. My experience of over 30 years in this business tells me that it usually takes about three months to confirm a bottom. I’m pretty convinced that I did get the bottom; now it’s just wait and see another month or so if I’m correct on the metals themselves.

TGR: What prices are you predicting for silver and gold?

DM: I’m looking for silver to be above $35/oz and perhaps as high as $40/oz by the end of the year. I think we could see gold at about $1,800/oz by the end of the year. We still have four months ahead of us this year and with the fix that the global economy is in, a lot of people are going to come back into what they call the fear trade, and that will lift the metals. Once gold reaches a couple of upward resistance lines, you’ll see a lot of momentum players come to the market as well for a quick trade.


Rick Rule – The Frightening Global Ponzi Scheme Continues / August 28, 2012

Today Rick Rule told King World News the frightening global Ponzi scheme continues. Rule also stated that he thinks, “… it’s very, very scary.” Rule, who is now part of Sprott Asset Management, also believes the current action in gold, “… will lead to a much stronger gold market.”

Rule also warned about the ongoing bank run in Europe: “… about 5% of the retail deposits in Spanish banks have been pulled out of the banks in the last two weeks.” But first, here is what Rule had to say regarding the gold market: “I’ve looked at a lot of speculation concerning the reason for the increase in the gold price in the last two or three weeks. There are a lot of factors involved. Obviously there is some fear involved, and what I think is really healthy, in terms of the price increase, is that it doesn’t seem to have come about from an increase in institutional demand, that is from hot money.”

Rick Rule continues:

“It doesn’t seem to be a momentum or greed trade, but rather a fear trade. These are concerns about international bank solvency or concerns about what might happen at Jackson Hole, or what might happen with quantitative easing. I think it’s constructive that the gold price is moving on fundamental news, rather than the way it moved in 2010, which was a response to institutional momentum buying.

This will lead to a much stronger gold market….


Why War Is Great for Energy

by Marin Katusa, Casey Research:

What is it good for?
Absolutely nothing – Say it again…”
Edwin Starr

I beg to differ. War is fantastic for energy stocks. Even the threat of war can send energy prices soaring.

So for energy investors, war is far from a good-for-nothing – it is great for portfolios.

The best part is that the human race is incapable of getting along. That means there is always one potential war or another sitting just around the corner.

Today is no exception. Think about it – why is Brent oil trading at US$114 per barrel, only a few percentage points away from its highest levels in the last three years? It certainly isn’t because of strong European demand, or a soaring Chinese economy, or a pile of Buy orders from Japanese traders.

It’s because Iran wants to build a nuclear weapon, and that means that Israel is threatening war (again). This isn’t a hypothesis or a fear-mongering tactic – it is a fact. An Israeli attack would prompt Iran to immediately lace the Strait of Hormuz with mines, blocking passage for the 13 tankers carrying 15.5 million barrels of crude that usually transit the strait every day. Oil prices would shoot up overnight.

Read More @

McAlvany Weekly Commentary

Bill King: Trader’s Perspective – A Crucial Conversation

About this week’s show:
- QE or not QE? That is the question
- Gold will give the answer to that early
- Game Over, but they just keep playing

Deposit Flight from Spanish Banks Smashes Record in July / By Ambrose Evans-Pritchard / August 28, 2012

Spain has suffered the worst haemorrhaging of bank deposits since the launch of the euro, losing funds equal to 7pc of GDP in a single month.

Data from the European Central Bank shows that outflows from Spanish commercial banks reached €74bn (£59bn) in July, twice the previous monthly record. This brings the total deposit loss over the past year to 10.9pc, replicating the pattern seen in Greece as the crisis spread.

It is unclear how much of the deposit loss is capital flight, either to German banks or other safe-haven assets such as London property. The Bank of Spain said the fall is distorted by the July effect of tax payments and by the expiry of securitised funds.

Julian Callow from Barclays Capital said the deposit loss is €65bn even when adjusted for the season: “This is highly significant. Deposit outflows are clearly picking up and the balance sheet of the Spanish banking system is contracting.”

Economy secretary Fernando Jimenez Latorre said Spain is in the eye of the storm right now with the “worst falls” in economic output yet to come in the second half of the year.

Meanwhile, the Spanish statistics office said the economic slump has been deeper than feared, with lower output through 2010 and 2011. The economy slid back into double-dip recession in the third quarter of last year, three months earlier than thought.


As HELOC Delinquency Rates Hit A Record, Are Student Loans Next? / By Tyler Durden / August 29, 2012

Today the Fed released its quarterly report on household debt and credit, which merely recaps already public data but with some additional nuances. While the focus of the report is on the purported ongoing consumer deleveraging, what has to be highlighted once again is that the bulk of the consumer “deleveraging” is primarily at the mortgage debt level, which as the NY Fed’s blog has shown, and the reason why we quotation marks above, is because the majority of the debt ‘reduction’ for the third year running is due to debt discharge, i.e., forced reductions in debt arising out of default, bankruptcy and other contract termination events, and not due to actually generating incremental equity (cash) used to repay debt.


Wednesday, August 29, 2012

Whispers on Wall Street: Major Financial House Is Going to Implode… Could It Be Morgan Stanley?

by Mac Slavo

Before the collapse of mega behemoth Bear Stearns there were rumors that a major Wall Street firm had bitten off more than it could chew. Mainstream media, for the most part, completely ignored the rumors, with some financial experts like CNBC’s premier Wall Street insider Jim Cramer literally screaming at viewers on the March 11, 2008 airing of Mad Money in which he vehemently denied any problems saying that the company was “fine.”

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Why Platinum Is A Screaming Buy (PPLT, GLD)

Martin Hutchinson: You won’t read about it in the mainstream news, but the South African mining industry is in the fight of its life. That makes one investment a screaming buy.

You see, violent strikes have paralyzed several South African mines this year, including most recently the giant Lonmin platinum mine.

This isn’t a short-term problem, either, and it’s not related to conditions in the mining industry.

There’s a deep political agenda at play, which means the disputes are likely to be a severe ongoing problem.

But it’s the story behind the story that has my eye. Because for investors who can grasp what this crisis really means, the seeds of opportunity are about to take root.

Let me explain… (more)

Why Silver Investables Are Drying Up

by Rick Ackerman, Rick

For a while, we’ve had a nagging feeling that we’ve been witnessing something profound that the markets have yet to grasp. We are not talking about a global smorgasbord of events that has been amply covered elsewhere. As readers might know, our particular interest is in silver, and that is where we see an elephant in the room that has yet to attract any headlines. No doubt most readers are aware of the recent developments in countries like Argentina, Bolivia, Peru and others, with respect to what can be broadly classified as “resource nationalism.” Our general views on the subject were detailed a few years ago. As discussed by this writer and others, such developments are not new and certainly not limited to silver or even the mining sector. However, in our opinion, it is in the silver space that these events are likely to have the most profound effect.

Why? Because the silver sector is so small and the above-mentioned countries collectively make up a big piece of it. According to CPM Group’s 2012 Silver Yearbook, the countries named above are projected to produce some 170 million ounces of silver this year versus anticipated total global silver production of 788 million ounces. While at first glance that only makes up 21.6% of total annual mine supply, which in itself is significant, we submit that it represents an even greater percentage of “investible” silver production.

Read More @

Jay Taylor: Turning Hard Times Into Good Times

Part 2 listen here
8/28/2012: A View of South African Mine Violence from Inside the Cannibal’s Pot

It Is Not Just Your Imagination – American Families ARE Getting Poorer

from The Economic Collapse Blog

Did you know that median household income in the United States is lower today than it was when the last recession supposedly ended? If we are in the middle of an “economic recovery”, how can this possibly be happening? Stunning new statistics compiled by Sentier Research show that the U.S. economy is not nearly as healthy as we have been led to believe. According to the study that Sentier Research has just released, median household income in the United States was sitting at $55,470 back in January 2000. In December 2007, when the recession began, it was sitting at $54,916. In June 2009, when the recession supposedly ended, it was sitting at $53,508. Today, it is sitting at $50,964. This is a long-term trend that is definitely going in the wrong direction. The fact that median household income in the U.S. is now 4.8 percent lower than it was when the last recession ended is incredibly disturbing, especially since all of the things that we buy on a regular basis just keep going up in price. Food, gas, electricity, car insurance and health insurance all cost a whole lot more today than they did back in the year 2000, and yet median household income has dropped 8.1 percent since that time. So what does all of this mean? It means that American families ARE getting poorer.

Continue Reading at…

Richard Russell: This Is The Beginning Of A Major Move In Gold

from KingWorldNews:

The Godfather of newsletter writers, Richard Russell, believes we are seeing the beginning of a major move in gold. Here is what Russell, who is now 88 and has been writing about the markets for nearly six decades, had to say: “The wild cards — the stock market takes an unexpected spill in September, and the employment and unemployment statistics worsen just around election time.”

“But what’s this? Headline in (the) Financial Times — “Republicans to Push Gold Standard Back Into Center of Political Debate.” I think this is just a feeler, I doubt whether the US is ready to go back to the gold standard. That will happen out of desperation when there’s no where else to go.

Of course, the Fed will fight any suggestion of going back to the gold standard. The Fed wants to have the sole right to create money, and the gold standard means discipline, the last thing the Fed wants. But it’s interesting that the subject of gold has come up at this time.

Richard Russell continues @

3 Cheap Small-Cap Stocks with the Potential for HUGE Returns

Small-cap value stocks have consistently outperformed all other categories of stocks.

That's the message coming from the industry's most respected academic and financial institutions.

Small-cap value stocks outperformed the general market by 4.3% annually from 1926-1997, according to Morningstar's registered investment adviser subsidiary Ibbotson Associates. Leading investment firm Vanguard has also published research showing that small-cap value outperformed large-cap value, blended and growth portfolios from 1927-2004.

But it's not just a generally bullish trend that has carried this group. University of Chicago finance professors Kenneth French and Eugene Fama of the popular French-Fama asset pricing model -- a valuation strategy that looks for small-cap stocks that are in value territory -- concluded that small-cap value stocks outperformed other classes during recessions as well. Another report by Fund Evaluation Group highlighted how small-cap value has outperformed all other groups by a wide margin.

This trend has been on display in the past 12 years. The chart below and shows how the iShares Russell 2000 Index (IWM) of small cap stocks has destroyed the major averages, returning 85% to the S&P 500's 3% loss.

There are two reasons why small caps offer the potential for such large returns. The first is just a simple matter of math, where companies starting from a base of lower sales and operations have opportunity to grow many times over. This is basically like the power of compounding on steroids.

The second factor is imperfect information. Unlike large caps, which can have as many as 25 covering analysts creating research reports, information on small caps is harder to come by. Although this might seem annoying because investors like information about stocks and markets, it creates a big opportunity. Less information, analysis and coverage frequently leads to shares being over or under valued.

Applying the Fama-French model and looking for strong earnings and earnings growth is a great way to separate the winners from the losers.

With this in mind, here are three top small-cap value gems I found...

1. CARBO Ceramics (NYSE: CRR)

CARBO is a basic materials company in the energy services industry with a market cap of $1.7 billion. The company specializes in developing and manufacturing ceramic propant, a substance that drillers use in the extraction process of natural gas commonly referred to as "fracking." Much like the general weakness in energy stocks, Carbo's share price has fallen more than 50% in the past year.

While that may be a setback for current shareholders, the valuation has rarely looked better. With a forward price-to-earnings (P/E) ratio of 13, returning to the average of 24 in the past 10 years would have shares of Carbo up 90% from current levels.

2. Impax Labs (Nasdaq: IPXL)

This generic and branded drug maker has a market cap of $1.5 billion. The company specializes in drugs for central nervous system disorders, Alzheimer's disease, attention deficit disorder and Parkinson's disease. Impax recently reported excellent second-quarter results that included a 36% upside earnings surprise.

Analysts were quick to upgrade their earnings projections, with the full-year 2012 estimate jumping 15% to $2.05. But in spite of those gains, shares only trade for 13 times forward earnings. If Impax returned to just its average valuation of the past 10 years. then shares would jump 34%.

3. Coeur d' Alane Mines (NYSE: CDE)

Coeur d' Alane is a silver miner based in Idaho with mining assets in the United States, Mexico, Bolivia, Argentina and Australia. In spite of the price of gold holding in elevated territory, gold stocks have performed terribly in the past year. With Coeur d'Alene trading just above $21, shares are well off the 52-week high of $30.99.

This probably has a lot to do with weakness in the current-year estimate, falling 69 cents in the past 90 days to $1.26 per share. But longer-term, the next-year estimate still looks great, pegged at $2.63, a bullish 108% growth projection. That is a big opportunity for investors taking a longer-term view.

Risks to Consider: Small-cap stocks are known for extreme volatility. Although many small caps grow into mid- and large-caps, there are plenty of others that fail or go out of business. Investors buying small-cap stocks should be ready for short-term volatility in order to have a chance at outsized gains in the long run.

Action to Take --> These three undervalued small-cap stocks are in position for big long-term gains as each company advances through early and medium stages of growth. Investors who are not afraid of some volatility should snap up shares while they're still cheap.

Bob Murphy On the Debt Crisis, the Great Depression, and Gold

Tuesday, August 28, 2012

Gold Stocks Are in an Absolute Sweet Spot

Three weeks ago I wrote that the short-term outlook in precious metals was bullish. Quoting the conclusion:

The bottom line is this sector is very close to a breakout which would likely confirm the May bottom. The price action has started to improve and the sector has not been deterred by the aforementioned bad news which, in normal conditions would have caused a sell-off. In the meantime, the public has been bearish the entire year and the dumb money has started to exit the market. It is this combination of factors that lead us to a firm bullish posture over the rest of the summer.

In terms of weekly closing prices, Market Vectors Gold Miners ETF (GDX) and Global X Silver Miners ETF (SIL) closed last week at a four-month high, while Market Vectors Junior Gold Miners ETF (GDXJ) closed last week at a three-month high. Silver closed at a four-month high while gold closed at a five-month high. From that it would seem that these markets are overbought.

However, a quick study of the long-term charts, sentiment, and valuations confirms that we are in an absolute sweet spot. Markets have bottomed, a new cyclical bull has begun, and there is substantial room to move over the coming months and year.

We begin with a chart of the bull market in the HUI and we highlight the cyclical bear markets. The 2011-2012 bear lasted about as long as the 2004-2005 bear but was a bit deeper (42% versus 36%). The fact that this bear corrected the recovery from the 2008 crash could be why various valuation and sentiment indicators are at such compelling levels (as annotated in the chart).

Next we chart my firm's proprietary silver index, which is comprised of 10 “growth oriented producers.” (The ETF SIL only has a few years of history). This index corrected 60% in 2004, 90% in 2007-2008 and 50% from 2011-2012. The current bear market was the almost the longest (short of the 2007-2008 bear) but the smallest with only a 50% correction. Yes, to say only 50% is ironic but in looking at the chart one can see that the correction appears to be quite routine. This chart has potential to be a cup and handle pattern which could have massive bullish implications for the next few years. (more)

Looking for Small Companies That Could Return Tenfold or Greater Multiples to Investors

The Life Sciences Report: Are your investors exclusively Canadians?

Hugh Cleland: Yes. Our funds currently are registered for Canadian investors only. That will likely change with our next fund, however.

TLSR: Are the holdings exclusively Canadian?

HC: No, they are not, and they don't have to be. But I do restrict myself to companies domiciled in North America.

TLSR: In a video interview you did with Biotechnology Focus in June, you said that you learned some important lessons while running a traditional long-short hedge fund in the past. What were those lessons? What is the weakness of this traditional money management model?

HC: I think 2008–2009 taught all money managers important lessons. Obviously, many fund managers were put out of business through redemptions. That is particularly true of managers focusing on small-cap and micro-cap stocks, since liquidity went almost to zero during that time. Many managers responded by abandoning the micro-cap and small-cap asset class.

But I enjoy that asset class. And the long-term returns to that asset class are so high (as demonstrated by the 2010 Ibbotson study on the returns to illiquidity) that we decided to come up with a structure that would allow me to manage micro- and small-cap stocks while avoiding the risk of being redeemed into oblivion in bad markets. We decided that a private equity/venture capital structure and approach was the best way to go. Using that structure, we launched the BluMont Innovation PE Strategy Fund LP (BIPES) on Jan. 31, 2011. (more)

Buy This 4% Yielder While It's Still a Bargain

As different as they are, stocks and bonds often share a key feature -- yield, the annual dividend or interest payment divided by the price of the security, expressed as a percentage. It's a simple concept, but it's one of most importance in investing.

This is because, as most investors quickly learn, yields fall when security prices rise. In other words, you're not getting as good a deal on the interest or dividend and could even be overpaying, depending on what the security's yield has been historically.

It's the type of thing I'm afraid might happen with an excellent small-cap stock I'd like to tell you about. The stock is yielding 4%, based on the current dividend of 66 cents a share, and recent stock price around $16.20, but this may not last long. The stock is set for quick growth in the price but not the dividend, so the yield could plummet -- soon.

The table below summarizes projected earnings, stock prices and yields for the next five years:

Earnings Table

I'm referring to Ingles Markets Inc. (Nasdaq: IMKTA), a leading food retailer that operates 203 large (65,000 - 80,000 square-foot) supermarkets in suburban and rural areas of the southeast United States. A big reason why I like Ingles is because it's one of those rare small-cap stocks (the market capitalization is only $393 million) that seems much bigger. It has been around for nearly five decades, has a great reputation and solid financial statements and pays a nice dividend. Additionally, the stock is typically 13% less volatile than the overall market.

The quick stock growth I'm predicting is related mainly to the company's ongoing effort to achieve outstanding customer service by providing modern, convenient, one-stop shops for everything from perishables, packaged foods and baked goods to pharmaceuticals and fueling stations. During the past five years, Ingles has plowed nearly $710 million into renovations, expansions and new store openings. Management plans to spend about $160 million more on upgrades during the next 12 months.

A large portion of future spending will be on enhancing warehousing/distribution, including upgrades to a centrally-located, 919,000 square-foot facility near Asheville, N.C. The facility, which typically stores about 40,000 pallets of products at any given time, enables the company-owned trailer truck fleet to efficiently resupply Ingles stores since it's within 250 miles of every location. What's more, another 830,000 square-foot warehouse and distribution facility is under construction nearby, and management expects operations there to be in full swing by early 2013.

Ingles also has small but substantial real estate holdings and milk production activities. For instance, it owns 71 shopping centers, 58 of which have an Ingles supermarket. The company also holds 13 parcels of undeveloped real estate suitable for new Ingles locations, and it owns and operates a milk processing and packaging plant that supplies the majority of the milk sold at Ingles stores. Most of the milk produced, however, -- about two-thirds -- is sold to other retailers, warehouses and food service distributors.

Of the $3.6 billion in sales the company is on track to generate in 2012, about $3.5 billion (96%) should be from the sale of food and nonfood grocery items. Milk production and sales will probably account for around $126 million (3.5%). Shopping center rental income should total about $18 million (0.5%).

Analysts project revenue will grow at a 5% rate to about $4.6 billion a year by mid-2017. During that time, they see earnings per share (EPS) rising at a 10% pace from $1.69 to $2.72. Both of these estimates look reasonable to me.

So do their expectations for no dividend growth during the next three to five years, since Ingles has $101 million of debt coming due during that time and plans to keep putting excess cash into upgrades and renovations for at least another year. But the price-to-earnings (P/E) ratio of 10 is a good value relative to the historic P/E ratio of 12 and the P/E ratio of 15 for the overall market.

Risks to Consider: While Ingles Markets is a defensive stock, due to the focus on selling groceries and other necessities, it is by no means immune to economic weakness. A significant downturn could easily make revenue and earnings growth estimates unobtainable and jeopardize the dividend.

Action to Take --> If you're interested in Ingles Markets for the dividend, then buy the stock now while shares are cheap and the yield is high. Since dividends probably won't grow for years, the yield could quickly erode because the stock is set to climb.

Indeed, if the P/E ratio keeps to the historic average of 12 and EPS climbs 10% to $1.86 in a year as projected, then the stock price could hit $22.32 at that point (12 x $1.86 = $22.32). The yield, in turn, would fall to 3% [[66 cents/$22.32) x 100 = 3%]. After another year of 10% EPS growth, the yield would shrink to 2.7% if the dividend remains the same. By 2017, it would be hovering around 2%, as you can see in the table above.

Of course, the table also illustrates the stock's growth potential, which is outstanding. Again, assuming the P/E ratio stayed at historic levels, the price would reach nearly $33 a share by 2017 (12 x projected EPS of $2.72 = $32.64), about double the current price.

The Precious Metals MAJOR Breakout Part II

It has been a year since the price of gold bullion topped out and even longer for silver. Many traders and investors have been patiently waiting for this long term consolidation pattern to breakout and trigger the rally for precious metals and miner stocks. Most of gold bullion is used for investment purposes. As a result, it rises when there is economic weakness and investors lose confidence in the fiat currency of a country.

With continuing economic weakness in the United States it will almost certainly lead the Federal Reserve to act in way that is more powerful than Operation Twist which is the selling of short term securities to buy those with a longer term. Based on the most recent data, economic growth in the United States is falling as the unemployment rate rises. A recent statement by the Federal Reserve was unusually clear in calling for greater action in the future.

Gold, Silver and Dollar Weekly Price Chart:

Take a look at the weekly charts below which compare gold and silver to the US Dollar index. You will notice how major resistance for metals lines up with major support for the dollar. As this time metals are still in consolidation mode (down trend) and the dollar is in an uptrend.

Weekly Metals Outlook

Weekly Metals Outlook

Gold Miners ETF Weekly Chart:

Gold miners have been under pressure for a long time and while they make money they have refused to boost dividends. That being said I feel the time is coming where gold miner companies breakout and rally then start to raise dividends in shortly after to really get share prices higher.

GDX - Gold Miner Stock ETF

GDX - Gold Miner Stock ETF

On August 13th I talked about the characteristic’s and how to trade the next precious metals breakout and where your money should be for the first half of the rally and where it should rotate into for the second half. Doing this could double you’re returns. Read Part I:

Overall I feel a rally is nearing in metals that will lead to major gains. It may start this week or it still could be a couple months down the road. But when it happens there should be some solid profits to be had. I continue to keep my eye on this sector for when they technically breakout and start an uptrend.

Deckers Outdoor Corp. (NASDAQ: DECK)

Deckers Outdoor Corporation engages in the design, manufacture, and marketing of footwear and accessories for outdoor activities and casual lifestyle use for men, women, and children. The company offers luxury footwear, handbags, apparel, and cold weather accessories under the UGG brand name; open and closed-toe outdoor lifestyle footwear, multi-sport shoes, light hiking shoes, amphibious footwear, and rugged outdoor travel shoes under the Teva brand name; action sport footwear under the Sanuk brand name; high-end casual footwear for men and women under the TSUBO brand name; outdoor performance and lifestyle footwear under the Ahnu brand name; and work footwear under the MOZO brand name. The company sells its products primarily to specialty retailers, department stores, outdoor retailers, sporting goods retailers, shoe stores, and online retailers. Deckers Outdoor Corporation also sells its products directly to end-user consumers through its Websites, call centers, retail concept stores, and retail outlet stores, as well as through retailers in the United States. In addition, the company distributes its products through independent distributors and retailers in Europe, Canada, Australia, Asia, and Latin America.

To review VF Corp's stock, please take a look at the 1-year chart of DECK (Deckers Outdoor Corporation) below with my added notations:

1-year chart of DECK (Deckers Outdoor Corporation)

DECK has continued to trend lower throughout most of the year, which is in contrast to most other stocks that have moved higher. As you can see from the chart, the stock has usually demonstrated important price levels at each increment of $10 (blue). Most recently, DECK has its main level at $50 (navy). Yesterday the stock broke below $50 and should be on its way down to the $40 level.

The Tale of the Tape: DECK has formed common areas of support and/or resistance at each increment of $10, most recently at $40 and $50. DECK's break of $50 should provide a short opportunity on any rallies back up to $50. A fall to $40 or a break back above $50 would present a long trade.

Chart of the Day - Sherwin-Williams Company (SHW)

The "Chart of the Day" is Sherwin-Williams Company (SHW), which showed up on Friday's Barchart "All-Time High" list. Sherwin-Williams posted an all-time high Friday at $143.38 and closed up +2.02%. TrendSpotter has been long Sherwin-Williams since July 26 at $133.17. In recent news on the stock, Jim Cramer on his "Mad Money" show on Aug 14 said it was "time to go shopping for home-related stocks" due to improvement in the housing market and that Sherwin-Williams was a "Buy." On Aug 7, Sherwin-Williams reported Q2 earnings of $2.17 per share, beating analysts' estimates of $2.13 and that its first-half 2012 sales were $4.71 billion, up +11.9% y/y from $4.21 billion in the first-half of 2011. Sherwin-Williams, with a market cap of $14.445 billion, is a manufacturer, distributor and retailer of paint, coatings and related products. It is the one of largest paint companies in the United States and in the world. Well known brands include Sherwin-Williams, Dutch Boy, Pratt & Lambert, Martin-Senour, Thompson's, Minwax and Krylon.


A "Terrible" Stock with 100%-Plus Upside Potential

At first glance, this might seem like a terrible stock to own.

In 2011, shares of this small-cap software company plunged 75%, dropping from a January high of $23.35, to an October low near $5.75. If you held during that time, you likely lost your shirt.

So, why would I tell you about a terrible performing stock now?

Because it looks like a potentially highly profitable turn-around story is in the making. Shares have bounced off major support and have moved steadily higher for the past few months.

The name of this potential turn-around play is Avid Technology (Nasdaq: AVID). The company makes specialized audio and video editing software for film and music producers.

Its industry-standard software, such as Media Composer, ProTools and Sibelius, have been used to create some of the greatest music hits, TV commercials and blockbuster films, from Van Halen to Spiderman.

Management has recently undertaken several strategic steps to improve future operating performance. For starters, in 2011, it sold off a number of audio-based products where the end-market was individual consumers, rather than media giants.

By divesting these assets, the company shifted its customer focus to a more well-healed customer base.

This July, the company reduced its workforce 20% and slashed overhead. Both measures are expected to generate cost savings of around $80 million.

With rumors of the upcoming Apple (Nasdaq: AAPL) TV, Avid may also benefit from increased demand for innovative software development tools, aimed at broadcast and entertainment producers.

Traders seem convinced of the company's potential.

After recovering from the October 2011 $5.76 low, shares climbed to a high of $12.64 in late January 2012. This high marks resistance. (more)

Monday, August 27, 2012

Banking Fraud Special - Coast to Coast AM 25.8.2012

Coast to Coast AM 25.8.2012 - Banking Fraud Special with Four banking experts Robert Mazur, Barry James Dyke, William K. Black and John Truman Wolfe .Recently HSBC has been fined $1Billion for laundering drug money through its branches in MEXICO; apparently $7Billion into the US, not sure over what period of time. Its a long way from their branch be renovated opposite Lincoln Stone Bow . Also recently Barclays bank has admitted lying - for over four years - about the interest rate it was having to pay to borrow money. Between 2005 and 2009 - all the way through the credit crunch - the bank made artificially low submissions to protect its reputation as it struggled during tight financial conditions. What is perhaps most shocking of all, the lying was done .The revelation of the festering boil that was the banking scandal and financial collapse of '08 is now looking more like a cancer that has spread throughout every facet of society's working parts.

4 Seasonally Strong Sector Trades to Accumulate (or Hold)

by Don Vialoux,

Broader Markets Reveal Peak – Use the Weakness to Accumulate or continue to hold Seasonally Strong Gold, Gold Equities, Canadian Energy Sector, and Software

August 24, 2012

(Editor’s Note: Don Vialoux is scheduled to appear on Berman’s Call on Monday at 11:30 AM EDT)

Interesting Charts

More short term technical evidence that U.S. equity markets have passed a short term peak! Short term momentum indicators for the S&P 500 Index have rolled over from overbought levels. The Index is about to break below its 20 day moving average at 1,399.12


Ditto for the Dow Jones Industrial Average! It already has broken below its 20 day moving average.


Weakness in equity market sparked an increase in the VIX Index.


One of the weakest sectors yesterday was the steel sector following a downgrade by Dahlman Rose. (more)

Financial Astrology: Gold and Silver

By Karen Starich

The recent rally with gold and silver sort of crept up on many traders who were waiting for the Fed to announce the start of QE3. The rally started the first week of August with or without (?) more QE. The question mark reflects my personal opinion that more QE is flowing secretly, and not approved by Congress.

August 2nd was a date I described beforehand in my newsletter as very critical for the markets and gold. I felt that gold would be at high risk for a significant pullback on that day. Gold did take a hit that day however gold ended up faring much better than Knight Capitol Group, which almost became another MF Global on August 2nd. The pullback proved to be an entry point for long positions and below is a clip of what I wrote to my subscribers on July 29th.

Gold and Silver

We could see a significant move up for gold and silver near August 4th that could carry into August 25th-28th. There could be another setback at the end of August as well as more difficulties with the Comex deliveries/inventories/margin changes. Caution: There is high risk trading gold/silver.

Jeff and I were discussing gold and silver in July from both the standpoint of the astrology and the technicals. Jeff wanted me to look for the pessimism in the astrology as the charts looked like another pullback was needed. I looked for the pessimism and instead found optimism! The astrology seemed to point to August 2nd as the most likely date to deliver the pessimism, and since it did not get too pessimistic on that date, gold and silver will most likely earn back some trust from skeptical traders.

Did you miss the rally? maybe not, we could see a pullback into September for a buying opportunity. The gold and silver market is trying to tell everyone what is coming, and the ‘what’ is inflation.

CRB Index Breaks above 200-day Day SMA

The CRB Index ($CRB) is breaking above its 200-day moving average after two failed attempts. Since first breaking below the 200-day in August 2011, this level marked resistance in early September and late February. With this week’s move above 305, the index broke the 200-day and exceeded the April 2011 trend line.

Click this image for a live chart

What Next for Nat Gas?

Nearest natural futures prices peaked on December 13, 2005 at 15.78, and hit a bear market low on April 19 & 20, 2012 at 1.902, but the dominant longer-term trend remains down.

The April low resides within an 8-month basing-accumulation pattern that has carved out a climb from 1.902 to 3.277, which represents the dominant intermediate-term uptrend.

Whatever Happened to $200 Oil? by Jeff Rubin

Four years ago, when I was still chief economist at CIBC World Markets, I forecast that global economic growth was on pace to send oil prices to $200 a barrel by 2012. In short, the argument was based on a supply-driven analysis that weighed the sources of future oil supply against the prices that would be needed to make the extraction and processing of that oil economically viable.

Since that call (which clearly hasn’t come to pass) received some attention at the time, it feels fitting to spend a few words discussing what happened to derail the projection. That particular analysis, unfortunately, didn’t adequately address the stifling impact that rising oil prices would have on economic growth. At the time, a constrained outlook for global production growth against a backdrop of runaway demand meant prices had nowhere to go but up. As subsequent events would dramatically demonstrate, though, triple-digit prices had a much more critical affect on demand than supply.

By the time oil reached $147 a barrel, the economic drag was more than sufficient to trigger a chain reaction of events—including spurring higher interest rates which pricked the US sub-prime mortgage bubble—that ushered in the deepest global recession of the post-war era. Instead of marching towards $200 a barrel, oil prices abruptly reversed course and plunged all the way to $40 a barrel.

The return of low prices was taken, by some, as proof that oil will continue to be as cheap and abundant as ever. As a quick return to the triple-digit range for oil prices indicates, however, that’s clearly not the case. My call for $200 oil was designed to underscore the massive cost of supplying the world with more than 90 million barrels a day. Then, as now, I stand by the analysis. Pumping out ever more barrels will require ever-higher prices. Just look at what happened when oil prices plunged. In Alberta’s tar patch alone some $50 billion in spending was either cancelled or postponed. The story was much the same offshore Brazil and in Venezuela’s heavy oil belt, a pair of locales that will play a vital role in meeting the world’s future oil needs.

If a mea culpa is in order, its roots can be found in the decision to underplay the demand side of the equation. Oil prices plunged to $40 a barrel after economic growth collapsed, taking global oil demand along for the ride. And that same movie is about to play out again. Recessions are already rolling across Europe. Economic growth in North America is lackluster, at best. Meanwhile, the specter of sovereign debt defaults in the euro zone continues to hang over global financial markets. Added up, it spells another sharp drop for oil prices not because fuel is abundant, but because once again the world can’t afford to stay out of a recession.

What happened to my forecast for $200 oil? Quite simply, the end of growth.

US Weekly Economic Calendar

time (et) report period Actual forecast previous
None scheduled
9 am Case-Shiller home price index June -- 2.2%
10 am Consumer confidence index Aug. 66.1 65.9
8:30 am GDP revision 2Q 1.7% 1.5%
10 am Pending home sales index July -- -1.4%
2 pm Beige book
8:30 am Weekly jobless claims 8-24 370,000 372,000
8:30 am Personal income July 0.4% 0.5%
8:30 am Consumer spending July 0.4% 0.0%
8:30 am Core PCE price index July 0.1% 0.2%
9:45 am Chicago PMI Aug.
53.0 53.7
9:55 am UMich consumer sentiment index Aug. 74.0 73.6
10 am Factory orders July 2.3% -0.5%
10 am Bernanke speech in Jackson Hole

Saturday, August 25, 2012

The Fantasy of Debt: No Trade-Offs, No Sacrifices / By Charles Hugh Smith / August 24, 2012

Easy, cheap credit has created a fantasy world where everyone “deserves” everything right now, and trade-offs and sacrifice have been banished as unnecessary.

Debt offers a compelling fantasy: there is no need for difficult trade-offs or sacrifices, everything can be bought and enjoyed now. In the old days when credit was scarce and dear, buying a better auto required substituting 1,000 brown-bag lunches for restaurant meals: yes, four years of daily sacrifice.

Sending a child to college meant no meals out (or perhaps once or twice a year), driving an old car, no vacations other than camping, working overtime to make a few extra dollars, summer jobs for every teen in the family and a hundred other sacrifices and trade-offs. All too often, only the oldest got to go away to university; younger siblings had to sacrifice their education for the greater good of the family.

If the oldest sibling was fortunate enough to earn a decent salary after graduation, he or she sacrificed to pay for the education of younger siblings.

Trade-offs and sacrifices were the core of household finances for those families that sought to “get ahead” or purchase things that required substantial cash.

Abundant, cheap credit upended the incentives to make adult trade-offs and sacrifice consumption for future benefits. Why eat 1,000 brown-bag lunches when you can buy a new car for $500 down and “easy” monthly payments? Heck, you don’t even need to pay for the lunches with cash; just charge them.

Want to go to college? Just borrow the money via student loans. Why scrimp and save when Uncle Sam will guarantee $100,000 in student loans?

Why choose between a lavish vacation, a year of college or a boat? Buy all three on credit.


Silver $150, “This Will Happen,” Says Swiss Money Manager / by Dominique de Kevelioc de Bailleulon / August 24, 2012

If there was ever a sleeper asset poised to moonshot, it is silver. And $150 is the target price for the white metal on this next major move higher, says Swiss money manager Egon von Greyerz

“We could see those levels ($4,500 – $5,000 on gold) within a year and possibly much faster,” von Greyerz tells King World News, Thursday. “This autumn we are going to have a very strong move.

“If we look at silver, silver is going to move a lot faster than gold. The same technical target for silver is $150. That would move the gold/silver ratio down to 30/1.”

With PIMCO’s bond king Bill Gross going on the record today on CNBC, saying an open-ended quantitative easing program by the Fed is all but a “done deal”, silver investors can expect, not only a massive and unprecedented short squeeze in the silver market, but momentum traders and value-based accumulators hopping on board the silver bullet, as well—a veritable trifecta of rocket fuel presently under-appreciated by the casual investor, according to von Greyerz.

A move in the silver price, from $30 to $150, is “hard for investors to comprehend, but this will happen because we have had an energy building up in these markets for almost a year,” von Greyerz continues.

von Greyerz outlook for the silver price is, indeed, the most optimistic of King World news legion of forecasters, but the chart shows that his assessment has much technical evidence to support his thesis, given the fundamental backdrop of bizarre monetary and fiscal policies endemic to both major reserve currencies, the dollar and euro, which, together, comprise 89 percent of all global currency reserves.


Sprott – We Are Staring At Chaos & Collapse In Front Of Us / August 24, 2012

Today billionaire Eric Sprott spoke with King World News about one of his frightening predictions, “I always postulated that the financial system would go bankrupt, and it has, save for one thing, it got bailed out.” Sprott, who is Chairman of Sprott Asset Management, also added, “But I don’t think the central planners have a winning hand here. They’re not going to win.”

Sprott then warned, “God knows when we get there (to the end of the current system) what we are all staring at.” But first, here is what he had to say about the last decade: “When I reflect back over the decade, I think my God, I can come almost come up with 2,500 tons of net change in physical demand, in a 4,000 ton market on the supply side, which hasn’t changed in that 12 years, that was in balance 12 years ago. How do these ETF’s get to buy gold? How do these central banks go from sellers to buyers?”

Eric Sprott continues:

“How does China come in and buy 500 tons? How did all of this happen with no increase in the supply of gold? It’s getting more extreme by the day. If I take today’s numbers, I think there’s probably a 2,500 ton shortfall of physical gold. I must conclude that the G6 central banks are continuing to lease their gold into the market.

It’s not called a ‘sale’ because theoretically they still own it (on paper), but it’s been leased to a bullion bank that’s sold it to someone, and it’s not coming back again….


BILL MURPHY of GATA: The Coming Gold Boom after the Storm

Dennis Gartman Just Dumped All Of His Stocks

Back in February when the DOW crossed the 13,000 mark, Dennis Gartman said he had made a mistake reducing the size of his long position.

He said, "you make it sound like I'm short of equities. Not on your life. Not right now"

Now Gartman, publisher of the Gartman Letter, who cut his long position by half earlier this week, has exited stocks entirely.

In his investor note he writes:

"Stock prices are weak as our proprietary International Index has fallen 62 “points” or 0.8% in the past twenty four hours. Having traded to 7805 earlier this week, this index is now down sharply from its highs... yet; but we are more and more fearful that it shall be, and having cut our long position in half earlier this week, and further having noted how rather badly the market responded to the belief that QE III was on the way, and noting that far too many individual stocks and one or two important international broad indices posted “reversals” earlier this week, we are exiting the other half of our long positions this morning upon receipt of this commentary.

Yes, we do indeed understand that this is a shift in sentiment; and yes we do understand that we had said that stock prices might “melt up,” and yes we further understand that we may look foolish in the weeks ahead for standing down, but call it trader’s intuition or call it what you will, but we wish to move quietly to the sidelines trust we are clear."

Gartman, who says he is bullish of "simple things", said earlier this week that the plunge in steel shares had signaled a buy.

But after receiving a report from a friend in a "small but influential broking firm in New York" downgrading the steel industry, Gartman writes, "we’ll 'bet' in its favour once again in the not too distant future, but not now given that we are standing down from our previous bullish posture this morning."

Marc Faber: Global Recession Certain

Marc Faber, “The Gloom, Boom & Doom” Report, explains why he thinks there is a 100% chance for an economic recession ahead.

Shifting ground rocks diamond industry

Antwerp’s Square Mile is an assortment of tired office blocks and shops. Groups of men talking business congregate in the streets. But the main clue to what brings them to the city is the heavy security at the entrances to the rundown buildings.

Inside, they will pore over rough diamonds – gems that could easily be mistaken for lumps of glass or stone. Some will spend hours using high-tech equipment to analyse their potential. Others use a handheld loupe, or magnifying glass, to eyeball what polished stones they think they can cut from the misshapen rocks.

“It is like a piece of art,” says Johnny Kneller, chief executive of Safdico, the diamond manufacturer that was cofounded by Laurence Graff and that is part of his high-end jewellery and retail empire. “Then there is the commerciality. You can choose to give up weight because you like the product.”

The Lesotho Promise, a 603-carat stone from Gem Diamonds’ Letseng mine, sold for $12.4m and was cut into 26 stones for one necklace, now on sale with a rumoured price tag of $75m. Another, the 478-carat Light of Letseng, produced the first flawless round brilliant cut to exceed 100 carats.

Many cutters and polishers have left Antwerp but about 80 per cent of the world’s rough diamonds still pass through the city. This year has been a difficult one, both for the miners and the diamentaires who transform rough stones to polished ones.

The economic slump has hurt demand for jewellery while a squeeze on financing has limited diamentaires’ ability to stock up on rough stones. Rough diamond prices, estimates Royal Bank of Canada, are down about 15-20 per cent this year after a volatile 2011, when prices leapt sharply only to plummet.

The diamond industry also faces a period of considerable change.

Soaring demand from China, where the share of brides receiving diamond engagement rings has risen from about 1 per cent in the early 1990s to 31 per cent in 2010 – a similar pattern to the US in the 1940s – means a buoyant outlook despite the short-term ructions. (more)

Canadian Real Estate - Bubble, Bubble, Toil & Trouble

Joelle Fricot & Chris Callahan
Thursday, August 23, 2012

It is almost four years after the global financial meltdown of 2008 and many parts of world are still trying to recover. Given the impact of the crisis, which rocked financial markets across the globe, it is shocking to many that Canada seems to be following many of the same lending trends as we saw in the United States in 2006. These trends were at the core of the subprime mortgage crisis, which led to the global recession of 2008.

In the year and a half leading up to the crash housing prices rapidly increased in the United States, with a corresponding increase in subprime lending. We are now seeing the same trends in Canada. When analyzing the Canadian housing market, housing prices increased almost 100% since 2000, with the average home in Canada costing roughly $348,000. This is almost double our U.S. counterparts.

Big banks have become stricter with lending policies, and have upped the stakes for those looking for mortgage financing. This has created a huge market for sub-prime lenders in the marketplace that didn’t exist before because more and more people who would have been approved five years ago are now being turned away. There is now a huge shift in the lending marketplace. Once small, Canada`s subprime mortgage industry is now booming. More and more Canadians with highly questionable credit are highly benefiting from the available financing.

The Canadian Government has been moving quite aggressively in attempts to cool down the Canadian housing market. As home prices are soaring there are fears that there is a bubble in the making. This is evident through the recent actions of Finance Minister Jim Flaherty who is now acting for a fourth time, reducing the maximum amortization period for government issued mortgages from 30 to 25 years. On top of this he is also lowering the amount of equity that can be borrowed against a property to 80% down from 85%.

More than $500B of Canada's estimated $1.1T housing market are considered to be high-risk mortgages. Recently Ottawa began increasing its scrutiny of the CMHC for allowing this level of high-risk mortgages to rise to the level that it’s at now.

The Conservative Government has started putting stops to banks using mortgages insured by the CHMC as collateral on covered bonds. In addition new legislation will be implemented to ensure that corporations will have to give more consideration to the broader implications of their decisions. Essentially the CHMC is being told that, for every mortgage they insure, they will have to put consideration into the potential risk that mortgage put on the full Canadian economy.

The CMHC has dramatically expanded use of insurance by banks for covered bonds. These securities are made up of a package of mortgages, which is partly due to the steep rise in CMHC`s mortgage portfolio according to Jim Flaherty, Canada's Finance Minister. CMHC has a legal limit of 600B for mortgage insurance which it is fast approaching. The $600B limit has already been raised twice since the end of 2007.

Another significant type of lending in Canada is Home Equity Lines of Credit (HELOCs). HELOCs are loans which are secured by the equity of a borrower’s home. These types of loans in Canada have increased almost 170% since 2001 (which is double the rate of increase on Canadian mortgages). In 2011 they accounted for approximately half of total Canadian consumer credit.