Gerald Celente : The Crash will happen sometime this Month

Gerald Celente - TruNews - 03 October 2011 : ...and people are buying this , so to answer your question Rick , how long could they keep us from realizing what's going on ? for as long as they keep pulling the strings and they will pull the strings for as long as they can , but someday it is going to come crashing down and we believe the crash is going to happen sometimes this month

Why I'm Still Bullish on Gold and Silver

A little hysteria can go a long way, especially when it concerns financial markets. And with gold prices plunging 15% last month, it almost goes without saying all those SPDR Gold Trust (NYSE: GLD [1]) owners are now biting their nails, wondering whether the three-year rally has finally run its course. After all, the tumble from $1,900 per ounce to $1,650 is the biggest one-month dip we've seen from gold in years. Surely this is a sign the tide has turned, right?

Maybe. More realistically, it's just another blip in a much bigger uptrend.

Nobody was complaining on the way up
The pullback was nasty to be sure. What seems to have been overlooked, however, was the equally oversized run-up gold made before topping out back on Sept. 5. From July 1 to Sept. 5, gold prices soared from $1,487 per ounce to $1,905. That's a 28% rally in just two months, which is the biggest unfettered rally since 2009 (though 2009's 31% rally took four months to complete). In fact, the last time we saw anything as dramatic as this year's third-quarter rally in gold prices was the 51% rally between August of 2007 and March of 2008.

Point being, the size of the gain right in front the pullback left traders little choice but to think defensively and lock in profits at the first sign of trouble. There was just plenty of room to fall.

Gold Prices

The story isn't so different for silver, or for stakeholders in the iShares Silver Trust (NYSE: SLV [2]).

Silver prices fell 31% between Sept. 2 and the end of last week (Sept 30). The selloff was even larger than the 28% dip in April, which came after (and this isn't a typo) an 82% run-up between late January and April 25, when we hit a multidecade high slightly above $50 per ounce. Though silver prices partially rebounded in July and August, let's face it -- silver prices were still burning off the excess from that 82% move earlier in the year. In fact, last month's was the biggest plunge in silver prices since the three-month, 49% implosion in 2008, yet silver is still priced at three times what it was at that low.

Silver Prices

In the grand scheme of things, the exact numbers and dates are irrelevant. The message is far more important, particularly for those who are still hanging on to the SPDR [3] Gold Trust or the iShares Silver Trust exchange-traded funds (ETFs). And the message is this: this is nothing we haven't seen and survived before. Indeed, we've survived worse.

Oh, the meltdown both precious metals made in 2008 certainly felt insurmountable at the time, but both came roaring back within a matter of weeks to dole out three more years of higher highs. Has anything really changed between now and then?

What about the strength of the U.S. dollar?
Gold bears are quick to point out that the U.S. dollar started to rebound in late September, coinciding with and even prompting the pullback from silver, gold and most other commodities. Bluntly though, the punishment doesn't come anywhere near fitting the crime.

The U.S. Dollar Index [4] has gained just under 7% since Aug. 26 -- a very minor move relative to all its gyrations since 2008. More dramatic moves the dollar has made of late include the 19% rally in late 2008, during which gold only fell 23% (though silver got cut in half during that period). The greenback [5] rallied 17% in early 2010, and silver prices didn't budge during that rally -- meanwhile, gold prices actually moved higher. But now, all of a sudden, the sawbuck makes a very modest bullish [6] move and gold and silver are nothing but liabilities? Sorry, the relationship is too inconsistent to use as the reason for gold's demise now.

U.S. Dollar Index Compared with Gold, Silver Prices

No, the most plausible explanation for the sudden setback is the most obvious one -- gold and silver were overbought in the short run, and it was time to pay the piper. The longer-term uptrend for each has most definitely not been broken, though. Moreover, silver and gold could (and likely will) give up more ground in the near-term future without snapping their overall uptrend. Moreover, the dollar's trend still isn't exactly decidedly bullish. The charts above make that quite clear.

It's certainly not a very esoteric explanation. But that doesn't mean it's not the right one.

Risks to Consider: Unfortunately, a mob mentality within the precious metals market [7] has replaced rhyme and reason for the better part of 2011, and that herd-like effect was still in effect as of last week. Never underestimate the potential madness of a crowd to lead it to strange conclusions.

Simultaneously, neither gold nor silver are at the bottom of their bullish channels yet, so there is room to give up more ground before hitting a solid floor.

Action to take --> While the recent intense volatility may prolong a recovery in gold and silver prices, the same underlying fundamentals that pushed metal prices this far are still in place. These forces include a generally-weak U.S. dollar, brewing inflation [8], a Federal Reserve that doesn't even want a stronger dollar, and -- more recently -- fear of a globalcurrency [9] collapse. These are all bullish for gold, yet none are poised to evaporate anytime soon. This recent dip and any subsequent dip from gold -- especially if that lower support line around $1,400 is met -- is an attractive entry opportunity as the metal continues its erratic march toward multiple price targets in the $2,200/$2,300 per ounce range. That's at least 33% higher than where it's priced now.

As for silver, it doesn't benefit from inflation worries and currency wars the way gold does, and is the more speculative of the two at this point. It's still in a broad uptrend, though, so it's suitable if you have a higher risk tolerance.

Jay Taylor: Turning Hard Times Into Good Times

Pondering the Possibilities of a Greater Deflationary Depression

Southern Copper Corp. (NYSE: SCCO) Gives You High Yield, High Profit Potential

Here's a company to get genuinely excited about: Southern Copper Corp. (NYSE: SCCO).

Why?

Because Southern Copper has world-class assets and high profit potential, but its share price has taken a dive amid all of the recent market turmoil.

I love to find a sound business whose stock price has been pummeled in the uncertain markets. It screams bargain and is a major buying opportunity.

And in this case, the fact that Southern Copper's stock price has dropped means its already-juicy dividend has increased. Currently the company's $2.48 dividend equates to a 9.5% yield.

Plus, it's consistent: Over the last five years, Southern Copper has averaged a payout of 83% of its after-tax profits.

Given all that, it's time to buy this high-yielding, high-quality mining company (**).

Southern Copper Corp. Outshines the Competition

Southern Copper Corp., founded in 1952, engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. It has the largest copper reserves of any publicly traded company, and last year mined more than 1 billion tons of copper. That means it is perfectly positioned to profit from increasing global demand for copper.

The company operates the Toquepala and Cuajone mines in the Andes Mountains located southeast of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. It also operates underground mines that produce zinc, gold, and lead, as well as a coal mine that produces coal and coke.

Southern Copper's mines are estimated to have a productive life of about 80 years. That means 80 years of revenue from copper, gold and silver deposits.

Southern Copper has built a fully integrated operations model that allows it to mine the raw material, refine it, and export the final product. As a result, the company controls each of the value-added steps in copper production. It's also made Southern Copper the sixth-largest copper producer in the world, the seventh-largest copper smelter and the ninth-largest copper refiner.

The company's cash operating cost is $1.61 per pound to produce copper, but that cost is lowered to 31 cents per pound by subtracting profits from the mines' byproducts of gold, silver, lead, zinc and coal.

That's a lot of secondary profits hitting the bottom line.

Southern Copper Corp. is a subsidiary of Americas Mining Corp. Its stock is 80% controlled by the parent company Grupo Mexico S.A. de C.V. (PINK: GMBXF), with the public markets owning the other 20%. This relationship is beneficial because Southern Copper is protected by one of the largest companies in the world.

However, this structure has a potential downside: Investors in Southern Copper Corp. could be bought out at some point. The parent division has made an offer to relist the merged divisions, which would include replacing the current shares with newly-listed shares and a slightly different share count.

Normally, I shy away from companies with open corporate actions in front of the board of directors. In this case, however, I am willing to look past the possible changes because of the quality assets and profit potential Southern Copper has to offer.

The company reported second-quarter net income of $658 million, 110% higher than 2010's second quarter. Sales were up 54% to $1.8 million.

The company has a market capitalization of $26 billion with an enterprise value of $28 billion once net debt and cash is accounted for. Its price/earnings (P/E) ratio is 10.73.

Southern Copper Corp. is trading right around its 52-week low of $25.06 and closed Friday at $24.98.

Action to Take: Buy Southern Copper Corp. (NYSE: SCCO) (**).

Southern Copper Corp. gives us a chance to own the longest-life copper mines and largest total copper reserves in the world. Plus, the company has a long history of paying out a large, regular dividend to its investors.

Let's use the current weakness in price, with the stock trading near its 52-week low, to start building our position in this company.

If you are considering exposing a full 3% of your portfolio to this position, let's consider buying one-third of the position (or 1% of your total portfolio) now at market. This gets us into the stock at low levels.

Since the stock has already broken down in a very weak market, let's exercise some patience and put in some GTC (good-"til-canceled) limit orders at 5% and 15% below where we pick up our first leg in.

This will give us real exposure to the company with our entry, while allowing us a chance to build our position at a lower cost per share.

Jim Rogers on US-China Trade War

US lawmakers are going after China and accusing the country of manipulating currency. A bill recently cleared a hurdle in the Senate to impose tariffs on Chinese imports. Is this a political ploy or does Washington have a legitimate case? Could this turn into a trade war? Jim Rogers, investor and author, helps us sort through these issues.

Some Anecdotes About Chinese Real Estate, As Told By Deutsche Bank

Yesterday, Deutsche Bank Economist Jim Ma and his team came up with a report, turning somewhat more bearish on China after the Hong Kong/Chinese markets got really killed.

They are now expecting GDP growth to slow to or below 7%, and are worried about the exports picture (and among other things).

On the real estate market, Jun Ma and associates told an interesting story on the latest development.

In recent weeks, the number of phone calls received by an author of this report from China-based property agents has increased several fold, indicating a significant rise in the urgency for developers to raise cash from selling properties. A property consultant told us that he recently received requests to help raise RMB10bn for cash-strapped small and medium-sized property developers – this amount is a huge multiple of what he is used to dealing with. In the offshore market, where many Chinese developers seek foreign currency funding due to lack of access to domestic funds (the domestic stock, bond and trust loan markets are closed to them due to policy tightening, and banks are also very stringent), their USD bond yields have surged to 20-25% in past weeks from around 10% before August. This means that even the offshore markets are now largely closed to Chinese developers (see Figure 4).

All these suggest that many developers are now under greater pressure to sell their properties at a bigger discount in order to avoid a liquidity crisis. An emerging consensus from potential buyers and some developers is that a 10% drop in prices in the coming two quarters would be justified.

A further decline in physical property prices will likely reduce the incentive for developers to start new projects, and thus implying a deceleration in real estate FAI. Note that real estate FAI by developers account for about 16% of total FAI, and about 25% of the demand for steel, coking coal, and cement.

They are now expecting to see about 10% correction in the real estate market for the next 4-6 months. However, 10% is all they are expecting, because…

Readers may ask why we are not projecting a 30% drop in property prices. Those who understand China’s political economy should know that a 15% decline in average property prices in 35 cities within a few months must be accompanied by a range of economic and social consequences. These will include a sharp decline in real estate transactions, a visible deceleration in real estate investments, rising unemployment in the property construction and agency sectors, a further decline in construction material prices, demand destruction due to inventory destocking, and finally a worrying decline in GDP growth and the resulting concern of social stability. In other words, the government will most likely not tolerate a 30% drop, and probably not even 15% in our view. We expect real estate policies will likely be relaxed way before a 30% price decline is observed.

Why "the Crowd" is Wrong about American Airlines

"How do you make $1 million in the airline industry? Start with $2 million and know when to quit."

As the economy drifts toward a possible recession, investors are increasingly scrutinizing balance sheets of major air carriers for signs of real trouble. Companies that carry too much debt can end up in bankruptcy court if sales fall and losses grow. Venerable names such as Braniff, Eastern, Pan Am, National, Midway and Aloha Airlines no longer exist after bumping up against a weak economy. That was precisely the logic behind my bearish call on AMR (NYSE: AMR),parent company of American Airlines, back in July. The mere perception of a bankruptcy scare is enough to spook investors.

Shares have lost half their value since my bearish view two months ago, highlighted by a 33% drop on Monday, Oct. 3, alone. Investors are surely recalling the events of 2003, when AMR saw its stock slide to just $1.25 on the heels of a bankruptcy scare. AMR managed to avoid bankruptcy back then, and its shares moved back to $40 by 2007.

The good news: the chances of a bankruptcy are still remote, and this obvious short candidate may just be morphing into a long candidate with significant upside.

Let me explain...

How steep a drop?
The question for AMR and its fellow airlines is a clear one: How would these firms fare if demand slumped and price wars kicked in? For carriers with relatively strong balance sheets, such asSouthwest (NYSE: LUV) and JetBlue (Nasdaq: JBLU), rising losses can be tolerated for an extended period. For carriers that carry ample debt but also operate in a very low-cost manner -- such as Delta Airlines (NYSE: DAL)-- exposure to falling demand is also limited. AMR is stuck with the double whammy of high operating costs and a lot of debt.

Yet a series of factors should swing in AMR's favor, helping it to avoid bankruptcy. For starters, AMR had been especially hard hit by rising fuel prices because it carries the thirstiest fleet in the business. Management has long talked of modernizing its fleet toward more fuel efficient planes, just as United Continental (NYSE: UAL) has, but limited financial firepower has crimped AMR's fleet upgrade plans. (The average age of an AMR plane is 14.8 years, compared to the industry average of 11.7 years. The older a plane, the less fuel-efficient it is likely to be.) Luckily for AMR, a global economic slowdown also means a drop in the price of jet fuel.

AMR's balance sheet is also not quite as bad as the plunging stock price may indicate. The company has roughly $4 billion in unrestricted cash and about $3 billion in bonds coming due in the next two years. This implies the carrier can't burn more than $500 million in the next two years before bankruptcy concerns really start to bite.

At first blush, AMR's financial picture seems awfully tenuous. Merrill Lynch forecasts the carrier will lose around $200 million in free cash flow for the rest of this year and another $350 million in 2012. By that logic, AMR's cash balance would move below $500 million by the end of next year, once upcoming tranches of debt are repaid.

Increasingly, this looks like a worst case scenario. Instead, AMR is likely to extract better-than-expected concessions from its pilots and other labor associations, simply because few stakeholders have an interest in pushing the company into bankruptcy. Lower labor costs -- the carriers' second-largest expense after fuel -- will surely help.

Moreover, Merrill Lynch's analysis doesn't incorporate falling fuel prices, and the recent drop in jet fuel is likely to save AMR nearly $100 million in 2012. (Fuel expenses account for 33% of estimated industry 2011 costs, up from 15% in 2000.) Lastly, current forecasts don't account for AMR's ability to simply shrink away from unprofitable routes, taking its most inefficient planes out of service.

All about capacity
It's that last factor that industry bears may be overlooking. A key theme of the recent airline industry rebound has been a tight grip on capacity. For example, the major carriers have been planning route cuts throughout this year, and total domestic industry capacity in 2012 should be close to 5% less than 2011. This means carriers will be less prone to vicious price wars to fill empty planes, as has been the case in the past. Revenue and yields (the percentage of seats filled) will surely drop if we go into recession, but not likely to the extent many fear.

Airline stocks are taking it on the chin these days, perhaps to an even greater extent than the broadermarket. If the economy stays flat or slips into only a mild or short-lived recession, then the current sell-off surely creates a compelling entry point for investors. The stock you find appealing should be based on your risk appetite. JetBlue, for example is low-risk because it has a strong balance sheet and its market value of $1.1 billion is well below its tangible book value of $1.7 billion. Delta carries more risk, thanks to nearly $15 billion in debt, but is also quite lean and better-equipped than most for lean times. As I noteda few months ago, this stock could rise sharply in a better economic picture.

What about AMR? Well, as noted, the odds of an actual bankruptcy filing are still quite remote. And in the event industry pricing and crude oil prices stabilize, investors will start to take note that the carrier now trades for less than two times projected 2012 EBITDA. Indeed, AMR's stock likely has the greatest upside of any airline carrier, perhaps 300% or 400%, if the economy ends up back on a growth path in 2012 or 2013. The downside of course, is the stock could go to zero, so AMR is only suitable for investors with a high degree of risk tolerance.