Small cap stocks can be risky but also have the potential to produce big rewards for patient, knowledgeable investors. In our latest edition of “Ask the Analyst,” Gravitas Financial analyst Stefan Muchal talks about how to invest successfully in mining stocks and points out possible warning signs every potential shareholder should be aware of before putting money into one of these names.
By, Amelia Dookhee, Pycap Venture Partners
Canada has long been criticized for its minimal risk appetite when it comes to investing outside of the typical ‘blue chip’ options. But, in order for an economy to thrive, and in order for Canadians to generate wealth instead of just preserving it, we need to reconsider how we invest. An exciting tradeshow will take place in Toronto on September 25-26, 2014 called Canada’s Investment Conference, hosted by Cambridge House International. This ‘candy shop’ for savvy investors will house a plethora of many different asset classes, for the first time, all under one roof. The conference will showcase exhibitions and presentations by expert analysts and entrepreneurs from Mining, Technology, Energy, Agriculture, Real Estate and Life Sciences. Continue reading
A great to the point article from Tommy Humphreys over at CEO.Ca with 8 reasons why you should attend the Canadian Investor Conference Toronto.
Catch his Q&A with Pat DiCapo at the show as well!
Oh, Flower of Scotland
Leading up to the referendum on Scottish Independence, one trader remarked “there will be blood on the trading floor Friday” if the Scots were to vote “Yes” and chose to break the 307-year-old union with the United Kingdom. That’s because money was already flowing back into the assets classes that were negatively affected by the uncertainty surrounding Scottish Independence on the basis that a “No” vote would ensue. Evidently, exit polls were giving traders enough information to bet the outcome. The money illustrated the results in Thursday’s referendum as the pound gained approximately 2 per cent from its lows of the week before votes had even been tallied. However, what later resulted was a clear “buy the rumour, sell the news,” as the pound gave back most its gains Friday morning.
The theatrics associated with the unknown outcome definitely took a toll on markets as we head into the tail end of the third quarter. But the underlying theme or message is certainly an important one as an astonishing 45 per cent of the population voted for independence in a referendum that saw approximately 85 per cent of their population participate. The message for those invested in financial markets is that populism has the potential to trump pragmatism when it comes to governance and economics.
Any economist leading up to the vote rationally stood on the side for Scotland to remain a part of the UK. The greatest concern, and one that could only be discussed hypothetically thanks to a lack of detail from Alexander Salmond, leader of the Scottish National Party, was what currency to adopt. With over 9 per cent of Scottish GDP coming from their financial services sector, and part of the benefit being that the pound still serves an important role as an international currency, how would the banks react? Initially Scotland discussed the idea of keeping the pound, an approach known as ‘dollarization’ where the pound still serves as the nation’s currency, but monetary policy and facilities like deposit insurance are not conducted or utilized in Scottish interests. All of these measures that promote stability and longevity in a currency, and thus become a harbour for capital and commerce would be jeopardized.
Other obvious issues surrounded the idea of disruptions to business and a worsening Scottish deficit. Estimates had it that around 60 per cent of Scottish exports are destined for the other three countries in the United Kingdom. There lacked sufficient reasons other than a phoney idea of nationalism to put up a border only to disrupt trade flow and make moving goods harder for businesses. Oil reserves in the North Sea were perhaps the saving grace for Scots, but when transfer payments from Westminster equaled the royalties received from North Sea drilling this year, and projections for North Sea oil are vastly diminishing, financing their 7 per cent deficit looks like a challenge. This compares to EU nations, which outlined by the Maastricht treaty look to maintain a deficit-to-GDP of 3 per cent.
There is the angle that it was the Scots incentive to fear Westminster with an independence vote to benefit more from government or take back more autonomy over more local issues of their economy, and the latter outcome will likely prevail. But the takeaway for investors has got to be the potential for instability in nations were a misguided millennial-inspired movement can have such a significant impact.
Norrep Funds CEO Alex Sasso, in an interview with SmallCapPower, explains why he thinks small-cap stocks are “the beautiful asset class,” and describes the factors he considers before investing in a small-cap company. He also reveals his top stock picks, including one with a 31% Return on Equity.
The resounding story for the markets these last few weeks has been the unequivocal strength of the US dollar. The dollar closed higher Friday for the ninth straight week as it continues on its best run in 17 years. This has been the move in the dollar that many investment professionals were looking for as they anticipated the US Fed to end their Quantitative Easing program and begin to raise the Federal Funds rate, but the move in the dollar really did not come to fruition until the latter half of this year. That, however, is not the only story that has been supporting the strong dollar trade as a number of both domestic and international factors are weighing in on the foreign exchange markets.
The international story is based on the action of western central banks. As the US has passed their inflection point from making policy more to less accommodative, the question through the end of the summer has been what future measures will be taken by the European Central Bank and Bank of Japan? And unfortunately for the Bank of England, despite efforts by Governor Mark Carney to talk up the pound, a referendum on Scottish Independence on the 18th of this month has substantially weakened the pound translating to a stronger greenback.
On the domestic side it’s perhaps investor’s lax expectations that shifted this market. The San Francisco Fed put out a paper this week looking at how investors and futures markets were anticipating when the Fed might begin to tighten policy and at what pace versus what members of the Federal Open Market Committee (FOMC) were actually saying in their most recent June meeting. What the San Francisco Fed found was that the market and investors are behind the curve in anticipating when the Fed will begin to raise rates. This is inherent in an expectation that the accommodative policy will be around longer than the Fed currently plans on delivering.
This all leads into what will be a very important week for the markets. The FOMC meets Tuesday and Wednesday, and following that on Thursday Scotland votes. No question, volatility which has been vacant from currency markets for so long is finding its way back. Accommodative policy from the world’s most influential central bank had dampened volatility from the FX markets. As we’ve learnt, this had an effect of suppressing and stabilizing interest rates at record low levels. But as the Fed shifts back to a less discernible role in the markets, volatility in currencies will begin to rise.
The unknown going forward is what it means for the US dollar, and commodity prices, along with equities and the outlook for earnings of US companies, with a foreign income stream. The same questions holds true for most other financial markets. A stronger dollar provides headwinds and at this stage the dollar looks like it will continue to dominate.
In January of 2014 Cambridge House launched the Cantech Investment Conference with tremendous review. In June of 2014 we launched Canadian Investor Conference Vancouver which included all industries in Canadian venture capital.
In two weeks we are doing it again in Toronto. The Canadian Investor Conference (Canvest) Toronto is taking place Sept. 25/26. at the Sheraton Centre Toronto. The conference features dozens of analysts, money managers, Investment bankers and ceo’s on the podium while Investment opportunities from across the country are showcased on the exhibit floor.
Take a look at this quick video that gives you a snapshot of what a Cambridge event is like!
Michael Giordano, Portfolio Manager and Vice President of Investments at Stone & Co., recently spoke with SmallCapPower regarding his outlook for the resource sector.
He also provided some tips as to how he would construct a resource-weighted investment portfolio, and revealed some of his top stocks to watch at this time.
Super Mario Shows His Hand
Mario Draghi and the European Central Bank (ECB) shocked financial markets this week when they yet again revealed they were prepared to further combat a stagnating European economy. They announced they were lowering three key policy rates to their ‘lower bound’ and unveiled an unconventional QE style stimulus program to purchase non-financial private sector debt. Unfortunately, the implicit message delivered was that their policy options are becoming exhausted, and consequently further accommodative policy saw the euro fall over 2 cents on Thursday against the US dollar.
The trimming of the key policy rates is only somewhat significant as they have taken their deposit rate, the rate of interest charged to financial institutions, further into negative territory. Ideally, no financial institution is going to take a loss or pay the ECB interest to hold their cash overnight, and ultimately it’s a facility that will not be used. In theory, it’s to create the disincentive to deposit funds with the ECB, and instead incentivise them to make money available to the business sector.
The other key lending rate to focus on is the refinancing rate, which the ECB cut to 0.05 percent. This is similar to where the Federal Funds Rate in the US sits between 0 and 0.25 per cent, and at 1 per cent in Canada. And again, a marginal 10 basis point cut does not make a huge material difference to incentivize banks to now borrow more and make loans, but it almost acts as part of a last resort move for the ECB attempting to stave off a deflationary environment.
These further rate cuts seem like a last resort tool for the ECB in terms of utilizing their conventional policy tools, which clearly are not providing the incentives with the liquidity to spur economic activity in the respective economies. With powerhouses like Germany actually seeing GDP growth contract in the latest quarter, and Italy now entering a triple dip recession, this crisis still very much drags on in Europe. But the question is, as monetary policy sees a diminishing impact, can further accommodation prolong the structural reforms so desperately needed?
Mario Draghi said at his press conference that these measures will only work if they come with the structural reforms on the fiscal policy side, and that is left up to the individual European governments. But as the ECB looks to protect its mandate of price stability in the euro, similar to that of the US Fed, policies in the last week have entered the experimental phase as they begin their targeted bond purchases.
The biggest shortfall of monetary policy in Europe was that it was not filtering through to the businesses that hire workers and advance the economy. As was seen by continuously lowering policy rates, credit has largely remained unavailable to the small and medium size enterprises. The announcement of purchasing asset backed securities is the first step in how the ECB plans to combat this.
As Draghi dictated and the market reacted, this is a policy that ultimately weakens their currency, where on Thursday the euro reacted and fell to its lowest level since July of last year. Many are drawing comparisons to this and the Fed’s Quantitative Easing, or Abenomic’s and its three arrow approach in Japan. Moreover, the ECB is really the last major central bank to join the experimental policy party, and whether they will be successful is not the question, as six years into recovery, investors have learnt the hard lessons of not betting against central banks. Instead, what is the cost of experimental policy and ongoing government malaise?
A question we are still awaiting an answer to here in North America.
Louis James, Casey Research’s Chief Metals & Mining Investment Strategist, chats with Cambridge House Live anchor Vanessa Collette at the Sprott Natural Resource Symposium in Vancouver. In this clip Louis chats about his recent move to Puerto Rico and how the US territory’s tax advantages are game changers for investors and entrepreneurs.
Adrian Day, one of the world’s top money managers, speaks with Cambridge House Live anchor Vanessa Collette at the Sprott Natural Resource Symposium in Vancouver. Topics covered include the current state of the US economy (shocking info here!), where he believes the US Dollar is going (down!), and why gold is set to pop over the long-term. Shocking yet need-to-know info here for all concerned Americans.
Predicting the Unpredictable
As the markets awoke at the beginning of the week to news of a US air strike on Iraq, one aspect of the risk off trade that had been ensuing became clearer. Those who had been selling equities from the week earlier were doing so because of events in Russia, and definitely not what was leading up to US action in the Middle East. Without a doubt if events were to intensify or the degree of US involvement were to increase in the region, that might lead to a different story, but oil prices trading at a thirteen month low is one other example of how financial markets are exhibiting a lack of concern over the region.
As the attention of investors has clearly been with equities, the key question to how a broader set of sanctions impact the Russia economy is what now, if any effect will they have on companies with economic or financial ties to Russia. Furthermore, what impact would broadening sanctions do to the global economy? Sanctions now go beyond targeting specific individuals or their firms and encompass entire sectors. As Mohammad El-Erian points out in the Financial Times, this has direct implications to both supply chains and costs companies face, and then of course impacts to consumer demand.
Another threat is that if either country continues to strengthen their sanctions. Although motivation is to put pressure on Vladimir Putin, the sanctions ultimately only punish the Russian citizenry. Furthermore, it gives Putin the out that any hardship is the result of imposed disruptions by the West, and thus allows him to utilize the West as the scapegoat. As the Western European economies are the ones with much stronger economic ties to Russia, it’s the leadership of German Chancellor Angela Merkel and company that have a much larger dog in the fight, and thus need to be where a solution is fostered. It has long been clear that the US has given up their role as the global policeman and looks to play a limiting role in how this plays out.
The politics can be disguised in the near term to mask the real damage being done to the Russia economy. This might not last for much longer. The EU accompanied by the US and other smaller western nations have now sanctioned much of Russia’s financial system by limiting their banks access to parts of western capital markets. This hurts every single foreign investor with capital in Russia. And we can yet again introduce another risk, as their financial sector remains burdened with external debt close to half their foreign exchange reserves.
Since the end of June the Ruble has declined close to 7 per cent against the dollar, and measuring since right before Russia annexed Crimea, their central bank has had to raise interest rates from 5.5 per cent to 8 per cent in order to slow the rate at which capital attempts to flee the country. A diminishing ruble weakens the Russian economy. And to further exacerbate the weakening ruble, Russia’s ban on EU food imports only further weakens the currency as Russian consumers face an enforced inflationary environment paying higher food prices.
Russia’s growth in the last two and a half decades was a result of their economy opening up to the rest of the world and removing the centrally planned level of government. The steps Russia is taking are reminiscent of times past and the Cold War era. The potential for greater geopolitical risk that could result from tensions escalating is one important factor that is maintaining the bid in the gold market. The proven unpredictability of Vladimir Putin seems to suggest that gold is acting as the appropriate hedge.
View the original article here.
Brent Cook, one of the world’s top geos and the brains behind Exploration Insights, chats with Cambridge House Live anchor Vanessa Collette at the Sprott Natural Resource Symposium in Vancouver. They discuss the currents state of the junior mining sector and some of the companies he’s paying attention to right now.
Rick Rule, Chairman and Founder of Sprott Global Resource Investments, discusses the prospects of a dramatic recovery in the resource sector, why this junior resource bear market has been so prolonged, as well as some of the warning signs speculators should be aware of before buying these types of stocks.