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.
Doug Casey, NY Times’ best-selling author and chairman of Casey Research, chats with Cambridge House Live anchor Vanessa Collette at the Sprott Natural Resource Symposium. They discuss Casey’s documentary film, Meltdown America; why he believes the US is in such serious trouble; and where he sees value in the stock market.
Filmed At the Sprott Natural Resource Symposium July 23rd
A Goldilocks Moment
Who would of figured that in a week when the US economy reported initial estimates of second quarter GDP growth of 4 per cent, that the Dow Jones Industrial Average would simultaneously erase its gains for the year. Investors are grappling with the notion of whether this economy is ready to break out or revert back to the moderate 2 per cent growth levels we’ve witnessed on average since escaping recession. Similar to the jobs report early Friday morning, gains were strong despite missing expectations, but it’s the troubling 2 per cent wage growth barely matching inflation that leads investors to pause and question the economic outlook, particularly as viewed from the lens of the US Federal Reserve, and what corresponding policy could potentially be.
The headline print for US GDP growth is certainly one that appears strong on paper. No question following a dismal start to the year that the three month period ending in June made up for some of the weakness from the winter freeze. But it was the fact that consumption, which attributes for approximately seven tenths of the US economy’s output only advanced at two and a half per cent. This is what leads to questions or uncertainty surrounding whether growth in inventory building by US businesses will be matched by a pickup from the American consumer, or whether the expenditure is simply a trade-off for business spending later in the year. Currently, it seems the latter, that the economy will simply revert back to trend, that seems to resonate with investors as the equity markets seem exhausted at current levels.
Friday’s job numbers added credence to this theme as the number of jobs created no longer seems to be the focal point of the Federal Reserve. As renowned PIMCO economist Paul McCulley suggests, we know longer have a US federal reserve that is satisfied with just lowering the jobless rate. The Fed, under Janet Yellen is making clear their mandate that wage growth and other structural problems in the labour market is of particular importance. So while the broader theme around the US market is strength in full time employment on a monthly basis and encouraged workers rejoining the workforce, the issue and focus for the Fed stays with the measure of long term unemployed, which did tick higher in July, and the need for an increase in wage growth to keep pace with inflation and productivity gains.
This cautiously strong economic environment is congruent with the fashion in which the US dollar is trading. Wednesday of this week, the US dollar index rose to a 10 month high following the GDP numbers, and the way in which the dollar gained fits with this goldilocks economy-not too hot, and not too cold. We are seeing resounding strength in the dollar and the potential for upside, but still the uncertainties of the Fed ending QE, shifting consensus on when the Fed will be able to raise the Federal Funds Rate, and even whether the weakness in the euro will follow through.
The puzzle for the markets in a week when the Dow lost close to 400 points (2.40%) and the S&P close to 50 points (2.46%) was that there was no clear safe haven. Gold floundered, government bonds found modest bids, and the US dollar, albeit, gathering some momentum, stayed relatively quiet. As the markets and the economy recouple into a period of perhaps more normalcy, the question becomes is the inevitable equity correction looming, or is this another buy the dip as markets climb at a not too hot, but not too cold pace.
Jeff Clark, one of the world’s top gold experts and the Senior Precious Metals Analyst at Casey Research, chats with Cambridge House Live anchor Vanessa Collette at the Sprott Natural Resource Symposium in Vancouver about where the gold price will go should the mainstream markets have a major correction, why inflation is absolutely on its way and how he chooses what gold stocks to buy. You couldn’t watch a better interview today on gold and why you need it in your portfolio.
Sprott USA Chairman Rick Rule chats with Cambridge House Live anchor Vanessa Collette about a range of issues to investors, including great buys in the resource sector right now (uranium), “serially successful” miners he follows (Robert Friedland & the Lundin family), and how he evaluates companies (people, people, people!). Excellent advice for any serious investor.
Frank Holmes, CEO & Chief Investment Officer of US Global Investors, chats with Cambridge House Live anchor Vanessa Collette at the Sprott Natural Resources Symposium 2014 in Vancouver. They discuss a myriad of pertinent market events, including the “remarkable” value of junior miners & oil stocks.
Economic Patriotism or Free Market Pragmatism
The Obama administration is becoming quite critical of US corporations acquiring foreign firms in order to relocate their tax domicile to a country with a more favorable regime. Last week, US Treasury Secretary Jack Lew suggested American companies that have done so or are thinking about doing this lack a sense of economic patriotism. In his opinion, American corporations should not take advantage of the benefits of doing business in the United States and utilize loopholes in the US system in order to write down their tax liabilities. The President joined the chorus this week suggesting “some people are calling these companies corporate deserters.”
They’re both wrong.
US corporations are abiding by the current tax legislation that is in place. It’s simplistic and absurd to suggest they have a patriotic responsibility towards the United States. In fact, management of these corporations do have a responsibility, and that is after considering their stakeholders like their employees, suppliers, and customers, they are responsible to their shareholders. Thus, one would imagine US lawmakers would need to ensure that the United States is a competitive nation in terms of offering a favorable corporate tax rate that provides US business with the right incentives, but not put the onus on them to do ‘what’s right for America.’
For this, there is no question broad based corporate tax reform is desperately needed. It is evident from the fact that an additional 25 major US companies are considering relocating overseas by the end of this year in order to take advantage of a smaller tax bill. Senate Democrats have proposed raising the foreign ownership threshold required of a US company to re-domicile their tax base from 20 per cent to 50 per cent. Despite being backed by the current administration, this is not the solution. It is simply a Band-Aid fix, and one might even suggest that if such a significant tax advantage still exists, US corporations would flee more capital from the United States to acquire larger shares of foreign companies.
As The Economist points out, there are two major flaws with America’s tax code. First, on paper America’s corporate tax rate is 35%, which is the highest amongst the 34 member countries in the OECD, but their effective tax rate is less than the OECD average thanks to a laundry list of aimless loopholes. This alone illustrates the complexities and resulting inefficiencies in their tax code. The second is that the US taxes income regardless in which country it is earned, but doesn’t collect until funds are brought back to the US. This creates yet another disincentive to repatriate foreign profits and the consequence is less investment in the US.
If the US government wants better corporate participation at home, then it behooves them to rewrite the tax code. Ultimately, this is what will incentivize these same US companies that hold profits overseas to bring those profits home and lead to the positive contributions to the American domestic economy.
The original article can be viewed here.
Rick Rule has been a longtime friend of Cambridge House International. On July 22 to 25 he is hosting a special event at the Fairmont Hotel in Vancouver. We want to make sure that you are aware that he is hosting the upcoming Sprott Vancouver Natural Resource Symposium.
Rick has gathered an outstanding speaker line-up, which includes mining billionaire Robert Friedland, legendary speculator Doug Casey, world-wide best-selling author Bill Bonner.
Rick believes that right now is “make it or break it time” for millions of investors… And if you do nothing, you could end up regretting it for the rest of your life. He will tell you why this could be the best time in 15 years to enter the resource sector. In fact, he says many of his favorite stocks are still at 90% discounts from their highs.
We are looking forward to learning what some of the most experienced and capable investors in the natural resource industry are doing right now. And you should too!
This event will take place in Vancouver, from July 22nd to 25th, at the Fairmont Hotel.
Although space is limited, this may be the only time that Rick hosts this unique conference, so we want to make sure that you seriously consider attending.
You can find out more details about the conference, including the venue, here.
Click here to order your ticket online today. You can also call 1 800 926 6575 or +1 561 243 2460, ext. 105 or 106.
Cambridge House International Inc.
P.S.: Attendees will also receive a reduced rate on rooms at the Fairmont, so be sure to mention you are coming to the conference!
Memories of a Euro Crisis
Gold prices gained for the sixth week in a row putting up the metals’ best winning streak since August of 2011. Beyond the technical factors that have been supporting this rally that started below 1,250 US per ounce, investors once again are demanding gold for its safe haven characteristics. It was the news of an extension of Portugal’s biggest bank missing an interest payment on their debt that saw investors sell equities and move into precious metals. And thus, the memory of the fears of a sovereign debt crisis in Europe (that investors had since moved passed), serves as a sobering reminder for the need of a hedge to equity exposure. This is amplified by the fact that we are in a rising interest rate environment when investors might want an alternative to bonds and other fixed income.
But it is interesting to think back to what the market reaction might have been two years ago if a similar event had happened to another one of Europe’s major financial institutions, and perhaps allows suggesting that the markets today are not as sensitive as they were in 2012. The selloff in the markets we saw on Thursday might have been much more drastic. And for that matter, the selloff could have followed through into Friday’s trading session as investors concern themselves over the condition of European banks’ balance sheets. Instead, banking fears in Europe translated to a half percent selloff in the S&P500 and the markets finished positive on Friday.
As immune as the markets may have been this week to the events in Europe, they have illustrated one thing, and that is as we remain in this low to moderate growth environment, we will continue to uncover vulnerabilities in our financial and economic system. This is simply because we are not seeing the robust economic growth that would allow us to put the crisis of 2007 behind us and move on. Portugal’s Banco Espirito Santo may not represent a major financial institution in comparison to perhaps the problems encountered by Spain’s Santander in October of 2012, and their exposure to the debunked Spanish housing market. But it does caution that there could be many more skeletons in the closet uncovered by this lifeless recovery.
The same is true for North America. Weak economic growth holds us back from correcting the shortfalls that led to the events of 2007. Despite analysts’ calls for a strong US economy in the second quarter of this year, it follows a near three percent contraction in the first three months. And it’s a similar scene in Canada, which is evident through the performance of a labour market in an economy that continues to illustrate a pure inability to create jobs.
My point is certainly not to be overtly bearish on some unforeseen events or hiding from what’s to come. Moreover, as the same structural problems are still prevalent in the global economy today, like stagnant employment growth, high government debt levels, and an ongoing societal debate surrounding social inequality, it’s hard to see what will spur a sudden shift to a rapidly growing economy. And for that reason it seems we can expect a few more shocks along the way, and investor’s continuing to turn to gold as the ultimate hedge.
- JORGE GANOZA: President, Director & CEO of Fortuna Silver Mines
- JOHN EMBRY: Chief Investment Strategist at Sprott Asset Management
- RICK RULE: President & CEO of Sprott US Holdings
- DOUG CASEY: Chairman of Casey Research
Vanessa Collette of GoldSeek TV & Cambridge House Live will be moderating this special event which will include your questions!
- Are the Gold & Silver bull markets coming back?
- How to profit from the coming stampede into mining stocks.
- How gold is playing its part in global monetary shifts.
- Plus much more including your questions!
Please send us your questions online:
By Steve Todoruk, Investment Executive, Sprott Global Resource Investments Ltd.
In the past few weeks, several of the “top” junior exploration stocks have seen a pronounced move upwards, many beating gold and silver bullion by a wide margin.
After hitting a low of $1,180 per ounce this past December, gold moved up to a high of $1,392 by mid-March, 2014.
Outperforming gold by a wide margin…
Many of the junior mining stocks were swept along, and even outperformed gold substantially. For instance, Detour Gold Corp., a junior that I would consider “top tier,” was at around $4.10 on January 1. By mid-March, the stock stood at $12.15, a 196% move. That is nearly 20 times the returns from gold, which rose less than 10% over that timeframe. Continue reading
A clear message from investors as we head into the July 4th Holiday weekend in the United States is that equity markets are poised to continue their march higher. Of the US indices, both the Dow Jones and S&P 500 continue in record territory, and the NASDAQ is just shy of it’s all time record high reached at the heights of the tech bubble in March of 2000. And what continues to give equity markets their buoyancy are the economic reports that continue to depict a American economy set to equalize the negative first quarter of this year.
Every economic release or piece of data put out this week points to the North American economy, particularly stateside bouncing back from that dismal performance in Q1. Auto sales had their best month since 2006, China’s economy continues to exhibit signs of picking up and in turn signalling strong demand for North American goods and services. As a result of this, Dr. Copper has bounced of its recent lows. But of course, the icing on the cake was the June job’s report with American employers adding a healthy 288 thousand positions.
It was the job numbers though that continues to be the single most important economic indicator for the markets. The health of the US labour market is the de facto concern for policy makers, and thus will continue to be their focus. This will lead an ultimately more dovish Fed to keep their policy more lenient. And although asset prices are not a direct target of their policy, with the Fed in no rush to raise interest rates, the equity market looks like they will continue to find buyers at these levels.
As BMO Capital Markets Chief Economist Douglas Porter observes, two decades ago the unemployment rate was as well at 6.1 percent, average hourly earnings were growing at 2.5% versus 2.3% today, and the consumer price index was at an annualized rate of 2.3% versus 2.1% today. In 1994, the Fed Funds Rate (their policy tool) was 4 percentage points higher than it is today. Obviously, more goes into what determines the FOMC to raise interest rates; however, this exemplifies they are in no rush to act anytime soon.
And this is what is supporting precious metals, particularly silver which made a tremendous 11% move higher in June. The question becomes whether the resurfaced optimism in the equity space will see downward pressure on the metals. Or (as we saw in June), will a cautious investor continue to question the gains in equities and maintain the bid for gold.
Another Bullish Signal for Gold
The Financial Times reported this week that central banks around the world are in the process of repositioning their portfolios as they pare back their exposure to US treasuries. They are doing this ahead of the US Federal Reserve ending Quantitative Easing (QE) this fall. Their rationale is that without the US Fed acting as the biggest single buyer of US government debt, excess demand for US treasuries will not be absorbed by the market at elevated prices, and thus will lead to higher interest rates. This should insatiably create a demand for gold, and the demand is from those that need to hedge exposure to US currency and US debt.
And so continues the threat of financial instability for global markets. Contrary to this though, the theme on Wall Street for the last few weeks has been on the abnormally high reported levels of investor complacency. This is gauged by the VIX (commonly referred to as the fear index) touching its lowest level in seven years, which was right before the financial crises of 2007. And this is exemplified by the fact that the major US indices have not made a move one per cent or wider in either direction in a single trading session in the last two months. To some, this is unsettling and continues to prompt calls for that overdue correction in equities.
But looking longer term or perhaps examining the implications of what a diminishing appetite for government debt by the world’s largest money managers means is what is a greater concern verses a lull in the markets. Tighter monetary policy is prompting central bankers, pension funds, and large scale investors that traditionally steer towards fixed income to allocate more capital to riskier assets such as equities. This chase or reach for yield, that many of the world’s brightest thinkers have precaution of is taking place. Riskier assets, and at times less liquid assets will have trouble offering the consistency and performance that some of these funds, like pensions, seek to achieve.
The other caution though that stems from this is the potential of these large scale investors losing the flexibility of their liquidity. Arguably, this would more be a threat to the stability of global markets, but according to the IMF, as 62 percent of all central banks investments were held in dollar based assets last year, it was undoubtedly the utility of the greenback as the world’s reserve currency that offered this convenience. The uncertainty going forward is determining the effect of the end of the dominance or reign of the dollar.
And this is again where precious metals play a role. The greatest risk to financial markets is how the US treasury market preforms when its biggest buyer, the Federal Reserve, is no longer in its role as a never ending buyer of US debt. It in part served this role in order to support a market of suppressed long term rates. The belief is that the demand and rush for equities will keep their prices trading higher as all types of investors continue to raise their exposure to risk assets. Unfortunately, this continues to tell a story of the stark differences between the financial markets and the underlying economy.
One will have to budge.
At the recent Canadian Investor Conference the question was asked whether to buy silver, or gold. Mike Maloney and others give some insight as to how he uses the gold/silver ratio to determine what he buys, and why that ratio is so important.
For more information about Gold & Silver or Mike Maloney, visit the Why Gold & Silver channel and subscribe: http://goo.gl/emXEB