As the modern world seems to move directly from one crisis to another, today one of the wealthiest people in the financial world spoke with King World News about where we are in the end game and gold, as well as what investors should be doing right now with their own money. Rick Rule, who is business partners with billionaire Eric Sprott, also discussed what is happening with the metals and opportunities for investors to make a fortune going forward. Below is what Rule had to say in this candid and powerful interview.
Energy & Commodities
Before we get started with this week’s news please take a few moments to read our latest presentation on the future of the energy sector: 5 new energy booms every investor should see right now
Ukraine was set to sign a landmark trade association agreements with the European Union on 29 November, much to the dismay of Moscow, but the deal is now officially dead according to reports coming out of Kiev.
Ukrainian Deputy Prime Minister Yuriy Boyko announced today that Kiev has suspended its preparations for the signing of the EU-Ukraine Association Agreement until a “solution” can be found. Internal politics aside, at issue are industrial production decline and relations with the countries of the Commonwealth of Independent States (CIS)—both of which would need to be compensated by the European market.
One of the EU’s key conditions for the signing of the agreement was the release of Yulia Tymoshenko—at least to travel to Germany for medical treatment. Yesterday, Ukraine’s parliament rejected draft laws that would have allowed this to happen. Opposition leader and former prime minister Tymoshenko is a staunch opponent of Ukrainian President Viktor Yanukovych. She is serving a seven-year sentence in prison on abuse of office charges.
In the meantime, there has been a flurry of activity between Moscow and Kiev, including a Ukrainian pledge to readjust the payment schedule for Russian natural gas imports and address overdue payments to Moscow. Officials in Kiev are now saying they will pay $1 billion in overdue gas payments by the end of this year. Only last week, Ukraine had said it was suspending gas purchases from Russia and would instead rely on its own storage facilities, but it quickly backtracked on that.
Quite simply, there is just too much domestic political and geopolitical baggage attached to the EU-Ukraine deal, and according to Robert Bensh, senior energy advisor to Boyko and senior consultant for Cub Energy, the timing isn’t quite right.
Perhaps five years from now the climate will be more favorable for a deal and until then Ukraine will have to continue to balance relations with the EU and Russia.
Back in North America, it’s a busy week in energy as we head into the winter holidays, which promise to leave a lot of loose ends to tie off in the New Year, among them the five-year-pending approval of the controversial Keystone XL project and over 20 applications for exporting US natural gas to countries that don’t have Free Trade Agreements (FTAs) with the US.
This week has been a rather disappointing one for Keystone XL and LNG exporter-hopefuls.
First, the Freeport LNG export project in Texas saw its capacity hopes dashed by a Department of Energy (DOE) conditional approval of only 400,000 Mcf/d in LNG exports—a far cry from the 1 Bcf/d the company had asked for based on capacity and future expansion plans.
At the same time, it looks like one other project—at most—will be approved by the DOE before the end of the year, based on the approximately one month it has taken for each of the four LNG exports projects approved so far.
While some analysts were suggesting there would be a moratorium on further approvals this year, the DOE has stated that it is not suspending the approval process, but the process has been slowed because of October’s federal government shutdown.
The 16-day government shutdown “impacted our ability to move forward” on approving pending LNG export applications, Christopher Smith, DOE’s acting assistant secretary for fossil energy, said during his Senate Committee on Energy and Natural Resources nominationhearing.
Smith’s statement is more or a less a response to growing criticism from some senators that the DOW has been dragging its feet on LNG exports to non-FTA countries.
Then we have Keystone XL, the planned start-up of which has now been delayed for the second time this year, to 2016. It has become clear to TransCanada Corp. that its pipeline will not be getting approval this year, but the company remains hopeful that early 2014 will see the presidential green light. Once approval is granted, it will take at least two years for the pipeline to become operational.
In the meantime, though, the estimated costs of the project continue to climb along with the start-up delays. On Tuesday, TransCanada announced the new estimated costs of the project would be at least $5.4 billion–$100 million more than earlier estimates.
Colin Soares, CEO of Canada’s High North Resources, recently told us in an interview that Keystone XL isn’t as fundamentally important as it used to be because of huge increase in crude being transported by rail. “But from a market point of view, it’s still a big deal, and market valuations will increase with Keystone approval.”
Our analysis for readers this week comes from the Executive Report in Premium and takes a look at Egypt’s dying energy sector and the measures the interim military-backed government is trying to put things right—sort of. (The full report is below the introduction)
For those of you interested in Oilprice.com premium, we have a great letter lined up for subscribers. Dan Dicker our expert trader and legend in the oil markets takes a detailed look at the direction he believes oil prices will be heading in (This is a must read for ALL traders and analysts).
Our Opportunities letter take a look at a report recently put out by Ernst & Young which sounded a warning on the future of the E&P sector. Telling investors they need to beware of a silent killer that is stalking producers in some parts of the world. Places stock buyers should be looking at reducing their exposure. (if you have oil & gas investments in North America this is a must read report)
Our intelligence notes look at developing situations in Mozambique and Kenya and we issue our security risk rankings for East Africa.
This is another must read issue and you can do so completely free. We offer a 30 day free trial to readers in which time you will receive 30 reports that look at trading opportunities, unique investments, industry developments, geopolitical updates and much more. You can cancel at any time during these 30 days if you think our research isn’t for you.
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That’s it from us this week.
I hope you enjoy the report below and have a great weekend.
Best regards,
James Stafford
Rule: “The truth is that right now stock markets are confident. It would appear people think that Yellen is going to do an absolutely great job, and I guess if the job involves a debasement of the currency, she will….
“Ben Graham once observed that in the very short-term markets are voting machines, and long-term they are weighing machines. Meaning, in the short-term they measure people’s perceptions and prejudice, and in the long-term they measure value.
Ben Graham famously said, ‘Money was made arbitraging between the way people vote and the way things are.’ And I think paying attention to the gold price at today’s price makes about as much sense as sense as paying attention to it at $1,900 did. The truth is that they are both short-term aberrations.
It is completely consistent with gold’s trading in the past that this has been a cyclical decline in a secular bull market. Remember, from 1974 to 1976, in the midst of the most historic run in gold in my memory, where gold went from $35 to $850 an ounce, in the middle of that epic run there was a decline from $200 an ounce, to $100 an ounce. People who didn’t have the courage or the cash to stay the trade in the 50% decline, missed an 850% 4-year run. Investors can ignore that at their own peril.”
Rule added: “Right now we are focused broadly on natural resources. More specifically the public and private resource issuers in Canada and Australia, and probably more specifically than that on the precious metals side of the equation.
It’s been very rare in my 35-year career that attractive precious metals companies are priced at or below our estimate of fair market value. The last time we saw this set of circumstances occur was in 1999/2000. The last time before that was in 1991.
So this would seem to be a set of circumstances that occurs every 10 years. When this set of circumstances occurs, it generally is in fairly bleak markets like the ones that we are in today. My experience in the prior two periods like this has been that aggressive allocation to the best precious metals related explorers or developers in the junior sector, on a global basis, generate tremendous rewards in the ensuing 3-to-5-year time frame.
So we are focused on providing catalytic capital on a private placement basis, with warrants, to very high quality exploration and development stage juniors in the precious metals business. But we also see great opportunities in many areas in resources including energy. Sprott has recently secured a mandate to co-fund and co-manage a global catalytic capital mining fund with the largest of the Chinese state-controlled non-ferrous metals mining companies. So we are very excited about that business.
It is beginning to feel like the big state-owned enterprises, the sovereign wealth funds, and the big private equity players, sense enough opportunity that it now appears funding will be available to the sector over the next 12 months. We are very excited to be part of that process.”
IMPORTANT – Due to recent market action, KWN will be releasing major interviews all day long today.
The audio interviews with Gerald Celente, David Stockman, Art Cashin, Dr. Stephen Leeb, John Hathaway, Bill Fleckenstein, James Turk, Andrew Maguire, William Kaye, Dr. Paul Craig Roberts, Eric Sprott and Jim Grant are available now. Other recent KWN interviews include Marc Faber and Felix Zulauf — to listen CLICK HERE.
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The initial reaction from many following this month’s key gathering of communist-party leaders in China was of disappointment as Tuesday’s blueprint left much to be desired. But on Friday came a significantly more in-depth document regarding issues like land reform, easing of the one-child policy and cleaning up pollution.
It’s all left famed investor Jim Rogers believing “the most important economic event of the next 10 to 20 years is what happened in Beijing.” And it’s something he says has been largely ignored, notably by Western media.
During a visit at the Wall Street Journal, the former George Soros partner–who retired from Wall Street at age 37 to live a second life as world traveler—equates the plenum to those in 1978 and 1993. The first followed Mao Zedong’s death and ushered in Deng Xiaoping’s reformist agenda and his effort to remake China’s economy, while 1993’s plenum included a vow to deal with money-losing state enterprises.
In the just-concluded gathering, which occurred a year after President Xi Jinping became party chief and was seen as his stage to set forth the agenda for his possible 10-year tenure, reform was hoped to be a big focus.
Mr. Rogers, who moved with his family to Singapore seven years ago, senses change is coming.
The land reform includes increased rights for farmers. This group has long seen land taken from them but now are in position to amass large tracts for more-efficient production in a country struggling to keep up with a populace that has increasing amounts of money to spend on food.
Chinese agriculture has been ruined since Mr. Mao’s tenure, says Mr. Rogers, capped off by the Cultural Revolution, during which teens were sent to the country to work on collective farms. But while current efforts, if followed through, could take upwards of a generation to really bear fruit, Mr. Rogers sees Chinese agriculture as a sector in which to invest, as well as railroads, medical care and defense.
“These industries will do well even” even if the country’s stock market collapses, he contends. Mr. Rogers has been buying Chinese stocks, including financials, for the first time since 2008; he previously was a purchaser in 1999 and 2005.
Also seen changed by his perspective is politicians’ resolve. “The overriding concept” from the plenum is “when in doubt, the market will decide.” For a state-controlled economy, that sounds like a 180 to past practices.
So why think the new leadership isn’t just giving reform lip service? Mr. Rogers admits he can’t be sure, but the investor—who came to New York from China and will soon be back in country–senses something different. “As previous administrations tried to change, they ran into the bureaucracy.” But now, policy makers “seem to have the wind at their back” and leaders have “put a lot of prestige on the line.”
The reform effort would come amid years of talk about China’s economy being a bubble or that its ascendance will end. Mr. Rogers says that reminds him what Europeans said about the US after the Civil War. Then, the New World was still considered an untamed backwater. But he notes things change quickly: Within a generation after World War I, the undisputed No. 1, the United Kingdom, was no longer that.
Here are today’s videos:
Gold Fibonacci Lines, MACD, & Hedging Tactics Charts
HUI MACD Histograms Analysis Chart
T-Bond Yield Weighs On Gold Chart
Thanks,
Morris
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