Personal Finance

Bernanke’s Testimony Confirms We’re on the Verge of a Flight Out of Paper

Bernanke spoke before congress in the face of a Global Slowdown that includes a European Economic Smashup, a slumping USA and a China contracting as its former powerhouse customers have no money left to buy its production. Can Bernanke save us all?

Well if you listen to wise men like Jim Rogers he is sure going to try: “Mr. Bernanke is going to print more money…I wouldn’t pay much attention to the man…He only knows one thing – and that’s what he’s going to do…”

So what have we learned from Bernanke’s testimony:

1. Bernanke bluntly said in response to questions about the state of the economy that the US was “just “muddling through” while Europe was “already in recession.”

2. His prepared testimony went further, noting that GDP grew at a slower rate in the first quarter than in the second half of 2011 … and that the second quarter looks even worse. He also pointed out that payroll growth has plunged by 63 percent … that household confidence in future income remains low … and that business spending is waning.

3. Bernanke said the Fed could consider another round of quantitative easing, or QE3. Consider the effect that is likely to have given the previous attempts at easing (from Mike Larsen):

QE1 came at a time when the lending rates were very high and the credit markets were in complete disarray. It was a brand new policy nobody expected, and it had a huge impact in terms of bringing down spreads, rates, and risk levels.

But QE2 was less effective in terms of impact because market dysfunction was already largely fixed and because the underlying economy was weakening. Moreover, other similar programs from the European Central Bank’s LTRO1 and LTRO2 to Operation Twist 1 and 2, have had even less of an impact than QE2!

Just consider: A Credit Suisse note from a few days ago chronicled the findings of several studies on the impact of QE on 10-year Treasury Note yields. Several researchers estimated QE1 lowered yields by around 90 basis points to 100 basis points. But they also concluded that QE2 moved rates by as little as 13 basis points!

That was the supposed impact on the financial markets. The impact of several hundred billion dollars worth of QE on the real economy — meaning GDP — was as paltry as 40 basis points. That’s the difference between 0 percent growth and 0.4 percent growth, a drop in the bucket!

Yet somehow we’re supposed to believe that QE3 — the THIRD iteration of a policy that’s having less and less impact on financial markets, not to mention a near-zero impact on the real economy — will somehow be different? 

Seems best to bet that we are being lead by an Ineptocracy which is “A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers”.

In other words, bet against the leaders of the US Government & Fed. How to do that? I think Jim Rogers say’s it best. He is clearly betting against the Ineptocracy when he states: “He remains totally committed to commodities over the long term as the global economy continues to be drowned in mountains of the bankers’ paper currencies, these hard assets must soar in price – as all that paper collapses in value.

Ben-Bernanke

 

 

 

 

 

Strong US Dollar Fails to Torpedo Gold

The first chart below shows the strong US dollar. The US dollar is the mirror twin of the euro. As a rule, a strong dollar works against gold. The stronger the dollar, the fewer dollars it requires to buy an ounce of gold; and the opposite is true, the weaker the euro, the more euros it takes to buy an ounce of gold. This is the reason my pen-pal, Dennis Gartman, buys his gold in euro terms.

0.30A

Below we see gold, and what is so interesting is that gold is holding above support at 1535 in the face of the strong dollar. This is obviously good action in terms of gold.

1.391E

Just for the hell of it, I’m showing a daily chart of the euro. I think it’s over-priced at 1.22, and I think it’s going to par against the US dollar. I saw enough of Europe during WWII, and with the euro at 1.23, I’m staying in La Jolla where I can still get a meal for less than six bucks. The euro came out at 87 cents, which is what I think it’s really worth.

11.99C

Ed Note: Richard Russell of Dow Theory Letters is bearish the US Stock Market based on the Dow Theory. His advice to investors right now it that: “This is the time to cut back on needless expenses — get rid of all the debt you can, and prepare for tough times”. 

Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business. One of the favorite features of the Letter is Russell’s daily Primary Trend Index (PTI), which is a proprietary index which has been included in the Letters since 1971. The PTI has been an amazingly accurate and useful guide to the trend of the market, and it often actually differs with Russell’s opinions. But Russell always defers to his PTI. Says Russell, “The PTI is a lot smarter than I am. It’s a great ego-deflator, as far as I’m concerned, and I’ve learned never to fight it.”

 

 

 

 

Buy Oil Stocks Now!

Don Vialoux, runs the ETF Seasonal Rotation fund which invests in certain sectors of the market at certain times of the year and over the last three years or so, there has been some appreciation in his fund. But more importantly, since the energy sector has been creamed in the last five months, his ETF has not been hurt…well, not too much. As Vialoux suggests that the season “to buy the oil stocks is from now until October.” – comment by David Pescod 
 
Here’s Vialoux’s case in Charts:
 
The Canadian energy sector is showing early technical signs of bottoming. Thackray’s 2012 Investor’s Guide notes that the energy sector has a period of seasonal strength from July 24th to October 3rd.
 
clip image011_thumb4
 

Ed Note: Josef Schachter has been suggesting since really early this year that oil was going down and that the markets in general are to take a hit. And oil will bottom some time in October.

He also suggests you buy the oil stocks, but unlike Vialoux wants to buy them 2 months later in October.  

 

The Relative Strength of Gold

The outperformance of gold as an asset class is what keeps investors flocking to the metal. Yes there have been volatile periods when price has sparked lower, but overall gold has consistently outperformed both stocks and bonds over the past 12 years. As the increase in liquidity at the hands of the Fed has kept both stocks and bonds afloat, their appeal has been illusionary as the chart below (courtesy of Datastream, Ertse Group Research) shows. 

The left-hand scale shows the ratio of the MSCI World equity index to gold, while the right hand scale shows the ratio of a total return index of 10 year treasury bond to gold. When the ratio’s are falling, gold is outperforming. This means that the relative strength in gold is still present as both ratios are setting lower highs and lower lows which is the very definition of a downtrend. Holding physical gold should be encouraged until a significant reversal in this trend becomes apparent. As long as the government continues to pile up debt, this trend should continue. 

Picture 2

So how does the government try to solve the current debt situation? By issuing more debt, of course! 

Ed Note: Another Item from Mark’s 19 Page VR Gold Letter which you can read more about HERE:

Egon von Greyerz of Matterhorn Asset Management gold King World News, “The printing of money will lead to collapsing currencies, and investors buying gold at any price.” He added that “the paper markets will not be trusted” because “there is a distrust in the government’s ability to govern, and there’s a distrust in the financial system. We will continue to have failures like Lehman, MF Global and PFG. They will be much bigger and people will start to realize the banking system is not safe.” “So people will rush into physical gold. I see gold reaching $3,500 to $5,000 in the next 12 to 18 months. Within 3 years, I see the gold price reaching at least $10,000.” More specifically, he believes “silver will outperform gold. It looks like the upward correction in the gold/silver ratio is finishing here, which means that silver will start going up a lot faster than gold in the next few months. I don’t think it will be long before silver goes back to $50, and in the next 12 to 18 months we will be well above $50. In a world where most assets will rot, it’s critical to hold assets that won’t decay and that is gold and silver. And they have to be held in physical form.” 

 

Ed Note: As you might know Mark Leibovit is one of Michael Campbell’s favorite analysts and here’s a good reason why. I get all of Mark’s services, and one thing stood out glaringly in his VR Trader Platinum service. Of the 31 recommended stocks that Mark has liquidated since June 4th/2012 81% of them were closed at a profit. The 6 that were closed at a loss, the losses were very smalll, specifically -.12 cents, -8 cents, -7 cents, -.30 cents , – 2 cents and a “big” -$1.25 on a $39 stock. Moreover of the 8 stocks Mark is currently long, only one is showing a loss at today’s close of – 6 cents. 

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Spot Uranium Sleeping Beauties Before the Market Wakes Up

Pundits may have closed the book on the so-called nuclear renaissance, but the story is far from over. In this exclusive interview with The Energy ReportGold Stock Trades Editor Jeb Handwerger names the “sleeping beauties” quietly proving their worth. A new generation of nuclear energy must be part of a diversified happy ending, Handwerger says, but by that time, merger and acquisition activity may have already rewarded the investors who believed in a brighter future.

OMPANIES MENTIONED: AREVA – ATHABASCA URANIUM INC. – BABCOCK & WILCOX CO. – BHP BILLITON LTD. – CAMECO CORP. – DENISON MINES CORP. – EUROPEAN URANIUM RESOURCES LTD. – EXELON CORP. – FISSION ENERGY CORP. – FLUOR CORP. – GENERAL ELECTRIC CO. – RIO TINTO PLC – THE SHAW GROUP INC. – U3O8 CORP. – UEX CORP. –UR-ENERGY INC. – URANERZ ENERGY CORP. –URANIUM ENERGY CORP. – URANIUM ONE INC.

The Energy Report: Jeb, at the turn of 2012 you were bullish on junior uranium mining stocks. It’s halfway through the year and a lot of these stocks have still underperformed. Is this the result of continued economic fallout after the Fukushima nuclear disaster, or perhaps a consequence of the availability of cheap natural gas?

Jeb Handwerger: We had a really difficult year for uranium equities in the aftermath of both Fukushima and the end of QE2. The whole resource sector went, and uranium was hit extra hard. Cameco Corp. (CCO:TSX; CCJ:NYSE) and Uranium One Inc. (UUU:TSX) declined more than 50%.

However, we are beginning to see a notable improvement in the supply-and-demand fundamentals with more institutional investor interest in uranium. Year-to-date, Cameco is up close to 21%, making a higher low than in late 2011 and holding the 200-day moving average. It seems that the bottom we predicted in uranium miners in late 2011 is still holding. Compare that to the gold miners’ ETF (GDX:NYSE), which is down 17% and to the rare earths ETF (REMX), which is down about 12%. The uranium ETF is down only 10%. That shows me that uranium miners are relatively strong in a weak, panic-driven natural resource market where investors are hoarding cash and treasuries.

TER: So what’s breathing life into the uranium sector now?

JH: In 2011, nuclear energy had a lot of competitors from alternative energy sources such as solar, wind and natural gas. Since then, the challenges for each of these sources have become more apparent and the entire energy sector has undergone an outright selloff. A lot of articles have talked about cheap natural gas taking the place of nuclear. What the pundits don’t say is that natural gas has plenty of its own issues, ranging from the environmental downsides of hydraulic fracturing to greenhouse gas emissions. Furthermore, service stations and natural gas liquefaction plants must be set up along the chain of supply from mine to consumer. Major costs are involved and there is no assurance that the price of natural gas will remain at these low levels. Plus, some parts of the world don’t have abundant natural gas. The cost of liquefying it and shipping it can be extravagant. Japan, for instance, tried importing natural gas, but eventually gave up and recently reactivated nuclear plants amid growing fears of power outages affecting industry.

The short position in nuclear miners has increased even as money is being directed toward construction of new nuclear power plants globally. The shorts use the stories of cheap natural gas to depress the uranium sector. This means uranium miners may even have additional upside because of the large short position that may soon have to run for cover in the event of a turnaround. We have seen short covering rallies before in the uranium miners. In the summer of 2010, after QE2 was announced, the sector experienced major gains. The same was true in 2007/2008 before the credit crisis. We saw a huge exponential move. These moves came out of nowhere and were very powerful, with miners moving up 10–20% a day.

We must not tar nuclear energy with the broad brush of the entire resource sector malaise. Construction of new nuclear plants proceeds steadily and the media is not emphasizing that. The U.S., for the first time in three decades, announced the approval of plans for nuclear reactors in Georgia and South Carolina. Even Japan is reactivating nuclear reactors. India and China are moving full speed ahead, and this alone will require an additional 40 million pounds (40 Mlb) of uranium annually by the end of this decade. We must remember that the underperformance right now in junior uranium miners is transient. Nuclear power is here to stay. All energy sources have their own sets of cost and environmental issues. No one source can fulfill everyone’s needs for the next 30 years. Nuclear will always be part of the long-term energy mix, and when the market turns, long-term uranium investors have the potential to experience exponential profits.

TER: Japan’s Fukushima Nuclear Accident Independent Investigation Commission published its report on the 2011 accident. It largely blamed the Tokyo Electric Power Co. operators for administration and operational failures. What did these findings mean for the future of nuclear power in Japan and around the world?

JH: Many countries are still stuck with the old, 40-year-old nuclear reactors, which is what Fukushima was. A renaissance has since occurred in nuclear engineering. The next generation of reactors has a fraction of the risks involved with the old reactors. That is what is being built in China, India and Russia. Even Saudi Arabia has 16 plants under serious consideration. Four are in the works in the United States.

TER: Given that more than 500 new reactors are in some phase of the building pipeline right now, how attractive are investments in the engineering and contracting firms that design and build reactors?

JH: Investors are looking into the companies that build the reactors. The Shaw Group Inc. (SHAW:NYSE) is building the South Carolina reactors. Babcock & Wilcox Co. (BWC:NYSE) used to build nuclear submarines, but has also moved into small modular nuclear reactors. Fluor Corp. (FLR:NYSE) and General Electric Co. (GE:NYSE) are other names with exposure to nuclear power. One can also look at utilities like Exelon Corp. (EXC:NYSE) who are major players in nuclear power generation in the United States.

TER: If this is where the increased demand for uranium will come from, what about the supply? The large producers will probably deliver, but will the explorers eventually benefit as they find the fuel for the future? From an investment point of view, what is the best way to capitalize on this coming trend? Is it through the big companies or the juniors?

JH: To answer that, I think we need to take a look at what happened in 2011. One of the biggest deals was that Hathor Exploration, which owned the Roughrider deposit up in the Athabasca Basin, was bought up for multiples by the giant Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK). Rio Tinto’s stock price did not move nearly as much as Hathor’s price. Hathor received over $11/lb uranium. If you are looking to leverage the sector, a good way to play it might be to find a suitable candidate for the major uranium miners, many of which are trading at one-tenth of that value right now. Cameco and Rio Tinto have expressed ongoing interest in further acquisitions of juniors. That is why we are specifically looking at areas that are in mining-friendly jurisdictions where the majors are going to be looking to develop economic resources. The undervaluation of quality uranium miners is creating a possible once-in-a-lifetime buying opportunity.

TER: Do you see other buying opportunities in the Athabasca Basin?

JH: Following the Hathor buyout, we expect even more consolidation in the Athabasca Basin. When a company that large sinks $650 million into an area, we don’t think that’s the end. It is just the beginning. Rio Tinto will want to build resources and consolidate its position. We also think Cameco and possibly BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) is going to try to build a larger position in the basin. Target candidates include Denison Mines Corp. (DML:TSX; DNN:NYSE.A). It has the Wheeler River deposit, which is one of the best undeveloped projects in the basin. UEX Corp. (UEX:TSX) has a large resource base in the basin and is already 22% owned by Cameco. Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX) has the J Zone, which is pretty much a continuation of the Roughrider deposit.

Athabasca Uranium Inc. (UAX:TSX.V; ATURF:OTCQX) is an early-stage company in the area, but it has some great prospects at Keefe Lake. Athabasca has an interesting team with Dr. Zoltan Hajnal from the University of Saskatchewan, who is an expert at using seismic data for uranium exploration. He did this successfully for Hathor. He is a world-class seismic expert and he has joined Athabasca’s advisory board, along with Kim Goheen, who recently retired as CFO for Cameco. The company also came out with spring drilling program results that showed some very promising early-stage success using that seismic data. The second half of 2012/2013 may be interesting.

TER: Could Athabasca Uranium or any of these be standalone projects, or are they mainly acquisitions targets?

JH: In time, there won’t be many juniors in the Athabasca Basin. The high-quality ones will be a part of Rio Tinto or Cameco. The same thing will happen in the U.S., where we follow three juniors who are currently very active. Uranium Energy Corp. (UEC:NYSE.A)Ur-Energy Inc. (URE:TSX; URG:NYSE.A) and Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.A) are going to be U.S. producers who are part of the solution to the U.S. supply crisis. Just under 20% of U.S power comes from nuclear reactors, however more than 95% of the uranium is imported. The U.S. used to be one of the largest uranium exporters. Now it produces less than 4 Mlb of uranium.

As part of a plan to meet that demand, in the near term Uranerz, could be a takeover target for Cameco or Uranium One. It already has a processing agreement with Cameco and an off-take agreement with Exelon Corp. Uranerz has an incredible land package right between the two majors in the Powder River Basin, which has been producing uranium for five decades. The company employs in-situ mining, which also has many benefits over conventional mining when it comes to environmental issues and costs.

TER: How soon might a takeover happen? Is there some catalyst in the wings?

JH: You just never know when it’s going to happen, although I do know it will be sooner rather than later. I think as we get closer to 2013 there’s going to be more pressure. Over the next 6-18 months a huge amount of consolidation could come to the industry.

TER: Has the market already priced in these takeovers?

JH: No, no, no. Uranerz is trading near three-year lows. Investors have a chance to get into these companies on historic lows.

In South America, a company I like is U3O8 Corp. (UWE:TSX.V; OTCQX:UWEFF) in Colombia, Guyana and Argentina. The main project is Berlin in Colombia. The company has shown incredible resource growth during the past year. It has increased the Indicated and Inferred resource sevenfold, from 7.1 Mlb to 47.6 Mlb, and it has only documented the three southern kilometers (km) of a 10.5 km mineralized trend. The Berlin deposit is also home to phosphate and vanadium and has shown some very positive metallurgical recoveries. U3O8 is rapidly growing and derisking its resources in South American countries that are mining friendly. I understand the company will be completing a PEA in the second half of 2012. The company thinks it can potentially grow this asset in the near term to 40–50 Mlb uranium.

U308 already has a strong cash position with institutional support. What is really interesting is that the phosphate, vanadium and rare earths may pay the way with the uranium as pure profit. That is what we are looking for in the second half of the year from this company.

TER: U308 Corp is trading at $0.33 right now. How much could it go up from there?

JH: Right now, U3O8 is priced at about $0.77/lb uranium; Hathor was bought out for $11/lb and Mantra for $10/lb. That is almost a potential tenfold increase. As the project is derisked in the second half of the year, the stock should get to at least a comparable value to some of its current competitors, at over $1/lb.

TER: Are you looking at any uranium companies in Europe?

JH: Yes. We have one that we really like in Slovakia called European Uranium Resources Ltd. (EUU:TSX.V; TGP:FSE). First of all, it has a great management team. Plus, Europe is the largest user of nuclear power per capita. There is only one operating uranium mine in Slovakia at the moment and that is rapidly depleting. European Uranium Resources is really Europe’s next answer for uranium production. The deposit may be one of the lowest-cost uranium mines in the world. The prefeasibility study is very impressive from an environmental and economic perspective. The real momentous catalyst is if the company can sign an off-take agreement with the Slovakian government, with a surplus going to other EU nations.

AREVA (AREVA:EPA), the third-largest uranium producer in the world, already took a 10% position at approximately $0.35 a share and is on the European Uranium board giving technical expertise. The company is now trading at three-year lows of $0.22 per share. This may be a real undervalued situation in Europe.

Overall, Europe and the Americas are much better mining pictures than Africa and Australia right now. Rising resource nationalism in Africa and rising costs in Australia make these other stories much more attractive.

TER: So, is the overarching story mergers and acquisitions?

JH: I think so. There is going to be a dramatic change of landscape in the uranium sector. As the high-quality juniors come closer to production, they’ll be taken over by the majors. We saw the beginnings of that in 2011 and we will see it continue. One needs patience and fortitude and the ability to go against the consensus.

TER: Thank you for your time and your insights, Jeb.

JH: Thank you.

Gold Stock Trades Editor Jeb Handwerger is a stock analyst and best-selling writer who’s syndicated internationally and known throughout the financial industry for accurate, in depth and timely analysis of the general markets, particularly as they relate to the rare earths, precious metals and, nuclear sectors. He studied engineering and mathematics and received his undergraduate degree from University of Buffalo and a masters degree from Nova Southeastern the University in Fort Lauderdale. Teaching technical analysis to professionals in South Florida for some seven years, Handwerger began a daily newsletter that grew to become Gold Stock Trades: Mining for Winners in Any Market, with thousands of readers from more than 40 nations who are interested in the North American resource markets. Click here to subscribe to his free newsletter.

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The Most Important Chart in the World

The most important chart in the market might be the chasm between commodities and stocks, as per the chart below. Either the former must rally or the latter will decline. The famous and very rich Jim Rogers said in an interview yesterday:

 “the investing game is simple these days. I do believe I could count on one hand the number of times I’ve been presented with an investment opportunity that guarantees success no matter what direction the economy takes.”  Rogers adds, “If the world economy gets better, I earn my money on commodities. If the global economy gets worse, then they will print more money and I will make money in commodities.”  More of the whole interview HERE

(The CRB Commodite Index is Orange, The SP500 Index is White)

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