Personal Finance

When the FED bubble bursts…

Posted by ZeroHedge via Peter Grandich

on Tuesday, 1 October 2013 20:05

UnknownWhen Bubbles Fail: Albert Edwards Explains What Happens When The Fed Can No Longer Contain The Fury Of The “99%”.

The premise in Albert Edwards’ latest letter “Is the Fed blowing bubbles to cover up growing inequality… again” is simple: the unprecedented social inequality in the US (and the rest of the world – as pointed out here), and what it will ultimately lead to. Regarding what it will lead to, Edwards believes, is that “growing inequality drains the swimming pool dry. The crunch, when it comes, will be ugly.” Simple enough.

Digging a little deeper.

Ed Note: This article recommended by Peter Grandich can be read in full HERE

On the Road to Armageddon, Take Shelter in Resources

Posted by Bob Moriarty via The Energy Report

on Tuesday, 1 October 2013 19:47

images-1An economic recovery that isn’t one. A civil war that isn’t one. Cheap oil that is no more. According to Bob Moriarty, resources remain one of the few absolutes in the world. In this Energy Report interview, Moriarty explains why he’s sticking to resources when many investors are turning to the mainstream markets, and shares long-term opportunities for shale oil in New Zealand and coal bed methane in Indonesia.

The Energy Report: The last time we chatted, you were adamant that the U.S. is not in recovery. Does the Fed’s decision to continue tapering prove you right?

Bob Moriarty: Of course. Tapering spends money without improving things. The Dow and the S&P are at record highs. That’s a good thing, but only 12% of Americans own any shares at all, including in a retirement fund. At the very best, tapering is helping only that 12%.

The reality is that you’re helping the 1%. The 1% is doing very well, but 99% are getting further behind. Plus, we’re increasing the debt. One of these days it will blow sky high. I don’t know whether the Fed will blow up or if the 10-year Treasury yield will, but this is a very dangerous time.

TER: When we talked to James Dines, he said bonds would take a big hit. Are you worried about that?

BM: Of course. The 10-year Treasury is very important because home mortgage prices are set using that as a base. A little over a year ago, the 10-year Treasury was 1.45%; a couple of weeks ago, it hit 3%.

The theory behind not having a taper was that the yield curve would go down. When Bernanke announced there would be no taper, the yield curve was 2.86%. Now, it’s 2.75%. There has been almost no impact. If the 10-year Treasury goes through 3 or 3.25%, we’re going to see Armageddon.

TER: Are China and Europe doing any better?

BM: No. China is slowing down. Europe’s in the same situation we are. People need to understand that you cannot spend your way to prosperity. You can only save your way to prosperity.

Spending the way to prosperity didn’t work for the U.S. and it won’t work for the European Union. The E.U. countries need to get government spending in line with how much money the governments collect. It needs to stop cradle-to-grave subsidies for everything and return to economic reality. After 20 years of crazy growth, China is slowing down, which should be very healthy for its economy.

TER: Angela Merkel was just reelected in Germany, but with a less powerful coalition. Does that restrict her ability to impose austerity on countries like Greece and Portugal?

BM: Austerity is one of those emotionally laden words that is absolutely meaningless. Austerity means living within your means. There is no alternative to austerity. Merkel is in a true dilemma, given that the other twopolitical parties in Germany have said they will not form a coalition with her. She won, but she didn’t win.

TER: Given all that, is the $100+ per barrel ($100+/bbl) price for oil based on conflict fear rather than economic demand?

BM: We passed peak oil in 2005; $100/bbl is the new normal. In a depression, it might go as low as $80/bbl. If there was a real conflict, you could see oil at $300/bbl or $500/bbl. Peak oil has everybody confused. People think it means there is no more oil. There’s still plenty of oil, like shale oil and tar sands oil, but it costs a lot to extract it. The price needs to stay at least $100/bbl for it to be economic. No more cheap oil.

TER: Could a deal with Syria or Iran result in lower gas prices by lessening that conflict fear?

BM: No. I don’t think it’s a supply-based fear. I think it’s an Armageddon fear. The oil price is high because everybody’s afraid we’re going to start World War III, which could well happen.

TER: With all of that going on, are you still investing in energy companies? Are there any safe places left in the world?

BM: The one area I’ve written about in detail lately is the North Island of New Zealand. Two companies down there are doing extraordinarily well.

The first is TAG Oil Ltd. (TAO:TSX.V). On the conventional drilling side, TAG is doing very well. In addition, in the East Coast Basin of the North Island, the company drilled a 4,500-foot hole into shale. To give you an idea, this shale is 300–600 meters (300–600m) thick. By comparison, the Bakken shale is 10–20m thick; in Texas, 30–40m.

That is an absolute home run that the company is being very quiet about. There will be an auction in October and TAG will try to add to its land position then. New Zealand will be a big oil story in five years.

TER: What is the second New Zealand company?

BM: The other is Marauder Resources East Coast Inc. (MES:TSX.V). It has a $7 million ($7M) market cap, but hasn’t done any drilling.

Marauder is riding on TAG’s coattails, which is smart. If TAG hits a home run in the East Coast Basin, it will be a home run for Marauder too. The shale formations tend to go on for hundreds of kilometers. I expect TAG and Marauder to be very aggressive at the auctions in October.

TER: Would Marauder also reach its true potential in the next five years?

BM: I hope so; I own a lot of shares.

TER: You’ve also talked about CBM Asia Development Corp. (TCF:TSX.V) and its coal methane beds. Are you still excited about that?

BM: Yes and no. Coal bed methane and Indonesia are both very exciting, but CBM Asia is just about the worst communicator I’ve seen. Four years ago, the company made a giant mistake by trying to grab as much land as possible. As a result, its costs have gone through the roof and the company isn’t doing anything visible to shareholders. In 2009, the stock was $0.60; today it’s $0.10. The company announced a $15M raise in March and never completed it. Management never told people what was going on.

Going by how much gas it has, CBM Asia should be a $300M or $400M company. Instead, it’s a $16M company that has raised $40M. Management has torn dollar bills in half and thrown them away. CBM Asia could be a home run if you had a change in management first. They should fire the president; he has destroyed a very valuable asset through his lack of communication.

TER: Do any small or midsize producers appeal to you?

BM: I follow the Canadian firm Aroway Energy Inc. (ARW:TSX.V; ARWJF:OTCQX) very closely.

TER: Aroway Energy just increased its reserve estimate by 246%, but there was no correlated increase in its stock price.

BM: Exactly. The company is producing more and it has good management, yet the stock price has been cut in half. It has nothing to do with the merits of the company. It has everything to do with irrational behavior on the part of investors. I’m not concerned over the long term.

TER: Do you like any of the big producers?

BM: I don’t, because they’re like 50,000-pound elephants. When they start moving, they move a lot, but it takes a lot to get them moving.

TER: What about energy services? Does that sector excite you?

BM: Absolutely. For example, Synodon Inc. (SYD:TSX.V) is a home run. It has an extremely effective airborne process for detecting leaks from natural gas or oil. The company has finally gotten traction and is starting to sign more deals. I think it will be very successful over the long term.

TER: Are services a safer play compared to natural gas?

BM: Yes, because natural gas is so cheap. In Indonesia, natural gas is selling at ~$12 per thousand cubic feet ($12/Mcf). But here in North America, it’s ~$3/Mcf. There is a lot of opportunity in energy, regardless of what happens to the economy. It will always be needed in transportation and agriculture.

TER: Given all the scary headlines, what reassurance can you give energy investors?

BM: Here’s what investors need to know: Everybody is aware that gold and silver stocks have gone down, but they don’t realize that many energy stocks have gone down just as much. There has been a giant rush from resources into the mainstream stock market. When that rush changes and people realize that resources are the only safe place to be, things will get interesting.

The worst place to be right now is bonds. The second worst place is the Dow and the S&P. The safest place to be is resources.

TER: Bob, thanks for your time and your insights.

Bob and Barb Moriarty brought 321gold.com to the Internet almost 10 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Bob was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.

Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

 

DISCLOSURE: 
1) JT Long conducted this interview for The Energy Report and provides services to The Energy Reportas an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Aroway Energy Inc. and CBM Asia Development Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Bob Moriarty: I or my family own shares of the following companies mentioned in this interview: CBM Asia Corp., Synodon Inc., Aroway Energy Inc. and Marauder Resources East Coast Inc. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: CBM Asia Corp., Synodon Inc., Aroway Energy Inc. and Marauder Resources East Coast Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclosure. 
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

“The Dow Faces Hurricane Winds”

Posted by Stewart Thomson - Graceland Updates

on Tuesday, 1 October 2013 17:33

  1. imagesAs one deadline after another passes, the US government is beginning to shut down.
  2. This is a truly horrific situation, and I’m stunned by the incredible complacency being exhibited by stock market investors.
  3. For decades, I’ve labelled the September – October time frame as “crash season”.
  4. In my view, it’s critical that all mainstream investors get out of the market during this period, because it’s when the most devastating market meltdowns tend to occur.
  5. It can take generations for investors to recover the losses they experience during crash season. The risk of 25% – 90% losses far outweighs the potential reward of 2% – 5% gains.
  6. Today is the first day of October. The crash of 1929 occurred during this month. Can a similar event happen again? Of course it can, and the current atmosphere of complacency increases the risk of it occurring.
  7. Please click here now. You are looking at the weekly chart of the Dow Jones Industrial Average. The technical situation is deteriorating dramatically.
  8. There is a huge RSI non-confirmation in play. The Dow has made new highs while this key oscillator is exhibiting a horrific meltdown.
  9. There is also a nasty bearish wedge beginning to form, and there’s not much support above the 13,750 area.
  10. Please click here now. As horrifying as the weekly Dow chart is, this monthly chart looks even worse.  Note the volume at the bottom of the chart. Despite tomes of bullish news, volume continues to sag. That’s a huge red flag for stock market investors.
  11. As somebody who bought key Dow stocks into the lows of 2009 without leverage, I find myself now holding almost the exact opposite view that I held then. The current complacency exhibited by many general equity investors could be viewed as an exhibition of financial madness.
  12. There is a gargantuan bearish wedge formation on this Dow chart, and a huge RSI sell signal is flashing. I’ve highlighted that sell signal with a red circle at the top of the chart.
  13. It’s possible that the Dow is able to move higher, despite facing a growing hurricane of bearish seasonal, technical, and fundamental factors involving the US government. Regardless, the risk of being in the market probably vastly outweighs the potential reward. I wouldn’t touch the general stock market now with a ten foot pole.
  14. There is some very good fundamental news for gold investors. Currently, nine Chinese banks control all gold flowing into and out of China. When gold was sold heavily by Western investors in April, the Chinese banks imposed restrictions on the amount of financing available to Chinese gold dealers. That meant that Chinese buyers couldn’t absorb the gold offered by sellers. Only the banks themselves could buy in size, and they appear to have allowed gold to experience a “free fall” event.
  15. Yesterday, Reuters News announced that the Chinese central bank would allow more Chinese entities to import gold. In my opinion, this announcement is a fundamentally important event, because it should allow Chinese gold investors to buy more of the gold that is offered for sale during market panics.
  16. In theory, and hopefully in practise, the gold market should become less volatile, as there will be more dealers that can quickly move supply to buyers. In the short term, there could be a modest decrease in the price of gold, as new dealers import gold to build inventory.
  17. “The People’s Bank of China said on its website (www.pbc.gov.cn) that the new rules would allow bank members of the Shanghai Gold Exchange, as well as gold producers with an annual output of more than 10 tonnes, to apply for import and export licenses. Trade is currently restricted to just nine banks, while the exchange has 25 bank/financial institution members.” – Reuters News, September 30, 2013.
  18. Please click here now. You are viewing the daily gold chart. Just as too many cooks in a kitchen can spoil the broth, excessive use of technical indicators and trend lines can prevent an investor from taking professional action in the gold market.
  19. For many weeks, I’ve suggested that gold investors need to focus on just four main price zones. On the sell-side, there is $1350 and $1425. Horrifically, many amateur investors actually bought gold in the $1425 area, believing that the price was “getting away”.
  20. On the buy-side, there are the price zones around $1266 and $1200. The wild action on Sunday night pushed gold into the $1350 area, which is a key selling zone for professional investors.
  21. I think the odds are higher that investors will see $1425 before $1266, but the “jobs report” is due to be released on Friday, and that report can cause immense gold price volatility. Be prepared to buy $1266 in the short term, while cheering for a surge to $1425 and higher!
  22. Please click here now. The price action of sugar can be a leading indicator for silver. On this daily chart, there’s a bullish inverse head and shoulders bottom pattern in play.
  23. That’s good news for silver investors, who are currently being forced to deal with “wet noodle” price and oscillator action. On that note, please click here now. Watch the red downtrend line closely. A move over that line could trigger a lot of hedge fund buying.
  24.  Ben Bernanke is scheduled to give a key speech to various banksters on Wednesday at 3pm. I would be stunned if Dr. Bernanke says anything “metals-negative”, given the fact that the entire US government is on the verge of shutting down. Richard Fischer of the Dallas Fed gives another speech on Thursday, and he’s rumoured to own a lot of gold himself. Let’s cheer for bullish speeches this week, and a jobs report that is positive for the metals. Most importantly, please consider docking your stock market boat, because it’s hurricane season!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Short GDXJ Versus ZJG.TO” report. I’ll show you how I’m playing both of these key junior gold stocks ETFs, both on the long and short side!

Thanks!  

Cheers

         St

Stewart Thomson

Graceland Updates

Gold & Mining Stocks: The Outlook Remains Bearish

Posted by Przemyslaw Radomski - Sunshine Profits

on Tuesday, 1 October 2013 16:05

We summarized our previous free commentary by stating that the medium-term outlook was bearish – did anything change?

After three quarters of declines prompted by fears over U.S. stimulus tapering, gold posted a near 8%  gain for the September quarter. Yesterday, the yellow metal gained on safe-haven bids surrounding the U.S. government shutdown. However, this improvement didn’t last long and gold declined as buying slowed. What’s interesting, we saw this downward move despite a weaker dollar.

Earlier today, we saw further growth as the U.S. government shut down some of its operations after Congress failed to agree on a spending bill, but gains were limited as investors believe the stand-off will likely soon be resolved. It’s worth noting that it’s the first U.S. government shutdown in 17 years. According to Reuters, the impasse also raised concerns over whether Congress can meet a more important deadline in mid-October to raise the debt-ceiling limit. At this point it’s worth mentioning that the debt ceiling issue came up in 2011. Back then, an agreement was reached only in the last minute and gold hit an all-time high of $1,920 an ounce, in part because of the uncertainties surrounding a deal.

If the political wrangling continues, will it be the impetus for gold to move higher? Will the yellow metal to break out above the $1,350 level? Or maybe we’ll see a confirmation of the breakdown below $1,300? Before we try to answer these questions, let’s move on to the very long-term HUI index chart (a proxy for the gold stocks) and try to find out what kind of impact the mining stocks can have on gold’s future price (charts courtesy ofhttp://stockcharts.com).

Click HERE or on image for larger view

radomski october12013 1

As you see on the above chart, in the past weeks and months, there were several unsuccessful attempts to move above the 61.8% Fibonacci retracement level based on the entire bull market. The last attempt we saw in mid-September also failed, just like the previous ones. In this way, mining stocks returned to below the above-mentioned retracement level (at approximately 267), and still remain below it.

From today’s point of view, we clearly see that the situation hasn’t changed. From the long-term perspective, the implications are therefore bearish and the trend remains down.

Now, let’s move on to the junior sector.

radomski october12013 2

In the Toronto Stock Exchange Venture Index (which is a proxy for the junior miners as so many of them are included in it), we see that after several weeks of sideways trading, juniors moved to the declining resistance line based on the March 2011, March 2012 and January 2013 highs. It’s worth mentioning that in the past when we saw analogous price moves, they all resulted in major declines.

If we see similar price action here, it will probably lead to a continuation of the downward move – and this seems very likely.

Before we summarize, we think it would be interesting to revisit the chart of gold priced in Australian dollars. May it provide important clues about further price movements? Let’s find out.

Click HERE or on image for larger view

radomski october12013 3

On the above chart, we see that there was a significant breakout above the long-term declining resistance/support line in mid-August, which resulted in a rally to slightly below the February high. In spite of this upside move, the improvement didn’t last long, and we saw a sharp decline at the end of August and into September. With this move, gold priced in Australian dollars dropped below the broken resistance/support line once again, invalidating the breakout above this line.

As you see on the above chart, there is a bearish head and shoulders formation underway, which may result in further declines in the near future. In this case, we could see a strong corrective move, one which would likely push gold’s price all the way back down to the April bottom area. Actually, we could even see a move below the April lows, because gold seen from this perspective is no longer strong versus gold priced in the US dollar.

Therefore, from this point of view, the implications are bearish.

Summing up, the medium-term outlook for gold remains bearish despite the positive fundamental situation (based on which gold will likely move higher in the coming years).  Despite last week’s show of strength, the downward trend is not threatened at the moment. Additionally, the outlook for the mining stocks also remains bearish, and the trend is still down.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold Price Prediction Website – SunshineProfits.com

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Lights Out for Government!

Posted by Bill Bonner - Diary of a Rogue Economist

on Tuesday, 1 October 2013 14:35

UnknownThe Dow fell 128 points yesterday. This followed news that the federal government – the nation’s largest employer and largest industry – was getting ready to turn off the lights.

CNN has the latest:

A government shutdown could cost the still-struggling US economy roughly $1 billion a week in pay lost by furloughed federal workers. And that’s only the tip of the iceberg.

First, there are the estimated 800,000 federal employees who will be off the job. That’s roughly the same number of workers employed by all the auto assembly lines and auto parts factories across the country. 

But economists say the impact will come not just from those lost wages, but also from related businesses cutting back or halting their operations. That will lead to a pullback in spending by employees of affected companies. 

Then, there’s the impact from increased business uncertainty that trims investments and disrupts financial markets. 

The total economic impact is likely to be at least 10 times greater than the simple calculation of wages lost by federal workers, said Brian Kessler, economist with Moody’s Analytics. His firm estimates that a three- to four-week shutdown will cost the economy about $55 billion. 

That would mean that the economic impact from a month-long shutdown would be roughly equal to the combined disruption caused by Hurricane Katrina and Superstorm Sandy, not counting the property damage that accompanied those storms.

What do you think, dear reader? Would sending the feds home be such a bad thing? 

Yes, they’re spending money. And yes, if they weren’t spending money there would be a slowdown in the money-spinning economy.

But why would that be so bad? 

What if the person on food stamps had to find work – or starve?

What if the defense contractors couldn’t pay their lobbyists?

What if the educators at the Department of Education stopped educating? What if the health-care zombies at the National Institute of Health went home? What if the paper shufflers stopped shuffling paper… the rubber stampers stopped rubber stamping… and the snoops stopped snooping? 

Would that be such a bad thing?

Not in our book.

Rape or Seduction?

We are developing a clean and simple way to understand political economy.

We begin by understanding that politics and economics do not go together. They are two separate things. Mix them up and you end up with a mess.

Look, you can get what you want – more or less – by force. Or by peaceful trade and persuasion. By rape or by seduction? 

Force is the easier and quicker option, usually. Which is why it is so popular. And why people like government so much: It is the only institution that gets to lie, cheat, steal… and even murder… lawfully. 

Why? 

Because it makes the laws!

That is why a government shutdown would be a good thing. The government sponsored, taxpayer supported, voter approved, Fed-financed lying, cheating, stealing and murdering would stop (if only for a while). 

That’s why this fight over the shutdown is so interesting. Zombies – by definition – are kept alive by force. 

They get subsidies, handouts, contracts, salaries – all directly or indirectly thanks to the power of the state. They live on politics, not economics. 

And today, there’s hardly a family in America that doesn’t have at least one zombie in the spare bedroom. So much of the economy has been zombified that the press can now say that “nobody” wants a shutdown.

No Wonder Government Is So Popular

The fight over the shutdown is not about stopping the machinery of force. It’s about who gets to use it for what purpose: Whose property gets stolen? Who gets the stolen goods?

That’s what elections are about too… and why so much money is spent on them: There’s a lot of wealth at stake. 

And not just money, but power too. Bossing other people around is almost as gratifying as stealing their money. And when your group controls a great empire, such as the United States of America, you get to boss people around at home and abroad. This must be a great thrill, judging by the number of people who are so eager to do it.

“The government that governs best, governs least,” said Thomas Jefferson. He was right. The less “governing” you do, the less you are lying, cheating, stealing and murdering people. The less you are using force to get what you want. 

Take away the brute force, and all you have is dull economics – making things, trading, providing services, marketing, investing. 

No wonder government is so popular.

Bill Bonner is the founder of Agora Inc. and cofounder of The Daily Reckoning. He is also a three-time New York Times best selling author.