Stocks & Equities

Faber: Better to Reduce Positions

mf2Dr. Marc Faber said it’s a good idea to take money out of the stock market.

“I don’t think there is a lot of upside potential, but I think there is considerable downside,” he said.

…..for the whole interview go HERE

More from Marc:

 

 

The Secret for Surviving the ‘Bernanke Put’

interest-rate-cutThe “Bernanke Put,” or promises of quantitative easing, has become the standard government response to economic uncertainty. But while the powers that be insist everything’s fine, Sprott Resource Corp. Founder Kevin Bambrough and COO Paul Dimitriadis see financial deterioration around the globe. Only one thing is for certain: Taking the contrarian view provides the best opportunities to buy low and sell high. In this interview with The Energy Report, they explain why they expect energy assets to perform better in the long haul, cluing us in on a few names they are considering for big returns.

The Energy Report: How would you characterize the current economic background? Are things really looking better in your view?

Kevin Bambrough: Markets typically peak when fear is low and complacency is high, and bottom when fear is rampant and people are extremely worried. The U.S. markets in general have performed quite well this year, but the U.S. bond markets have started to see a lot of hiccups. The European debt market still remains on very shaky ground. The Chinese debt market is now showing major problems in the banking system and the Japanese are still trying to find a solution to their debt woes with increased monetization, and have started an aggressive currency devaluation exercise. Debt levels for governments and individuals around the world are still at unsustainably high levels relative to GDP or individual incomes.

Bankers and governments continually lie to the public and pretend that things are better than they are. If they told the truth, no one would own a bond or keep money idle in cash. These days, the government guarantees and what people have referred to as a “Bernanke put” are the only reason rates are low and the bond market doesn’t crash. The Federal Reserve must talk tough from time to time and pretend it’s going to curtail its quantitative easing. The fact is it can’t.

Curtailing quantitative easing would force interest rates back up significantly, increase the government debt burden and raise the deficit. At the same time, it would crush the housing market and over-levered consumers already struggling to pay off their mortgages. The increased debt burden would bankrupt governments, individuals and the entire financial system.

TER: So realistically we’re stuck with low interest rates for the foreseeable future?

Paul Dimitriadis: There’s no way that rates, in my view, are going to rise anytime soon. The Federal Reserve knows it can’t allow them to rise materially. Americans may have an egocentric view that everything is fine because the S&P 500 is at a new high. Globally, the situation is not that great. The emerging markets have performed terribly this year and we’re starting to see unrest in a number of places around the world as social situations deteriorate rapidly, mainly in Brazil, Turkey, Egypt and such. All is certainly not well and I don’t expect the situation to get better anytime soon.

TER: When will everybody realize this is all a big charade?

KB: I often try to predict the catalyst that breaks the bond bubble. Government bonds are primarily held by mega funds, and sovereign banks. The banks around the world do it because they can lever up and play the carry-trade game. Most governments do it to keep their currencies low and support their export economies.

If interest rates rose, banks would be bankrupt, so they have no interest in seeding their demise. Governments try to pretend that deficits are going to eventually be brought under control, and continually make statements that there is no inflation, so they can prevent their currencies and bond markets from collapsing. Whenever economies slow as a result of higher interest rates, consumer confidence drops and interest rate-sensitive sectors like housing slow. Central bankers, or shall we say central planners, will become more aggressive with quantitative easing and bring the rates down to try to kick-start the economy again. That’s the delicate game they have to continue playing.

I expect this will continue for many years until the systemic U.S. trade deficit stops being funded by foreigners. It could be a few months from now or a few years, but eventually foreigners will come to understand the stupidity of buying U.S. government bonds to try to help their economies. I believe this is the Achilles heel of the system, and the U.S. dollar reserve-based global financial system’s days are numbered. The U.S. dollar will lose its reserve currency status when the Chinese, Japanese, Koreans and other major purchasers of U.S. bonds decide it’s not in their best interest to continue doing so. For the longest time, China and other countries have viewed purchasing U.S. bonds as an effective way to keep their currencies relatively stable. But at some point they’re going to give up on the foolishness of supporting the U.S. trade deficit and focus more on their domestic economy, rather than on competitive devaluation to support exports. The fact is, they collectively have been giving the U.S. over $500 billion worth of goods and services per year for over a decade. They will recoup little from these “loans” in the future. When they try to cash in their bond holdings, they will find there is no buyer other than the Federal Reserve, which will deliver them freshly printed currency that will only be accepted in the U.S.A. because no foreigner will want to accumulate more. When the trillions sent overseas come home to the U.S., inflation will explode and trade restrictions will rise.

TER: So how do we convert this into an investment strategy from a contrarian viewpoint?

KB: It is difficult to try to determine the best asset class to own. You also have to pick a time horizon and focus on what the world is going to look like 10–20 years from now and evaluate the asset classes that could give the best rate of return. Ultimately, we always come back to what we believe—that food, energy and other base and precious metals will do better in the long run. The key to investing in cyclical resource sectors is buying when they’re depressed. Now we’ve got a situation where they’re extremely depressed in many sectors.

TER: What are you doing at Sprott to deal with the current market environment for energy-related investments? Has your approach changed since your last interview?

KB: Precious metal equity values have come down substantially this year and we’re starting to see some very good value and opportunities in that sector. As for base metals, we still think there’s more potential downside.

We’re quite optimistic on developments in the natural gas market. Last year’s injection season marked the smallest inventory increase in the modern history of the natural gas market. The withdrawal season was also the third largest on record, and that was with relatively average winter weather. At around $4 per thousand cubic feet ($4/Mcf), demand is going to continue to grow faster than supply and that price will eventually be pushed higher. That will create value for companies like Long Run Exploration Ltd. (LRE:TSX), which we own, and which has significant natural gas exposure as well as stable profitability from its oil production.

PD: Purely gas-focused drilling activity is almost down to zero. We need to see higher prices to generate drilling demand from producers, which I think we will begin to see this year.

KB: Another sector that’s been quite depressed is coal, mostly as a result of low natural gas prices. A lot of mines have had to close or go through a restructuring. It looks like we’re getting closer to a historic bottom in coal equity valuations and so we’re looking around for opportunities to get some long-term exposure to that sector.

PD: As an example, Arch Coal Inc. (ACI:NYSE) is down from $28 to below $4 in the past two years. It was up over $70 around five years ago before the financial crisis.

KB: During a boom in any sector, a lot of the big companies are tempted to take on debt and continue acquisitions. Arch Coal still has a significant amount of debt. There are other coal companies that will certainly survive. We may not be incentivized to bring a new coal mine into production today, but there’sgreat incentive for us to buy coal mines that have long life reserves and wait.

TER: You mentioned Long Run, which we talked about during your last interview. Where do you think that one’s going?

PD: The company merged last fall (Guide Exploration Ltd. and WestFire Energy Ltd. combined to form Long Run) and recently completed its first couple of quarters as a new entity. Production is going well and cash flow is meeting expectations. It’s focusing on oil production exclusively this year due to the oil and gas pricing environment. There’s a lot of room to pay a dividend later this year or next perhaps, which both we and the market would welcome seeing. Long Run’s gas reserves are significant, so there is huge optionality on the gas side. Overall, it’s a solid story and it’s discounted to its peers, probably because it’s a new name and there’s currently a lack of fund flows into the general Canadian energy market.

Looking at the various metrics relative to its peer group, you can safely conclude that it’s trading at a 30–40% discount. If the sector gets revalued because money starts flying back into it, things can go higher from there. The optionality in the gas market could take the stock even higher.

TER: Sprott Resource Corp. completed that nice deal on its Waseca Energy Inc. holdings last year when it sold out to Twin Butte Energy after four years.

KB: We were very pleased with the performance of that company. Again, we stuck with our strategy of investing in a sector while it was depressed. We bought into heavy oil when it was no bid in Canada, formed the company and ultimately were able to monetize it when margins were significant and the company had grown from zero production into a +4,000 barrels per day company. That delivered another big win for our shareholders with a nearly $70 million profit.

PD: Along that same vein, we’ve invested in a drilling company based out of Houston, Texas called Independence Contract Drilling just over a year ago. It drills shale formations and, again, we invested in the sector when it was generally out of favor, and built the company up from book value to probably having above 12 rigs in production by the end of next year. I expect that at that time we will be able to capitalize on its strong cash flow and look for some sort of monetization, whether it’s an IPO or sale of the business.

TER: Another area we haven’t talked about yet is uranium. I know you’re into Virginia Energy Resources Inc. (VUI:TSX.V; VEGYF:OTCQX). What’s the update on that name?

KB: The uranium market is similar to coal. Natural gas has weakened valuations and demand in all energy sectors. Fukushima also really upset the short-term demand and created a very negative sentiment in the nuclear space. But demand for physical uranium for nuclear power production is going to grow over the next decade or two and mine supply will fall short with $40 per pound ($40/lb) uranium. When we look at overall planned, permitted nuclear facility growth and as well as extensions of the existing facilities, we see robust demand and we see very little supply coming on the market.

PD: We will see large supply shortfalls emerging in the next few years. The market’s going to have to catch up on funding mines, because funding has been scarce over the last few years. We believe a uranium price north of $75/lb is going to be required to balance supply. Although the Commonwealth of Virginia has not yet passed legislation that would provide a framework for permitting uranium mining projects, we are hopeful it will in the near future. At that point the company would be greatly positively revalued.

KB: Regardless of the uranium market, Virginia Energy Resources is one of the largest undeveloped uranium projects in the United States, and major producers will likely try to take out Virginia Energy Resources when the permitting framework is in place.

TER: Where you see opportunities in the fertilizer/potash markets?

PD: Potash prices have softened a bit lately. We’ve invested in one potash company that produces SOP potash, called Potash Ridge Corp. (PRK:TSX; POTRF:OTCQX). It is developing a project in Utah, we think has very favorable economics based on the preliminary economic assessment. A prefeasibility study is expected in the next couple of months, which should give greater clarity on that project. The project’s key benefits are the byproducts in the deposit, which lower the production cost dramatically. It should be one of the lowest-cost producers of SOP potash, which is a growing market globally. We’re optimistic that someone is going to have an interest in an offtake agreement and perhaps assist with the financing in the next 12–18 months.

The phosphate market has been more stable than the potash side. In the U.S., there is some risk for domestic producers due to potential shortfalls in their mines over the coming year. The phosphate market could be in very good shape over the next five years as those companies seek to replace their production. We’re quite optimistic about one of our investments in a company called Stonegate Agricom Ltd. (ST:TSX, SNRCF:OTCPK), which is developing its potash project in Idaho. That should come into production in late 2014 or 2015.

TER: Do you have any final thoughts you’d like to leave with us?

PD: The resource sector, generally, is probably the most out-of-favor it has been in a long, long time. If you’re ever going to put money to work in this sector, right around now would probably be an opportune time to do so.

KB: This is the kind of market that really allows those who are willing to step up and invest to make a lot of money.

TER: Thank you gentlemen, for your updates and insights today.

RELATED ARTICLES

 

Kevin Bambrough founded Sprott Resource Corp. in September 2007. He is a seasoned financial executive with more than a decade of investment industry experience and is a recognized leader in the commodity investing space. Since 2009, he also has served as president of Sprott Inc., one of Canada’s leading asset managers, which has more than $8 billion in assets under management. Between 2003 and 2009, he held a number of positions with Sprott Asset Management, including market strategist, a role in which he devoted a significant portion of his time to examining global economic activity, geopolitics and commodity markets in order to identify new trends and investment opportunities for Sprott Asset Management’s team of portfolio managers.

Paul Dimitriadis is Chief Operating Officer for Sprott Consulting and Sprott Resource Corp., where he evaluates and structures transactions, coordinates and conducts due diligence and is involved in the oversight of subsidiaries and managed companies. He serves on the board of directors of two of Sprott Resource Corp.’s subsidiaries, Stonegate Agricom Ltd. and Long Run Exploration Ltd. Prior to joining the Sprott group of companies, he practiced law at Blake, Cassels & Graydon LLP. Dimitriadis holds a Bachelor of Laws degree from the University of British Columbia and a Bachelor of Arts degree from Concordia University.

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 Interviews page.

DISCLOSURE: 
1) Zig Lambo conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his 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: Virginia Energy Resources Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Kevin Bambrough: I or my family own shares of the following companies mentioned in this interview: Sprott Resource Corp. I personally am or my family is paid by the following companies mentioned in this interview: Sprott Resource Corp. My company has a financial relationship with the following companies mentioned in this interview: Sprott Resource Corp. 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) Paul Dimitriadis: I or my family own shares of the following companies mentioned in this interview: Sprott Resource Corp. I personally am or my family is paid by the following companies mentioned in this interview: Sprott Resource Corp. My company has a financial relationship with the following companies mentioned in this interview: Sprott Resource Corp. 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.
5) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
6) 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 disclaimer.
7) 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.

 

Market Outlook: The Game Has Changed

The game has changed for investment markets. Drawing to a close are the days of boundless monetary stimulus to support steadily increasing risk asset prices. In its place, a new path is now being put in place where securities will now be forced to do more of the heavy lifting to justify their valuations. While this is a most welcome development for the global economy and the long-term outlook for capital markets, the transition to what will ultimately be a profoundly different policy backdrop is almost certain to be accompanied by periods of heightened turbulence and short-term volatility along the way. Thus, it is worthwhile to plan accordingly now in anticipation of what could be a particularly challenging market to navigate in the months ahead.

So what exactly has changed in recent weeks? It is the monetary policy stance of the central banks of the two largest economies in the world. And the benchmark date we are all likely to reflect back upon years from now when everything officially changed is June 19, 2013.

The Events Of June 19, 2013

What specifically happened on this day?

The obvious first answer is the press conference that followed the conclusion of the U.S. Federal Reserve’s latest Federal Open Market Committee meeting where Chairman Ben Bernanke took to the podium and all but explicitly stated the Fed’s intent to begin scaling back on QE3 asset purchases in the months ahead. Suddenly, the Fed’s economic outlook was more sanguine and the necessary bounds for the U.S. economy to justify scaling back on stimulus had become more attainable.

And as it became increasingly clear as the press conference progressed that the monetary support that had soothed markets higher for so long was finally on the block to go away, investors reacted swiftly and violently. Over the final two hours of the trading day, the S&P 500 (SPY) shed -1.5%, the 10-Year U.S. Treasury yield tacked on 11 basis points to 2.31% and gold (GLD) declined by -1.9%

Screen shot 2013-07-09 at 9.06.20 AM

 ……read & view much more HERE

A Test of Market Highs Likely Ahead….

……..But ‘Sell May And Go Away’ Risks Still Exist!

AS JULY TENDS TO BE SKEWED HISTORICALLY POSITIVE. AND, WE HAVE NOW MANAGED TO CLOSE ABOVE THAT WIDELY FOLLOWED 50 DAY MOVING AVERAGE. HOW FAR AND HOW HIGH IS THE BIG QUESTION NOW, AS WE’RE STILL IN A THEORETICAL CHOPPY PERIOD (REMEMBER, ‘SELL MAY AND GO AWAY!). HAVE TO TAKE IT A DAY OR WEEK AT A TIME. NEW HIGHS? VERY POSSIBLE, BUT THAT DOES NOT PRECLUDE ANOTHER SELL-OFF LATER. TRYING TO RIDE THE WAVE IN THE MEANTIME.

sc

WELCOME TO VRTRADER.COM TRIAL SIGNUP:

The 30 day trial is allowed one time only. By taking this 30 day 50% trial, you agree to be charged the full cost of the monthly Silver or Platinum service (choose one only) at the end of the 30 day trial subscription period, unless you cancel first. The regular Silver monthly rate is $55.00 and the Silver quarterly rate is $145.00. The regular Platinum monthly rate is $145.00 and the Platinum quarterly rate is $390.00. 

Go HERE to Sign-Up

 About Mark Leibovit

Mark Leibovit, CIMA, is Chief Market Strategist for VRTrader.Com. His technical expertise is in overall market timing and stock selection based upon his proprietary VOLUME REVERSAL ™ methodology and Annual Forecast Model.

He began his, thus far, 35 year career in the financial industry as a market maker on the Chicago Board Options Exchange where he made a market in such issues as Newmont Mining and later continuing on to serve as Director of Research at Rodman and Renshaw. He is both a Certified Investment Management Analyst (CIMA) and Accredited Investment Fiduciary (AIF) and is also a member of the Market Technicians Association (MTA) and the CFA Institute. Mr. Leibovit’s extensive media profile includes seven years as a consultant ‘Elf’ on Louis Rukeyser’s WALL STREET WEEK television program and over thirty years as a ‘Market Monitor’ guest for PBS’ THE NIGHTLY BUSINESS REPORT. His specialty is Volume Analysis and his proprietary Leibovit Volume Reversal Indicator is well known for forecasting accurate signals of trend direction and reversals in the equity, metals and futures markets. His comprehensive study on Volume Analysis , ‘The Traders Book of Volume’ was recently released by McGraw-Hill. Mr. Leibovit is currently Timer Digest’s #2 Gold Market Timer for 2011 and has also been named the #1 Gold Market Timer for the 5 year period ending in 2010. And, he was named the #1 Intermediate Market Timer for the 10-year period ending in 2007.

Past performance does not guarantee future results.

TSE Racks Up Solid Advance on Metals Utilities Energy

The Toronto stock market racked up a solid advance Monday amid rising metal prices, while traders looked to the kickoff of the second-quarter earnings season in the U.S. with results from resource giant Alcoa Inc.

The S&P/TSX composite index advanced 73.96 points to 12,208.87.

….for all action in markets today go HERE

 

The 30-second technical flash chart report on S&P 500

U.S. equities opened higher this morning and are setting up for a sharp pullback based on technical analysis using trends, cycles, momentum, volume, market breadth and key resistance zones.

Take a look at the charts below for a quick flash of what I think.

Barchart Market Momentum Index

This chart I look at daily. In short if its price is at 101 or higher I expect the broad market to pause or pullback within the next day.  It tells me if stocks have moved too far in one direction on a daily basis and if so sellers (big money players) are likely to re-align stocks by taking profits or shorting during these times.

C1

Stock Trading Above the 50-Day Moving Average

Here we can see that while the S&P 500 has been rising over the past six months, fewer stocks are trading above their 50-day moving average. This means a smaller group of stocks is holding the market up and it’s just a matter of time before those stocks burn out and roll over also.

C2

Key Sectors That Move & Lead the Market

C3

C4

SPY Swing Trading Analysis – Daily Chart

With the S&P 500 breaking down from its trend channel and testing a short term resistance trend line, odds favor sellers should become more active and pull the market down as they unload any remaining long positions and possibly get short the market. Both of these actions will put pressure on U.S. Stocks.

C5

C6

Big Picture Outlook – Don’t Get Me Wrong!

This chart is just to show you what is possible. I am not a perma-bear nor do I want another bear market like this to happen. But knowing what is possible still has to be known. Major market tops are a lengthy process and tends to take several months. If this is the case then it could be a wild and choppy market for the rest of 2013. Do not expect price to just collapse and free fall for 18 months… Dreams like that do not happen. Bear markets must be actively traded because they carry a lot of risk.

C7

The Technical Analyst Conclusion:

This week is do or die for U.S. stocks. We need sellers to step in here and pull stocks down. With the S&P 500 trading at resistance, stocks being overbought on a short term basis and the holiday week behind us, which typically favors higher prices, it is now time for sellers to become active once again.

 

About the Author

Chris Vermeulen is a gold analyst and trader offering free weekly ETF reports and analysis at www.TheGoldAndOilGuy.comHe is  founder ofTechnical Traders Ltd. and chief market analyst for TradersVideoPlaybook.com. Reach Chris at: Chris[at]TheTechnicalTraders.com .