Gold Downside Risk Seen As : ‘Significant’

 The author of The Gold Investors Handbook says the worst isn’t over yet for gold after prices erased  this year’s gain.

“Risks are significantly skewed to the downside,” said Bass, who told investors to sell last year before gold’s biggest collapse since 1980. “Much of the support was coming from political uncertainty in Ukraine and what was going on in Middle East,” and those concerns have faded, he said in a telephone interview yesterday.

After bullion’s rally in the first half of the year beat gains for commodities, equities and Treasuries, the metal is heading for a quarterly decline to end out 2014. Demand for precious metals as a protection of wealth has been eroded by the outlook for a strengthening U.S. economy, which helped spark a rally in the dollar .

Gold fell to an eight-month low this week after the Federal Reserve  raised its outlook for interest rates, crimping demand for an inflation hedge. Money managers cut bullish holdings for five weeks, while holdings through global exchange-traded funds slumped to the lowest since 2009.

“Gold is more responsive to the near-term growth momentum in the U.S., rather than long-term inflation concerns,” Damien Courvalin, a Goldman analyst, said . “Interest is lower in gold than it was say 18 months ago.”

Dollar Rally

. The Bloomberg Commodity Index of 22 raw materials slid 5.2 percent in 2014, while the MSCI All-Country World Index of equities rose 3.7 percent. The Bloomberg Dollar Spot Index climbed 4.3 percent.

Bass isn’t alone in predicting the end to this year’s rebound that drove the best first-half performance for gold since 2010. Societe Generale SA’s Michael Haigh, who also correctly forecast 2013’s slump, said in a report this month that he expects the metal will drop more than 5 percent by 2015’s third quarter. Investors, who in June and July were adding to bullish wagers, may be starting to agree with analysts, taking their short holdings on the metal to the highest in three months.

Muted Inflation

After 12 straight years of gains, gold tumbled 28 percent in 2013 as an equity rally and muted inflation prompted some investors to lose their faith in the metal.

Bass on April 10, 2013, issued a sell recommendation, before a two-day 13 percent plunge that ended April 15, 2013, and left prices in a bear market. The slump wasn’t foreseen by most money mangers, who had increased their bullish bets by 11 percent the prior month. The investors cut holdings to a six-year low by December.

Now, Currie expects bullion to drop to $1,050 by the end of 2015, maintaining a forecast from the start of the year. SocGen’s Haigh sees prices at $1,150 in the third quarter next year, he said in a report e-mailed Sept. 12. The metal reached this year’s peak of $1,392.60 in March amid violence in Ukraine.

Citigroup Inc.  lowered its forecast for next year amid expectations of U.S. rate increases, while the “risk-related source of support has been diminished.” The bank cut its outlook to $1,225 from $1,365. UBS AG reduced it three-month outlook yesterday by 7.7 percent to $1,200.

Target Price

“Turbulence is still there, but is not escalating any further, which we believe will help gold decline to our target,” Courvalin said.

“Our inflation forecasts are pretty subdued,” Bass said.

Inflation expectations, measured by the five-year Treasury break-even rate, this week reached the lowest since June 2013.

 

“Ultimately, what drives fair value for gold prices is the U.S. real interest-rate environment,” Courvalin said.

 

It is human nature to look for bargains - and destroy your portfolio as you gather losers into what used to be a ” nest” egg.

Look at Seeking Alpha and count the ” analysts” saying Dryships ( DRYS) is going to turn – how none forecast the sub dollar level it now enjoys.

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ EnergyI am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

Lor Loewen's photo.

Get Out Of The Oil Patch, Get Out of Dry Bulk Shipping – New Paradigm Update

It is human nature to look for bargains - and destroy your portfolio as you gather losers into what used to be a ” nest” egg.

Look at Seeking Alpha and count the ” analysts” saying Dryships ( DRYS) is going to turn – how none forecast the sub dollar level it now enjoys.

“We could definitely see $55 next week,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We are probably going to see some violent trading.”

‘Drifting Down’

Skip York, a Houston-based vice president of energy research at Wood Mackenzie Ltd., said the next price target is $45.

“The market hasn’t seen the response they’re looking for on the supply side yet,” York said. “We’re now in this environment where I think prices are going to keep drifting down until the market is convinced, until the signal that production growth needs to slow has been received and acted on by operators.”

Are you still a client of a portfolio manager urging you to ” stay the course” – or worse, telling you to add to losing positions and losing sectors?

small- and mid-capitalization stocks, both E&P and Oil Service, are trading ~60% below their recent peaks, on average.

  • A growing number of stocks are priced at less than one-quarter of their peak prices achieved less than six months ago.

This is what is happening to oil TODAY ( Friday Dec. 12)

U.S. oil drillers, facing prices that have fallen below $60 a barrel and escalating competition from suppliers abroad, idled the most rigs in almost two years.

Rigs targeting oil dropped by 29 this week to 1,546, the lowest level since June and the biggest decline since December 2012, Baker Hughes Inc. (BHI) said on its website today. Those drilling for natural gas increased by two to 346, the Houston-based field services company said. The total count fell 27 to 1,893, the fewest since August.

As OPEC resists calls to cut output, U.S. producers from ConocoPhillips (COP) to Oasis Petroleum Inc. (OAS) have curbed spending. Chevron Corp. (CVX) put its annual capital spending plan on hold until next year. The number of rigs targeting U.S. oil is sliding from a record 1,609 following a $50-a-barrel drop in global prices, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest level in three decades.

“It’s starting,” Robert Mackenzie, oil-field services analyst at Iberia Capital Partners LLC, said by telephone from New Orleans today. “We knew this day was going to come. It was only a matter of time before the rig count was going to respond. The holiday is upon us and oil prices are falling through the floor.”

ConocoPhillips said Dec. 8 that the Houston-based company would cut its spending next year by about 20 percent, deferring investment in North American plays including the Permian Basin of Texasand New Mexico and the Niobrara formation in Colorado. Oasis, an independent exploration and production company based in Houston, said Dec. 10 that it’s cutting 2015 spending 44 percent to focus on its core area in North Dakota.

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ EnergyI am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

Lor Loewen's photo.
Like · ·

OPEC Is Finished Oil Crash Will Continue : Bank of America

Warning from Bank of America

 The Telegraph | December 10, 2014 8:41 AM ET

An engineer walks in the Barjisiya oil fields in Iraq. Bank of America says the OPEC cartel is dead and free markets now control the global cost of oil.

Getty ImagesAn engineer walks in the Barjisiya oil fields in Iraq. Bank of America says the OPEC cartel is dead and free markets now control the global cost of oil.

The OPEC oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned.

FP1211_Oil_Continues_fall_620_AB

Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source for Europe’s gas needs.

Francisco Blanch, the bank’s commodity chief, said OPEC is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,” he added.

The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only Middle East petro-states with the deepest pockets, such as Saudi Arabia.

BoA said in its year-end report that at least 15 per cent of US shale producers are losing money at current prices, and more than half will be under water if US crude falls below $55. The high-cost producers in the Permian basin will be the first to “feel the pain” and may have to cut back on production soon.

The claims pit BoA against its arch-rival Citigroup, which claims the US shale industry is far more resilient than widely supposed, with marginal costs for existing rigs nearer $40, and much of its output hedged on the futures markets.

BoA said the current slump will choke off shale projects in Argentina and Mexico, and force retrenchment in Canadian oil sands and some of Russia’s remote fields. The major oil companies will have to cut back on projects with a break-even cost below $80 for Brent crude.

It will take six months or so to whittle away the 1 million barrels a day of excess oil on the market — with Brent falling below $60 and US crude reaching $50 — given that supply and demand are both “inelastic” in the short-run. That will create the start of the next shortage.

“We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year,” said Sabine Schels, the bank’s energy expert.

We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year

oil-chart

Ms. Schels said the global market for LNG will “change drastically” in 2015, going into a “bear market” lasting years as a surge of supply from Australia compounds the global effects of the US gas saga.

If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. The EU already has enough LNG terminals to cover most of its gas needs but has not been able to use this asset as a geostrategic bargaining chip with the Kremlin because LNG has been in scarce supply, mostly diverted to Japan and Korea. Much of Europe may not need Russian gas within a couple of years.

BoA said the oil price crash is worth $1-trillion of stimulus for the global economy, equal to a $730-billion “tax cut” in 2015. Yet the effects are complex, with winners and losers and diminishing benefits the further it falls. Academic studies suggest that oil crashes can turn negative if they trigger systemic financial crises in commodity states.

Barnaby Martin, BoA’s European credit chief, said world asset markets may face a rough patch as the U.S. Federal Reserve starts to tighten afters year of largesse.

He flagged warnings by William Dudley, head of the New York Fed, that US authorities tightened too gently in 2004 and might do better to adopt the strategy of 1994, when they raised rates fast and hard, sending tremors through global bond markets.

BoA said quantitative easing in Europe and Japan will cover just 35 per cent of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot be expected to be rescued every time there is a squall.

What is clear is that the world has become addicted to central bank stimulus. BoA said 56 per cent of global GDP is supported by zero interest rates, and so are 83 per cent of the free-floating equities on global bourses. Half of all government bonds in the world yield less than 1 per cent. Roughly 1.4 billion people are experiencing negative rates in one form or another.

These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries break out of the stimulus trap, including Fed officials themselves.

Tax website  http://www.youroffshoremoney.com

The “New Normal “for Gold ( BTO / BTG) and Energy/ Oil/ Gas ( Baytex)

Baytex Energy*

(BTE : TSX : $16.90), Net Change: 0.44, % Change: 2.67%, Volume: 5,712,428
THE NEW NORMAL: REDUCING CAPEX AND LOWERING DISTRIBUTIONS. Baytex Energy announced its 2015
capex budget and lowered its monthly dividend. The company will be spending $575-650 million in 2015, that’s ~20% lower
than consensus estimates of $765 million. Roughly 75% of Baytex’s 2015 capital budget will be invested in the Eagle Ford.
Baytex provided 2015 production guidance of 88,000-92,000 boe/d that was just shy of the consensus estimate of 93,400 boe/d.
Approximately 52% of the company’s 2015 annual production is expected to be generated in Canada with the remaining 48%
coming from its Eagle Ford assets in the U.S. With respect to hedges, for H1/15, Baytex has entered into hedges on
approximately 41% of their net WTI exposure with 29% fixed at US$96.47/bbl and 12% receiving WTI plus US$10.91/bbl
when WTI is below US$80.00/bbl. For H2/15, the company has entered into hedges on ~12% of their net WTI exposure with
8% fixed at US$95.98/bbl and 4% receiving WTI plus US$10.00/bbl when WTI is below US$80.00/bbl. The company cut its
monthly dividend by ~58% from $0.24 per share to $0.10. Under the new dividend policy, the annualized dividend of $1.20 per share represents a dividend yield of ~7.1% based yesterday’s close.
B2Gold* (BTO : TSX : $2.08)

Net Change: 0.09, % Change: 4.52%, Volume: 7,748,492

Update
UNSCATHED? B2Gold reports that operations are running normally at the Masbate Mine, Philippines, following Typhoon
Hagupit. The typhoon first made landfall last Saturday at the island of Samar, just southeast of Masbate Island, reaching
Masbate early Sunday. The eye of the storm tracked close to the site of Masbate Gold Mine. By late Sunday, the typhoon had
diminished in strength and passed over the island. Mining operations were curtailed during the storm event and have resumed.
Ore processing continued, however at the peak of the typhoon there was a 15.5 hour shutdown to plant production as operations were halted as a precautionary measure. The process plant is now operating at full capacity and the 2014 Masbate production forecast of 180,000 ounces of gold remains unaffected. According to Reuters, Hagupit has left 27 dead, nearly 13,000 houses destroyed and more than 22,300 damaged on the eastern island of Samar. According to Canaccord 
Analyst Rahul Paul, based on current projections and assuming no additional debt/equity raises or drawdowns, he foresees no capital shortfalls for B2Gold to the end of 2017 provided gold prices were to remain above US$1,151/oz.

 

Here is our recent letter:

Managed Accounts Year End Review and Forecast

Managed Accounts Year End Review and Forecast
November 2014 – 40 % cash position
Gold and Precious Metals

The largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.

2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.

Shipping Sector / Bulk Shippers

You can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait .

Oil/ Energy

I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.

On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

 

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

ARCH Coal – Jim CRAMER says ” boo”

Yes Halloween is past but it’s never to late to scare you off coal .

TheStreet Quant Ratings rates Arch Coal  ( ACI) as a sell. The company’s weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk.

Highlights from the ratings report include:

Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARCH COAL INC’s return on equity significantly trails that of both the industry average and the S&P 500.
The gross profit margin for ARCH COAL INC is currently extremely low, coming in at 12.81%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -13.09% is significantly below that of the industry average.
Net operating cash flow has decreased to $80.34 million or 40.29% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm’s growth is significantly lower.
ACI’s stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 44.75%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock’s sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
The debt-to-equity ratio is very high at 2.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company’s weak debt-to-equity ratio, ACI has managed to keep a strong quick ratio of 2.36, which demonstrates the ability to cover short-term cash needs.

China Data Signals Slowing Economy – Commodities Update – Oil, Iron Ore, Gold, Nickel, Copper

Copper lead most industrial metals lower after factory and retail-sales data signaled further slowing in China, the world’s biggest user.

Copper in London fell as much as 1 percent, while aluminum, nickel, lead and tin also declined. Industrial-output growth in China was the weakest in August since the global financial crisis, while investment and retail sales moderated, figures released Sept. 13 showed. Factory data due today from the U.S., the second-biggest metals user, will probably indicate activity in August slowed from the previous month, according to a Bloomberg News survey.

“The Chinese data over the weekend came in worse than expected,” Daniel Hynes, an analyst at Australia and New Zealand Banking Group Ltd., said by phone from Sydney. “It’s not surprising the base metals are weaker on the back of it.”

Copper for delivery in three months on the LME fell to as low as $6,770.75 a metric ton, the lowest intraday level since Sept. 11. Prices were down 0.5 percent at $6,804 a ton by 3:16 p.m. Hong Kong time, poised for the lowest close since June 19.

In New York, the December-delivery contract dropped 1 percent to $3.077 a pound, while in Shanghai the metal for delivery in November fell 0.4 percent to close at 48,380 yuan ($7,877) a ton.

Industrial output in China rose 6.9 percent from a year earlier in August, the National Bureau of Statistics said on Sept. 13. That’s down from 9 percent in July and the slowest pace outside the Lunar New Year holiday period of January and February since December 2008, based on previously reported figures compiled by Bloomberg.

On the LME, lead fell 0.6 percent to $2,110 a ton, while aluminum declined 0.4 percent to $2,020.50 a ton.

Vale’s View

Iron ore may rise to as much as $100 a ton by the end of the year because of declining inventory at ports, Vale Chief Executive Officer Murilo Ferreira told reporters on Sept. 12 in Beijing. Some producers are reducing exports given current prices, Ferreira said. China is the world’s largest buyer.

In China, there’s mounting evidence locally-mined supplies are starting to drop, Morgan Stanley’s Crane wrote. Output, when adjusted to show the equivalent of 62 percent content, fell 13 percent between April and July year-on-year, he said.

“Market participants appear split on the floor price,” Australia & New Banking Group Ltd. analysts including Mark Pervan wrote in a report today. While some are “thinking the resilience of Chinese iron ore supply will see prices fall below $80 a ton, while others firmly believe domestic output can’t sustain current price levels for much longer.”

Expanding Glut

Iron ore prices are unlikely to recover as the global surplus expands, Goldman Sachs Group Inc. said in a Sept. 10 report. The bank reduced its price forecast for the final three months of 2014 by 10 percent to $90, and also reduced full-year estimates for 2016 and 2017.

The structural nature of the surplus and a weak demand outlook in China make a recovery in prices unlikely, Goldman analysts Christian Lelong and Amber Cai wrote in the report. The global glut will more than triple to 163 million tons in 2015 from 52 million tons this year, and widen further to 245 million tons in 2016 and 295 million tons in 2017, it said

Oil Supply

Brent fell to $96.27 a barrel after settling at its lowest level since June 2012 amid concern global fuel consumption is slowing while output climbs. West Texas Intermediate crude sank 1 percent to $91.34 today, after slipping 0.6 percent Sept. 12. The International Energy Agency cut its global oil-demand forecast for 2015 last week.

Russia’s ruble slid as much as 0.5 percent to 37.0380 per dollar, a record low, before trading at 37.985. The euro bought 49.2745 rubles, the most since Sept. 1. The Micex Index climbed 0.2 percent in Moscow.

Copper for three-month delivery on the London Metal Exchange fell to $6,802.75 a metric ton, following last week’s 2 percent retreat. Lead dropped 0.6 percent to $2,108 a ton.

Gold for immediate delivery increased 0.4 percent to $1,234.98 an ounce after closing last week at $1,229.65, the lowest since Jan. 9.

Palladium climbed 1.3 percent to $848.50 an ounce.


2014-08-13 Reuters Gold Poll

Reuters quarterly interviews analysts to gather their gold price prediction. We have collected the forecasts made in 2014 and conclude that the sentiment has stabilized but the expectations for 2015 remain low.

THOMSON REUTERS 2014 Avg Gold Price Prediction 2015 Avg Gold Price Prediction No of Analysts interviewed
Q1 Poll Jan 2014 $1,235 37
Q2 Poll Apr 2014 $1,278 $1,250 28
Q3 Poll July 2014 $1,277 $,1250 31

 Nickel Falls a Fifth Session Amid China Slowdown Signals

Sept. 15 (Bloomberg) — Nickel and aluminum fell for a fifth session in London as industrial metals declined after factory and retail-sales data added to evidence of a slowing economy in China, the world’s biggest consumer. Copper slid.

Chinese industrial-output growth in August was the weakest since the global financial crisis, while investment and retail sales moderated, figures showed. Factory data due today from the U.S., the second-biggest metals user, will probably indicate activity in August slowed from the previous month, according to a Bloomberg News survey.

“Weak Chinese data weighed on base-complex prices,” RBC Capital Markets Ltd. said in a note today. Commodities slumped to the lowest level in more than five years.

Copper for delivery in December lost 0.8 percent to $3.081 a pound by 8 a.m. on the Comex in New York.

The metal for delivery in three months fell 0.4 percent to $6,808 a metric ton on the London Metal Exchange and lead touched the lowest price since June. An index of the six main metals traded on the LME slid the most since March last week.

Industrial output in China rose 6.9 percent from a year earlier in August, the National Bureau of Statistics said on Sept. 13. That’s down from 9 percent in July and the slowest pace outside the January-February Lunar New Year holiday period since December 2008, based on previously reported figures compiled by Bloomberg.

“Prices may well weaken further,” William Adams, an analyst at Fastmarkets.com in London, said in a note today. “We saw last week a combination of weakness and bouts of scale-down buying, and we feel we may see more of the same this week, especially in those metals that have seen strong price gains in recent months.”

Copper stockpiles monitored by the LME fell 0.1 percent to 156,375 tons, daily data showed. Orders to take the metal from warehouses rose to 40,250 tons on bookings in New Orleans and are up 40 percent in three sessions, the most since April 2013.

Tin and zinc declined in London.

The Gold Sector :The Worst Slump In Prices In 30 Years Will Continue

The gold industry, recovering from the worst slump in prices in 30 years, needs more mergers to help

improve investor returns and eliminate unprofitable mines or prices will continue to fall said Jack A.

Bass , author of The Gold Investors Handbook.

ABN Amro’s commodity analysts put it plainly last week. They expect gold’s 11% rise in the first-half of 2014 to be “temporary” because US Fed rates hikes are coming, while the outlook is “positive” for equities. Such thinking makes sense based on 2013’s example. Taper talk pushed bond prices down last year, nudging market interest rates higher. The S&P500 meanwhile returned 32%, a little more than gold prices fell.
Logic might also see a trade-off between gold and rising returns on other assets. Because the metal yields nothing and does nothing. It can’t even rust. Equities and interest-paying investments on the other hand work to increase your money. So gold prices should fall when equities rise, and also when the markets expect higher interest rates. Or so analysts now think.
GOLD was a universal “sell” for professional analysts at New Year, writes Adrian Ash at BullionVault.
Losing 30% in 2013, the gold price faced the long-awaited start of US Fed tapering – widely supposed to make fixed-income bonds go down, nudging interest rates higher – plus strong hopes for further gains in world equities. Who needed the barbarous relic?

Gold producers, which are gathering for the annual invitation-only Denver Gold Forum that began yesterday, cut budgets, sold assets and adjusted mine plans after the metal plunged 28 percent last year, prompting more than $26 billion of writedowns. The industry already has started a consolidation process.

“The industry did a very poor job from a capital-allocation standpoint, from a risk-management standpoint and from an operational-execution standpoint,” he said. “For long-term oriented investors it would be better for the industry to get more right-sized where companies are focused on generating profit at a conservative gold price assumption.”

‘Darwinistic Scenarios’

Combining companies can help eliminate their respective unprofitable operations, he said. Weak companies with good assets may also be targeted by stronger producers, he said.

“Or the least appealing of the Darwinistic scenarios is a company that has gotten all of those things — capital allocation, risk management and operational execution — wrong and they wind up going bankrupt,” he said.

There have already been some moves toward consolidation this year. Yamana Gold Inc. and Agnico Eagle Mines Ltd. bought Osisko Mining Corp. after beating out a hostile bid from Goldcorp Inc. Barrick Gold Corp. (ABX) and Newmont Mining Corp., the two largest producers by sales, also discussed a merger this year before breaking off talks in April.

“I do believe the gold industry is in the process of consolidating,” Wickwire of Fidelity  said.

‘Survivors and Thrivers’

Wickwire said as an investor he focuses on companies he terms “survivors and thrivers”: those with good management and strategy. He is also interested in enterprises that may have poor strategy or boards and management but own good assets that would be better operated by another producer. He declined to name specific companies.

The Fidelity Select Gold Portfolio rose 17 percent this year through Sept. 12, compared with a 2.4 percent increase in New York gold futures. The Philadelphia Stock Exchange Gold and Silver Index of 30 companies gained 8.9 percent.

Wickwire holds both bullion and gold equities in his fund. While gold miners underperformed the metal in the past two years, they can also outperform strongly when companies’ operations, capital allocation and risk-management decisions improve, he said.

“Under the appropriate backdrops, if you have a 10 percent movement in the gold price, some companies out there have the potential to generate 30 to 40 or 50 percent cash flow and earnings-per-share growth,” Wickwire said. “And when the companies are executing, the market rewards that dynamic aspect with a higher valuation.”

Iron Ore Price Drop No Relief to Shipping Sector

Price drop will not increase demand from China – and not increase shipping demand.

Iron ore declined sooner than expected this year as supplies exceeded demand and prices are unlikely to recover, according to Goldman Sachs Group Inc., which said 2014 will mark the end of a so-called iron age.

This year “is the inflection point where new production capacity finally catches up with demand growth, and profit margins begin their reversion to the historical mean,” analysts Christian Lelong and Amber Cai wrote in a report today titled: “The end of the Iron Age.” The 2016 forecast for seaborne ore was cut to $79 a metric ton from $82 and the 2017 outlook was reduced to $78 from $85, according to the New-York based bank, which stuck with a forecast for $80 next year.

The raw material tumbled into a bear market this year as the biggest producers including Rio Tinto (RIO) Group expanded low-cost output, betting higher volumes would more than offset falling prices while less competitive mines were forced to close. The decline in prices came sooner than expected, according to Goldman, which said in November that iron ore would probably drop at least 15 percent this year. The commodity is seen in a structural downtrend, JPMorgan Chase & Co. said today.

“The price decline has been dramatic, but a weak demand outlook in China and the structural nature of the surplus make a recovery unlikely,” Lelong and Cai wrote. “Lower prices for iron ore and steel are unlikely to boost demand in a material way. Instead, the day when steel production in China will peak gets ever closer.

Lowest Level

Ore with 62 percent content at the Chinese port of Qingdao fell 39 percent to $82.22 a dry ton this year, the lowest level since September 2009, according to data from Metal Bulletin Ltd. The Bloomberg Commodity Index (BCOM), which doesn’t include iron ore as a member, lost 2 percent in the period. Within the index, soybeans fell the most.

Before the surplus emerged, iron ore supplies were tight and producers had above-trend profits even as costs increased, according to Lelong and Cai. That period, dubbed by the bank as the Iron Age, is now ending, they wrote.

“The current exploitation phase in iron ore could last for a decade,” the analysts wrote. “Iron ore markets went through a 20-year period of declining prices in real terms during the previous exploitation phase that ended in 2004.”

The global surplus will more than triple to 163 million tons in 2015 from 52 million tons this year, according to Goldman. The glut was seen expanding to 245 million tons in 2016 295 million tons in 2017 and 334 million tons in 2018.

Producers’ View

The biggest suppliers see higher prices. Ore may increase as the higher-cost output exits the market, Nev Power, chief executive officer of Perth-based Fortescue (FMG) Metals Group Ltd., said in an Aug. 20 interview on Bloomberg Television. Vale SA also sees prices rebounding as supply growth slows and mines close, Jose Carlos Martins, the Rio de Janeiro-based company’s head of ferrous and strategy, said on July 31.

Iron ore may see a dramatic recovery this half, Paul Gait, an analyst at Sanford C. Bernstein, said in a report on July 9, citing factors including a seasonal increase in the second six months and an end to China’s policy tightening. Asia’s largest economy accounts for about 67 percent of seaborne demand.

Credit growth in China missed estimates in July and new-home prices fell in almost all the cities the government tracks, putting pressure on policy makers to step up stimulus as they seek to meet an economic growth target of 7.5 percent.

About 110 million tons of global supply will close next year and a further 75 million tons in 2016, Goldman estimated in the report. While the majority of closures would be in China, seaborne producers will not go unscathed, it said.

Exceed Demand’

“New seaborne iron ore supply delivered into China is expected to exceed demand growth over the next three to four years,” Daniel Kang, an analyst at JPMorgan Chase & Co. in Hong Kong, said by e-mail in response to Bloomberg questions. “In short, we see iron ore in a structural downtrend.”

Rio Tinto, the biggest supplier after Vale, plans to boost output to more than 330 million tons in 2015, according to a company estimate. Vale will raise production 8.4 percent to 348 million tons in 2015. BHP Billiton Ltd. sees an 8.9 percent increase from its Western Australian mines in the year from July 1, while Fortescue may boost shipments by 25 percent.

Fortescue’s stock declined 32 percent in Australia this year, while in London Rio shares lost 5 percent and BHP rose 0.4 percent. In Brazil, Vale dropped 23 percent.

“The shift into structural oversupply is barely six months old but seaborne prices have already declined 38 percent year-to-date,” Lelong and Cai wrote. “Rather than representing the trough for this cycle, we believe the downward pressure is set to continue.”

 

Lumber Liquidators Holdings

LL : NYSE : US$70.42

BUY 
Target: US$100.00

COMPANY DESCRIPTION:
Lumber Liquidators is the largest specialty retailer of hardwood
flooring in the U.S. The company offers premium hardwood
flooring products in a wide variety of domestic and exotic wood,
as well as engineered products, laminates, bamboo, cork, and
accessories. Lumber Liquidators assortment is largely comprised
of proprietary brands including the flagship Bellawood brand.

Consumer & Retail — Specialty Retail
MOMENTUM VANISHES IN Q2 PUSHING OUR ESTIMATES LOWER
Investment recommendation
We are lowering our Q2 EPS estimate from $0.94 to $0.61,
compared with guidance of $0.59-$0.61 and prior consensus of
$0.90. LL reported a Q2 SSS decline of 7.1% on top of +14.9%
versus expectations of +7%. Total customers invoiced declined
5% yr./yr., the steepest decline in three years. LL did not regain
momentum after difficult Q1 weather as we had anticipated, and
management is blaming macroeconomic factors. The 131 stores
impacted by weather experienced a SSS decline of 13%, with
non-impacted stores -2%. We are lowering our FY14 EPS
estimate from $3.35 to $2.70 on SSS -2.5% on top of +15.8% (we
had previously forecast +6.3%). We still project double-digit sales
and EPS growth over the long term, keeping us BUY rated. Given
consecutive quarterly EPS misses and limited near-term visibility,
we think investors will view LL as a show-me stock over the next
few months.
Investment highlights
 An inventory shortfall accounted for $18MM of Q2’s $47MM
revenue downfall versus our estimate. LL expects quality
assurance-related supply-chain issues to resolve in Q3.
 We are reducing our price target from $122 to $100 based on our discounted free cash flow model. This is a long-term target, and reflects our belief that LL’s model of better selection, service, and value should enable it to take market share

Arch Coal Expansion Halted At Supreme Court

Global Warming Texas
In a landmark decision on Friday that could have far-reaching implications for federal coal leasing, a U.S. District Court judge ruled against the expansion of Arch Coal’s West Elk mine in Colorado for failure of federal regulators to consider the social cost of carbon in their environmental review.
The decision issued by Judge Jackson of the U.S. District Court in Colorado found that the Bureau of Land Management and the Forest Service overlooked the costs of carbon emissions from the mining and combustion operations associated with the mine’s expansion even though the agencies acknowledged that expanding West Elk’s operations would likely result in greater greenhouse gas emissions.
Friday’s ruling is the result of a challenge brought by environmental groups contesting three agency decisions on the Colorado Roadless Rule and expansion of the West Elk mine in the Sunset Roadless Area. This region is a part of the treasured North Fork Valley backcountry in western Colorado which abuts the iconic West Elk Wilderness and is a destination for hikers and hunters and habitat for the threatened lynx.
The agencies’ decisions would have permitted Arch Coal to expand the West Elk Mine into 1,700 acres of the Sunset Roadless Area, the bulldozing of six miles of road, and the construction almost 50 well pads for the venting of methane from the mine expansion. Methane is a potent greenhouse gas and the second-most prevalent GHG emitted in the United States after carbon dioxide.
According to the decision, the BLM and Forest Service initially found that the social cost of carbon associated with the expansion could be as high as $984 million, but the agencies arbitrarily scrapped this analysis from the final environmental impact statement. However the associated benefits of the project were still included in the agencies’ analysis. The court called this error “more than a mere flyspeck.”
The ruling goes on to acknowledge that agencies are required to analyze the effects of their actions on climate change. The court noted that the BLM and Forest Service “acknowledged that there might be impacts from GHGs in the form of methane emitted from mining operations and from carbon dioxide resulting from combustion of coal produced,” and “this reasonably foreseeable effect must be analyzed.”
The decision was issued just in time before Arch Coal’s exploration activities were set to begin on July 1, and stops the expansion of the West Elk coal mine and any associated surface or below-ground activity, including bulldozing or construction, for now until the parties can agree on how to move forward.
Expanded coal leasing in the American West, particularly the coal-rich Powder River Basin in Wyoming and Montana, has been a hotly contested issue in recent years, with parties raising significant concerns over the climate effects of burning the coal mined in the region.
This court’s decision reminds agencies to consider climate impacts when making decisions affecting federal lands.

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