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6/21/08

Ecuador: "Ahorita nomas"


Anyone who has spent time in the region knows that the idea of timekeeping and accurate, punctual advice is....let's say "flexible", shall we? Here are a few examples (tons more where these came from):

1) "Ahorita pues" (right now), means any time from now until past the next meal time.

2) "Dame un segundo" (give me a second), means exactly that, but it might mean a second that's embedded anywhere inside the next hour.

3) "Aqui nomas" (right here), used to tell you where the nearest bank/telephone/police station/taxi rank etc etc is, might involve a walk of between ten metres and six blocks

4) "Ya viene" (s/he's coming now), used by somebody's secretary to denote the imminent arrival of the boss. See definition of point 1) above for further details.

So when I saw a media headline today stating that Ecuador's Constitutional Assembly has announced the draft of the big bad Magna Carta is "nearly ready", it piqued my interest. And sure enough, on reading the note (here's the link, but it's a subscription site) the guffaws started 'Chez Otto'.

As a bit of background, the draft constitution has to be ready and presented to President Studmuffin and the world...no ifs or buts or whatever...by the 26th July 2008. Here we are on the 21st June 2008 and this is the situation right now. There are approximately 500 article programmed for the new constitution, and each article goes through the following process:

1) it must be created as a report, then

2) passed through a primary debate, then

3) written up in a new report for a second debate, then

4) passed through a second debate, then

5) passed through a final definitive vote

So far (and here's where it gets funny), the Assembly has managed this in 6 months:
  • 57 articles have passed the final vote
  • 38 articles are waiting for their final vote
  • 85 articles are ready for their second debate
  • 69 articles have passed their first debate
  • 34 articles are ready to go to the first debate
  • 239 articles are in the report stage prior to the first debate
***AND THIS IS WHAT THEY CALL "NEARLY READY" IN ECUADOR***

Oh my stars! The simple time logistics of getting all these items through an assembly using straight up-and-down votes would mean we're on a tight schedule. Consider this: The 35 days that are left between now and the 26th July contain 50,400 minutes. The list above has, according to my quick calculation, 1746 things that need to be done before all the constitution articles have passed the final definitive vote. This means that each process pending has to be done in a touch under 29 minutes, and that's assuming that the Assembly runs non-stop 24 hours a day, 7 days a week for the next 35 days. This does not take into account details such as sleep, interminable delays caused by LatAm politics, politicians and their verbal wanderings, any delaying tactics the minority opposition in the assembly might use to hold things up, lunch time, grammar errors, typos, waiting for the assembly bosses to count the hands up, etc etc etc ad infinitum.

Do I need to rub it in? And most interestingly, July 26th is an absolute final date as the Assembly has already eaten into its allotted additional time; if the document is not ready by the 26th it all becomes null and void. The "hasta mañana" dudes in that hall in Montecristi who have so far allotted time to applauding Bolivia and debating women's orgasms are going to have the worst month in their lives! Hah! Screw 'em! They deserve all that's coming to 'em.

Sales of Red Bull are about to rocket in the area, methinks........

Dr Lecter nails Argentina again

Another great cartoon from Dr Lecter, who's website can be found on this link. This post goes out to all the Argentine readers. Sorry, no translations available, because they'd just water down the jokes. Wonderful stuff.

Go visit Dr Lecter's site....his version of "the Last Supper" is worth the click all by itself.

(click to enlarge)

The Reuters article yesterday, and Aurelian tomorrow


Yesterday, Reuters published a note which caused many mining stocks with Ecuador exposure to drop significantly (but also significant was the relative low volume of the selling compared to other panic days). As is well documented, I recommend Aurelian Resources (ARU.to) as my top pick in the country, and to the drop it suffered yesterday can hardly be called welcome. So it's worth having a good look at the report in question.

Here's the link to the English version, here's a link to a later Reuters article that gives useful resumé of the key points, and my preferred Spanish version is on this link. The note also contains a lot of analysis and opinions from various sides, but the money lines are when the report directly quotes the leader of the Constitutional Assembly, Alberto Acosta, as saying the following things*;

1) The text of the new constitution will propose a state majority control in projects that exploit natural resources. Specifically Acosta said, "We will take back the majority control of the State over strategic resources."

2) Acosta also spoke about how the state control would be implemented. He said, "We would prefer that they were joint ventures with state majority, but there may be exceptions."

3) On a slightly different level, Acosta was reported as saying the new constitution would allow for the re-election of its President, which would mean in the near term that Rafael Correa would be able to run again.

4) The new constitution may also incorporate the concept of "illegitimacy and illegality" of external debt, although it will not be retroactive in nature.

5) Acosta, an economist by profession, also mentioned something about his own philosophy for the macroeconomic future of Ecuador when he said, "The (free) market is a good servant, but it has always been a bad master."

So what to make of all this? As usual, these comments affect a wide range of things, but I'm going to concentrate exclusively on how it affects my recommended stock of Aurelian. Be clear that circumstances may change when it's Dynasty, Corriente, Repsol, Petrobras, or whatever other company operating in Ecuador.

The first, and most important thing to understand is that the draft constitution being debated by the Assembly is not the same thing as the draft mining law currently being prepared by Ecuador's Ministry of Mining and Petroleum (MEM). That may seem like a basic point here, but all the same it's worth stating it clearly. The comments of the last two weeks or so from MEM that have allowed ARU to rebound strongly come from a different place and are about a different document (here's where we've discussed all this before...plenty of other posts too). MEM head man Galo Chiriboga says that the new law will allow miners to operate in Ecuador. That's fine. Acosta says the new constitution will take back majority control over natural resource businesses. Not the same thing.


So with that nice and clear, lets look at the Acosta statements as they apply to Aurelian (ARU.to). It's pretty clear that the thrust of the "natural resources" comments are aimed at Ecuador's lifeblood industry of oil, especially when one considers he talked about taking back control, as large scale mining has never existed in modern day Ecuador so there's nothing to take back. A constitution is not the same thing as a law, and what the constitution seems to being aiming for here (my interpretation, be careful here) is to protect the country from losing majority control over its oil resources/revenues in future years. With that said, the Acosta comments as stands equally apply to the mining industry. So therefore from a direct and logical interpretation of Acosta comments we can easily imagine a situation where ARU is obliged to become part of a joint venture with the state to operate Fruta Del Norte (FDN).

So let's imagine a worst case situation here, where we have a draft mining law to be published on June 27th that will allow responsible mining in the country, but a wider constitutional dictate that insists on Aurelian going 49/51 on FDN. What would this mean to Aurelian's stock price?

Firstly, it means that Aurelian is on solid ground as a company. It means that the mine will go ahead in Ecuador, and that can only be a good thing. But on the other hand, it will lose 7m oz of the reserves at FDN. And although it would benefit from only having to find 50% of the capex to construct the mine and processing plant, it would lose half its gross revenues etc etc.

There are many ways of pricing a gold mining company, but one of the most common, especially for junior/exploration stage companies, is to consider its "ounces in the ground" compared to the company's market value. With ARU at C$4.61 at present, this means the company has a market cap of U$614m (US dollars, converted at CS1 = U$0.9833). As the FDN 43-101 compliant resource currently stands at 14.1M oz Au eq (of which 13.7m oz is gold, an extremely high ratio of gold to by-product), this means an ounce of Aurelian gold in situ is currently being valued at U$43.55.

This is very cheap, especially when one considers the recent prices paid by large miners for exploration/junior gold miners. Due to the nature of the beast (a long and complicated story with many permutations, but basically meaning that the high grades at FDN would make for a low cash cost operation), if a buyout offer is made for ARU it should be at least U$150/oz in situ and will almost certainly be significantly higher. This would seemingly position ARU as worth at least four times its current stock price value.

So if the state suddenly takes away half of FDN, this means we can do the same calculations for ARU but using, let's say, 7m oz Au eq. This puts ARU's gold at U$88/oz in situ, which still means it's at a significant discount to the probable market buyout value. For argument's sake, let's say a bid comes in at $175/oz Au, which would double ARU's stock price overnight.

So to recap, this is my "worst case" situation:

1) The new mining law is announced 27th June, and as most people now expect after hearing the varied assurances from Correa and his ministry people, the law provides a framework to allow large scale responsible mining in Ecuador, and a fiscal framework that may not be a bargain, but it totally workable for ARU (I'd agree that we won't know for sure that the new law is "miner friendly" until we've seen it, but humour me on this one, yeah?).

2) The new constitution means ARU loses 50% of FDN.

This would, in my worst case scenario, mean ARU should double from today's stock price. I also believe this double would happen quite quickly, as the pain of losing half of the FDN deposit is alleviated by the knowledge that the legal framework is fixed in stone, everybody knows where they stand, and the miners can get on with the real job of building a mine and producing metal. In the end, that's what miners are good at doing.

However, that's the worst case, and there are plenty of mitigating circumstances to be added to the mix. Here's just two of them (there are more, but this post is getting long).

  • Acosta talks about "exceptions" to the rule. How can there be "exceptions" to a constitutional article without having something specifically mentioned. After all we're talking about Magna Carta for a country, not just a law passed by a parliament. And if we remember that the thrust of Acosta's argument is about the oil industry, there is every chance that the mining industry is either less affected by this part, or likely not affected at all.
  • Everyone...I mean everyone...knows that FDN is not stopping at 14.1Moz Au. ARU has been drilling and still has plenty of outstep and infill work to be done. The deposit is still open at depth and at two extremities. The cutoff grade used for the first resource report was pretty high and can be adjusted down now that gold is at $900+. This means there is plenty more valuation upside on the table once Aurelian gets back to work. Your guess is as good as mine here, but 18m to 20m oz would be a reasonable ballpark right now, in my humble opinion.
So all in all, and even if the new constitution pulls another fast one on Aurelian, I have no hesitation in reiterating my strong buy recommendation on this stock. Once the new law comes out on the 27th, sub $5 prices will be confined to history.

You making notes, Eric? LOL!

*my translation of the original Spanish quotes, which differs very slightly from the Reuters English article version

The world's most wonderfullest cities, and how you white people up there think LatAm kinda sucks


Some dudes at an office with the word "Mercer" stencilled on the door recently published its "World's Best Cities" list. Now normally your Otto eschews this kinda chattering classes nonsense, but when a pal pointed out how LatAm was ranked by the list, I felt it time to add my tiny voice to the cacophony.

These lists are always subjective and debatable, but by concentrating on the LatAm element as a whole, it becomes clear just how much white supremacy is added to the recipe, too. Here's the list of major LatAm cities featured, and how they rank. Top score 1, bottom score 215.

76
MONTEVIDEO
79
BUENOS AIRES
83
SANTIAGO
92
PANAMA CITY
114
SAO PAULO
115
RIO DE JANEIRO
118
QUITO
120
LIMA
125
GUAYAQUIL
128
MEXICO CITY
139
LA PAZ
141
CARACAS
143
BOGOTA
144
MEDELLIN
149
SANTA CRUZ
170
MANAGUA

So for a start, only four cities make the top 100 in a region that holds over around 12% of the world's population. And even then, the top ranked Montevideo is only 76th. And of the meagre bunch that make it into the top 100, only Panama is chock full of those strange "brown people", as Montevideo, Buenos Aires, and Santiago had this great policy of killing their indigenous and slave population in nasty frontier wars in the days before television and Martin Luther King had been invented.

On the subject of Buenos Aires, anyone I've spoken to who visits and stays more than a day ranks it in their top ten world cities. No exceptions. BsAs is an astoundingly wonderful place...it drives you mad after a while, but there's nowhere like it in the world.

Also, it seems that things like "currency exchange controls" matter to the wonks at Mercer, but trivialities like "beaches" are ridiculous things to consider, as in Ecuador Quito beats out Guayaquil, and in Brazil Sao Paolo gets the nod over Rio de Janeiro. But the Mercer list is shown for what it is by noting Los Angeles in the USA, Birmingham in England and Glasgow in Scotland all at joint 55th place on the list. Three of the most tedious cities in the whole wide world get voted higher than any place in Latin America. Why? Yeah....you got it......

The bottom line is that the creators of this crap can take the white sanctuaries found at the very top of the list (Zurich, Geneva, Vancouver, Vienna) and stick 'em up their asses. And if that offends the many people that tune into this blog from Vancouver, it's not meant to. Sure you got yourselves a neat city up there, and sure you're proud of it. But ask a Paulista or a Limeño about their city and you'll hear the same kind of pride. Sure the politics is totally screwy down here, but it's only relatively more screwed than any other place. Sure Rio might be a dangerous place for crime, but you're only likely to have a problem if you wander round a favela like a dick with checked shorts and a U$300 digital camera hanging from a wrist-strap. Etc etc

The point that the Mercer list cannot calibrate, classify and order into boxes is life. And Latin American cities, love 'em or hate 'em, are teeming with life at any given moment. When people visit me here, I always taken them down to the local fruit and vegetable market, and when they sum up their stay, it rates as a highlight way above any visit to ruins or guided tours of plastic coated tourist attractions.

6/20/08

No shooting Evo, please

Evo's smart. Evo wears metal on his head. Evo avoids death

Two men were arrested yesterday for the attempted assassination of Evo Morales. Evo travelled to Santa Cruz to visit a mine and participate in a ceremony with local Union leaders. Shortly after arriving at the local airport at 2pm, two members on the Santa Cruz far-right wing "Union Cruceñista Juventud" (we know 'em as the Hitler Youth featured in Abiding in Bolivia's recent post) group were arrested nearby, one in possession of a rifle with telescopic sight and 300 rounds of ammunition. The local leader in charge said the two were arrested "a few metres away" from where the Head of State was going to be greeted by the official reception party.

Of course....these are the same scum that promote their racist movement under the banner of oppression and struggling democracy...and the western press actually believes them.

UPDATE SATURDAY: More details, stories of racist judges and photos of our would-be perps at Abiding's site right here, and some scary details of how the scum had picked the highest roof of Santa Cruz to play 'hunt the prez' at Machetera right here.

Trading Post


Southern Copper (PCU) U$110.19. Cut! Print it! That's a wrap! Very nice short term win. I'll be happy if it keeps climbing (for the LT port), but I'm taking the profit on the trade block.

Jaguar Mining (JAG): Sold at a <1%.> I want some liquidity in the port, and JAG just isn't responding to the rise in gold. Sod's law says it'll pop in the next 30 minutes.

Gold Reserve (GRZ)
is at U$1.33. It's been slaughtered in the last couple of sessions, and has that naked shorting smell around it. If I were braver I'd pick a few up here, because of that residual asset value argument I have (that's not holding up, it seems). But I'm just not brave enough, and even my minimal long exposure here is enough for the moment. With Rusoro snaffling all the assets it can get its hands on, and with more money from Hambro to do it with, I see GRZ selling its undeveloped Choco rights and getting some more cash under its belt.

Net Servicos (NETC)
continues to underachieve. Now at U$12.4. I have more patience with this stock than I have with things like JAG at the moment. The sheep-like analysts all said "sell Brazil" at the same time yesterday. The same sheep will bleat "buy Brazil" all at the same time in the very near future. I may add a few NETC here...undecided as yet.



Important:
I've said it before, and I'll say it again. My ST trading port is a minor part of my total portfolio. I enjoy the trading aspect of the market, but the real money is made by buying and holding quality on a long term basis. Also, do your own DD on anything mentioned here before investing your money...that's cos it's YOUR money dude, and not mine. You are reading this blog for free. That is something you should remember at all times.

Chile copper moving ahead: love for LA.v soon?

Antofagasta (ANTO.L) got the important piece of environmental approval paper for its esperanza project yesterday, which has given the stock (traded in London) a nice pop this morning.
And no doubt the whole sector is enjoying seeing spot copper trading at $3.90/lb once again.

As mentioned yesterday the stage seems set for a nice rally in PCU, (ok..not Chile...but it's all good) but will the Chile news spread any love to my favourite Chile copper junior, Los Andes Copper (LA.v)? To say LA.v is dirt cheap is an understatement, and unusually for a Chile exploration play it has less problems with water, having already secured partial rights to supply the site and also having had to stop drill on one small patch of its large Vizcachitas project recently becuase there was too much.....yep you guessed it....water.

Have a look at the stock via this link to its website. The way copper elephants have been snapped up in Latam recently (TYS.v,NOC.to, GLQ.to, CUP just to name the four most recent sales) there's good reason to get in on this copper elephant at an early stage.

Anyway...I'll be watching PCU carefully in the short term, but LA.v is more of a slow cooker.

UPDATE:
LA.v finished up 12.5% at 0.54 today, but only traded twice for 15,000 shares. No love..........

Hecla (HL) bails on Venezuela

der der dum dum dum...another one bites the dust

This afternoon, Hecla Mining (HL) surprised nobody outside of the V-Headline 'newsroom' (I use the word against my own better judgement) by selling its Venezuelan assets to the russkies at Rusoro for U$20m plus 4.7m shares of RML.v (which means that basically HL has sold for next to nothing before getting kicked out and receiving nothing). Next in line the GRZ assets at Choco? I'll betcha a fiver on that one.

Now, let's all have a wild guess about how much chance Crystallex has of winning its rebuttal against the decision not to award its operating licence. Is it:

a) Zero
b) Zilch
c) Bog all
d) Not even in the next life

My stars, KRY is a screaming short here. Anyway, back at Rusoro, and Peter Hambro certainly had his head screwed on when he bought a large slice of RML recently, did he not? As the old saying goes, "It's not what you know, it's who you know", and I can't see Hugo falling out with the country that's supplying him with submarines and Mig fighters.

UPDATE FRIDAY MORNING: Peter Hambro not hanging around, and sealing the deal before RML think twice and raise the price. Here's the link. Hambro = smart dude.

6/19/08

Breaking News: Alvaro Uribe is confirmed as running for Re-Re-Election

Yes indeed, the humming and vibrant streets of Bogota confirm that Uribe will attempt to change his country's constitution to allow him to run again in a Presidential election. How does Otto know? Because of this:

small objects of desire (or objects of small desire)

The last time dolls of Uribe, known as "Uribitos" (little Uribes) were sold on the streets of Colombia was three years ago, when the campaign to change the constitution and allow Alvaro to run for Prez again was in full swing. Now that the dolls have suddenly hit the streets again, and his adoring fans are buying them up by the dozen (particularly popular amongst the ex-pat community, I am reliably told), the grassroots movement must surely sweep him to power once again. And if you press that button at the bottom, his female fans swoon to the sound of Uribe's dulcet tones saying;

"We must not be afraid or aggressive, we must try to maintain the dialogue with Colombians without fear. And let me tell you, finally, I ask for God's protection and I also ask him not to let me lose the courage of my convictions."

Sexy stuff, no? By the way, don't expect any objections from the USA about this attack on a sovereign constitution and a blatant manipulation of egoist personal power.

Which brings us nicely (?) to the second hit-selling doll in Colombia today. Thanks to a borev tip-off, we got wind of the "Chavez Personal Voodoo Doll" (it's actually marketed in those English words...some kind of imperial joke I suppose).

Gotta say: This doll totally sucks next
to the Uribe version

For six bucks you get a pudgy Chavez and a few pins to stick in his.....well, stick 'em anywhere, dude. The designer swears it's working, by the way. He says that it's only been on sale for two weeks, and in that time Chávez has already changed his tune on the FARC.

Look....Colombians are like this.....don't ask me why......

More on Southern Copper (PCU)

Geddit? Oh never mind............

After the bell today, Southern Copper Corp (PCU) announced a 3 for 1 stock split to happen July 10th to shareholders of record 30th June (i.e. end 2q08). I'm not a fan of these things, but some traders play the bumps made by hot splitting stocks and swear by the action it gives them. The downside to splitting a stock with a fairly low amount of shares out is that it gets much easier to short it (just ask Aurelian holders). Whatever happens, it sure don't affect dem dere fundies, so I don't care that much. Anyway, the company is doing it, so be it, and we'll see what 's what as the big day approacheth. Message to Biiwii: Gary...you got a TA view on splits?

Meanwhile, here's a chart I put together once I'd realized something about today's action.

(click to enlarge)

PCU had a good day and finished above $105, and as far as I can see today is only the second time in the last 6 months that PCU has finished positive on a day that its closest comparative company, Freeport McMoRan (FCX) has finished negative (it happened March 19th).

These direct comparison charts are usually a bit silly, because it doesn't matter if the stock price is the same when the companies involved have different numbers of shares out. In the case of FCX and PCU, Freeport is a much bigger company with a market cap of around U$46Bn at present, which compares to the U$30Bn approx of PCU. But all the same, the chart does show just how badly PCU's trasero has been whupped by FCX in the last few sessions.

The end of the strike in Moquegua today has obviously helped PCU, and with main products of copper (U$3.85/lb) and moly (U$33/lb) still riding high, the quarter should come in just fine. There are still all the labour issues at the company's Mexico division dragging the stock down, and the ASARCO lawsuit (that affects parent company Grupo Mexico more than PCU) will drag on most of the year and quite possibly under any appeal through 2009 or even beyond. Despite all this, the market has spoken today and said that with copper up where it is, PCU@U$100/share is too cheap.

My short term target? U$110, and if it comes to pass I'll take an 8% gain quite happily on the trading block. But no matter what, the long term PCU position won't change by so much as a single share. Gimme the divis, dudes!

The Peru roadblocks are done, PCU looking good from here

(click to enlarge)

Reuters has just reported that the disturbances and roadblocks in the Moquegua region of South Peru are over, after the national gov't came to agreements with the strikers. Read the linked report for more details, but it's surely a long way away from Alan's comments that likened the protest to the Andahuaylas insurgents of a few years ago. Jeez that guy is a dick......

So the good news for traders is that Southern Copper (PCU) is back to work, and the Ilo smelting complex won't lose any production. Expect PCU to move up from here, Otto's honour (and yes, I got in at $101.5 yesterday so I'm biased, alright?).

Argentina's Inflation is 20%: official

So what you do, just like Critica has done in this note, is ignore the total BS number that INDEC publishes under the name IPC, and look at the IPI, which is also published by the gov't INDEC stats office stands for "Implicit Price Index". What this does is measure a set range of goods and services in supermarkets etc. In the words of the Critica note:

"The INDEC admitted that inflation was 20% last year. This is the rise seen by the official IPI index, which reflects the price rises in all the economy, and not a basket of goods as used in the questioned IPC index. Although both indices have tended to differ by a few percentage points (over the years), this time the rise in the IPI more than doubles that of the IPC, which at the same time rose only 8.8%..."

So, to sum up this is the Kirchner gov't fighting for social justice and accusing anyone who opposes them of trying to organize a coup d'etat. The same gov't that ties its bonds interest payments to an obviously rigged index, uses barefaced lies in speeches to its citizens, and then attempt to claim the moral high ground.

When was the last time you believed someone that repeatedly lied to you? That's today's Argentina, and that's why the protests are continuing.

LatAm leverage to rising metals

Gold in LatAm...there's a tradition that goes back some, ya knowz

Here's a little recap of beaten down miners I like in the precious metals sector. I'm not going in for any long-winded fundyspiel this time, as I've written on all these stocks before. So below you'll just find the names (in no particular order) and a 6 month chart to give you a general idea. (or for CSI, a 5 days chart). Also, click on the name and it'll take you to the company website (cos I'm helpful like that).

Gold and the PM complex is now rising. You're reading this LatAm blog, so you must be interested in the region. Plenty of miners here have been beaten to a fraction of their true value. This combo is the one to play. I think. So from this starting point, do your own DD etc etc (we're all big girls and boys, yeah?). By the way, I own some of these....remember that.


Mansfield Minerals (MDR.v)

Aurelian Resources (ARU.to)

Colossus Minerals (CSI.to)



Fortuna Silver (FVI.v)


Jaguar Mining (JAG)


Minera Andes (MAI.to)


Vena Resources (VEM.to)

6/18/08

South America World Cup futbol qualifiers: how did we do? (part deux)


Put it this way; I'm not thinking of giving up the day job and going into professional gambling.

To be honest, the actual picks weren't too bad, with Uruguay winning (well, thrashing in fact) Peru, and my other bet of Ecuador only managing a 0-0 draw against Colombia, but because I totally suck at betting I didn't balance my bets correctly and ended up losing money...the whole point, no?

Here's how we finished:

U$50 Ecuador @ 11/8 LOST
U$37.50 Uruguay @ 8/13 WON U$60.58

So basically, I managed to turn my theoretical $100 on Saturday morning into $60.58 in just five days. It could have been worse....I could be a Peru supporter (lost 6-0..oh my stars).

Meanwhile, Brazil and Argentina played out a 0-0 draw. Why Julio Cruz gets chosen above the other possible strikers is totally beyond me.

I totally agree, Garee (it's an anagram)

Check out the latest post by gary at biiwii, as he takes a good look at the broad markets (specifically the S&P), shudders, screams and runs away....fast.

Totally agree, dude. And the good news is; it's not too late to buy gold at under U$900. This 'ere below is my own contribution to the TA debate; the gold/oil ratio is still the sexiest chart in the whole wide world.


This is the time to preserve your capital, people. So....preserve it. Start here:

Buy gold online - quickly, safely and at low prices

Plan Colombia: Where did all the money go?

I've done the sums: The total is U$6.775Bn

This chart shows the amount of aid given every year to Colombia by the USA in the initiative usually called "Plan Colombia", the grand idea to rid the world of cocaine and all that nasty stuff.

Well guess what? Yup, it hasn't worked. The UN today reported that Colombian cocaine production was up 27% in 2007, and analysts called the jump "a surprise and shock". For the whole story, here's the link to the full report (a PDF weighing in at a chunky 5.5MB).

Depends what you mean by surprised I suppose, cos to say that Plan Colombia has a record of underachievement is a bit like saying there's a slight bias to the right in English media coverage of LatAm. Back in the last year of the Clinton administration when Plan Colombia was relaunched on the world (it's not just Dubya, y'see), the stated aim of the project was to rid the world of half the 300,000 acres of Colombia covered in coca plantations in the space of five years. Here we are seven years later and that 300,000 number hasn't dropped at all; in fact it's risen to 448,743 acres.

Yep, read that again. In the time that the United States of America has thrown U$6.775 billion (with a B) at Colombia, that planned drop of 150,000 acres under cultivation has turned into a rise of 150,000 acres! Wild, no?

Now there no doubt that the US handed the money over, and there's no doubt intentions are good on this issue. So what happened? Where did all that money go? We're told non-stop by that Uribe dude that the number of FARC soldiers has been cut by half and its area of influence has shrunk dramatically. If so, who's growing all the extra coca? I'd take a wild guess at those right right wing paramilitaries that filled the vacuum as the FARC were pushed back, wouldn't you? But as we're told they don't exist any more, that can't be right....can it?

A final thought; the USA has been quick to lay the blame at Venezuela's door recently, saying that Chavezlandia is providing the passageway and therefore it is guilty of everything. I could write a whole fairly unoriginal rant on this ridiculous logic, but I think I'll leave it to Colonel Nestor Reverol, president of the Venezuelan National Anti Drugs Office, who nailed a great line on The Washington Post in April;

"We're between the biggest producer of cocaine and the biggest consumer of cocaine, and we're the problem?"

Wealthy donors + Rice + Interactive Vocab Game – beginning the day with a new tool to help the global poor cope with rising fuel costs

GUEST BLOG GUEST BLOG GUEST BLOG


So here we go with a new invited guest blogger, and as we don't invite just any old riff-raff onto the show, you can bet it's worth reading.


Bennett Reiss is the dude behind a top blog named China South America Trade and Finance, a site that goes into a lot of detail about the rapidly expanding business ties between the two regions. It's one of those subjects that most people 'up there' don't read about very much (apart from the obvious ones like Chile copper, Brazilian iron ore and soybeans etc),and so Bennett's blog is a great way to gain significant knowledge advantage over your peers. He also jam packs the site with info, so regular return visitors are well-rewarded. Here's the link to his site again, and it's also in my blogroll over there on the right, so there's no excuse....go visit...ok? You know it makes sense, dude.


No further ado: here we go with Bennett's kind contribution to this humble corner of cyberspace, and IMHO pay particular attention to the RICI index he talks about at the end; it's one of those indices that doesn't get much headline coverage at CNBC but gets plenty of respect from those that care.


Take it away, Bennett (and thanks for the guestblog)


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I decided to mix a bit of humanitarianism spirit and food aid along with the analysis which concentrates on rising food prices.


Basic staples of nourishment (food), ranging from wheat, rice, corn, soy to chicken and beef are on the rise around the world. Commodity prices are in a bull market, few can argue that. Combining the factors of rising demand for everything from food, energy and base metals in emerging markets AND sky rocketing energy prices resulting from a variety of factors such as overall economic uncertainty, instability in the Middle East, and supply disruptions in the North Sea or Nigeria, have simply established an environment in which natural resources have proportionately speaking, become scarcer than ever before while demand and necessity for them remains strong.

Many will feel the affects of rising prices and inflation, in particular, the poor of the world. The global poor in large rely on basic staples like rice for a large portion of their diets. In terms of energy, most developing countries, unless they have substantial price controls in place, already pay higher prices per barrel of petrol than Americans in the US. A rise in the cost of gas for a taxi driver in Lima, Peru or in Cape Town, South Africa of 10-15% will be much far more painful for a Peruvian or South African than it is for American's filling their tanks this summer.


In an effort to help the poor of the developing world Poverty.com, has launched a sister website www.freerice.com where people can play a very addicting vocabulary game, where you simply choose the definition of a word displayed on the screen, if you choose correctly, the financial backers and advertisers of the site will donate rice to poor countries in exchange for your time. Defined on freerice.com as follows


FreeRice has two goals:


1. Provide English vocabulary to everyone for free.

2. Help end world hunger by providing rice to hungry people for free.


This is made possible by the sponsors who advertise on this site.


Whether you are CEO of a large corporation or a street child in a poor country, improving your vocabulary can improve your life. It is a great investment in yourself.


Perhaps even greater is the investment your donated rice makes in hungry human beings, enabling them to function and be productive. Somewhere in the world, a person is eating rice that you helped provide. Thank you.

The site in my opinion exploits the short attention span of the millions of people who spend way too many hours in front of a computer screen and are constantly searching for ways to distract themselves (myself included hehe).


Food prices have been on the rise in practically every corner of the world. Whether you’re a mother/father shopping for a family of 6 in the United States, and more importantly if you’re a mother/father providing for a family of 6 in the “global south,” which includes most the developing countries of the world.


Jimmy Rogers Commodity Index (RICI), was created in the 90’s to track the growth of commodity prices by Jim Rogers and has since become one of most well respected benchmarks / index for observing and tracking commodity price movements. It’s also a great index for investors who have used it as a means to identify investments in the commodity market. Growing (YTD) in 2008 by 25.86% while the S&P 500 Composite index is down -8.75% this year, the Nasdaq down -9.35%, the Dow Jones Comp down -8.47% (data gathered and accessed on June 13, 2008 from http://www.rogersrawmaterials.com/).


The Rogers Raw Materials Page describes the composition of the index in greater detail. Below is copy a excerpt of how the index is compiled, provided to give readers a general idea


“Rogers International Commodity Index® (RICI)® is based on monthly closing prices of a fixed-weight portfolio of the nearby futures and forwards contract month of international commodity markets. The selection and weighting of the portfolio is reviewed annually and weights assigned in the December preceding the start of a new year.”


This index is a great measure of rising costs. By rising costs, I mean the rising price of practically all goods in the global economy. The global economy is now beginning to show signs; or rather finally express signs that inflation is a potential threat to global growth and needs to be handled with care to ensure continued growth. Sadly, central bankers and countries around the world do not work together all too well yet, multi-lateral organizations lack the influence to organize a global effort—so countries around the world are raising interest rates in order to re-enforce their currencies strength, institutional investors are buying energy and gold to hedge their investments against the possibility of inflation, and even the US, EU, and UK have expressed signs there will be little possibility of further rate cuts, leaning instead towards increasing interest rates.


Although in economic theory this should do the trick, the problem is more complicated than many are capable of realizing. Yes… easy money for years has contributed to inflation, but more than anything it’s the fact capacity for production is no longer what it was when you consider the growth of countries such as China and India.

Food related commodities included on the Rogers index and their respective weights: Wheat (7%), corn (4.75%), Live Cattle (2%), Coffee (2%), Rice (0.5%), soybean oil (2%), lean hogs (1%), Sugar (2%), azuki beans (0.25%), Canola (0.67%) Orange Juice (0.66%), soybean meal (0.75%), and barley (0.27%). Personally I feel the only under-represented staple would be rice which deserves far more weight within the index considering how many billions of people in the world eat it on a daily basis. Together food related commodities comprise 21.72% of the index. Energy, metals and wood related commodities comprise the rest.

The world is in a correction phase in which consumers, producers and governments are going to have to adjust and adapt to a new global environment—where wasteful consumption is no longer an option. People must adjust to higher prices as other people in emerging markets demand the same things people in wealthier societies have enjoyed for quite some time.


Reflecting in brief upon my own dissertation on China’s growing interest in South America, observe China’s rising demand for soy and meat, only 2 of the commodities mentioned above and only 1 of the major developing markets in the world. Yes many argue China proportionately holds the most influence as the fastest growing and biggest emerging market, China is by no means the only large growing market.

Snippety stuff

I'm still watching the Colombian Peso. Now trading at 1,650/U$1, the water is draining out the barrel and I'm polishing the shotgun. Here's Bloomberg keeping us up to date.

Word from Miami is that Ecuador's Vice Minister of Mining and Petroleum, José Serrano, made a generally upbeat speech on the future of mining in his country and said that the investment community would welcome the contents of the new law (but wouldn't say much about what was in it). I'm happy to report a pal telling me that "windfall tax is now off the table", but count that as anecdotal, nothing more. One thing that he said was the Constitutional Assembly's now infamous mining mandate would not be the basis for the new law...that's gotta be good.

As imagined, the world ignores the diplomatic progress made by Evo Morales with Chile, and prefers to report how Evo has a pop at the everso-innocent-and-definitely-without-double-agenda people at USAID (ask John Perkins for more details on that happy bunch).

Endeavour Silver (EDR.to) pleased the market with this press release this morning. On a general front, Endeavour is an interesting Mexico silver play; up to now it's been struggling under high cash costs, but as from 3q08 the company is looking to ramp up new things and bring down that cost. Also, the CEO has a habit of lugging round a bigass lump of silver with him to show off at presentations....gotta like that.

Fernando Lugo left Ecuador on schedule, and is now in Axis of Evo nerve centre. After being met at the airport by Nicolas Maduro, Sandals has made a terribly controversial speech about how poverty is bad. and how not poverty is good. Expect clichés like "Red Bishop" to hit your screens Friday after Sandals formally meets the H man.

In Argentina, some unlucky dude from Tucuman got killed in Buenos Aires when part of the scaffolding platform constructed for the big gov't rally this afternoon in Plaza de Mayo fell on his head. Gov't spokesdude blamed "the wind". Talk about omens.........

PS: Gold: Hey! Hey! Yeah! Yeah! w00t! w00t! go! go! etc etc

Colossus Minerals (CSI.to):Today's the day

A day like this was bound to happen to Colossus (CSI.to):

After the big up on this news, it was only a matter of time before we had a significant drop on low volume; it's like day following night in the wild west show called the Canadian Stock Market. The stock is now 20%+ off its recent high spike and I'm going to start nibbling here, too. I've been doing some checking on the stock, and since posting this note linked here I've had some interesting mail exchanges on it, too. When smart people are on the trail of a company like this, it can only be good.

PCU: first a nibble, now a bite

A large hole in the ground known as Toquepala

I took a small position in Southern Copper (PCU) yesterday* at just under $106. Now the stock is getting hit by the strike news in the South of Peru, it's time to take a larger bite. The U$101.50 printed does me very nicely tyvm, and I'm at 70% full position now.

The combo of news in Peru seems to have scared off the froth money. That combo is;
  • PCU possibly shutting down its Ilo smelter
  • the road blocks and negotiations continuing
  • workers at the two pits walking out in sympathy
  • the nationwide stoppage in Peru scheduled for the end of the month
  • the ongoing Asarco case that might weaken parent company Grupo Mexico
So on a day when copper has spiked nicely and brought the rest of the base metals complex out of the doldrums, this shouts "buying opportunity" to me.

*This separate from LT holdings in PCU.

6/17/08

Chile and Bolivia with good news (which is why you haven't heard anything about it)

In the last two days, Chile and Bolivia have come to two pretty significant diplomatic agreements. First was this one on Monday, which opened up lines of co-operation in defence and academic matters. This might not sound like much to you, but it was a big step forward for two countries with no formal diplomatic relations.

But even that was left in the shade by yesterday's announcement, linked right here in English from Mercosur press. Chile has agreed to let Bolivia use its port of Iquique on a free transit basis. This is a significant step towards Bolivia's dream of a maritime exit point, and will be a big plus point for the government of Evo Morales when the country goes to the polls to decide the recall election on August 10th.

Make no doubt; Morales is scoring heavy bonus points with his citizens on his ongoing talks with Bachelet's Chile, and using correct diplo channels to reach his goals. In the last year, the two presidents have met for talks three times, and ministerial-level meetings have happened on eight different occasions. The results are now coming from these talks, and so far it's all good for both sides. This is why you won't hear much about it up North.

(overheard in Miami Herald newsroom today) "Good news from LatAm.....nah, nobody'll read that...spike it..."

Ecuador bonds: Time to take profits (and here's why)

Am I the only dude who sees a great, big red flag waving
at me after the Fausto Ortiz speech yesterday?


Back on March 19th 2008, your autohorntootin' Otto wrote this post on the oil bonanza cash that's falling into Studmuffin Correa's lap. The post finished by recommending Ecuador bonds as a good investment in the following way:

"...On the other hand the gov't does have the choice on how it spends the bonanza about to fall in its lap, and if Correa is as good as his social-ticket word, the lot of the average Ecuadorian on the street is about to take a turn for the better. Which is great news for the locals, but what can we guys do to get a piece of the action? Easy, you listen to Otto's reco right now to buy Ecuador sovereign bonds. Ecuador is on a 773 basis point spread on the EMBI+ index tonight, which means they're going to give you at least 10% interest on your cash. And the cool kicker is that because you get in now while the world is snoozing, come the end of the year you'll be grabbing the decent interest rate and you'll be holding a bond that's worth more in itself. But whatever happens, don't worry about Ecuador not having the cash to service its debt, cos there's as much chance of Ecuador defaulting this year as there is the hole in my butt healing up..."

Here we are, three months later, with the country risk points spread at 543 basis points......

Ecuador EMBI+ spread March 17th 2008 to date (click to enlarge)

.....and for those who took the advice of that totally rockin' call, don't forget that paypal button over there on the right of the page :-). However, now that everyone's getting on board the Ecuador bonds train, I can't help but get all contrarian on you dudes and say it's a good time to take profits. Here we go with the reasoning behind this call.

Yesterday, Ecuador's Finance Minister Ortiz spoke at the the Harvard Club....

Fausto Ortiz: wears suits and ties....and glasses

... and made all the right reassuring noises for the assembled suits about his country's sovereign bond debts, i.e. "Relax, we not gonna default, dudes" (or words to that effect). The warm applause filtered over to today's market, when Ecuador's EMBI+ spread closed a hair's breadth away from the lowest spread since Correa won the Presidential elections in November 2006.

Ecuador EMBI+ spread, Oct 2006 to date (click to enlarge)

Here's how Bloomberg reported the events, with all the purring noises from analysts that accompany rising assets. Exactly the same noises that have made my early warning antennae go "DANGER DANGER" and my eyes see red flags aflutterin'.

"So what's not to like, Ottodude?", I hear you asking. Well if we go back to June 9th, President Studmuffin got the debt market all jittery when he said he'd move to annul what he calls "illegitimate debt" that was supposedly carved up between the bankers and their pals way back when. I wrote on this whole illegitimate debt story here and here (check the photos on both blogs...they rock for their own reasons), and it's pretty clear that Fausto's speech yesterday was all about calming the market after Correa's comments two weekends ago.

So going forward, there are two things in play here. Firstly, Ortiz's comments helped things for sure, but he wasn't addressing the root of the problem. For sure he's not telling any lies when he says that Ecuador won't default on debt (the numbers are easy enough to run), but that's not ruling out further Correa diatribes against debt that may (or not) be unilaterally declared illegal, null, void, scratched or whatever you wanna call it. So Ortiz's comments seem to be some sort of pre-emptive strike, something he can point the foreign types to the next time Correa ratchets up the rhetoric against the somewhat murky debt that Ecuador has to service.

And that brings me to the second point. The main report on this 'illegitimate debt' is due published 21st July (give or take a day or two...it is South America after all). Not only is that close to now, it's also close to the 23rd September big big constitutional vote day in Ecuador, when the country decides whether Correa's new rules get the green or the red light. There's not a doubt in my mind that Correa will use the 'illegitimate debt' issue during those last two months of campaigning, and whether or not it all turns out to be bluster in the long run, you can bet your sweet bippy that it'll get bond holders up North all nervy and nailbitey.

The bonds market is not a binary exercise. It's not just "pay" or "not pay". The market takes into account perceived/actual political and economic risk at all times, and the value of paper goes up and down all the time (duh). So what I'm basically saying is that although Ecuador is safe from absolute default just like the Ortiz dude says, now is a good time to take profits on Ecuador bonds before the combo of big elections and the jawboning to electorates and report on debt start affecting things to the downside, albeit temporarily.

Or put another way, if you think that it's good to see a whole bunch of nodding-dog analysts up North agree that Ecuador bonds are a safe and cosy place for your money just three months before a major election, don't invest your money in Latin America....ever.

By the way, to anticipate comments from people holding Ecuador exposed miners (it's happening quite a lot recently in the mailbox...always very welcome...keep 'em coming dudes), remember that the draft mining law comes out June 27th and the debt report is due 21st July. They call the gap between those dates a 'window of opportunity' where I come from..........


A welcome dose of sanity from Klishtina

Just when it looked like this was getting out of hand, Klishtina has done something right, proper, presidential and smart. She's sent the contentious export tax law for debate and vote to the Argentine Congress instead of trying to foist it on the country via executive order.

This is a welcome development. For sure it'd be easy to criticize with "why did we have to waits" etc etc, but let's take this move at face value. It's wholly positive, and it's been rightfully welcomed by most, if not all, the fractured opposition forces of Argentina..

It now means that the law must go through a truly democratic process in order to be ratified. If the law is upheld as stands, there will be no complaints from here, and there shouldn't be any from the agro boyz, either. If it gets thrown out or (most likely) modified in passage, the same applies to the Klishtina admin.

We still have to get through the descamisado rally at the Plaza de Mayo tomorrow (50 mangos, chori y tetra gratos...¿que tul, bonchas?), and the agro strike will run its course until midnight tomorrow (although the agro boyz have already made the right sounds in pressers tonight) but this long-overdue softening of gov't position should be applauded.

Now I promise....no more agro posts until something gets sorted out once and for all.

UPDATE: Well oh well...this turns out to be a finely tuned set-up, manufactured by Veep Cobos to steamroller the law through congress. It turns out that the law cannot be modified by congress, and has to be voted on a stright "yes" or "no" basis. In practice, this means it has a 95% chance of geting through, and a 5% chance of bringing down the Kirchner gov't. Or in other words, a calculated gamble that was most probably pay off. Gotta admire the style, though....Klishtina tkaes a single step backwards and gets everything she wants.

Argentina hits the streets again tonight

After listening to King Nestor saying


1) The big rally tomorrow in Plaza de Mayo is still most definitely on (all attendees tomorrow night earn 50 pesos each, plus food and transport laid on, I hear).

2) Tomorrow's rally is all about "the defence of democracy" and "the plurality of ideas".

3) The local media have been distorting the message (with special mention made to top media outlets La Nacion and the powerful Clarin empire...he really laid into them...a politically charged move)

4) The agro boys are trying to destabilize his gov't via destocking of shops in Buenos Aires and other cities

....right now thousands of text messages are being passed around the city centre organizing another big protest (aka cacerolazo) for 9pm local time. This can only end badly. I can't help feeling the presence of Eduardo Duhalde now.

The big push against the local press is most significant. For one thing, this kind of talk, along with 'the patriotism card' is often the last refuge of the scoundrel (who remembers De La Rua in December 2001? I do). For another, if Kirchner has decided to declare the media and especially Grupo Clarin an outright enemy, it is real fighting talk and goes far beyond this single battle over the export tax. If you know your Argentine card games, you'll understand what I mean when I say that Kirchner is playing truco with the fate of his country, and all because of stubborn pride.

I think this is my last post on Argentina today. Pick up the Klishtina TV speech and the ensuing protests from other places. I'm sick of it all. It's no fun watching a country as wonderful as Argentina go down the tubes....again.