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10/4/08

Reuters interviews the CEO of PCU and gets interesting comments


On this link right here, President and CEO of Southern Copper (PCU), Oscar Gonzalez Rocha, talks about the state of play in the company and the copper sector. I haven't seen the interview in English (yet), but here are the Gonzalez direct quotes from the interview as translated by me:

(On the $5.1Bn investment and expansion program at PCU for the next five years): "We think that due to the crisis our projects could move foward a little slower, but at the end of the day we hope to execute them."

"We do not anticipate the need for credit, as now the situation is very diffuclt due to the US problems, and we can develop the project from our income cash flow....but if it is necessary, togher with the board of diretcors we will see if we can take a little away from the dividend pool to complete the projects if it's difficult to get credit lines." Gonzalez then mentioned that the Tia Maria project (120ktpa Cu) is due online in 2010.

(On the current market prices): "Unfortunately prices (for copper) have dropped considerably, from U$3.20/lb to U$2.70/lb. This will definitely affect us because although this only started at the beginning of September and we don't know how long it will last, income will diminsh due to the lower prices." He then mentioned that cash cost was around $1/lb at present, the rise due to fuel and steel costs. Gonzalez said, "Up to now we believe our projects are feasible; if copper was priced at $1/lb they would not be feasible."

(On market demand): "There is still strong demand from Asian countries. We do not believe they are going to slow construction and technological advance, this different to the USA which is semi-paralyzed.......At the same time we have mines which are suffering from reduced mineral grades or are on strike such as at Cananea, and this copper that is not reaching the market makes supply slightly lower than demand. This will maintain prices."

Man arrested on corruption charges, Geneva Convention smashed to bits, Red Cross packages needed a.s.a.p

Baduel shows off his expertise at "scissors, stone, paper"

Some dude name Baduel got arrested in Venezuela. To jog memories, this is an army guy who supported Chávez for a long time (and according to urban legend was a key figure in saving Chávez in the coup d'etat of 2002), but has since turned against Hugo and become a vociferous opposer. General Raul Isaias Baduel (for it is he) is being charged with corruption (the investigation has been going on for quite some time), but with a ton of non-surprise it's being made into a political prisoner police state human rights story by the anti-Chávez brigade.

Let's see what kind of evidence is stacked against the guy before rushing to judgement, because the rabid right is populated by some real nutbars who just want trouble at any cost. Relax....breathe deeply....don't believe the hype on either side....lotus position...ommmmmm. Worth noting that he's out on bail already (though not allowed to leave the country). Not exactly Lubianka detention centre style, is it?


Is that Blue Steel or El Tigre, Yon?

In other news, the ridiculous Yon Goicochea has made headlines because of a temper tantrum he threw about having his passport photocopied "BY AUTHORITIES" as he entered the country this week (nice to have the money to travel, Yon). This one made me laugh out loud as I tried to remember just how many times my own passport has been photocopied in the last decade or so by 'authorities' over the length and breadth of LatAm. I'd guess it'd be in the hundreds of times without a second's hesitation. This Yon guy really and truly needs to grow the f*** up for once.

In-house post: How is the blog doing? (and what it can do for you)

When IncaKolaNews started being a humble corner of cyberspace on March 11th this year I didn't really know what I was doing or where this blog would take me. One thing about those first couple of weeks that I do remember was the happy first time 100 readers came to visit in a single day. Now we're in the thousands of visitors per day and the thing just keeps on growing and surprising me. It's all good, and I hope you enjoy the content as much as I enjoy publishing the blog (comments and criticisms always welcome).

A few weeks back (in my last in-house musing) I was wondering out loud how to make this blog site pay for itself. Since that time:

1) Two news site sponsors have come on board. Fortuna Silver (FVI.v) and Vena Resources (VEM.to) are both solid companies with good business plans and operations and I'm very happy to be able to recommend them and be sponsored by them. Please visit these sponsors and learn more about the companies, because I'm quite sure that at current valuations both companies are real bargains and will pay you well as investments.

2) I launched Otto's NOBS bespoke investment service (find out more and get a free sample on this link here). By way of an informal progress report, I'm happy to say that in the 12 days since launch I've sold six reports (though one of those still needs writing).


To change the subject a bit, I've just been checking the dustier levels of back office stats today and noticed (with surprise and delight) that e-mail and RSS feed subscriber numbers have jumped quickly in the last month. This is the main reason I decided to write this in-house post today, in fact. So for those who don't know, just by clicking on the links over there on the right hand side of the page you can sign up to the same service (or even both services, if you want RSS and e-mail). A couple of things to note:
  • Both services are totally free, gratis, for nothing and don't cost you a penny. They will stay free in the future, too.
  • With the RSS, once you click through you add the blog to your Reader service (for example, Google Reader, which is by far the most popular amongst present subscribers). With the e-mail service, you just add your mail address into the box that comes up (and fill in the non-spam codeword). Then when the relevant mail arrives in you inbox, just click the "Yes, I want to get this service" link that's included in the mail and it's done!
  • With RSS you receive the individual blogposts in your reader a few minutes after they appear on site here.
  • With the e-mail service you receive the day's posts all together as a single mail the morning after (I think it's sent out at around 6am New York Time).
  • Both services are totally safe. Neither incakolanews nor the service provider (Feedburner, part of the Google empire) passes on e-mail addresses to third parties. You will find Adsense advertisements included after the posts in each service. This because any time a client is interested in finding out more about those adverts and clicks on one, a small commission comes my way (normally a few pennies, but every little helps).
So now you know more about the RSS and e-mail service, you can consider subscribing to one or the other (if you're not there already).

To wrap this post up, between the new sponsors, the Adsense support, the small amount of commission from the free magazines offer (linked here) and the money generated by the NOBS reports so far, the blog is now on its way to becoming financially self-supporting. And if (touch wood) readership continues to grow as it has in the first half year I'll be in a position to make this blog part of my permanent lifestyle.

Thanks for reading this admittedy navel-gazing post all the way to the bottom, and as long as the blog keeps providing you with a good service I hope you keep coming back. Finally, for any comments of whatever type, feel free to contact me (as quite a few do these days) at my e-mail address:

otto.rock1(AT)gmail(DOT)com

Though it has to be said that pleasant language from you helps a long way in starting a conversation :-)

The World Bank's 'Human Opportunity Index' report is very impressive


On Thursday October 2nd, the World Bank published a report on 19 Latin American counties called the "Human Oppotunity Index." (HOI). The HOI attempts to show how socioeconomic circumstances in Latin America mean that people from different backgrounds suffer the "unlevel playing field" of future opportunity, especially children. Of course we've always known this to be the case, but what this report does is to empirically quantify the problem for the first time ever. This will allow governments, social services and national/international organizations to hone their efforts and get maximum bang-per-buck in the future.

You can get your free copy of the full report on this link right here. It's long (the download is 4Mb, the overview is 23 pages long and its main content is 120 pages long, so be prepared). However be clear; it's absolutely essential reading for anyone interested in LatAm social issues. It's an outstanding and innovative report, and the World Bank team who put it together should be warmly congratulated. Also, visit the World Bank page on the study right here, and also check out its LatAm HOI interactive map on this link here. All very good stuff.

I'm under no illusion, and a big report like this isn't going to be the most popular download this site has ever offered. However this is an important study, and if just one person reads it via this post, I'll be happy. For example, did you know that 100% of people who are disadvantaged by socioeconomic factors in Brazil and Peru come from ethnic minorities? That and ten thousand other facts await you.

I'll leave you with the blurb from the World Bank page to get you more interested. I hope you read the report, and once again congratulations to the World Bank team.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx


Between one fourth and one half of income inequality observed among Latin America and the Caribbean adults is due to personal circumstances endured during childhood that fell outside of their control or responsibility, such as race, gender, birthplace, parent’s educational level and their father’s occupation. These circumstances reveal the level of inequality of opportunity in the region

The new Human Opportunity Index, developed by a Group of economists from the World Bank, Argentina and Brazil, shows how personal circumstances play in gaining or preventing access to those services needed for a productive life, such as running water, sanitation, electricity or basic education among children in the region. This opens up a whole new field of study dedicated to designing public policy focused on equity.

10/3/08

Colossus Minerals (CSI.to) and "The Anderson Effect": An Update

"There is an ancient mariner
and he stoppeth one in three (projects in their tracks)"

It hasn't taken shareholders in Colossus Minerals (CSI.to) long to find out about Patrick 'Albatross' Anderson's uncanny knack of relieving them of shareholder value in short spaces of time. Here's the updated share price chart of CSI.to with Anderson's arrival date marked nice and clearly;

This despite the words of CEO Sussman who said at the time, "Patrick's wealth of experience in the mining industry will add tremendous value to our Company......". Maybe I'm a bit confused, but isn't a 47.7% drop in share price the opposite to what you had in mind, Ari?

Don't say that Aurelian shareholders didn't try to warn you CSI guys. At least you have the consolation of assuming that any options agreement Albatross struck must be way out the money now. So as tribute to Anderson's finely tuned powers, here's a short Monty Python sketch to send you into the weekend. Enjoy.




Related Post (Sept 8th)

breaking news: sell Colossus Minerals (CSI.to)

Evo draws the line

"Otro Golazo de Evoooooo!"

Seems like your prescient Otto was spookily correct yesterday when writing "There comes a point when patience will run out" about the way the racist scum decided to break off negotiations with Bolivia's democratically elected government.

Just to recap, the fascists decided to throw a tantrum when one of their own was arrested for the trivial matter of state terrorism. Only in the warped minds of the separatists can a legal arrest made on someone who actually admits to the wrongdoing (i.e. the attack on gas pipeline installations in Tarija) but they said that it was a kidnapping, broke off talks and said they'd reconvene Monday 29th. Well today Evo just called their bluff; he's called this Sunday 28th as the deadline for any definitive agreeement. In the words of Doctor Morales;

"Sunday is definitive, I'm going to be there (in Cochabamba at the meeting place) on Sunday and hopefully the prefects will be there, too"

Other Evo zingers include, "Apparently the prefects are suspending dialogue in an attempt to protect those who committed acts of terrorism and common crimes during the protest of last September",

....and also, "(the talks) cannot be conditioned to certains claims that must be dealt with by the judiciary."

So Evo once again shows them who's boss. And as a reminder, what's in play is the contents of the new constitutional referendum. Morales has shown he is willing to adapt the draft resolution on some points with the media luna states (a policy expressly against the wishes of many indigenous organizations, it should be noted), but if the prefects from the rebel states don't agree to anything by Sunday's deadline, they get no changes. Zip, nada, zilch. The constitution goes to referendum as stands and Evo gets to say "Look, I tried to talk with the dumbasses....gave them a chance...they want to be idiots, that's fine."

Evo: You are the man. And over 67% of Bolivians agree with me. And all of Unasur, come to think of it.

Live Images From The US House of Representatives

Broad markets selling the news...no surprise.

click to enlarge

Meanwhile in the Oval Office.....

click to enlarge

Trading Post (limbo edition)


Yesterday's panic is today's sheepish grin, as the market admits, "Yeah we know things are bad, but we might have overreacted yesterday, ok?" LIBOR is up again at 4.33%. It's rather academic because nobody's lending new money to anyone else, but those with those "LIBOR plus XX%" credit lines are paying for the crunch, though. Not good.

SLV has decided to go in the right direction after fading late yesterday. You go girl. Still holding.

Spot copper up 3.5% is very good news. Spot copper at $2.73/lb isn't so hot. After yesterday's $2.60 printed, I'll take it as a glass half full. FCX up 6%, PCU up 8%.

Amerigo Resources (Aaaaaaaaargh.to) now down at $0.81 on low volume. If you're brave enough, this is one of the cheapest things out there today. I'm chicken.

Breakwater (BWR.to) continues in its role of 'Zinc On Steroids". Up 11% right now, and was up 20% this morning. Have a look at how far it fell yesterday. Spot zinc broke through that very tough 0.75/lb barrier yesterday and slumped to 0.70. However it's springing back today, and if it climbs over 0.75 quicktime it'd be bullish.

Corriente Resources (CTQ.to) up 6.5% at $4.43 and continues to impress with its share price action. Every time it falls on a panic seller or two (see yesterday) it just picks itself up, dusts itself down and pops back up on low volumes. The most logical conclusion is that there are no serious sellers, which can only be good.

And on the subject of Ecuador stocks, I've come to the definitive conclusion that Dynasty (DMM.to) is dirt cheap right here. Not without risk (goes without saying) but offers tremendous value on the Ecuador mining law publication due out this month. I've procrastinated on this stock for lord knows how many months, but on revisiting the numbers recently it looks value-packed under $3. Buy some here and sell at $4.50...what could possibly go wrong?!?!?!?

DYODD, dudes.

Argentina: The Crisis That Isn't

(From the department of what have I been telling you all this time?)

A excellent report has been published today
by Mark Weisbrot of CEPR. Called "Argentina; The Crisis That Isn't", it debunks the talk of possible Argentine debt default that has been making the rounds recently using the most powerful weapon possible: the facts.

You can pick up your copy of the report, free gratis and for nothing, by clicking this link right here. This report is essential reading for anyone interested in Argentine finances.

CNBC bingo

Every now and again, one of the dozens of viral thingies received is worth passing on via the blog.

Rules: Tune into CNBC and check off any comment used by anyone. First to make a line shouts 'bingo'.

Necessary and deserved hat tip to the blog futurejacked.

UPDATE 11:04am EST: Reader MP claims a win (checking card now)

Spot copper and the value of admitting you were wrong (even when you know you're right)

Last month the boring chart I kept stuffing in front your face was the spot copper five year price chart, mainly because it was flirting with breaking a three year support line. Here's how the chart stands today:
At the time, I was all "will she or won't she?" and decided not to bail on copper exposure unless the support was clearly broken. In fact it broke, and I got rid of CS.to, ARG.to and FCX and a couple of others (not PCU, because that's the LT portfolio and it's still there...different attitude there).

Here's a close-up of the recent timescale with the events commented.

After selling, spot copper recovered on a spike, and I was all "sheesh, I panicked too soon...oh well, dem's da breaks...not going back". Then the marketed turned once and for all and here were are at Cu in the $2.60s (and Otto wiping his brow and saying phew a lot).

So what's the point here? The point is that I still believe that this commods sell-off is total panic BS of the highest order. I still say fundamentals are saying a different thing than pricings. I still believe that demand for copper is very strong and supply is tighter than a duck's sphincter. However my belief was (and is) shown to be W.R.O.N.G. by the best judge out there, i.e. the market. The thing I did well was to admit that the market disagrees with my views and get the hell out of its way, because it is a very large elephant and I'm this leetle leetle ant.

Shaking your fist at the world while losing money may be gratifying on one level, but it's not for me. You cannot be right all of the time in this game. Period. Admitting errors is a very important part of being correct over the long-term. There is plenty of Zen in the market, but as in all Zen teachings they don't evangelize themselves at you. You have to find them, not the other way around.

So to sum up, with the recent copper price action even though I'm right, I was wrong. And by admitting I was wrong, I was right. Seems perfectly clear to me.....................................

Chart(s) of the Day

Here's the JP Morgan EMBI+ (normally known as 'country risk') for the main locally traded bonds, early 2007 to date:


Ecuador is now at 1162, Argentina 1099, Venezuela 993. And here's the same timescale, but just focused on the "serious bonds" of Brazil, Colombia*, Mexico and Peru

When the USA catches cold, the rest of the world might not sneeze any more. But if the USA goes down with West Nile Virus........

*apologies once again for the use of the "U" in Colombia chart indexing; out of my hands I'm afraid.

10/2/08

Coro Mining (COP.to) crashes and burns

Geddit? (oh never mind...)

The story has several parts, but basically:

1) In February this year junior copper explorer Coro Mining (COP.to) announced its intention to buy a working mine in Chile from private hands called "Cerro Negro", the ticket price being $38m.

2) After the DD period (everything seemed OK to the company) and working with Dundee Corp., it raised an initial $3m for working capital and transaction purposes in late August.

3) The second tranche of the necessary financing was to place 8m shares at $1.50 a pop (with a 1/2 warrant attached) for $12m proceeds.

4) As the market turned, COP.to got an extension on the time limit for the deal (to October 3rd) and dropped the placement price to 12m shares at $1.00 to raise the same amount.

5) Today COP.to threw in the towel and said that it was dropping the purchase due to market conditions, credit market and copper prices.

Or in other words, COP.to has a serious amount on egg on face. We can bullet point the basic mistakes made by management
  • Copper prices didn't suddenly get unstrong in August. As a reminder, this was the time that spot copper was fighting its losing battle with the $3.50/lb level after dropping quickly from $4 (it was well documented here). Spot copper broke down at the end of that month and you know the rest.
  • Just a quick look at the price chart above shows that a $1.50/share placement was really pushing the window at the offer time. To begin with, the stock had seldom traded at or above that level. And when the original deal was announced August 22nd COP.to hadn't closed at $1.50 for nigh on a month (July 25th, to be exact).
  • So when the placement was re-priced a month later there was nothing else to say than "these dudes are desperate for the money."
  • Then the words used by CEO Alan Stephens on September 26th (the day the repricing was announced) must have come back to haunt him as he watched his company's share price dissolve today. He said, "Given the current market environment, the need to be able to establish ourselves as a copper producer is paramount...."
  • So when COP.to today announced that it wasn't going to be a copper producer for a long while to come, the stock dropped from $0.90 to $0.50. It was trading at $1.11 last Friday.
Moral of this story is; if you're going to hold junior miners right now, hold those companies with cash at bank and conservative business plans, not companies with $3.2m at bank, $1.6m in current liabilities (as at 2q08) and ideas above their station. And by the way, the company has already burned through that $3m placement according to today's PR.

You can call the COP.to saga bad luck if you like, but there's a whole swathe of names on the BoD that won't be getting support the next time round due to the way they overextended on this deal. If the whole market is screaming "preservation of capital" to you and a cash poor company wants to buck the trend....well....see what the result can be above.


Disclosure: Never owned COP.to, never will.

Venezuela: opposition student leader assassinated

Julio Soto, aged 30. Student leader.
Associate of Yon Goicochea. Now dead.


Another day, another death. But this one should be a wake up call for both sides of Venezuelan politics. Yesterday Julio Soto was driving through the city of Maracaibo when two or three (eyewitness reports differ) people approached his vehicle and shot him around 20 times. The murder has all the hallmarks of a hit, as nothing was stolen and the gunmen drove off immediately after shooting.

Julio Soto was the local leader of the FCU opposition student movement at Maracaibo's Zulia University and a member of the opposition COPEI party. To the credit of the FCU and COPEI, so far there hasn't been a rush to judge this crime as political violence, though the suspicion at the moment is that he was killed by his political enemies, i.e. Chávez supporters.

Equally the response from pro Chávez students movements has been welcome and mature. In a press conference today, local pro-Chávez groups strongly condemned the murder and have called on people on both sides of the political fence to come together and do something about the escalation of violence. As for the the government itself, it seems it has been quick to act. Interior and Justice Minister Tarek el Aissami strongly condemned the murder and has already sent a full investigation team to the region. He also called for peace and assured locals that the authors of this crime will not go unpunished.

That remains to be seen. However this crime, horrible that it is, does have the gravitas to force Venezuela into recognizing it has a growing problem. Say what you like about the views of either side; this is no way to resolve arguments. I don't give a damn if you agreed with Soto's politics or not. You kill someone like this and you're an asshole. A left wing asshole or right wing asshole is just an asshole, nothing more.

It's not too late to do something about it, but time is running out. Hugo Chávez has a serious social problem on his hands, and Presidential action is needed right now. What you got to stop this, Hugo?

Julio Soto, QEPD

Trading Post (shock'n'awe edition)

Wow, did you watch silver drop too? Impressive. There I was, thinking about whether SLV would get down to $11.50...suddenly it did, and I reached for the trading account. Before I could log in it was $11.20 and dropping. So i put in a stink bid at $11.00, and it filled before my very eyes. Now long, and glad I held off yesterday. Sometimes pure luck plays a significant role in trading, and I got lucky (only remains to be seen if the thing rebounds). It feels quite nice to take a trading position again...kinda edgy without being too risky. Already up 16c a pop though.

Amerigo Resouces (ARG.to) down 13% at $0.90. Time to re-name this one AAAARGH.to, which is a bit unfair because all that's wrong with the company is spot price. 3q08 may turn out to be the first quarter in a long time that doesn't turn a profit.

Hey wow...see my MELI call of "buy between $20 and $22" yesterday because it's "likeable" at this level? Here we are at U$17.50, down 14% today. This either means that a) it's even more likeable now or b) Otto's timing still sucks, especially at this stock. It probably means both, thinking about it. There's no reason for this selloff, and volume is low. My best guess is some forced sale or a panicky holder (plenty of those about).

Spot copper continues to puke loudly, and now stand at $2.70/lb. FCX and PCU are down another 10%+ each. As PCU is a major component of my LT portfolio, I'm taking the most sensible measue possible, namely curling up in a corner, sucking my thumb and refusing even to open the LT account page.

Crystallex (KRY) down at at $0.70. Only another seventy cents to drop before this stock finds its true equilibrium value (this message goes out to the private KRY board that keeps copypasting my posts on their site).

A special mention for Gold Hawk Resources (CGK.v) which is the only green on my screen right now. Word from the deep jungle drums is that there's news coming next week from the company.

The fascists walk away from Bolivia peace talks


Why they've walked away speaks volumes. A Tarija thug was arrested yesterday for being the ringleader in last month's attack on the local gas pipeline installations (remember all that about Brazil's supply getting cut off? Yeah, that's the one). The dude, named José Vaca, admitted being involved in the attack and was arrested in proper style by police. This prompted the prefect of Tarija, Mario Cossio, to accuse his democratically elected national gov't of "hunting" and "kidnapping" civilians. Aren't these guys beautiful, eh? This is regional-sponsored terrorism, no bones about it. So Evo's gov't shows major restraint yet again, points out that the arrest of José Vaca was on strict orders of the Fiscal General (i.e. head honcho of judiciary and not connected to the gov't), and asks the fascist scum to come back to the negotiation table.

There comes a point when patience will run out. This is not a question of state terrorism or gov't sponsored clandestine operations (that's the USA's speciality in the region, not Evo's). This is simple rule of law. You attack a gov't owned gas installation and block supply? You get arrested. Normal. These separatist shits seem to forget that nobody supports them outside of their tiny bastions.

Chart(s) of the Day

Well, it looks like I'm going to get the chance of SLV under $12 after all. I thought it had slipped away from me. Here's the Gold:Silver Ratio, which is an altogether smarter way of tracking silver than its price chart.

(click to enlarge)

The USD has just broken 80 (80.15 to be exact), and the orderly piling into T-bills should have its flipside soon. If the dollar reverses from here it'll form another nasty twin peak. That reversal should see PM revalued and Otto slightly richer. All we have to do then is suffer the goldbugs shouting "I told you so" about their personal zero-sum games (yeah I know, I'm getting as repetitive as they are. I'll now STFU).

(click to enlarrge)

Update:
Oh whoosh city, the USD is now at 80.60. On that chart above that's the peaky peak peak of the last peak. I'm now looking for $11.5 for SLV rather than $12. Hey...today might be a lot of fun...it's about time I bought something.

Let's be clear about the USD; this is a ST move. The bailout package or whatever it's called is extremely bearish for the currency over the medium term. I'm still expecting USD to revisit 72 or so. OK, enough non-LatAm stuff...let's get back to business (cos it beats watching those miners sink again).

10/1/08

Peru's Inflation comes in above expectations...again

Another blow to the image of Alan's perfect 'investment grade' Peru. In the words of local analyst Roberto Flores (quoted by Reuters here) "Even though the effect of the rise in fuel tariffs was going to add to inflation, such a rise wasn't expected......Inflationary expectations are still relatively high, despite food prices showing a slight downward tendency in the international markets."

Or to quote Otto, "This like totally sucks, dude." The 6.22% trailing yearly inflation might not sound much to you, but the bias towards price rises on foodstuffs (9.48%) and now the latest round of price rises in public transport is hurting the lower socioeconomic strata much more than the people who write the column inches in newspapers and try to convince the world that things really aren't that bad.

And Ooops! A quick lesson in Economics 101 for Jorge MiniMe Del Castillo; Just this morning he was exhorting Peru to eat more fish and potatoes and telling us how the switch from chicken to fish was saving 'las caseras' money. Result? Fish went up 2.07% in just one month (more than January to August combined) and potatoes/tubers up 9%. Jeesh what a dickhead that guy is, seriously.


Also, take note of that wholesale price index; you telling me there isn't bottled up inflation waiting for the retail number in the months to come? Finally, check back at October and November 2007, because between them they added just 0.42% to last year's total. And PPK said that Peruvian inflation would be at an annualized 3% by January...what the hell was he smoking?

Alan García = 19% approval rating. Nuff said.

Movie magic in Argentina today, as Klishtina pays homage to Ridley Scott's Blade Runner

"The light that burns twice as bright burns half as long, and you have burned so very, very brightly, Roy."

And

for

those

of

you

that

don't

remember

how

the

scene

continues
.....

Peru: Don't let them eat cake (the flour's imported)

Jorge Del Castillo and Peru's Agro Minister Ismael Benavidez caught
on camera wearing their masonic aprons.

All great fashions start out by being ridiculed (e.g. flared jeans, Tamagochis, the hula-hoop, sitting on the roof of a train in the Indian sub-continent...you name your own fave). This year's crazy craze goes by the name of "Nationalization", and was kicked off last year by a little known local politico named Hugo Chávez, who nationalized CANTV, the Venezuelan phone company. Since then this nationalization fad has turned into flavour of the month and talk of the town, with Bolivia snapping up its gas prodcution, Argentina taking over (better said 'back') its national airline, the UK feasting on a couple of savings&loans thingies and the USA nationalizing everything to do with money (though it has to be said, circumstances up North are somewhat different....I mean, the nationalizations down this way have actually added value to the states in question).

So not to be outdone, Peru has joined in on the act. In a big hoopla presentation today, Prime Minister Jorge "mini me" Del Castillo along with a bunch of his ministers launched its latest attempt at Communism called "Take Advantage, Eat That Which Peru Produces" (Aprovecha: consume lo que el Perú produce).

Mini-Me said "We have to Nationalize our food, and because of this army barracks, hospitals and prisons will use local produce of the finest quality to bring down costs." He then went on to moan about the fact that Peruvians eat more imported goods than locally grown potatoes (for example), and then immediately contradicted himself by saying that Peruvians had changed habits and were eating more fish than chicken nowadays, which brought the price of a kilo of chicken down from S/7.40 to S/5.50. This is of course total bollocks, because chicken prices came down once the imported chicken feed came down after the much headlined surge in food prices was over (funny...you don't hear people talking about that much nowadays but inflation is still on the up'n'up...I wonder why...not) and had nothing to do with any sudden fervour Peruvians developed for horse-mackerel.

So I's got me an idea; why not stop planting all that asparagus for export to the USA (cos by the sounds of things, WalMart shoppers just won't be able to stretch to it soon), and use the same areas to plant something radical...like wheat, or soya or more rice? Then Mini-Me can stop imposing his ridiculous logic on his fellow citizens and let them bake a cake or two, just like they could when they were poor.

Venezuela wins the gold, Ecuador silver, Argentina bronze

Congratulations Venezuela for being the first country to make it over 1000 basis points on the EMBI+ rating, better known as "country risk". Venezuela deserves a big round of applause for beating out strong competition to the prize and breaking the 1000 point line on September 16th, a full two weeks before the others. Full kudos.

Ecuador made it into the silver medal spot on Monday, with a big push to 1030 yesterday. Great job, boyz.

Bronze goes to Argentina who joined them today, Reuters reporting the country risk spiking to 1006 this morning. A fine effort, people and good for that bronze medal.

UPDATE: I've just been informed that Ecuador made it over the line on the 16th, too. I'm still declaring Venezuela the winner because it scored higher that day, 1019 to 1006. On reflection it makes Argentina's effort to get over the line only today look quite puny.

Trading Post (voluminous edition)


Minera Andes (MAI.to) up 1.8%. It may not have moved very much, but check out the volume. Two 1m share blocks went through this morning at higher prices...somebody with money wanted in (and rightly so imho). Thanks to regular readers LC and JM for the headsup on that (but LC got there first ;-)

SLV up 6.75% at $12.65... and flying. I didn't catch the boat. More fool me for being greedy and trying to get cheaper than the $12.20 open. I'll try and console myself with "at least you called it, dude".*

"The coppers" getting hammered, as the spot price dumps to $2.80/lb. FCX, PCU, ARG.to, pick your own fave. Ugh...not good for the LT portfolio.

Breakwater (BWR.to) up a touch at $0.22. My target Zn short term trading play has been bouncing between 0.215 and 0.22 all morning, but volumes low. Note spot Zn refuses to go under 0.75/lb again. Very strong resistance level right here. I know a regular reader bought a chunk of BWR.to at 0.235 last week just before the big dumperooney and that's a case of bad luck and it sucks like that sometimes etc. There's hope in this thing yet, it seems, as any crappy miner would have dived several fathoms deeper.

Mercado Libre (MELI) at $20.50 is now green on the day. The stock turned around just after I hit "publish" on the note below. Coincidence? Spookiness? Real or Memorex? YOU BE THE JUDGE!

*I tried it and it didn't work

Mercado Libre (MELI): likeable at U$20

"Common sense will tell you that the only time you can get something for a small fraction of what it's worth is when other people are despondently selling. So it's been a new theory of mine, the theory of maximum pessimism. If you want to succeed in selecting investments, look for the points of maximum pessimism."

Sir John Templeton, investor and philanthropist. Born November 29, 1912. Died July 8, 2008, aged 95


Back in the period March to May this year, this blogger took Mercado Libre (MELI) to task for being overvalued on several occasions. The permabull cheerleader brigade proceeded to pull the analysis to bits and "prove" Otto was talking crap, even when I pointed out the heavy insider selling that was going on. The stock stood at between $40 and $60 at the time of the unwarranted attacks, and here we are with MELI under $20; that's called "proof of the pudding", people (as people close to me know, I'm quite insufferable when I'm right). On the other hand, I did fail to trade the stock very well even though the global call was correct. This is far more typical of me than the recent successful ST foray into SLV*, as I'm much better at LT views than trading. So be it.

Ok, mucho blah blah blah...the point of today's post is to revisit and examine if MELI now offers value. First up, let's look at how revenues have evolved in the last two years (click any chart to enlarge, by the way):

Obviously, top line growth is healthy enough. In fact it's never been a problem, even when the stock was priced way above its station. Next here's a chart that maps EPS since 3q06 to date, and adds in my own forecast for EPS in the two quarters left to report this year.

As you can see, bottom line profits growth is just fine. So here's a chart that maps out actual and forecast trailing P/E ratio at MELI for 2008 and 2009 (according to my casio and finger in the air, anyway).


With P/E projected at 20X trailing for the end of next year, no long term debt at the company, plenty of growth, no big overheads and a market share that's as close to a monopoly in the region as possible it certainly looks interesting at these levels. It's also worth pointing out that its main revenue market, Brazil, is experiencing ongoing strength in its retail sales sector and continues to ignore the machinations of its own stock market. Whether such strength continues in the next four quarters is debatable, of course, but Brazil isn't slipping into recession this time around, no way José.

All in all, I think MELI is a worthy buy at present levels. Speculative, of course, and if you jump on board be prepared for the normal high beta swings that you have to expect from a tech/retail growth stock based in emerging markets. However I'd call reward as clearly outweighing risk right now. Perhaps the best policy is wait until the US house rescue package thingy gets resolved and miss out on the first 10% of a targeted 50% upmove. So buy between $20 and $22 and ring that register at $30. DYODD though, yeah? We're all big boys and girls here.


Related Posts
Mercado Libre (MELI). Hype is no help
Mercado Libre (MELI): Nice to know the CEO agrees with me
Mercado Libre (MELI): Reality Bites


*SLV opened at $12.20 today, so I didn't buy. I still want under $12

Chart of the Day

You've heard a lot about the LIBOR overnight rate for sure, but check out the 3m trailing rate, too. Meanwhile the overnight has dropped to "only" 3.79% today, down 308 pips.

Let's hope there wasn't too much window dressing in stocks yesterday, end of the quarter and all that.

UPDATE: Felix Salmon at Market Movers has sniffed the story here, too. Here's the link.

9/30/08

Manaos, a hundred hurricanes and royalties

Lula, Evo, Muffin and Hugo all got together for a "mini summit" in Manaos (North Brazil, Amazon, overrated tourist trap par excellence, Lonely Planet sucks) today. No doubt they were planning some secret plan to take over the world or some such, but they made plenty of public statements about the US financial crisis. Here are four snippets from the dudes in question:

Lula said, "We all have the same forecast; the crisis is very serious and so deep that we don't yet know its size. Maybe it will be the biggest in the history of the world."

Hugo said, "I hope they find a formula to get out of the crisis and so that it doesn't keep expanding around the whole world like a fire, like a spectre....it could cause more damage (to South America) than a hundred hurricanes."

Studmuffin said, "These crises don't terrorize (South American countries) like they did before.....Hopefully the day will come for Latin America when it's irrelevant what happens in the United States, probably that's when we would have achieved our true sovereignty."

Evo said, "Capitalism is not the solution for the people that inhabit this planet...We nationalize so that the people have money, while the USA wants to nationalize the debt and the crisis of people who have money."

I guess the real pisser for you guys up there is to realize they're either right, or at least making sense. It certainly fits in with something that happened to me today. This afternoon I got a mail about the post on Ecuador this morning. In that post I floated the idea that a 10% royalty on Ecuador mining wouldn't be a project killer for KGC, IAG, DMM, CTQ (though it may well affect the very early stage projects). The mailer today was worried that incakolanews would get read by people in the Ecuador gov't and give them bad ideas. It was all "10% royalty?? Aiii, nooooooooo! Don't give them ideas...they might just do it!"

My correspondent is making a fundamental mistake. You guys really think I'm on the side of the Canadian capital markets and the rip-off merchants that populate 70% (and that's being conservative) of junior miners?

What have you dudes up there done for us down here lately?

It's about time you see that things are fundamentally different now, and if you try and foist any old deal on the region á la 1990s you'll just get sent packing. It really hasn't sunk in that you can't take the lion's share of profits and leave crumbs any more, has it? In the case of Ecuador, that's going to mean splitting the gross profits around 50/50, not "pay some of the income tax, avoid the rest and squeal over a 3% royalty" like the mining industry did in Peru in 2005 (and still does today, in fact). It's payback time. If you don't like it, don't come. If you don't come that's ok, because you're unlikely to be missed.

Notes From The Rabbit Hole


I'm now going to recommend that you spend money at biiwii.com. Gary, owner of biiwii, has finally, FINALLY done what he should have done a long time ago. He's starting up his own subscription newsletter service, called "Notes From The Rabbit Hole." He's just published a free trial copy, and you can get yours on this link right here.

I'm really happy that he's finally taken the plunge on this (I egged him on earlier in the year but as he was still undecided I let it drop). The dude is a very fine technical analyst, and has his head screwed on about the fundamental side of things, too. He's going to charge U$26 per month for the newsletter, which is a real bargain considering it's a weekly newsletter, it gets supplemented with alert specials at any given moment and also most importantly knowing what Gary is capable of quality-wise. It's worth mentioning that he's asked me to write a NOBS report on a company of his choice once a month (I get a free sub that way, and he's even paying me a small cover for each one, too) and that'll be fun, too.

So hightail it over to biiwii now, and find out more. Pick up your free copy of NFTRH (here's the link again, so you have no excuse) and I hope you'll make yourself a client of Gary. and support this value-packed initiative. He'll make you a better investor via this service, of that I have no doubt.

I'm buying SLV tomorrow

Here's why (click to enlarge either chart):

It's not just Laura Palmer that should be afraid of twin peaks.

I actually did quite well on this last time and made 26% or so by getting very lucky and selling at the recent top (as documented on blog, too). Incakola isn't a tipping service, but SLV does seem to be a good opportunity and nobody can accuse me of trying to prime the market by reco'ing a metals ETF, either.

So let's see if they give me under $12 on SLV tomorrow. If so I'm a buyer. DYODD, dude.

Destabilize this

So McCain made a gaffe and kinda mentioned that Hugo Chávez runs some Middle East oil state.



It was a gaffe, that's all. You can see where the dude is coming from. I mean, it's not like his Veep sidekick who thinks that visiting an Irish Pub in Philly last Friday can go in her foreign relations resumé.

The thing that gets me about what McCain said was the other part of the sentence (here it is in script if you can't be bothered to watch the Youtube).

".....(Stress the importance of) ensuring that America is secure, and not dependent on oil from people like Hugo Chavez or other parts of the Middle East which is, we know, could be destabilized under certain sets of circumstances."

Soooooooooooo, what set of circumstances destabilizes Hugo Chávez? Go on....take a wild guess.

(hat tip borev)

Trading Post (still glad to be in cash edition)


So the US markets bounce, and euphoria is in the air. Let's not worry about LIBOR, eh..........
There are a whole bunch of stocks that dropped 10 and have bounced 5 or 6 or 7 today. I'll mention PBR and FCX here cos I mentioned them down yesterday, but there are hundreds to choose from. My general impression today is of low volumes, though. Not very comforting. Ask yourself a simple question: "Have we seen the lowest of the lows?" Yeah, me neither.

Apex Silver (SIL) at $1.78. Don't say you weren't warned.

Novagold (NG) $6.60. Ditto.

Corriente (CTQ.to) (ETQ) up 5% and coming back well. $5 does seem like a roof above its head right now, though. I'm interested in this, but want cheaper.

ECH up 5% at U$38 and bits. I've mentioned this Chilean stock ETF to a few people recently, and I'll be running a full post on it soon (just waiting for the quarterly update on total holdings and percentages, due out very soon). I think it's now seriously oversold and a great place to park some cash to protect yourself against the upcoming weak dollar. Details coming soon, watch this space.

Gold now U$868/oz. Try explaining to a goldbug newsletter guru that there's a perfectly logical and sensible explanation for this drop in gold and see what happens. Or better still, engage one in conversation and see how long it takes them to either swear or use the word Nazi (and the word 'Weimar' doesn't count, as you'll hear that one in the first twenty seconds). More seriously, when a whole group of people are consistently and totally wrong with their market analyses, isn't it about time you stopped paying these unclothed emperors any attention?

Snippety stuff

Shame about the boat race (better photos found on link below)

Peru is about to start the third and final phase of its U$24m program that innoculates 9m of its citizens aged between 9 and 19 years old against Hepatitis B. It may be a small program, but it deserves a shoutout. If only the other Peruvian gov't offices could use so little cash as effectively as MINSA. Good job, people.

As an example of how Peru's gov't wastes money, nine members of its congress are going on a bunfest to Chile this week, and they are claiming an average of U$370 for the airline tickets alone. I've just checked online and I can easily get on that plane for U$238 return, Lima-Santiago-Lima. Yet another example of their time-honoured "two for you one for me" expense account doctrine. You think Peru is changing? Gimme a break!

In Ecuador, Kinross now owns more than 90% of Aurelian stock, and compulsory purchase it about to happen. It's all over, folks.

In Bolivia, the Unasur commission headed by an Argentine lawyer and charged with investigating the Pando massacre has arrived on site. The United Nations high commissioner to the region, Vegard Bye, has pledged the UN's assistance.

Maria Telpuk is now in Miami and will take the stand soon (currently slated for Thursday or Friday, but you know how these things are) in the Antonini Wilson suitcase soap opera. If she says the same things she said last week in front of the Argentine courts, expect her to punch very large and embarrassing holes in lardass's testimony. Link for photos.

PS: Otto's Songs now has 20 music videos collected.

A small Ecuador auto-trumpetblow

As mentioned here on September 19th, I forecast 64.5% "Yes" in the Ecuador referendum. With 96.26% of the votes counted, here's how we stand.


Pity Otto isn't as good with stock prices :-(

Ecuador, the mining law, royalties and the windfall tax

Two macho men, a referee and an arm-wrestling contest.

Yesterday, a small report from Alonso Soto at Reuters hit the wires and I got three separate mails about it. Here below is the report pasted out (it's not a big one) and the mail I sent to one person and pasted to another. Further Ottocomments underneath:

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QUITO, Sept 29 (Reuters) - Ecuador's leftist president, Rafaela Correa, on Monday ruled out nationalizing oil companies but said he will "not allow" them to reduce investment levels.
Correa also said an 8 percent royalty on mining companies proposed in a draft mining law was "too low" and said a 70 percent windfall tax will be applied to future mining contracts. (Reporting by Alonso Soto)

Dear XXXXXXXXXX,

Correa is putting the mining companies on the defensive here. This is not the time to make them feel comfortable so he's doing a bit of "bad cop" here in his ongoing 'good cop bad cop' routine. He also made it clear in his comments that the mining law was "still in discussion" (that's a quote) and also that the publication this year "is a priority" (that's another direct quote).

Note that Correa was talking about the whole royalty band (3% to 8%) and the report only mentioned the upper limit to be charged to the big mines. It might be the lower band is raised to 5% and the upper band stays as it is. We don't know. To be honest the difference between an 8% payment and a 10% payment is not one that will break the budget of any project there.

As for the WFT, the whole thing depends on the base prices set. We'll not know those until the individual deals are made between MEM and the miners, and all that will happen in 2009 minimum (ie after the mining law is set in stone, and probably after the Presidential elections of March/April/May 2009)

Best, Otto


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After a night to cogitate on the matter, I'd add the following:

1) Correa was probably targeting the 8% upper royalty limit. However it wasn't as explicit as the Reuters article suggests. Correa is very good at leaving himself exits hatches on his statements. In fact he's developed ito a very competent politician, period.

2) If the royalty goes to 10% (for example) it won't affect Kinross at Fruta del Norte or DMM.to or IAG or CTQ.to and their plans, but it will affect those companies early in the exploration track. It's an extra layer of cost for those who would finance the operations to take into consideration. The likely result is a 'wait and see' attitude for brand new mining projects, and investment capital flowing to other countries with a more mining friendly attitude.

3) The windfall tax (WFT) is likely to remain incognito for some time to come, and now becomes the bastion of Correa's 'make 'en sweat' tactics. Remember, he wants a fair deal or Ecuador. That means he doesn't want the mining companies feeling comfortable as yet. Just look at the way he's conducted negotiations with the oil sector players (a far more powerful lobby in Ecuador) and see how he's applying the style to mining. It's roadmap for mining investors par excellence (and he's doing the same in the hydro construction deals...AND it's already worked wonders for him in the telco negotiations).

4) Soto really is good at his job. Read him, even if you don't like the message.

Table of the day

And this one is about Latin America. The data was put together by Merrill Lynch and displayed at economist and national columnist Miguel Olivera's smart blog about Argentine economics

Note the strong position of all countries in the reserves-vs-short-term liabilities equation (short term meaning less than one year). Even the worst ratio of Argentina is manageable.

The second chart shows just just how much the region has strengthened in the decade so far. Particularly impressive are Brazil and Uruguay (the quiet achiever). Mexico might have a recession foist upon it from its northern neighbours, but there's no Tequila Effect this time round. And if you need convincing on whether this ratio figure is significant, look at the 0.9 figure printed by Argentina in 2001, and then remember what happened to that country in late 2001 and the early months of 2002.

Bottom line: I'd rather bank with a LatAm Savings&Loan than the dubious institutions up there right now.

Chart of the Day

From Brad Setser at 'Follow The Money'

His blog really is unmissable for financial wonks (guilty). Go over and read the context to this very impressive piece of charting.

Beware of anyone who says they "know" what's going on and how this will end. The best brains out there are flummoxed, so just ignore the pseuds and fools, please. Play it safe and preserve capital.

9/29/08

A country deserves the government it has

Feliz Salmon sums up the US House's decision to reject Plan Paulson with his headline "Oh Shit".

The Dow:
The USA really is governed by very, very stupid people. Just remember who voted for them. But one thing they don't realize is how much they're going to be loved down here after today:

The Bovespa (down 13.7% and dropping fast)
The Merval (down 9.8% and dropping fast)

So when the next round of job losses hit Latin America and the locals protest against the economic model that followed the USA and promised prosperity and all that, don't start blaming people for rejecting its politics, too. All in all, it's a good job you guys up there still have all those nuclear bombs, because otherwise nobody would take you seriously any more.

I know what the US citizenry's comment on the side-effects coming the LatAm is going to be too.

"We don't care."

And that, dear reader, just about sums it all up.

How's it going up there, finance boyz???

Down here we're getting credit ratings upgrade promised from Moody's, non-emergency debt buybacks in the cards and affirmations of robust net creditor positions.......... in.................

Venezuela.

Looks like Paulson has a model to follow.

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NEW YORK, Sept 29 (Reuters) - Standard & Poor's on Monday affirmed Venezuela's "BB-" sovereign credit rating, saying it was supported by its robust external and fiscal balance sheets, which continue to improve as a result of high and increasing oil revenues.

Standard & Poor's also said that the outlook on Venezuela remained stable.

"We expect that Venezuela's public sector will be in a net external creditor position of 25 percent of current account receipts in 2008, which is one of the strongest of any issuer in the "BB" category and significantly higher than the 1.5 percent net creditor position for the yada yada CONTINUES HERE