The sad end of monetarism

OK, I admit it: I'm a closet macroeconomic theory reader. So to the point and Scott Sumner is one of the best voices on the subject out there. His post today is superb and I recommend it to fellow wonks.

Weekend Freebie: Bloomberg Government live demo

Probably of most interest to the financial professionals who come over to this humble corner of cyberspace so not high traffic stuff. Baby wants new shoes after all. Blurb below, click and sign up, 100% free stuff and no obligations, no sensitive numbers required etc etc.

Register for Your Complimentary Live Demo NOW! "Bloomberg Government: Business Implications of Government Action" Sign up today to schedule a free personalized demo with a Bloomberg Government specialist. Bloomberg Government is the single source for professionals who need to understand the business impacts of government actions so they can work quickly, decisively and effectively. This comprehensive, subscription-based, online tool collects best-in-class data, provides high-end analysis and analytic tools, and delivers deep, reliable, timely and unbiased reporting from a team of more than 2,300 journalists and multimedia specialists worldwide. Geographic Eligibility: USA, Canada, United Kingdom Offered Free by: Bloomberg Government Other Resources from: Bloomberg Government

Brazil's advantage in the climate debate -- no climate deniers

We invite you to click over and read some commonsense over at Lungs of the World. Here's how it starts:

No questioning that climate change is really happening. No dispute of its relationship to burning fossil fuels. No Sarah Palins loving the smell of emissions. No Michael Crichton tinfoil-hat conspiracy theories about liberals inventing the whole thing.

Discussing climate change is a different affair in Brazil, simply because there are no climate deniers. This is such a refreshing change from the straw-man squawking, the industry-financed pseudo-science, and the faux-libertarian pillorying of anything climate related -- all of which in the United States passes for climate debate.

CONTINUES HERE

The Friday OT: New Order; True Faith (two versions)

This the original 1987 malarkey and it's so great as a pop song that it sticks in your windpipe and goes "ugh ugh i'm not worthy really not". The musicianship combined with the velvet voice stands up to anything new out here 24 years (!OMG!) later. The video is high 80s farce of course, great to look back upon with a smile. The tune is just amazing no matter what the screen shows. Please, play very very loud.

Then as IKN loves you as if you were its own children, you also get this recording of the same awesomeness of a band called New Order (cool bandname in itself) running the same song 20 years after its birth (2008 Glasgow Scotland). It shows just how a track can morph and change over the years. Like fine wine, mellowing and more subtle with age.

Same damned cool velvet voice though, same wonderful delivery, same crowd-wowing result. Enjoy them both (top one 1st, bottom one 2nd...respect chronology, dude).

it still hasn't sunk in yet

I'm watching the market intraday and getting longer-term thoughts from it, which is always a little dangerous but all the same today it's worth a comment. It just seems to me that the general and broader market still hasn't come to terms with the fact that gold the metal isn't about to drop through multiple layers of support and back to where orthodox economists (the dumbasses in suits that got us into the mess we're in now) think it should be.

I see profitable producers of gold selling at 6X earnings, the type of price base metals producers go for when zinc is at $1.30/lb and giving them 80% margins. On one level it's a bit crazy, but on another I hope that the crraziness continues for a while longer because it just gives more time for those who have got it to add to positions.

Gold is above U$1700/oz today. You seriously think it's going under U$1500/oz, dumbasses in suits, while you idiots who have been 100% wrong for at least a decade are in charge? While world CenBanks are adding to their holdings? While the world's reserve currency is being deliberately devalued by people that see no other option to get out of their debt-laden snafu? Well fine, think what you want.

I'm long gold, how 'bout you?

Great Panther Silver (GPR.to) (GPL) stops the bullshit about its cash costs profile and makes dumbass analysts that swallowed their previous crap whole look stupid

An interesting 2q11 report out of Great Panther Silver (GPR.to) today (link here). Not because of the pisspoor bottom line results, because we at IKN were expecting that (see this post, July 12th, for the details on that). Not for the whiny "honest guv it wasn't our fault" excuses from CEO Archer, either (sidebar note: any GPR long actually asked the company WHY their concentrate has been rejected by buyers recently?).

No, the interesting bit is that GPR seems to have swallowed the honesty pill and is now reporting its cash costs in a more open and transparent way. By way of a re-cap, check out an excerpt of this April '11 post concerning its 2010 numbers:

Some numbers.

In 4q10, GPR said that its "cash cost" was U$8.41 per ounce of silver sold. 

This means its "cash cost" total for the quarter added up to U$3.111m (and if you don't believe me, check the company filings on SEDAR, they're all there).

However, its "Cost of Sales" for the quarter was $6.36m!

Yes, you read that right. When GPR touts its "cash cost" figure, what it doesn't explain is that it only covers less than half of its real costs.

So there's how GPR used to bullshit the braindead anal ysts, but today's 2q11 numbers show this:

2q11 silver production: 386,210 oz
2q11 cash cost: $11.84
Total of above: $4.57m
Reported cost of sales in 2q11 report: $4.61m

Close enough! Hey guys, about time you started telling the truth about your costs. Mind you it does make your previous estimates for 2011 costs look pretty freakin rum, no? After all you GPR people did say that you'd produce silver at between $6.50 and $8 per ounce this year. The reality is...

2q11 cash cost: $11.84/oz
1h11 cash cost: $10.69/oz

Feeling stupid yet, Christopher Barker of the Motley Dumbass? After all, since you told us about "your favourite silver play GPR" in April this year it's down over 20%, all during the world's most amazing silver price run to date.

Moral of this story DYO freakin' DD and do not believe 1) the numbers given to you by a company and more importantly 2) the braindead anal ysts who try to pass themselves off as professionals but just swallow the company spin whole.

UPDATE: Reacting to this post, your author receives this question as part of a mail from reader CV (a GPR long):

"...why do you have to rant so much about it...?"

Answer: Guy's gotta have a hobby.

UPDATE 2: Who is goldminingXpert? Do I know you? A quick mail would be appreciated if possible. And if Christopher Barker (aka TMFsinchiruna) is resorting to Ad Hom attacks instead of addressing his own obvious failings he so totally fails. Ego = poverty in this game, dumbass.

Eurasia on Peru mining and tax negotiations

No blahblah from me, here's the note, out Wednesday:

PERU/MINING: Tax hike likely to be moderate, but risk of cumbersome burden remains
10 August 2011 12:10 PM EDT
One of President Ollanta Humala's policy priorities will be to raise taxes on mining, but he will probably seek a relatively moderate increase given his desire to keep the sector reasonably attractive for investors. Recent statements by key officials, saying the government will negotiate its proposals with mining companies and that maintaining the sector competitive will be a guiding principle of reform, reinforce this appraisal. Nevertheless, two factors could lead the government to seek a more cumbersome tax increase. The first is Humala's desire to centralize revenue in the hands of the central government, which poses the risk that companies will bear the cost of compensating local and regional governments for any revenue loss. Second and most importantly, a drop in Humala's approval rating suggests he could become politically weaker in the medium term, something that would increase the risk that he will tax more heavily mining production to finance new spending.

The Humala administration is widely expected to increase taxes on the mining sector, but there has been much uncertainty among investors about how far he is willing to go and how the new tax structure for the sector will look like. While Humala views extracting more revenue from mining as an important measure to finance new spending, he will probably seek a relatively moderate increase given his desire to attract more investment to the sector, which is an important driver of economic growth (See PERU/MINING: Humala likely to show some restraint in approach to mining sector from 1 July). A more uncertain international economic environment will probably reinforce views within government that it should take a cautious approach to the sector.

Recent statements by key officials reinforce this appraisal. They have reaffirmed the government's plan to introduce a windfall profit tax on mining, a proposal that had already been included in Humala's campaign manifesto. But new "prime-minister" Salomon Lerner, Minister of Mines and Energy Carlos Herrera Descalzi, and Minister of Finance Luis Castilla have all said that the government will negotiate tax measures with companies and seek to keep the sector competitive. Humala himself said in his 28 July inauguration speech that the government will negotiate higher taxes and respect tax stabilization agreements. While Humala originally proposed a 40%-45% windfall profit tax (without providing any details), now officials say that the government will analyze its options and officials are holding meetings with representatives from private companies to hear their views and suggestions. Some miners are making the case that any tax increase should focus instead on the royalty tax, which is levied on sales at a 1% to 3% rate depending on revenues. And rather than simply raising rates, they propose a shift in the tax base from sales to profits, with a sliding scale based on operating margin -- something similar to what neighboring Chile has done.

Despite the recent signal of moderation, however, two factors indicate that some risk that the government will seek a more ambitious tax increase remains. The first is Humala's desire to centralize more revenue in the hands of the central government. Currently, companies pay a 30% corporate tax, but legislation stipulates that half of these proceeds (the so-called "canon minero", which is a compensation for natural resources extraction) has to be transferred to producing local and regional governments, who also receive all revenues from royalties. Humala appears to believe that the central government should keep all revenue from the corporate tax, and companies should bear the cost of paying the "canon" to local and state governments. He looks unlikely to move forward with such a proposal, since it would place a heavy burden on companies.

But if he decides to go down that path, even if to reduce only partially the current transfers to subnational governments, the burden would probably fall on companies shoulders. Subnational governments have a limited capacity to execute investments and most of them are "siting" on cash transferred from the central government, so one may argue that it would make more sense for the central government to just retain a larger share of the corporate tax and invest directly in producing areas. But Humala probably wouldn't run the risk of picking up a political fight with local and regional governments. While subnational governments in Peru are relatively weak and have limited influence on legislators, if Humala proposes measures that cause them revenue losses, they could, for example, mobilize locals to stage protests, and that could hurt Humala politically. Humala will likely look at the overall burden of new tax measures on the sector when drafting his proposals. But his desire to centralize revenue increases the risk that he will opt for a heavier tax burden then he would otherwise. It also increases the risk of a more cumbersome tax structure in comparison with a scenario in which the government just introduces a new windfall profit tax. This is because the new structure would rely more on taxes levied on "regular" profits (the new "canon", which would be presumably be calculated based on the corporate tax) or sales (royalties) to compensate subnational governments. Humala's desire to centralize revenue also means the government is unlikely to limit tax changes to royalties as proposed by private sector representatives.

Second and most importantly, a drop in Humala's approval rating suggests he could become politically weaker in the medium term, which would give him an incentive to look at new sources of revenue. Humala's approval ratings have already dropped sharply from 70% in June to 41% in July. Support for him will probably bounce back a bit in August due to the positive news cycle related to his inauguration and the announcement of popular measures such as an expansion of social programs and a hardline on the fight against crime and corruption. However, he may start his administration will lower support than his predecessors and his approval ratings will probably suffer during his first year in office. Not only is the economy slowing, but the trajectory of past president's approval ratings show a pattern of rapid decline during their first year in office, suggesting there are structural factors behind low presidential approval ratings in Peru (See PERU: Drop in Humala's approval ratings increases medium term risks from 25 July).If facing declining approval, Humala could be tempted to pursue more aggressive policies to recover support. This could include a more substantial tax hike on mining to finance new spending. Risk for miners who have tax stabilization agreements would also increase. While Humala will most likely respect contracts, he wants to re-negotiate terms and could take a tougher stance with companies if he feels he needs to boost popular support.

This also means that the timing of tax changes will matter. Both the government and the sector have an interest in addressing the issue as soon as possible. Minister of Mines and Energy Deslcalzi said the government hopes to introduce tax changes before the end of this year. But it will probably take at least a few months before the government has a final proposal. Officials are still conducting internal studies to have a clearer sense of the current effective tax burden and the options available for change. Once the government has a proposal, it will conduct additional talks with companies. And then it will need congressional approval, which would probably take at least another few months. With Humala's approval ratings likely to drop, the longer it takes to finalize a proposal, the higher the likelihood that the government's appetite for new revenue will increase.

As for the odds of congressional approval, the government will most likely have enough support for a proposal viewed as relatively moderate. Humala will need votes from centrist legislators given that his party won only 36% of seats in congress. But there is growing consensus among policymakers in Peru that there is room for higher taxes on mining, and members of former President Alejandro Toledo's party, who hold another 16% of seats, will support a moderate tax hike. In case Humala opts for a more cumbersome tax increase, congress would probably be a factor of moderation. If facing strong opposition there, the government would probably make some concessions to make the reform more palatable to investors. Though unlikely, a more negative scenario could also develop. If Humala's approval ratings drop sharply, he could be tempted to use an aggressive tax hike on mining as a way to boost popular support. His weaker political standing would in theory make congressional approval more uncertain, but he could prioritize and politicize the issue, seeking to generate popular pressure on legislators to approve his proposal while also trying to coopt legislators from other parties.

 

Erasto Almeida
Analyst, Latin America

OT: A reader's photo

Reader 'SK' sends in this note and photo:

Otto

From my travels in Oxford, England. Perhaps not quite as sceptical as Mr Owl (& indeed not an owl), but a fair imitation?

Aahhh, tis wonderful SK, thank you kindly. Your fame spreads, Owly, waddya think of that?

Chart of the day is...

...The Dow vs Gold (via GLD), five year chart:

Simple message today: The same people who told me I was stupid to lock up my money in gold bullion in 2006 are telling me that holding gold today is a mug's game. Differences between them and I:

1) They get to appear on TV, I got me a pissant lil bloog.

2) They're wrong, I'm right.

Nobody Expects The Goldbug Inquisition!

Further to your author's post on Silver-With-A-Bit-Of-Gold Resource Corp (GORO) yesterday, this humble corner of cyberspace would like to express three thoughts:

1) You can stop writing me now, guys. After the first three I just started deleting without reading anyway.

2) Their chief weapons are fear, surprise, ruthless efficiency and an almost fanatical devotion to a stock that they don't understand much but it has "gold" in its corporate name and it pays a dividend.....and a nice red uniform.

3) Then there's this. Please conform

Nice a nice day.

Fundamentals matter

Sorry charties, but they really do:

We apologize for ruining your illusions about get-rich-quick schemes based on following squiggly lines on a chart, but if you really want to get to the bottom of a junior mining company, you're going to have to put in a bit of time and learn how to read quarterly filings one of these days.

Meanwhile, B2Gold (BTO.to) puts in a good quarter

Your author looked for a 4c EPS. We got a 7c EPS (NR linked here)

Does this justify the recent price run-up? DYODD on that one dude, cos I'm long BTO already.

Copper and Chumbawamba

I get knocked down, 
But I get up again,
You're never going to keep me down.

C'mon, join in the chorus dudes...you know you want to...

Quote of the day: Barry Ritholtz wins but SO wins this one

From this post over at Big Picture, we get this (your humble scribe adds bold type and underlines):

My comment on Bloomberg Tuesday that Bank of America should seek a pre-packaaged, GM-like bankruptcy reorg generated a stern phone call from a Mr. Someone. Understand, I have been saying this exact same thing for over 3 years (only adding the GM part since their reorg). After being told the call was recorded — one could hear the sphincter tighten on the other end of the line — I responded in the only way I knew how: My exact phrase to this person was a less than eloquent expression involving self-love that is not possible amongst those who are not double jointed.

Chapeau, monsieur.

Minera Andes (MAI.to) 2q11 sucks

I was looking for 6.5c EPS, even with the strike stoppage at the Santa Cruz mine. We got 4c from Minera Andes (MAI.to).

Mind you, with the stock having been beaten down so far by McEwen's scheme to merge it with his other dog, US Gold (UXG) (and better named mexico silver), it probably won't suffer from this pisspoor quarter. Here's the link to the NR.

Disclosure: No position in MAI.to (or UXG, for that matter).

UPDATE: "Why does a $10.7m net profit suck?" I am asked (by mail). Because it's a market cap of $643m that's why, and I'm one of those old fuddy-duddies that thinks PE ratios have something to offer the world. If you think it's a good performance, don't feel the need to argue the toss with me. Just wait until the market opens in 57 minutes' time and buy the stock.

Chart of the day is...

...The Gold/Silver ratio:

Another round of fun'n'fortune coming your way and starting at 09:30EST.

Roadmap day three (the end)

We did well on Monday with the roadmap as set out in IKN118 (published Sunday). Then we did well yesterday Tuesday with that day's call. So now it's time to check out day three and to do so, here's the whole thing (so that I don't have to bore you with another one of these posts tomorrow):

Result? WE FAIL

• Calmer? Nope
• Large issue stocks nibbled at: Well yes we got that right I suppose (remember we don't give a fig about banks or GOOG or XOM or SBUX, our focus in The IKN Weekly is strictly hard rock mining) but it was hardly "nibbling" and more like full scale gluttony with ABX, GG, NEM etc etc all up on above average volumes
• Juniors ignored? Fail, with lots of the ones we follow putting in great looking gains.

So we can wrap this series up with a whimper rather than a bang, but it's tough to complain too much when your portfolio has had a great winning day. As you can see above, Thurs and Fri don't count.

Why South American economies are booming

For a good idea of just why South America is doing better than the North, check out this well-researched report (and the audio version available on the page is even better) dated August 9th and entitled "Why South American economies are booming". An overview report that gets it right, something much rarer than you'd imagine when it comes to English language press.

If you can keep your head while all about you are losing theirs...

....then you are wildly overweight on Fortuna Silver (FVI.to) and have it as your number one Top Pick in the junior mining world.

Q: Do you like kipling?
A: I don't know, I've never kippled.

Accountability at Casey Research and East Asia Minerals (EAS.v)

We call to account Casey Research because of their constant, unadulterated bullshit claims of "100% winning pick" ratios, neverfail stock selection prowess and more soft soap crap that anyone with a grip on reality could possibly stomach.

Let's be clear: If Casey Research were honest about their true track record, the series of posts here at IKN would not exist. Au contraire, they are bullshit liars, which is why we highlight them so often.

What you're looking at is a stock pick, East Asia Minerals (EAS.v) that has lost 73.4% in the space of four months and it's one that Louis James would rather sweep under the carpet. He's shown no signs of remorse about it either and just keeps calling buy, all the way down. Be a man for once and reap what you sow, epicfail Lobito.

Quote of the day and photo of the day

The quote is one from Eduardo Galeano, via the twitter account of President Rafael Correa of Ecuador (aka Studmuffin) and translated by your humble scribe:

"It's food for thought that they [publishers, media etc] have absolute freedom of speech to publish that there is no freedom of speech."

Meanwhile and utterly unrelated, the photo of the day was snapped of this sign, stuck in the window of a Subway sandwich bar in Manchester, UK:

IKN recommends: Lungs of the Earth

A brand new blog is on the scene and I want you, dear and kind reader, to visit it, read it, make it part of your weblife, stick it on your RSS, bookmark it or whatever you do personally to get regular on a blog.

It's called Lungs of the Earth and it's written by cuasecarioca (a nom de plume that roughly translates as 'nearly Brazilian'). The subject of the blog is environmentalism in the Amazon/Brazil BUT before you get the wrong impression, it's not all head-in-the-clouds treehugging. No, this is a real world view of environmental and sustainability issues, perhaps best summed up by cuasecarioca in this excerpt:

"Encouraging sustainability requires reinforcing the idea that wasteful consumption costs money and rejecting the idea that changing our behavior will require us to give up the things we love to do. It is not about putting nature or polar bears or spotted owls above human beings, it’s about rethinking consumption decisions so we can focus more on people"

So here today is a great example of what will get offered up on the blog. The post is called "Soy and cows destroy the Amazon? So do cars and washing machines..." which looks at some of the shady aspects of Brazil's pig iron industry. It's a fascinating read because it's written by someone who really knows what they're talking about.

Go visit Lungs of the Earth today. If not, find the link as of today over there on the right, part of the blogroll.

Silver-With-A-Bit-Of-Gold Resource Corp (GORO) reports its quarter

The new name for GORO is Silver-With-A-Bit-Of-Gold Resource Corp (GORO), because what we have here is a company trying to pretend it's a goldie when in fact it's a silver miner that's being hugely overvalued for what it is. The 2q11 financials at GORO came out last night and you can access them right here. When you do you'll notice that:

• GORO returned a net profit of $3.06m (its first ever net profit)
• That's a quarterly EPS of 6c
• Compare that to its market cap, currently standing at $1.378Bn
• Yup, that's a PE of around 100X
• And not only that, you're not paying way over the odds for a gold miner, you're paying for a freakin' silver miner. Here's a quick chart that shows the breakdown of sales revenue per metal:

metal	Oz sold	avg price	$
gold	2384	1576.03	3.757
silver	460479	36.66	16.881

And if you want the paydirt in chart form, here it is.

This is a GOLD miner? Gimme a freakin' break! It's a silver miner pretending it's a gold miner, end of story. It's profitable now, which is good, but it's hugely overvalued for what it is, even for what it promises to be later. And finally, let's remind ourselves that GORO hasn't bothered to put together a 43-101 and nobody really knows whether what they say about their PM deposits is true or not. 

But what Silver-With-A-Bit-Of-Gold Resource Corp does have is a legion of fanatical goldbug loopheads as shareholders, so your author is now expecting the usual round of abuse in his mailbox whenever cold, hard truths are given out to the whackjob end of the PM sphere, the people who give gold bulls like myself a bad name. DYODD.

UPDATE: For those of you just tuning in, this update post may be for you. 

UPDATE 2: Oh this is interesting. Hey guys over at the Yahoo board, did you know that GORO management are regular readers of your posts? Hey, wouldn't it be interesting if you found out that one of the posters there was in fact part of the managerial team at GORO, too?

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x

Chart of the day is...

...the same as before, with the performance of the major regional markets yesterday:

Quite a difference to yesterday's, repeated below:

Roadmap day two

As promised yesterday, here's what IKN118 out last Sunday had to say about a plan for today:

And the score? 

• Well, we got the not-end-of-world rally in the broad markets early
• We got the relief rally kicking up a gear once the Fed had spoken
• We didn't get much said explicitly about QE3, but plenty of implication from the free money ride banks can look forward to until 2013 (at least)
• We got gold higher
• We got copper higher (only by a bit, but it did cross from sub-$4/lb to over $4/lb)
• We failed on a higher silver price.

So not perfect but not bad. Let's see how Wednesday's part of the roadmap note pans out tomorrow afternoon.

The Fed

Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity. Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period

Welcome to the New Peru™ (just the same as the old Peru)

In a clear signal that new Peru President Ollanta Humala was just as keen on cracking down against corruption and nepotism as he claimed during his Presidential campaign, today he appointed......errrr...his wife's cousin as the head of the National Tax Office (SUNAT).

Explaining illogical moves

When the dust settles after a big market correction there's always the search for "why" which inevitably leads to people pointing to examples of outliers and strange behaviour amongst issues. Your humble scribe pointed one out yesterday with the move gold put in last night. This morning, reader SB sent in a different one via this chart you see below:

The share price of Southern Copper (SCCO) as a ratio with the price of copper is the example, with the chart pointing to the big downmove and a low ratio we haven't seen since the fun'n'games of late '08. So is this a buying opportunity in SCCO? Yep, I think so but I'm biased, as I've owned it for what seems like forever. Mind you, it's never traded by your humble scribe and is there for the divis, so perhaps I don't care that much either way. 

If, however, the current U$4/lb line for copper doesn't hold and the metal gets cheaper quicktime, SCCO will likely feel the hit even harder than the metal's drop. That's the risk, but as I personally see copper moving up from here I think there's more potential reward right now.

dyodd, dudettes & dudes

The difference between pre and post Presidential election declarations

In Peru, just done with its Presidential election, the new FinMin Miguel Castilla says that the world financial crisis will affect growth in 2011.

In Argentina, building up to its Presidential election in October, Cristina's Veep candidate and current administration FinMin Amado Boudou says that same crisis will have no effect on Argentina in 2011.

Any further questions?

Away from the market turmoil, Guatemala has good news

Yesterday the Guatemalan Constitutional Court, the highest of the high and the final place where appeals can be made, did the right thing and upheld all the judgments made against the running of Sandra Torres for President (recall, this is the opportunist wife of current Pres Colom that divorced her husband to try and get around rules that stopped her from running). She has no place left to run, to plead or to get a favourable ruling. It's over, fat lady has sung.

Guatemala's next President, Otto Perez Molina, isn't my cup of tea at all but it's good to see the country uphold the rule of law and have its judiciary buckle (as has often been the case) under the political pressure, in this case from the country's first couple divorced though they may be. A good day for Guatemala and a step taken away from its Banana Republic reputation.

UPDATE: The Economist blog has a decent and even-handed piece on today's news here.

Chart of the day is...

... a rundown of how the major market indices in The Americas got on yesterday, Monday 8th August:

Argentines will be pleased: They're always proud of a number one achievement.

More gold thoughts

Gold: WHOOSH

Just so you know. Or this 5 minute chart that shows how it's been building tonight:

Today's market chart for miners

I've been following the development of these five lines all day.

GLD, the gold ETF, has been the haven obviously. I'm not going to add much here cos the world and his wife are writing up this ticker tonight and there's little point in repeating the same banalities.

GDX, the gold miner ETF (biggest holdings in this one are ABX, GG, NEM, KGC, AU, to give the general idea) tried its very best to keep up today, but it was already fading when that dismal Obama speech killed off all chances. Methinks there were forced liquidations here that were used to pay off other places of nastiness in big portfolios. All things being equal GDX should rally tomorrow, but that "all things being equal" should be understood as a big fat caveat in this week's unstable trading scene.

SLV, the silver ETF, was the embodiment of the liquidity concerns of the market. The Gold/Silver ratio moved to 44X today and for context, that ratio was under 40X last Wednesday. Silver is not the new gold, nor is it a store of wealth. Silver is silver, the Jekyll and Hyde metal. SLV's performance tomorrow is likely to be a direct reflection of what comes out the FOMC and if Benny talks helicopters, SLV rallies. If not, it sinks.

GDXJ, the junior miner ETF (biggest holdings here are junior producers like SMF.to, NGD.to etc etc) was always going to be in trouble today but it did put up a decent showing til ObamaTime and rally 4% from the bell before the same sort of drag GDX felt set in. One noticeable thing is the separation it saw from the SPX at the end of the day, as broad market indices got really really whacked into the bell.

The S&P500 index had a horrid time. Again, no great spiel here for want of avoiding the bleedin' obvious, but again that last 30 minutes of hammer selling kind of suggests to me a line that has a rally in it tomorrow.

As for the IKN Weekly roadmap of this week, this is what yesterday's published edition, IKN118, had to say about today:

"Tomorrow Monday: Sell-off on the S&P US debt downgrade, risk-off, juniors get hit, non-liquid stocks do odd things, political noise on Italy. Gold used as safe haven, so GLD and GDX continue to go their separate ways."

I think that one goes down as a win, as does the fast daytrade your humble scribe opened and then closed in RIO.v for a quick and healthy profit. Tomorrow Tuesday had its own paragraph in IKN118 and, be the call right or wrong, I'll share it on the blog tomorrow afternoon after the bell. DYODD, dude.

Mailbag: Reader MW and Rick Rule on the failing Casey model

The following is an excerpt from a mail sent in by reader MW. It speaks for itself, I think.

I started in the gold world in 2006- immediately fell in love with it.  All I knew then was Rick Rule, Bob Bishop and Casey - hung on to everything they said and wrote.  I collect sayings that seem important when I hear them---the following were transcribed by me from an interview Rule did in 2007 or so- all these impacted me greatly at the time because I was such a newbie:  

Rick Rule interview

1. Resource markets extremely cyclical:

            When things appear to be very good, it is because they are about to get very bad;  When things seem very bad, they are preparing to get good. (Thus- you will be a contrarian or a victim----stay away from crowd)

 2. With small companies, price of gold has little impact- they have no gold.

These companies make paper (thus, things that affect paper (financial world) affect them.

3. Pay Attention to MICRO (the company), not MACRO.

4. An unvarnished belief in your own thesis is extraordinarily dangerous to your financial future. 

(so I always temper my own enthusiasm for everything)

In that regard, Doug (Casey) has hired a bunch of young analysts currently unscarred by failure- he believes they are better prepared to deal with a bull market, because they believe less in the thesis of cyclicality than I do.  

5. If I choose companies correctly, the increase in commodity prices should be the icing on the cake rather than the foundation of my investment thesis.

6. I am interested in being in the best 5% or 10% of the companies in a sector- which will punish me less if I am wrong, and, theoretically at least, reward me more if right.

7. In high risk/high reward businesses, managing risk is much more important than chasing reward.  If you manage the risk, the reward will takes care of itself.

(most speculators chase reward without any thought of risk)

8. Just having risk as your primary focus, regardless of the technique you use to manage it, puts you ahead of 90% of the competetion.  The fact that you consider risk rather than greedily chasing rewards is important.

9 How I manage risk: 

a I am a contrarian: when gold is hot, I am a seller of gold.  When natural gas is dead, I am a buyer.  ‘Buy straw hats in winter’

b. People matter: 50-60% of the wealth is generated by 5% of the people in that activity

Item 4 is why I thought of forwarding this to you.  At first I was kind of shocked by the information you put out on the Casey BS being pumped out.  However, it resonated true with what I had seen start to come out of that outfit gradually over the years.  Hats off to you for calling these guys out---I have written about my disappointment to the 'old guard' there.  Afraid they have turned into 'Stansberry Lite' however.

DYODD

That Obama speech in full

And gold is now U$1720/oz

To be honest, i've seen worse

A lot worse, in fact. It's one hour after the opening bell here with plenty of the stocks on your humble scribe's radar finding bidders and there's been far too much talk about how bottoms rarely form on downspikes this weekend for these contrarian ears. Subbers, that sketched out roadmap on page two of this week is still in play and I may go as far as taking a starter position in the new buy call (page 3 onwards). Also, while I'm in daytrade mood/mode and to push my luck a bit further after Friday's successful foray into FVI.to, I'm considering a quick in-and-out on Rio Alto (RIO.v) if sub $2 prices continue. The sale would probably come tomorrow if any buy comes today.

The key at the moment is to avoid the illiquid issues too much, even though there are some great looking value prices out there. Nerves are frayed and in an illiquid stock it only takes one guy to panic and decide to sell at any price to dump the PPS. 

Livin' la vida loca, livin' in interesting times. Once more unto the breach, dear friends.

Morgan Stanley on gold, 2010 and 2011

Can you spot the difference?

June 2010 (article wrap-up)

Some gold bugs are throwing about very aggressive price targets of $2,000 or $3,000 an ounce, from levels of just over $1,200 an ounce now. ... ...If the yellow metal does reach those levels, it would form a bubble of epic proportions. From an asset allocation standpoint, owning gold at current levels makes sense only if an investor's view of the world is outright bearish. If not, gold is likely to underperform other asset classes from hereon, in line with its long-term performance history. (The author is head of emerging markets at Morgan Stanley Investment Management)

August 2011 (blaring headline: Morgan Stanley 'Strongly' Recommends Investor Exposure To Gold)

“We continue to strongly recommend exposure to gold, not only as a consequence (of) the events of the past week, but also through next year, which reflects our conviction that heightened demand for safe-haven commodities will be sustained by lingering investor concern over sovereign debt and growth risks in the U.S. and Europe, all occurring amid historically low real interest rates,” Morgan Stanley says. 

DYODD

And here's one for Iwnattos at Market Narrative:

"One mustn't look at the abyss, because there is at the bottom an inexpressible charm which attracts us."

(Gustave Flaubert) 

UPDATE: A chunk of James Howard Kunstler today, totally delicious (go read it all):

However, I'm not the only one in America asking where do these S and P punks get off downgrading US bonds when three years ago they wore out their Triple-A rubber stamps on the cartloads of stinking offal that Angelo Mozillo and other mortgage rustlers were pawning off as bond-fodder on every Frankenstein "investment opportunity" pumped out of the Wall Street CDO mills. Government officials were righteously seething over S and P's chutzpah, but I suppose when they tried to ring-up Eric Holder over at the DOJ they got connected to some call center in Uttar Pradesh where a friendly fellow named "Dale" picked up. China's government-run newspaper virtually spanked the US: "Learn (thwack) to live (thwack) within (thwack) your (thwack) means!"
     I'm not convinced that the US bond rating will even matter that much because nobody knows what anything is worth anymore - especially when governments teeter and the folks in the public square (or the parking lot in America's case), start yelling for blood. Merkel, Sarkozy, Berlusconi, Zapatero, will soon be swept away by that selfsame rolling torrent of dreck-strewn woe - in their case a bouillabaisse - while poor Obama looks like one of those hapless, floating creatures in the second-to-last scene of O Brother, Where Art Thou. Even the gold bugs are scared the price will collapse in a debt deflation, or that the federal government will slap a giant extra-special punitive capital gains tax on precious metal sales, or will try to confiscate it from the public altogether like Franklin Roosevelt did - though, given the vast arsenals of private firearms across this land, and the martial spirit lingering in many pissed-off factions of the Tea Party ilk, nothing would invite a revolution, or civil war, or civic upheaval as surely as trying to snatch folks' gold. As a capital preservation refuge, I'm sympathetic to gold, of course, though not so much to buggery.

Chart of the day is...

...the Horizons Alphapro Gartman ETF (HAG.to) versus the Gold ETF (GLD) and the S&P500 index, 12 month timescale:

So now, will the financial world's single most annoying Monday Morning Quarterback, Dennis Gartman, please do us all a favour and just...

Justin Bieber and Selena Gomez are breaking up, apparently

Oh, and here's the S&P futures chart. It's 6:05pm Sunday local time here and the index futures have just opened. We're now off over 10% in the last two sessions.

Gold's at U$1691 right now, too. But please... spare a thought for Justin.

UPDATE: S&P futures now at 1179, which is 12 spots above that open you see there. This is good, so we can now concentrate fully on the Teen Choice Awards ceremony tonight without worrying too much about world financial dooooooooooooooooooooooooooooooooooooooooooom

The IKN Weekly, out now

IKN118 has just been sent to subscribers. Just thought I'd tell you, just in case you're one of those subscribers and your copy doesn't arrive,

Mailbag on the gold/platinum ratio

As I've suddenly become interested in platinum the metal (there's always a reason, no?), the mail received this morning from reader 'M' caught my attention and included this:

"....anything to read into the way gold bullion has been catching up with the price of platinum [?]..."

That got me scuttling off to the chartysites which led to this, a chart that tracks the price ratio of gold to platinum over the last three years:

 The ratio touched 1:1 back at the end of 2008 (wasn't THAT a fun time for the market?) and here we are again, closing in on 1:1. Now I dunno if that means anything, but it's interesting enough to put on the blog on a Sunday. 

Feel free to talk amongst yourselves.

IKN recommends: Notes From The Rabbit Hole

The subscription service over at BiiWii, costing a teeny tiny $26/month, is something that I fully recommend to all readers interested in junior mining stocks and the stock market in general. Gary does a fantastic job with his charts and analysis thereof (he's the only TA guy I have time for), with today's edition NFTRH147 up there with the best of his work. You should be a subscriber of his service already but if not, be one now. Link here, please use it.

Disclosure: Even though Gary's a friend, no financial benefits of any sort come my way by recommending NFTRH to you. I reco it because it's a damned good service, that's all.

sunday songtime extra

I've had this tune in my head all weekend, thanks to the the WSJ.


Reminds me of Northern hemisphere summertimes, too. So it's only fair to share.