MasterFeeds: September 2010

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September 26, 2010

Supply Squeeze of Physical Gold and Silver May Be Heating Up | Coin Update News



Within the past 48 hours, as gold and silver have broken to new highs (ignoring inflation), there are some indications that demand for physical precious metals may be on the rise.

Supply Squeeze of Physical Gold and Silver May Be Heating Up

My company does not deal with the customers who make purchases of tens to hundreds of millions of dollars at a time. Such buyers normally deal direct with the major brokers in London or New York. Instead, our median purchaser of gold and silver bullion-priced products probably spends less than $5,000 per transaction. We do have a number of customers who regularly spend five or six figures and the occasional seven figure deal, but my company’s total volume is unimportant when compared to total global precious metals trading.
Still, we are in constant communication with several primary distributors of products for the US Mint and other world mints that issue bullion products. We also keep in touch with a number of other wholesalers across the country. If there is a change in product availability or price level, we learn about it quickly.
Today my company enjoyed one of its five highest retail sales days of the past 30 years. As we were contacting wholesalers to replenish our inventories, we picked up what may be significant indicators that a supply squeeze of physical gold and silver could be heating up.
Three different wholesalers who are primary distributors for the US Mint told us that they have experienced a sharp increase in demand for physical silver coins and ingots in the past 48 hours.
When we tried to purchase a quantity of South Africa 1 Ounce Gold Krugerrands, we were also in for a shock. Yesterday, these coins were available pretty much everywhere, with wholesalers competing to sharpen their pencils to shave their ask price. Today, two of the wholesalers were completely out of Krugerrands for live delivery. Our cost to purchase these coins increased almost 0.5% more above the gold value than they did just the day before!
One more indicator of a potential supply squeeze is the “spot” price quoted by wholesalers. For protection in volatile markets, wholesalers often use two different spot prices, depending on whether they are buying or selling. For our last large silver order today, the distributor used an ask silver spot price that was eight cents higher than its bid spot price. Previously this company had used the same spot price for both buying and selling or had a maximum spread of just four cents for silver.
Our suddenly zooming retail demand and reports that this may be happening across the country, if it continues for a few more days, could spark another buying frenzy such as we experienced in late 2008. Two years ago, availability was so tight that it was not unusual for customers to have to wait at least a month after making payment to receive their merchandise. In 2008, premiums soared for just about any live physical gold and silver. At the peak, bags of US 90% Silver Coins were selling retail for about 40% above their intrinsic metal value!
Along with my expectations of higher gold and silver prices, I have also predicted that supplies of physical metals would dry up. This may be now occurring. However, we cannot be sure until we see the pattern continue for another couple of days. Should this pattern continue through next Tuesday afternoon, I would recommend not waiting any longer to establish your position in precious metals. To be extra safe, you may now want to wait even that long.


Supply Squeeze of Physical Gold and Silver May Be Heating Up | Coin Update News

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September 24, 2010

Rio’s sights fixed on Ivanhoe and Mongolian mine

Rio’s sights fixed on Ivanhoe and Mongolian mine

By William MacNamara
Published: September 22 2010 22:15 | Last updated: September 22 2010 22:15
Rio Tinto is creeping its way towards control of Canada’s Ivanhoe Mines at a slow but relentless pace, drawing investors’ attentions away from a multi-billion dollar mining transaction that could be as significant for Rio as Canada’s PotashCorp looks to be for BHP Billiton.
Oyu-Tolgoi-graphicOver the past six months a conflict has erupted between Rio and Ivanhoe, developers of a new copper project in Mongolia that many analysts consider to be one of the best in the world. With a stake in Ivanhoe that rose to 35 per cent last week, Rio can feel confident that it is best placed for an eventual takeover. It has invested more than $1bn in Ivanhoe and its Oyu Tolgoi mine since 2006.
But under Robert Friedland, the legendary mining entrepreneur, Ivanhoe has been making plain that Rio’s money will not buy its love. It has engaged investment bankers to assess “strategic options”. Over the summer it pushed through a shareholder rights plan, otherwise known as a poison pill, to protect against what it calls “coercive and creeping takeovers”.
The markets are giving credit to Ivanhoe’s manoeuvres. One London-based analyst ascribed the performance of its share price, which hit a 12-month high above C$22 on Wednesday, to investors’ intrinsic faith in Mr Friedland’s “wiliness” and record of coming out ahead.
The Toronto-listed shares have stayed elevated since July when the company adopted the poison pill, causing Rio to launch arbitration against Ivanhoe. It cancelled a restriction against selling more than 5 per cent of its shares to a strategic partner. But despite Ivanhoe’s much-advertised search for alternative options all year, no third-party offer has materialised. “This is completely in keeping with Robert’s personality,” said one banker who has worked for Ivanhoe. “He wants the best deal for his shareholders. He wants to make sure that Rio does not have a 100 per cent stranglehold on his company.
Kicking off Mongolia mining fever
Ivanhoe’s Robert Friedland is a legend in the mining industry. The superlatives he enjoys range from “best entrepreneur” to “biggest genius” to “luckiest stiff”.
This last tag refers to his big break in the 1990s. Mr Friedland was a large investor in an exploration company called Diamond Fields Resources. In the course of exploring for diamonds in Canada’s Labrador province the company struck a motherlode deposit of nickel. The company’s sale to Inco netted Mr Friedland a fortune that helped him launch Ivanhoe.
In 2000 Ivanhoe took over an exploration programme in Mongolia, then an unpromising mining zone, from BHP Billiton. Ivanhoe spent several years proving that the Oyu Tolgoi copper-gold deposit is one of the biggest and world’s best new sources of copper.
Mr Friedland evangelised the promise of Mongolia to investors with his Steve Jobs-like knack for the grand narrative. He laid the groundwork for the Mongolia fever that has swept the mining industry since Oyu Tolgoi won government approval in October 2009.
An early convert to his vision for Oyu Tolgoi was Tom Albanese, currently chief executive of Rio. In 2006 Mr Albanese headed Rio’s copper and exploration division, and he led the deal that created the Rio-Ivanhoe partnership. Both men appear to have an affinity for Oyu Tolgoi.
They also are known to be personally friendly in spite of the widening rift between the two companies. Over the summer Mr Albanese stayed at Mr Friedland’s home in Ulan Bator, the Mongolian capital.
Ivanhoe and Oyu Tolgoi stand to be the most important venture of Mr Friedland’s career. That, say some, is why this owner of 20 per cent of shares wants to ensure a good outcome. Seeing the project through and possibly selling at a premium might also expunge his reputation as Toxic Bob, a name he earned in 1993 when one of his early gold projects leaked cyanide, causing an environmental disaster.
“He has gotten hundreds of millions of dollars from Rio so far,” the banker continued, “but the [Oyu Tolgoi] copper deposit is clearly worth billions.”
Rio’s rigid agreements with Ivanhoe, which owns 66 per cent of Oyu Tolgoi, may give the Canadian miner less flexibility than is appreciated. In 2006, when its Mongolian project carried heavy political risk, it agreed a financing deal with Rio that essentially gave the Anglo-Australian miner a path to ownership that it could exercise in 2011. Over the years Rio has released project financing in return for tranches of equity. Over the past year it has raised its stake from 19.7 per cent to 34.9 per cent. In Canadian law there is no level above which an shareholder must make a bid for the full company.
Rio’s agreements with Ivanhoe, however, stipulate a maximum stake of 47 per cent until October 2011, when a “standstill agreement” preventing takeover moves lapses.
It is toward that October 2011 date that both companies are hurtling, amid attempts to outmanoeuvre each other. Ivanhoe has pushed back the date of the standstill agreement by adopting a poison pill. So far the companies have not yet agreed on a Canadian arbitrator to hear Rio’s request that the defence be struck down.
Today the Oyu Tolgoi mine is taking shape in a bleak area of Mongolia’s south Gobi desert. Mongolia has become one of the world’s leading frontiers for metals and mining, largely because its rich deposits of copper and coal lie so close to the border of China. Oyu Tolgoi’s strategic position has led to speculation that Ivanhoe could find a white knight in a state-owned Chinese company.
But the 2006 agreement gives Rio right of first refusal over any offer made from a third party. This places Ivanhoe in the dangerous position of offering its shares to a bidder, only to see Rio pre-empt and possibly move to immediate control of the company. Ivanhoe’s best tactic, said one person involved in the 2006 deal, may be to find a bidder whose offer is so high that Rio cannot follow.
“Whether all this momentum is leading to anything all depends on if Robert Friedland finds his $40 [per share] man,” the person said, referring to an offer of C$40 per share compared with Thursday’s price of about C$20 per share.
Chinalco, the Chinese state-owned aluminium producer, is one potential bidder for Ivanhoe, as it is attempting to diversify out of aluminium. Chinalco, however, is also Rio’s largest shareholder. That raises the possibility that Chinalco would be more likely to join with Rio to take control of the group than pay a high premium to buy Ivanhoe on its own.
“There aren’t that many players who can play,” said one Canadian banker familiar with both companies. “This project is about the big boy miners and governments. It’s about countries as big as China and companies as big as Rio or BHP. The permutations are very small.”


FT.com / Companies / Mining - Rio’s sights fixed on Ivanhoe and Mongolian mine

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September 14, 2010

Market Still Deluding Itself That It Can Escape The Inevitable Dénouement

 Until we face up to the reality of the economic landscape before us, we will be on the same path as Japan, 1987-present...


Market Still Deluding Itself That It Can Escape The Inevitable Denouement 
By Albert Edwards, Société Générale, London
 
The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious.
The notion that the equity market predicts anything has always struck me as ludicrous. In the 25 years I have been following the markets it seems clear to me that the equity market reacts to events rather than pre-empting them. We know from the Japanese Ice Age and indeed from the US 1930's experience, that in a post-bubble world the equity market merely follows the economic cycle. So to steal a march on the market, one should follow the leading indicators closely. These are variously pointing either to a hard landing or, at best, a decisive slowdown. In my view we are poised to slide back into another global recession: the data is slowing sharply but, just like Japan in its Ice Age, most still touchingly believe we are soft-landing. But before driving off a cliff to a hard (crash?) landing we might feel reassured when we pass a sign that reads Soft Landingand we can kid ourselves all is well.
I read an interesting article recently noting the equity market typically does not begin to slump until just AFTER analysts begin to cut their 12m forward EPS estimates (for the life of me I can't remember where I read this, otherwise I would reference it). We have not quite reached this point. But with margins so high, any cyclical slowdown will crush productivity growth. Already in Q2, US productivity growth fell 1.8% - the steepest fall since Q3 2006.Hence, inevitably, unit labour costs have begun to rise QoQ. This trend will be exacerbated by recent more buoyant average hourly earnings seen in the last employment report. Whole economy profits are set for a 2007-like squeeze. And a sharp slide in analysts' optimism confirms we are right on the cusp of falling forward earnings (see chart below).
OTBImage01
I love the delusion of the markets at this point in the cycle. It bemuses me why investors cannot see what is clear as the rather large nose on my face. Last Friday saw the equity market rally as August's 67k rise in private payrolls and an upwardly revised July rise of 107kbeat expectations. But did I miss something? When did we switch from looking at headline payrolls to private jobs? Does the fact that government is shedding jobs not matter? Admittedly temporary census workers do mess up the data, but hey, why not look at nonfarm payroll data ex census? Why not indeed? Because the last 4 months run of data looks notably weaker on payrolls ex census basis than looking only at the private payroll data (ie Aug 60k vs 67k, July 89k vs 107k, June 50k vs 61k and May 21k vs 51k). But these data, on either definition, look dreadful compared to the 265k rise in April and 160k in March (ex census definition). If someone as pathologically lazy as me can find the relevant BLS webpage after a quick call to the BLS (link), why can't the market? Because it is bad news, that's why.
OTBImage02
August's rebound in the US manufacturing ISM was an even bigger surprise. This is a truly nonsensical piece of datum as it was totally at variance with the regional ISMs that come out in the weeks before. The ISM is made up of leading, coincident and lagging indicators. The leading indicators - new orders, unfilled orders and vender deliveries - all fell and point to further severe weakness in the headline measure ahead (see chart above). It was the coincident and lagging indicators such as production, inventories and employment that drove up the headline number. Some of the regional subcomponents (eg Philadelphia Fed workweek) are SCREAMING that recession is imminent (see left hand chart below).
OTBImage03 OTBImage04
The real reason why markets reversed last week was that they got ahead of themselves. Aside from the end of 2008, government bonds were the most over-bought they had been over the last decade. And in equity-land the AAII two weeks ago recorded a historically low 20% of respondents as bullish (see chart above). These technical extremes will now be quickly worked off before the plunge in equity prices and bond yields resumes.
I am often asked by investors with a similar view of the world to my own (yes, there are some),whether the equity market will ever reach my 450 S&P target because of the likelihood that further Quantitative Easing will prevent asset prices from falling back to cheap levels.
Indeed we know that a central plank of the unhinged policies being pursued by the Fed and other central banks is to use QE to deliberately target higher asset prices. Ben Bernanke in a recent Jackson Hole speech dressed this up as a "portfolio balance channel", but in reality we know from current and previous Fed Governors (most notably Alan Greenspan), that they view boosting equity and property prices as essential for boosting economic activity. Same old Fed with the same old ruinous policies. And by keeping equity and property prices higher, the US and UK Central Banks are still trying to cover up their contribution towards the ruination of American and British middle classes - (see GSW 21 January 2010, Theft! Were the US and UK central banks complicit in robbing the middle classes? - link).
The Fed may indeed prevent equity prices from slumping with any QE2 announcement. But this sounds a familiar refrain at this point in the cycle. For is monetary easing in the form of QE that different from interest rate cuts in its ability to boost equity prices? Indeed announced rate cuts in previous downturns often did generate decent technical rallies. But in the absence of any imminent cyclical recovery, equity prices continue to slide lower (see chart below). The key for me is whether QE2 can revive the economic cycle, not equity prices temporarily.
OTBImage05
In the absence of a cyclical recovery I cannot see how QE is any different in its ability to revive asset prices than lower rates in anything other than a temporary fashion. (Interestingly many of our clients think QE2 might give a temporary fillip to the risk assets but that the subsequent failure to produce any cyclical impact will cause an extremely violent reaction as investors lose faith in QE as a policy tool and Central Banks in general.)
If we plunge back into recession, do not place too much confidence in the Central Banks having control of events. As my colleague, Dylan Grice, said last week "let them keep pressing their buttons." Ultimately they cannot fool all of the investors, all of the time.

September 11, 2010

China: job seekers outnumber available jobs by two to one in 2010

China: Employment Situation 'Very Grave' - Spokesman
September 10, 2010

China’s employment situation is “very grave,” with job seekers outnumbering jobs by two to one in 2010, Chinese Ministry of Human Resources and Social Security spokesman Yin Chengji said Sept. 10, Xinhua reported. Yin said 12 million jobs were available this year for 24 million people, including 6.3 million new college graduates and 6 million high school graduates. Beijing must help shift people from rural areas to cities, Yin said. There is also an issue with structural unemployment, Yin said, adding that Beijing will continue to prioritize employment. At the end of 2009, China’s urban unemployment rate was 4.3 percent, with 9.21 million unemployed, according to a Human Resources white paper.

--
The MasterBlog
http://www.the-masterblog.blogspot.com



September 3, 2010

Financial Times: High-frequency trading: Up against a bandsaw

May 24 2010 4:51 PM GMT
High-frequency trading: Up against a bandsaw
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By Jeremy Grant
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The global spread of high-frequency trading

Read the full article at: http://www.ft.com/cms/s/0/ec822fb4-366d-11df-8151-00144feabdc0.html



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September 2, 2010

- Manila exchange glitches puzzle brokers - FT.com / FT Trading Room

Manila exchange glitches puzzle brokers

By Roel Landingin in Manila

Published: September 1 2010 17:02 | Last updated: September 1 2010 17:02

The Philippine Stock Exchange describes it as “birth pains”. But market participants in Manila have been scratching their heads after the exchange’s new trading and market data system reported an erroneous 15 per cent jump in the PSE main index – instead of the correct 0.63 per cent when the system was rolled out on July 26.

It promptly issued advisories for investors to ignore the index numbers on its website.

In the past week, the exchange has again issued similar advisories on two occasions: on August 27 and 31. In a statement released on Tuesday the PSE said it had moved the location of its back-office servers over the weekend. “The server shift has affected the accessibility of index statistics on the website,” it said, without elaborating. The PSE has not responded to emails requesting clarity and more details.

Exchange officials insist the glitches are minor and have not affected trading at all. Some brokers beg to disagree. “We are experiencing more downtimes now. We’ve had three last week,” said Joey Roxas, a long-time Manila stock broker. He also complained that the stock exchange’s website has been going down more often of late, interrupting public access to potentially market-moving disclosures by listed firms.

It is not clear if the disruptions are all due to the adoption of new trading system, which the PSE has acquired from NYSE Technologies. But they are adding to brokers’ concerns about replacing the old trading system that has been in use for 15 years.

Mr Roxas said many brokers complain that the new system’s menu for entering orders occupies a smaller window on the computer monitor and requires more keystrokes.

He added that many are grumbling that their concerns are not being addressed by an exchange board whose members are mostly no longer stockbrokers.

Still, the technical disruptions have not stopped the local stock market from soaring on the back of strong corporate profits and faster economic growth. Weeks after the shift to the new trading, the PSE index rose to a 31-month high on August 20 when it closed at 3,593.60 points. It ended at 3,593.41 points on Wednesday.

The PSE’s programmers and engineers are hard at work to fix the computer glitches. Exchange officials will need to work harder to repair ties with the stock brokers.


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FT.com / FT Trading Room - Manila exchange glitches puzzle brokers

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September 1, 2010

Ecuador Country Analysis Brief EIA - August 2010

Ecuador Country Analysis Brief Released - August 2010

<http://www.eia.doe.gov/>

Ecuador is a member of the Organization of Petroleum Exporting Countries (OPEC) and one of Latin America's largest oil exporters.

For all the latest information on the energy situation in Ecuador see the updated Country Analysis Brief:

http://www.eia.gov/emeu/cabs/Ecuador/Background.html

Contact:
cabs@eia.gov
(202) 586-8800


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