Thursday, February 28, 2013

Gold Prices In Limbo, BlackBerry BBRY Gradual Trend Upwards, Heinz Takeover A Foreign Acquisition HNZ

A lot has happened since my last post so I'll be brief. 
Gold and silver price shows weakness despite a surge in demand.
The price of gold (and even moreso silver) has been weak despite

1) Record sales of silver eagles during the months of January and February
2) Increasing demand on the comex for both precious metals
3) Russia and China continuing their buying spree
4) Growing evidence that some of the popular gold and silver ETFs have only paper claims - which they can't physically backup.

Though I maintain that over the long run, you're safest investment route is in physical gold and silver, over the short term, prices might trend lower ... much lower.
In fact Goldman Sachs thinks that gold is on its way down to $1200 an ounce - a fall of almost 30% from current levels, pushed down by US interest rates which are on their way up (whether the economy stabilizes or not, interest rates can't get any lower than they are now).
I can both agree and disagree with their assessment.  Higher interest rates can depress prices but I think that other factors will eventually come into play that will counteract the effect.  The fiscal cliff is just starting to kick in which will eventually create a need for more quantitative easing: QE3, followed by QE4, QE5, ... etc.  The US trade deficit remains only marginally lower than it was in 2011 ($540.4b vs $559.9b) despite big jumps in fuel sales to overseas buyers/crude output reaching 766,000 bpd which is a 15 year high, so imagine what would happen if oil production and fuel sales declined, which John Kerry's policies appear to favor.

But with the Chinese yuan renminbi continuing to depreciate against the American dollar, there's no reason to expect the trade gap with China to alter significantly anytime soon.
What about China ?  The world's second largest economy and key purchaser of US and European debt (electric grid in Portugal now owned by Chinese company) is facing new problems of its own some geopolitical others domestic.  Foxconn (Hon Hai Precision Industry) which is the leading supplier of components for America's biggest company Apple Inc (AAPL), has stopped hiring new workers - a stock selloff ensued as investors took that to mean that sales of Apple's products are falling off.  However, at the same time Foxconn expressed an interest in opening new manufacturing centers overseas (suggesting that perhaps the problem is with China/ Apple wants more American workers).
For January 2013, foreign direct investment (FDI) into China was down 7.3% to $9.3 billion which is a four year low, in fact it's the largest decline since November 2009 (-9.9%)

Interest in BlackBerry is Growing and it's not just from Business Clients

                    This month, BlackBerry launched the first in a line of QNX powered smartphones running on the totally redesigned blackberry 10 platform.  I spent a lot of time last year defending RIM's strategy, technology and reputation and so it's refreshing to finally see the company get credit for all the R&D that went into developing their current products (the Z10 is groundbreaking and that's just what RIM needed to keep detractors at bay, otherwise, attacking them would be very easy to do considering BlackBerry's US market share remains quite low). 

The company took quite a beating the last two years for sticking to its own platform (and apps) while remaining steadfast in their dedication to security and to serving the needs of corporate clients.  Though the PlayBook remains a work in progress (sales steady but only because the market is growing) the new line of handheld devices are proving popular among both business and non business clients, giving shareholders more reason to be optistic.  Investors take note ! - The new BlackBerry Z10 was first released in the UK followed by Canada (February) then finally the United States (March) meaning that sales figures won't fully show up in quarterly reports until the summer (next results will be released in March followed by June).  Over the last 3 months BlackBerry (Nasdaq : BBRY) is up +23.6% which outperforms other techstocks Nokia (+18.93%), Apple (-23.96%) and even Google (+19.24%). 

Demand for the BlackBerry Z10 must be solid given that RIM has already increased  production capacity.

According to CEO Thorsten Heins
"we still have an installed base of 79 million subscribers. And BlackBerry 10 offers something that Windows Phone cannot, namely, the strict separation of business and personal information. The Microsoft operating system cannot imitate times just between evening news and weather reports". 

Heinz Gets Acquired But Who's Really In Control ? Brazil's 3G Capital or Omaha's Buffet ?

                   And finally, Heinz Ketchup gets taken over by investment firms Berkshire Hathaway, 3G Capital.  It's $23 billion in cash with the rest of the $28 billion figure stemming from Heinz's $5 billion debt load ($4.1 billion long term).  What's notable about this takeover is that 3G Capital, the foreign company involved is actually the company receiving a controlling interest not Berkshire Hathaway.  Former shareholders are obviously happy with the 20% premium they received but what about the employees in Pittsburgh, who will now have to accept that most important decisions concerning the company will be made in Brazil.