Wednesday, December 30, 2015

The Oil Price: Noone Really Knows What's Going On; Russia economic growth usa oil oversupply opec report

Just two months ago, the World Bank estimated in its commodity forecast report that the price of crude oil will average $51.4 per barrel in 2016, virtually unchanged from the average price last year ($52.5), but since then oil has fallen all the way down to $30 with no bottom in sight.

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Just this month the price reached an 11 year low for the third session in a row ($36), despite positive news regarding US supply (stockpile down -5.8m barrels vs +1.1m estimate). The price was as high as $110 as recently as 2014 but $30 oil was not uncommon in the 1990's and early 2000's.

Now Opec which represents a third of the world's oil output, is coming out and saying that improved overall demand will lead to a recovery in the price ($70 by 2020).

And Russia - the world's second largest producer - is saying it doesn't expect oil prices to recover beyond $30 in 2016 which says a lot coming from a nation that loses $2 billion in revenues for every dollar decline.

My opinion - Oil prices will swing wildly in both directions in the upcoming years so prepare accordingly.  However peak oil is not the issue.
this opinion is based on

  • The USA oil oversupply cannot continue especially at current prices - most oil production increases in the US are attributable to North Dakota shale exploration the pace of which cannot continue at current prices.
  • New Canadian pipelines (Energy East Pipeline will allow Canada to fully utilize refinery capacity in New Brunswick / Northern Gateway Pipeline / others) will permanently lower glut of supply in US North Western PADD regions).
  • Higher oil exploration costs in general as tradition sources dwindle (shifts from light crude -> heavy oil which requires more expensive processing).
  • However
  • in much of the world the infrastructure and technology to utilize renewable sources of energy is not yet in place or too expensive to implement.  Furthermore, it is those parts of the world where most of the population and economic growth is happening (Africa, India, Economy of the Arab League).

Monday, November 30, 2015

Platinum Gold Ratio Just Breached 20 Year Low 0.78 Catalytic Demand Price South Africa Jewelry

The recent dive in platinum prices is forcing miners to turn to shallow, highly mechanized new mines.  "65% of South Africa’s platinum operations are unprofitable at current prices".  Making matters worse is the price of electricity - up threefold since 2008.  In 2014 South African platinum production dropped 10% to less than four million ounces - by comparison the country produced 4.8 million ounces in 2011.

But industry demand remains strong having eclipsed eight million ounces last year for just the second time in history, and with South Africa being home to 95% of global reserves, production issues in the country will swing supply/demand in the wrong direction in upcoming years.



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Demand - platinum is more widely used industrially (catalytic/automotive as well as laboratory equipment)
Supply - depends more on recycling than any other metal - 2.1 vs 5.7 million ounces (total demand ~ 8M ounces per year).  But there are concerns over production - demand for platinum is known to fall during times of economic uncertainty which is more true today than at any other time in past fifty years.  Volkswagen diesel scandal is also weighing down prices - diesel vehicles may not be as popular in the future meaning less demand for catalytic converters - which account for 40% of platinum demand.

Just last month an HSBC metals analyst said he expects "platinum to trade above gold next year"  A discounted platinum price will boost jewelry demand allowing it to take market share away from gold.


Analysts see platinum at $1150 in 2016, $1300 in 2018.

Saturday, October 31, 2015

Real Estate Investing Advice Buying Land Opportunities in Canada foreclosures discounted properties

Getting approved for a mortgage in Canada isn't as easy as it used to be.  There are a number of reasons for this

  • lower incomes and less job security with the majority of new jobs being in self-employment 
  • lending institutions playing it safe by choosing to sit on cash rather than lending it out
  • new mortgage rules that require from prospective borrowers a 20% down payment
  • shorter amortization period

this is forcing middle class buyers out of the market.

Let's take a look at some of the properties currently up for sale their advantages and risk exposure



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Also to consider : the changing attitudes of young people 

the next generation is putting off marriage until well into their 30's; they're also moving to the city choosing to rent rather than buy, and even forgoing the option to take over the family home when their parents decide it's too big for them. 
This, in my opinion, has created an opportunity for smart investors - people who are able to pay for something with cash !

Buying with cash is impossible ? think again - there are a number of properties in Canada that can be had for under $20,000; so if you can buy a car you can invest in real estate - yes, even in Canada :)

Quebec Real Estate Market A Wise Buy


With problems in the oil (Alberta) and manufacturing (Ontario) sectors investors are shifting their focus to Canada's other major market : Quebec - where the population keeps growing (thanks to a thriving student population driven by what is arguably Canada best all around university McGill) real estate remains cheap - yes rental income is lower than than it is in Toronto and even Ottawa but high demand means very low vacancy rates.

Quebec City is proving to be a great option for investors
median income in Quebec City is growing at a healthy pace - since 2009 it has surpassed Halifax, Hamilton, Kitchener, Kingston, has kept pace with Sudbury and is now tied with Victoria.

Wednesday, September 30, 2015

Why Gold Will Outperform Silver During the Next Economic Crisis price ratio

In times of crises historically, precious metals have been the preferred store of wealth.  Even though silver does have intrinsic value; by being the best store of value a preference for gold inevitably develops - this is especially true if the crisis leads to massive inflation and the rise of radical groups both of which occurred in weimar Germany and tsarist Russia.

There are benefits to owning physical gold but if you're going to buy stocks consider these precious metal companies

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Isis, Greece and the confiscation of wealth


As has happened in Cyprus, would've happened happened in Greece if the 2015 summer bailout didn't materialize and is happening in Iraq and other Isis strongholds, the confiscation of wealth makes portability important.  At 75 the current gold silver ratio gives gold the upper hand - being able to move your wealth more easily makes it less likely to be discovered and thus confiscated.

Hyperinflation


if the US dollar - which is by far the world's most relied upon currency - is ever forced to prove its value the way every other currency does (ie the money supply, possibility of insolvency/national debt levels) - rapid inflation the likes of which has never been seen in history definitely could happen.

US dollar losing precedence in international trade

- in 2006 127 countries called the United States their largest trading partner .. that number has since fallen to 76.  In just five years China displaced the US in 51 nations.

- When forming new economic partnerships with countries China is emphasizing the need to bypass the dollar.  Traditionally all trade is done first by converting into dollars, but China has developed new ways of avoiding this.

America's shaky relationship with Saudi Arabia as of late will affect the petro dollar 's unique status.

International trade by central banks



Sunday, August 30, 2015

Greek Companies To Invest In national bank of greece nyse NBG OPAP rebound stocks

Greece securing new bailout money stabilizes an economy that was free falling for the better part of 2015.  That creates investment opportunities - at least until September 2016 when all of the current deals expire.

Greek bank stocks stand to benefit from recent developments. August 29 - Greece National Bank Shareholders Approve Recapitalization Plan;  August 11 - The New York Stock Exchange NYSE notified the bank that it must bring its market price back above $1.00 by February 2016.

National Bank of Greece has the most upside but don't ignore the risks
- in 2008 TT Hellenic Postbank aka Greek Postal Savings Bank was one of the world's 2000 largest companies - in 2013 it was forced into liquidation.

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Motor Oil Hellas (FRA:MHZ)


- best performing Greek stock since 2012 (price: 3.80->9.0)
- since 2008 is the only 'new' Greece-based company added to the Forbes Global 2000 list.
- least risky of Greece's eight major companies (five are banks most of which were on the verge of collapsing on the eve of the last bailout deal).
- oil refineries stand to benefit from low oil prices (takes months if not years for gas pump prices to reflect lower oil price).  crack spread remains stable.

OPAP SA Greek Organization Football OTCMKTS:GOFPY

gaming stocks


- weathered the global financial collapse in 2007/2008 fairly well (ranked 1009 on the Forbes Global 2000 list in 2008 before eventually falling out).
- worst performing major Greek company stock since new bailout package announced (end of June price: 3.5 -> 4.5 August 14 -> 3.75 August 31)
- Greeks voted to stay in the EU - that benefits the tourism industry which OPAP business is tied to.

National Bank of Greece NYSE:NBG

guaranteed access to EU taxpayers money when facing collapse, bank bailout


yes, this is a very risky investment but the reward could be substantial.  The bank's market capitalization has been cut in half over the last 12 months ($4.2 billion -> $2.1 billion).  Despite ongoing financial problems in Greece, between 2010 to 2013 the stock price spent most of the time oscillating between $25 and $35;  It's now at 67 cents.
Keep in mind this has always been Greece's largest company - that takes away a bit of the risk since even in dire circumstances this is one of the first companies that the government will step in to support.  Consider it Greece's version of a bank that's too big to fail.

- revenue is about the same as Greece's #2 and #3 banks combined
- since 2008 Forbes has routinely called it Greece's top company
- despite new bailout money stock price continued to plummet - to me this is a result of a wait-and-see approach by investors; institutional ownership only 3%.
- End of August: new European Union rule tied to the new Greece deal gives greater economic flexibility to Greece allows it to tap into additional EU funds in order to bailout the most important banks - even going as far as to consider tapping into taxpayer funds from throughout the EU.

Another reason to expect a rebound in the stock price:
The NYSE requirement that ADS share prices of stocks listed at the exchange be above $1.00.  NYSE is threatening to delist the stock unless the company gets the price back up from $0.67 to to $1 (it has six months to do this - expiry date is February 11, 2016).

Friday, July 31, 2015

Israeli & Canadian Pharmaceutical Companies Leapfrog their way to the top Teva, Valeant VRX game changing drugs ms

Attention investors: take a long hard look at Teva Pharmaceutical Industries of Jerusalem and Valeant Pharmaceutricals of Montreal - you won't regret it !

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Just last week nyse:TEVA paid $40.4 billion for Allergan's nyse:AGN generic drug business giving the world's largest generic drug maker an even bigger international presence (Allergan was/is present in more than 100 countries).

This also gives them more leverage because more revenue spreads fixed costs over more units of output - which is important in the business of low margin generic drugs.

Though ms drug Copaxone faces increased competition from Novartis and Momenta among others, their proprietary brand continues to grow (last quarter both in terms of sales +12% = 50% of company profit and about a fifth of company revenue) and share of the market for MS prescriptions (31%) - thanks in part to more innovative ways of introducing the drug to patients (3X a week 40mg version vs 6X by competing brands).  And don't forget about the over-the-counter products - Teva has hugely benefited from key partnerships with companies like Proctor and Gamble and even Canada's Life brand (Shoppers Drug Mart).  For instance in Canada products include sea salt for baths.

Another overlooked aspect of the company - it is deeply rooted in Israel and has strong connections with Israeli universities - this is key since these institutions are credited with having developed important drugs such as Copaxone and Azilect.

Financials - Teva was doing well even before taking into considering recent acquisitions - in GAAP terms operating income and net income more than doubled last year despite revenue being stable.  All major metrics have been stable since 2010 with non GAAP earnings per share up steadily : 4.54 in 2010, 4.97 in 2011, 5.01 in 2013 to 5.14 in 2014.

Teva - making Israel proud : The deal for Allergan is the biggest in Israel's corporate history !

Valeant Pharmaceuticals nyse: VRX - merging its way to the top one company at a time - acquiring game changing drugs


According to CEO Mike Pearson, Valeant remains focused on medium sized acquisitions - this, despite the fact that the more recent deals have been game changing (Salix Pharmaceuticals ltd for $10.1 billion) and the tug-of-war for control of privately held botox maker Allergan plc.

July 2015 - Just this month Valeant took control of one of Egypt's leading drugmakers Amoun Pharmaceutical by taking over parent company Mercury Holdings ($800 million deal).


Tuesday, June 30, 2015

Oil Production USA Beats Russia, Greece Grexit Empowers China sea port Cosco 600428

The USA recently became the largest oil producer in the world, just barely nudging Russia out of first place at just under 10 million barrels per day - a 1.6 million bpd gain versus the previous year making it three consecutive years of 1m+ bpd annual growth in output.  Demand for oil from developed nations was down marginally by -1.2% but up elsewhere including China which experienced a 390 thousand bpd increase yoy.
USA gaining energy independence ! America now produces 90% of the energy it consumes.  Energy imports as percent of GDP : 1% vs 3% in 2007.

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Consequences of a Greece Grexit from Eurozone


When Greece leaves the Eurozone any debt commitments it has to Eurozone entities will undoubtedly be scrapped and Europe will lose some €250 billion as Greece will for the first time have the green light to default.  Germany's state owned KfW bank (aka Bankengruppe) will lose €15 billion, France's BNP Paribas (BNPQY) €700 million while Germany's Commerzbank (CRZBY), Deutsche Bank (DB) combine for €700 million.  Credit Agricole (CA) remains heavily exposed with €3.5 billion euros owed to it by Greece.  Societe Generale (SCGLY) is owed €300 million all corporate debt - that's down significantly from €3 billion just five years ago.
In total €24 billion of the debt is held by German banks, with another €18.8 billion owing to private individuals and state institutions.
The aid plan initially called for €270 billion to be provided to Greece - the money has been coming from the IMF, ECB and the European Commission's 19 Eurozone governments.
According to the payment schedule Greece's next payment to the ECB is to be made on July 20, 2015 in the amount of €3.9 billion

Russia, China stand to gain a significant edge in their battle with the West for strategic control of the sea
(chinese navy, china sea ports, greece china)

  1. The Greek Merchant Navy controls 16.2% of the total merchant fleet worldwide. Greece ranks first in tankers and bulk carriers.  Any deal for new funding from Russia or China's development bank would undoubtedly involve ports, vessels, and strategic sea routes.
  2. Chinese shipping company Cosco Shipping Company Ltd (SHA:600428) already controls 2 of 3 shipping terminals at Greece's main port of Piraeus.
    since Cosco took control of the port in 2007 (for €500 million) business has tripled - this directly benefits Athens, the country's economic center.
  3. Greek prime minister recently met with Putin in Russia where he was rumored to have sought out a new Russia Greece deal .  Russia has already secured new bases in Cyprus - bases in Greece which is home to Europe's largest sea ports and naval bases would obviously be in Russias interest.  When Greece votes to exit the Eurozone it will only be a matter of time until the country embraces a new currency.  This will have to result in closer ties with China since the IMF and ECB have already ruled out any future financial support to Greece.

Worldwide Food is Becoming More Expensive

Food prices in Turkey are now 20% higher than the world average - food prices in Nigeria are twice as high this year as compared to last year.  In the United States poultry, eggs, and vegetable staples such as cauliflower have gone up in price - being nudged higher by the two year drought in California and the bird flu epidemic.

 

Australia Gold Production at 11 Year High


Last year production totaled 284 tonnes +4% versus the previous year.  Companies are adjusting to lower metal prices by increasing the grade of ore mined.

Sunday, May 31, 2015

Alexion Pharmaceuticals Inc ALXN Organic Growth Potential Kanuma, Transforce Inc TFI a powerhouse trucking company acquisitions

Alexion Pharmaceuticals (ALXN) is a global leader in the development and commercialization of transformative therapies for patients with rare diseases.  Since taking over Synageva Biopharma (GEVA) the company now operates in more than 50 countries.

Last year at this time Alexion was rumored as a takeover target - today it is the one doing the takeovers !
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ALXN experienced lots of organic growth during the past few years and that isn't expected to change with little to no competition (thanks in part to successful takeover bids for rivals Enobia and Synageva Biopharma Corp (GEVA).  Also notable is that the company has high institutional ownership (97%) meaning that many of its shareholders are leading investment firms.

What is clear is this - the company is growing fast and no wonder

  • it owns the patent rights to three of the hottest (and priciest) drugs on the market for rare diseases: Kanuma (treats LAL a life threatening disease caused by genetic mutations leading to liver and other tissue problems), Soliris ($2 billion in revenue last year just from this one drug) and Eculizumab.  Its latest acquisition has eight other product candidates including one relating to enzyme replacement therapy for patients with MPS a genetic metabolic disease - 30 pre clinical programs in total.
  •  recently initiated multinational trial of Eculizumab for prevention of delayed graft function.
  •  is on an acquisitions spree !  and the takeovers are aggressive and that's leading to more successful bids.
  • June 2015 acquires Synageva for $8.4 billion
  • average price target set by the sixteen major equity research groups is $210.07 or 28% higher than the stock is currently trading at.
  • price remains above the most conservative estimate of $173 set by Citigroup.
  • cost savings from acquisitions will allow it to spend more in the future
  • between June 2014 and March 2015 the company's cash and equivalents rose by 50% to $916.81 million with total debt down 40% to $45.5m and long term debt down to zero.
  • only drawback is that there are dividends.

latest financials
-- 1q2015 Alexion revenue of $600.3 million beats estimates ($594.4 million).  Earnings were as expected ($1.28 vs $1.32 est).

 

Montreal-based Transforce Inc (TSX:TFI) another growth stock

Canada's largest trucking company has grown into one of North America's three largest transport companies.
notes
  • significant growth stateside in just four years (key acquisitions include Dynamex, IE Miller, Concord Transport).
  • May 20, 2015 - acquires US based Hazen Final Mile, a last minute delivery company.
  • takeover of Contrans Group ($580 million, early 2015) makes TransForce a powerhouse in Canada.
  • unlocking value from its waste management business presents unique opportunity for organic growth.

Thursday, April 30, 2015

Increasing Oil Production in Canada Despite Price Plunge oil sands, China Revises Gold Reserves renminbi

Like their Saudi Arabian counterparts Canadian oil producers appear to be concerned with maintaining their share of the market, even at the expense of earnings - At a time of record low realized prices, Canada exported a record 3.11 million barrels of oil in January - 13 per cent more than it did in January of last year, and 80% more than in 2010.
Even with a collapse in oil prices Canadian oil production - driven by activity in the oilsands, is expected to increase by 150,000 bpd this year and by that same amount again next year.  Canadian Association of Petroleum Producers

According to ARC Financial, the number of wells drilled in Western Canada will be down 50% this year as compared to last (5,300 vs 11,222).  Though production keeps rising, companies remain burdened with higher than acceptable costs.
- estimates suggest as many as 30,000 workers have lost jobs in Canada’s oil and gas industry since the downturn began last fall.

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Keeping production up when oil prices are down is much easier for Iran and Saudi Arabia to do than it is for their western counterparts
  • low-cost oil reserves in Saudi Arabia vs high cost reserves in Alberta (Alberta oil) and us shale (North Dakota shale)
  • Canada’s reserves may be as massive but they are much more expensive to extract from
  • This appears to have had more of an effect on producers south of the border (where shale exploration has officially stalled) than in Canada .. Canadian companies have huge cash reserves which they are they able to dip into when prices get too low .. and so they are able to fund core projects until new cost cutting measures take effect.


According to the latest quarters as of May 2015 company earnings are way down - earnings losses mount in Canada


Suncor Energy Inc (SU) -  1Q15 $(341) million loss or 24 cents per share vs $1.485 billion or 101 per share in the previous year.
Oil Sands operations production was 440,400 bbls/d in the first quarter of 2015, compared to 389,300 bbls/d in the prior year quarter, primarily due to minimal maintenance activities in the first quarter of 2015. Production highlights included 346,500 bbls/d of SCO due to strong upgrader reliability, and record production of 188,700 bbls/d at Firebag.  Cash operating costs per barrel for Oil Sands operations decreased in the first quarter of 2015 to an average of $28.40 per barrel (bbl), compared to $35.60/bbl in the prior year quarter, due to increased production and lower costs as a result of lower natural gas prices,Suncor's share of Syncrude production of 35,200 bbls/d in the first quarter of 2015 remained comparable to the prior year quarter production of 35,100 bbls/d.

UK has lowered its tax rate on oil profits made in the North Sea ! At suncor this saved the company $406 million (62-> 50%).


Cenovus Energy Inc (CVE) - Oil Sands production is up 20% (to 144,000 bpd) but the company endured a massive $668 million quarterly loss recently attributable to the decline in the realized price of oil and natural gas (-47% -> $37.66; -25%-> $4.47).  In the quarter just prior to this one the loss was $472 million.

Top Producers of Shale in North Dakota (Bakken)

  • Whiting Petroleum Co. (NYSE: WLL) - quarterly production 1.6 million barrels (19% of company production)
  • Continental Resources Inc. (NYSE: CLR) - 127,788 bpd
  • Hess Corp. (NYSE: HES) - 63,000 bpd (85% of company production)
  • Statoil ASA (NYSE: STO) - 50,000 bpd (9% of company production)


China Revises Gold Reserves (October 2015: China reserves)

- First time in four years China says anything about its reserves
- According to Wood Mackenzie China has 30,000 tonnes of gold, more than any other country.
Since the middle of the last decade China has been leading all countries in terms of gold output - very little of that actually leaves the country.. add to that the fact that China imports another 1000 tonnes of the yellow metal through various ports (HK being the largest) and you can start to see the potential it has to accumulate massive reserves.

  • Gold withdrawals from the Shanghai Gold Exchange hit a record high of 620 tonnes in the first three months of 2015. 
  • Private consumption in China is probably not that high meaning at least a portion of that is going to China's central bank.  Current estimates put China's reserves at just over 1000 tonnes, far behind the top four countries which have a combined 16,500 tonnes.

  • According to various sources out of China, the upcoming report will act to bolster China's currency - This gives foreign currency traders (and governments) more confidence in the yuan-renminbi as an alternative to the US dollar.

  • China and Brazil have already signed a $30 billion currency swap agreement.

Tuesday, March 31, 2015

Bearish Signals Make These Diversified Companies Ripe For The Picking, Royal Gold, Vale SA, Magna MGA, Gold Silver Industry

Seabridge Gold (SA) - Where else can you get 40 million ounces of gold and nearly 300 million ounces of silver with molybdenum to boot for only $286 million ? The company has more gold reserves than Russia !

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Royal Gold (RGLD) - despite a crash in metal prices net earnings have been relatively stable; first quarterly loss in years occurred last December and at $6.5 million it isn't anything to be concerned about.

  • stable business model
  •  cash equivalents up 200% last two years
  •  current assets up 90%
  •  over the same time frame total debt has barely changed 

-> take note however that unusual expense is up, surpassing $26 million last quarter after being nearly non-existant in previous periods.  watchout for mine writedowns.

Vale SA (VALE) - This company is trading at a 52-week low which is what caught my attention.
- maintains high quality mines around the world - diversified exposure makes it less risky (diversified companies).  Vale is a hortizontally and vertically integrated company meaning that it owns the infrastructure and controls key logistic services used to transport mined materials.

Potash, fertilizers are staples in farming - when basic metals such as nickel and copper aren't performing you can always rely on the sale of material needed to grow food.

Over the last year, Vale (nyse:VALE) is down 58%, compared to only 23% for Rio Tinto (nyse:RIO) and 30% for BHP Billiton (BHP) despite similar circumstances affecting all three companies - don't see why Vale stock should continue to be punished.

Rio Tinto - Mega project Oyu Tolgoi is entering a second developmental phase (first one already reached critical production 733,700 tonnes last year (metal sales +$1.6 billion).

The second phase is worth $6.5b but calls for $4b in project financing for construction.

Safe stock pick of the month : Magna International (nyse:MGA)

Thanks to low oil prices and the cheap Canadian dollar Magna has gained a competitive edge - latest quarterly revenue was up $220 million (+2.4%) despite a 10% decline in vehicle sales.  Net earnings were also up to $509 million quarterly (+11.1%) or $2.44 a share.  on the year the bottom line was even better (per share $6.76->$8.69).

Because of these results, quarterly dividend was upped to 44 cents (16%).  
Take advantage of these results before the company goes through with a planned stock split later next quarter.

Saturday, February 28, 2015

Obama Blocks Keystone Pipeline TRP but What Happens When Oil Prices Increase Recovery in 2016 ? opec higher price

Of the many possible scenarios for the future direction of oil prices the consensus appears to be that they will begin to increase within one and two years up to a price range of between $75-$85, which should hold steady for some time thereafter.  By then, projects that the US supply currently relies on (north dakota/california shale/alberta tar sands) will have lost a lot of their investment thanks to the price crash of 2014-2015;

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They will require a lot of time to restart - perhaps a year or more. That could mean trouble for US consumers who won't be able to handle the eventual spike in prices, which could last months or even years.  The Keystone pipeline would alleviate much of the supply concerns and don't forget that Canadian oil remains the cheapest available on the market !  WCS is routinely 30%+ cheaper the alternatives West Texas Intermediate WTI and European crude.  Also keep in mind that Canada is home to over half of economically viable oil available to investors.

A 2017 oil price revival
oil price recovery in 2016 ?

According to the International Energy Agency IEA by 2017, the supply demand curve will move significantly in the opposite direction.. this will lead to a rapid rise in US oil output from shale projects : +17% -> 5.2 million barrels per day.

according to key people in the petroleum industry:


..there's "evidence that future production will be curtailed,” chief economist and portfolio manager at Nuveen Asset Management
-- this is already ringing true in Canada where Cenovus Energy has already made two capital spending cuts with heavyweight Husky Energy cutting back as well.

.. OPEC is saying that US gasoline demand will increase 1.17m bpd -> 92.3m bpd next year.

US shale production is being hit hard by the lower price.. in the second half of this year, a lot of marginal barrels will disappear from the market and demand will rise for OPEC.. this allegedly is a result of a decision back in 2014 by OPEC to maintain production levels in spite of the price correction.

Approving Keystone Pipeline Makes Sense

consider the ramifications of NOT having it built AND facing the steep rise in oil price - oil price increase that will happen by 2017


70% of Americans support lifting the present ban on oil exports to Mexico.. among other countries - and this is something the President is currently mulling.  Approving Keystone XL will give America's largest refineries first dibs on 100+ years worth of crude oil reserves (with the best flow through rates) and that makes perfect sense !  even the state of Nebraska, home of the aquifer which environmentalists were initially considering their key to winning the debate, now supports the project after careful consideration convinced even them that the benefits far outweigh any conceivable risks; safeguards include 24 hr a day surveillance, state of the art monitoring/sensor systems, cutting edge pipeline technology - not to mention a new route that puts more spacing between it and the more sensitive areas of the acquifer.

Back in 2012 democratic presidential nominee Hillary Clinton put her support behind it - a future president Clinton will get the keystone pipeline approved !


New Technologies Makes Oil Pipelines Safer (and cheaper) Than Rail For Petroleum Transport


Currently, the Canadian oil that does eventually get down to Houston's oil refineries is coming in on rail cars which makes the end products more expensive to buy.  As illustrated by the October 2014 Lac-M├ęganticQuebec rail disaster, oil-by-rail is not always a safer method of transport.

Saturday, January 31, 2015

Reasons to Buy Gold and Silver in 2015: US Dollar, Currency Wars, Russian Reserves, Central Bank QE

Gold and Silver Market Ripe For Rapid Growth

Though stateside gold prices may appear docile, from a foreigner's perspective precious metal prices are already too high because in much of the rest of the world the key precious metals have become a lot more expensive to purchase thanks to currency wars : the mighty US dollar.

Seventy-five percent of silver production (mine production) happens at gold mines - this means that, when gold production slows down (companies shuttering mines which started happening in the middle of last year) silver output declines.  This keeps the gold silver ratio intact despite the delinking of the two metals at London's commodities bourse.

The core price is set by comex, the commodities exchange in NYC and thus is traded in USD.
The fact that the price of both pcm's has barely increased over the past six months in my opinion makes both ripe for the picking ! 
Elsewhere the strong US dollar is making gold increasingly harder to afford, but that's inflation spurred by changes in local currency rates;  though quantitative easing and changes in interest rates are wreaking havoc on other currencies, the USD already has that factored into its value.. with The Fed at its side nothing aside from a shaking of the Fed's basic policy of money creation can shake its value... or of course a tiring by currency traders of the endless excuses for more QE.

In my opinion however, gold should've gained much more than nothing in US dollar terms.  Demand is still rising especially among those seeking a tangible hedge against inflation, as well as by those transferring money out of equities in response to growing global economic uncertainty, a shrinking middle class. 


The Gold Supply Problem


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Now there's also the inevitable gold supply problem : let's face it, prices crashed last year - and the big producers responded by shuttering mines, big mines that weren't producing at reasonable cash costs.  Restarting those mines doesn't happen overnight - it can take years to complete new shaft reconstruction, bring in the necessary capital investment funding, and in some cases may even involve reapplying for licenses and approvals.  The big gold companies are now worth a lot less making it increasingly difficult for them to get banks to lend them the billions of dollars needed to make the mines work.  Then of course there's the shareholders who need to be convinced that the metal prices won't collapse again.

As of 2014 there is an estimated 24 billion ounces of silver existing in the form of jewelry.  Total historic production of silver is about 52 billion ounces, eighty percent of that mined since the dawn of the twentieth century.  However, much of the 52b oz will never be available to the bullion market due to its historical value (in the form of religious items, museum pieces, non-scrap jewelry).

India Imports Record Amount Of Gold From Switzerland

According to data from November 2014 Indian imports of gold from Switzerland totaled CHF2.9 billion up a whopping 600% versus the previous year; it's not just that month either, in October it was up 280%; January through November gold imports amounted to 457 kilos.

Russia Continues To Add To Gold Reserves
Russia purchased 20.73 tonnes of bullion in December - note also that in December gold prices were up for the first time in five months (+1%).  Makes Russian reserves fifth largest at 1210 tonnes.
Also notable - Ukraine held onto its reserves after selling 16 of 40 tonnes in Oct/Nov. 

Then there's the other central banks who cumulatively only became net buyers of gold since 2010 after 20 years of being net sellers.

Russia is key here - July through September 2014 it accounted for 59% of the 92.8t of net gold purchases by central banks.  Gold comprises just under 11% of Russian reserves up from 8% in 2013.  Those purchases allowed it to leapfrog China (1150 vs 1054).
Gold imports from HK by China were down last year but it was still the second highest on record at 813 tonnes.  Demand for gold should continue to increase into February as a result of Chinese new year festivities.

Don't Bet Against The Canadian Dollar !

I don't consider the current CDN/USD fxrate to be sustainable -  Beginning in 2016 oil prices are forecast to go up possibly by as much as 50% ($45->$65 per barrel).  Also note that Canada's federal government is starting to run a balanced budget while the USA has a severe, structural deficit which ultimately will lead the United States into a situation where it will be forced to run up high payments to foreign bondholders further weakening its long term outlook.

Don't Let Yesterday's Gold Selloff Turn You Off

- gold responds positively to durable goods numbers
- most global currencies are either under pressure (canada, australia, euro) or being deflated (asia) - this strengthens the US dollar in the near term but makes it increasingly vulnerable over the long term
- when the dollar shows any sign of weakness expect a big jump in precious metal prices
- Greek debt bailout 80 out of 240 billion is owed to Germany - If Greece doesn't pay up Germany will undoubtedly rethink its financial obligations to the Eurozone and that weakens Europe, its central bank and its structure.