Gold Prices, Eurozone Bond Sales (commodities weaker on strong US dollar, market selloff but long term fundamentals remain strong, Italy bond rates double in just one month)

Interesting Fact: 12% of the world's gold is produced at mines dug by individuals without advanced digging equipment. A lot of those mines are in countries like Mali and Somalia.
So far in 2011 silver's popularity has gone up while gold's has decreased slightly, at least according to sales reports by the US Mint. Between January and end of November 2011 the US Mint sold 37,859,500 ounces of silver (up 15.11% from 32,890,500 oz in 2010) and 934,500 ounces of gold (down 19.5% from 1,160,500 oz in 2010). In fact on October 1st it was rumoured that upwards of 737 thousand of silver ounces were purchased from the US mint, a one day record. If true that would amount to 42% of all silver purchased during the month of December 2010 and 24% of the three million ounces sold in October. Since the US moved towards a weak dollar policy in 2002 silver has tacked on about 500% of its present value which is still about 20% under its 200 day average. 2012 update France's credit rating was lowered to AA from AAA by Standard and Poor's. That's a bad position for the country to be in considering it recorded zero gdp growth during the year and given previous statements by Sarkozy as recently as October when he said he would do everything he could to keep France from being downgraded.

Negative Forces affecting the metals
     Over the last little while, particularly the last two weeks gold, silver and other iso traded precious metals showed vulnerability even though their long term outlook remains strong. The weaker prices are due in part to a stronger US dollar (equity markets weak driven lower by the strong dollar which negatively affects foreign investment, EU sovereign debt uncertainty causes US dollar to gain). The ECB's reluctance to purchase the soveriegn debt of Italy and Spain has also been a negative factor (ECB has been under pressure from Germany to refrain from handing out blank cheques to debt laden countries citing the repercussions and how greater ECB exposure to Italy would mean more exposure for Germany, France has a different opinion and is lobbying the ECB for more support). France thinks that more ECB buying is the only way to encourage other investors to buy sovereign debt; On Friday, 10-year Italian bond yields surpassed 7% after the country's debt auctions that day showed lackluster results (Italy did sell €8B worth of 1/2 yr bonds (@ 6.5%) & another €2B in 2 year bonds (@7.8%) however the rates commanded by buyers nearly doubled from only a month ago (was 4.63% and 3.54% respectively). 7% yields in Italy puts it in the same class Greece, Ireland and Portugal were once in (though rates did get much higher for those countries before their financial collapse, the 7% rate was seen as a point of no return), this is extremely dangerous because Italy is home to the world's 3rd largest bond market after the USA and Japan (worldwide exposure to Itay is 3 times what it was to Greece) with Barclays calling Italy's situation "mathematically beyond the point of no return".
Even more disconcerting: Germany, considered the strongest of the EU economies (more manageable debt/high gdp growth) is having problems raising money in the bond market; On Wednesday Nov. 23rd Germany sold only 60% of the 10-year bonds made available. Update: With Italy's debt crisis worsening and the ECB not stepping up with more support, the IMF is reportedly preparing to loan the country $794 billion (€400-€500 billion) at an interest rate of between 4% and 5%. The loan would allow the country 1-1.5 years to reform its system and hopefully regain its solvency. It must be noted however that the IMF may be relying on a new credit facility worth just over €420 billion that was offered it in 2009 by 39 countries, to put together the money for Italy given that only two months ago the IMF only had less than €300 billion available to be loaned. (wsj:IMF Can't Rescue Europe Alone) The news pushed European Equities higher (main equities index up 3.75% on Monday). (news broke in Italy's La Stampa)

There's also bad news coming out of China - Many companies are laying off workers in the manufacturing sector and that's leading to strikes in cities like Dongguan and Shenzhen. Less import demand by Europe is causing a decline in export growth (down to 16% in October). Many of the plants use commodities like gold (1,000 people left their positions in protest recently at apple/ibm plants in Shenzhen) and silver (Foxconn makes electronic components, automotive plants - cars require catalytic converters which are the largest source of demand for platinum group metals).

Grmike's view The commodities market is entering a consolidation and deflationary period as a result of the current US debt ceiling being capped until 2013, US dollar rally, and gold and silver's post 2008 rally. The gold to silver ratio is getting very close to 60 which represents a doubling in eight months (33 in April 2011). Central banks continue not surprising since silver and gold remain fundamentally strong investments. View the lower prices as an opportunity to buy more. Poor debt sale showings in Italy, Germany and Spain mean debt may literally be insurmountable. The effect that will have on currencies will be disastrous and that will cause central banks to hoard even more gold and silver making the commodities invaluable.

What about emerging market debt? The debt crisis is making the buying of debt associated with developed nations increasingly unpopular particularly amongst international investors. So where are they going? Well, a viable alternative for the long term that's attracting interest are emerging market bonds that is, emerging market debt denominated in their local currency (debt sales in the developing world traditionally happen this way). Even a year ago when the debt crisis wasn't as widespread, US pension funds forecast their participation at over $100 billion before 2015. The only limiting factor is that in many countries including the big players China, Brazil and India the system is designed to limit foreign capital investment so not all foreign investment is allowed and when it is some countries like Brazil impose a special tax. Though still in its early stages, restrictions on them are gradually being removed and that's leading to more investment.

Last Monday's 2.5% dip in gold put the spot price below its $1,700/oz 100 day moving average, possibly an important breach considering that level had been supported for over a month (December futures contract on Comex down to $1,685.7/oz). In the week of Nov 21-26 gold fell 2.3% after falling 3.5% the prevous week. So far for November, silver declined in price by nearly 10% meaning that on the year silver hasn't gained anything. Out of all the metals with an iso trading code palladium lost the most on the week, dropping 5.9% to close at $572/oz.

Positive forces on the metals:
Gold ETF's continue hoarding, with the total weight of all gold held by ETF's recently reaching a new high of 69.978 million ounces led by the world's largest, SPDR Gold Trust.

Eldorado Gold & European Goldfields, Low natural gas price affects production, What happened to Canadian oil company dividends? (no more trusts)

European Goldfields (% chg 5d, 1mo, 3mo, 6mo: -7.93% +29.54% -0.34% +26.5%) - updated as of December 19, 2011
Shares are currently trading above the 200 day moving average (in stark contrast to just a month ago-Nov 18 when they were below it).
For 9 of the last 11 months the stock has suffered (down about 29% until the last month when it showed some resilience, including last month's 18.4% increase the stock is still down 16% last 11 months) due to a longer than anticipated permit review process in which Greece decided whether or not to grant approval for the Olympias and Skouries gold-copper porphyry projects in northeastern Greece (permit initially applied for in 2006) (even after decided the stock continued to fall slightly, down 13% in the 3 months leading to mid November). Skouries alone has the potential to produce at a rate of 350,000 ounces of gold equivalent (about half of that coming from silver). The company took a while even just to make up the 9% stock decline experienced over the two months leading up to the decision (July 12, 2011). Base metals like copper continue their lacklustre showing ($4 August 22, 2011 compared to $4.45 on July 29th) making the copper assets less attractive. Dec.14 after takeover rumous subsided European Goldfields stock fell 8.8% on the day.

The two new permits take away a lot of the risk that scared investors away from the company. Including projects in Turkey and Romania, European Goldfields appears to be well on its way to becoming Europe's largest gold producer by 2013-2014 (over 400,000 ounces of pure gold/yr doesn't include silver and copper). Construction of the mines also won't be a problem with Greece's largest construction company, Ellaktor as its largest shareholder (19.36%), 2nd largest shareholder is Blackrock Investment at 7.3%. More reason to optimistic about the company outlook: takeovers! Eldorado Gold and Centerra Gold both operate projects in some of the same areas and would probably overpay in a takeover. Also, European Goldfields is considering a move to the main London Stock Exchange index moving up from junior AIM. In mid December 2011 there was a run on European Goldfields stock due to hints at a possible Centerra Gold takeover.
Also of note, first production at Olympias will be in 2012 & the company's only source of cash flow currently is a small mine in Stratoni, Greece.

European Goldfields acquired by Eldorado Gold Sunday December 18, 2011 for $2.5B. The new Eldorado Gold will have a market value of about $11 billion and produce 1.5 million ounces of gold by 2015. Shareholders of European Goldfields will receive 0.85 Eldorado shares and C$0.0001 in cash; The price being paid by Eldorado for EGF is about $13.05/share which is a 46.14% premium to the stock's month low of $8.95 reached on November 23, 2011. The deal comes at the same time the company is securing $600M from Qatar Holdings to finance the Skouries and Olympias projects in Stratoni Greece. The following day, on Monday Eldorado Gold pledged to spend $2 billion and create 2000 jobs in Greece over the next several years. Although Eldorado saw total cash operating costs per ounce go up $55 or 13.3% (9mo) owing to lower grade ore mined at Kinsladag (still the largest mine by output but ore grade is less than 1/4 as high as it is at the other mines), there were no negative effects felt on the company's income statement as the price of gold skyrocketed over the year, giving the company a 31% (9 months) and 38% (3rd qtr) boost in price realization per ounce to $1571 & $1700/oz respectively.

Natural Gas & Oil
    Since oil's near term rebound from below $80 back up to the $100 level (last 2 times oil breached that level: Feb 2011 & Oct 2008) many Canadian producers haven't added to their dividends. The reason? Ever since the end of the 2010 fiscal year the majority no longer enjoy the tax free incentive that came with being a trust in Canada, due to new government legislation doing away with the tax benefits (consequently many including Baytex, Vermilion, Provident, Penn West have since converted back into corporations). Although this may cause investors to lose interest it may not be bad for companies in the long run; More profit will be reinvested back into the company through expansionary efforts (they may see tax benefits to that). Berkshire Hathaway, for example pays no dividend even though it owns many companies which do. Maybe they should look to Exxon Mobil for advice, one of the world's ten largest companies it avoided paying US taxes in 2009 (used tax shelter practices to send earnings overseas). Exxon was not alone, of the 1.3 million US corporations only 33% paid taxes in their home country between 1998 and 2005 (another strategy used is using losses from previous years against current gains).

On October 27, 2011 Canada's third largest oil company, Cenovus Energy reported on the third quarter. Overall production was steady however natural gas production was down by more than 10% qoq, a trend not disimilar from its peers in the industry. It also set a long term production target for natural gas at 400-500 mmcf/d which is only half the rate at which it produced gas when the company first split from Encana in 2009. The lower results have nothing to do with resource depletions; Cenovus has been diverting capital expenditure away from gas and into oil which isn't surprising given that oil prices have increased by more than 400% since 2001 while natural gas prices (incluenced by supply and demand particularly the center of US deliveries in Louisina/NYMEX) are near a 9 year low of $3.32/m3. Natural gas was as high as $16 in 2008, $6 in 2009. Even the little amount that has been invested into natural gas assets ($22m in the 3q compared to over $220m for Christina Lake/Foster Creek) was done with a focus on oil ($200m increase in natural gas cash flow due to the $22m capex, was reinvested in oil assets). 36 mmcf/d of gas producing assets were sold off between 3q10 and 3q11. Between 2006 and 2010 Chinese imports of natural gas increased 1500%.
More on Oil Supply and Demand (2011-2016)

Alberta's oil sands, TransCanada's Keystone pipeline xl & Enbridge's attempt to access China

    Keystone XL, struggling through the approval phase, aims to bring more of Canada's oil to the United States in an effort to reduce their dependency on Middle East oil by 75% by 2020.

Among other top sources, Mexico is an unsustainable source due to dwindling resources there while Saudi Arabia (number 2) is viewed as unstable due to its situation within the Middle East & participation in opec (opec has tried to influence the price of oil by capping production). TransCanada's $7 billion pipeline (proposed in 2008) would double Alberta's oil exports to the United States. The Keystone Pipelines lowers delivery costs (reliance on overseas shipping/the many smaller pipelines that would be needed in place of it). The pipeline would be the safest pipeline in use so risks associated with oil spills would be minimal. There has already been over 40 months of review including three (and a final) major environmental assessments and numerous public meetings. Even with that considered, US President Obama put a key decision on the matter on hold until after the 2012 elections, by ordering another environmental assessment. The sticking point appears to be the pipeline's proposed route through Sand Hills, Nebraska (Sand Hills covers the mid to western portion of the state and has been designated an ecoregion by the WWF with 85% of Sand Hills (1/4 of Nebraska) being intact natural habitat). However, other routes result in a longer pipeline track and that creates more risk according to TransCanada Corp, Canada's 4th largest petroleum company. Even if another route is chosen it is highly likely that it will still impact Nebraska given that eight of the 14 different routes affect the state (only 1 avoids the sensitive Ogallala aquifer but six reduce the mileage across Sand Hills). The pipeline project would immediately create 20,000 American jobs while giving oil refineries in Texas a much needed boost in raw supply. According to TransCanada president Russ Girling “This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed." The 1,700 mile Keystone Pipeline would carry 700,000 barrels of oil per day to six Texas refineries in Padd III (would reduce Canada's reliance on refineries in Padd II where a glut of supply has depressed the price of Western Canadian Select oil). The Keystone Pipeline isn't the only major North American project underway, there's also the 800,000 bpd Wrangler Pipeline (Enbridge & Enterprise Product Partners) that will pipe oil from Cushing OK to the Gulf Coast. Another company, Kinder Morgan already operates three pipelines between Canada and the United States. (USA Today: Obama delay of Canadian pipeline won't stop tar sands) Oil price is up 25% over the last month and a half (ending November 16) driven by tensions between Israel and Iran.
Update January 20, 2011 Obama rejected a permit for the Keystone Pipeline. In response, Stephen Harper threatened to give more support over to the other pipeline project Northern Gateway Pipelines which will take the oil to British Columbia then overseas to destinations in China. Canada is home to 90% of 2P oil reserves outside of OPEC nations. The irony behind it all is that the decision by Obama makes the US more dependent on oil from unstable sources (Venezuela, Saudi Arabia) while also making the US a less financially secure/more hostile place to do business for traditional allies like Canada.

Alberta is home to nearly 170 billion barrels of proven and probable oil reserves (much of it amongst easily processed oil sand) exceeded only by Saudi Arabia and Venezuela (AP:China eyes Canada oil, US's energy nest egg) In Alberta alone, more than 1.6 trillion barrels of oil in inferred resource isn't even included because extraction methods SAGD and THAI/CAPRI aren't able to bring it to the surface by economically viable means. However, considering only conventional sources, Canada has major sources outside Alberta (Saskatchewan and Newfoundland combined have about 1.4 times as much oil reserves as Alberta). (NEB - Energy Reports Canadian Energy Ovewview) Approximately 20% of Alberta's oil sands are close enough to the surface to be recovered by open pit mining, the rest requires vairous in-situ technologies; the government of Alberta requires that oil companies bring the land back to 'equivalent land capability' that is, restore it to a level that makes it useful to the community either as boreal forest (which was initially destroyed) or pasture for bison (though many companies have only restored a fraction of that, for example Syncrude Oil restored 22%). Oil sands operations have been approved to use about 360 million m3 of water from the Athabasca River (runs through the mining district, water source is a glacier over 1,200 km away), that's twice as much water used by the entire city of Calgary though less than 1% of the water from the river is used by the province and oil operations; 24 m3 of water is used to produce 1 m3 of synthetic oil (1 m3= 6.29 barrels of oil). As oil sands production grows, companies like Canadian Natural Resources (ranks behind a couple companies in terms of oilsands production, Suncor is 1st at 355,000 bpd in January 2012) are improvising in order to reduce their usage of water from the Athabasca river so they continue to remain below the limit; CNRL now separates water from solids more effectively by injecting carbon dioxide captured from its hydrogen plant into tailings lakes reducing the need for additional water. 90% of conventional oil reserves are controlled by state owned oil companies.

By 2045 oil sands will produce close to 11M bbls/d and that will continue for a century. Tar sands crude is over five times more expensive to extract than middle east oil however with oil prices up more than 400% since 2001 and Alberta continuing to charge one of the lowest royalty rates in the world (down from $3/bbl in 2001 to $2/bbl in 2009) there is much profit to be made. Many smaller Canadian companies lack the billions needed to extract the oil and that has created opportunity for foreign companies including Norway's Stat Oil which has shown a lot of interest (Statoil's licenses in Venezuela were revoked by Chavez and their core reserves in the North Sea are nearing depletion). Fort McMurray is at the epicenter of Alberta's oil boom.

With crude oil fetching higher prices in Asia, Canadian producers are also looking to other markets outside North America (nearly all Canadian oil (2M bbls/d) currently heads south, 2010). The supply chain has, more recently become overwhelmed in the United States due to the release of 30 million barrels of reserve oil onto the market Parkersburg News and already filled up pipelines and storage tanks. With China's interest in Canada growing, another major pipeline project has been proposed; The 728 mile (1,200 km), 575,000 bpd Northern Gateway Pipeline proposed by Enbridge (construction by 2015, Enbridge already operates the world's longest oil pipeline). The new pipeline system is composed of two pipelines, 1 designated for the import of natural gas condensate, the other to the export of crude oil from Edmonton to Kitimat BC. Currently 99% of Canada's oil goes to just one market and even within that market (USA) Canada isn't getting as much in return for its oil as it could be getting since 55% of that oil goes to an area in the north east known as PADD II where a glut of supply is keeping prices down on West Canadian Select. The pipeline is gaining the attention of politicians and oil companies eager to broaden their customer base. More on Oil Supply and Demand (2011-2016)

The US delaying a key decision in the Keystone Pipeline case can only hurt North America’s energy indepedence given that China wants to tap into Canada’s oil supply and Canadian companies like that because heavy oil commands higher prices in Asia (than it does in the United States or even Canada). The Northern Gateway Pipelines which would carry Alberta oil to Kitimat BC then be loaded onto tankers headed for Asia. No Keystone Pipeline means China would eventually take a larger share of Canada’s oil putting US supply at risk (Canada is the largest source of US oil, Canada is also one of only a handful of countries with production growth).

Ironically, environmentalists are both helping and hampering efforts to provide access for Asia; The oil pipelines face fierce opposition from environmentalists and Native Indian groups concerned over wildlife and possible oil spills (like what happened with Enbridge in Michigan in 2010); at the same time American environmental groups have opposed the oil sands on the grounds that it makes excessive use of water and increases greenhouse gas emissions.

Here's what Newt Gingrich has to say about the Keystone Rejection

The Iranians are practicing closing the straits of Hormuz, the Canadian prime minister has already said to the US president, if you don't want to build this pipeline to create 20,000 American jobs and bring oil through the United States to the largest refinery complex in the world, Houston, I want to put it straight west in Canada to Vancouver and ship the oil direct to China so you'll lose the jobs, you'll lose the throughput, you'll lose 30 or 40 years of work in Houston. The president cannot figure out, I'm using milder words here, utterly irrational to say I'm now going to veto a middle class tax cut to protect left wing environmental extremists in San Francisco so that we're going to kill American jobs, weaken American energy, make us more vulnerable to the Iranians and do so in a way that makes no sense to any normal, rational American.

 According to Alberta's 2012 budgetary report, total oil production will reach 3M bpd by 2014, 2.4M of that is from non-conventional sources like bitumen (bitumen royalties totalled $5.7B in 2011 will be $9.9B in 2014).  2011-2012: non-conventional oil production was at 1.78 million barrels per day.  Conventional oil production will be 500,000 bpd in 2013.  Provincial royalty revenue:  Bitumen contributed $5.7B of the $6.5B total which includes conventinal, in 2012, 30% higher than the $4.4B earned the year before.  Total will be around $12.2B in 2014.

More Industrial uses for Silver (photovoltaics, rfid), Gold Reserves Increase with Price

    Higher gold prices mean higher resources because lower cutoff grades become economically viable (producers can absorb higher production costs without sacrificing margins). Osisko Mining on November 7 raised its inferred resource estimate solely due to the higher market price of gold. Osisko said that @ $1,000/oz production was economically viable at an average grade of 0.72 g/t but @ $1,800/oz the lower cutoff grade results in a 103% increase for inferred resource (from 5.32M to 10.79M ounces grading 0.51g/t or 29% smaller than at $1,000). Osisko's 3Q production was up 172% for gold (to 73,814 oz) and 147% for silver (to over 40,000 oz) between quarters. At Centerra Gold the higher price of gold led to a five-fold increase in third quarter earnings per share (35c vs 7c) while its revenue was up 132% to $278.4 million. The 500% change in earnings came mostlly due to the change in gold price (avg realized up 37.8% to $1705/oz) since sales increased 68.5% to 163,283 ounces (3q).

As for silver, production has risen in response to higher prices. From 1990 to 2007 demand for silver exceeded mine production by more than 1.5 billion ounces (The Silver Institute) but since then, production has met demand (recycling also helps balance demand - about 250M ounces of silver is recycled every year with all silver used in photography contributing back to supply this way). About 15% of silver production comes as a by-product of gold mining so higher gold prices, even if silver doesn't follow suit, will automatically increase silver production. Over history 45 and 40 billion ounces of silver has been produced (42.62B up to 2004) compared to about 6 billion ounces of gold. (goldeagle.com:The World's Cumulative Gold and Silver Production)

According to the US Geological Survey in 2009 silver mine production totalled 697.6M ounces a 23.86% ten year growth (annual basis) at the same time the average price rose by a factor of 2.2 while total supplies amounted to 922.2m ounces. Between 2010 and 2020 it is estimated that production will increase by 100-150M ounces while industrial demand alone increases by more than 250M ounces so supply deficits could become a factor again in the near future even though higher prices are causing more companies to build new mines/initiate exploration even in areas that have high production costs. Most of the increase in demand for silver is coming from industry (in 2000 it accounted for 35% of total demand but by 2009 it was over 50%). In 2010 silver supplies increased 14.60% to 1.0568b ounces but mine production was only 2.45% higher (contributed 70% of supplies in 2010 compared to 77.9% the year before). Net government sales of silver was nearly tripled to 44.8m ounces. On the demand side, industrial applications demanded 20.7% more in 2010 than in 2009 (difference of 83.6m ounces).

Silver Uses
Silver is a highly conductive metal (without much oxidation) and that makes it popular for use in electronics.
- RFID technology used in id tags. The antenna portion of it that is scanned and read is where the silver is used. The antenna can be scanned up to 15 meters away. Each tag uses over 1% of a gram of silver however billions of the tags are produced every year so it adds up).
- Jewelry remains the second largest source of demand at 167m ounces (2010) which represents a 5% increase on the year.
- Photography including x-ray film (however demand is falling due to digital replacements). Demand fell by 8.3% in 2010 to 72.7m ounces accounting for only 6.885 of total demand.
- Silver Coins : 8-10% of demand and increasing with people looking to invest in precious metals and gold perhaps becoming too expensive for some (bars aren't included, there are about 700M ounces of silver in bar form (large bars) that's up from just over 200M ounces in 2009).
- Medical Equipment & products such as pacemakers. Coins and medals increased 22.3m ounces in 2010 to 101.3m ounces (up 28.23% on the year).
- Photovoltaics/Solar Panels : The mirrors are coated with silver (specifically the energy conducting silicon cells). With solar energy use growing both in Europe/America & China greater demand from this sector is a sure thing.

29 too big to fail banks forced to raise cash ratio, Groupon GRPN joins Nasdaq, Unemployment lower in US but higher in Canada

Global banking regulator The Financial Stability Board on Friday November 4, 2011 released a list of 29 banks deemed "too big to fail", 8 of which are US based. Those making the list will be addressed directly by new global banking rules imposed by the G20 that will force banks to increase their cash so as to bring their cash reserves/loan ratio to a more appropriate level. The FSB is headed by bank of Canada governor Mark Carney (though none of Canada's banks made the FSB's list, appointment of Mark Carney comes at the same time Canada PM says no to European bailout support).
Dec.15 update: Fitch Ratings, a subsidiary of Paris based Fitch Group (1 of 3 credit rating agencies recognized by the US Exchange Commission (next to S&P and Moody's), downgraded 8 of the 29 banks viability ratings (the banks are dubbed GTUB's (global trading and universal banks). The banks are Bank of America, UBS, Credit Suisse, Morgan Stanley, Barclays, BNP Paribas, Goldman Sachs and Societe Generale. According to Fitch the bank's "business models are particularly sensitive to the increased challenges the financial markets face". Even though Fitch "incorporated the significant progress it sees the banks have made in building up capital and liquidity buffers to resist market challenges" it still downgraded them by one or two notches. According to Fitch "the structural aspects of their funding, earnings, and leverage, predispose GTUBs to vulnerability to market sentiment and confidence, particularly during periods of exogenous financial stress". BNP Paribas, the largest of the European banks, was also downgraded by Moody's to Aa3 on Dec.9.

The criteria required to make the list of 29 banks?
-must have exposure to more than just a couple economic sectors
-sizeable enough so that any threat posed to them will have widespread implications for the economy as a whole, that makes them eligible for government support which lowers any associated risk.
... more specifically

Financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity. To avoid this outcome, authorities have all too frequently had no choice but to forestall the failure of such institutions through public solvency support. As underscored by this crisis, this has deleterious consequences for private incentives and for public finances.

Key definition - Loan Loss Reserves: A valuation of the good collateral a financial institution has on hand to cover bad or slow paying loans. The total value of the reserves changes with every charge-off (a loan that fails to meet its obligations - bank abandons collecting on it - it is no longer an earning asset). The provision for loan losses is an amount/allowance set aside (quarterly or annually) to boost loan loss reserves when they get too low. Note: some charge offs do recover (recovery rate), when they do they are added back to reserves. More on the world's largest banks here

Grmike's advice
-In the 4th quarter of 2011 tred cautiously with your investments in the banking sector; European Stability Fund bonds are not attracting as much investment as anticipated and banks, particularly European ones remain highly exposed. Obama says he's concerned about the debt problem.
-Invest in technology - The sector is still booming (Samsung - Galaxy smartphone, HTC new products are attracting a lot of attention) and Research In Motion countinues to be severely undervalued (Earnings to price ratio only 5.47 despite the company still having solid market share for operating systems & handheld devices as well as a growing list of subscribers (earnings may be lower but they have literally reached nil at Nokia and fell 42% for google between the last two quarters).
-Nordstrom (designer apparel) remains solid in terms of same store sales/growth, an indication that high end consumers are still shopping (in contrast with the low end where margins are being sqeezed).
-Don't forget about Bombardier - The producer of light rail/subway cars and most importantly small and large jets (most popular are the challenger and global families (combined produced 50 in the first half of 2011) but the aerospace division is most known for its Learjets (sold 19 last six months)). July backlog was $23B up 20% since the end of 2010. The Learjet 85 (in development since 2008) already has 60 orders even though the first ones won't be delivered until 2013. What's most attractive about Bombardier's stock is that even with all the upside to the company (backlog, new jets reaching first flight, strong order in rail cars, increasing market share for business jets, revenue up 18.2% in the quarter ended July 2011, net income up 48.9% qoq) its price to earnings ratio is currently 8.30 (Nov.5,2011) lower than key competitors Boeing (13.03) and Embraer SA (10.84). In the last five months of 2011 88 rail cars are scheduled to be delivered to Bombay's tram system.More on Bombardier

in other news..
Groupon joins the Nasdaq as GRPN exactly 3 years after its founding in November 2008 - The IPO was $700M the highest for a web based company since Google's 2004 $1.7B ipo. During the day it increased the number of shares by 1/6th (5M) with each priced at $20. Over the trading session shares rose by about 30% and by the end of the trading day Groupon was valued at $12.8 billion or 2.27 times (113%) more than what Google tried to buy it for in December 2010.

October jobs numbers: The United States created 80,000 jobs bringing the unemployment rate down to 9.0% from 9.1%. Canada lost 54,000 jobs (CDN dollar down about one cent versus the greenback on the day on which the report was released/2.4% loss over the week). Also affecting Canadian metrics: Insurance company Sun Life reported a quarterly loss ($621M/$1.07 per share) for the first time since 2009, on Wednesday November 2, 2011. Manulife disappointing results continue (loss of $2.4B). All of the 54,000 jobs lost in Canada are full time jobs, it pushed the unemployment rate up to 7.3% from 7.1%. Prior to October, 291,000 jobs were created over the last year in Canda. Labour numbers for Canada here

South Korea's tourism industry is thriving, the number of tourists visiting the country is up 47% in just the last five years. That compares to the 10% increase experienced by China. Most of South Korea's tourists come from China.