Friday, April 30, 2010

The Greek Tweak: Will It Work?

This morning, the newswires were buzzing with reports of an austerity plan for Greece and an expanded loan facility from the International Monetary Fund (IMF).  Athens has agreed to the outline of a €24 billion austerity package, including a three-year wage freeze for public sector workers, in return for a multibillion-Euro loan from the Euro-Zone and the IMF. 

The austerity package also includes an increase in  Greece's Value-Added Tax (VAT), the second this year.  Public sector workers will lose their “13th and 14th month” salaries, paid days at Christmas and Easter and see further cuts in allowances.  In other words, Greece's government employees will be required to work 14 months for 12 months of pay.

Greece’s abnormally large public sector, which employs about 13% of the workforce, will be gradually reduced through a recruitment freeze, the abolition of short-term contracts and closures of hundreds of outdated state entities.  Pension benefits were to be frozen and/or deferred.

Final details of the measures, which were intended to slash the budget deficit by 10-11%  of Gross Domestic Product (GDP) over the next three years, are still being worked out.  Currently, Greece's budget gap is running at nearly 14% of GDP and is the central cause of the country's threatened insolvency.

Negotiations with officials from the IMF, the European Commission and the European Central Bank are due to be completed at the weekend and the measures will be presented for approval by the Greek parliament next week.

The IMF is looking at raising its share of Greece’s financial rescue package by another €10 billion ($13.2 billion) amid fears that the planned €45 billion bail-out will prove insufficient to curtail the country's sovereign debt crisis.  The entire amount deemed necessary to save Greece is now €100-120 billion.

Politicians and economists across Europe have been highly critical of the slowness with which Euro-Zone governments have addressed the Greek crisis, which burst into the open more than six months ago with the disclosure that Greece’s 2009 budget deficit was far higher than previously believed.

The slowness partly reflects the unwillingness of Angela Merkel, Germany’s Chancellor, to commit Berlin to a multibillion-Euro rescue of Greece when German public opinion is against it and there is a risk of a legal challenge to the aid in Germany’s constitutional court.

Will the "Greek Tweak" work?  Probably not.  The magnitude of the austerity savings are fairly small by comparison to the bail-out needed.  In addition, the Greek economy is already spiralling downward and further austerity measures will only deprive the economy of stimulus.  In addition, Greek government employee unions will not be an easy sell, regardless of the magnitude of the problem.  Finally, until Germany signs on, no deal can possibly be consummated. 

The projected cost of the bail-out has nearly tripled in the last two months.  Greece has been shut out of the capital markets.  There is no reason to believe that all the bad news is on the table.  The only real solution is a major restructuring of Greece's debt and a major economic change from the socialist policies which have created the inefficiencies that exist today.

Marko's Take

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Thursday, April 29, 2010

American Barrick Follows Newmont Mining With Blowout Earnings

Now that earnings season is in full swing, precious metals miners are continuing to report excellent earnings.  Yesterday, giant American Barrick (ABX) reported, followed by Goldcorp. (GG) and Hecla Mining Company (HL).

ABX reported record first quarter net income of $758 million ($0.77 per share), an increase of nearly 150% from the first quarter of 2009.  The increase was attributable to higher production and sales in conjunction with lower total cash costs and higher realized prices for both gold and copper.  Operating cash flow more than tripled to a record $1.05 billion from $349 million in the same prior year period.

Gold production was up 19% to 2.08 million ounces at total cash costs of $442 per ounce, which was $42 per ounce below prior year period total cash costs.  The Company is on track with its guidance to increase production in 2010 to 7.6-8.0 million ounces at lower total cash costs of $425-$455 per ounce.

ABX continues to maintain a strong financial position and the industry's only 'A' credit rating with quarter-end cash of $3.5 billion, an undrawn credit facility of $1.5 billion, robust operating cash flow and excellent access to debt markets.

Goldcorp said on Wednesday its adjusted profit slipped by 3.9%, missing analysts' estimates, as the timing of sales and the stronger Canadian dollar raised costs and offset the impact of higher gold prices.   However, this was in large part the result of a non-cash foreign exchange loss of $211.8 million on a translation of future income tax liabilities.

Stripping out the charge, adjusted profit was $162.7 million, or 22 cents a share, down from $169.3 million, or 23 cents per share in the year-before period.  Nevertheless, GG remains on track.

Revenue rose 20%  to $750.3 million as realized gold prices rose 21.7%  to $1,110 an ounce.  Cash costs per ounce climbed to $325 per ounce from $288, when using by-product metals production as a cost offset.

The strong year-over-year gains by the Canadian dollar and Mexican peso stripped a total of $25.9 million from the bottom line, while results were also hurt by delayed sales at the Red Lake mine in Canada and a port strike that delayed gold and copper sales at the Alumbrera mine in Argentina.

Hecla Mining reported net income applicable to common shareholders of $18.4 million or 8 cents per share during the first quarter of this year, a substantial increase from the $3.9 million or 2 cents per year reported during the first quarter of 2009.

The company is maintaining its previously announced full-year production guidance of 10 million to 11 million ounces of silver with cash costs in the range of $1.90 to $2.25 per ounce.  Hecla is debt-free with $116 million of cash.

As GOLD gets primed to enter its hyperbolic growth phase, excellent revenue growth and profits are being realized.  Unlike the NASDAQ bubble, the mania phase in miners will be supported by bona-fide fundamentals.

Marko's Take

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Wednesday, April 28, 2010

Euro-Zone Contagion Spreads

Greece’s credit rating was cut 3 steps to junk status by Standard and Poor’s (S&P), the first time a Euro-Zone member has lost its investment grade since the currency’s 1999 debut.  The Euro weakened and stock markets throughout the region tumbled.

Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt.  The move, which puts Greek debt on par with bonds issued by Azerbaijan and Egypt, came minutes after the rating agency reduced Portugal by two steps to A- from A+.

Yesterday, the spread on Greek 10-year bonds over German counterparts widened to 6.75%, the highest since at least 1998, as investors increased bets that Greece will restructure its debt.  The Portuguese spread jumped 0.59% to 2.77% and the Spanish spread rose to 1.13%.

The spread between Portugese and benchmark German 10-year bonds rose about 0.5% Tuesday to reach its highest point since the creation of the Euro.  The higher spread demonstrates less confidence in Portugal, whose bonds had an interest rate of 5.86% higher than German bonds on Tuesday.

Germany, where the bail-out is unpopular with voters, has been slow in authorizing the release of funds.  Its delay has furthered market panic and driven Greek 2-year bond yields to as high as 21%.

Greek 5-year yields hit 10.6%, higher than many emerging market economies, including Ecuador at 10.5% and Ukraine at 7.1%.

The carnage continued into this morning's early trading.  The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday.  The yield is the highest for the 10-year since the introduction of the Euro in 2002.  The 2-year bonds were trading with yields approaching 20%.

Today's jump in the yield on the Greek bond has led to an enormous spread of 8.22% compared with German bond yields.  The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday, suggesting a flight to safety.

Greece needs to raise AT LEAST 9 billion Euros by May 19, but, given the current market yields, will have no chance of attracting institutional investors.

The marketplace has now spoken.  Greece will need a major restructuring and existing bondholders will receive a haircut of at least 50% and possibly larger.  The bail-out package, just activated, will be insufficient to cure the disease.  While Germany continues to say the right things, such as indicating that Greece must not be allowed to fail,  it has yet to act.  Given the growing unpopularity in Germany of bailing out Greece, any aid package remains to be seen.

The only question now is how far the contagion will spread.  Will Portugal be next to fall in the abyss?  How many more countries will be taken down?  No need to worry.  Marko's Take is on the job.

Marko's Take

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Tuesday, April 27, 2010

Newmont Mining Earnings Kick Off Great Season For Miners

Virtually every precious metals miner reported outstanding earnings for the 4th quarter (

As earnings season resumes, Newmont Mining Corp. (NEM) has given confirmation that exploding earnings are NO fluke.  In fact, the precious metals mining sector, on a fundamental basis, is looking downright cheap!

Tuesday morning, NEM said net income attributable to shareholders nearly tripled in the first quarter to $546 million, against $189 million in the year ago period.  On a per share basis, the company earned $1.11 in the period against 40 cents a year ago.

The company's adjusted profit was 83 cents per share.  A survey of analysts at FactSet Research was estimating earnings of 79 cents a share in the quarter.  The company said its average realized gold price rose 22%.  The company is maintaing its previously announced 2010 outlook for equity gold production of 5.3 million to 5.5 million ounces and costs applicable to sales of between $450 and $480 an ounce. 

The highlights of Newmont's first quarter report included gold production of 1.3 million ounces and copper production of 90 million pounds.  Revenues increased to $2.2 billion, up 46% from the similar quarter last year.

According to the company's press release, "With a 22% increase in our average realized gold price, our net gold operating margin expanded by 32% to $626 per ounce, further demonstrating our ability to provide significant gold price leverage through expanding cash operating margins," said Richard O'Brien, President and Chief Executive Officer. "We also recently secured the mining lease for our Akyem project in Ghana and continue our dialogue with local communities and Ghanaian authorities. In addition, we are advancing our development plans at Conga in Peru following a successful public meeting with local stakeholders. The strength of our balance sheet coupled with the progress being made on our advanced development assets, Newmont is well positioned to invest in our project pipeline while maintaining our financial strength and flexibility."

A missing element in prior rallies in the precious metals sector has been earnings growth, despite the large increase in Gold prices.  In large part this was the result of skyrocketing oil prices - a major cost element.  With energy prices hovering in the $80 per barrel range, while GOLD tests its all time highs, costs of production are easier to keep under control while revenues are shooting up with higher realized commodity prices.

Another important factor has been the unwinding of hedge books - something that nearly every major producer has either completed or is in the process of completing.  Poorly implemented hedges had reduced the major Gold Producer's benefit from rising metal prices and created significant derivative losses.  Now that the hedges are no longer putting a drag on revenues realized, the sector is poised to continue rapid earnings growth.

The technicals for the sector also look fantastic.  The dollar has been sputtering after a blistering rally early in the year.  In addition, the Federal Reserve's desperate attempts to keep the economy liquid are showing up in increasing inflation (

All systems are go.  The time for the hyperbolic growth phase is here.  Recently, we have written up some suggestions for some excellent junior mining companies that ought to be considered for those wishing to build a portfolio of promising positions.  Our reports on Aurizon Mines (AZK), Explor Resources (EXSFF), Vista Gold (VGZ), Tara Minerals (TARM), Samex Mining (SMXMF), Seabridge Gold (SA), Hecla Mining (HL) and ECU Silver Mining (ECUXF) can be accessed by clicking the links below:

Marko's Take

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Monday, April 26, 2010

Greece: Going, Going... Gone

In early trading today, Greek bond yields exploded.  Two-year Greek bonds surpassed the 14% yield level -  a 4% jump in one day.  The 10-year bond approached 10%.

Greece has activated a $60 billion bail-out from the International Monetary Fund at rates of 5% and below.  The jump in Greece debt yields suggests a market belief that the bail-out, even if implemented, will be insufficient to stem the crisis.

In addition, the yield curve is now "inverted" (short-term yields exceeding long-term yields) indicating an evaporation of liquidity, which will surely translate into more severe economic hardship

Comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece, also didn't help.

When asked about Germany's intentions toward providing assistance to Greece, Chancellor Angela Merkel has continually vascillated, a trait she is now becoming famous for.

Domestically, a German assistance plan for Greece is highly unpopular.  The majority of the Germans believe they are rewarding Greece for cheating itself into the Euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to endure a painful period of restructuring and wage freezes.

The German Chancellor also emphasized that the decision to grant aid to prevent a Greek insolvency would be made only after Greece committed to a rigid deficit-reduction plan for years to come.  "These discussions are ongoing," she said.  "Greece has to accept harsh measures for several years."

Italian Foreign Minister Franco Frattini expressed concern about Germany's "intransigence" over Greece, saying a quick rescue operation is needed to support the Euro's stability.

Opposition parties blame electoral politics for Berlin's lack of haste to help Greece.  Ms. Merkel's CDU party faces a tight regional election in the state of North Rhine-Westphalia on May 9.  With German aid for Greece deeply unpopular in Germany, early commitment to bail-out the debt-burdened Mediterranean country could change the minds of some voters and could cost Ms. Merkel her majority in the upper house of Parliament.

Greece has said it wants aid from the joint EU-IMF loan mechanism to be made available within days of its formal request, which Athens made Friday.  Spokespersons for the EU and IMF indicated that the response could be "positive or negative".  The trading in Greek debt indicates an expectation of a thumbs down.

Marko's Take

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On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.

Sunday, April 25, 2010

Greek Financial Crisis Passing Point Of No Return

After months of increasingly desperate attempts to fix Greece, things have deteriorated to such an extent that they may be no longer fixable. 

On Friday, Greece formally requested to access a $60 billion emergency aid package, initiating a bailout process that will  test the financial strength of Euro-Zone.

Prime Minister George Papandreou called his country's economy a "sinking ship," as borrowing costs reached 12-year highs and recent fiscal measures didn't create the market support needed to save his country.

The yield on Greece's benchmark two-year note topped 11%, ten-year bond yields reached 8.83%, while rating agency Moody's downgraded the country's credit rating one notch to A3 - the second downgrade this year.  European Union statistics service Eurostat on Thursday revised Greece's deficit to 13.6% of Gross Domestic Product (GDP) in 2009, up from 12.7%, questioning the country's ability to reduce the budget deficit to 8.7% this year as planned.  The revision is up from 13% of GDP just a month ago.

Greece is facing $11.4 billion of bonds maturing on May 19 and hopes a request made now will accelerate the bailout process in time to meet that deadline.

Even if this initial bailout package is adopted, it is questionable as to whether it will even cover Greece's debt obligations for 2010.

The Economist projects Greece will run up an additional $89 billion in debt by 2014, doubting Greece's ability to make effective budget cuts while trying to emerge from a recession.  As debt piles up, investors will be less likely to buy Greek bonds and draconian austerity fixes will hinder economic growth.

Sovereign debt concerns have already spread to other Euro-Zone nations and are escalating with Greece's situation.  Fellow "PIGS" (Portugal, Ireland Greece and Spain), already faced increasing bond yields this week, strengthening the argument that Greece is the start of a debt contagion spreading through Europe to the United States.

The aid package will give Greece $40 billion in 3-year loans from its fellow Euro-Zone nations at a 5% interest rate and an additional $20 billion from the International Monetary Fund (IMF) will be available at an even lower rate.  The offer was announced a couple of weeks ago in hopes the pledge of support would be enough to encourage investor confidence.

As yields on sovereign debt of the "PIGS" nations grow, the likelihood of raising capital from institutional investors diminishes.  Greece had hoped to raise $10 billion from U.S. investors, but now that appears to be dead.  As the contagion continues to spread, it's a matter of time before the thin fabric of the global financial community takes many more countries down with it.

Marko's Take

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Saturday, April 24, 2010

Producer Prices Producing Signs Of Inflation

The recently released Producer Price Index (PPI) is beginning to show signs of the inevitable wave of hyper-inflation (

The PPI for Finished Goods rose 0.7%  from February to March, seasonally-adjusted, following a 0.6% decline in February and a 1.4% increase in January.

In March, more than 70% of the increase in the finished goods index can be attributed to a 2.4% jump in prices for consumer foods.  The index for finished energy goods advanced 0.7% and prices for finished goods, other than foods and energy, edged up 0.1%.

Excluding seasonal adjustments, the March PPI rose by 1.1%.  On a year-to-year basis, March’s annual PPI rose to 6.0%, up from the 4.4% annual inflation reported for February.  The March 2010 annual inflation rate was the highest since the 8.8% annual rate in September 2008, when the systemic solvency/financial crisis reached its peak.

Rising prices of commodities is the driver.  Of 15 major commodity price indexes, 13 were higher month-to-month (data are reported not seasonally adjusted).  The PPI All Commodities Price Index was up year-to-year in March 2010 by 9.0%, versus a 6.9% annual gain in February and was at its highest growth rate since September 2008.  Similarly, the March Purchasing Managers survey had shown its highest "Prices-Paid" index readings since August 2008 for manufacturing and since September 2008 for non-manufacturing industries.

Obviously, the inflation-creep is bullish for Gold and Silver.  Recent auctions for Treasuries have become more problematic as the result of poor yields.  The Federal Reserve has no choice but to keep rates low as long as possible, especially as the non-existent "economic recovery" sputters.  This leaves no choice but for the Washington cabal to monetize our debt and fan the flames of inflation.

As we've mentioned in prior blogs, inflation has a lag effect and, once started, is incredibly difficult to thwart.  The only solution is to endure a sustained period of economic hardship.  Paul Volcker, former head of the Federal Reserve, resorted to raising interest rates to nearly 20%.  This was followed by a severe recession until the Reagan tax cuts provided enough economic stimulus to set the stage for a prolonged period of sustained growth.

Marko's Take

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Monday, April 19, 2010

What Does 'GOLD'man Sachs Have To Do With Gold?

Nothing's easier than hopping on board a consistent and trending market.  A Buy and Hold strategy is the most effective.  However, the precious metals market continues to trade within the confines of a fairly narrow range. 

After peaking briefly just above $1,200 in early December, Gold has traded in a $100 range for the last 4 months,  primarily oscillating between $1,050 and $1,150.  After slighty piercing the upside part of the range several days ago and giving signs that it was ready to resume its bull market, the yellow metal has once again given faithfull investors a temporary heart attack - dropping about $25 on Friday.

The benchmark index for precious metals stocks, HUI or "Gold Bugs Index", has also traded within a fairly narrow range despite a great deal of intra-day volatility.  After reaching a high of about 500 in early December, the HUI lost a quick 25% to the 375 level in February and has been gently climbing in a stair-step fashion.

Trading a market is always virtually impossible except for the extra-ordinarily skilled or lucky.  In the case of GOLD, or the underlying HUI, the pattern has demonstrated very little momentum or continuity in either direction.  So, trading has resulted in whip-saws, unnecessary transaction costs and frustration.

The question remains as to what to do now, especially in light of the Friday smackdown ostensibly driven by the SEC allegations levied against Goldman Sachs (GS), aka "Government Sachs".  It would seem that these allegations are specific only to the company and not a market event.  It's even more difficult to comprehend how the "GOLD"man Sachs situation would cause the smashing of GOLD itself.

The answer is quite simple.  They aren't related!  The reaction in the overall market and the precious metals space was purely coincidental.  The S & P 500 was already tremendously overbought and overdue for a sharp correction.  On some dimensions, so was GOLD and the precious metals market.  Traders often use significant news events as a reason to go to cash, especially in advance of a weekend, so as not to get caught in an adverse situation while the markets are closed.

This led to the significant broad market selloff which took other financial assets with it.  GOLD and the underlying precious metals stocks weren't nearly as stretched as the general market, but there had been a decent rally in the last several weeks and nimble traders used the news as an opportunity to take profits.

From a technical perspective, the charts of GOLD and HUI remain in a bullish configuration.  Neither has experienced a downward penetration of their respective 200 day moving averages.  If that should occur, it might justify taking a closer look.

None of the underlying fundamental factors suggest that any change in outlook is warranted.  Physical supplies of GOLD and SILVER remain tight and precious metals mining companies continue to deliver record revenues and profits.

The effects of record stimulus spending remain to filter through the economy.  We've witnessed some, but not much, good news on retail sales, GDP and corporate profits.  Yet, without much benefit to employment.  Economists refer to that initial reaction as the "output effect".

Historically, the "output effect" is followed, with a time lag, by the "price effect".  The price effect, or an increase in reported and un-reported inflation, is still simmering beneath the surface.  The inevitable price effect will prove to be an excellent underpinning toward the continuation and acceleration of real assets such as GOLD and SILVER.   As that occurs, the precious metals companies will continue to spit out even better profits and will be leading market participants.

One should view these temporary one- or two-day selloffs in precious metals stocks as gifts.  Once the mining sector is clearly into gear, it will be very difficult to board the train.  The character of the market will change and short-term selloffs will become fewer and shorter. 

During the great NASDAQ bubble, as the tech-market accelerated, many experienced investors became skeptical of the move and missed the opportunity to generate incredible wealth.  I should know.  I was one of them!

The GOLD and miners market have all the hallmarks of being on the cusp of entering a hyperbolic growth phase.  Letting the day-to-day noise affect our emotions and investment strategies is a mistake that even the most experienced investors make.  No one has a crystal ball.  However, until demonstrated to the contrary, Marko's Take says stay long and stay patient.

Marko's Take

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Friday, April 16, 2010

Greek Bond Sale In Doubt As Problems Re-Surface

Greece had planned a $10 billion bond sale in the U.S., but, thus far, investment demand is poor.  Giant bond manager Pimco has already announced their lack of interest and doubts that the issue will be successful.  Morgan Stanley will lead the sales effort which is scheduled to begin April 20, with a national road show.

Athens has reduced its expecations and now hopes to raise between $1 billion and $4 billion, an amount not sufficient to plug it's upcoming May budget deficit.  While April's shortfall is now satisfied, Greece needs to raise $12 billion for next month's requirements.

Greek debt spreads have resumed their widening  versus German Bunds, following recent conflicting comments from Euro-Zone members, reports of potential delays and legislative requirements needed to trigger the 30 billion Euros worth of loans offered by European Monetary Union (EMU) governments.

Ten-year spreads earlier Thursday hit a 5-day high of 4.27% compared to the benchmark 10-year German Bund.

That is a mere 16 basis points below the 11-year high hit on Thursday April 8, which was just before the EMU finance ministers agreed to a 3-year loan plan for Greece.

Short-dated Greek bond spreads fell on Thursday after the news that the country would start discussions on the loan package.  The yield on 2-year bonds fell to 6.34%  from 6.66% on Wednesday.  They hit a high of 7.1% last week.

Although the IMF has been involved in co-financed rescue packages before, as in Latvia and Hungary, it was clear that the fund took the lead role in setting conditions and disbursing tranches of money.  The IMF would be expected to make available another €10-15 billion as a stand-by loan on top of the €30 billon available from Euro-Zone member-states.

Analysts said uncertainty over the agreement remained high, with reports in the German press suggesting that it might have to be increased to €90 billon.

It appears that the crux of the Greek budget deficit is runaway corruption.

A study to be published in coming weeks by the Washington-based Brookings Institution, finds that bribery and patronage are major contributors to the country's ballooning debt, depriving the Greek state each year of the equivalent of at least 8% of its gross domestic product, or more than €20 billion (about $27 billion).

Greece's budget deficit averaged around 6.5% of GDP over the past five years, including a 13% shortfall last year.  If Greece's public sector were as clean and transparent as Sweden's, or the Netherlands', the country might have posted budget surpluses over the past decade, the study suggests.

Greece places last in the 16-nation Euro-Zone in a ranking by World Bank researchers of how well countries control corruption and last in the 27-nation European Union, tied with Bulgaria and Romania.

The Greek financial crisis continues to take center stage in the global financial turmoil.  Despite intermittent reports that solutions have been reached, it's clear that a long-term solution will be far more problematic.  Until the situation is truly stabilized, Greece's sovereign debt will be at risk.

Marko's Take

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Thursday, April 15, 2010

China Overheats While Currency Tensions Remain

China, a country rapidly ascending into the global center stage, is now showing signs of a rapidly overheating economy.  It appears that Beijing must be taking plays out of "The Maestro", Alan Greenspan's book, as its real estate market appears to be in the midst of a bubble accompanied by double digit growth in the economy.

Government figures released yesterday showed urban housing prices in March rose 11.7%  during the previous 12 months, up from 10.7% the month before and the biggest increase since the index began nearly 5 years ago.

The figures released on Wednesday by the National Bureau of Statistics did suggest some cooling in demand for housing, as the 35.8% year-on-year increase in sales for the first quarter were less extreme than the 50% gain experienced at the end of last year.  The data series is showing extreme volatility.  Separate figures prepared by a private consulting firm indicated housing sales exploded in March by 90% versus February, despite sizable declines in the two prior months.

The Chinese economy grew at an 11.9% rate in the first quarter from a year ago, confirming Beijing's rapid recovery from the global economic crisis but raising new concerns about the risks of overheating.

The economy grew at its fastest rate in nearly 3 years and more quickly than economists had expected. The pace of growth puts new pressure on Beijing to consider tougher tightening measures, including appreciation in the exchange rate and increasing interest rates.

In spite of rising fears of overheating, consumer price inflation dipped to 2.4%  last month, from 2.7%  in February.  However, at the producer level, inflation continued to accelerate, increasing from 5.4% to 5.9% in March.

The government has already taken some steps to reduce the stimulus it is injecting into the economy, including much tighter control over bank lending.  However,  concerns about potential inflation come at a time of growing international pressure to abandon China’s currency peg against the U.S. Dollar.  Federal Reserve Chairman Ben Bernanke has called for a more flexible Renminbi, saying it would help keep China's  inflation from accelerating further.

Asian tiger Singapore reset the band in which its currency trades and said it would allow gradual appreciation.  This was designed to calm its booming economy, which grew at an annualized rate of 13.1% in the first quarter.

Political consideration continue to be the wild card.  Currency markets have been volatile as recent pressure from the U.S. over the Renminbi peg have been met with resistance since the Chinese do not want to be seen as caving to pressure.

Complicating the situation further is the growing worldwide desire for sanctions on Iran.  China is seen as critical for a successful diplomatic effort and the United States must tread lightly in order to secure Beijing's

Marko's Take

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Wednesday, April 14, 2010

Commercial Real Estate Losses: The Next Shoe To Drop

The U.S. economy ought to be thought of as a millipede.  It keeps dropping so many shoes, that it must have 1,000 feet!  The latest bad news, and not really factored into the unraveling fabric of the global economy, is the ongoing crash in commercial real estate.

The latest victim is none other than Morgan Stanley, or more accurately, the firm's clients, whose investments in one of its commercial real estate funds, have just learned that their $8.8 billion investment has now suffered a loss of a mind-numbing $5.4 billion dollars!

That would likely make it the largest  loss in the history of private-equity real-estate investing.  Over the past 20 years, Morgan Stanley's real-estate unit was one of the biggest buyers of property around the world, initiating $174 billion in transactions since 1991.  The firm's unfortunate clients include pension funds, college endowments and foreign investors.  The losses came from investments in properties such as the European Central Bank's Frankfurt headquarters, a big development project in Tokyo and InterContinental hotels across Europe.

The soured investments, made by the Msref VI International Fund, continue to be a sore spot for Morgan Stanley, as it tries to extricate itself from complex deals around the world.  In many cases, the company can't walk away from  the poor investments because the fund made billions of dollars in guarantees.

The struggling Msref VI fund once projected a 22.1% average annual return on its commercial-real-estate deals around the world.  It would appear safe to say that those projections won't be met (sarcasm intentional!).

During boom times, the fund generated fat fees for various segments of the bank.  In 2007 alone, Morgan Stanley grabbed $104 million in acquisition fees, $22 million in fund-management fees, $13 million in financing fees, $36 million in real-estate-management fees and $21 million in financial-advisory fees, according to fund documents reviewed by the Wall Street Journal.  The firm has not offered to disgorge those fees, but I'm sure they will put investors interests ahead of their own (sarcasm intentional!).

In South Korea, Msref VI projects a complete loss of its $350 million investment in an office building called Seoul Square, according to fund documents.  An investor group, led by Msref VI, acquired it in 2007 for $1 billion — the highest price ever paid for a Seoul office building.  The fund would prefer to walk away from the deal, but can't before making good on $91 million in renovations, guaranteed interest payments and other obligations.

Market analysis by the Congressional Oversight Panel (COP), which monitors the government’s Troubled Asset Relief Program (TARP), shows that $1.4 trillion in loans made over the last decade for retail properties, office space, industrial facilities, hotels and apartments will reach the end of their terms and require refinancing between 2011 and 2014.

The analysis forecasts that aggregate losses from defaults on commercial real estate loans maturing in the next few years could go as high as $300 billion, threatening to topple nearly 3,000 community banks nationwide.

The COP says community banks, rather than large Wall Street institutions, face the greatest risk of insolvency due to mounting commercial real estate (CRE) loan losses.  According to federal guidelines, 2,988 banks nationwide are classified as having a “CRE Concentration.”

Another day, another disaster.  These dropping shoes need to be used to kick the Washington cabal's behinds.  Instead, the global financial community is made to suffer.

Marko's Take

Our latest YouTube video on the Legality Of The Personal Income Tax is now posted. You can access it here (

Tuesday, April 13, 2010

Credit And Liquidity Contraction Spells Upcoming Economic Trouble

Despite the rash of "excellent" economic news suggesting that the weak recovery is gaining steam, the underlying fundamentals continue to spell trouble.  As we've repeatedly pointed out, the jobs picture is MUCH weaker than the administration would like us to believe.

Robert Reich, former Secretary of Labor under the Clinton adminstration, and no friend of Republicans, has weighed in with his own "take" on the employment situation.

According to an editorial in the Wall Street Journal, Reich wrote "Since the start of the Great Recession in December 2007, the economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers.  That leaves us more than 11 million jobs behind.  (The number is worse if you include everyone working part-time who'd rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they're in.)  This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began."

Reich points out that consumer demand is insufficient to facilitate a decent recovery, especially in light of the fact that the stimulus bill has now passed its peak.  Even with consumer demand on the upswing, it has a long way to go to reach pre-depression levels.

Since many, if not most, households rely on two wage earners, the unemployment and under-employment situation is affecting virtually every family.  Compounding that is the wealth effect of substantially lower home values and investments.

Consumers' debt burden is still very heavy, despite the fact that the wave of personal bankruptcies and defaults have reduced debt levels.  According to Reich "At the end of last year, debt averaged $43,874 per American, or about 122% of annual disposable income.  Most analysts believe a sustainable debt load is around 100% of disposable income, assuming a normal level of employment and normal access to credit — neither of which we are likely to have for some time."

Dr. Williams of ShadowStats ( confirms Reich's views in his latest piece.  Williams notes that real consumer credit in the first-quarter is down at a seasonally-adjusted annualized pace of 3.0% from the fourth-quarter.  Williams also concludes that the sluggishness in consumer income, combined with contracting debt are not indicative of a sustainable economic recovery.

On the corporate side, both Commercial Paper outstanding as well as Commercial and Industrial Loans are in virtual free fall.  As a result, money supply aggregates, such as real M-3, is now down a mind-numbing 6% year-over-year.  This level of contraction is indicative of imminent and severe economic weakness.

So, while the Obama Administration runs around trumpeting their "success" in turning the economy around, the foundation for economic strength is simply non-existent.

Marko's Take

Our new YouTube video on the Legality of The Personal Income Tax is now posted.  You can access it here (

Monday, April 12, 2010

Finally, A Rescue Plan To Save Greece: But, Will It Work?

Over the weekend, the details of a plan to bail out Greece were finalized.

Euro-Zone members have promised to provide up to €30 bilion ($40.5 billion) in loans to Greece over the next year to ward off an oncoming debt crisis that has de-stabilized financial markets and posed the most serious challenge to the Euro in its history.

Those funds were agreed to during an emergency teleconference of Euro-Zone finance ministers on Sunday and would be supplemented by contributions from the International Monetary Fund (IMF) that could produce an additional €15 billion ($20.2 billion).

The rates charged to Athens would be around 5%  for a 3-year fixed loan – above the IMF’s standard lending rate but below those currently demanded by institutional investors.  Two-year Greek bonds were  trading at 7.45% last week.

One of the most contentious issues was interest rates, with Germany insisting that Greece pay “market rates” while France and other Euro-Zone members pushed for subsidized rates.

News of the rescue plan gave Greek debt and Credit Default Swaps (CDS) a significant bounce.

The cost of insuring Greek sovereign debt against default dropped sharply in early trading Monday, with 5-year sovereign CDS trading at around 3.64%, down sharply from a closing level of 4.26% Friday.  That is the equivalent of a drop of €62,000 in the annual cost of insuring €10 million of Greek government debt for 5 years.  Greece's 5-year CDS hit 4.70% at their highest last week . They are now at their tightest levels since March 5.

In cash bonds, the brighter market mood was most evident in short-term debt, demonstrating that investors see a much lower risk of an imminent Greek debt default.  Greece's 1-year CDS dropped to 4.62%  Monday morning, from 6.50% Friday, while 3-year CDS fell to 3.97% from 5.14%.

Despite the relief emmanating from the new plan, a significant hurdle comes later in the month, when Greek government officials will fly to the U.S. around April 20 to test investor interest in a planned dollar-denominated bond issue of $10 billion.  The debt placement is deemed important to help fill Greek funding gaps through the end of May.

The compromise on the interest rates charged Greece has raised questions.  A 5% rate for a 3-year fixed-rate loan represents a concession relative to last week's market levels.  But, this is still 3.7% over 3-year German debt — a long way north of where the Greeks would like to be able to borrow.  If Greece were to take a 10-year loan under the package, it would be at a rate of more than 7%, a yield Athens deems extreme.

This may act as a floor to private-market rates.  Institutional investors may wonder why they should receive less than Greece's fellow Euro-Zone members.

Now that the immediate funding issue has given Athens a sigh of relief, the key will be whether Greece can reign in its budget deficit, which last year ran at 13% of GDP.  Given the high level of debt and the accompanying high levels of interest rate on that debt, this may prove to be a tall order without draconian budget cuts.

Marko's Take

Our new YouTube video on the Legality Of The Personal Income Tax is now posted.  You can access the video here (

Sunday, April 11, 2010

Los Angeles Fiscal Crisis Intensifies

Los Angeles has endured a devastating decrease in tax and fee revenues as the result of the global economic downturn.  In addition, the entire state of California is struggling with it's own budget crisis, putting the State's bonds in jeopardy of being downgraded to junk status.

Compounding the situation was the collapse in investment revenues for the city employees' pension funds because of the Wall Street implosion that contributed to the recession.  Thus, the identical factors that have caused City Hall to spend dramatically more, have also contributed to taking in substantiall less.

The budget gap for the city of Los Angeles has grown to $222.4 million this fiscal year, prompting plans to transfer money from the Department of Water and Power (DWP) to close the shortfall.  Relations between the city and DWP have become very strained over the proposal.

The only bright note has been a small increase in property tax fees.  City Administrative Officer Ray Ciranna said the city has collected $26 million more than expected in property tax revenues.

The massive budget gap means the city will have to dig deeply into its reserves to balance its books to end the fiscal year on June 30 in the black.  City Council President Eric Garcetti and Councilman Bernard C. Parks, chairman of the budget committee, stressed that the better than expected revenue collections did not mean the city’s budget crisis has been solved.

DWP executives refuse to send the city a promised $73.5 million because council members refuse to approve a sweeping electricity rate increase.  Meanwhile, other budget-balancing moves, in combination with the increased revenue, had reduced the midyear deficit from $212 million to $148.9 million.

Ciranna said he believed that the city’s reserve fund, which is about $207 million, would drop to about $39 million at the end of the fiscal year, far below what bond rating agencies consider to be a healthy threshold.

The budget stalement has led to a downgrade of the city's credit rating.  Rating agency Moody’s announced last Wednesday that it had downgraded the credit rating for the City of Los Angeles from Aa2 to Aa3.  This affects approximately $3.2 billion in debt.

Moody’s expressed concern about the DWP’s transfer of $147 million instead of the previously budgeted $220 million.  The rating agency noted that the reduction in the transfer of funds posed a challenge for the city’s general reserve funds.

Expressing fear that the City would run out of cash in less than a month, Mayor Villaraigosa proposed a two-day-a-week shutdown for all General-funded city services except for public safety and revenue-generating positions beginning the week of April 12.

The City of Angels is beset by devils.  As the global financial crisis intensifies, problems are being felt from the Euro-Zone to individual cities.  The question is how many entities can suffer major problems before the fabric of the entire global financial community unravels.

Marko's Take

Our new YouTube video on the Legality of the Personal Income Tax is now posted at

Saturday, April 10, 2010

Oil Prices Threaten Recovery

While reported economic data suggests an ongoing recovery, there continues to be a rash of underlying problems which threaten to make any upturn short-lived.  We've discussed the deteriorating situation in the Euro-Zone, especially Greece.  Recently, another "bomb" has had its fuse lit - the sudden runup in oil prices.

Crude oil prices shot up to nearly $150 per barrel in mid-2008 before the financial crunch and deflation wave led to a several month crash to about $30.  At the time, the world economy ground to a halt while financial intermediaries like Lehman, Bear Stearns, AIG, Fannie Mae and a slew of banks all found themselves insolvent in the blink of an eye.

Since bottoming, crude oil has ground steadily higher and appears ready to accelerate to the upside.  This week, oil climbed to $87 a barrel, its highest level since October 2008 and prompted concerns that triple-digit crude was once again a propect in the not-so-distant future.

The latest surge seems to have been prompted by rising confidence in a global economic recovery, even if most traders and bankers are still cautious about supply and demand fundamentals.

Pricier oil and other key commodities, notably iron ore and copper, could ripple through the economy and financial markets, potentially triggering inflation and forcing central banks to lift interest rates from ultra-low levels.  This could force bond yields higher, but lower the attractions of equities.

A HUGE difference from last year is that then the oil price was rising against the backdrop of a weaker dollar. This year crude and the dollar have risen together. In other words, had the dollar been weakening, the price of crude would be MUCH higher.

Prices are as much an effect of the economic expansion as a threat to it.  China, the fastest-growing economy, is expected to consume 520,000 barrels per day more this year than last. China's growth in demand alone will make up 1/3 of the worldwide growth in crude demand.

Higher crude prices are starting to be felt at the pump.  Only a couple of months ago, gasoline prices were under $3.00 per gallon, but in many places are now within reach of $4.00 and may shoot higher as the summer driving season gets underway.

In Great Britain, gasoline prices are now £6 gallon.  This has lead to a significant falloff in demand and is an element in the declining pound and sluggish U.K. economy.

Adding further to fears are the recent escalation of tensions over the Iran situation, as more countries are prepared to impose sanctions.  A huge unknown would how Tehran might react to sanctions and the prospect of a military reaction given the growing suspicions that the country is now a nuclear threat.

Furthermore, recently, Iraq has shown signs of destabilizing and plans to develop Baghdad's huge oil fields might be in jeopardy.

Clearly, any Middle Eastern military confrontation would immediately send crude oil prices well into the triple-digit range and have worldwide economic ramifications.

In the age of "Peak Oil", any disruption of supplies will have grave effects on the tenuous global financial structure.

Marko's Take

Our lastest video on the legality of the Personal Income Tax is now posted at  (

Friday, April 9, 2010

Showdown With China Over Renminbi

While the Euro-Zone fire spreads, the situation regarding the exchange rate between the Remnimbi and the U.S. Dollar is now escalating. 

Yesterday, U.S. Treasury Secretary Timothy F. Geithner flew to China for a previously unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing.   This meeting triggered speculation that the Renminbi's 21-month-old peg to the dollar may be abandoned.  Geithner last week postponed an April 15 deadline for a U.S. review of currency policies amid pressure from Congress to brand China a "currency manipulator".

At center stage is the issue of fair trade.  China’s trade surplus with the U.S. last year rose to $226.8 billion, more than the combined deficit the U.S. had with its next nine biggest trading partners, according to Commerce Department data.

Senators, including New York Democrat Charles Schumer and South Carolina Republican Lindsey Graham, blame the currency peg for much of the imbalance.  The peg keeps the currency undervalued, aiding Chinese exporters and discriminating against foreign competitors, according to economists.

China introduced rules last year that restrict government purchases to technology products developed in China, the leading complaint of companies such as Microsoft Corp. and Intel Corp.

Fortunately, there are signs that China has become receptive.  Beijing has begun to prepare publicly for a shift in its exchange rate policy.

Tim Geithner told India’s NTV in New Delhi on Tuseday that it was “China’s choice” whether to revalue the renminbi and he was confident Beijing would see a more flexible currency was in its own interest.

The Chinese foreign ministry said China would adhere to three principles on currency policy: any change must be controlled, it must be Beijing’s own initiative and any shift must be gradual.

A senior government economist told reporters in Beijing on Tuesday that China could widen the daily trading band for the renminbi and allow it to resume the gradual appreciation it halted in July 2008 in response to the global credit crisis,

Reports suggest that Treasury officials are optimistic that the Chinese will relax their position, even though yesterday's meeting did not result in any official announcement about the renminbi.

In the delicate negotiations, nothing is certain even if all signs point to a positive policy change in the very near future.  The alternative to a relaxation in the pegged status of the Renminbi, would be a variety of economic reprisals possibly leading to a trade war.  Trade restrictions didn't work during the Great Depression and they would be equally disastrous now.

Marko's Take

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Thursday, April 8, 2010

Greek Financial Crisis Intensifies Threatening Sovereign Debt

Despite global efforts to contain the problems in Greece's fiscal situation, it appears that the crisis is accelerating and threatening to spill-over into the world financial structure. 

Greece sold €5 billion of 7-year notes on March 29, but since the issue, renewed concerns have caused the bonds to fall by more than 10% of face.  Yields on Greek's sovereign debt have jumped sharply.

Greek 10-year bond yields are currently trading with rates exceeding 7.5%, up about 1% in a couple of days.  Yesterday, yields on 2-year Greek bonds leaped more than 1.2%  to nearly 6.5%, an extraordinary daily move for any sovereign debt.

The move came amid concerns about the ongoing negotiations regarding rescue plans.

Greece has been unable to curtail speculation that it may default by failing to create a viable strategy to handle its growing budget deficit.  Concern is growing as to the terms and credibility of a European Union rescue plan, or one from the International Monetary Fund.

As a result, the interest rate spread Athens has to pay above German Bunds has reached nearly 4.5%, the highest level since Greece joined the Euro-Zone.

The rapidly rising yields reflect the deteriorating economic outlook.  A new forecast by The European Commission is expected to project a decline in the Greek economy this year by 2.5%,  versus prior forecasts of a contraction of 2%.

Eurostat, the European Union statistical service, estimates Greece's 2009 budget deficit exceeded 13% of Gross Domestic Product (GDP).  By comparison,  finance ministry officials said Greece was still on track to reduce this year’s deficit to 8.7% of GDP.

The crisis is taking its toll on Greece's banking sector.  Athens' 4 largest banks are seeking government support to help alleviate a liquidity squeeze resulting from a significant flight of deposits in the first 2 months of the year.

Finance Minister George Papaconstantinou said on Wednesday that the banks are seeking access to the  €28 billion ($37 billion) government rescue plan that was put together during the 2008 global credit crunch.

Rating agency Moody’s recently downgraded all 4 banks by one notch, noting Greece’s deteriorating economic outlook.

Greece will be seeking funding in the United States, after efforts to raise money in China and Europe were met with very poor interest.  Instead, Athens will seek to raise $5-$10 billion from U.S. investors to help fund its May borrowing needs of about €10 billion of upcoming debt maturities and interest payments.

Greece, which had attracted demand of more than €25 billion for its first bond sale of the year in January,  had been only able to attract €6 billion for its last bond sale at the end of March.

Global stock markets have declined sharply in the last day and early this morning on the renewed sovereign debt fears.

Despite pre-mature proclamations that the situation had been resolved, it's clear that the forces of depression and asset price contraction are continuing to exert a seriously adverse impact on the world financial structure.

Marko's Take

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Wednesday, April 7, 2010

Risin' Aurizon Mines

We continue our series on promising junior precious metals companies with Aurizon Mines Ltd.

Aurizon Mines Ltd. (TSX:ARZ; NYSE Amex:AZK) is a Canadian based gold producer, exploration and development company.  The Company is focused on becoming an intermediate gold producer by exploring
and developing large land positions on favorable geological trends, close to infrastructure, in politically stable, pro-mining jurisdictions.

Aurizon's key property is Casa Berardi, which began commercial gold production in the second quarter of 2007 and is expected to produce approximately 150,000 - 155,000 gold ounces in 2009.

In addition to Casa Berardi, Aurizon owns the Joanna Gold Project and the Kipawa Exploration Property.  Aurizon's combined property holdings cover in excess of 300 square miles of prospective geology in the Abitibi area of Quebec.  The Abitibi region, as discussed in yesterday's piece on Explor Resources, is one of the most historically prolific mining areas in Canada.

Aurizon reported magnificent results for the fourth quarter of 2009 and the full year.

For the fourth quarter, the Company had cash flow from operations of $12.0 million and net earnings of $9.9 million, or 6 cents per share.  Gold production was 36,459 ounces at a cash cost of $459 per ounce.

For the full year, Aurizon achieved record revenues of $175.6 million, 22% higher than 2008.  Net earnings were also a record of $36.7 million, or $0.23 per share.  Cash flow from operating activities were $71.8 million, 19% higher than 2008.  Total cash costs per ounce were $401 per ounce.  The company was able to repay debt of $29.2 million out of operating cash flow.

As at December 31, 2009, cash and cash equivalents increased to $113.1 million, compared to $55.6 million in 2008.  Included in the 2008 cash balances are restricted cash amounts in respect of the Casa Berardi debt facility totalling $21.2 million.

Aurizon has 150 million shares outstanding and has recently traded at $5.00 per share. The company trades at about 10 times trailing 12-month cash flow.  Given the Company's low cost structure and the prospect for higher Gold prices, AZK has plenty of upside for investors.

Here's to hoping for achieving great profits on the (H)"orizon"!

Marko's Take

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Tuesday, April 6, 2010

Exploring 'Explor' Resources

Now that we have an "all clear" signal that the precious metals sector is poised to resume its long awaited next leg up, we're going to continue to feature junior mining companies of merit.  Today, we'll feature Explor Resources Inc (EXSFF or EXS.V).  The company's website can be found here (

Explor Resources Inc. is a gold and base metals exploration company with mineral holdings in Ontario, Quebec and Saskatchewan.  The company is currently focused on exploration in the Abitibi Greenstone Belt of Ontario and Quebec, where more than 180 million ounces of gold and more than 450 million tons of Copper/Zinc ore have been found to date by other adjacent miners.  Explor's total land position in the Abitibi Greenstone Belt is approximately 10,434 hectares.  Explor also owns 1,991 hectares of mining claims in Saskatchewan and 250 hectares in New Brunswick.

While Explor remains relatively unknown, it was recently added to the TSX Venture exchange.

The company also has significant land holdings in other promising areas, including the Timmins Porcupine West Gold Property, the Eastford Lake Gold Project and controls substantial claims in Saskatchewan along the La Ronge Gold Belt, which has produced more than 600 thousand ounces of Gold and 63 million pounds of Copper from adjacent, existing mines.

As an explorer, the company should be viewed in light of its assets.  At its recent stock price of 60 cents, Explor has a minute market capitalization of about $50 million.
The company has no debt and has successfully raised funds in a private placement late last year to fund ongoing exploration activities.  On December 17, 2009, Explor completed an offering which resulted in new capital of nearly $7 million.
Explor is NOT for the feint of heart.  The stock is extremely volatile and prone to large, sudden moves.  In late 2008, Explor traded for less than 10 cents per share, then climbed to $1.50 by March, 2010.  Since its March peak, the stock suddenly plunged to below 60 cents per share in about 2 weeks!
If Explor is part of your portfolio, it would be highly important to make sure you remain properly diversified.
Here's to hoping you "explore" and find new riches in the imminent parabolic move in junior precious metals companies.
Marko's Take
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Monday, April 5, 2010

Gold Market Pulls Double-Reverse: Time To Re-Enter

Not long ago, the Gold and precious metals market looked ready to surprise some of us Gold Bulls and do a face plant into the concrete.  Just as things started to look dicey, we got faked-out and called for a move into cash (

Now it looks like Gold has pulled off a stunningly successful "double-reverse".  For those not familiar with football parlance, a double-reverse is a manoeuver designed to switch directions twice in one play.  First, the play has you looking right, then left, then right again.  If you don't know its coming, you get faked out of your shoes.

And so it appears with Gold and Precious Metals stocks.  Just as it looked like we would get a completely surprising market reversal to the downside, the market held, gathered strength and now all signs point to a renewal of the upside hyperbolic mania that we were looking for all along.

All the market did was what it was SUPPOSED to do.  Like an illusionist, it diverted our attention while it pulled of its seemingly amazing trick.

The GOOD news is that re-entry here with Gold near the $1,125-$1,130 level leaves PLENTY of upside, especially if our longer-term projection of  $5,000 is met.  The important thing is not to fall in love with either a market outlook or individual postions and stay with the "weight of the evidence".  That evidence now is screaming BUY again.

Especially telling was the sudden surge in the Gold Bugs index on Thursday, also known as the HUI.  The HUI surged a whopping 5% indicating an investor stampede back into precious metals stocks.  In additon, some key chart patterns were resolved in a bullish manner.  Can't fight the tape!

So, now that the market has successfully faked us out, it's time to re-enter.  We did a series, a couple of weeks back on a number of promising stocks and we would suggest a review of these if you're interested in selecting some appropriate candidates.  The links are provided below.

The individual stock reviews of Vista Gold, Tara Minerals, Samex Mining, Seabridge Gold, Hecla Mining, and ECU Silver Mining can be accessed by clicking on the following links:

In the days ahead, we'll cover more individual stocks of interest.

For now, ignore last week's man behind the curtain, and listen to THIS WEEK'S man behind the curtain!

There's a great opportunity looming ahead of us and lot's of time to board the train and enjoy a great ride.

Marko's Take

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Sunday, April 4, 2010

More Problematic Details Surface For March Non-Farm Payrolls Report

Yesterday, we took on the much fawned-over payroll report and pointed out, that despite the collective cheer from Wall St. and the Obama Administration, when properly analyzed, it STUNK!(

More details are coming in and they confirm exactly what we said.  The recovery in jobs is nothing more than a phantom and is highly likely to be just a temporary blip.

Unemployment can be measured several ways.  The headline number, also known as "U-3", is a very narrowly defined measure which conveniently excludes key segments of the labor market.

The Labor Department's more comprehensive gauge of workforce under-utilization, known as "U-6″, accounts for people who have stopped looking for work or who can’t find full-time jobs.  Though the rate is still 0.5%  below its high of 17.4% in October, its continuing de-coupling from U-3 indicates the job market has a long way to go before growth in the economy translates into relief for workers.

In March, U-6 ROSE 0.1% to 16.9%, despite the supposed creation of hundreds of thousands of jobs.

The official 9.7% unemployment rate is arrived at by including people who are without jobs or, who are able to work and have actively sought employment in the prior four weeks.  The “actively looking for work” definition is fairly broad - including people who either contacted an employer, employment agency, job center, friends or sent out resumes.

The U-6 figure includes everyone in the official rate plus so-called  “marginally attached workers”  —  those who are neither working nor looking for work, but say they want a job and have looked for work recently.  It also includes people who are part-time because they can't find full-time work.

During the Clinton Administration, "discouraged workers"  —  those who had given up looking for a job, were re-classified so as to be counted only if they had been "discouraged" for LESS than a year.  This time criteria defined away the long-term discouraged workers.  The remaining short-term discouraged workers (less than one year) are included in U-6.

The always erudite Dr. Williams of ShadowStats, ( has created an unemployment aggregate which removes the extensive government massaging to provide a more realistic gauge of unemployment.

Known as the "SGS-Alternative Unemployment Measure", Williams adds the excluded long-term discouraged workers back into the total unemployed, resulting in a measure more consistent with real personal experience.  The resultant SGS-Alternate Unemployment Measure rose to about 21.7% in March from 21.6% in February.

The 21.7% unemployment rate is not as high as the purported peak unemployment in the Great Depression (1933) of 25%, but the SGS level is probably about as bad as the peak unemployment seen in the 1973 to 1975 recession.

The Great Depression unemployment rate was estimated well after the fact, and with 27% of those employed working on farms, true comparisons are difficult to make.  Today, less than 2% of the labor pool works on farms.  Thus, for purposes of a Great Depression comparison, Dr. Williams believes it is more appropriate to consider the estimated peak non-farm unemployment rate in 1933 of 34% to 35%.

They keep spinning and we keep cutting through the BS.  Marko's Take is on the job, so you don't need a PHD or a lie detector!

We want to wish everyone a Happy Easter. 

Marko's Take

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Saturday, April 3, 2010

Jobs Report Well-Received, But Below The Surface - Fissures Emerge

With the stock market closed on Friday, Wall Street waited for the Non-Farm payrolls report, also referred to as the "Jobs Report", with baited breath.  Earlier in the week, optimism was running unchecked, as the hopelessly perma-bullish investor community began to predict that the number would be a blowout.

Then came the ADP (Automatic Data Processing) employment report, which showed that private sector jobs were LOST, not gained, and suddenly a more sober Wall St. began to ratchet down expectations. 

Even with the projections running above a hoped-for gain of more than 200,000 jobs, down from the 300,000 anticipated a week earlier, the final number still stunk.  Monthly job gains were a poor 162,000, of which 48,000, were made up of temporary census hires.

Therefore, as reported, March payrolls were up by a net of 114,000.  The latest data also included upside revisions totaling 62,000 to prior January and February reporting.  Part of the relatively stronger March report has been attributed to rebound effects from February’s blizzards.  There we go with the weather again!

Logically, any weather-related impact would be non-recurring.  But, who knows, maybe as the snow melts, we'll have floods to blame!

Dr. Williams, of the marvelous site ShadowStats (, believes that the government currently overestimates monthly payroll growth by at least 250,000, which suggests that more-accurate current reporting still would be very much in negative territory.  On the unemployment-rate side, the broader measures increased and the headline number would have too, except for some rounding and census hiring.

The trend of reported monthly decline has continued to slow sharply against prior-year comparisons, indicating a bottoming process.  The year-to-year decline in total non-farm payrolls narrowed to 1.7% (1.8% net of census effects) in March, versus an unrevised 2.5% decline in February and from a post-World War II record 5.0% decline in July 2009. 

The July 2009 decline was the most extreme annual drop seen since the production shutdown at the end of World War II, which reflected an annual trough of  7.6% in September 1945.   Otherwise, the current annual decline would be the worst since the Great Depression!

The Obama administration was jubilant over the tremendous news and couldn't wait to begin its ritualistic back-patting.  Have they forgotten that 8.4 million jobs have been lost in the last 2 years?  Oh, yes, that's all George Bush's and Ronald Reagan's fault!

Beneath the surface, however, a more dangerous trend and un-noticed by most economists, is the VERY ominous decline in liquidity as measured by the contraction in the broad money supply aggregates.  According to Dr. Williams, "real (adjusted for inflation), broad systemic liquidity, as reflected in M3 (SGS Continuing Estimate), continues to shrink year-to-year.  As of March, the series appears to be down by the largest percentage in modern reporting.  The negative effects of this liquidity squeeze on the economy should become increasingly obvious in the next month or so, including subsequent employment data, ex-census."

Historically, sudden, sharp fall-offs in money supply growth have been closely followed by both stock market sell-offs and economic decline.  In addition, this contraction bodes poorly for commodities, despite the recent strength. 

Here's to hoping everyone has a Happy Easter with a booming PERSONAL money supply!

Marko's Take

Please visit us on YouTube at  The very excellent Phoenix Film Group is now placing the final touches on our next episode on the legality of the Personal Income Tax.

Thursday, April 1, 2010

Iran Sanctions Gain Momentum

The nuclear threat posed by Iran has proved to be nettlesome for the U.S.  The world community, given America's tendency toward interventionism, has viewed our hard line towards Iran with suspicion.  Especially worrisome has been the fear that the U.S. and/or Isreal would employ some sort of military strike against facilities in Iran, believed to be capable of producing nuclear weapons, which could be used to either strike Israel or threaten Iran's neighbors.

The world community has substantially shifted its stance.  With French President Nicolas Sarkovsky at his side, President Barack Obama stated Tuesday, that he hopes to have international sanctions against Iran in place "within weeks," not months, because of its continuing nuclear program.  However, the full support of the United Nations is not yet solidified.

For his part, Sarkozy told reporters, "Iran cannot continue its mad race" toward acquiring nuclear weapons.

On the U.N. Security Council, permanent members Russia and China, have previously expressed reservations toward a tougher set of sanctions, as have several of the rotating members who do not have veto powers.

However, recently, both China and Russia have signalled, overtly or covertly, marked shifts in their stances.

Secretary of State Hillary Rodham Clinton predicted new sanctions would be forthcoming, hinting that skeptical nations, such as China and Russia, would eventually come along.  At the conclusion of an international meeting of 8 major powers in Canada, Clinton cited a growing alarm around the world about the consequences of a nuclear Iran.

According to diplomats in other countries, China has recently agreed to begin discussing specific sanctions against Iran, offering the first sign that Beijing may be willing to back a new round of United Nations measures.

Such a shift would be a major breakthrough for the U.S., which views China’s previous reluctance to back sanctions as the biggest obstacle to its intention of ratcheting up the pressure on Iran. Washington believes that if Beijing’s support is obtained, a security resolution would be a done deal.

The diplomats cautioned that difficult negotiations lie ahead over the scope of any sanctions.  Washington hopes they would be designed to thwart Iran’s nuclear and missile programs, punish the Revolutionary Guard and increase the country’s financial isolation.

Russia has already signalled its willingness to support sanctions on Iran, although like China, it favors less stringent measures than the U.S. and its allies.

American diplomats added that countries with temporary membership of the Security Council, such as Turkey and Brazil, whose votes are not necessary for passage, but who could help convey a message of international unity, are more likely to be secured if China is brought on board.

Assisting the U.S. in its attempt to pursuade the international community is the defection of a key Iranian nuclear scientist, Shahram Amiri to the United States.

According to the people briefed on the intelligence operation, Amiri's defection was part of a long-planned CIA operation.  The CIA reportedly approached the scientist in Iran through an intermediary, who made an offer of resettlement on behalf of the United States.

Using information gathered from Amiri and other sources, the CIA has produced a new report on Iran's nuclear capabilties.

The CIA report is the latest official study expressing concern over Iran's continuing nuclear activities.  The International Atomic Energy Agency recently issued a report warning that continuing nuclear activities in violation of U.N. resolutions raise "concerns about the possible existence in Iran of past or current undisclosed activities related to the development of a nuclear payload for a missile."

Isolating Iran, without military intervention represents a major international victory for the Obama Administration and lessens the liklihood, in the near-term of unilateal military action, which would be dangerous and de-stabilize the entire Middle East.  It would also, in all probability, cause a major disruption to oil supplies and deal a blow to global efforts to continue to engineer an economic recovery.

Marko's Take

We want to wish everyone a wonderful Good Friday and Easter.  Please visit our new YouTube channel at or our friends, the very excellent LeMetropole or Stock Mavrick