Saturday, July 16, 2011

QE3 to Save US Markets this Summer

From the June 1st Newsletter...

QE3 to Save Us Markets this Summer

US Markets in Correction Mode

The US market rally ended in May this year as predicted while commodities markets continued to sell off as investors took a more defensive position. Grandmother’s portfolio was beating almost everyone else in May. Some think this is sector rotation in preparing for a market sell-off predicated by a Euro debt crisis, but the stage is not set for a major sell-off to come together yet. Anyone telling you a double dip is around the corner is as offside as a foreign banker in a New York hotel room. If you park your butt at Grandma’s house for more than a quarter eating grilled cheese sandwiches and Campbell’s soup, you will get fat, left behind and unable to finish the race. This is seasonal rotation at best.

The markets will eventually continue the trend up and climb the wall of worry. With a season of poorer than expected economic data and consumer sentiment, the markets will chop around for awhile as we wait out the US Fed humming and hawing about how to introduce QE3 to the world this summer. The FED has a policy of debt monetization while they still can, and the term easing to me infers an ongoing process, not just a one off like QE2. Once the markets know that QE3 is official and in the books, then off to the races we go again. The Fed will most likely pause for most of the summer and markets will falter in July, but rumors about another round of QE should appear early in August. QE is all about debt monetization.

Right now the US FED is playing a game of monopoly with the rest of world. The FED is the banker and playing with the banks money while every other player plays with their own cash earned hard by passing go. How long can this game of cheating at monopoly keep up for the FED? Until someone either changes the rules or at least makes someone else the banker.

Some changes that would limit the FED’s actions…

  • Name a new reserve world currency
  • Put global monetary supply on the gold standard
  • Create an alternative financial block

Europe Keeps Pushing their Debt Woes into the Future

As long as Europe pushes back their debt crisis by issuing more debt to solve the current liquidity woes for Greece amidst stagnant economic conditions in the debt ridden nations, Europe is creating a bigger problem down the road. The peripherals have it tough because they are extremely limited by the Euro and being able to compete with exports on a global scale by not having the advantage of a falling currency. They all saw short term gain and jumped at the chance of being an economic bloc with the purchasing power of the Euro buying all the goods they wanted, but that advantage soon waned as they lost their competitive advantage to countries like Germany which benefit from a weaker Euro. As peripherals lost jobs to more efficient European industries the cash dries up and having that once so prestigious purchasing power of the Euro means nothing when you have no money.

The peripherals have lost this key advantage in a normal economic cycle of a nation and make it that much tougher to get out of recession having to compete against more efficient German industries with the same currency. With austerity programs in place, it makes it even that much tougher to create revenue and these countries are now in the position of selling state assets. With no chance of turning around their export economies because of a Euro that makes it impossible for these countries to realign and trade or even pay back the debt in cheaper dollars like the route the USA is following... it creates a situation that is going to get worse until the folks running Europe (the Germans) realize that a debt restructuring is in order if Greece is to remain in the Union. What do they demand instead of a restructuring? Assets… they want to own every piece Greece they can and are trying to squeeze every state asset out of Greece they think they will part with. This is stuff that will eventually start wars… Do the Greeks want the Germans to own the Acropolis?

As long as they keep forcing these expensive patchwork conditions on Greece, nothing is fixed. It is just pushed back into the future with a bigger overall bill piling up. Now we are looking at sometime in 2012 when Euro debt woes may come to a head, at least in Greece. There are also a lot of other shoes that can drop in Europe that concern me much more than Greece. If countries like Italy and Spain’s economic conditions worsen, these are two countries that could potentially pull the European block apart. For a continent that has had a history of fighting itself, I am surprised the European Union lasted as long as it has. If debt woes are contained to Greece, Portugal, Ireland with Italy and Spain escaping any real damage and turning their economies around… the European Union will survive.

The Americans applaud Europe and the Germans pushing back their debt problems because as long as Europe can push it back no one is even concerned with the US debt load which will be an even bigger mess. At least when the USA mess comes to burden we know how it will be dealt it, with debt monetization until hyperinflation becomes such a worldwide problem that a restructuring becomes no other alternative. This is something you can prepare for. Buy Gold. Buy Silver. Buy strategic commodities.

Outlook Strong for Precious Metals

Now that Euro debt woes are back on the decline as Greece looks like they will remain solvent past June 30, precious metals should soften up a bit until the end of June. Sentiment will remain extremely strong so I do not expect much of a sell-off. Gold is a conviction buy anywhere under $1500 around the 50 day moving average on the charts. I expect any form of QE3 will push precious metals to record highs this summer and fall. I have a $1750 target on gold and $60 plus targets for silver in the late fall. Over the next 2 months is the last great entry point for a ride to the next level in precious metals. At $1545 I might even short gold for a quick trade to the downside as conditions are not right for a breakout in precious metals yet.

If you don’t own any physical metal

I strongly suggest us retail guys back up the truck on physical silver anywhere under $40. This is a high leveraged second chance at a great entry point. Silver may sell-off a bit more in June but I think this PM has bottomed. I expect the price to firm up even more as investors realize that the bull market in precious metals is far from over while the world deals with debt problems that will eventually spiral out of control. The longer the world pushes back its debt problems, the stronger the outlook for commodities like gold and silver as they trade as alternative monetary assets to currencies that are either being debased at an alarming rate (USD) or suppressed for economic reasons (Yuan). The only solution to a debt burden that cannot conceivably be paid back is debt monetization, which is the current solution or an eventual restructuring.

Canadian markets are consolidating to an early summer buy point.

The Canadian markets rolled over earlier than usual this year with a breakdown occurring in early March. The TSX roared back to life only to form a technical double top pattern. Since early April the Canadian markets have gone in a definitive selling trend that looks to continue at least until later on in June when the Canadian market may have a chance to bottom. So far the pattern the TSX is making on the weekly is identical to that of last summer with the only exception being weakness a bit earlier than usual this year. Since the start of this bull market in March of 2009, the Canadian market has bottomed at the end of June and the beginning of July like clockwork. If we are going to get continuation in this bull market and I am still strongly in the bull camp for the next 12 months, I fully expect the TSX to bottom in June/July. While US markets go through a period of earnings uncertainty, poorer economic data and continuing debt worries, I expect materials based assets to make the turn which they seemed to have made in most bellweather sectors like Ags.

There is some good value appearing in the market. Two sectors that I expect to outperform and have put in a definitive bottom are the Ag sector and the Iron Ore market. These markets should provide good continuation in momentum from last summer and fall as supply demand constraints, rumors of consortiums and price fixing dominate the market. Both sectors have consolidated longer than others and great supply and demand factors exist in both markets with quite a few development opportunities existing. The fundamentals scream out major opportunities to find grassroots projects that will turn into million tonne producers in both sectors. Especially with India clamoring and balking at Canfor’s potash prices demanding a discount. It is obvious they are going to invest in greenfield projects in Ethiopia which is good for companies like AAA and FED, but these projects are still 3 – 5 years away from production in the Danakil Basin.

Another sector that is completely oversold is the gold market and represents one of the biggest group of mispriced assets. There is some real value presenting itself in this group in all categories from explorer to producer. Although the producers are much closer to their 52 week highs than most of the explorers which are lagging with a lot of quality gold names trading close to their 52 week lows. This is a great opportunity to load up on names that are cheap, well financed and have big programs trying to define the ounces. There are several gold company’s trading at 52 week lows that should be trading much higher. This sector is my value bet that will outperform as gold breaks out to new highs over the summer.

Another sector that stalled out and should not have with a extreme breakout in spot prices is the REE sector. One issue here is that demand is being vastly underestimated and I would not be surprised to see demand forecasts ramped up to beyond 300,000t by 2015. There are some extremely cheap REE stocks that represent great value and is another sector that I expect to breakout this summer with most stocks making 52 week highs this summer.

Beat the Market Featured Company Report for June

Commerce Resources CCE-V $0.73

Commerce Resources will be coming out with results soon that will expand Ashram significantly. They drilled more than 50% deeper to 600 meters so are expanding the area drilled and the depth profile. If the results match previous assays then CCE could potentially double the tonnage at Ashram. I won’t say I told you so but this company has a project that should be valued at much closer to AVL and QRM than its current value. I rarely put targets on stocks, but once CCE has defined the boundries of Ashram, upgraded the confidence and done some intial metwork that indicates Ashram can produce cost effectively… CCE should be a $2.50 stock.

CuOro Resources CUA-V $2.10

CurOro Resources announced they closed their special warrant financing as well as a PP that that Hudbay participated in to keep their interest at 10.8%. CUA went on a nice run and probably would be trading much higher, but the financing announcement killed the initial run. Now that the financing is closed, this stock is ready to start to climb higher. CUA should hit $3 pretty easily as they start drilling Santa Elena this summer. The company is currently in negotiations with a drill contractor for a 25,000 meter program to commence once the contract is awarded. CuOro has an extremely exciting program defining a high grade copper resource with fast-track potential to production. They are one of the few explorers in Columbia looking for copper and have a great chance of hitting high grade porphyry like Inmet’s recent high grade announcement. CUA has all the key components to establish a resource quickly and efficiently and bring Santa Elena to a production in a timely manner.

Gold Companies are extremely cheap as represented by these 4

Calibre Mining Corp CXB-V $0.165

CXB does not come much cheaper. Since our feature at $0.175 they have added almost a million ounces which values Calibre at roughly $20 per inferred ounce not taking into account the recent drilling success at Riscos de Oro and prospecting success at Santa Maria, Bonanza and Primavera prospects.

Since our feature in late February Calibre has…
  • Established an initial resource at Cerro Aeropuerto of +800k oz aueq
    • 707,750 oz’s of gold @ 3.64 g/t au
    • 3,144,500 oz’s of silver @ 16.16 g/t ag
  • Drill best holes to date at Riscos de Oro
    • `10.6 meters grading 7.69 g/t au and 211.87 g/t ag
    • 5.4 meters grading 10.25 g/t au and 288.25 g/t ag
  • Identified a new large gold in soil anomaly 850 meters long by 350 meters wide

You can’t take a walk in the golden triangle in Nicaragua without tripping over gold. It literally oozes out of the ground with an industry that was been in hiatus for 30 years. CXB is extremely undervalued and in my opinion will define multiple multimillion ounce projects. La Luz and Riscos de Oro are the two most advanced targets, but more drilling success at Riscos will certainly lead to a much larger definition program by Calibre. The grades and widths at Riscos are just too good to ignore and may be the project that CXB chooses to advance first. CXB easily has 2 million ounces between 2 projects and has multiple grassroots projects that could be just as good. Calibre is a company that should start to gain some traction in the second half of the year. They have projects that are a cut above the rest.

NioGold Mining NOX-V $0.38

NioGold is a steady performer and choose to keep NOX in my featured list because this is an area that an investor needs to be exposed to. NOX is busy adding value and once this years program is wrapped up are well on their way to defining a multimillion ounce resource at Marban Block. They continue to deliver impressive results from both the Marban and Norlartic deposits.

Results from Marban Block cover a 1,050 meter strike with depths up to 300 meters and include…
  • 30,100 g/t au over 0.5 meters
  • 1.8 g/t au over 56.3 meters

Recent results from Norlartic cover a 500 meter strike exploring the western extent of the deposit up to 200 meters depth include…
  • 7.4 g/t au over 9.3 meters
  • 2.1 g/t over 28 meters
NioGold also made a favorable deal with GeoMega and owns well over 2 million shares of GMA. They are also drilling their 100% owned Malartic property where they hit gold on the first pass discover two important mineralized structures intersecting 3.65 g/t au over 6.5 meters and another zone for which assays are still pending. NOX is well financed, has 3 gold prospects being drilled right now and exposure to an excellent Rare Earth discovery that Geo Mega is exploring. NioGold should be an excellent gold explorer adding value for the net 3 years as they aggressively drill out their properties along the golden highway.

Mineral Mountain MMV-V $0.49

Mineral Mountain continues in a holding pattern which is good because MMV keeps on adding value with their exploration programs. It will set up Mineral Mountain on a nice run this summer when gold stocks turn around in unison. The exploration program at the Cook Zone Porphyry is shaping up better than expected and has potential to come together at depth. MMV released one of the best intersections to date from the Cook Zone with a 62.5 meter interval grading 1.45 g/t au. In addition to the Cook Zone, MMV will be starting to aggressively explore what I believe to be a potential company maker with their Kootenay Arc project. If they can prove a Carlin Type Trend in the Kootenay arc then MMV will roar to life much like ATAC did last year. A theory is a theory until proven, but the Bakers have shown they can do it with Rainy River and are going to explore what they think are some of the highest potential grassroots properties across Canada.

Edgewater Exploration EDW-V $0.90

EDW has had some very good success lately increasing the resource at Corcoesto by 30% and discovering a new gold zone that has turned up some the best results to date down in Enchi. With recent positive events at Enchi and Corcoesto, Edgewater is starting to look like another good gold value proposition. The drill program got off to a rough start at Enchi but the latest discovery gives EDW a very good gold zone to go after.

Recent events at Corcoesto…
  • Confirms community support for gold project
  • Increases inferred resource 30% and total resource of 1.474M oz’s at a grade 1.7 g/t au
  • Initiating scoping study for Corcoesto

Highlights from Enchi Drilling…

New discovery at Sewun South
  • 2.01 g/t au over 29 meters
  • 1.59 g/t au over 17 meters
  • 1.15 g/t au over 26 meters

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