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Sunday, October 6, 2013
CONSUMER CONFIDENCE STRONGER THAN EXPECTED IN JUNE
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The World's Largest Gold Miner Is Losing Billions Of Dollars In The Andes Mountains
REUTERS/Pav JordanWorkers walk near Barrick Gold Corp's Veladero gold mine, on the Argentine side of the border district between Chile's Huasco province and Argentina's San Juan province, a few kilometers from the site for the Pascua Lama gold project, some 834 km (518 miles) northeast of Santiago, Chile, February 28, 2007. 
$('.icon-tooltip').tooltip();TORONTO (AP) — The world's largest gold mining company said Friday it is slowing construction of its massive Pascua-Lama project in the Andes Mountains and will likely take a writedown of between $4.5 billion and $5.5 billion in the second quarter on the project. Barrick Gold Corp. said it now will target first production by mid-2016 compared to the previous schedule of the second half of 2014. Falling gold prices, rising costs and a sagging stock price weighed down by its Pascua-Lama project have plagued the Canadian company. Since late 2011, the gold price has fallen by $600 — over 30 percent.
Last month, Chile's environmental regulator stopped construction and imposed sanctions on the $8.5 billion Pascua Lama mine, citing "serious violations" of its environmental permit. An indigenous community has complained the project threatens their water supply and pollutes the glaciers.
Barrick has already spent about $5 billion on the project, which straddles the Chile-Argentine border at 16,400 feet (5,000 meters) above sea level.
Barrick said it has submitted a plan, subject to approval by regulators in Chile, to construct a water management system in compliance with permit conditions.
Argentine authorities have insisted that Lama, their side of the bi-national project, will proceed with or without Chile, taking advantage of the infrastructure already in place for its Veladero mine, which is already producing ore just downhill. But most of Pascua-Lama's 18 million ounces of gold and 676 million ounces of silver are in Chile, where Barrick warned shareholders earlier this year that it might abandon the project if production can't begin in 2013.
"In light of the challenging business environment we are facing today, and taking into consideration existing construction delays, the company is advancing the project in a prudent manner by extending the construction schedule over a longer period," Barrick President and Chief Executive Jamie Sokalsky said in a statement.
Sokalsky promised shareholders in April that Barrick was committed to be focus on producing returns for investors. Shares of Barrick and almost every major gold miner have hit new annual lows recently.
Barrick ousted former CEO and President Aaron Regent a year ago, citing its disappointing share price performance. The stuck has plummeted from over $40 to less than $16 since then.
Barrick said earlier this week it would eliminate 30 percent of the jobs at its corporate headquarters in Toronto. Barrick has 25,000 employees worldwide.
JIM O'NEILL: It's A Mistake To Think The Fed Has A Major Impact On The Emerging Markets
Many who play the financial markets are confusing two things: the consequences of the beginning of the end of the Federal Reserve Board’s easy monetary policy; and the policies and issues which drive long-term sustainable growth in many economies.
It should be no surprise that, as markets start to believe that the Fed’s degree of accommodation is turning, there will be consequences for all financial markets, especially ones sensitive to interest rates. That includes markets in the emerging world. Indeed, economies which have been indirectly benefiting from a period of sustained easy money in the US – covering up their own shortfalls, including balance of payments, current account imbalances and domestic savings shortfalls – are likely to see trickier times.
In the emerging world, this is probably relevant to two of the four BRIC economies, Brazil and India, as well as a number of others, perhaps including Turkey. This should not be confused with their own long-term economic outlook or financial markets. Ultimately, their growth will depend on what they do in terms of their demographics and productivity; the Fed’s monetary policy will have very little impact.
It is close to 12 years since I created the BRIC acronym and nearly a decade since my colleagues and I began examining what the world would look like by 2050. These long-term projections were driven over five yearly intervals by their likely demographic trends and assumptions we made about their productivity.
We made no assumptions about any financial market developments or monetary policies, although it was quite clear to us that there would be profound consequences for the world markets from the emergence of the BRIC and so-called Next 11 economies: the group of the 11 next largest economies by population after the four BRIC countries.
In the first decade of BRIC life their actual growth was much stronger than we had anticipated, as I showed in my book, The Growth Map. In a forthcoming book, I will show that in this decade, 2011-2020, the growth of the BRIC economies will probably be slower than in the last, but growth in the N11 economies is likely to be stronger.
The world economy could grow by more than in the past three decades, even with the BRIC countries growing by less – not least because their impact, especially that of China, will be much larger. As I have said in previous columns, if China grows by 7.5pc, this will be effectively the same impact as if the US grew by 4pc.
A fortnight ago I made a very short visit to the state of Gujarat at the invitation of its chief minister, Narendra Modi, and was asked to give my thoughts on India’s long-term potential. I referred to a 2008 paper on 10 key things India must do to fulfil its potential; it is striking how few of those things have been done. That could be interpreted as showing that India will never reach its potential, but it could also mean that, if it moves in the right direction, it can still achieve much stronger growth – stronger even than the 7pc to 8pc I am assuming for this decade.
I returned home thinking that it might do so and plan to update that paper with input from some of the world’s top experts, presenting specific targets for Indian policymakers. Around half of them are pretty applicable to much of the emerging world, and if progress is made in these areas, then the world’s future will be much healthier, regardless of what happens to US monetary policy.
The first task is perhaps the toughest and that is its governance. I heard Mr Modi’s great slogan: “More governance, less government.” In some ways, this may be at the heart of the protests in Brazil and even Turkey. Their citizens don’t want bigger governments that squander public resources; they simply want their governments to provide an environment for a better life. Many of these countries need to improve their leadership in terms of deliverability and accountability.
A second requirement is for better educational outcomes, at both the most basic and more sophisticated levels. In an age of information technology, there is no excuse for any of our children not to be given access to a basic education. All major emerging economies should set themselves a 10 to 20-year target of having the number of top-class, internationally recognised universities that their share of global GDP would imply.
In terms of macroeconomic policy, many of these countries are in better shape than India and don’t have much to learn from the rest of us about targeting low, stable inflation and low, sustainable public finances. Some of them need to boost their share of global trade and most are trying to do this.
A third goal is to boost their infrastructure, both physical and in terms of modern technology. Many people ask: what is the purpose of the BRICS Development Bank? One answer should be to concentrate on targeted infrastructure improvements in all their economies, targets that can be assessed by their people and have a dramatic impact on their efficiency.
I am sure there are many other things each of the major emerging economies also need to do, but if targeted progress could be achieved in each of these areas, then I suspect the great era of emerging economic growth is not ending, but just beginning.
South Korea is an example to many in the emerging world about how to move beyond the middle-income trap. This is especially applicable to the likes of Brazil and Turkey at the moment. One day we may look back on this turbulence as a mere stepping stone on their paths to future greatness.
Jim O’Neill is former chairman of Goldman Sachs Asset Management and chairman of education charity Shine (wwwshinetrust.org.uk)
9 Ways The Federal Reserve Has Tried To Improve The Way It Talks To Us
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NYSE Margin Debt Has Ticked Down, And It Might Be Sending A Scary Stock Market Warning Sign
$('.icon-tooltip').tooltip();Note from dshort: One of my economic correspondents, James Ross, called my attention to the fact that the NYSE has released new data for margin debt, now available through May. I've updated the charts in this commentary to include the new numbers.
The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let's examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.
The first chart shows the two series in real terms — adjusted for inflation to today's dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its an all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July, 2007, three months before the market peak.
The next chart shows the percentage growth of the two data series from the same 1995 starting date, again based on real (inflation-adjusted) data. I've added markers to show the precise monthly values and added callouts to show the month. Margin debt grew at a rate comparable to the market from 1995 to late summer of 2000 before soaring into the stratosphere. The two synchronized in their rate of contraction in early 2001. But with recovery after the Tech Crash, margin debt gradually returned to a growth rate closer to its former self in the second half of the 1990s rather than the more restrained real growth of the S&P 500. But by September of 2006, margin again went ballistic. It finally peaked in the summer of 2007, about three months before the market.
After the market low of 2009, margin debt again went on a tear until the contraction in late spring of 2010. The summer doldrums promptly ended when Chairman Bernanke hinted of more quantitative easing in his August, 2010 Jackson Hole speech. The appetite for margin instantly returned, and the Fed has periodically increased the easing.
Was April a Margin Debt Peak?
Unfortunately, the NYSE margin debt data is a few weeks old when it is published. In nominal terms, real margin debt at the end of May 2013, the latest available data, shows a slight month-over-month decline of 2.1% (1.9% in nominal terms). Will we look back at April as a cyclical peak for margin debt like we saw in 2000 and 2007? And does that anticipate a major market peak as we saw twice in the 21st century?
NYSE Investor Credit
Lance Roberts, General Partner & CEO of Streettalk Advisors, analyzes margin debt in the larger context that includes free cash accounts and credit balances in margin accounts. Essentially, he calculates the Credit Balance as the sum of Free Credit Cash Accounts and Credit Balances in Margin Accounts minus Margin Debt. The chart below illustrates the mathematics of Credit Balance with an overlay of the S&P 500. Note that the chart below is based on nominal data, not adjusted for inflation.
As I pointed out above, the NYSE margin debt data is a several weeks old when it is published. Thus, even though it may in theory be a leading indicator, a major shift in margin debt isn't be immediately evident. Nevertheless, we see that the troughs in the monthly net credit balance preceded peaks in the monthly S&P 500 closes by six months in 2000 and four months in 2007. The most recent S&P 500 correction greater than 10% was the 19.39% selloff in 2011 from April 29th to October 3rd. Investor Credit hit a negative extreme in March 2011.
There are too few peak/trough episodes in in this overlay series to take the latest credit-balance trough as a definitive warning for U.S. equities. But we'll want to keep an eye on this metric over the next few months.
PETER SCHIFF: Gold Is On The Verge Of Its Biggest Rally Ever (GLD)
Gold entered bear market territory in April after falling 20% from its cycle high. Today, it broke below the $1,200 level.
Euro Pacific Capital's Peter Schiff told Business Insider that he doesn't see any new triggers to worsen the sell-off.
Rather, he thinks we should consider what drove the sell-off in April. Here's Schiff:
"You have a lot of speculators driving the market. You have speculative longs that are getting out and you have speculative shorts getting in and in some cases they're the same people that are flipping their position, they were long and now they're short...
"I think the idea came that the stock market is doing well. It has been outperforming gold. People were looking at what they perceived to be better opportunities elsewhere. There was the perception that as far as the global financial crisis the worst was behind us, and then you got Ben Bernanke basically claiming victory saying his policies have worked and we finally have the recovery we have been waiting for, and that he's on the verge of removing quantitative easing. ...The Fed taking this away is giving people more reason to sell gold."
Schiff thinks the view behind this gold trade is wrong.
Gold is currently selling below the cost of production. And the cost of production has increased because of rising inflation. He anticipates mining companies won't invest in capital expenditures or exploration until gold hits $2,500 to $3,000 by his estimates. The resulting shortage in supply should push gold prices higher.
"Mining is very energy intensive and ten years ago, oil was $12 - $15 a barrel, now it's $95 a barrel. So that's just one of the costs. Labor costs have gone up because the cost of living has gone up in many of the countries where gold is mined. The price of gold isn't even high because it doesn't even reflect its production costs...
"It shows you how prices need to go higher. Most mines are going to be shut down and there will be no supply and that all by itself means the price of gold has to go up because there will be no supply."
Schiff also thinks the market is wrong about the economy being on the verge of a recovery.
Not only does he not expect the Fed to taper its $85 billion monthly bond purchase program, he expects the Fed to increase QE. He also doesn't think the U.S. economy is on the verge of a recovery. "It is on the verge of a recession," he said. "The whole narrative is wrong."While he thinks it is possible for gold to fall to $1,000, he thinks there has been a mispricing in gold and that it will turn around.
"I don't know if it's going to take more weak economic data, if it's going to take Ben Bernanke himself or if the market is just going to exhaust the sellers on its own. I mean we're so oversold at this point so I don't know what is ultimately going to turn the psychology and turn the momentum. I just know that it's going to turn. And when it does, it's going to be vicious...
"There's a lot of gold buying coming. I think this decline has brought the pessimism and the fear back into the gold market. There were too many professional investors who were on board, in fact a year, a year and half ago, it was 90% bullish on gold, now it's like 1% bullish. It's never been this low. The sentiment has completely turned at a time when fundamentals have never been better for gold. They've never aligned better than right now and everybody is basically talking about its demise. …I think it's on the verge of its biggest rally ever, but I can't tell you when it's going to start."
If you're looking for him to put his money where his mouth is. Here's proof.
Schiff said he is increasing his position and that he is launching a a gold stock mutual fund in a few weeks, and he is convinced that there is tremendous opportunity there.
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