Archive for August, 2014

Facebook, Twitter, e-mail… If you’re always “connected,” you need to read this now

From Shane Parrish at Farnam Street:

Technology is neither good nor bad, nor is it neutral. — Melvin Kranzberg

It won’t be long before people fail to remember a world without the internet. Michael Harris explores what that means in his new book The End of Absence: Reclaiming What We’ve Lost in a World of Constant Connection.

For those billions who come next, of course, it won’t mean anything very obvious. Our online technologies, taken as a whole, will have become a kind of foundational myth —a story people are barely conscious of, something natural and, therefore, unnoticed. Just as previous generations were charmed by televisions until their sets were left always on, murmuring as consolingly as the radios before them, future generations will be so immersed in the Internet that questions about its basic purpose or meaning will have faded from notice. Something tremendous will be missing from their lives— a mind-set that their ancestors took entirely for granted— but they will hardly be able to notice its disappearance. Nor can we blame them.

However, we have in this brief historical moment, this moment in between two modes of being, a very rare opportunity. For those of us who have lived both with and without the vast, crowded connectivity the Internet provides, these are the few days when we can still notice the difference between Before and After.

This is the moment. Our awareness of this singular position pops up every now and again. We catch ourselves idly reaching for our phones at the bus stop. Or we notice how, midconversation, a fumbling friend dives into the perfect recall of Google.

I think that within the mess of changes we’re experiencing, there’s a single difference that we feel most keenly; and it’s also the difference that future generations will find hardest to grasp. That is the end of absence— the loss of lack. The daydreaming silences in our lives are filled; the burning solitudes are extinguished.

Before all memory of those absences is shuttered, though, there is this brief time when we might record what came before. We might do something with those small, barely noticeable instances when we’re reminded of our love for absence. They flash at us amid the rush of our experience and seem to signal: Wait, wasn’t there something . . . ?

***

In 1998, the writer Linda Stone coined the phrase that perfectly describes the state of most people: “continuous partial attention.” More than welcoming this impoverished state, most of us run toward it.

We are constantly distracted. Pings. Texts. Emails. We’re becoming slaves to devices and perpetual connectivity.

Dr. Gary Small, a researcher at UCLA, writes that “once people get used to this state, they tend to thrive on the perpetual connectivity. It feeds their egos and sense of self-worth, and it becomes irresistible.” We feel needed. We’re weaving our self-identity with our devices. We think that if they are not constantly buzzing we’re not “needed, necessary, crucial.” This “atmosphere of manic disruption makes (our) adrenal glands pump up production of cortisol and adrenaline.”

Dr. Small points out:

In the short run, these stress hormones boost energy levels and augment memory, but over time they actually impair cognition, lead to depression, and alter the neural circuitry in the hippocampus, amygdala, and prefrontal cortex— the brain regions that control mood and thought. Chronic and prolonged techno-brain burnout can even reshape the underlying brain structure.

***

Harris argues that there was a moment weirdly similar to this one: the year 1450. That’s the year when Johannes Gutenberg managed to invent a printing press.

Like the Internet, Gutenberg’s machine made certain jobs either ridiculous or redundant (so long, scriptoria). But much more was dismantled by Gutenberg’s invention than the employment of a few recalcitrant scribes. As the fidelity and speed of copying was ratcheted way up, there was a boom in what we’d now call data transfer: A great sermon delivered in Paris might be perfectly replicated in Lyon. (Branding improved, too: for the first time subjects knew what their king looked like.) Such uniformity laid the groundwork for massive leaps in knowledge and scientific understanding as a scholastic world that was initially scattered began to cohere into a consistent international conversation, one where academics and authorities could build on one another’s work rather than repeat it. As its influence unfurled across Europe, the press would flatten entire monopolies of knowledge, even enabling Martin Luther to shake the foundations of the Catholic Church; next it jump -started the Enlightenment. And the printing press had its victims; its cheap and plentiful product undid whole swaths of life, from the recitation of epic poetry to the authority of those few who could afford handmade manuscripts.

[… ]

For any single human to live through such a change is extraordinary. After all, the original Gutenberg shift in 1450 was not a moment that one person could have witnessed, but a slow-blooming era that took centuries before it was fully unpacked. Literacy in England was not common until the nineteenth century, so most folk until then had little direct contact with the printed book. And the printing machine itself was not fundamentally improved upon for the first 350 years of its existence. 

But today is different.

How quickly, how irrevocably, this kills that. Since ours is truly a single moment and not an era, scholars who specialize in fifteenth-century history may be able to make only partial comparisons with the landscape we’re trekking through. While writing this book, I found it necessary to consult also with neuroscientists, psychiatrists, psychologists, technology gurus, literature professors, librarians, computer scientists, and more than a few random acquaintances who were willing to share their war stories. And all these folk, moving down their various roads, at last crossed paths— in that place called Absence. It was an idea of absence that seemed to come up time and again. Every expert, every scientist, and every friend I spoke with had a device in his or her pocket that could funnel a planet’s worth of unabridged, incomprehensible clamor. Yet it was absence that unified the elegies I heard. 

***

The change with Gutenberg was so total that it became a lens through which we view the world. “The gains the press yielded,” Harris writes, “are mammoth and essential to our lives.” Yet each new technology — from the written word to Twitter — is both an opportunity for something new and an opportunity to give something up.

In Understanding Media, Marshall McLuhan wrote that: “a new medium is never an addition to an old one, nor does it leave the old one in peace.”

New mediums that become successful subjugate the older ones. It “never ceases to oppress the older media until it finds new shapes and positions for them.”

Harris challenges us: “As we embrace a technology’s gifts, we usually fail to consider what they ask from us in return—the subtle, hardly noticeable payments we make in exchange for their marvelous service.”

We don’t notice, for example, that the gaps in our schedules have disappeared because we’re too busy delighting in the amusements that fill them. We forget the games that childhood boredom forged because boredom itself has been outlawed. Why would we bother to register the end of solitude, of ignorance, of lack? Why would we care that an absence has disappeared? 

The more I thought about this seismic shift in our lives— our rapid movement toward online experience and away from rarer, concrete things— the more I wanted to understand the nature of the experience itself. How does it feel to live through our own Gutenberg moment? How does it feel to be the only people in history to know life with and without the Internet?

After a month long break from the Internet, Harris emerges without an epiphany. “But it’s the break itself that’s the thing. It’s the break—that is, the questioning—that snaps us out of the spell, that can convince us that it was a spell in the first place,” he writes. While he doesn’t propose taking a month off, he does propose the occasional break: “I think what you get is a richer interior light and the ability to see yourself in a critical light, living online. Because if you’re in the middle of something you can never see it properly.”

The End of Absence: Reclaiming What We’ve Lost in a World of Constant Connection urges us to remain aware of what came before and “to again take pleasure in absence.”

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on Facebook, Twitter, e-mail… If you’re always “connected,” you need to read this now

No junior resource stock is a “sure thing”… but these could be the closest you’ll find

From The Gold Report: 

Keith Phillips, a managing director and head of Cowen & Company’s Mining Investment Banking Group, says strong companies with solid balance sheets are on the hunt for precious metals development projects or small producers trading at steep discounts. In this interview with The Gold Report, Phillips explains that these juniors represent unprecedented value for acquirers with longer-term goals, and he tracks some potential M&A prey.

The Gold Report: Canada’s Financial Post reports that as of July 30, 2014, there have been 41 mining deals worth a combined CA$7.1 billion (CA$7.1B) in 2014. The total value of the deals reached CA$9.3B in 2013. Do you believe that total will be eclipsed before 2015?

Keith Phillips: I expect so. Aggregate deal volumes are really driven by one or two large deals in a given year. This year, Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) and Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) bought Osisko Mining Corp. (OSK:TSX) for about $4B, which has obviously had an impact on the aggregate numbers. I wouldn’t be surprised to see one or two more billion-dollar deals, and that would drive us above 2013 levels. Obviously, there is a lot of merger and acquisition (M&A) dialogue going on. I’m optimistic that activity will continue to be strong and, with any luck, be stronger than last year.

TGR: You said there is dialogue going on. What have you heard?


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KP: We are in regular dialogue with our clients about their strategic objectives. For a period in the downturn in 2012 and 2013, companies were purely internally focused, driving operating and general and administrative costs to more sustainable levels. In the past several months—and we’ve seen this on the deal calendar—companies that have dealt with their internal issues are now trying to capitalize on lower target valuations to achieve longer-term goals. I suspect there will be some positive activity.

TGR: Are you suggesting that M&A activity in the mining space will be a value play?

KP: Yes. Value is always a core component of merger dialogue, but in today’s market, buyers are increasingly focused on doing value-accretive deals. Institutional investors will punish buyers seen chasing growth for growth’s sake. Explorers and developers are currently trading at steep discounts to the larger producers, so the value arbitrage for buyers is very attractive.

TGR: Will M&A be aided by rising metals prices, or will the impact be minimal?

KP: I don’t see metals prices testing the highs from two or three years ago in the near-term, but I remain positive about the longer-run outlook. The thesis in M&A is not necessarily dependent on commodity prices improving. With commodity prices where they are, many situations are undervalued, and it’s a compelling buying opportunity for those that are properly positioned.

TGR: As you mentioned, the biggest takeover deal so far this year was Yamana Gold and Agnico-Eagle Mines joining to buy Osisko. What are some things investors learned from that deal?

KP: A handful of things. The deal started with an aggressive approach by Goldcorp Inc. (G:TSX; GG:NYSE), which was a wakeup call for some people. Unsolicited takeover activity is considered more acceptable by aggressive boards than it used to be. That won’t be the last time that a board will be aggressive if it sees an undervalued situation.

Two strong gold producers, Yamana and Agnico, with strong balance sheets, were ready to react when a compelling situation was presented. They may have paid full value, but I see the deal as a win-win, and I think both buyers are stronger.

We don’t often see joint bids in mining: Joint-venture activity is far more prevalent in the oil and gas business. I wouldn’t expect a flurry of joint venture activity, but it was fascinating to see two competitors get together.

Assets of the quality of Osisko and the Canadian Malartic mine are scarce. It’s a big asset in a politically friendly place that was derisked with a 15-year mine life. It was a unique opportunity for two companies to change their strategic profiles.

TGR: Do you expect more M&A between similar-size companies with complementary assets, be it cash or projects?

KP: There have been a series of “mergers of equals” (MOE) in recent years, where two management teams and boards come together to create a vehicle that’s more substantial industrially, and also that’s more compelling in the capital markets. All things being equal, institutional investors prefer bigger, more liquid companies, and those ultimately collect valuation premiums in the public markets. MOE activity will continue, but traditional “acquisitions” will always be more plentiful.

TGR: In June, HudBay Minerals Inc. (HBM:TSX; HBM:NYSE) bought Augusta Resource Corp. (AZC:TSX; AZC:NYSE.MKT) for about $550 million ($550M) in shares and warrants. Augusta Chairman Richard Warke was also chairman of Ventana Gold Corp. (VEN:TSX) when it was sold for roughly $1B in 2011. Can you suggest three or four other current mining chairmen or CEOs who have positioned previous companies for successful takeover bids?

KP: That’s a great point. A number of executives have been successful creators of value either through monetizing a business or driving a company to market cap strength and then turning over management. One obvious example is Ross Beaty, chairman of Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ). Beyond the great success of Pan American over two decades, Ross has had a series of successes involving the Lumina Group, including sales of Regalito Copper Corp., Northern Peru Copper Corp., and most recently Lumina Copper Corp. (LCC:TSX), which was just sold to First Quantum Minerals Ltd. (FM:TSX; FQM:LSE).

Rob McEwen is the chairman and CEO of McEwen Mining Inc. (MUX:TSX; MUX:NYSE ). He was the founding CEO of Goldcorp, which he merged with Wheaton River Minerals in 2005. That was a spectacular valuation creation success, and Rob is very focused on creating similar value for shareholders of McEwen Mining.

Interestingly, on the other side of the Goldcorp transaction was Ian Telfer of Wheaton River. Telfer is now Goldcorp’s chairman. He’s had a series of successes, from the gold business to the uranium sector and beyond. In a market such as today’s, where institutional investors approach the mining business with great skepticism, there is definitely a bias to invest dollars behind a proven winner.

TGR: What are some precious metals companies with strong balance sheets that could be looking to M&A to meet long-term objectives?

KP: Goldcorp is a strong company in every way. It has abundant capacity to continue to acquire assets. Alamos Gold Inc. (AGI:TSX) is well positioned, with about $400M in cash, but it will be very disciplined as it considers growth opportunities.

I’d also note that Yamana and Agnico-Eagle are not necessarily done. While they parted with some cash in the Osisko deal, they each have far stronger operating cash flow to finance future business. I see both of them being open minded about other transactions.

In silver, Pan American Silver has a strong balance sheet, and is well positioned to be a consolidator.

TGR: Goldcorp owns a significant block of Tahoe Resources Inc. (THO:TSX; TAHO:NYSE). Do you believe it would monetize that to go after other assets?

KP: Hard to say. Tahoe CEO Kevin McArthur has done an outstanding job, and the Escobal silver mine in Guatemala is truly world class. I’m sure Goldcorp is happy with Tahoe’s stewardship of that asset, and certainly its Tahoe stake offers some financial flexibility if it wanted to do a large deal in gold.

TGR: What are some companies with experienced management teams that are managing quality assets in safe jurisdictions that could garner closer looks from potential acquirers in an undervalued market?

KP: A recent research report by Adam Graf focused principally on preproduction development-stage assets, which have been beaten down the most. From a valuation arbitrage perspective, the gap between a big producer and a small preproducer has never been greater. NOVAGOLD (NG:TSX; NG:NYSE.MKT), Pretium Resources Inc. (PVG:TSX; PVG:NYSE) and Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) are good examples. Others, like Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX), Gold Standard Ventures Corp. (GSV:TSX.V; GSV:NYSE) and Gold Canyon Resources Inc., (GCU:TSX.V) are also attractive.

TGR: NOVAGOLD bills itself as an “unrivaled opportunity for investors seeking leverage to gold.” Its 50%-owned Donlin gold project in Alaska has 39 million ounces (39 Moz) in Measured and Indicated reserves. But the sheer size of that project also means things like permitting and environmental impact would take longer to complete. Is that something investors understand?

KP: Investors definitely understand it, but it’s true—Donlin is one of the premier undeveloped gold assets in the world, full stop. There’s also a strong partner in Barrick Gold Corp. (ABX:TSX; ABX:NYSE). Donlin is a large, high-grade opportunity in a good jurisdiction, and once it becomes a mine, it will be producing for decades. It’s one in a handful of truly strategic assets in the world.

TGR: Cowen and Company, JP Morgan and RBC Capital Markets all cover NOVAGOLD. Does that help NOVAGOLD get the money it needs to develop Donlin?

KP: That institutional support is certainly helpful, but a project of that scale is challenging to finance in today’s market. In the market we had four years ago, it would be viable, and we will certainly see such markets again in the future. NOVAGOLD and Barrick are advancing the project and there will ultimately be a construction decision, but even if Donlin were permitted and ready to go, and all they had to do was spend the money, I expect they would both choose to pause and wait for better capital markets and better valuations.

TGR: You mentioned Pretium, which is on a number of lists of potential takeover candidates in the junior mining space. I’m not aware of any offers made for Pretium.

KP: Well, for an offer to be made public, it would have to be either hostile or accepted by the board. It’s fair to presume that the board doesn’t think valuations are compelling right now, so it would have to be hostile. It’s very unusual to do a hostile on a preproduction asset that has not been derisked.

Brucejack is a spectacular asset. Pretium CEO Bob Quartermain has done a great job, but this is a technically complex asset that would require proper due diligence. My sense is the Pretium management and board have their interests properly aligned with shareholders, so I suspect it’s a matter of time before a larger company makes a compelling proposal.

TGR: Seabridge recently received environmental approval for its massive Kerr-Sulphurets-Mitchell (KSM) gold-copper project in northern British Columbia. Is that a game changer?

KP: It’s definitely important. It’s a large asset. The Seabridge team has done an outstanding job advancing KSM from all perspectives, from exploration to engineering, and very importantly on the social and permitting sides. Seabridge has been diligent and patient, and I was not surprised to see it get this permit. Now I expect it to get federal approval.

TGR: Will Imperial Metals Corp.’s (III:TSX) tailings dam failure at its Mount Polley mine in British Columbia affect Seabridge?

KP: It’s a great question. What happened at Imperial is unfortunate, and the entire industry will learn from that occurrence to make the mining world safer going forward. Having said that, Mount Polley and KSM have little in common, other than being located in the same jurisdiction! What mine developers need to do is ensure they are advancing their projects to the highest technical standard, and I’m confident that Seabridge has approached KSM from that perspective from the beginning.

TGR: What are some other companies that investors should be aware of?

KP: Guyana Goldfields Inc. (GUY:TSX) is worth mentioning. This is a Toronto-based company with a sizable high-grade, open-pit gold project in Guyana. It’s fully permitted, fully financed and in construction. Production should start later this year. There will be a startup curve, but over the course of the next 12–18 months it will ramp up to full production. If the ramp up goes smoothly, Guyana stock should react quite favorably.

It’s an asset that, over time, could have strategic appeal for a lot of people. It’s in the Americas. It’s high grade. It has a long mine life. It’s low cost. That’s one people should have their eyes on.

TGR: When does management expect to generate free cash flow?

KP: Probably sometime in 2015.

TGR: Are there others worth noting?

KP: Paramount is interesting. Its core project is the San Miguel gold-silver project in Chihuahua, Mexico. It’s at the preliminary economic assessment phase. It has good grade and could be a fit for a lot of people. That’s another one to keep your eyes on.

TGR: You also listed Gold Standard Ventures among your potential takeover targets. Is that because it has projects in the Carlin Trend?

KP: It’s more than that. It has the Railroad project, an outstanding exploration target that is potentially very large and high grade. Those kinds of assets are hard to come by. It’s early, and drilling there is expensive. It’s a junior in a difficult capital market, so it’s not in the best position to raise capital. Six or seven years ago, this kind of company would have raised a lot of money and been drilling hard, but it’s been moving relatively cautiously.

TGR: What types of companies would be interested in that kind of asset?

KP: Gold Standard has two assets, Railroad and Pinion. Railroad is really a big company asset. It’s a Newmont Mining Corp. (NEM:NYSE), Barrick or Agnico kind of asset. Someone that’s big can do the right drilling. Pinion is likely something that could fit in portfolios of more modest-size companies. Over time, it’s quite possible we will see different owners of those two assets.

TGR: With the exception of Guyana Goldfields, the one thing that all these companies have in common is that they are in North America. Is that a coincidence?

KP: Our business tends to focus more on the Americas and less on some other parts of the world. We don’t spend a lot of time in Australia, and we don’t spend a lot of time in Africa, but there are some pretty compelling opportunities in West Africa. Companies like True Gold Mining Inc. (TGM:TSX.V) and Roxgold Inc. (ROG:TSX.V) are doing a nice job in Burkina Faso. We don’t cover them as actively, but we have a lot of respect for both of those groups.

 

TGR: Could you give our readers a couple of final thoughts on mining M&A?

KP: You should expect private equity investors to continue to look hard at the space. Leucadia National Corp. (LUK:NYSE) recently made an investment in Golden Queen Mining Co. Ltd. (GQM:TSX). There are lots of private equity people with cash in what continues to be a difficult capital market, and they review opportunities regularly. There was private equity interest in Marigold, which Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ) ended up buying. Private equity investors will continue to look at some of these companies and compete with the traditional public buyers, if need be.

TGR: Heading into 2013 and then into 2014, many mining pundits believed that private equity was going to be quite active in the mining space as valuations sunk lower and lower. Why hasn’t private equity been more active?

KP: There have been numerous private equity investments in the space but we haven’t seen the blockbuster deals. Most traditional private equity firms prefer private, “control” situations, and the mining business tends to be a “public company business,” particularly in the precious metals space. Also, the traditional leverage buyout model doesn’t work well in mining because commodity cash flow swings are too volatile. It’s tough for private equity to fund preproduction assets. It happens, but it’s challenging.

The mining-focused private equity firms have actively been pursuing minority investments, and that will continue—these are deals where people buy, say, a 19% position in a company and take a board seat. Some recent examples of private equity investments include True Gold bringing in Liberty Mutual Insurance Co., Appian Natural Resources Fund L.P. taking a stake in Roxgold and Leucadia buying into Golden Queen. But you’re right, the traditional large U.S. private equity firms, the Apollo Global Managements (APO:NYSE), etc., haven’t deployed their capital yet. The time will come when they will.

TGR: Please compare the current deal flow at Cowen & Company versus this time last year.

KP: It’s much stronger now. A year ago, clients were really internally focused and trying to understand where the bottom might be in the gold market. People tend to believe we’ve since hit the bottom. The breakout has not happened, but people feel there’s more opportunity on the upside than risk to the downside.

TGR: Parting thoughts?

KP: The most important thing we haven’t talked about is the institutions. Long-only institutional investors largely abandoned the gold space a couple of years ago, based on declining gold prices, rising capital and operating costs, and disappointing performance by many companies. With gold prices having stabilized and bounced off the bottom, and companies successfully improving their cost positions, we are beginning to see institutions looking at the sector again, particularly at these low valuations. The strong M&A activity is also attracting investors, as shareholders in the Osiskos and Augustas of the world have been rewarded with strong premiums in 2014.

TGR: Thank you for your insight, Keith.

Keith Phillips is a managing director and head of Cowen and Company’s Metals & Mining Investment Banking Group. Phillips joined Cowen upon Cowen’s acquisition of Dahlman Rose, where he had similar responsibilities. Previously, he was with J.P. Morgan, where he headed the investment bank’s metals & mining practice. He previously ran the metals & mining investment banking groups at Bear Stearns & Co. and Merrill Lynch. Phillips has worked with over 100 metals & mining companies during his 28-year Wall Street career, including established global leaders such as Rio Tinto, Vale, Barrick Gold and Peabody Energy, successful growth companies such as Goldcorp, Yamana Gold and Pan American Silver, as well as exploration and development stage-companies such as Silver Standard Ventures, NOVAGOLD, Seabridge Gold, Guyana Goldfields and Gold Canyon Resources. Phillips received his master’s degree in business administration from the University of Chicago and a bachelor’s degree in commerce from Laurentian University in Canada.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on No junior resource stock is a “sure thing”… but these could be the closest you’ll find

This surprising stock market indicator says the job market is getting better

From Tom McClellan’s Chart in Focus: 

Back in 2011, I wrote about Why Even Fundamental Analysts Should Watch A-D Line, noting that the NYSE A-D Line is very strongly correlated to corporate profits. But because the A-D Line can be calculated each day in real time, whereas corporate profits are reported with a significant lag, in effect the A-D Line gives a leading indication for what the profits data will look like once they are released.

The same point applies in this week’s chart, which compares the NYSE A-D Line to the Bureau of Labor Statistics’ measure of U.S. nonfarm job openings. The job openings data are published monthly, and the A-D data is the month-end closing values for our Ratio-Adjusted A-D Line, which factors out the changing numbers of issues traded each day.

Once again the correlation is really strong, but because the job openings data is reported with a lag, we actually get a leading indication. This data series only goes back to December 2000, which is not as far back as the corporate profits data, but still that is enough time to demonstrate the correlation.

And at the upturns from recessionary bottoms, there seems to be an actual leading indication. The A-D Line started upward from its October 2002 low well ahead of the September 2003 bottom for job openings. We saw the same effect in 2009. On a month-end basis, the A-D Line bottomed in February 2009, while the job openings data finally reached its bottom in July 2009.

One might reasonably complain that the recovery in the job openings data has not been as steep as it should have been, or as we needed it to be, and that argument has some merit. But the A-D Line has correctly identified the direction of that movement. And the continuing strength in the A-D statistics portends good things for a continuing jobs recovery. At the point when the A-D Line tops and starts to turn down, it won’t just be investors that will need to start worrying.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on This surprising stock market indicator says the job market is getting better

Forget what you’ve heard… This “common sense” reason is why companies are fleeing the U.S.

By Nick Giambruno, Senior Editor, InternationalMan.com:

Don’t be surprised to lose if you don’t make an effort at being competitive.

And if you go out of your way to make yourself less competitive, expect to lose.

If that sounds like simple common sense, that’s because it is.

But it’s also exactly what the U.S. has been doing for years—enacting tax policies that sabotage its global economic competitiveness.

It’s like trying to get in shape for a marathon by going on an all-McDonald’s diet…

Here are two major reasons why the U.S. is lagging in the global economic marathon:

  1. The U.S. has the highest effective corporate income tax rate in the developed world (see chart below).
  1. Unlike most other countries, which only tax domestic profits, the U.S. taxes the earnings of foreign subsidiaries of U.S. companies when the money is transferred back to the U.S. This has had the effect of U.S. corporations keeping over $1.9 trillion in retained earnings offshore to avoid the crippling U.S. corporate income tax.

These “worst in the developed world” tax policies are clearly hurting the global competitiveness of American companies.

Being deemed a “U.S. Person” for tax purposes is like trying to swim with a lifejacket made of lead.

It should come as no surprise that an increasing number of productive people and companies are seeking to shed this burden so they can keep their heads above water.

At this point, it’s more than just a trickle—it’s an established trend in motion.

And I don’t see anything that would reverse it. On the contrary, given the political dynamics—ramped-up spending on welfare and warfare policies, as well as an “eat the rich” mood—taxes have nowhere to go but north. And that means the exodus will continue.


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Over the past couple of years, dozens of high-profile U.S. companies have moved abroad (or seriously considered it) to lower their corporate income tax rate and to access their offshore retained earnings without triggering U.S. taxes.

Among them are Medtronic, Liberty Global, Sara Lee, and Omnicom Group—the largest U.S. advertising firm—to just name a few.

Earlier this year Pfizer, one of the world’s largest pharmaceutical companies, sought (but was ultimately rebuffed) to move abroad, which would have cut its tax bills by as much as $1 billion a year.

The strategy these companies are using is known as an inversion. It’s where a U.S. company merges with a foreign company in a jurisdiction with lower taxes and then reincorporates there. Current U.S. law allows for this if the foreign shareholders own at least 20% of the combined company (though some are trying to raise the minimum to 50%).

Now, despite the howls and shrieks from upset politicians and the mainstream media about these companies being “unpatriotic” and “un-American,” they’re doing absolutely nothing illegal. Inversions are totally acceptable within the current rules of the U.S. Tax Code.

Chuck Grassley, a Republican senator from Iowa has said, “These expatriations aren’t illegal. But they’re sure immoral.”

I beg to differ.

Why would anyone want to give the destructive bureaucrats in DC a penny more than is legally required? As far as I’m concerned, not only is there nothing wrong with going where you’re treated best, there’s also an ethical and moral imperative to starve the Beast

What really has the politicians scared is that inversions have started to snowball.

The New York Times quoted an international tax lawyer stating that “it takes one company with enough public recognition to start [a] domino effect”…

Another Way to Starve the Beast

Remember, U.S. companies are not globally competitive because of these two unique burdens:

  1. The U.S. has the highest effective corporate tax rate in the developed world.
  1. Unlike most countries, which only tax domestic profits, the U.S. taxes the earnings of foreign subsidiaries of U.S. companies when the money is transferred back to the U.S.

We have already seen how inversions can reduce #1, but they also offer huge benefits in terms of #2.

Reincorporating abroad allows companies to permanently avoid paying U.S. taxes on foreign earnings. It also allows companies to access their retained earnings offshore in ways they couldn’t before without triggering punishing U.S. taxes.

Medtronic, for example, has accumulated $20.5 billion of untaxed earnings in foreign subsidiaries. By reincorporating abroad, Medtronic can access that money without getting slapped with U.S. corporate income taxes, which would save it billions.

For companies like Medtronic, reincorporating abroad seems like a no-brainer.

Contrary to the government propaganda, the villains in this story aren’t the companies seeking to diversify abroad to remain globally competitive. The villains are clearly the spendthrift politicians who enact these “worst in the developed world” tax policies, which create very compelling incentives for these companies to leave the U.S.

It’s Not Just Companies Saying Sayonara

While the U.S. should be enacting policies that make it attractive for productive people and companies to come to the U.S.—rather than driving them away—don’t hold your breath for positive change. It’s more likely that nothing but more taxes and regulations are coming.

But as we have seen, companies have options too.

And it’s not just multibillion-dollar corporate entities that have options. Individuals operating on a modest scale can also reap enormous benefits by diluting the amount of control the bureaucrats in DC (or any country) wield over them. International diversification is the solution.

You do this by moving some of your savings abroad with offshore bank and brokerage accounts, physical gold held abroad, owning foreign real estate, and establishing an offshore company or trust.

Obtaining a second passport is an important part of the mix as well.

You probably can’t take all of these steps, and that’s fine. Even taking just one will go a long way to reducing your political risk and giving you more options. In many cases, you don’t even have to leave your living room.

Think of it as your own personal insurance policy against an out-of-control government.

However, things can change quickly. New options emerge, while others disappear. This is why it’s so important to have the most up-to-date and accurate information possible when formulating your international diversification strategy. That’s where International Man comes in.

To keep up with the best strategies, you might want to check out our Going Global publication, where they are discussed in great actionable detail.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on Forget what you’ve heard… This “common sense” reason is why companies are fleeing the U.S.

Consider this is a "cheat sheet" for finding the world’s greatest dividend investments

From Bryan Beach in The S&A Digest:

Recently, I have revealed a handful of our favorite investing secrets.

First, I showed you how to identify businesses that consistently trounce their peers. Then, I shared two simple steps you can take to amplify your investment returns: Reinvest your dividends and “do nothing.”

Our inbox had plenty of feedback on the series, including a couple of subscriber “reinvest and do nothing” success stories. It’s clear lots of subscribers are very interested in income-producing securities.

Today, I’m going to share one more secret to maximizing the income from your portfolio… A stock’s stated yield tells you very little about how much income it will pay you.

For many income investors, this may sound crazy. After all, the yield IS your income, right? The bigger the dividend yield, the bigger your payments.

That thinking overlooks a powerful phenomenon in the stock market that can help you secure bigger, steadier income streams.

But before we get to that, let’s take a step back…


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When folks talk about dividends, the word “yield” gets thrown around a lot. Quite simply, it’s a measure of how much cash you’re receiving from your investment compared with what you paid to open the position. The concept is central to bond investing, where investors base their investment decisions on the size and security of those guaranteed cash payments.

If you buy a $1,000 bond for face value that pays 9% interest, your yield is obviously 9% ($90 annual interest payment/$1,000 face value). If it’s a solid company, investors may be willing to pay more for a secure $90 payment stream… and the bond price may trade up to $1,200. In that case, the bond is yielding only 7.5% ($90/$1,200).

The same concept of yield applies to dividend-paying stocks. A company that trades for $100 and pays $2 in annual dividends is “yielding” 2% a year. With interest rates near historic lows, bond investors can’t find decent companies with bonds yielding 9% anymore. These days, even the bonds of bad companies pay only 4%-5% yields. So bond investors have been looking to stocks to satisfy their thirst for yield…

This has driven up the prices of anything paying a remotely robust dividend. This yield-starved environment has led to a proliferation of corporate structures such as master limited partnerships (MLPs) and real estate investment trusts (REITs) that are required by tax law or corporate bylaws to distribute a vast majority of earnings to shareholders.

It’s important for income-seeking investors to understand that the payments received from these entities are different than traditional dividends. For example, Uncle Sam taxes traditional “dividends” and MLP “distributions” differently.

More important, a traditional dividend is paid out of a healthy company’s excess cash. It’s as if a company says… “Here, take this extra cash, we have more than we know what to do with.”

But a REIT or MLP pays shareholders because it’s required to… whether the company is “healthy” or not. It’s not unusual to see a REIT pay a fat dividend one year and turn around the next year and have to borrow money or raise additional equity just to fund expansion or meet business needs.

For this reason, published lists of “high-income stocks” are often chock-full of unhealthy REITs or fly-by–night MLPs. Last time, we showed you how successful dividend reinvestment and “sloth” behavior can be… but those tips won’t work on a REIT or MLP that won’t be around in five years.

Don’t misunderstand… some REITs and MLPs can be solid wealth compounders. We’ve recommended our share in Stansberry’s Investment Advisory. But not all are created equal. And learning how to identify the healthiest dividend-payers brings us to this week’s “secret”…

When searching the equity markets for the kinds of companies that would benefit from the “reinvestment” and “sloth” strategies we discussed last time, we always look at dividend history for at least the past five years… and try to project dividends about five to 10 years into the future.

Simply put, our dividend strategy involves “looking back, then looking forward.”

When it comes to investing, projecting things like earnings per share, free cash flows, or stock is almost always a waste of time. But dividends are different. And for stable companies, they are predictable. Here’s what I mean…

Let’s start with a list of relatively large companies that have increased dividends for the past five years. In the U.S., this takes the population down from around 5,000 candidates to 180. Simply by narrowing our focus to only those companies that have been consistently increasing dividends, we have already weeded out many of the high-risk REITs and MLPs. In other words, we’re already light years ahead of the typical income investor.

Here’s a list of the “Dividend Raisers” with the best current yields (current annual dividend divided by current stock price).

Of the Top 180, only nine have a “bond-like” current yield of at least 6%. The table lists these nine securities alongside the EV/EBITDA valuation metric, which is a quick and easy way to compare how pricey these stocks are.

Highest Current Dividend Yield Within the ‘Top 180 Dividend Raisers’
Company Ticker  Corp Structure   Recent Price   Annual Dividend   Current Dividend Yield   EV/EBITDA 
StoneMor Partners STON  MLP $24.41 $2.39 9.8% 47.8
Vector Group VGR  Corp $20.75 $1.54 7.4% 11.1
Exterran EXLP  MLP $28.81 $2.08 7.2% 11.8
Amerigas APU  MLP $46.05 $3.32 7.2% 10.2
El Paso Pipeline EPB  MLP $36.20 $2.55 7.0% 11.5
Senior Housing SNH  REIT $23.83 $1.56 6.5% 15.7
Kinder Morgan Energy Ptr KMP  MLP $84.50 $5.33 6.3% 11.4
Enbridge Energy EEP  MLP $35.40 $2.17 6.1% 17.6
TC Pipelines TCP  MLP $53.22 $3.21 6.0% 21.8

Remember, I told you earlier about the secret of investing in “dirty” businesses…

Dirty, low-status businesses are often the best businesses because they don’t attract capital. There’s no glamour. In our work, we find lots of shockingly high-quality junk yards, trailer parks, pawn shops, trash-pickup companies, storage units, and funeral homes. They’re recession-proof cash cows. 

Right at the top of the list of high-yielding stocks is StoneMor Partners (STON), an MLP focused on cemetery operators. Throughout the last five years, STON has consistently yielded 10%-11%, which is why the market currently pays so much for its earnings. (Remember, EV/EBITDA is a measure of how much the market is willing to pay for each dollar of earnings. A good rule of thumb is that less than 10 is cheap and more than 20 is pricey… STON is pushing 48.)

The list above also has a REIT focusing on senior housing (which, some would say, also fits into the “unattractive” business category), and six MLPs related to the booming U.S. oil and gas industry. The only traditional company – that is, not a REIT or MLP – is the tobacco company, Vector… another “dirty” business.

But current yield is only part of the equation. We want to “look back, then look forward.” So next, let’s check out the last five years of dividend history. The table below shows the most aggressive dividend raisers in the Top 180 over the past five years.

‘LOOKING BACK’ Most Aggressive Dividend Raisers within the ‘Top 180′
Company Ticker  Corp Structure 
Recent
Price
Current Dividend Yield 2008 Annual Dividend Current Annual Dividend Annualized Dividend Growth Rate
Lorillard LO  Corp $60.48 3.8% $0.61 $2.20 29%
Williams Companies WMB  Corp $58.66 2.6% $0.43 $1.44 27%
Hanover Insurance THG  Corp $62.61 2.2% $0.45 $1.36 25%
Western Gas WES  MLP $77.39 3.1% $0.76 $2.28 25%
Prudential Financial PRU  Corp $90.30 2.1% $0.58 $1.73 24%
CMS Energy CMS  Corp $30.49 3.4% $0.36 $1.02 23%
Tupperware TUP  Corp $75.78 3.4% $0.88 $2.48 23%
Darden Restaurants DRI  Corp $44.49 4.9% $0.80 $2.20 22%
Wisconsin Energy WEC  Corp $45.48 3.3% $0.54 $1.45 22%
Target TGT  Corp $60.73 2.8% $0.62 $1.65 22%
Lockheed Martin LMT  Corp $168.10 3.1% $1.83 $4.78 21%
Texas Instruments TXN  Corp $48.20 2.4% $0.41 $1.07 21%
El Paso Pipeline EPB  MLP $36.20 7.0% $1.01 $2.55 20%
Equity Lifestyle ELS  REIT $44.72 2.1% $0.40 $1.00 20%
Digital Realty DLR  REIT $63.17 5.0% $1.26 $3.12 20%
Harris Corp HRS  Corp $73.10 2.2% $0.60 $1.48 20%
Safeway SWY  Corp $34.83 2.4% $0.32 $0.78 20%

For purposes of compiling this list, I left out some companies that initiated their first dividend in 2008… as those “growth rates” were distorted.

You’ll notice an Investment Advisory holding at the top of this list – cigarette maker Lorillard (LO). That’s no coincidence.

I’m not going to cover all the companies, but if you review the list, you’ll see it’s peppered with energy MLPs, along with some blue-chip companies and a couple of REITs.

Now, let’s “look forward” and make some conservative estimates as to how much these companies will be paying investors in the future.

This is not a perfect science… but it’s critical. Think about it. Income investors need to take a long-term outlook – you can’t enjoy the power of compounding and sloth if you demand instant gratification.

But while current yield is the most common metric reported to potential income investors… it may obscure superior income investments.

For example, let’s assume an investor, “Mary,” is considering buying a company called Acme Corp., which has a current yield of 2%. That’s decent, but not enough to really excite most income seekers.

Mary has “looked back” and sees Acme is in an industry with major tailwinds. And it has consistently raised dividends by 20%-25% per year since 2008. While this pace isn’t sustainable, Mary thinks annual dividend raises of 10%-15% per year are realistic for at least five to 10 years given the company’s prospects and continued strength in the industry.

At that rate, by Year 7, Acme will be yielding around 5% based on what Mary would pay for shares today… more than double the 2% yield published on all the mainstream financial websites. By Year 10, the investment could be yielding around 8%.

As a long-term investor, “estimated future yield” gives you a better idea of how much cash your equity investment will bring in over the long term.

Now let me show you one more table drawn from our Top 180 Dividend Raisers. You’ll notice an “estimated future yield” column. I based this estimate on some relatively conservative assumptions of future dividend growth, assuming that the rate of growth will shrink over time…

‘LOOKING FORWARD’ Highest Estimated Dividend Yield (10 year horizon)
Company Ticker  Corp Structure 
Recent
 Price
EV/
EBITDA*
Current Dividend Yield Estimated Dividend Yield Sector
El Paso Pipeline EPB  MLP $36.20 11.5 7% 14% Energy
Vector Group VGR  Corp $20.75 11.1 8% 12% Cigarettes
Amerigas APU  MLP $46.05 10.2 7% 12% Energy
Kinder Morgan Energy KMP  MLP $84.50 11.4 6% 10% Energy
Darden Restaurants DRI  Corp $44.49 10.5 5% 10% Restaurant
Digital Realty DLR  REIT $63.17 16.3 5% 10% Specialized REIT
Holly Energy HEP  MLP $33.81 13.9 6% 9% Energy
Oneok Partners OKS  MLP $57.97 16.2 5% 8% Energy
Alliance Resources ARLP  MLP $48.57 6.0 5% 8% Energy
Omega Healthcare OHI  REIT $38.45 16.7 5% 8% Health
Realty Income REIT $45.29 20.8 5% 8% Specialized REIT
Alliance Holdings AHGP  MLP $70.04 7.4 5% 8% Energy
Lorillard LO  Corp $60.48 11.7 4% 7% Cigarettes
Phillip Morris PM  Corp $85.08 11.6 3% 7% Cigarettes
Reynolds America RAI  Corp $57.16 11.6 4% 7% Cigarettes
CMS Energy CMS  Corp $30.49 8.5 3% 7% Energy
Targa Resources NGLS  MLP $68.84 14.8 4% 7% Energy
Tupperware TUP  Corp $75.78 10.7 3% 7% Consumer Goods
Wisconsin Energy WEC  Corp $45.48 10.3 3% 7% Energy
* represents trailing 12-month figure

As I often say, this is not a shopping list for stocks. It’s a starting point for research. Many of these may be excellent long-term holdings, but you have to know the business and its sector well before you make an investing decision.

The table above includes a couple of companies we wouldn’t touch right now and some that could get in trouble should the economy turn sour. (Darden Restaurants, for example, owns Red Lobster, Longhorn Steakhouse, and other casual restaurant chains… not a recession-proof business.)

But let’s look at how using this list can maximize your income and long-term results. Here’s a real-life example of how to use this estimate…

You’ll find Consolidated Edison on just about every list of income-producing winners. It’s a great company with a nearly 200-year-old history. As a public utility, it operates in a monopoly and yields 4%.

But it doesn’t make that last list. Instead, a couple of other utilities you might not know show up: Wisconsin Energy and CMS Energy.

ConEd is the largest company – about the size of Wisconsin Electric and CMS Energy combined. And ConEd’s current corporate entity has a longer track record of dividends… but Wisconsin Electric and CMS Energy are not exactly risky micro-caps. They are both modern corporate descendants of companies that have been providing electricity to the upper Midwest since the 1800s.

All three companies operate in the same industry, and trade for reasonable EV/EBITDA ratios of 8-10. So why would an income-focused investor prefer Wisconsin Energy or CMS? Well, as the table below demonstrates… the Midwestern utilities’ “estimated future yield” is actually 7%, vs. 5% for Consolidated Edison.

Utility History of uninterrupted dividends Current Yield Annualized Dividend
Growth Rate
(Looking Back)
Estimated Future Yield (Looking Forward)
Consolidated Edison 1980-present 4% 1% 5%
Wisconsin Electric 1987-present 3% 22% 7%
CMS Energy 2007-present 3% 23% 7%

At this point, I know what you’re asking: “So what? That’s an awful lot of work to eke out an extra 2%.”

Well, here’s where the power of compounding and doing nothing takes over… Any time you compounding your returns over an extended time period, every percentage point makes a huge difference.

To illustrate this point, let’s assume two companies have the same share price ($100). Company A yields 5% ($100 per share, with a $5 dividend). Company B yields 7%.

If everything else about the companies stays the same – including the share price – here’s how a 100-share, $10,000 investment in each would fare over 30 years…

  • Company A: 432 shares worth $100 each = $43,200
  • Company B: 761 shares worth $100 each = $73,100  

What was a measly 2% difference has compounded into an extra $30,000… or 76% more money. And again, this spread will only increase as the years pass.

So when the table above demonstrates a 7% yield vs. a 5% yield… you’re actually talking about some big numbers, assuming you plan on using the one-two punch of reinvesting dividends and being patient.

My colleagues Dan Ferris and Dr. David “Doc” Eifrig have written as much as anyone about the power of investing in “dividend growers.” Doc’s Income Intelligence maintains a portfolio of high-quality blue-chip stocks that have consistently grown their dividends this way. You can learn more about Doc’s service here.

You’ll also find several of these companies in the model portfolio of Stansberry’s Investment Advisory… The “capital efficient” companies we covet are frequently dividend-raisers as well. When your business piles up cash the way McDonald’s and Wal-Mart do… you can afford to steadily increase what you return to shareholders.

Lastly, I’d like to draw your attention to a completely free resource for anyone who’s serious about “looking back, then looking forward.” Standard & Poor’s “Dividend Aristocrats” is a list of companies that have increased dividends every single year for the past 25 years. As of June 30, there are only 54 names on this list.

Our Editor in Chief Brian Hunt has described it as a “cheat sheet” for finding world-class stock investments. These companies are the biggest and strongest in the world, which is why they can afford to raise their dividend every year.

There are few “undiscovered” treasures on this list. The names will be familiar. So you may have to be patient and wait for their prices to come back to you. But assuming you buy at a reasonable price, almost any stock on this list would be an outstanding candidate for the “reinvest and do nothing” strategy.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on Consider this is a "cheat sheet" for finding the world’s greatest dividend investments

Apple could be looking to recreate its “iPhone magic” next month

From Bloomberg:

Apple Inc. (AAPL) is seldom first with new technologies, yet it has been able to create huge product categories. The company did that with iPods for the MP3 player market in 2001, iPhones for the smartphone industry in 2007 and iPads for tablets in 2010.

Now the Cupertino, California-based company will attempt to repeat that feat in wearables, an emerging group of devices that track people’s activity and health. Apple will introduce a wearable gadget along with new iPhones on Sept. 9, a person with knowledge of the plans said. Notices for the event, which will also take place in Cupertino, were sent out today.

Apple declined to comment beyond the e-mailed invitation, which said: “Wish we could say more.”

While companies such as Fitbit Inc. and Jawbone have made some headway introducing wearables to the public, global sales of the activity trackers hit just 13.6 million units last year, according to researcher Parks Associates. That’s about the number of iPhones Apple sells in a month, giving Chief Executive Officer Tim Cook room to boost the size of the market.

The new device also will give the clearest sign yet of where the company is headed without Steve Jobs at the helm. Cook, who took over almost three years ago to the day, has been under pressure to show that the company will continue to deliver breakthrough products.

“How he’s perceived in the next few years will be decided in the next four months,” said Gene Munster, an analyst at Piper Jaffray Cos., who has the equivalent of a buy rating on Apple’s stock.


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Small Impact

Apple will give the new wearable a boost by pairing its debut with its flagship product, the iPhone. The company also may be trying to manage expectations for the new device, signaling that it’s more of an accessory instead of a category that stands by itself. By contrast, when the iPad was introduced in 2010, Apple held a special event just for that product.

A wearable device also isn’t likely to make a big impact on Apple’s balance sheet anytime soon. Katy Huberty, an analyst at Morgan Stanley, said in July that Apple may sell 30 million to 60 million wearables at an average price of $300, generating at least $9 billion in additional sales.

That would be have been a big boost for the company when the iPhone became available in 2007, when annual revenue was $24.6 billion. Now, analysts are predicting sales of $180.2 billion for the current fiscal year that ends next month. Apple has simply become too big for a new product like this to have a significant and immediate financial impact.

Major Milestone

Still, anticipation for the event has given Apple’s shares a lift. Already the world’s largest company by market value, Apple shares closed at record today of $102.25, up 28 percent this year.

For veteran Apple watchers, the company’s decision to introduce the product at the Flint Center for the Performing Arts near its headquarters is a sign that the company sees this as major milestone.

The venue is the same spot where Jobs introduced the Macintosh computer in 1984 and then the colorful iMac, which spurred a revival of the company in the late 1990s that has lasted until now.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on Apple could be looking to recreate its “iPhone magic” next month

This bull market is “leaving the station.” This could be your last great chance to get on board.

From Jeff Clark, editor, S&A Short Report: 

Chinese stocks are in a brand-new bull market.

The Shanghai Stock Exchange Composite Index (the “SSEC”) – China’s version of the Dow Jones Industrial Average – is up around 8% in less than a month. It’s up around 10% since we told you about Chinese stocks back in May.

And there are much larger gains ahead.

But after such a big run-up in a short amount of time, the SSEC is likely to suffer a brief pullback. And that’s when traders will have a chance to buy…


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Take a look at this chart of the SSEC…

You can see the terrific rally that followed the breakout of the consolidating-triangle pattern (the blue lines) last month. The SSEC moved straight up to last December’s high, where it hit resistance and pulled back.

Now take a look at the SSEC’s 50-day moving average (DMA). The 50-DMA often serves as a magnet for stock prices. A stock rarely moves too far above or below its 50-DMA without coming back and testing the line as either support or resistance.

As you can see in the chart, it’s rare for the SSEC to move more than 5% or so away from its 50-DMA. But after last month’s big breakout, the SSEC was nearly 10% above its 50-DMA. That’s too big of a move too soon. So now the SSEC is coming back down… And it will likely test its 50-DMA as support.

Traders should look to buy at that point.

China is in the early stages of a bull market. And there are big gains ahead. As I wrote last month, the SSEC could rally to 2,500 over the next few months. So traders should use any short-term weakness in Chinese stocks as a chance to get onboard.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on This bull market is “leaving the station.” This could be your last great chance to get on board.

Attention: This could be the first “nail in the coffin” of the U.S. dollar

From Zero Hedge:

Several months ago, when Russia announced the much anticipated “Holy Grail” energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar’s stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a U.S. Dollar reserve currency, neither is yet able to provide an alternative.

This changed in late June when first Gazprom’s CFO announced the gas giant was ready to settle China contracts in Yuan or Rubles, and at the same time the People’s Bank of China announced that its Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin held a meeting in which they discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance, and financial supervision sectors.

And yet, while both sides declared their operational readiness and eagerness to bypass the dollar entirely, such plans remained purely in the arena of monetary foreplay… and the long awaited first shot across the Petrodollar bow was absent.

Until now.

According to Russia’s RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfers.

Meaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is concerned, but most importantly, transact completely away from the U.S. dollar thus, finally putin’ (sic) in action the move for a Petrodollar-free world.

More on this long awaited first nail in the petrodollar coffin from RIA:

The Russian government and several of the country’s largest exporters have widely discussed the possibility of accepting payments in rubles for oil exports. Last week, Russia began to ship oil from the Novoportovskoye field to Europe by sea. Two oil tankers are expected to arrive in Europe in September.

According to Kommersant, the payment for these shipments will be received in rubles.

Gazprom Neft will not only accept payments in rubles; subsequent transfers via the ESPO may be paid for in yuan, the newspaper reported. 

According to the newspaper, the change in currency was made because of the Western sanctions against Russia.

As a protective measure, Russia decided to avoid making its payments in U.S. dollars, which can be tracked and controlled by the United States government, Kommersant reported.

“Protective measure” meaning that it was the U.S. which managed to [shoot itself in the foot] by pushing Russia to transact away from the U.S. Dollar, in the process showing the world it can be done, and slamming the first nail in the petrodollar’s coffin.

This is not surprising to anyone who has been following our forecast of the next steps in the transition from the Petrodollar to the Gas-O-Yuan. Recall from April:

The New New Normal flow of funds:

    1. Gazprom delivering gas to China.
    2. China Gazprom paying in Yuan (convertible into Rubles).
    3. Gazprom funding itself increasingly in Yuan.
    4. Russia buying Chinese goods and services in Yuan (convertible into Rubles).

And all of this with the U.S. banker cartel completely disintermediated courtesy of the glaring absence of the USD in any of the above listed steps, or as some may call it: from the Petrodollar to the Gas-o-yuan (something 40 central banks have already figured out… just not the Fed).

Still confused? Then read “90% Of Gazprom Clients Have “De-Dollarized”, Will Transact In Euro & Renminbi” for just how Gazprom set the stage for the day it finally would push the button to skip the dollar entirely…

Which it just did.

In conclusion, we will merely say what we have said previously, and it touches on what will be the most remarkable aspect of Obama’s legacy, because while the hypocrite “progressive” president ? who even his own people have accused of being a “brown-faced Clinton,” after selling out to Wall Street and totally wrecking U.S. foreign policy abroad ? is already the worst president in a century of U.S. history according to public polls, the fitting epitaph will come when the president’s policies put an end to dollar hegemony and end the reserve currency status of the dollar once and for all, thereby starting the rapid, and uncontrolled, collapse of the U.S. empire. To wit:

In retrospect it will be very fitting that the crowning legacy of Obama’s disastrous reign, both domestically and certainly internationally, will be to force the world’s key ascendent superpowers (we certainly don’t envision broke, insolvent Europe among them) to drop the Petrodollar and end the reserve status of the U.S. currency.

As of this moment, both Russia and China have shown not on that it can be done, but it is done. Expect everyone to jump onboard the new superpower axis bandwagon soon enough.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on Attention: This could be the first “nail in the coffin” of the U.S. dollar

Heads up… This big commodity “shutdown” is just around the corner

From Pierce Points:

A brief news item yesterday may be one of the most important happenings in commodities for years.

The coming shutdown of one of the largest uranium mines on the planet.

I noted a few weeks back that workers at Cameco’s McArthur River uranium mine in northern Canada were contemplating labour action. And yesterday that threat came to fruition ? with the major uranium company announcing that mineworkers’ unions have authorized a full strike.

It appears this action is going to bring McArthur River to a complete standstill. With Cameco saying it is now initiating shutdown activities at the mine, and the associated Key Lake uranium processing facility.

The strike is officially slated to begin on August 30. So it looks like production here will now taper off, leading up a full stop by that date.

As I mentioned previously, it’s hard to understate the effect this stoppage could have on uranium supply. Given that McArthur River is one of the world’s largest and richest uranium producers, currently putting out nearly 15% of global supply itself.

Interestingly, uranium prices have been rising the last few weeks. Up over 10% since the beginning of August, when news of the potential strike action at McArthur began to surface ? currently selling for $31 per pound.

This is the most notable increase in prices the uranium market has seen for years (albeit from a very low base, with prices having recently fallen to a near-decade low of $28). Suggesting that buyers are paying close attention to the events at McArthur, and the potential effects on global uranium supply.

Cameco noted that it is continuing discussions with mineworkers over the next 72 hours leading into the strike. So a last-minute solution is still a possibility.

But absent such a five-to-midnight deal, supply and demand is about to get much tighter in this space.

Saturday, August 30th, 2014 Invest, News, Wealth Comments Off on Heads up… This big commodity “shutdown” is just around the corner

Attention: This could be the first "nail in the coffin" of the U.S. dollar

From Zero Hedge:

Several months ago, when Russia announced the much anticipated “Holy Grail” energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar’s stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a U.S. Dollar reserve currency, neither is yet able to provide an alternative.

This changed in late June when first Gazprom’s CFO announced the gas giant was ready to settle China contracts in Yuan or Rubles, and at the same time the People’s Bank of China announced that its Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin held a meeting in which they discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance, and financial supervision sectors.

And yet, while both sides declared their operational readiness and eagerness to bypass the dollar entirely, such plans remained purely in the arena of monetary foreplay… and the long awaited first shot across the Petrodollar bow was absent.

Until now.

According to Russia’s RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfers.

Meaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is concerned, but most importantly, transact completely away from the U.S. dollar thus, finally putin’ (sic) in action the move for a Petrodollar-free world.

More on this long awaited first nail in the petrodollar coffin from RIA:

The Russian government and several of the country’s largest exporters have widely discussed the possibility of accepting payments in rubles for oil exports. Last week, Russia began to ship oil from the Novoportovskoye field to Europe by sea. Two oil tankers are expected to arrive in Europe in September.

According to Kommersant, the payment for these shipments will be received in rubles.

Gazprom Neft will not only accept payments in rubles; subsequent transfers via the ESPO may be paid for in yuan, the newspaper reported. 

According to the newspaper, the change in currency was made because of the Western sanctions against Russia.

As a protective measure, Russia decided to avoid making its payments in U.S. dollars, which can be tracked and controlled by the United States government, Kommersant reported.

“Protective measure” meaning that it was the U.S. which managed to [shoot itself in the foot] by pushing Russia to transact away from the U.S. Dollar, in the process showing the world it can be done, and slamming the first nail in the petrodollar’s coffin.

This is not surprising to anyone who has been following our forecast of the next steps in the transition from the Petrodollar to the Gas-O-Yuan. Recall from April:

The New New Normal flow of funds:

    1. Gazprom delivering gas to China.
    2. China Gazprom paying in Yuan (convertible into Rubles).
    3. Gazprom funding itself increasingly in Yuan.
    4. Russia buying Chinese goods and services in Yuan (convertible into Rubles).

And all of this with the U.S. banker cartel completely disintermediated courtesy of the glaring absence of the USD in any of the above listed steps, or as some may call it: from the Petrodollar to the Gas-o-yuan (something 40 central banks have already figured out… just not the Fed).

Still confused? Then read “90% Of Gazprom Clients Have “De-Dollarized”, Will Transact In Euro & Renminbi” for just how Gazprom set the stage for the day it finally would push the button to skip the dollar entirely…

Which it just did.

In conclusion, we will merely say what we have said previously, and it touches on what will be the most remarkable aspect of Obama’s legacy, because while the hypocrite “progressive” president ? who even his own people have accused of being a “brown-faced Clinton,” after selling out to Wall Street and totally wrecking U.S. foreign policy abroad ? is already the worst president in a century of U.S. history according to public polls, the fitting epitaph will come when the president’s policies put an end to dollar hegemony and end the reserve currency status of the dollar once and for all, thereby starting the rapid, and uncontrolled, collapse of the U.S. empire. To wit:

In retrospect it will be very fitting that the crowning legacy of Obama’s disastrous reign, both domestically and certainly internationally, will be to force the world’s key ascendent superpowers (we certainly don’t envision broke, insolvent Europe among them) to drop the Petrodollar and end the reserve status of the U.S. currency.

As of this moment, both Russia and China have shown not on that it can be done, but it is done. Expect everyone to jump onboard the new superpower axis bandwagon soon enough.

Friday, August 29th, 2014 Invest, News, Wealth Comments Off on Attention: This could be the first "nail in the coffin" of the U.S. dollar

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